An applicant for life insurance unintentionally fails to mention a brief hospital stay that the insurer later discovers was material to its underwriting decision. The policy has been in force for three months. Under California Insurance Code Section 331, what is the result?

Why A is correct

Section 331 provides that concealment, whether intentional or unintentional, entitles the injured party to rescind insurance. The applicant's state of mind does not control the outcome: even an innocent failure to disclose a material fact can give the insurer the right to unwind the contract. Here the omission concerned a fact material to underwriting — a brief hospital stay the insurer would want to evaluate — so the insurer may rescind even though the applicant did not intend to hide anything. This rule is why agents must emphasize complete and accurate answers on applications at the time of sale: silence can be as damaging to the contract as an outright lie.

Why the other options are wrong

• B) Section 331 expressly covers concealment whether intentional or unintentional, so the insured's lack of intent does not bar the insurer's right to rescind the policy. Even an honest mistake in omitting a material fact can support rescission because the law looks to the effect of the omission, not the motive.
• C) Fraud is not required for rescission based on concealment; the statute makes concealment sufficient whether it is fraudulent or entirely innocent. Concealment and misrepresentation are distinct grounds for rescission, and concealment alone is enough under the statute.
• D) Acceptance of premium does not waive the insurer's right to rescind for material concealment discovered later, especially when the insurer did not know the facts at issue. The insurer's ignorance of the withheld fact is precisely the situation the concealment rule addresses, so premium acceptance is not a waiver.

Memory hook

Concealment needs no evil intent — hiding, even by accident, lets the insurer out.