CHAPTER § 5.07 Applying for Insurance

JurisdictionUnited States

§ 5.07 Applying for Insurance

[1] Application Process

Like all contracts, an insurance contract requires both offer and acceptance.185 The offer happens when an applicant returns a completed application to the insurer.186 The applicant must thoroughly and truthfully complete the application. An omission or falsehood could hinder, or even prevent, an insured's recovery.187 If the potential insured changes its mind about wanting to bind coverage, it can withdraw the application any time before the insurer accepts.188

Once accepted, the application often becomes part of the insurance contract.189 This means the application's terms remain binding on both the insured and the insurer.190 The application terms are subject to the same rules of construction and interpretation as any contract.191

[2] Working with Brokers to Benchmark and Negotiate Terms

Insurance brokers usually operate as independent third parties who negotiate on the insured's behalf with the insurer.192 Brokers' knowledge of the insurance market and common trends may help them negotiate for more favorable policy and benchmark terms than those proposed by insurers.193 Insureds typically work with their brokers to evaluate how much insurance coverage they need for various types of risks.

Because a broker is the insured's agent while procuring insurance, it must act according to the insured's instructions.194 Absent clear instructions, however, a broker may exercise its discretion when acting on the insured's behalf.195 At all times, whether following clear instructions or exercising its discretion, a broker must exercise skill, care, and good faith.196

[3] Rescission

If an insured procured their policy through fraud or misrepresentation, the insurer may seek rescission of the entire contract.197 This concept often comes into play once a claim arises, as an insurer may attempt to rescind an insurance policy if the insurer can demonstrate that the insured intentionally made a material misrepresentation or omission upon which the insurer relied in accepting risk under the policy.198

The insurer should seek rescission "without unreasonable delay upon learning the grounds for rescission."199 If, however, the insurer "fails to rescind the policy promptly" upon learning of the grounds for rescission, it may have waived the right to rescind.200 Further, an insurer who rescinds an insurance contract for fraud must rescind it in its entirety.201


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Notes:

[185] 1A Plitt, Couch on Insurance, N.19 supra, ...

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