Policy Provisions & Contract Law

Correct

The answer is A: The insurer may void the policy if the misstatement was material

A material misrepresentation is one that would have changed the insurer's underwriting decision. If the DUI history would have meant a different premium, different coverage terms, or a declination, a knowing misstatement about it can let the insurer void the policy. In Texas, a policy clause voiding coverage for a false application statement has no effect unless the matter misrepresented was material to the risk or contributed to the loss (Insurance Code §705.004). The insurer must also give notice that it refuses to be bound within 90 days after it discovers the falsity (§705.005), and Texas courts require intent to deceive (Mayes v. Massachusetts Mutual, Tex. 1980). Not every inaccuracy justifies voiding the policy.

Source: Insurance Code §705.004 · Insurance Code §705.005

Correct

The answer is C: Misrepresentation — damages for relying on the agent's promise

In Texas, an agent cannot alter or waive a policy term (Insurance Code §4001.052(b)), and waiver and estoppel generally cannot create coverage that the policy excludes (Texas Farmers v. McGuire, Tex. 1988; Ulico v. Allied Pilots, Tex. 2008). The flood exclusion stands, so the client's best theory is that the agent misrepresented the policy. Misrepresenting a policy is an unfair or deceptive act under Insurance Code §541.061, and §541.151 lets a person damaged by it sue for actual damages; an agent is a person who can be held liable (§541.002). The client may recover damages for the misrepresentation, not flood benefits under the policy; the outcome depends on the facts.

Source: Insurance Code §4001.052(b) · Insurance Code §541.061 · Insurance Code §541.151 · Insurance Code §541.002

Correct

The answer is D: Representation, which need only be substantially true

Statements made on an insurance application are representations, not warranties. Representations need only be substantially true. Even a material misstatement does not automatically void a Texas policy: a clause voiding coverage for a false application statement has no effect unless the matter misrepresented was material to the risk or contributed to the loss (Insurance Code §705.004), the insurer must give notice that it refuses to be bound within 90 days after discovering the falsity (§705.005), and Texas courts also require intent to deceive (Mayes v. Massachusetts Mutual, Tex. 1980). Maria honestly believed her statement, so intent is missing. Warranties, by contrast, are strict guarantees found in the policy itself and must be literally true.

Source: Insurance Code §705.004 · Insurance Code §705.005

Correct

The answer is A: Written advance notice, as statute requires, stating the reason

Under Texas Insurance Code §551.104, once a homeowners policy has been in effect 60 days, an insurer may cancel it mid-term only for nonpayment of premium, a fraudulent claim, an increase in hazard within the insured's control that would raise the premium rate, or a TDI finding that continuing the policy would violate the law. In each case the cancellation does not take effect until the 10th day after the insurer mails written notice to the insured, and the insurer must give a written statement of the reason; for a policy issued or renewed on or after January 1, 2026, it must do so without the insured having to ask (§551.109, as amended by H.B. 2067). A cancellation that does not follow these rules has no effect. These requirements protect consumers from arbitrary or surprise cancellations.

Source: Insurance Code §551.104 · Insurance Code §551.109

Correct

The answer is A: Representations — they need only be substantially true

Statements on an insurance application are treated as representations, not warranties. A representation is a statement believed to be true at the time it is made. It need only be substantially true — minor inaccuracies do not void the policy. Only a material misrepresentation (one that would have changed the underwriting decision) may give the insurer grounds to void the contract (Insurance Code §705.051), and Texas courts also require intent to deceive (Mayes v. Massachusetts Mutual, Tex. 1980; American National v. Arce, Tex. 2023). A good-faith statement of belief about her health, as here, lacks that intent.

Source: Insurance Code §705.051