When an insurance company denies a claim or attempts to rescind a policy based on the insured’s alleged failure to disclose information material to the risk when applying for insurance, insureds often counter that the insurer is engaging in “postloss underwriting.” Postloss underwriting (also known as postclaim underwriting) is defined as “waiting until a claim has been filed to obtain information and make underwriting decisions which should have been made when the application was made, not after the policy was issued.” Lewis. v. Equity Nat’l Life Ins. Co., 637 So. 2d 183, 186 (Miss. 1994); see also Thomas C. Cady & Georgia Lee Gates, Post Claims Underwriting, 102 W. Va. L. Rev. 809 (2000). By common law or statute, many states prohibit insurers from engaging in postloss underwriting because it is “patently unfair for a [policyholder] to obtain a policy, pay his premiums and operate under the assumption that he is insured against a specified risk, only to learn after he submits a claim that he is not insured, and, therefore, cannot obtain any other policy to cover the loss.” Lewis, 637 So. 2d at 189.
In case law, postloss underwriting most frequently arises in the context of health insurance, where the insured allegedly failed to disclose a medical condition on his application. The insured argues that the insurer did not investigate the insured’s health during the application process and so cannot deny coverage based on a condition that the insurer would have discovered had it performed its due diligence. However, postloss underwriting can arise in other contexts, such as first-party property and casualty claims. For example, the condition of the insured’s building may be material to the risk, but if the insurer failed to ask whether the building is adequately protected against fire, it may be accused of postloss underwriting if it later denies a claim for a fire loss based on the building’s lack of a fire alarm. Alternatively, if the insurer suspected that, contrary to the insured’s representation, the building did not have a fire alarm but did not investigate to confirm, it cannot later rescind coverage on that basis. See Landmark Am. Ins. Co. v. Green Lantern Roadhouse LLC, 2009 WL 413086, at *4 (S.D. Ill. Feb. 18, 2009) (insurer waived right to rescind when it did not do so promptly after discovering that insured’s building did not have fire alarm as represented in application).
To prove a postloss underwriting claim, the insured will often want access to certain documents of the insurer. This article will examine an insured’s right in litigation to obtain insurance policy underwriting history and an insurance company’s underwriting and claims manuals where the insured alleges that the insurer has engaged in postloss underwriting.