1. The Claim -
An insurer may use the alleged misrepresentations and/or omissions of an insured in the life, health and disability insurance application process in two ways: (i) affirmatively, by seeking rescission of the policy in a declaratory judgment action, or (ii) as a defense to a claim for benefits under the policy.
(A) Prima Facie Case -
Under South Carolina law, a material misrepresentation in an application for insurance is material if the insured knows or has reason to believe that the statement will likely affect the insurer’s decision regarding the making of the insurance contract or its terms. State Auto Property & Cas. Ins. Co. v. Gibbs, 314 S.C. 345, 351 n.4, 444 S.E.2d 504, 507 n.4 (1994) (liability insurance); Carroll v. Jackson Nat. Life Ins. Co., 307 S.C. 267, 414 S.E.2d 777 (1992) (life insurance); Ratliff v. Coastal Plain Life Ins. Co., 270 S.C. 373, 242 S.E.2d 424 (1978) (health/accident insurance). See also S.C. Code Ann. § 38-75-730 (West Group 2002 rev.). In order to void a policy on the basis of material misrepresentation, the insurer must show not only that the insured’s statements were untrue, but also that the insured was aware of the falsity of the 2 statements, and that the statements were material to the risk, relied on by the insurer, and made by the insured with the intent to deceive and defraud the insurer. United Ins. Co. of Am. v. Stanley, 277 S.C. 463, 465, 289 S.E.2d 407, 408 (1982).
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