Angioplasty Not Disclosed on a Term Life Application
Nestor, 47, applies for a P5 million 20-year term life policy. Question 11(a) asks: 'Have you ever been diagnosed with, or treated for, heart disease, hypertension, or diabetes?' He answers 'No.' In fact, he had coronary angioplasty with stent placement two years earlier and takes maintenance medication. Broker Rene reviews the application at Nestor's office and sees a hospital discharge summary on the desk; Nestor says it was 'just a minor procedure.' Rene does not ask the underwriter and submits the application. The policy is issued at standard rates. Nineteen months later Nestor dies of myocardial infarction. The insurer obtains the hospital records, rescinds the policy, refunds premiums, and denies the P5 million death benefit. The beneficiary argues that the policy is incontestable and that Rene's knowledge should be imputed to the insurer. The insurer says Nestor concealed a material fact.
1. Can the insurer rescind the policy and deny the death benefit? Explain the materiality and incontestability analysis.
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Conclusion: Yes, if the insurer can prove a material misrepresentation and reliance within the contestability period.
The answer 'No' to the heart-disease question was false. Coronary angioplasty with stent placement and ongoing maintenance medication are material to a life underwriter; a prudent insurer would have declined, postponed, or rated the risk. The insurer relied on the application answer when issuing at standard rates. Those facts support rescission and refund of premiums under the Insurance Code.
The incontestability clause does not save the beneficiary here. A life policy becomes incontestable after two years from issuance or reinstatement, except for nonpayment of premiums. Nestor died at 19 months, within the two-year period. The insurer may therefore raise the misrepresentation defense. The result would be different if the insurer had discovered the facts after the two-year period, or if the policy had been reinstated and the contestability period had restarted.
The insurer should still show that the question was clear, that the true facts were known to Nestor, and that the underwriting decision would have changed. It should not rely on a trivial or unrelated omission.
2. Does broker Rene's knowledge bind the insurer? What are Rene's professional exposure and the insurer's position?
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Broker's knowledge is not automatically imputed to the insurer. An insurance broker is ordinarily the agent of the insured, not the insurer. Rene was engaged to place Nestor's coverage. His knowledge of the discharge summary is therefore treated as the insured's knowledge, not the insurer's. The insurer is entitled to rely on the application answers unless the broker was also acting for the insurer or the insurer had actual knowledge.
Rene's conduct creates separate exposure. If he saw the discharge summary and did not ask a follow-up question, he may have breached his duty of care to his client and facilitated a misrepresentation. He could face IC administrative discipline and an errors-and-omissions claim, but his knowledge does not create coverage.
The insurer should preserve the application, the underwriter's notes, and the medical records. If the insurer had received the hospital records before issuance and ignored them, the rescission analysis would change. The facts say it did not.
3. How would the analysis change if Nestor had died 25 months after issue instead of 19 months?
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The insurer would likely have to pay the death benefit. After two years from issuance, the incontestability clause bars the insurer from rescinding for misrepresentation or concealment; only nonpayment of premium remains a defense. The beneficiary's claim would be based on the policy as issued. The insurer could not avoid the claim simply by proving that the angioplasty was concealed.
That does not erase Rene's conduct. The insurer may still pursue the broker for negligence or misrepresentation, and the IC may discipline Rene, but the policy proceeds would generally be payable to the beneficiary. The insurer could also review whether the policy was reinstated after lapse; reinstatement restarts the contestability period.
The practical lesson is that insurers must complete underwriting and contestability review early, and brokers must never treat a known medical condition as 'minor' without disclosing it to the underwriter.