A Primer on Rescission

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Primer: Rescission of Insurance

The article starts out as follows:

An insurance policy is nothing more than a contract. It is a special type of contract because – by law – it contains an implied covenant of good faith and fair dealing. What that means is that neither party to the contract must do nothing to prevent the other from obtaining the benefits of the contract.

When a prospective insured violates the covenant of good faith and fair dealing by misrepresenting or concealing a material fact that deceives an insurer to take on a risk that would not have been taken had the truth been known the law allows the insurer – upon a presentation of sufficient admissible evidence – to rescind the policy and treat it as if it never came into existence.

Developing the evidence is not easy. It requires the effort of an insurance professional to collect the evidence – whether documentary or by oral testimony – to convince a judge or jury that the insurer acted properly, that the insured deceived the insurer and that the court should order that the policy was void ab initio (from its inception).

What an Insurer Must Prove to Rescind a Policy of Insurance

In many states, following ancient British precedent that predated the formation of the United States, an insurer that discovers a factual basis establishing that an insured obtained a policy by deceiving the insurer about the risk applied for by the insured the insurer may declare the policy void from its inception and treat it as if it never existed. In simple language, if the insurer discovers, either before or after a loss, that the policy was acquired as a result of a misrepresentation or concealment of a material fact, it may rescind the policy. In most states the ancient Marine Rule (first stated in 1766 in the British House of Lords in a case called Carrter v. Boehn) is followed and rescission is available regardless of whether the insured fraudulently or innocently misrepresented or concealed a material fact.


© 2020 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

https://zalma.com/zalmas-insurance-fraud-letter-2/Read last two issues of ZIFL here. 

Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921

Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts

Listen to the Podcast: Zalma on Insurance  https://anchor.fm/dashboard/episodesZalma on Insurance 

Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg/

Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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