Under California Insurance Code Section 334, the materiality of a fact in an insurance application is determined by:
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Section 334 provides that materiality is determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due — the insurer — in forming its estimate of the proposed contract or in making its inquiries. In other words, a fact is material if it would have influenced the insurer's decision to accept the risk or set the premium, regardless of what actually happened later or how large a claim eventually came in. This forward-looking test asks what the insurer would have done with the information, not what the loss turned out to be, which is why an insurer must show the impact of the fact on its own decision-making.
Why the other options are wrong
- B) Section 334 expressly says materiality is determined not by the event but by the influence of the facts on the insurer; what later happened to the insured is irrelevant to the test.
- C) The size of the eventual claim does not define materiality; a small claim can rest on a material fact, and a large claim can arise even when every answer was immaterial.
- D) The applicant's subjective belief about the importance of a fact is not the test; the standard is the fact's probable and reasonable influence on the insurer's underwriting decision. The insurer's underwriting practice and the questions it asks reveal which facts it would consider important to the risk.
Memory hook
Material = would it have changed the insurer's decision? The loss itself does not decide.