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Why Insurance Companies Deny Claims

Alfred M. Kwinter
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Material Misrepresentation

As a law firm representing members of the public whose insurance claims have been denied, we are used to seeing the same defences being raised again and again by insurance companies when it is time to pay a claim.  One of the most frequently seen defences used by insurance companies when denying payment under the policy is “material misrepresentation.”  What that basically means is that the policyholder, when applying for insurance, made a statement or withheld information which materially misrepresented to the insurance company the risk that it was insuring.  The insurance company is saying that had it known the true state of affairs it would not have taken on the risk.  Examples of frequently seen cases where material misrepresentation is raised include:

(i)          insuring a property which is a rooming house as a single family dwelling.  As such a policy is much cheaper.  Furthermore, some insurance companies will not insure rooming houses.

(ii)         not revealing on a life insurance or disability insurance application a past illness or current treatment for an illness;

(iii)        failure to truthfully disclose past losses or claims.

Material misrepresentation can best be “established where the policyholder has completed an application and the answer to a question is clearly false.  I say “clearly” because when dealing with insurance, any ambiguity in a policy or an application must usually be resolved in favour of the policyholder.   When the question is not clear then any dispute involving how the policyholder answered that question will usually be resolved in favour of the policyholder.

Very often we see applications where a question is asked, a wrong answer is given but the policyholder denies ever giving that answer.  The reason often is that it was not the policyholder who completed the application but the insurance agent or broker. Questions are answered usually by way of checking off boxes denying any frequent losses or illnesses.  The policyholder, however, denies ever being asked the question and states that the broker or agent filled out the application without ever asking the policyholder the questions. In such cases, we often sue the agent or broker in addition to the insurance company.

An insurance company will accept the policyholder’s premiums for years and not worry whether the application is correct or not.  The issue will only arise once a claim is made. At that point, the application will be put under a microscope and the insurer will carefully review the application for any statement which is not completely true.  If any such statement is found, very often the coverage will be denied and the insured will be left to his or her own resources. In the event of a major loss this can be a devastating experience.

The lesson to be learned is to be candid, up front and truthful when applying for insurance, ensure that the application is properly reviewed when filled out by someone other than the policyholder and if the claim is denied, make sure you get expert legal assistance.

Singer Kwinter has been representing policyholders whose claims have been denied for forty years.

The content of this article or blog posting is of a general nature and does not constitute legal advice. It is not intended to be a full or complete analysis of the topic. Before applying the concepts or any content of this article or blog it is imperative that you consult your legal advisor.

Neither the author of this article or Singer Kwinter can accept any responsibility for financial loss nor gain of any nature should the reader not take advice from their legal advisor.

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