Contestability for fraudulent misrepresentation in life insurance

Purpose

If the life insured deliberately answers the health questions incorrectly to obtain cover or better terms, that undermines the basis on which the policy was priced. The clause, and the underlying statute, gives the insurer a right to avoid the contract, stricter and allowed for longer than the ordinary right of withdrawal for a merely negligent breach of disclosure.

Effect and limits

Avoidance always requires a fraudulent, deliberate answer to a risk-relevant question intended to deceive the insurer. If the insurer proves fraud, it can unwind the contract retroactively; premiums already paid generally remain with the insurer, and the benefit obligation is extinguished entirely, even where the concealed fact bears no relation to the claim that arose. The time limit for avoidance begins once fraud is discovered and is considerably longer than for an ordinary withdrawal for negligent non-disclosure.

Negotiation and practice

Because proving fraud is a high hurdle, insurers and beneficiaries often dispute whether an incorrect answer was truly deliberate or merely a negligent misunderstanding of the question. For applicants, answering every health question carefully and completely is the most effective safeguard against a later risk of avoidance.

Jurisdictional comparison

Switzerland’s Art. 6 VVG governs breach of the duty of disclosure, with a short four-week withdrawal period from the point of knowledge, regardless of fault; a separate, stricter avoidance right for fraud under general contract law remains available alongside it. Germany’s Section 22 VVG distinguishes withdrawal for a simple breach of disclosure (Section 19 VVG) from standalone avoidance for fraudulent misrepresentation, subject to considerably longer time limits. Austria’s Section 22 VersVG provides a comparable avoidance right for fraud, independent of the one-month withdrawal right under Section 20 VersVG. The differing time limits make careful analysis of the applicable law essential in cross-border cases.