Voidable
In insurance, "voidable" refers to a policy or contract that can be declared invalid by one of the parties, usually the insurer. This means the insurer has the right to cancel the policy and refuse to pay any claims if certain conditions or circumstances are met.
What is Voidable in Insurance?
A voidable insurance contract is one that remains valid and enforceable until the insurer decides to void it. This decision usually happens if the policyholder has not met certain conditions or has violated terms set out in the contract. For example, if a business owner provides false information on their insurance application, the insurer may have the right to void the policy. When a policy is voided, it is as if it never existed, and the insurer is not obligated to cover any claims.
Example: Imagine a business owner applies for a property insurance policy and does not disclose that their building has a history of structural issues. If a structural problem leads to damage later on, the insurer could investigate and find out that the business owner did not disclose this important information. Because of this omission, the insurer may void the policy, meaning they will not cover the damage costs.
Key ways that policies are voided
Misrepresentation: This occurs when the policyholder provides false or misleading information on the insurance application. This can include exaggerating the value of insured property, hiding previous claims, or failing to disclose relevant risks.
Non-Disclosure: If the policyholder fails to provide important information that the insurer needs to accurately assess the risk, this is considered non-disclosure. For instance, not mentioning that your business is involved in hazardous activities can lead to the policy being voided.
Breach of Warranty: A warranty in insurance is a promise made by the policyholder that certain conditions will be met. If these conditions are not met, the insurer can void the policy. For example, a warranty might require that a business installs a specific type of security system. If the business fails to install this system, the insurer could void the policy.
Non-Payment of Premiums: If a policyholder fails to pay their insurance premiums, the insurer has the right to void the policy. Without payment, the contract is not fully executed, and coverage is not guaranteed.
