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Against Insurance Recission

March 19, 2011 Comments off

Against Insurance Recission
Source: Yale Law Journal

This Note argues that rescission—the traditional remedy for innocent misrepresentations on insurance applications—systematically overcompensates insurance companies. In short, rescission allows insurers to refuse benefits to people who make innocent misrepresentations and suffer losses even while retaining the premiums of similarly situated people who never file claims. The principles of contract law do not compel this result, and courts have made insurance law doctrine less coherent in an effort to avoid it. Given the problems that rescission creates in the innocent misrepresentation context, this Note proposes an alternative remedy called “actuarially fair reformation.” Actuarially fair reformation would avoid rescission’s market-distorting inefficiencies by awarding misrepresenting insureds the amount of insurance that their premiums could have financed.

+ Full Paper (PDF)

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