Denying Your Health, Disability or Life Insurance Claim By Canceling Your Insurance
UPDATED: June 19, 2018
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When you apply for life, health or disability income insurance, the insurance company underwrites your application. Once you and/or your agent complete an application and send it in to the insurance company, the company must decide whether to insure you for the risk for which you applied. To do this, the company has a team of specialists, called underwriters, who help make that decision. An underwriter uses the information on your application as a starting point to help assess the risk and decide whether or not to issue a policy, on what terms and for what premium.
This risk assessment, because of the nature of the insurance contract relationship, should be done prior to issuance of a policy and definitely prior to you incurring a loss eligible for coverage under the issued policy. This sequence of completing underwriting before issuance of your policy is necessary and appropriate. It allows the insurance company to make the risk assessment needed to decide whether to assume the risk, and issue the policy, and to decide the appropriate premium to cover the risk.
Completing underwriting before a policy is issued also enables you to determine whether the cost of the protection is acceptable. Also, and this is very important, if you decide to accept the offer and purchase the insurance, you can be assured that, in the event of a loss, there will be coverage. This is one of the most important aspects of insurance – not just that there is protection against loss, but that you are secure in your knowledge that there is coverage and that you don’t have to do anything else to protect yourself against losses.
The courts have approved this traditional, and logical, sequence of completing underwriting before the policy is issued. The courts have said that an insurance company has an obligation to you, the insured, to do its underwriting at the time a policy application is made, not after a claim is filed.
Post claim underwriting reverses the established sequence of underwriting. When an insurance company engages in post claim underwriting, it waits until a claim has been filed to obtain essential information and then makes the underwriting decisions that should have been made when the application for insurance was made. In other words, the insurance company fails to assess your eligibility for insurance, according to the risk you present, until after your insurance has been purchased and you have filed a claim. Although the insurance company may ask for some underwriting information in your application, before it issues your policy, it does not follow up on that information until a significant claim is filed. Only after you submit a claim does the insurance company review your application and request additional information to see whether you could have been excluded from coverage.
If, after submitting a claim, you find yourself with a letter from the insurance company suggesting that it may cancel, or rescind, your policy based on an alleged misrepresentation in your application, and, as a result, will not pay your claim, you should immediately contact an attorney who is well versed in this area.