An applicant withholds a known diagnosis of a serious heart condition from the application, and the insurer later discovers the omission after the policy was issued. The insurer never asked about the condition, but the fact would have influenced its underwriting decision. Under California law, the insurer's remedy is to:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Under Section 331, concealment — whether intentional or unintentional — entitles the injured party to rescind the insurance contract. Rescission voids the contract as if it never existed and returns the parties to their pre-contract positions: the insurer refunds premiums and pays no claim. The insurer's failure to ask does not excuse the applicant's knowing silence about a material fact, and materiality under Section 334 is measured by the fact's probable influence on the insurer's decision. This remedy is available regardless of whether the omission was deliberate or accidental, which makes the duty of full disclosure so serious.
Why the other options are wrong
- B) The insurer may not unilaterally keep the policy and simply refuse claims; the remedy for material concealment is rescission of the entire contract, which unwinds the policy.
- C) Concealment gives a civil rescission remedy; criminal penalties apply to fraudulent acts under other statutes, but concealment is not automatically a felony.
- D) The failure to ask does not excuse concealment of a material fact the applicant knows; Section 331 allows rescission whether the omission was intentional or accidental.
Memory hook
Concealment means rescission, even by accident. The insurer can rip up the deal and return to square one.