Life insurance claims are often denied when an insurer alleges that the insured made a material misrepresentation on the policy application. While insurers generally have the right to rescind a policy based on material misstatements, courts frequently limit that right when the facts, policy language, or governing law do not support rescission.
A review of case law shows that misrepresentation based denials often fail for three recurring reasons: choice of law errors, ambiguous application questions, and lack of proof that the misstatement was material or intentional.
Choice of Law Can Control Whether Rescission Is Allowed
One of the first legal issues courts address in rescission cases is which state’s law applies. Life insurance policies often contain choice-of-law provisions, but courts do not always enforce them.
Courts frequently look to the insured’s domicile at the time of application, where the application was completed, and which state has the most significant relationship to the transaction. If the insurer applies the wrong state law, a rescission that might be valid in one jurisdiction may be barred in another.
Courts have rejected insurer attempts to apply favorable law when another state has a stronger connection to the policy formation process.
Federal Law in Employer Sponsored Policies
When a life insurance policy is part of an employer sponsored benefit plan, federal law may govern instead of state rescission statutes. In these cases, courts often apply ERISA standards rather than state insurance law.
Under federal review, insurers must still show that the alleged misrepresentation was material and that rescission is supported by the administrative record. Courts do not simply accept rescission because an application answer was inaccurate.
Ambiguous Application Questions Undermine Rescission
A consistent theme in misrepresentation case law is that ambiguous application questions are construed against the insurer. Courts repeatedly hold that an applicant cannot misrepresent information when the question itself is unclear or subject to multiple reasonable interpretations.
Courts have rejected rescission attempts where application terms such as medical conditions, diagnostic testing, or symptom descriptions were vague, undefined, or subjective. If the question does not clearly ask for specific information, the insurer bears the risk of ambiguity.
Subjective Knowledge Versus Objective Fact
Another common limitation on rescission involves the insured’s knowledge at the time of application. Courts distinguish between objective facts and subjective understanding.
If an application question requires the insured to assess their own medical condition or diagnosis, insurers may be required to prove that the insured actually knew the information being omitted or misstated. Absent proof of awareness, courts often decline to allow rescission.
Materiality Must Be Proven, Not Assumed
Even when an answer is inaccurate, insurers must still prove that the misstatement was material. Materiality generally requires showing that the insurer would not have issued the policy, or would have issued it on different terms, had the correct information been disclosed.
Courts often scrutinize underwriting guidelines, internal insurer practices, and the actual relationship between the alleged misstatement and the risk assumed. Unsupported assertions of materiality are frequently rejected.
Timing and Post-Claim Scrutiny
Courts are often skeptical of rescission decisions made only after a claim is filed. When an insurer accepted premiums, issued the policy, and raised no concerns until after death, courts may examine whether the misrepresentation truly affected the underwriting decision or was identified only through hindsight review.
Post-claim underwriting without contemporaneous evidence often weakens the insurer’s position.
What These Cases Show
Taken together, misrepresentation case law demonstrates that rescission is not automatic. Insurers must overcome multiple legal hurdles, including:
Correct governing law
Clear and unambiguous application questions
Proof of the insured’s knowledge
Evidence of materiality
Consistency with underwriting practices
Failure at any step can result in denial of rescission and enforcement of coverage.
How This Fits Into Life Insurance Claim Disputes
Misrepresentation based denials are a specific subset of denied life insurance claims. They differ from exclusions, lapse disputes, or beneficiary conflicts because they challenge whether the policy was validly issued.
For a broader discussion of misrepresentation related denials, see your Denied Life Insurance Claims and Application Misrepresentation pages.