Auto Insurance Rescind: What Does It Mean And Why?

Rescission is an official declaration by an insurer that a policy was never in effect, meaning the policyholder is put back into the position they were in before the policy was entered. In other words, it is as if the contract between the insurer and the insured never existed. When an insurance company rescinds a policy, they must inform the policyholder, known as a rescission notice, and return any premiums paid. Rescission is different from a claim denial or a policy termination. It occurs when a policyholder is found to have given fraudulent information on their application, such as nondisclosure of a driving violation on an auto insurance policy.

What is a Rescission Notice?

A rescission notice is a formal declaration by an insurance company that a policy is being rescinded. This means that the policy is being treated as if it never existed. The policyholder will be refunded any premiums they have paid, and the insurance company will no longer be liable for any claims.

Rescission is different from a claim denial or a policy termination. It occurs when an insurance company discovers that a policyholder has lied or failed to disclose relevant information on their application form. This could include nondisclosure of a driving violation on an auto insurance policy or a medical condition on a health insurance policy. In some cases, rescission can also occur if the policyholder makes an error in their application that significantly affects the company's position or makes a dishonest claim for benefits.

Insurance companies are required to provide written notice of rescission to the policyholder, explaining the reasons for the rescission. This notice should include information about the policyholder's right to contest the rescission and seek legal advice if necessary.

It is important to note that insurance companies must follow certain guidelines when rescinding a policy. For example, most states have a time limit on how long an insurance company can contest a policy, usually two years from the date of issuance. Additionally, courts have ruled that insurers cannot use trivial or immaterial nondisclosures to rescind policies.

Rescission notices are often used by insurance companies to avoid paying out large claims. While this practice is legal, it can cause significant hardship for consumers, leaving them without insurance and making it more difficult to obtain a new policy.

When can an insurance company rescind a policy?

An insurance policy is a legally binding contract between the insurer and the insured. When an insurance company rescinds a policy, it is declaring that the policy never existed, and the insured will be refunded all premiums paid.

An insurance company can rescind a policy if the insured lied or failed to disclose relevant information when applying for coverage. This can include nondisclosure of a driving violation on an auto insurance policy, a medical condition on a health, life, or disability policy, or pending litigation on a malpractice insurance policy. The insured may also have made an error in their application that significantly impacts the company's position, or made a dishonest claim for benefits.

However, a policy cannot be rescinded if the insured's mistake was trivial or immaterial, such as a mistake in contact information or a negligible condition like a one-time report of high blood pressure. A policy also cannot be rescinded if the insured did not know about a latent medical condition or did not understand the significance of an insufficient response.

In the case of directors and officers (D&O) liability insurance, rescission most often occurs when the signer of the application had knowledge of a potential claim and intentionally concealed it, or when the application contains materially false information, such that the insurer would not have entered into the contract had it known the truth.

Insurance companies are supposed to "underwrite" or investigate policies at the time of application to determine if the consumer is qualified. However, in practice, most insurers approve policies and accept premiums without conducting a thorough investigation. This technique is called "post-claims underwriting," and it has become a significant problem for consumers, particularly in health, life, disability, and malpractice insurance. As a result, insurance companies are increasingly likely to revoke a policy when a claim is filed, rather than pay out, especially if the coverage is for a large sum.

Can I rescind my insurance policy?

When an insurance company rescinds a policy, they are declaring that the policy never existed. This means that the policyholder will be refunded any premiums paid, and they will be put back in the position they were before the policy was entered.

Policyholders can also rescind their insurance policy. However, this is infrequent and will only be permitted if the insurance company misled or fraudulently influenced the policyholder into choosing a particular policy.

If you want to rescind an insurance policy or believe that your insurance policy has been cancelled unlawfully, an insurance lawyer experienced in dealing with insurance companies will be able to fight for your rights.

What to do if your insurance policy is rescinded

When an insurance company rescinds your policy, it is declaring that the policy never existed. This means that the insurance company will refund you any premiums you paid, but you will be left without insurance.

If your insurance policy has been rescinded, there are several steps you can take:

Understand the Reasons for Rescission

Firstly, it is important to understand why your insurance policy was rescinded. Insurance companies may rescind a policy if they find that a policyholder lied or failed to disclose relevant information before the agreement was signed. This includes nondisclosure of a driving violation on an auto insurance policy, a medical condition on a health policy, or pending litigation on a malpractice insurance policy.

Review Your Rights

It is essential to know your rights as a policyholder. A policy cannot be rescinded if the alleged falsehood or non-disclosure is trivial or immaterial, such as a mistake in contact information or a minor medical condition. Additionally, a policy cannot be rescinded if the applicant was unaware of a latent medical condition or did not understand the significance of an incomplete response.

Consult an Attorney

If you believe your policy was wrongfully rescinded, consult a qualified insurance denial attorney who can help you build your defence and response. An experienced attorney will be able to review the facts and determine if the insurance company acted in bad faith.

Contest the Rescission

With the help of your attorney, you can write to the insurance company and contest the rescission. Explain why any alleged non-disclosures were not intentional or are immaterial. Many insurance companies will reverse their decision if the policyholder pushes back.

Take Legal Action

If the insurance company persists with the rescission, you may need to take legal action and challenge the rescission in court. If you can prove that the insurance company acted in bad faith, you may be able to recover policy benefits, legal costs, and even punitive damages.

Remember, it is important to act quickly and assert your rights if you believe your insurance policy has been wrongfully rescinded.

What is rescission?

Rescission is a declaration by an insurance company that a policy was never in effect. In other words, it is as if the contract between the policyholder and the insurance company never existed. This typically happens when a policyholder is found to have lied, failed to disclose relevant information, or made a fraudulent claim for benefits. For example, a policyholder may not disclose a driving violation on an auto insurance policy, or a medical condition on a health insurance policy.

Insurance companies are increasingly likely to revoke a policy when a claim is filed, particularly if the coverage is for a large sum. This has become a significant problem for consumers, especially in health, life, disability, and malpractice insurance. While the insurer must refund the premiums paid, the consumer is left without insurance and may find it challenging to get a new policy.

Rescission is different from a claim denial or policy termination. When an insurance company rescinds a policy, it must inform the policyholder and return any premiums paid. The policyholder is put back into the position they were in before the policy was taken out.

Most states require a rescission notice, providing the policyholder with written notice of cancellation at least 30 days before the rescission of a coverage claim. If the insurance company fails to provide this notice, the policyholder can demand a letter explaining the reasons for the rescission. It is important to understand your rights as a policyholder, as rescission may not be valid if the alleged falsehood is trivial or immaterial, the applicant did not know about a latent medical condition, or the applicant did not understand the significance of an incomplete response.

Rescission can also occur when there is misrepresentation or fraud on the part of the insurer, although this is less common. In these cases, the insured can rescind the contract.

Frequently asked questions