Null and Void

Withholding the truth may cost you your policy.
Magazine Contributor
2 min read

This story appears in the February 2004 issue of Entrepreneur. Subscribe »

It's a technique often used in relationships to deal with something unpleasant: Let's just pretend it never happened. But did you know your carrier could do that, too? It's called rescission. "By definition, rescission is voiding the policy at its inception," says attorney Lance A. LaBelle, a partner with the firm Berger Kahn in Irvine, . "The carrier takes back the policy and returns the premiums to the insured. In effect, it's canceling the coverage as if it never existed."

Insurers can rescind policies if they determine a misrepresentation was made on the application, and that had the information provided been true and complete, the policy would not have been issued or would have been issued under different terms. LaBelle says the laws governing rescission vary by state. Typically, rescission arises when a loss occurs, and in the course of adjusting the claim, the carrier uncovers information indicating a misrepresentation on the part of the insured. Rescission can be devastating if it happens when a large claim is pending.

To avoid having a policy rescinded, be sure all information you provide on the application is complete and accurate-don't conceal anything that may affect the carrier's decision. And be sure all documents you provide are truthful. Discuss this issue with your agent and attorney, and be familiar with the rescission laws in your state. If you receive notice that a policy is being rescinded, LaBelle advises, contact an attorney.

Jacquelyn Lynn is a freelance business writer in , .


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