Rescission – meaning your insurance carrier “rescinds” your insurance contract or terminates it as if it never existed – is serious for any business owner. While rare, a rescission means an insurance carrier is not obligated to pay your claim, even if it would normally be covered under your policy.
Insurance companies have the right to terminate a policy if the insured conceals, misrepresents or deceives the carrier during the application process. This can occur in many types of coverage, from health coverage to fidelity protection.
To prevent rescission, your coverage application must be accurate. Your ethical duty when applying for coverage is to disclose to your insurer all “material facts”, that is any circumstances that might make an underwriter hesitate or refuse to write your business.
For example, if an employee steals from petty cash but subsequently repays you, you may be satisfied to let the matter drop. However, when you later apply for fidelity coverage, you must disclose this; failure to do so may invalidate your coverage for any future theft committed by this employee. In rescission cases, the court will look at what you as the policyholder knew when you applied and whether you acted in good faith.
Rescissions are not a common occurrence, but what business owner can afford an uncovered loss? As you complete your policy applications, bear in mind that honesty is always the best policy. Armed with all the facts, your insurance advisor will be able to find the policy that’s right for you.