Under California Insurance Code Section 334, the materiality of a fact is judged:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Section 334 of the California Insurance Code measures the materiality of a fact by the influence it would have had on the insurer's underwriting decision, specifically whether the insurer would have accepted the risk or fixed a different premium had it known the truth. The standard is assessed as of the moment the insurer made its decision, because that is when reliance matters. A fact is material if knowledge of it would have changed the insurer's decision to accept the risk or the price it charged for coverage. The materiality inquiry is therefore prospective, looking to the effect of the fact at the underwriting stage, and it does not depend on what happened after the policy was issued, such as the occurrence of a loss or the timing of a claim.
Why the other options are wrong
- B) Materiality is not determined by what happened after the policy was issued. A fact is material because of its effect on the underwriting decision at the time that decision was made, not because a loss later occurred that the fact might have helped predict.
- C) The claim stage is too late in the process to define materiality. The insurer's reliance on the facts occurred when the policy was underwritten and priced; what matters is the influence the fact would have had at that point, not whether a claim was later submitted.
- D) The date the application is signed is not the controlling test. What matters is the effect the fact would have had on the insurer's decision to accept the risk and set the premium, which is evaluated at the time the insurer actually made that decision.
Memory hook
Material means it would have changed the 'yes' or the price.