What distinguishes misrepresentation from fraud in insurance?

The choice stating that misrepresentation is a false representation, while fraud is an intentional act of deception, accurately captures the key distinction between the two concepts in the realm of insurance. Misrepresentation refers to providing incorrect or misleading information, which may be unintentional and stems from a genuine misunderstanding or lack of knowledge. For instance, if a policyholder mistakenly states their prior claims history incorrectly, this is a misrepresentation.

On the other hand, fraud involves a deliberate intention to deceive another party for unjust gain. In insurance, this might manifest as an applicant knowingly providing false information to secure a policy under false pretenses or to manipulate the terms of an existing policy. The intent behind fraud is what differentiates it from misrepresentation; while misrepresentation can occur without malicious intent, fraud inherently involves deceit and a purposeful intention to mislead.

Therefore, the distinction lies in the nature and intent behind the act—misrepresentation may arise from error and be innocent in nature, whereas fraud is characterized by a calculated and intentional effort to deceive.