Rescission
Encyclopedia
In contract law, rescission has been defined as the unmaking of a contract between parties. Rescission is the unwinding of a transaction. This is done to bring the parties, as far as possible, back to the position in which they were before they entered into a contract (the status quo ante
).
and is discretionary. A court may decline to rescind a contract if one party has affirmed the contract by his action (see Long v Lloyd [1958] 1 WLR 753) or a third party has acquired some rights or there has been substantial performance in implementing the contract. Furthermore, because rescission is supposed to be imposed mutually upon both sides to a contract, the party seeking rescission normally must offer to give back all benefits he or she has received under the contract (an "offer of tender").
Virginia uses the term "cancellation" for equitable rescission. Furthermore, a minority of common law jurisdictions, like South Africa, use the term "rescission" for what other jurisdictions call "reversing", "overturning" or "overruling" a court judgment. In this sense, the term means to be set aside or made void
, on application to the court that granted the judgment or a higher court. Applications to rescind a judgment are usually made on the basis of error or for good cause.
Most common law jurisdictions avoid all this confusion by holding that one rescinds a contract and cancels a deed (i.e. of real property), and treat rescission as a contractual remedy rather than a type of procedural remedy against a court judgment.
. In 2008, one judge ruled that borrowers who refinanced into an adjustable-rate mortgage could force a bank to rescind mortgage loans if it acted similarly inappropriately. Rescission is typically viewed as "an extreme remedy" which is "rarely granted".
, or material breach of warranty. Generally, to rescind, an insurer will send a notice to the insured and tender a check in the amount of the premium paid for the relevant policy period.
In certain states such as Oklahoma the insurer is additionally required to prove an "intent to deceive" in the misrepresentation; this fraud or intent requirement was extended federally for health insurance contracts effective September 23, 2010 by Section 2712 of the Patient Protection and Affordable Care Act
. In the long-run the change may have little effect in practice given that the bill eventually will not allow underwriting based on preexisting conditions.
In health insurance
and specifically the individual and small group insurance markets, rescissions have generally followed the diagnosis of an expensive-to-treat illness in the patient (policyholder), typically because of withheld information about a pre-existing medical condition. This practice was popularized during the 2009 US healthcare debate, known colloquially as "cancel coverage when you get sick". The practice of health insurance rescission was partially limited starting September 23, 2010, following the adoption of the Patient Protection and Affordable Care Act
in 2010. A House committee report found that WellPoint Inc., UnitedHealth Group
and Assurant
rescinded policies for more than 20,000 people over a five-year period; the House report also found highlighted 13 particular cases.
In 2010, it was revealed that WellPoint specifically targeted women with breast cancer
for aggressive investigation with the intent to cancel (rescind) their policies. The disclosures followed the discovery that Assurant Health similarly targeted all recently-diagnosed HIV
-positive (AIDS
) policyholders for rescission. U.S. Department of Health and Human Services (HHS) Secretary Kathleen Sebelius
sent a letter to WellPoint urging the insurer to immediately end their practice of dropping health insurance coverage for the women.
The software technology used by Wellpoint as well as other major American health insurance companies is provided by MIB Group, Inc.. The software automatically triggered a fraud investigation on every policyholder recently diagnosed with breast cancer and searched for conditions not disclosed in the application. The MIB Group provides a "Follow-up Service" which allows for a "second chance" to underwrite based on additional, discovered information during the contestable period. The service is maintained for two years after initial underwriting and may include, among other information credit history, medical conditions, driving records, criminal activity, drug use, participation in hazardous sports, and personal or family genetic history. Consumers can request a copy of the data in their report from MIB Group.
, rescission authority rests with the President
. This authority was granted in the Congressional Budget and Impoundment Control Act of 1974
. The President can force Congress
to vote on rescinding (or permanently withholding) already appropriated
funds. The average amount that Presidents requested between 1974 and 2005 was about $15 billion.
In parliamentary procedure
, the motion to rescind, repeal or annul is used to cancel or countermand a motion previously adopted.
Status quo
Statu quo, a commonly used form of the original Latin "statu quo" – literally "the state in which" – is a Latin term meaning the current or existing state of affairs. To maintain the status quo is to keep the things the way they presently are...
).
In court
Rescission is an equitable remedyEquitable remedy
Equitable remedies are judicial remedies developed and granted by courts of equity, as opposed to courts of common law. Equitable remedies were granted by the Court of Chancery in England, and remain available today in most common law jurisdictions. In many jurisdictions, legal and equitable...
and is discretionary. A court may decline to rescind a contract if one party has affirmed the contract by his action (see Long v Lloyd [1958] 1 WLR 753) or a third party has acquired some rights or there has been substantial performance in implementing the contract. Furthermore, because rescission is supposed to be imposed mutually upon both sides to a contract, the party seeking rescission normally must offer to give back all benefits he or she has received under the contract (an "offer of tender").
Virginia uses the term "cancellation" for equitable rescission. Furthermore, a minority of common law jurisdictions, like South Africa, use the term "rescission" for what other jurisdictions call "reversing", "overturning" or "overruling" a court judgment. In this sense, the term means to be set aside or made void
Void (law)
In law, void means of no legal effect. An action, document or transaction which is void is of no legal effect whatsoever: an absolute nullity - the law treats it as if it had never existed or happened....
, on application to the court that granted the judgment or a higher court. Applications to rescind a judgment are usually made on the basis of error or for good cause.
Most common law jurisdictions avoid all this confusion by holding that one rescinds a contract and cancels a deed (i.e. of real property), and treat rescission as a contractual remedy rather than a type of procedural remedy against a court judgment.
By private companies
In finance, law, and insurance, rescission is the termination of a contract from the beginning (as if it never existed), rendering it void ab initioVoid (law)
In law, void means of no legal effect. An action, document or transaction which is void is of no legal effect whatsoever: an absolute nullity - the law treats it as if it had never existed or happened....
. In 2008, one judge ruled that borrowers who refinanced into an adjustable-rate mortgage could force a bank to rescind mortgage loans if it acted similarly inappropriately. Rescission is typically viewed as "an extreme remedy" which is "rarely granted".
Insurance
Insurers have the right to rescind an insurance policy due to concealment, material misrepresentationMisrepresentation
Misrepresentation is a contract law concept. It means a false statement of fact made by one party to another party, which has the effect of inducing that party into the contract. For example, under certain circumstances, false statements or promises made by a seller of goods regarding the quality...
, or material breach of warranty. Generally, to rescind, an insurer will send a notice to the insured and tender a check in the amount of the premium paid for the relevant policy period.
In certain states such as Oklahoma the insurer is additionally required to prove an "intent to deceive" in the misrepresentation; this fraud or intent requirement was extended federally for health insurance contracts effective September 23, 2010 by Section 2712 of the Patient Protection and Affordable Care Act
Patient Protection and Affordable Care Act
The Patient Protection and Affordable Care Act is a United States federal statute signed into law by President Barack Obama on March 23, 2010. The law is the principal health care reform legislation of the 111th United States Congress...
. In the long-run the change may have little effect in practice given that the bill eventually will not allow underwriting based on preexisting conditions.
In health insurance
Health insurance
Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care expenses among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is...
and specifically the individual and small group insurance markets, rescissions have generally followed the diagnosis of an expensive-to-treat illness in the patient (policyholder), typically because of withheld information about a pre-existing medical condition. This practice was popularized during the 2009 US healthcare debate, known colloquially as "cancel coverage when you get sick". The practice of health insurance rescission was partially limited starting September 23, 2010, following the adoption of the Patient Protection and Affordable Care Act
Patient Protection and Affordable Care Act
The Patient Protection and Affordable Care Act is a United States federal statute signed into law by President Barack Obama on March 23, 2010. The law is the principal health care reform legislation of the 111th United States Congress...
in 2010. A House committee report found that WellPoint Inc., UnitedHealth Group
UnitedHealth Group
UnitedHealth Group Incorporated is a diversified health and "well-being" company. Headquartered in Minnetonka, Minnesota, UnitedHealth Group offers a spectrum of products and services through two operating businesses: United Healthcare and Optum. Through its family of subsidiaries and divisions,...
and Assurant
Assurant
Assurant is a specialty insurance company headquartered in New York City. Assurant’s four businesses provide a wide range of insurance products and related services, including creditor-placed homeowners insurance, manufactured housing homeowners insurance, credit insurance, individual health and...
rescinded policies for more than 20,000 people over a five-year period; the House report also found highlighted 13 particular cases.
In 2010, it was revealed that WellPoint specifically targeted women with breast cancer
Breast cancer
Breast cancer is cancer originating from breast tissue, most commonly from the inner lining of milk ducts or the lobules that supply the ducts with milk. Cancers originating from ducts are known as ductal carcinomas; those originating from lobules are known as lobular carcinomas...
for aggressive investigation with the intent to cancel (rescind) their policies. The disclosures followed the discovery that Assurant Health similarly targeted all recently-diagnosed HIV
HIV
Human immunodeficiency virus is a lentivirus that causes acquired immunodeficiency syndrome , a condition in humans in which progressive failure of the immune system allows life-threatening opportunistic infections and cancers to thrive...
-positive (AIDS
AIDS
Acquired immune deficiency syndrome or acquired immunodeficiency syndrome is a disease of the human immune system caused by the human immunodeficiency virus...
) policyholders for rescission. U.S. Department of Health and Human Services (HHS) Secretary Kathleen Sebelius
Kathleen Sebelius
Kathleen Sebelius is an American politician currently serving as the 21st Secretary of Health and Human Services. She was the second female Governor of Kansas from 2003 to 2009, the Democratic respondent to the 2008 State of the Union address, and chair-emerita of the Democratic Governors...
sent a letter to WellPoint urging the insurer to immediately end their practice of dropping health insurance coverage for the women.
The software technology used by Wellpoint as well as other major American health insurance companies is provided by MIB Group, Inc.. The software automatically triggered a fraud investigation on every policyholder recently diagnosed with breast cancer and searched for conditions not disclosed in the application. The MIB Group provides a "Follow-up Service" which allows for a "second chance" to underwrite based on additional, discovered information during the contestable period. The service is maintained for two years after initial underwriting and may include, among other information credit history, medical conditions, driving records, criminal activity, drug use, participation in hazardous sports, and personal or family genetic history. Consumers can request a copy of the data in their report from MIB Group.
By government
In American governmentFederal government of the United States
The federal government of the United States is the national government of the constitutional republic of fifty states that is the United States of America. The federal government comprises three distinct branches of government: a legislative, an executive and a judiciary. These branches and...
, rescission authority rests with the President
President of the United States
The President of the United States of America is the head of state and head of government of the United States. The president leads the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces....
. This authority was granted in the Congressional Budget and Impoundment Control Act of 1974
Congressional Budget and Impoundment Control Act of 1974
The Congressional Budget and Impoundment Control Act of 1974 is a United States federal law that governs the role of the Congress in the United States budget process.-The Congressional budget process:...
. The President can force Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
to vote on rescinding (or permanently withholding) already appropriated
Appropriation bill
An appropriation bill or running bill is a legislative motion which authorizes the government to spend money. It is a bill that sets money aside for specific spending...
funds. The average amount that Presidents requested between 1974 and 2005 was about $15 billion.
In parliamentary procedure
Parliamentary procedure
Parliamentary procedure is the body of rules, ethics, and customs governing meetings and other operations of clubs, organizations, legislative bodies, and other deliberative assemblies...
, the motion to rescind, repeal or annul is used to cancel or countermand a motion previously adopted.
External links
- Health Care Rescission Legislative Hearing, video playlist of testimony by legislators, health care industry officials, as well as people who were denied health care due to up to 2000 points of criteria which could trigger a rescission investigation and deny a person access to essential services emergency health care during that investigation period.