An applicant fails to disclose a heart condition, and the insured later dies of a heart attack. The insurer did not ask about the condition, but evidence shows the condition would have influenced the insurer's decision to issue the policy. Under the state insurance code, the undisclosed fact is material because:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The state insurance code states that materiality is determined not by the event — that is, by the outcome — but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming an estimate of the disadvantages of the proposed contract or in making inquiries. The test is whether the fact would have influenced the insurer's underwriting decision, not whether the loss that actually occurred happened to be caused by the concealed condition. Even if the death had been caused by something entirely different, a fact that would have changed the insurer's decision is still material.
Why the other options are wrong
- B) Under the state insurance code, materiality is not judged by the actual event or outcome — that the heart attack caused death is legally irrelevant to whether the condition was material.
- C) The insurer's financial loss on the claim measures damages, not materiality; materiality is determined when the contract is formed, from the facts' probable influence on the insurer.
- D) The applicant's knowledge establishes concealment, but knowledge alone does not make a fact material; materiality turns on the fact's probable influence on the receiving party.
Memory hook
Materiality = would it have changed the insurer's mind? The outcome is irrelevant — the test is influence, not result.