An insurer rescinds a Tennessee long-term care policy for a material misrepresentation discovered during the first 6 months the policy was in force. The insurer had already paid benefits under the policy before the rescission. What happens to the benefits already paid?

Why C is correct

T.C.A. § 56-42-107(e) provides that if benefits were paid under a Tennessee long-term care policy, the insurer may not recover them when it rescinds the policy for misrepresentation. Rescission unwinds the contract going forward, but benefits that have already been paid stay paid, which protects insureds who received covered care in good faith before the misrepresentation came to light.

Why the other options are wrong

• A) There is no repayment-with-interest remedy running from the insurer to the policyowner on rescission; the issue is whether the insurer may claw back benefits, and it may not.
• B) Dollar-for-dollar recovery of paid benefits is exactly what T.C.A. § 56-42-107(e) forbids.
• D) Paid benefits are not forfeited to the Tennessee Department of Commerce & Insurance; they simply remain with the insured.

Memory hook

Paid LTC benefits stay paid, even on rescission.