If your individual health insurance policy is rescinded (cancelled) by your insurance company because you lied, hid or concealed information on your on the application, you may suddenly find yourself without health insurance when you need it the most – at the time a claim for benefits has been filed. Most rescissions by insurance companies are triggered when a claim for benefits is filed and during the claims investigation the insurance carrier uncovers new information that sheds doubt on the accuracy of the information, which information the carrier relied on when giving you a quote and issuing you a policy. Sometimes the basis for the rescission is valid and proper. (In which case, you will have to dip into your own pocket to pay for the medical bill.) However, sometimes the insurance company is treading on thin ice when it rescinds.

What are your options if this happens to you?

Your first step should be to contact your insurance company and speak to the claims manager or supervisor within the claims department and inquire as to the basis of company’s rescission action. Get the complete explanation in writing.

If you are not satisfied, contact your state insurance department. Every state insurance department has a consumer division that does nothing but handle complaints by insureds against insurance companies. Occasionally the consumer division will get involved on your individual complaint and get you results. Overall, however, they will not be as aggressive in pursuing your rights as an attorney would be.

To avoid a stressful and time-consuming lawsuit, you may wish to attempt to submit your complaint to mediation or even arbitration. In mediation, there is a third party, a mediator, who facilitates the resolution process (and may even suggest a resolution), but does not impose a resolution on the parties. In arbitration, there is a third party who, as a private judge, imposes a resolution. Mediation and arbitration can reduce the expenses for both parties of actual formal litigation, but both parties must agree to participate. In most instances, the insurer will probably not agree.

If all the above steps have no success, your only remaining choice is to file suit against the insurance company.

In order for an insurance company to rescind your policy, it must meet certain requirements. If they are not met, you may be able to successfully sue to reinstate your policy.

Misrepresentation: Your carrier must be able to show that, in response to a question on your application, you lied, concealed or hid information. For example, when specifically asked if you or any family member has been treated within the last 24 month for a mental or emotional disorder, you neglect to mention that your wife was regularly visiting a psychiatrist up until 6 months prior to the date of the application. In most, but not all, states it makes no difference legally whether or not your misrepresentation was made innocently or made with fraudulent intent. Some states, however, do require the insurer to prove that you fraudulently intended to deceive them. The difficult burden of proof of intent to deceive is on the insurance company.

Materiality: The insurer must also show that the concealed or hidden information was material. In other words, if they had the true facts, they would not have issued your policy or would have issued it under less beneficial terms than they actually did. The burden of proving materiality is on the insurance company. They have to show that the missing information would have made a difference in the issuance of the policy.

In some states they must also show that it would have “increased the risk of loss” generally. For example, failing to mention a history of heart disease would increase the risk of loss to the insurer. The burden is on the insurer to prove through its underwriting guidelines that the concealed medical information does increase the risk of a claim being submitted.

In other states they must show that the matter misrepresented actually contributed to the specific loss – if there is a loss. The insurer cannot properly rescind unless, for example, there is a claim for cancer and the misrepresentation discovered by the insurer is for treatment of cancer. You need to know how stringent the standard of proof is in your state.

Finally, if a misrepresentation is NOT material, it cannot be the basis for rescission – even if it is fraudulent. For example, if you intentionally lie about visiting a doctor, but the visit was to obtain medicine for a non-recurring sore throat, the insurer cannot rescind even though you lied. Here, again, the burden is on the insurer to prove that the misrepresentation is material.

Reliance: If there were sufficient indications in your representations on the application, or otherwise that further investigation by the insurer was called for (but was not done), and if that investigation would reasonably be expected to have provided the insurer with a true picture, many courts will not enforce a rescission. For example, if you were asked in the application to list the dates and causes of hospitalizations over the past ten years and you only listed the dates but not the causes, the failure of the carrier to do its homework and investigate the causes prevents the carrier from later relying on one of those causes to rescind your policy.

Clear Questions on the Application: The burden is on the insurer to ask clear, unambiguous questions on the application. You can’t negotiate the terms of the contract with the insurance company. You have to take it or leave it. Because of this, if there is any ambiguity, courts always interpret contract wording (and this includes the questions on the application) in your favor. Therefore, if your alleged misrepresentation may be a result of an unclear question, you may very well have a valid basis for overturning the rescission of your policy. For example, if the application asks whether you have been treated for a “systemic disease”, it is not unreasonable for you not to know exactly what the insurer is asking about. If you did not include information that falls in this ambiguous category, the insurer probably cannot rescind.

Court Interpretations of Your Representations in the Application: Courts will usually interpret your representations in the application in such a way as to uphold the validity of the contract if logically possible. For example, if your representation is substantially correct, the court will not allow the insurer to rescind the contract. For instance, your statement that you have never suffered an injury will be considered to be substantially true even if you did not mention minor injuries that have left no lasting effect on your health or ability to function.

Belief or Opinion: A representation of opinion, not fact, will not be allowed to be the basis for rescission. A question asking for the current state of your health is such a question. For example, if you honestly answer “no” to the question, “Are you suffering from any disease or infirmity?”, when it is later learned that you have a malignancy, that cannot be the basis for rescission.

What all of this tells you is that if you feel you have been wronged by the insurance company’s decision to rescind your policy, there is a lot in your favor and you may have a better case than you think. You will be very wise to hire an attorney who is expert in this area of the law to take you through the process of getting your policy reinstated and your claims paid.