Kirk Johnson applied for life insurance with New York Life. On the application, he stated that he had not smoked in the past 12 months and that he had never smoked cigarettes. In fact, he had smoked for 13 years and during the month he applied for the policy, he was smoking approximately 10 cigarettes per day. Had New York Life known about his smoking it would still have issued the policy, but it would have charged a substantially higher premium. Johnson died two years later of causes unrelated to smoking. New York Life denied the claim and rescinded the policy.

Questions:

1. Was Johnson’s misrepresentation material? 

2. Did his lie affect the insurance company’s risk?

3. What is the appropriate remedy? Johnson’s father (and beneficiary) argued that he should pay the company the difference between the low premium of a non‑smoker and the higher premium the company would have charged if it had known that Johnson smoked. Do you agree?

4. What is the moral of this story?