2013 – Requirements for Establishing Defense of Misrepresentation – Cynthia L. Maskol – Maryland
MARYLAND
REQUIREMENTS FOR ESTABLISHING DEFENSE OF MISREPRESENTATION 1. Summary of Law
There have been no significant changes to the law in Maryland regarding Establishing the Defense of Misrepresentation since the 2005 Law Report. Consequently this report incorporates the 2005 report with minor edits and citations to additional statutes and case law.
The insurer must prove either (1) that the misrepresentations in the application were made with intent to deceive; (2) that they were material to the acceptance to the risk or to the hazard assumed by the insurer; or (3) that the insurer would not have issued the contract had it known the true facts. The insurer may rescind a policy regardless of whether the material misrepresentation is made intentionally, or through mistake and in good faith. Generally, the issues of falsity and materiality are questions of fact and Maryland courts have tended to decide these issues on the basis of the facts and circumstances in each particular case. However, the issue of whether misstatements in an application are false and material to the risk, and whether they are made in bad faith, may be resolved as a matter of law where the evidence offered by the insurer is clear and uncontradicted.
2. Statutes
All references are to the Insurance Article of the Maryland Code.
Ins. § 12-207 (1997).Statements in applications for life or health insurance or annuities.
(a) Each statement by or on behalf of the insured or annuitant in an application for the issuance, renewal, or reinstatement of a life insurance or health insurance policy or annuity contract is considered to be a representation and not a warranty.
(b) A misrepresentation, omission, concealment of facts, or incorrect statement does not prevent a recovery under the policy or contract unless:
(1) The misrepresentation, omission, concealment, or statement is fraudulent or material to the acceptance of the risk to the hazard that the insurer assumes; or
(2) If the correct facts had been known to the insurer, as required by the application for the policy or contract or otherwise, the insurer in good faith would not have:
(i) Issued, reinstated, or renewed the policy or contract;
(ii) Issued the policy or contract in as large an amount or at the same premium or rate; or
Ins. § 16-204 (1996).Contract between parties; effects of statements in application.
(a) Each policy of the life insurance shall contain a provision that the policy, or the policy and the application for the policy if a copy of the application is endorsed on or attached to the policy when issued, constitute the entire contract between the parties.
(b) If the application is made part of the policy, the policy shall contain a provision that the statements in the application, in the absence of fraud, are considered representations and not warranties.
3. Cases
Hofmann v. John Hancock Mutual Life Insurance Company(D. Md. 1975), 400 F. Supp 827.
TheHofmanndecision summarizes those cases in Maryland which have held that certain types of misrepresentations are material as a matter of law. The District Court granted summary judgment to the insurer where the uncontested evidence established undisclosed pre-application visits to physicians, heavy consumption of alcohol, heavy smoking, and diagnoses of an enlarged heart and liver and hypertension. The test of materiality adopted by Maryland’s District Court was whether a reasonable person would consider the fact, had it been communicated at the time of application, as substantially increasing the chances of the loss insured against. The District Court dismissed the beneficiary’s argument that the applicant had never been advised that he was an alcoholic as irrelevant.
George W. Holsey v. Ohio State Life Insurance Company,1994 U. S. App. Lexis 304442.
Applicant’s failure to disclose smoking on application for life insurance was material and entitled insurer to rescission and summary judgment as a matter of law.
Massachusetts Mutual Life Insurance Company,1996 U. S. App. Lexis 21438. Fourth Circuit affirmed the Maryland District Court’s judgment rescinding a disability policy on the basis that the applicant made material misrepresentations in his initial application for insurance.
Parker v. Prudential Insurance Company of America,900 F.2d 772 (4thCir. 1990). Rescission of a life insurance contract was warranted based on material
misrepresentation where an insured obtained a lower premium through misrepresentation about his smoking history.
Foreman v. Weston Reserve Life Assurance Co. of Ohio,716 F.Supp.879 (D. Md. 1989),aff’d, 898 F.2d 145 (4th Cir. 1990).
Failure of applicant to disclose epileptic seizures and related treatment is material misrepresentation justifying rescission of life insurance policy.
The National Life and Accident Insurance Company v. Gordon(Md. Ct. Spec. App. 1979), 411 A. 2d 1087.
Whether failure of life insurance renewal applicant to disclose hospitalization for treatment believed to be secondary to alcoholism was material was a question of fact for the jury.
Bryant v. Provident Life and Accident Insurance Company, 22 F. Supp. 2d 495 (D.Md. 1998).
Applicant for reinstatement’s failure to disclose sleep problems, mood swings, generalized anxiety or stress fatigue, cognitive dysfunction, joint and muscle pain, general weakness, and asthenia was material misrepresentation justifying rescission and summary judgment in favor of the insurer. “Where the materiality of a
misrepresentation to the risk is clear, the court may resolve the issue as matter of law.” Id.at 498 (citingFitzgerald v. Franklin Life Ins. Co.,465 F.Supp. 527, 535 (D.Md.1979), aff'd,634 F.2d 622 (4th Cir.1980)).
Other Cases: SeeHood v. Prudential Insurance Company, 758 F. Supp. 764 (D.D.C., 1991);Fitzgerald v. Franklin Life Insurance Co.465 F. Supp. 527 (D. Md 1979). PREVENTION OF INSURER FROM ASSERTING DEFENSE OF
MISREPRESENTATION 1. Summary of Law
The defense of misrepresentation is unavailable to the insurer if the information not disclosed on the application was made available to the insurer’s agent at the time the application was taken or prior thereto, or if the insurer’s agent knew the true facts with respect to the undisclosed information. The insurer will not be held to have waived the undisclosed information or to be estopped by it where the applicant knew, or reasonably should have known, that the true facts disclosed to the agent were not inscribed on the application, which was submitted to the insurer.
2. Statutes
All references are to the Insurance Article of the Maryland Code.
Ins.§12-206 (1995).Applications as admissible evidence; alteration of application. (a)(1) This subsection does not apply to industrial life insurance policies.
(2) Unless a complete copy of the application for the issuances of a life insurance or health insurance policy or annuity contract is attached to or otherwise made a part of the policy or contract when issued, the
application is not admissible in evidence in a proceeding relating to the policy or contract.
Ins. §16-203 (1996).Incontestability.
(a) Each policy of life insurance shall contain a provision that the policy is
incontestable, except for nonpayment of premiums, after the policy has been in force during the lifetime of the insured for 2 years after its date of issue.
Ins. §16-204 (1996) –Contract between parties; effects of statements in application.
(a) Each policy of life insurance shall contain a provision that the policy, or the policy and the application for the policy if a copy of the application is endorsed on or attached to the policy when issued, constitute the entire contract between the parties.
(b) If the application is made part of the policy, the policy shall contain a provision that the statements in the application, in the absence of fraud, are considered representations and not warranties.
Ins. § 16-205.Misstatement of age.
(a) Each policy of life insurance shall contain a provision that if the age of the insured or of any other individual whose age is considered in determining the premium or benefit has been misstated, the amount payable or benefit accruing under the policy shall be the amount or benefit that the premium would have purchased had the correct age been stated.
(b) (1) If an application or policy expressly limits the insurable age and the correct age at the date of issue is outside the insurable age limit, the policy is voidable at the option of the insurer during the lifetime of the insured, but not later than 3 years after the date of issue of the policy.
Ins. §16-107 (1996).Contestability; liability limits after reinstatement. (a) A reinstated policy of life insurance or reinstated annuity contract may be
contested on account of fraud or misrepresentation of facts material to the reinstatement only for the same period after reinstatement and with the same conditions and exceptions as the policy or annuity contract provides with respect to contestability after original issue.
(b) (1) A reinstated policy of life insurance or reinstated annuity contract may
exclude or restrict liability to the same extent that liability might have been or was excluded or restricted when the policy or annuity contract originally was issued. (2) The exclusion or restriction is effective as of the date of reinstatement. 3. Cases
InPhoenix Indemnity Company v. Smith168 Md. 649, 179 A. 50 (1935), an applicant had supplied full and complete information to the agent, which was not included on the application. The information not included was deleted on the basis of the agent’s assertion that it was not material. The court found no evidence for concluding that the applicant had conspired with the agent to defraud the insured and held that the
company was estopped from rescinding.
Compare the above case withParker v. Prudential Ins. Co. of America, 900 F.2d 772 (1990), where the Fourth Circuit affirmed a directed verdict for an insurer in a case in which the applicant had given accurate responses to a Prudential agent to the questions regarding history of smoking and using narcotics on the application. The Prudential agent, however, listed the insured as a non-smoker to get a lower premium. The Court held thatthe insured obtained a lower premium through misrepresentation about his smoking, and, under Maryland law, that showing alone was sufficient to direct a verdict for Prudential. The Court noted that:
It is immaterial that it is the agent who inserts false statements about material matters in an application for insurance, because if the assured has the means to ascertain that the application contains false
statements, he is charged with the misrepresentations just as if he had actual knowledge of them and was a participant therein.
Id.at n7 (citingSerdenes v. Aetna Life Ins. Co.,21 Md.App. 453, 461, 319 A.2d 858 (1974).).
A trial court judgment for an applicant-insured was reversed and remanded for a new trial where an application for a major medical policy failed to disclose a prior history of duodenal scarring and spasms inNationwide Mut. Ins. Co. v. McBriety,246 Md. 738, 230 A.2d 81 (1967). The applicant contended that the agent had failed to ask any of the questions which were incorrectly answered and that she had not read the application before signing. Referring to the printed acknowledgment on the application just above the application’s signature and to the ten-day examination period available to the applicant after delivery of the policy within which a premium refund was available, the court held that the applicant was bound by the answers in the signed application. InPeoples Life Ins. Co., v. Jerrell271 Md. 536, 318 A.2d 519 (1974), however, an applicant for a life policy failed to disclose a history of drug abuse by the proposed insured, her son. After the death of the insured, the insurer denied the claim on the ground of material misrepresentation. The insurer’s agent had been a friend of the family and the father of one of the insured’s schoolmates and, according to the
testimony of the applicant, was fully aware of the insured’s drug abuse history. It should be noted that the agent did not testify in rebuttal of the applicant-beneficiary. The court affirmed a trial court judgment for the beneficiary.
Other cases:Mutual Benefit Life Insurance Co. v. JMR Electronics Corp.,848 F.2d 30 (2d Cir. 1988);Metropolitan Life Ins. Co. v. Samis,172 Md.517, 192 A. 335 (1937).
