Telling lies on an auto insurance application is far from wise. Procedures for checking the information provided to insurance companies are increasingly sophisticated and extensive, making it progressively more likely that false information will be exposed. As well as the probability of being detected, a person who lies on an insurance application runs the risk of having the policy rescinded and being obliged to pay costs that may amount to tens of thousands of dollars.
The law is quite clear on the penalties that apply to people who give false information when completing an insurance application. An example of this is California Insurance Code Section 359. Under this code section, if a false representation is made in relation to any material point, whether it is affirmative or promissory, the company can rescind the policy and it will also be regarded as invalid “from the time the representation becomes false”. This means in such a case that the policy is deemed to have actually provided no cover for the person who gave the false information.
A spokesman for the California Department of Insurance, Scott Edelen, points out that more than one problem can occur for someone who lies on an insurance application. As well as having the policy rescinded, the person may also be liable financially. This could happen if, during the rescinded policy period, any claim damages were paid. Such claim can involve large amounts, leaving the policy holder owing a lot of money.
Edelen, who is deputy insurance commissioner, communications, for the California Department of Insurance, said a recent example of such a predicament for a policy holder involved a person who had provided an insurance company with a false address. This had apparently been done in order to secure a cheaper rate, and the policy had existed in this form, with an incorrect address, for several years. The insurance company eventually discovered that the address supplied was false and rescinded the policy, but the problems for the policy holder did not stop there. In fact they were just beginning.
Checking its records, the insurance company found that while the policy was in existence it had paid a claim filed by the person who provided the false address. The claim followed an incident involving the policy holder and another motorist who had not been covered by insurance at the time. As well as having the policy rescinded, the former holder was then sued for the damages that were incurred during the policy’s life. A lost judgment then resulted in the former policy holder being ordered to pay the cost of the claim that had been paid when the policy existed under the wrong address. The former holder also had to pay the difference between the cost of the policy as it had been and the cost it would have been at the correct address. The order also included payment of interest on both these amounts. Overall, the lie cost the former policy holder more than $20,000, much more than the extra cost that would have been incurred by providing the true address in the beginning.
People who are considering telling lies on insurance application should be aware that there is a strong possibility such lies will be discovered fairly quickly. The availability of modern technology makes checking information easy, and few insurance companies are prepared to take an applicant’s word without applying some checking processes to the information supplied so that potential risk can be assessed and priced accordingly. As State Farm spokesman Bill Sirola says, companies such as his can check customer’s driving records in their home states, and access nation-wide driving record information through Comprehensive Loss Underwriting Exchange (CLUE) and a variety of other claims information data bases. The type of information that can be gathered includes tickets, violations and other facts about the person’s driving record. While it is usual for the record of the past three years to be checked before a company agrees to provide a policy, an offence such as driving under the influence is subject to checking over the period of the past seven years. Any claims that have been made with insurers over the years, and the amounts of those claims, will also show up through organizations such as CLUE.
With such laws and checking procedures in place, telling lies on insurance applications is not worth the risk it involves. Northern California consumers, Don Sinn and Betty Proctor, agree with this. Don Sinn say lying would be foolish and would come back to haunt the person. Lies about a driving record, for example, would be exposed when the insurance company ran a check with the Department of Motor Vehicles. Sinn says he is aware that his policy could be cancelled or his premium raised if his insurance company caught him out in such as lie. Betty Proctor agrees and, although she has no intention of lying, is well aware that if she does so, her policy is likely to be rescinded. Like many people they conclude that honesty, in all insurance cases, is definitely the best policy.