UAS Insurance Applications – Representations and Misrepresentations
Aviation insurance companies routinely request certain information from applicants for all types of operational risk exposures. This information is needed to help in evaluating the risks to be covered by the insurer and to determine appropriate rates, limits and breadth of coverage. However, when a claim is made for a loss under the policy, the insurer may sometimes discover that the insured misrepresented or withheld certain material facts in the application for the insurance. The misrepresentation or omission may be in the form of an incomplete or false answer to a question on the application or rather the concealment of certain facts. The misrepresentation may be intentional with a purpose to deceive, or it may be an innocent and inadvertent mistake.
When a post loss misrepresentation is discovered, the insurer may be entitled to deny the claim under the policy and even rescind the policy. Rescission has the effect of making the policy void back to inception as though the policy was never in effect at all. The basis of that entitlement is that it would not be in the public interest to permit a dishonest insured to recover for losses that would eventually be passed along in the way of higher premiums charged to honest insureds.
When completing an insurance application, you must provide complete disclosure and truthful representations. Read the application completely and expand upon answers if additional material details exist. More information is better.
Most insurance applications contain an Application Statement at signing that reads as follows. If you do not understand the wording, ask your broker for clarification. It’s best to provide too much than too little information.
I understand that by signing below, I am agreeing that: all statements on this application are complete and true to the best of my knowledge; no information has been suppressed or withheld; no insurer has cancelled or refused to renew this insurance; the information herein and the truthfulness thereof will be the basis of any insurance provided by the company; this application does not bind the applicant or the company to provide any insurance; any person who knowingly and with intent to defraud any insurance company or other person files an application for insurance or statement of claim containing any materially false information, conceals for the purpose of misleading, information concerning any fact material thereto, commits a fraudulent insurance act, which is a crime, and shall also be subject to a civil penalty not to exceed five thousand dollars and the stated value of the claim for each such violation.
A false or misleading statement that, if intentional and material, can allow the insurer to void the insurance contract. Some insurance policies and state laws that govern insurance contract provisions vary on the exact details of the conditions under which coverage may be voided; these variations are usually denoted in state amendatory endorsements.
A statement made in an application for insurance that the prospective insured represents as being correct to the best of his or her knowledge. If the insurer relies on a representation in entering into the insurance contract and if it proves to be false at the time it was made, the insurer may have legal grounds to avoid the contract.
Regulations Versus Representations
Although aviation insurance policies, including those that are placed to cover UAS, do not exclude Federal Aviation Regulation (FAR) violations, insurers can deny coverage based upon representations made in the application that reference FARs. If you represent that you operate within certain FAR provisions and the underwriter relies upon that those representations as a basis for providing coverage, you must operate within those FAR provisions as a condition of coverage under the policy.
For example, if an insured represents that they hold, and are operating under a 333 Exemption and are afforded rating and coverage limits based upon that representation but then have a loss while operating outside of that exemption, the insurer could deny coverage. The reason for denial would not be a violation of an FAR but rather that the insured represented that they were operating under the provisions of their exemption as a basis of obtaining insurance. If the loss involves something that would have been avoided had the insured followed the provisions of their exemption, then there will almost certainly be a denial of coverage.
Insureds must always provide complete, detailed and accurate information in the insurance application. That is the first document that will be reviewed following a loss and that is the document that will help clarify the Insured’s operations and show the intent of the coverage and the basis upon which coverage was quoted and bound. Even if that coverage is in conflict with policy language, conditions, exclusions or definitions. In those cases, the representations in the application actually fall in the insured’s favor by extending coverage under the policy beyond what the policy language intended.
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