insurance - misrepresentation - void ab initio
Cummings v. American General Life Insurance Co. - ED Pa. - May 6, 2008
Held: Misrepresentation about past drug use is a material representation that justifies insurer in declaring policy void ab initio. The policy contained a clause stating that applicant's information was true and that the insurer could reduce or deny a claim which the insurer had relied of, if it materially affected the company's acceptance of the risk.
Pennsylvania courts “have held that an insurance policy obtained by means of a material misrepresentation will, if challenged within the period of contestability, be declared void ab initio....Under Pennsylvania law an insurance policy is void for misrepresentation when the insurer establishes three elements: (1) that the representation was false; (2) that the insured knew that the representation was false when made or made it in bad faith; and (3) that the representation was material to the risk being insured.”
Courts applying Pennsylvania law have routinely held that misrepresentations regarding alcohol abuse are deemed to be made in bad faith as a matter of law and extended this holding to include misrepresentations regarding drug use. ... The Third Circuit Court of Appeals equates alcohol abuse and drug abuse in the same manner.
Under Pennsylvania law, a misrepresentation does not have to be related to the eventual claim for which benefits are sought in order to be “material” for legal purposes. A statement is material if it is relevant to the risk assumed, even if it is unrelated to the loss actually incurred.
Any “misrepresented fact is material if being disclosed to the insurer it would have caused it to refuse the risk altogether or to demand a higher premium.”
The undisputed facts here, together with long-standing governing law, lead to the conclusion that decedent's past drug use would have led the insurer to deny decedent's insurance coverage and, thus, is a material fact .