054.00.4-1. UNDERWRITING PRACTICES FOR INDIVIDUAL ACCIDENT, HEALTH, CASH INCOME, AND LIFE INSUR...
AR ADC 054.00.4-1Arkansas Administrative Code
Ark. Admin. Code 054.00.4-1
054.00.4-1. UNDERWRITING PRACTICES FOR INDIVIDUAL ACCIDENT, HEALTH, CASH INCOME, AND LIFE INSURANCE POLICIES.
A. The following principles for the underwriting of individual policies shall be used by insurers authorized to transact such insurance in the State. A medical examination shall be required for all applicants over the age of 65 years for life insurance purchased from companies writing other than on a legal reserve basis. The remainder of this regulation shall not apply to life insurance.
2. Most applicants for such insurance are insurable as standard risks. A significant proportion are substandard to some degree, but are insurable either at a larger premium or with some limitation of coverage. A proportion of applicants are uninsurable. Evaluation of risk is made by the insurer on the basis of information furnished in the application, supplemented by other investigation to the extent necessary.
Disputes between insured and insurer based on underwriting practices are uncommon when a policy has been issued on an application which has elicited full pertinent information. If a policy is issued on incomplete or inaccurate information, the risk cannot be properly evaluated since there has been no meeting of minds between applicant and insurer. In such cases dispute is likely.
3. Evaluation of the disability insurance risk requires knowledge of any hazard associated with the applicant's activities; knowledge of his economic circumstances, including the existence of other insurance; and information about the applicant's health, including previous medical history. The degree of information required may vary with the nature of the benefits applied for. Dispute is most likely to arise from inadequate information about the applicant's health; and deficiency in health information furnished in connection with the application is most likely to come to light in the investigation which follows a claim.
b. Where the misrepresentation is material, the insurer has a right to rescind. But, the insurer may offer reformation to provide the coverages which would have been furnished if full and correct information had been available with the application. Of course, in the absence of fraud, the insurer's right to rescind to limited by the first three policy years as provided in Section 66-3605(1) of the Arkansas Insurance Code.
c. Where the material misrepresentation involves a pre-existing condition from which the present claim developed, the insurer may acknowledge the validity of the policy contract but defend the claim in accordance with a provision of the valid contract. It is most important to distinguish between rescission of a contract, on the one hand, and defense of a claim in accordance with a provision of a valid contract. The insurer's right to denyliability on the ground of prior origin is limited by law to the first three policy years, as provided in Section 66-3605 (1) of the Arkansas Insurance Code.
5. The principles noted in the previous paragraphs illustrate the importance of having full and accurate information with the application. The insurer has an obligation to design its application so as to request all information which it considers pertinent. The applicant has an obligation to answer the questions accurately and completely.
6. If an application contains conflicting answers, or if an answer is clearly incomplete, the insurer has an obligation to investigate further. For example, if a question about medical history is answered with the name of a doctor, but there is no statement concerning the condition treated or the reason for the visit, the insurer has an obligation to investigate further. An insurer failing to make such an investigation would be estopped from using the material it would have found by such inquiry, either for the purposes of rescission or for the purposes of rejecting the claim on the basis of pre-existing condition.
7. If an application does not contain conflicting answers and the answers appear to be complete, the insurer should not be expected or required to investigate further to confirm the accuracy of the information given or to establish that certain details may have been omitted by the applicant which would have been of underwriting significant. For example, if a question about medical history is answered with the name of a doctor and a statement of a condition treated or reason for the visit, the insurer is entitled to rely on that information without further investigation. Information revealed on the application may cause the policy to be ridered or endorsed to exclude liability for a pre-existing condition. Otherwise, the insurer may not use the defense of prior origin in connection with a claim based on such pre-existing condition unless there are other unadmitted details which clearly make the condition of materially greater underwriting significance than is shown on the application.
8. The applicant should not be expected to volunteer information which the insurer has not asked for in its application. If the policy which the insurer has not asked for in its application. If the policy applied for would contain a prior origin exclusion, the application should contain questions searching enough to elicit the material information. Where an insurer prefers to use a simplified application with or without are question as to the applicant's health at the time of application. Where an insurer prefers to use a simplified application with or without a question as to the applicant's health at the time of application, but without any questions concerning the insured's health history or medical treatment history, the policy may exclude loss incurred within its first twelve months from a condition which pre-existed the policy, provided the policy clearly covers loss developing after twelve months from any preexisting condition not specifically excluded from coverage by the terms of the policy; and except as so provided, the policy will not be permitted to include working that would permit a defense based upon pre-existing conditions.
a. Questions in an application requiring the applicant's opinion regarding past or present health of a person proposed for coverage shall be asked to the best of the applicant's knowledge and belief. Questions regarding an applicant's past or present health which are phrased so as to require factual information rather than a statement of the applicant's opinion need not be so qualified. The applicant shall not be required to agree or state that he has not withheld any information or concealed any facts; however, he may be required to state that his answers are true and complete to the best of his knowledge and belief.
b. No claim shall be reduced or denied on the ground that the disease or physical condition for which claim is made pre-existing the effective date of the policy coverage unless the insurer has evidence that such disease or physical condition had manifested itself prior to the effective date of the benefit applicable thereto. Such manifestation shall be established by proof of:
c. No policy provision which denies coverage because of a preexisting condition or which sets forth a waiting period shall use the phrase “the cause of which originates”. Violation will result in administrative action by this Department. In settling claims under existing policies which may contain such phrase, it is recommended that insurers be guided by the same standards as are applicable to any other phrase relating to preexisting sickness, as set forth in the paragraph immediately above.
e. In the absence of fraud, rescission of a policy on material misrepresentation or concealment or defense of a claim on the ground of prior origin is limited to the first three policy years as provided in Section 66-3605 of the Arkansas Insurance Code. Thereafter an insurer has recourse to rescission only if fraud is involved.
f. Those parts of this section which relate to applications and the answers thereto do not apply to types of policies which do not normally lend themselves to individual underwriting, such as single premium nonrenewable policies, limited policies, credit policies, franchise policies and industrial policies.
Current with amendments received through February 15, 2024. Some sections may be more current, see credit for details.
Ark. Admin. Code 054.00.4-1, AR ADC 054.00.4-1
| End of Document |