Which statements concerning the prudent-insurer standard used to test the materiality of misrepresented facts are correct?

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

Answer: (D)

Materiality under the prudent-insurer standard is judged from an objective, underwriting-focused perspective. It asks whether a reasonably prudent underwriter would have considered the misrepresented fact important in deciding to issue the policy, set terms, or price the risk. In other words, a fact is material if, in light of standard underwriting practices, it would have influenced the insurer’s decision-making at the time of issue. The test looks at how the risk would have been assessed by a prudent insurer, not at the insured’s or agent’s subjective beliefs or at the insurer’s actual historical choice in a specific case.

That’s why statements that imply materiality depends on personal views or on the insurer’s particular decision in a given situation aren’t correct under this standard. The emphasis is on whether a reasonable insurer would have considered the information material in the underwriting process. Therefore, neither of the stated propositions aligns with how materiality is determined by the prudent-insurer standard.