Question

As part of a divorce settlement, an ex-husband purchased from an insurance company an annuity to be paid at a fixed amount quarterly over the life of his ex-wife. (An annuity contract requires the payment of a fixed amount periodically for the duration of a person's life.) Within a week after the purchase, the ex-wife learned that she had a fatal illness, which had not previously manifested itself, but had existed for some time. She died two months later, prior to receiving any payments from the annuity. The ex-husband filed suit to rescind the annuity contract. Will he be successful?

A. No, because the annuity contract was a third-party beneficiary contract.
B. Correct Answer: No, because the ex-husband assumed the risk of his ex-wife's death.
C. Yes, because the ex-wife's death frustrated the purpose of the annuity.
D. You Selected: Yes, because the ex-husband and the insurance company made a mutual mistake as to ex-wife's health.

Answer 1

Option B is the correct answer. The ex-husband is unlikely to succeed in rescinding the annuity contract because by entering into it, he accepted the inherent risk of his ex-wife's uncertain lifespan. Insurance agreements like annuities are designed to manage risks such as these, and the death of the ex-wife does not qualify as a reason for rescission in this case.

Step-by-step explanation:

The question pertains to whether an ex-husband can rescind an annuity contract after the death of his ex-wife, who passed away shortly after the annuity was purchased. The ex-husband assumed the risk of the ex-wife's death when he purchased the annuity; hence, rescission on those grounds would likely be unsuccessful. Therefore, the correct answer is No, because the ex-husband assumed the risk of his ex-wife's death.

Annuity contracts are designed to manage longevity risk, and the uncertainty of life span is a fundamental part of such agreements with insurance companies. The ex-wife's pre-existing condition, unknown at the time of the annuity's purchase, does not typically constitute a reason for rescission unless fraud or misrepresentation is involved, which is not suggested in this scenario. Additionally, the contract was created to provide for the ex-wife, and not contingent on her having a certain lifespan.