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by petitioner’s beneficiary. A representative of the Idaho
Department of Insurance and a representative of Royal testified
that, short of misrepresentation or wrongdoing by petitioner,
there was no reason why Royal could avoid payment of a claim.
Additionally, the rebating by the agent, although illegal under
State law, did not provide the insurance company with a defense
to a claim on the policy. There is no evidence of wrongdoing or
any misrepresentation by petitioner. If there had been some
wrongdoing and/or misrepresentation by petitioner regarding the
policy, Royal may have had a defense to payment on the policy.
The only wrongdoing was a rebating of the premium to petitioner
by Schwab.
Under Idaho's insurance statutes, unauthorized rebating by
an insurance agent is illegal. See Idaho Code sec. 41-1314
(1991). In this case, rebating also violated the terms of the
agreement and contractual relationship between the insurer and
the agent, but has no direct effect on the insured. Royal might
have had recourse to recover the rebated portion of the premium
(in this case the entire first year premium) from Schwab, but
that does not change the fact that petitioner had the benefit of
1 year's universal life insurance coverage, along with an option
to renew. As discussed in Wentz v. Commissioner, supra, even if
petitioner had become uninsurable during the year, he could have
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