Car Insurance Claim Denied for Misrepresentation: What Am I Supposed to Do?

June 28, 2024

Honesty is the best policy, especially when it comes to taking out insurance coverage. However honest you are, no car owner is immune to the unpleasant situation of having their insurance claim denied. If that happens due to a lie, concealment of facts, or a misrepresented financial statement, also known as material misrepresentation in insurance, you might end up losing your coverage altogether.
Insurance companies are no strangers to such cases. When they discover the claimants provided incorrect information when the policy was issued, they have to refuse to compensate claimants for damages.
Even if you are confident that your contract was drawn up in compliance with all rules and laws, you should be prepared for any surprises and learn:

  • What is a material misrepresentation in insurance?
  • How dangerous is misrepresentation for the policyholder?
  • How to avoid unintentional misrepresentation
  • When would a misrepresentation in insurance be considered fraud?

This article will explore the intricacies of misrepresentation, prepare you for the most unexpected situations, and help you properly communicate with insurers to protect your rights.
Let’s start by looking into what lies behind the term “material misrepresentation in insurance.”

Understanding Misrepresentation in Insurance

In law, misrepresentation is considered one of the essential components of fraud. Misrepresentation can be fraudulent (when a person deliberately presents facts that are untrue), negligent (when a person carelessly presents information without checking whether it is accurate), and innocent (when a person believes the information to be true).

A graphic representation of three types of misrepresentation in practical law: fraudulent, negligent, and inncocent

Source: ResearchGate

Like in practical law, the definition of misrepresentation in insurance involves cases where the applicant provides false, inaccurate, or incomplete information when obtaining an insurance policy. Such actions are considered data misrepresentation and may result in the insurance company refusing to compensate for damages or terminating the contract.

Material misrepresentation in insurance can have serious and far-reaching consequences, as well as significant financial losses for both the insurance company and its client. Read on to understand what this entails.

Material Misrepresentation in Insurance: What Could Be the Consequences?

When entering into a contract, insurance companies rely on highly accurate data to objectively assess all risks and determine the appropriate type of coverage. Below, we will examine each of these consequences to understand the issue’s importance and to ensure your protection if the insurance company accuses you of manipulations.
Misrepresentation can have the following consequences:

Claim Rejection

If a misrepresentation is found to be material for underwriting (facts were intentionally distorted), the insurance company may reject your claim. However, they may use any accidental or intentional inaccuracy to deny coverage. In such cases, you have the right to appeal the decision or file a claim for grievances.

Policy Cancellation

In the case of material misrepresentation, one of the consequences threatening the policyholder could be the cancellation of the insurance policy. Typically, the cancellation procedure is preceded by an investigation of the incident, followed by notification to the policyholder of the cancellation. This allows them to contest the insurance company’s claims.
Even if you succeed in doing so, it may negatively impact your insurance history. Other companies may treat you with caution when you attempt to obtain insurance. This could result in either altered insurance terms, increasing premiums, or complete denial of coverage.

Insurance agent misrepresentation (deliberate, significant data distortion when obtaining an insurance policy) can lead to serious legal consequences, including fraud charges with all ensuing complications.
It is important to understand the difference between unintentional misrepresentation, which occurs due to ignorance and negligence, and intentional, fraudulent actions. Understanding this difference, as well as providing accurate information, will protect you from problems related to fraud accusations.
Regardless of whether the data was intentionally misrepresented or inaccuracies were made out of ignorance or negligence, each case will have consequences of varying severity. Next, we will discuss how to avoid them.
Looking for the right car insurance coverage? Get your free insurance quote in a matter of minutes!

Preventing Material Misrepresentation in Insurance Applications

For both the insurance company and the policyholder, it is crucial that the provided information is accurate. Here’s how to avoid the consequences:

  • Before submitting your application, ensure the accuracy of the provided data and include only up-to-date information.
  • Maintain communication with your insurance agent, informing them of all facts that may affect your insurance.

As we can see, it takes very little effort to maintain good relations with the insurance company and preserve your insurance history. Checking the details before filling out the contract will not take much time, but it will help you avoid serious problems in the future, examples of which we have provided below.

Real-Life Examples of Misrepresentation

Instances of misrepresentation in auto insurance occur much more frequently than you might imagine. This trend is due to applicants providing incorrect information about themselves and their circumstances. As we have mentioned, this can be done either unintentionally or intentionally. Let’s look at a few cases.

  • Incorrect Garage Address

A car owner who moved to a new residence forgot to inform their insurance agent about the change of garage address. However, this information is crucial for the insurance company because the location directly affects the insurance premiums and monthly payments.
In this case, before moving, the applicant’s car was kept in a garage located in a quiet, safe neighborhood. After moving to an area with a higher crime rate, the car was damaged in an attempted theft.
Since the applicant did not inform their insurer about the change in circumstances, the insurance company denied the damage claim.

  • Concealing Health Facts

Michael (name changed) took out an auto insurance policy but did not disclose important information about his health, specifically vision problems, which would have led to a more expensive insurance policy.
It was proven that he did this intentionally to obtain better insurance terms and lower monthly premiums. As a result, his car was damaged after hitting a hydrant that the owner did not see.
During the investigation, it was proven that the driver’s actions were deliberate, and the insurance policy was canceled.

  • Car Arson

A real example of misrepresentation in insurance aimed at obtaining a large insurance payout involves a case where the applicant’s car was burned in their own garage. The car owner filed a claim with the insurance company for the full value of the car.
An investigation initiated by the insurer determined that the arson was carried out intentionally by a group of individuals whose “services” were paid for by the policyholder. As a result, his action was deemed insurance fraud, and the case was taken to court, where it was classified as a criminal offense.

Ensure the Accuracy of Provided Information

Providing truthful facts when drafting an insurance contract is the key way to avoid problems with insurance companies and the law.

However, the human factor can sometimes play a trick. For example, a driver might forget to mention some important information, leading to many problems. To prevent this, familiarize yourself with all the nuances of drafting an insurance contract.
Looking for the right car insurance coverage? Get your free insurance quote in a matter of minutes!

Frequently Asked Questions

What if my material misrepresentation was unintentional?

Material misrepresentation of life insurance can lead to contract termination and the payment of compensation for losses incurred by the insurance company.

When can a misrepresentation void an insurance policy?

Your insurance contract can be voided if you intentionally provide distorted information or commit material misrepresentation for insurance purposes.

What are the three types of misrepresentation?

Like in practical law, misrepresentation has three forms in insurance: 
– Fraudulent (material misrepresentation of incorrect data for insurance purposes to deceive).
– Negligent (providing data whose accuracy was not verified, without intent to deceive).
– Innocent (providing information that the policyholder believes to be correct).

What is the contestability period in insurance policies?

This period can last up to two years. During this time, insurance companies conduct their investigations to check claims for errors and discrepancies.

How can you avoid the misrepresentation of insurance-related information in the first place?

Before providing any information to the insurance company, thoroughly verify its accuracy.

Victoria Berezhetska

Victoria Berezhetska is a Content Lead at Phonexa.com and an expert contributor to CoverExplore. She has a Bachelor of Science degree in Business Administration, with extensive working experience as a PR specialist and content writer. At CoverExplore, she helps customers find the right educational material through easily digestible blog posts and buying guides backing their insurance coverage choice. Victoria covers diverse topics around digital and insurance marketing, including auto, home, health, and life insurance.

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