What Is Auto Insurance Material Misrepresentation?
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When drivers purchase automobile coverage, insurers need a number of details to complete the transaction. This information is expected to be provided truthfully and as accurately as possible. One of the ways that an auto insurance contract can be voided is if the policy was obtained through material misrepresentation, which means that the person who applied for the policy knowingly provided false information. Consumers usually do this to get a cheaper rate, but it can lead to uncovered accidents and technically being considered uninsured.
Forms of Material Misrepresentation
There are several ways that information can be misrepresented, and although some may feel like a little white lie, the possible outcome of providing false info to get cheap insurance can be quite costly.
One such way to get cheaper premiums on comprehensive and collision coverage is to tell a carrier that the vehicle being insured is going to be parked in a garage when it actually will not be. Insurers provide discounts for physical damage protection if vehicles are garaged because they will be less likely to get stolen, vandalized, or damaged by other vehicles or inclement weather.
Motorists who state that they are married on the application when they aren't are also misrepresenting themselves. Married drivers pay lower premiums, and some carriers ask for proof of marriage, but those that don't can be taken advantage of by consumers.
When applying for policies, motorists are usually asked to list other drivers who reside in the same household because they will have access to the insured vehicle. Living with a high-risk driver can lead to increased premiums or even a coverage denial. Failing to list household members who are licensed is considered misrepresentation because the insurer cannot determine the accurate level of risk for all motorists who may drive the car, and it will not be able to charge the proper amount for coverage as a result. A motorist should be honest about any other drivers in the household; if another household member causes a rate increase, the policyholder can choose to list him or her as an excluded driver.
Another form of material misrepresentation is often referred to as "fronting."" This is when a consumer insures another person's vehicle under their name in order to help the driver avoid high premiums. For example, auto insurance for teenagers is expensive, and a parent may be tempted to purchase the policy under his or her name, which will likely be cheaper than if the teenager had obtained coverage individually. This is illegal and could end up being more costly than the inflated premium.
The examples mentioned here are among the most common types of material misrepresentation, but other instances of knowingly providing incorrect details or withholding information will probably fall under this category as well.
The issues that can arise from providing false information depend on the circumstances. In some states, insurers are allowed to cancel a policy for material misrepresentation within the first 60 days of the policy's effective date, and in other states insurers can cancel a policy for this reason at any point during a policy term. If the insurer becomes aware that a policyholder has intentionally provided incorrect information, it is usually permitted by state law to cancel the policy as long as a notice is sent 10 days before the cancellation date. An explanation for the termination is also required.
One of the most costly outcomes of providing an insurer with false details is having a claim denied. A first-party claim may not be paid if the insurer finds out that the policy was obtained through material misrepresentation. That means any premiums paid could be lost, and the damages and injuries sustained by the "insured" would need to be paid by other means.
Many states will still require that an insurer pay for third-party claims to protect innocent victims of material misrepresentation. But this doesn't give the offender a free pass. The insurer can seek reimbursement for the money paid out to third parties on behalf of the offender.
It's always important to provide the most accurate information possible. Doing so will not only ensure that coverage will be in place following an accident, but also help ensure that the policyholder is paying the right premium.