Can an insurer deny the claim of an individual who misrepresented statements?

• A. Denial is allowed only if the misrepresentation was material to pricing
• B. Denial is automatic for any misrepresentation
• C. Denial is allowed only if the misrepresentation was material to the insurer
• D. Denial is never allowed

Answer: (C)

The key idea is materiality to the insurer. In insurance, a misrepresentation on an application can justify denying a claim only if that misrepresentation is material to the insurer’s decision to issue the policy or to the risk the insurer assumes. If the misrepresented fact would have altered the insurer’s underwriting decision—whether by accepting the risk, setting terms, or pricing—the claim can be denied. If the misstatement is not material to the insurer (it wouldn’t have changed their decision), denial generally isn’t appropriate on that ground.

So the option stating that denial is allowed only if the misrepresentation was material to the insurer matches this principle: the misrepresentation must affect the insurer’s consideration of the risk, not just pricing or some minor detail, for denial of the claim to be justified.