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By Ed Sneineh
Many people heard of some awful stories about car insurance firms refusing to pay some car insurance claims based on definite ‘findings’ linked to the insured people. The problem that is asked very often: Does the insurance company have the rights to invalidate a car insurance policy after it policy is issued and even before a claim is paid? And if so, what are the situations under which an insurance company may withdraw an auto policy from the initial date of the policy? Before answering these questions, we need to be updated on a primary principle in the insurance business: The Principle of Utmost Good Faith. In Latin, this principle is also called uberrimae fidei.
The Principle of Utmost Good Faith is related to the doctrine underlining most financial contracts which require certain minimum standard from parties of the contract (ie the client and the insurance company) to act honestly toward each others, not to mislead, and not to withhold critical information from each others. That requires the insurance company, for example, to disclose its financial data, its claims procedures, etc. At the same time, the insured is required to disclose all pertinent information about self or about the subject of insurance, answer all questions in a truthful manner.
If a party to the contract breaches this doctrine and acts purposely in a different manner, then the other party will have the right to nullify the contract, or rescind the contract, or canceling the contract from the beginning like it never took place. Nullifying an insurance policy after a loss can be devastating not only to the person(s) insured, but also to other people that might have been involved in the car accident.
Answering the question above we can conclude that the car insurance company does indeed have the right to cancel the policy from the date of inception (the date the car insurance started, like no insurance has ever taken place.) The following are major reasons why insurance companies may do that:
A. Acts of Fraud. If an individual purchases a car insurance policy with the objective of tricking the insurance company then the insurance company has the rights to rescind (nullify) that policy. If someone pays for a full coverage automobile insurance contract on a car that is badly smashed with the intent of making claims on that damage later then this will be classified as fraud. In cases like this one the insurance company may also report this to the local authority for further examination. Deliberately hiding facts may be dubbed as fraud.
B. Misrepresentation. A representation is a statement made by the automobile insurance applicant(s) in the process of purchasing the car insurance policy. There are a few questions pertaining to age, gender, marital status, other drivers in the household, and driving history & records on the application. If the misrepresentation is material then the insurance carrier may have the right to nullify the contract.
What is a material representation? A material misrepresentation is related to the assumption that if the facts and truths were known by the insurance company, then the insurance carrier either would not have issued the policy at all, or would have issued it with different conditions and terms, and most likely would have charged the insured person(s) higher premiums. With that definition in mind, failure to report all modification of the insured vehicles, not disclosing youthful operators (under age 25) in the same household as well as failure to disclose motor vehicles activities related to the driving histories of all the people listed on the application, are all examples of material misrepresentations.
Insurance Fronting: Almost everyone knows that youthful drivers (broadly known as drivers under age 25 years) are charged higher premiums than other operators. If an insurance policy is procured under the parent’s name, while the driver is a young one then this is called fronting, and insurance carriers under these conditions do have the rights to rescind and nullify the insurance policy. While many companies pay for claims resulting from undisclosed youthful operators, others (especially if the claim is big) will fight and declare policy null and void (rescind policy.) This discussion about your auto insurance applies to your SR22 insurance policies and the non-owner insurance contract. All of these contracts are bound by the same rules.
It is forever better to tell all the details and facts when buying a car insurance policy because failure to do so may end resulting in you paying to accident’s claim from your own sack.
About the Author: Ed Sneineh, insurance professional for over 20 years, former college educator of insurance, and founder of Insurance Navy, a leader in providing Cheap car insurance quotes Chicago. Visit our website and get your Cheap SR22 insurance Illinois in 5 minutes or less. Insurance Navy represents major carriers such as AAA, Travelers, Progressive, Hartford, and more than 20 other carriers.
Source: isnare.com
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