The Alabama Supreme Court has held that an insurer is entitled to rescind a life insurance policy due to false statements in the application notwithstanding the beneficiary’s argument that true information regarding the applicant’s health was provided to the agent. Alfa Life Ins. Corp. v. Reese, 2015 WL 3964215 (Ala. June 30, 2015).
A diabetic applied for a life insurance policy. Verbally answering questions asked by the agent, the applicant stated that he suffered from diabetes and other related conditions. The agent allegedly told the applicant not to place that information in the application. It was undisputed that the application contained false information regarding the applicant’s medical condition. When he died a short time later, the insurer denied the claim, citing specific language in the application advising that agents had no authority to modify coverage and that misrepresentations would void coverage.
The beneficiary filed suit for breach of contract, bad faith and fraud. The insurer counter-sued for rescission due to misrepresentations in the application, without which the policy would never have been issued. The trial court denied the insurer’s motion for summary judgment, except as to the bad faith claim. A subsequent “renewed” motion for summary judgment was also denied, and the insurer appealed.
The Alabama Supreme Court reversed. It first held that the agent’s false statement did not absolve the beneficiary of her duty to read the application before signing it. It rejected the argument that the beneficiary was not given a full opportunity to read the application because it was prepared on a computer. The Supreme Court also rejected the argument that information provided to the agent verbally could be imputed to the insurer. On that point, the Supreme Court relied on wording in the application advising the applicant that “[n]o information or knowledge obtained by any agent … in connection with this Application shall be construed as having been made known to or binding upon the Company.”