Stop Loss Disclosure: Do I need to tell them?

Your broker has canvassed the market and secured a proposal from a A+ rated stop loss insurer. All you have to do is sign the Proposal and complete the Disclosure Form.

We have all seen the language on the Stop Loss Disclosure Forms…

“It is the Plan Sponsor’s responsibility, either directly or through their designated representative, to accurately report all claims known as of the date of this disclosure by making a thorough review of all applicable records……”

Or else….

But what does disclosure really mean? What is important? How much information and detail do I have to provide? What does it mean “To the best of my knowledge”? If I tell them, will I have to pay more? Will they change the terms?

This blog will attempt to frame this issue at a higher level which may serve to inform a Plan Sponsor how best to answer those questions.

The following is extracted from an Expert Witness Report that ELD provided in a Stop Loss claim arbitration involving the denial of a $1.4M medical claim by a stop loss carrier.

Materiality Defined

Let's start with a definition of what is important to disclose, in other words, what is material.

“Material misrepresentations on an application consist of untrue statements or omissions that are material to acceptance of the risk that would either change the rate at which coverage is offered or would cause the insurer to avoid a coverage offer entirely (Childers and Kraham, 2012).”^[1]

Industry Perspective regarding Materiality

In the stop-loss insurance industry, "material" refers to the specific details and information about a potential insured's ("Plan Sponsor's") health plan that are crucial for a stop loss insurance company and their underwriter to accurately assess and price their stop-loss coverage, including factors like the number of employees, location, plan design, network, the claims administrator, known risks, effective date, contract type, claim history, and the desired attachment points (the threshold at which the stop-loss coverage kicks in) for both individual claimants ("specific stop-loss") and the group’s overall claims ("aggregate stop-loss") within a plan year. They are considered material because if these inputs are changed, the offer (e.g. quote or proposal) is subject to reformation or rescission.

Detail and information which may be material to one insurer under its requirements and guidelines may not be material to another insurer. Where the requirements and guidelines for a particular insurer do not provide an underwriter with discretion, the underwriter cannot ignore them or waive them.

Carriers, via their underwriters, rely on the information in the disclosure to make the decision to issue a policy (or not) and at what at the coverage levels. Disclosure is a primary means to assess and review known high risk claimants. An applicant’s disclosure information impacts the premium rates, terms and aggregate claim factors that are calculated or even if an offer of coverage is even made.

Ultimately, it is the insured’s responsibility to make sure disclosure is accurate and complete. By applying for coverage and accepting the benefits under the policy, the insured (or the person acting for the insured) represents that all information in the disclosure is true, correct and complete.

Stop-loss carriers believe that disclosures are complete, accurate and truthful because if a carrier learns that an insured provided incorrect facts, deceived the carrier, misrepresented or omitted material facts that the carrier relied upon in the decision to issue a policy at the coverage levels and premium rates offered, the carrier normally reserves the right to recalculate the premium rates back to the effective date of coverage and/or re-determine the terms and conditions of the policy to what they would have been had the information been correct and complete or take other consequential actions including:

• Denial of claims.

• Recalculation of premium rates or re-determination of the terms and conditions of this policy.

• Termination of this policy, including retroactively back to its effective date (rescission).

• Recovery of amounts paid.

• Prosecution to the full extent under state and federal law.

Common Cures for Misrepresentation or Omission

Reformation or claim denial in the event of a misrepresentation or omission of a material fact are the more common industry practices unless that there is clear and convincing evidence that an actual fraud was committed.

Voiding or rescinding a policy, due to the potential for severe impact on the insured that is unrelated to the claim in question, generally requires an absolutely certainty that the reasons for voidance or rescission are based on a comprehensive factual analysis which often is not available independent of litigation. Although fraud is broadly defined, a carrier would normally look for a record that there was an intention on the part of the applicant or the applicant’s agents to deceive prior to policy recission or voidance.

Conclusion & Summary

Stop-loss insurers assume that applicants are accurate, complete and truthful in their disclosures because the applicants are required to be (“duty of good faith”). Underwriters assume that the applicant’s attestations means that their declarations are authoritative facts that have been researched, are complete, and are truthful. Stop Loss underwriters assume that an employer or plan sponsor would want to engage in a diligent, thorough and complete analysis prior to deciding to self-fund or purchase a stop loss policy because an accurate underwriting analysis is in the best interest of the plan sponsor as it informs their own decisions. After all, most of the risk is being self funded is carried by the Plan Sponsor and not the stop loss insurer.

Parties to a commercial insurance transaction also understand that untrue statements or omissions that are material may result in claim denial, reformation or rescission.

Stop Loss insurance carriers rely upon an applicant’s disclosure. The disclosure is the only means by which a known risk can be evaluated. It is both reasonable and appropriate for commercial stop loss carriers to rely on the truthfulness of an applicant’s disclosures about its participants’ employment, medical history and current health condition disclosed during negotiations and application for coverage.

© 2026 ELD Consulting Group Ltd LLC. All rights reserved.

^[1] The National Association of Insurance Commissioners Journal of Insurance Regulation; Cassandra Cole and Kathleen McCullough Co-Editors, Vol. 34, No. 3: Material Misrepresentations in Insurance Litigation: An Analysis of Insureds’ Arguments and Court Decisions, Page 2