An agent fills out an application for a direct writing carrier on a property risk. On the application, questions are asked about prior cancellations. The only cancellation was initiated by the insured for non-payment of premium of a prior policy. It was not a cancellation for any underwriting reasons.
Is the failure to answer that question material as the cancellation was not for underwriting reasons, but simply for non-payment of premium by the insured?
Pennsylvania Subscriber
A carrier relies on complete and accurate information on the application to determine if a risk is eligible and acceptable for coverage under the policy. On the ACORD commercial application ACORD 125, it states just above the signature line that the undersigned represents that the answers are true, correct and complete to the best of their knowledge. Some carriers will decline coverage or possibly void coverage if they discover at the time of loss or after the policy has been bound that the insured materially misrepresented a piece of information on the application that the carrier relied on to grant coverage.
Since the entire application is relied upon in the carrier's decision to accept or reject a risk, and to use in their underwriting and rating of a risk, any portion of the application could be considered to be material to their decision process.
This being said, was the same policy that the insured cancelled reinstated after payment? If the policy was reinstated with no lapse in coverage, then the cancellation would have been to no effect once the premium was paid and the policy reinstated. However, if the policy was cancelled and not reinstated, or there was a lapse in coverage, then the application should be completed including the cancellation information. Further explanation could be provided to the carrier in the Remarks section to explain the circumstances.