Arizona Life and Health Practice Exam

If a misrepresentation is discovered on an application, under what condition can an insurance contract be voided?

1. If it is irrelevant

2. If it is minor

3. If it is determined to be material

4. If it is communicated verbally

The correct answer is: If it is determined to be material

The concept of material misrepresentation is essential in the formation of an insurance contract. A misrepresentation is considered material when it would influence the insurer's decision to provide coverage or the terms of that coverage. If a misrepresentation is deemed material, it can significantly distort the risk profile of the insured and lead the insurer to underwrite the policy differently, or potentially reject the application altogether. In cases where it is established that a misrepresentation materially affects the insurance agreement, the insurer has the right to void the contract. This ensures that both parties maintain a fair and honest representation of the facts, which is foundational to the insurance relationship. Other types of misrepresentations, such as irrelevant or minor ones, usually do not hold the same weight in voiding a contract because they do not significantly impact the insurer's risk assessment or decision-making process. Additionally, verbal communication of misrepresentations can complicate things, but if it does not influence the insurer's determinations, it may not lead to contract voiding either. The key element lies in whether the misrepresentation affects the materiality of the risk at hand.