To Begin at the Beginning.
The provisions proposed in the pending Senate Health Care Bill will not become Law in a vacuum, if they are enacted. They would change Law, many of them. One of those provisions would rearrange the existing State Law of Rescission and replace it with a new Federal Law of Rescission in Health Insurance Policies and Plans subject to the Bill if it becomes Law.
Here is how Rescission works in the vast majority of jurisdictions now.
First, Rescission of Insurance Policies is a creature of State, not Federal Law. That would change if the proposed Federal Rescission provision is enacted.
Second, Regulation of Insurance has been almost exclusively left to the States for a long time, not to the Federal Government. Rescission is one of several areas in which this historical arrangement would change if the proposed provision in the pending Senate Health Care Bill becomes Law.
Florida is a good example of how Rescission works now. Florida Statute Section 627.409 (2009) applies to Health Insurance Companies as well as other types of Insurance Companies.
In pertinent part, current Rescission Law throughout the United States generally applies to "any statement or description" which is "made by or on behalf of" an applicant for an Insurance Policy. Clearly, the applicant is expressly made responsible for others who make statements or provide descriptions on her, his or its behalf. If the "statement or description" in the application is [1] a "misrepresentation," [2] an "omission," [3] a "concealment of fact," or [4] "an incorrect statement" then any one of these four categories can "prevent recovery under the contract or policy" if, in pertinent part:
The misrepresentation, omission, concealment, or statement is fraudulent or is material either to the acceptance of the risk or to the hazard assumed by the insurer.
OR:
"If the true facts had been known to the insurer pursuant to a policy requirement or other requirement, the insurer in good faith would not have":
[a] "issued the policy or contract";
[b] "would not have issued it at the same premium rate";
[c] "would not have issued a policy or contract in as large an amount, or"
[d] "would not have provided coverage with respect to the hazard resulting in the loss."
Fla. Stat. § 627.409(1)(a) & (b) (2009). [Emphasis added.]
In short, as Rescission Law stands now, it purports to include representations, omissions, concealments or statements which are "incorrect" without necessarily also being "fraudulent" so long as they are "material either to the acceptance of the risk or to the hazard assumed by the insurer." Id. [Emphasis added.] In general terms, the non-fraudulent grounds for rescission based on representations, omissions, concealments or statements which are "material" to the risk accepted or to the hazard assumed, have been interpreted by Courts as being defined by the four factors listed as [a] through [d] above.
Given this background, what changes would be wrought by the pending Senate Health Care Bill will be addressed in another post on this Web Log.
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