Background
A company bought a $250,000 key-person policy on its president at the non-smoker rate. On the application he answered “No” to whether he smoked or had ever smoked. In fact he had smoked half a pack a day for at least ten years. He died within the two-year contestable period, and the insurer’s routine review uncovered the smoking history.
What the court held
Under New York law, even an innocent misrepresentation, if material, lets the insurer avoid the policy. The policy owner argued the answer was not material because the insurer would still have sold coverage, just at smoker rates, so the benefit should be reduced rather than voided. The Second Circuit rejected that argument. Materiality is judged against the particular policy issued: the insurer was induced to issue a discounted non-smoker policy it would have refused had it known the truth. “Most risks are insurable at some price,” the court noted, and the point is that the risk insured matches the risk the policy covered. Rescission with a refund of premiums and interest was affirmed.
Why it matters
This is a common pattern in contestable-period denials, but JMR applied New York’s statute and case law. Each state sets its own test for when a misstatement is material and what remedy follows, so the governing state’s law has to be checked. The exact question asked, the answer given and who filled out the application all matter. See our contestability guide.
Read the opinion
Mutual Benefit Life Ins. Co. v. JMR Electronics Corp., 848 F.2d 30 (2d Cir. 1988) (Justia).
Not legal advice. This page summarizes general rules and the specific statutes cited. Your policy's wording, the state whose law applies, and whether the coverage came through an employer can all change the result. See the disclaimer and editorial policy.