## Facts

- JMR Electronics Corp. applied for a $250,000 “key man” life insurance policy on its president, Joseph Gaon, at a discounted nonsmoker premium rate.
- The application asked whether Gaon currently smoked cigarettes and whether he had ever smoked; Gaon answered “No” to both questions.
- Mutual Benefit Life Insurance Co. issued the policy at the nonsmoker rate based on those representations and its underwriting rule that nonsmoker rates required no cigarette smoking for at least 12 months before application.
- Gaon died within the policy’s contestability period under New York insurance law.
- During claim investigation, the parties stipulated that at the time of application Gaon had been smoking about one-half pack per day for at least 10 years.
- Mutual sought rescission and return of premiums; JMR counterclaimed for the policy proceeds.

## Issues

1. Whether, under New York law, false statements about smoking history in a life insurance application are material as a matter of law when the insurer would not have issued the policy on the same terms (nonsmoker rate), even if it might have offered coverage on different terms (smoker rate).
2. Whether summary judgment is proper on materiality when the misrepresentation and underwriting consequences are undisputed.

## Decision

- The Second Circuit affirmed summary judgment for Mutual.
- The court held Gaon’s smoking-related misrepresentations were material as a matter of law.
- The court upheld rescission of the policy and dismissal of JMR’s counterclaim for proceeds.

## Legal Principles

- Under New York law, a material misrepresentation in an insurance application allows the insurer to avoid the contract, even if the misrepresentation was innocent.
- A misrepresentation is material if knowledge of the truth would have led the insurer to refuse to issue the same policy on the same terms.
- Materiality does not turn on whether the insurer might have issued some other policy or issued coverage at a different premium.
- Where falsity and underwriting impact are clear and substantially uncontradicted, materiality may be decided as a matter of law on summary judgment.

## Conclusion

Because the insured falsely denied any cigarette smoking and the insurer’s underwriting rules made that fact determinative of eligibility for nonsmoker rates, the misrepresentation induced issuance of the specific policy on the specific terms and justified rescission under New York law.


Mut. Benefit Life Ins. Co. v. JMR Elecs. Corp., 848 F.2d 30 (2d Cir. 1988)