Concealment

Key Takeaways

• Concealment is the omission of crucial information affecting an insurance contract.
• Insurers can void policies if material details are omitted, even if they haven't asked for them directly.
• Misrepresentation involves giving false information; both concealment and misrepresentation can void policies.
• Warranty statements in policies help prevent concealment, ensuring disclosure of crucial facts.
• Concealment can nullify insurance claims if an undisclosed history, like smoking, is discovered.

What Is Concealment?

Concealment is the omission of information that could affect the issuance or the rate of an insurance contract. If pertinent information has been withheld from an insurer, the company has a right to refuse to pay out claims to the insured after the contract was approved. Even if an insurer does solicit details with a direct question, concealment can apply, as it covers misrepresentation. Insurers can nullify an insurance contract if concealment occurs.1

The Impact of Concealment on Insurance Policies

Concealment applies any time an insured party fails to provide information to an insurer that could affect the terms of the policy. Note that this includes situations in which an insurance company does not ask a direct question about the information in question. Insurance policies generally lump concealment in with misrepresentation as a reason to void or alter a contract.

Concealment technically consists of neglecting to provide information that, if presented, would change the terms of the policy.

Misrepresentation involves actively providing incorrect information to an insurance agent when purchasing a policy.2

Whether a policyholder is found to have misrepresented or concealed salient information purposely or by accident, insurers reserve the right to alter or void policies when they discover the omission or misrepresentation.2

Smokers have a higher likelihood of encountering health issues than non-smokers, so many health, life, and disability insurance policies request information about whether or not a policyholder uses tobacco products or has a history of tobacco use. Suppose the policyholder was a regular smoker but quit ten years ago. If they marked no in answer to a question about having a history of smoking, they would be engaging in misrepresentation.

If instead, the application asked an open-ended question about a person’s health history, and the individual failed to mention smoking, that would be concealment. In either case, if that person wound up dying of lung cancer or emphysema, the insurance company could deny payment of a life insurance claim if it discovered that individual’s history of smoking.2

Concealment Clauses and Warranty Issues in Insurance

For an insurer to cancel a policy, the policy must include questions worded as conditional warranty statements, which some insurance policies will often include.

These questions will be vital to the decision to provide coverage and to the premium price. With these statements, the applicant clarifies that the answers they give are true and accurate. As an example, health insurance applicants may need to warrant that they do not have a terminal illness at the time of application.3

Warrants may be affirmative or promissory.

Affirmative warrants apply to the time of making the statement, which is at the contract's creation. As an example, an insurer may ask an applicant if they have any traffic violations. The insurance provider may void the auto insurance policy if the applicant's answer is later found to be false. Since the untrue statement is given at the creation of the contract, the entire contract is void.

Promissory warrants apply to events that will remain true in the future. As an example, an applicant may sign a promissory warrant that they will not begin to use tobacco products in the future. If they are later found to have started using these products, the insurer may cancel coverage or deny claims.4