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    Illinois Department of Insurance Proposes Rule on Misrepresentations and False Warranties

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    The Illinois Department of Insurance (“DOI”) has issued a notice of proposed rules to create 50 Ill. Adm. Code 941 regarding misrepresentations and false warranties. A previous version of the proposed rule was proposed in December of 2014 and withdrawn in October 2015. The DOI reason for the withdrawal was several industry participants were opposed to the rule and the DOI determined that the issues required further research.

    The DOI advises that it has seen a number of complaints regarding rescissions based on an alleged misrepresentation or material change in risk where the DOI believes the rescission and basis for such rescission is not valid. In the notice, the DOI states “Due to the concern from our regulators, and the harm to consumers, who are often third parties (for example, an individual who gets into an accident with someone whose insurance company rescinds their policy), the Department believes it is necessary to clarify via rule that if a company opts not to obtain the readily available information for named insureds and drivers provided by the applicant at the time of application to underwrite the risk prior to issuing the policy, the company shall not defeat, avoid or rescind the policy of insurance based on obtaining the readily available information after a loss has occurred or a claim is filed.”

    The current version of the proposed rules provides that “if the company opts not to obtain readily available information for named insureds and drivers provided by the applicant at the time of application to underwrite the risk prior to issuing the policy, the company shall not defeat, avoid or rescind the policy of insurance based on obtaining the readily available information after a loss has occurred or a claim is filed.”

    Persons who wish to comment on this proposed rule may submit written comments to the DOI no later than October 10, 2016.

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