III CONCEALMENT What is Concealment?

? Concealment is a neglect to communicate that which a party knows and ought to communicate to the other party. What are the requisites for concealment? For concealment to vitiate a contract of insurance, the following must be present 1. the matter concealed must be MATERIAL 2. there must be an OBLIGATION for the insured to reveal the concealed matter to the insurer What matters must be communicated even in the absence of inquiry? Each party to a contract of insurance must communicate in good faith all facts within his knowledge only when: 1. They are MATERIAL to the contract 2. The other has not the means of ASCERTAINING the said facts 3. As to which the party with the duty to communicate makes no WARRANTY. What is the test of materiality? A fact is material if knowledge of it would have affected the decision of the insurer to enter into the contract, in estimating the risk, or in fixing the premium Note: Matters relating to the health of the insured are material and relevant to the approval and issuance of the life insurance policy as they definitely affect the insurers action on the application (Sunlife vs CA 245 SCRA 268) It is well-settled that the insured need not die of the disease he had failed to disclose to the insurer, as it is sufficient that his NON-DISCLOSURE MISLED the insurer in forming his estimates of the risk of proposed insurance policy or in making inquiries (ibid) Lack of understanding by the illiterate insured of the statements and her application as to her state of good health does not negate the insurers right to rescind (Tang vs CA 90 SCRA 236) Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that he should communicate it to the assured, but he designedly and intentionally withholds the same. What are the matters which one has no duty to disclose? Neither party to a contract of insurance is bound to communicate information of the matters following, except in answer to the inquiries of the other: 1. Those which are already known to the insurer 2. Those which, in the exercise of ordinary care, are ought to be known to the insurer or his agent,

3. 4.

5.
6.

7.

1 Those undisclosed facts which are not material Those which each party is bound to know: - general causes eg. public events; and - general usages of trade - eg. rules of navigation all risks connected with navigation) Information or the nature or amount of the interest of one insured except if insured is a lessee or a mortgagee (read sec 51) Those of which the insurer waives communication The right to information of material facts may be waived, either: a. Expressly by the terms of the insurance b. Impliedly by neglect to make inquiry as to such facts, where they are distinctly implied in other facts of which information is communicated (Fact disclosed that one was confined in the hospital. The insurer did not inquire as to the cause of confinement, the latter is in estoppel) Judgment upon the matters in question eg. Opinion, speculation or expectation (How long will you live?)

What are the consequences of concealment? The rule is concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance. However, an intentional and fraudulent omission, on the part of one insured, to communicate information of matters proving or tending to prove the falsity of a warranty is required to entitle the insurer to rescind Note: Good faith is no defense in concealment (Sunlife vs CA 245 SCRA 268) Exceptions: 1. Incontestability clause: In life insurance, after a policy has been in force for at least two years, the insurer cannot rescind the policy due to fraudulent concealment or misrepresentation of the insured. If the insured dies within two years from the effectivity of the policy, rescission due to concealment or misrepresentation of material matters may still be invoked by the insurer, provided done within two years from the effectivity of the policy 2. Certain concealments in Marine Insurance The following matters although concealed will not vitiate the contract of marine insurance except when they are caused the loss. a. National character of insured b. Liability of insured thing to capture or detention c. Liability to seizure form breach of foreign laws d. Want of necessary documents e. Use of false or simulated papers

IV REPRESENTATION What is representation? A representation is an oral or written statement of a fact or condition made by the insured at the time of or prior to the issuance of the policy, affecting the risk made by the insured to the insurer, tending to induce the insurer to assume the risk Distinguish Misrepresentation with Concealment Misrepresentation Concealment Insured makes a Insured maintains silence statement of fact which when he ought to speak is untrue What are the kinds of representation? 1. Oral 2. Written 3. Affirmative representation 4. Promissory representation

2 A representation may be made at the time of or before issuance of the policy. It may be altered or withdrawn before issuance of the policy, but not afterwards Note: A representation must be presumed to refer to the date on which the contract goes into effect Hence: 1. There is NO FALSE representation it is true at the time the contract takes effect although false at the time it was made. 2. There is FALSE representation if it is true at the time it was made but false at the time the contract takes effect in this case the insurer is entitled to rescind When is a representation deemed to be false? A representation is deemed to be false when the facts fail to correspond with its assertions or stipulations. What is misrepresentation? A misrepresentation in insurance is a statement: 1. As a fact of something which is untrue 2. Which the insured states with knowledge that it is untrue and with intent to deceive, or which he states positively as true without knowing it to be true and which has the tendency to mislead 3. where such fact in either case is material to the risk NOTE: An insured who has no personal knowledge of a fact may communicated such information which he has, and believes it to be true, upon the subject matter with the explanation that said information was obtained from 3rd persons. In this case he is not responsible if the information turns out to be false. Except if the information proceeds from an agent of the insured whose duty is to give information to his principal. This is so because knowledge of the agent is also knowledge of the principal What is the effect of false representation or misrepresentation|? If the representation is false on a material point, the injured party is entitled to rescind from the time when the representation becomes false. HOWEVER, the right to rescind given to the insurer is waived by the acceptance of premium payments despite knowledge of the ground of rescission What is the test of materiality? Materiality is determined by the probable and reasonable influence of the facts on the party to whom communication is due, in forming his estimate of the contract, the risk and the premium NOTE: When the original contract of insurance was modified by reason of concealment or

What is an affirmative representation? It is any allegation as to the existence or non-existence of a fact when the contract begins What is a promissory representation? It is any promise to be fulfilled after the contract has come into existence or any statement concerning what is to happen during the existence of the insurance. A promissory representation is substantially a condition or a warranty. A promissory representation maybe: 1. 1 Used to indicate a parole or oral promise made in connection with the insurance, but not incorporated in the policy. - the non-performance of such a promise cannot be shown by the insurer in defense of an action on the policy, but proof that the promise was made with fraudulent intent will serve to defeat the insurance 2. As an undertaking by the insured, inserted in the policy but not specifically made a warranty. Distinguish Warranty and Representation Warranty Representation It is part of contracts It is mere collateral inducement, but it may qualify an implied warranty It is expressly set forth in It may be oral or written the policy itself or in another instrument incorporated therein by reference It is conclusively It must be proved to be presumed material material It must be strictly It is requires only complied with substantial truth or compliance Falsity or non-fulfillment Falsity renders the policy operates as a breach of void on ground of fraud contract When is representation made?

3 misrepresentation on the part of the insured especially when modification pertains to material points, upon discovery of such concealment or misrepresentation, the insurer is allowed to rescind said modification. When is the right to rescind available? In order that the insurer may rescind a contract of insurance, such right must be exercised prior to the commencement of an action on the contract. (Example, if the insured filed an action to collect amount of the insurance, it can no longer rescind the contract) Incontestability clause Incontestability means that after the requisites are shown to exist, the insurer shall be estopped from contesting the policy or setting up any defense, except as is allowed of the ground of public policy. Requisites: 1. The policy is a life insurance policy 2. It is payable on the death of the insured 3. It has been in force during the lifetime of the insured for at least 2 years from its date of issue or of its last reinstatement NOTE: The period of two years for contesting a life insurance policy may be shortened but it cannot be extended by stipulation Effect when the policy becomes incontestable When the policy of life insurance becomes incontestable, the insurer may not refuse to pay the same by claiming that: 1. The policy is void ab initio (voidable) 2. It is rescissible by reason of the fraudulent concealment of the insured or his agent or 3. It is rescissible by reason of the fraudulent misrepresentations of the insured or by his agent Defenses not barred by incontestable clause The incontestability of a policy under the law is not absolute. The insurer may still contest the policy of the following grounds: 1. The FRAUD is of a particularly vicious type, as when the policy was taken out in furtherance of a scheme to murder the insured, or where the insured substitutes another person for the medical examination or where the beneficiary feloniously kiss the insured 2. The beneficiary FAILED to furnish proof of death or to comply with any condition imposed by the policy after the loss has happened 3. That the PREMIUMS have not been paid 4. That the person taking the insurance lacked INSURABLE INTEREST as required by law 5. The cause of the death of the insured is an EXCEPTED RISK 6. That the conditions of the policy relating to military or naval service have been VIOLATED 7. The ACTION was not brought within the time specified V. WARRANTIES What is a warranty? A warranty is a statement or promise stated in the policy itself or incorporated therein by reference, whereby the insured expressly contracts as to the present or future existence or certain facts, circumstances or conditions, the literal truth of which is essential to the validity of the contract of insurance What does warranty relate to? It may relate to the past, the present, the future or to any or all of these. What are the kinds of warranties? 1. Affirmative warranty where the insured asserts the existence of a matter at or before the issuance of the policy 2. Promissory warranty where the insured promise or undertakes that certain matters shall exist or will be done or omitted after the policy takes effect 3. Express warranty where the assertion or promise is clearly set forth in the policy or incorporated therein by reference 4. Implied warranty where the assertion or promise is not expressly set forth in the policy, but because of the general tenor of the terms of the policy, or from the very nature of the insurance contract, a warranty is necessarily inferred or understood.

What is the required form to create a warranty? There is no particular form or words necessary to create a warranty. Whether a warranty is constituted or not depends upon the intention of the parties, the nature of the contract or the words used thereto. Incase of doubt, the statement is presumed to be a mere representation and not a warranty. When should an express warranty be made? It should be made at or before the execution of a policy Where should an express warranty be contained? Express warranty may be contained either: 1. In the policy itself 2. In another instrument signed by the insured and referred to in the policy as making part of it. Mere reference is not sufficient to give warranty. Note: A statement in a policy, of a matter relating to the person or thing insured, or to the risk as a fact is an express warranty. A statement which is in the nature of an opinion or belief is not a warranty What is a promissory warranty? It is a statement in a policy that a thing which is material to the risk is intended to be done or not to be done after the policy takes effect.

As a general rule: the non-performance of a promissory warranty entitles the other party to rescind the contract: Exceptions to the rule are: 1. Loss occurs BEFORE the time arrives for the performance of the promissory warranty 2. Performance becomes UNLAWFUL before the time arrives for the performance of the promissory warranty 3. Performance becomes IMPOSSIBLE before the time arrives for the performance of the promissory warranty What happens when there is violation of material warranty or to other material provisions of the policy? All breaches of warranty give to the insurer the right to rescind the contract. This rule is true even if the violation of the material warranty did not contribute to the loss. If fraud intervenes in the breach, the insurer is freed from liability form the start, as the contract is fraud ab initio. The insured is not entitled to the return of the premiums paid. If there is no fraud in the breach, the insurer is freed from the contract the moment the breach occurs, and is entitled to retain the premiums corresponding to the period up to the time of the breach. But if the breach was done at the time of the inception of the policy, the insured cannot recover for any loss arising thereafter, but all premiums should be returned to the insured

4 was in force shall not bind the insured unless it countersigned by the insured. What are cover notes or interim policies? Cover notes or interim policies or binding slips may be issued to bind the parties temporarily pending the issue of the policy. It is intended to give temporary protection pending the investigation of the risk by the insurer or until the issue of formal policy. These notes are good for 60 days only, unless renewed with the written approval of the Insurance Commissioner What are the contents of the policy? A policy contains, among others the following 1. The PARTIES 2. AMOUNT of insurance (except in open or running policies) 3. RATE of premium 4. The PROPERTY OR LIFE insured 5. The INTEREST of the insured in the property if he is not the owner 6. RISK insured against 7. DURATION of the insurance May an agent undertake a contract of insurance in favor of its principal? Yes. The agent or trustee when making an insurance contract for and in behalf of his principal should indicate that he is merely acting in a representative capacity by signing as such agent or trustee, or by other general terms in the policy May a partner in a partnership insure partnership property? Yes. Insurable interest in the property of a partnership exists in both partnership and the partners and a partner has an insurable interest in the firms property which will support a policy taken out thereof for his own benefit What extent does the contract of insurance cover undertaken by a partner? A partner who insures partnership property in his own name limits the contract to his individual share unless the terms of the policy clearly show that the insurance was meant to cover also the shares of the other partners. How are ambiguities in an insurance contract construed? Contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against the insurer, otherwise stated, it should be construed liberally in favor of the insured and against the insurer In Cebu vs William 306 SCRA 762 the Supreme Court held: although in this jurisdiction, contracts of adhesion have been consistently upheld as valid per se as binding as an ordinary contract, the court recognizes instances when reliance on such contracts cannot be favored especially where the facts and circumstances warrant that subject stipulations be disregarded. The facts and circumstances vis--vis the nature

VI. THE POLICY Define Policy of Insurance. A policy of insurance is the written instrument in which a contract of insurance is set forth. It is the formal written instrument evidencing the contract of insurance entered between the insured and the insurer. What form is the policy be embodied? The policy shall be in printed form which may contain blank spaces on which words numbers and other matters necessary to complete the contract of insurance shall be written on. However, Group insurance and group-annuity policies may be typewritten and need not be in printed form. What is a rider in a contract of insurance? A rider is a printed or typed stipulation contained on a slip of paper attached to the policy and forming an integral part of the policy. What is the effect of a rider, clause, warranty or endorsement purporting to be a part of the contract and pasted on the policy? As a general rule, these attached papers becomes part of a contract of insurance. However it will not bind the insured unless it is properly referred to therein in the policy. If the rider etc is issued after the original policy

of the provision sought to be enforced should be considered, bearing in mind the principles of equity and fair play. In Rizal vs CA 336 SCRA 12, Supreme court said: it is settled that the terms in an insurance policy, which are ambiguous, equivocal, or uncertain are to be construed strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where forfeiture is involved, and the reason for this is that the insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by experts and legal advisers employed by and acting exclusively in the interest of the insurance company. What are the kinds/classes of policies in nonlife insurance? 1. Open or unvalued policy is one in which the value of the thing insured is not agreed upon, but is left to be ascertained in case of loss. In other words, it is one in which a certain agreed sum is written on the face of the policy not as the value of the property insured, but as the maximum limit of recovery in case of destruction the peril insured against. 2. Valued policy is one which expresses on its face an agreement that the thing insured shall be valued at a specified sum. In the absence of fraud or mistake, such value will be paid in case of total loss of the property, unless the insurance is for a lower amount. 3. Running policy is one which contemplates successive insurances and which provides that the subject of the policy may from time to time be defined What are the requisites for a valid cancellation of non-life insurance? 1. Written prior notice to the insured, stating the facts and 2. For any of the following grounds a. NON-PAYMENT of premium b. CONVICTION of a crime arising out of acts increasing the hazard insured against c. Discovery of FRAUD or material misrepresentation d. Discovery of WILLFUL OR RECKLESS acts or omissions increasing the hazard insured against e. PHYSICAL CHANGES in the property insured which result in the property becoming uninsurable f. A DETERMINATION by the commissioner that the policy would violate the insurer VII PREMIUM Define premium.

5 Premium is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril When is the insurer entitled to payment of the premium? As soon as the thing insured is exposed to the peril insured against What is the effect of the nonpayment of premium? The policy or contract of insurance is not valid and binding. Is this absolute? No. The exceptions are the following: 1. LIFE AND INDUSTRIAL LIFE POLICY whenever the grace period provision applies(sec 77) 2. Written ACKNOWLEDGMENT of the receipt of premium by insurer (sec 78) 3. Payment in INSTALLMENTS of the premium and partial payment made at the time of loss 4. CREDIT EXTENSION for the payment of premium 5. ESTOPPEL reliance in good faith on the practice of the insurance company NOTES: Grace period: Life insurance 30 days or 1 month within which the payment of any premium after the first may be made Industrial life insurance -4 weeks and where the premiums are payable monthly, either 30 days or 1 month Written acknowledgment in a policy or contract of insurance of the receipt or premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid Effect on nonpayment 1. Of First premium prevents the inception of the policy 2. Of subsequent premiums- it does not affect the validity of the contract unless, by express stipulation, it is provided that the policy shall in any event be suspended or shall lapse. When is the insured entitled to recover premiums? The insured is entitled to a return of the whole premium: 1. When RESCISSION is granted due to the insurers breach of contract. 2. When the contract is voidable because of the EXISTENCE OF FACTS of which the insured is ignorant without his fault 3. When the insurer never incurred any LIABILITY under the policy because of the default of the insured other that actual fraud 4. When the contract is voidable due to the FRAUD OR MISREPRESENTATION of the insurer or his agent

If the thing insured was NEVER EXPOSED to the risk insured against The insured is entitled to a ratable return of premium on the following cases: 1. Where the insurance is made for a definite period of time and the insured surrenders policy before termination 2. Where there is over-insurance by several insurers NOTES Where the insurance is for a definite period of time and the insured cancels his policy by surrendering the policy, the insured is entitled to recover the premiums already paid equivalent to the unexpired term at a pro rata rate Exception to this rule: a. Where the insurance is NOT FOR A DEFINITE PERIOD b. Where the policy is a LIFE POLICY c. Where a SHORT PERIOD RATE has been agreed upon Short period rate is that percentage, as agreed upon by the parties and appearing on the face of the policy, which the insurer shall retain from the premium in the event that the policy is surrendered by the insured for cancellation. The premiums to be returned where there is overinsurance by several insurers shall be proportioned to the amount by which the aggregate sum insured in all the policies exceeds the value of the thing Example: X insures his house which has an insurable value of P1,500,000 as follows: Insurer Amt of Premiums paid Insurance A Co. P 1,200,000 P 24,000 B. Co 600,000 12,000 Aggregate sum P1,800,000. In this case, there is an over insurance of P300,000, the amount by which the aggregate sum insured in the two policies exceeds the insurable value of the house. The proportion is P300k to P1800k or 1/6. Hence, 1/6 of P24k or P4k is what A co must return; and 1/6 of P12k or P2k is what B co must return

5.

6 Remote cause is a cause that does not necessarily or immediately produce an event or injury When is the insurer liable for losses? The insurer is liable for: 1. Loss the proximate cause of which is the peril insured against although the peril not contemplated by the contract may not have been a remote cause of the loss 2. Loss the immediate cause of which is the peril insured against except where the proximate cause is an excepted peril 3. Loss through the negligence of the insured or of the insureds agents or others, and 4. Loss in the course of efforts to rescue the thing from the peril insured against although the cause of loss is not a peril insured against.. When is the insurer liable for losses? 1. Loss by the insureds willful act 2. Loss due to connivance of the insured; and 3. Loss where the excepted peril is the proximate cause What are the prerequisites for the recovery for loss in insurance against fire? 1. Notice of loss which must be immediately given unless delay is waived expressly or impliedly by the insurer 2. Proof of loss according to the best evidence obtainable. Delay may be also waived expressly or impliedly by the insurer All defects in a notice of loss, or in preliminary proof thereof, which the insured might remedy, and which the insurer omits to specify to him, within reasonable time, as grounds of objection, are waived.

When is the insurer of property against fire exonerated from liability? When no notice is given by the insured or by any other person entitled to the benefit of the insurance, within a reasonable time. What kind of proof is needed for preliminary proof of loss? When preliminary proof of loss is required in the policy, it is sufficient that the insured gives the best evidence which he has in his power and not evidence necessary in a court of justice.

X. LOSS Define loss in contract of insurance Loss is the injury or damage sustained by the insured from the perils insured against What is Proximate cause? Proximate cause is the active efficient cause which sets in motion a train of events which in turn brings about a result without the intervention of any force operating and working actively from a new and independent force What is a remote cause?