The test of materiality for a representation can be based on which of the following?

• A. I only
• B. II only
• C. Both I and II
• D. Neither I nor II

Answer: (C)

Materiality of a representation hinges on whether the misstatement would have mattered to the insurer in deciding to issue the policy and in setting its terms. It can be based on two practical considerations: how the underwriting decision would have changed if the truth had been known, and how the policy’s terms or premium would have differed as a result. If either factor would have influenced the insurer’s decision to accept the risk or to price and condition the coverage differently, the representation is material. For example, undisclosed smoking status could lead to a higher premium or a denial if known; similarly, knowing the truth could have changed whether the policy was issued at all or under different terms. Because materiality can be determined from both the potential underwriting impact and the impact on terms, both considerations can apply.