An applicant for a homeowners policy answered 'no' to a question asking whether the dwelling had ever sustained fire damage, when in fact a kitchen fire two years earlier had caused $40,000 in damage. The insurer issued the policy and later discovered the truth after an unrelated theft claim. To rescind for material misrepresentation, the insurer must establish all of the following EXCEPT:

Why this is the answer

The classic four-element rescission test for material misrepresentation in insurance underwriting is: (1) the applicant made a false statement, (2) the statement was material to the insurer's underwriting decision (a reasonable insurer would have charged more, imposed different terms, or declined), (3) the insurer relied on the statement, and (4) the misrepresentation induced the insurer to issue the policy on those terms. A causal nexus between the misrepresentation and the specific loss at issue is NOT required for rescission.