A California disability policy has been in force for more than two years when the insurer discovers that the applicant knowingly concealed treatment for a serious heart condition on the application. The insured then submits a claim for a disability that began after the two-year mark. Under the mandatory 'Time Limit on Certain Defenses' provision required by CIC Section 10350.2, the insurer:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Section 10350.2 requires disability policies to include the 'Time Limit on Certain Defenses' provision (Form A): after two years from the date of issue, no misstatements made in the application - except fraudulent misstatements - shall be used to void the policy or deny a claim for loss incurred or disability commencing after the two-year period. A knowingly concealed material medical condition is a fraudulent misstatement, and fraud remains contestable beyond the two-year mark. The provision balances underwriting accuracy against the policyowner's interest in finality, but it does not shield applicants who deliberately lied.
Why the other options are wrong
- B) The two-year time limit bars use of nonfraudulent misstatements only; fraudulent misstatements are expressly carved out and remain a valid defense.
- C) Section 10350.2 does not create a benefit-reduction remedy; an insurer that establishes fraud may contest the policy or deny the claim, not merely scale back benefits.
- D) Nothing in the provision requires the insurer to obtain the Insurance Commissioner's approval before relying on the statutory fraud exception.
Memory hook
Two years, then the application is settled - unless it was a fraudulent lie.