Apr 28, 2017
Rescission claims are usually fun and interesting claims to litigate. Almost always a rescission is based on the insurer’s argument that the applicant/insured misrepresented their health history on the application for coverage. Knowing that the insurer’s temptation to claim misrepresentation and attempt to rescind may be strong, state legislatures and courts place the burden of showing that the facts exist to justify rescission in any particular case on the insurer. The burden of proof being on the insurer and the number of factual and legal prerequisites to carrying that burden are big reasons these cases are interesting and worthwhile.
Let me be clear: there’s no question that many situations exist in which insurers should be allowed to rescind. If someone knowingly lies about their health history on an insurance application to get coverage when they know they are uninsurable, rescission should be allowed. And I’m sure that happens. That is not the "good rescission case" I refer to in the title of this post.
A "good" rescission case from my perspective is one where the insurer is out on a limb in proving the elements of rescission to sustain their burden of proof. That’s often the case in my experience. For example, before it will be allowed to rescind coverage an insurer must prove that a misstatement on an insurance application was "material." The failure to disclose the existence of a visit to a podiatrist to treat athlete’s foot in the three years before applying for coverage will not justify rescission of the policy when a month after it goes into effect the applicant has a stroke and spends six weeks in intensive care. Likewise, in many jurisdictions, if an applicant makes a purely innocent misstatement of her health history, this does not provide the insurer with a basis to rescind. Derbidge v. Mutual Protective Ins. Co, 963 P.2d 788 (Utah App. 1998). In addition, there are often short time frames within which, after it obtains information to provide the basis for rescinding, an insurer must give notice of its intent to rescind. If it blows the time frames, it can’t rescind.
In addition, usually you will want to get the insurer’s underwriting guidelines. How can you know if the misstatement was "material" if the insurer won’t produce its underwriting guidelines to verify that contention? Insurers fight against disclosing them; they argue the underwriting guidelines are confidential and proprietary. But unless there is an obviously material misstatement, there is little question that when you are appealing a rescission you are entitled to review the underwriting guidelines to independently determine whether they support the insurer’s argument that the misstatement was material. And the usual stonewalling that precedes getting those guidelines (insurers, get a clue: resistence is futile) often provides ammunition in asking the court to award attorneys fees.
A good rescission case is kind of like getting that pair of pants you haven't worn in a few months out of the closet, putting them on and finding a $20 in the pocket.
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