Two months after a California life policy is issued, the insured and insurer both realize that the policy mistakenly lists the face amount as $50,000 when the application clearly applied for and the agent confirmed $500,000, and the correct premium for $500,000 was paid. The appropriate remedy is:

Explanation

REFORMATION is an equitable remedy under California Civil Code §3399 that allows a court to revise a written contract to conform to the true agreement of the parties when, by mutual mistake or by one party's fraud combined with the other's mistake, the writing does not accurately reflect what was actually agreed; correcting the face amount to $500,000 is precisely that remedy. Here both sides intended a $500,000 face amount and the correct premium was paid; only the policy document misstates the figure. Reformation is preferred over rescission because it preserves the bargain rather than unwinding it, so the response calling for rescission of the entire policy and a refund of premium is too drastic when reformation will cure the mistake. The response forfeiting the policy because the written document controls absolutely ignores equity. The response sending the insured into a bad-faith punitive-damages suit with no contract remedy conflates a separate tort with the contract remedy. Reformation is a standard topic on California's insurance principles section because it distinguishes equity from strict contract law.