Under the law of agency, the knowledge and acts of the legal agent are considered to be the knowledge and acts of the legal principal. In the area of health and life insurance, your insurance agent is the legal agent of the insurance company. In other words, the insurance company is responsible for the acts of the agent when dealing with you and is assumed to have all the knowledge that the agent has. This is important for you.
For example, if your insurance agent is aware of a medical condition you have that would make you uninsurable, completes your application for insurance and, without your knowledge or consent, leaves off any mention of your uninsurable medical condition, the insurance company is regarded under the law as having knowledge of your medical condition.. Assuming no other complicating factors, in this case the insurance company, because of this, will not be allowed to assert a misrepresentation on your application to later deny a claim and void your policy.
If an insurance company is attempting to deny your claim on the basis that your medical condition existed prior to the effective date of your insurance policy (a preexisting condition excluded by the policy) or on the basis that the medical information left off of your application is grounds for voiding the policy (which, of course, makes the claim unpayable), you may be able to assert, as a defense, knowledge of the agent and, thereby, of the company.
This defense will not always work. Most insurance companies now have a statement on their applications that the agent does not have authority to alter the application. Many courts have looked to this wording in the application as a basis for refusing to attribute knowledge of the agent to the insurance company when changes have been made to the application. If the court takes that position, then the inaccurate application would be your fault, not the insurance company’s.
Other courts, however, have found the statement limiting the agent’s authority to be insufficient and have held that the agent’s actions and knowledge are those of the insurance company. In these cases, the inaccurate application would be the insurance company’s fault, not yours. Obviously, if your health insurance provider denies your claim based on medical history not shown on your application but you know the agent has knowledge of, you should seek the advice of an attorney experienced in bad faith claims to protect your rights.
Another approach to this issue taken by many insurance companies is to attach the completed application to the insurance policy when the policy is issued to you. This practice is actually required by law in many states. When an insurance company attaches a copy of the completed application to the issued policy, some courts have ruled that you, the insured, have a duty to read the application attached to the policy when you receive the policy and that you must immediately notify the insurance company of any incorrect or incomplete answers.
Whether the court will attribute the alleged actions and knowledge of the agent to the insurance company depends on the facts and circumstances of each case and on state law. Even if your completed application is not attached to your issued policy, some courts have ruled that you have a duty to read your completed application before signing it, and if you do so, it is presumed that you will notice that the agent has improperly completed it. Most applications do have a statement above the signature line whereby you acknowledge having read the completed application.
But each case depends on its own facts. Courts have been known, for example, to attribute knowledge to the insurance company even when the agent advised the insured to change information on the application so the insured could obtain the insurance. This sounds like collusion, which is a secret agreement between the agent and the insured to misrepresent information to the insurance company to defraud it. Ordinarily when collusion is found, knowledge is not attributed to the insurance company, and the courts will not allow the colluding parties to benefit from their wrongdoing.