An insurer has an obligation to its insureds to do its underwriting at the time a policy application is made, not after a claim is filed… . The insurer controls when the underwriting occurs. It therefore should be estopped [barred] from determining whether to accept an insured six months or more after a policy is issued. If the insured is not an acceptable risk, the application should be denied up front, not after the policy is issued.

This court’s position upholds the need for a logical sequence to the underwriting process. This sequence requires the insurance company to underwrite after it has completed its risk assessment and before a claim has been filed, thus permitting the insurance company to determine the likelihood of a loss, and also protecting the reasonable expectation that the insured will be covered in the event of a loss. Otherwise, the insurance company is free to sift through a medical history after a claim has been filed, searching for that inevitable detail that will yield an arguable basis for an after-the-fact reversal of the issuance of the policy. This practice of post claim underwriting is inconsistent with the implied covenant of good faith and fair dealing in insurance contracts. If the courts and statutes do not limit the practice, the insurance company is granted virtually uncontrolled discretion to refuse to honor its commitment to pay your claims when submitted.

An insurance company should not be able to simply “play the odds” by deferring underwriting until a claim is filed and then deciding, after the fact, that the policy should never have been issued in order to escape liability. If an insurance company chooses to insure a risk and issue a policy, without expending the resources and time to underwrite, it should be held to the consequences of its gamble. Similarly, an insured individual, whose reasonable expectation of coverage is frustrated by post claim underwriting, should be entitled to pursue a cause of action against an insurance company under a theory of bad faith settlement practices.

A fundamental function of contract law is to deter opportunistic behavior between contracting parties. The sequential character of economic activity permits such opportunism. This is true in insurance where you, the insured, pay premiums, but the insurance company may not have to even consider paying a claim until much later. One of the primary purposes of contract law is to protect you, the insured, from post claim underwriting which deprives you of a reasonable expectation of coverage when a claim is filed. See the article “Post Claims Underwriting—Fixing the Odds Against You”.

If you believe you have been unfairly deprived of coverage under an insurance policy that was issued to you and then rescinded (cancelled) in connection with a claim you filed, you should review the matter with an attorney. You may be able to get the rescission reversed and your claim paid.