An adjuster discovers that a policy was issued based on a material misrepresentation on the application — the insured failed to disclose prior DUI convictions when asked. The claim at issue occurred after policy issuance. What option does the insurer have?

MATERIAL MISREPRESENTATION and RESCISSION: Insurers can void a policy from inception (as if it never existed) when: the insured made a material misrepresentation on the application AND the misrepresentation was relied upon in underwriting AND the misrepresentation was material (would have affected the decision to insure or the premium). PROCESS: Issue a reservation of rights letter during investigation; obtain legal opinion; if rescission is warranted, issue a notice of rescission; return all premiums paid; deny all claims; LIMITATIONS: Incontestability clauses in life insurance (2 years); some states limit rescission rights; innocent misrepresentation vs fraud has different standards; PRACTICAL CAUTION: Rescission is a major action — consult legal counsel; document everything; consider whether rescission is legally supportable before denying; note that the DUI non-disclosure is exactly the type of driving record misrepresentation that insurers routinely act on.