Recission of Insurance Contracts

Grounds for Recission of the Insurance Contract:

1.) Concealment

2.) Misrepresentation

3.) Breach or warranty

The right to rescind can be waived if the insurer continues to accept premium payments even if he knew any of the grounds to rescind the contract were present.

Limitations on the Insurer's Right to Rescind:

1.) Non-life insurance

The right must be exercised before an action (in court) on the contract begins.

2.) Life insurance

The right must be exercised during the first 2 years from the policy's date of issue or its last reinstatement. There must be no court action yet. After 2 years and the insurer can't prove that is was void ab initio or there was fraudulent concealment or misrepresentation it becomes incontestable. Life insurance policies become incontestable if they've been in force for at least 2 years from the date of issue or last reinstatement

Theories of Incontestability

For the insurer- the insurer is supposed to have a reasonable opportunity to investigate the statements and claims of the applicant. After the required period to investigate, the insurer can't question the policy's validity by an affirmative action or by defense to a suit brought by the beneficiary of a life policy.

For the insured- the greatest possible assurance as to the policy's validity must be given to the policyholder that his beneficiaries will unquestioningly receive payment or the existence of the coverage once the period of contestability expires.

The following defenses aren't barred by incontestability:

1.) The person taking the insurance lacks insurable interest

2.) The cause of the death of the insured is an excepted risk

3.) The premiums weren't paid

4.) Conditions of the policy relating to military or naval service were violated

5.) The fraud is of a particularly vicious type

6.) Failure of the beneficiaries to produce proof of death or comply with any conditions imposed by the policy after th loss happened

7.) The action wasn't brought during the specified time