Insurance companies can unilaterally rescind (cancel) a health insurance policy, after issuance if the insurer later finds omission on the application. This most often occurs after a claim has been submitted. In many cases, the rescission is for a valid reason, such as failure to mention a history of severe cardiovascular problems. But more and more frequently insurance companies are stretching the legal rules to attempt to avoid liability for expensive claims.

Large claims cost insurance companies serious money. But so can improperly rescinded policies as insureds whose policies have been cancelled begin to fight back by suing their insurance companies. If an applicant for insurance intentionally lies on an application for insurance or intentionally “forgets” important health history on his questionnaire, those are surefire reasons for the insurance company to rescind the policy. Rescission protects against fraud. It helps keep insurance premium rates down. However, not all rescission decisions are clear cut and some insurers are pushing the envelope.

A rescission is serious. Most of us don’t live in an insurance world so it is important to consider the reasons behind rescission that may give you a right to challenge the insurer’s action. Normally, if you have done one of the following, your insurer can rescind:

1. Misrepresentation: You lied or concealed information on the application submitted; for example, failing to disclose information about a liver disorder, cancer treatment or smoking history when directly asked.
2. Materiality: If what is hidden or concealed on your application would have affected the insurer’s decision to issue a policy or issue one under more restrictive terms, the insurer can rescind. Leaving off the details, such as asthma, in an otherwise clean bill of health, is material. If the information given by the applicant is false, but the insurance company would have issued the same policy anyway, then it is not material. For example, if you lie about visiting a doctor, but the visit was to obtain free sample medications for a mild seasonal allergy, the insurer cannot rescind even though you lied in response to a question inquiring at to whether you have seen a doctor in the last 12 months.
3. Reliance: At the time the policy was issued the insurance company must have reasonably relied on the information based in the application. An insurance company cannot avoid liability if it did not actually rely on the applicant’s misrepresentation in making its decision to issue the policy. For example, if there are sufficient indications in your answers to the application questions (such as an incomplete answer that clearly suggests an unmentioned extensive prior treatment history for a serious health condition) ) that reasonably suggest that further investigation by the insurer is warranted, and if that investigation would reasonably be expected to have provided the insurer with a true picture, many courts will not allow the insurer to rescind if the insurer did not follow through with that investigation.
4. Other Requirements: Some states require the insurance company to prove fraud in order to rescind. This is a difficult burden for the insurer since it is required to prove intent. Some states require that the insured not only intend to deceive but also know that the deception is material to the risk. This is even more difficult for the insurer to prove: it must establish that you knew that your misrepresentation would affect the insurer’s decision to issue; in other words, that you know the insurer’s underwriting guidelines that tell them when to issue and when to not issue or to issue with limitations on coverage. In these states, it is very difficult for an insurer to rescind a policy. Some states require that the facts misrepresented must contribute to the claimed 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.
5. Clear Questions: The burden is on the insurance company to ask clear, unambiguous questions. You win on this issue if the carrier asks vague and confusing questions. Questions that assume medical knowledge on your part (by using medical terminology) and questions that ask for your opinion of your health (like, Are you in good health? or Are you in sound physical condition?) are common examples. Ambiguity is always construed by the courts against the insurer and in favor of the insured.
6. Contestable Period: This is the time period within which an insurance provider can retroactively cancel (rescind) your policy. In most states the contestable period is two years from the date of application.

If you have any doubt about the propriety of your rescission, you should contact an attorney who is experienced in these matters to review each of the above requirements as they may pertain to your rescinded policy. You may have a cause of action against the insurance company for reinstatement of your coverage and, possibly, for other damages.