INSURANCE

Midterms
Lecture 1

TITLE 5 Insurance Code: REPRESENTATION

Sec. 36 A representation may be Oral or Written

Sec. 37. A representation may be made at the time of, or before, issuance of the policy.

Sec 36 merely states the form by which a representation may be made.

What is representation?
“It is a statement made by the insured Oral or Written, at the time of or before the
issuance of a policy, relative to the risk to be insured, as to an existing or past fact or
concerning a future event, that in either case would induce the insurer to enter into a
contract of insurance.”

The insurer enters into a contract of insurance primarily to pursue his business interest and
to realize a profit by assuming its clients’ loss upon the happening of the risk. Naturally
since he will lose money upon the occurrence of these risks, he has to ascertain what kind
of risks he is willing to assume, to what extent, for what price and for whom? These are
the questions that need to be ascertained before the insurer assumes any risk.

Upon understanding of the extent of the risk involved, the Insurer must now place
safeguards in order to “control” said risks such that his exposure in assuming the risks may
be made under accepted warranties and conditions.

Concealment and Representations are the means by which Insurers may ascertain the
risks involved when covering a person or thing for insurance while Warranties and
Conditions are means to control the risks ascertained.

What is misrepresentation?
“it is a statement
1) of a fact which is untrue
2) which the insured stated with the knowledge that it is untrue with the intention to
deceive or without knowing it to be true which has the tendency to deceive;
3) In either case is material to the risk.

Sec. 38. The language of a representation is to be interpreted by the same rules as the
language of contracts in general.

Sec. 39. A representation as to the future is to be deemed a promise unless it appears

that it was merely a statement of belief or expectation.

A promissory representation – is representation as to a fact that will be fulfilled or

will exist in the future.

Examples. 1. The insured submits himself to annual physical examination and is

willing to submit results while this policy is in effect.
2. The property insured will be free from all hazardous substances while
the contract is in effect.

-“unless it appears that it was merely a statement of belief or expectation.”

Example: 1. The property insured is in an area observed to be flood-free;
 2. State the state of your health within the next few years:

“I will most likely remain healthy within the next five to ten years.”
“the property insured will always be in good, habitable condition”

Sec. 40. A representation cannot qualify an express provision in a contract of insurance,

but it may qualify an implied warranty.

Example: 1. A) Contract provision: the insured hereby undertakes not to engage

in any extreme sports activities while this policy is in effect.
B) Representation: “The insured has never engaged and will not
engage in any extreme sport activities, unless his present engagement as a dragon boat
team member will be classified as an extreme sport in the future.”
-the qualification in “B” will not qualify “A”

2. A) Implied Warranty: General good health of the person insured.

B) Have you been suffering from any lingering ailment for the past 5
years”” ANS: No, except for allergic reactions to some kind of food suffered since
childhood.”
- This qualification in “B” will qualify the general warranty in “A.”

Sec. 41. A representation may be altered or withdrawn before the insurance is effected
but not afterwards.

Sec. 42. A representation must be presumed to refer to the date on which the contract
goes in effect.

Even if not true when a statement was made, but true when the contract
becomes effective, there is no misrepresentation.
There is misrepresentation if the statement was true when it was uttered but untrue
when the contract takes into effect.
- The insured has the duty to notify the insurer of any changes in his
representations.
- Example: “the property insured has never been converted and will not be
converted into a commercial establishment”
-
Sec. 43. When a person insured has no personal knowledge of a fact, he may
nevertheless repeat information which he has upon the subject, and which he believes
to be true, with the explanation that he does so on the information of others; or he may
submit the information, in its whole extent, to the insurer, and in neither case is he
responsible for its truth, unless it proceeds from an agent of the insured whose duty it is to
give the information.

1. 3rd-hand information may be given with a qualification that the same is only
gathered from 3rd parties, because he does not have personal knowledge, but
which he believes is true.
Example: None from our family on my mother’s side ever died of a heart attack
according to my aunts who only told me about it.

2. The provision specifically states that the insurer cannot use this as an excuse when
the information proceeds from his own agent who is expected to have first hand
knowledge over the veracity or truthfulness of the information given.

Sec. 44. A representation is to be deemed false when the facts fail to correspond with its
assertions or stipulations.

This is the definition of a misrepresentation.

 Unlike in warranties, representations are not required to be literally true or true in
all material respects. It is required only that it be substantially true. Except in marine
insurance because in marine insurance, representations of parties are the declarations
relied upon by the insurer whether to enter into an insurance contract or not.

The test whether a representation is substantially true is whether or not the insurer
would not have changed its decision had the exact truth been revealed.

Examples:
1) have you been confined due to personal ailment for the past 7 years? If the
answer is no despite confinement due to childbirth, there is no misrepresentation
because this is substantially true given that this kind of confinement is not due to
“personal ailment”
2) If the applicant is asked, are you in good health? If the answer is yes, there is
no misrepresentation even if the applicant is found out to be suffering from an
illness he does not know of at the time when the questions was asked.
3) (Aquino) the value of a property may vary from the estimation by one person to
that of another. Representations as to value therefor may be a matter of opinion
and not representation or if accepted to be otherwise, a variance will not
invalidate the contract.

Sec. 45. If a representation is false in a material point whether affirmative or promissory,

the injured party is entitled to rescind the contract from the time when the representation
becomes false.

1. What if there is already acceptance of premium? Aquino is of the opinion that

acceptance of premium will not be bar for the Insurer to rescind the policy when
there is misrepresentation.

Sec. 46. The materiality of a representation is determined by the same rules as materiality
of concealment.

The test is whether or not the insured would have entered into the contract of
insurance had the facts in question been different? Would it have entered into the same
terms and conditions or charged the same amount of premium if the true facts were
made known to it before the policy was issued?

Sec. 47. The provisions of this chapter apply as well to modification of a contract of
insurance as to its original formation.

The provisions on representation also applies when the parties are trying to modify a
previous insurance contract, such as when there is renewal or the policy, increase or
decrease in premium etc. The same test is applied,

Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer
by any provision of this chapter, such right must be exercised previous to the
commencement of an action on the contract.

After a policy of life insurance made payable on the death of the insured shall
have been in force during the lifetime of the insured for a period of two (2) years from the
date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void
ab inito or is rescindable by reason of the fraudulent concealment or misrepresentation
of the insured or his agent.
TITLE 7- WARRANTIES

“SEC. 67. A warranty is either expressed or implied.

Warranty- a warranty is a statement or promise by the insured, contained in the

policy itself or incorporated in or attached to it by proper reference, the falsity or non-
fulfillment of which, regardless of whether or not the insurer has suffered loss or prejudice
as a result, renders the policy voidable at the option of the insurer.

Warranties:

1. Forms part of the contract

2. Written on a policy or its rider
3. Always material or presumed material to the risk
4. Strict compliance is necessary

“SEC. 68. A warranty may relate to the past, the present, the future, or to any or all of
these.
(This refers to affirmative warranty. It asserts the existence of a fact or condition at
the time it is made.)

 The vehicle covered by this policy will not be used as a commercial vehicle or a
public utility vehicle of any kind or in any manner
 The house covered or any portion thereof had never been damaged by fire,
earthquake or lightning
 The commercial establishment covered by this policy has not been a subject of
any criminal incident such as robbery, theft, arson etc.

“SEC. 69. No particular form of words is necessary to create a warranty.

“SEC. 70. Without prejudice to Section 51, every express warranty, made at or before the
execution of a policy, must be contained in the policy itself, or in another instrument
signed by the insured and referred to in the policy as making a part of it.

“SEC. 71. A statement in a policy, of a matter relating to the person or thing insured, or to
the risk, as fact, is an express warranty thereof.

This is Express Warranty. – Anything expressed as a fact or one plainly stated in the
policy which affects the risk is an express warranty.

Implied warranties are mostly found in Marine Insurance. The best example is the
seaworthiness of the ship even without any express statement relating thereto. The risk
involved is against any peril of the sea, thus, if the ship is insured against such risk, it is
assumed that it is seaworthy and such fact is an implied warranty on the part of the
owner.

“SEC. 72. A statement in a policy, which imparts that it is intended to do or not to do a

thing which materially affects the risk, is a warranty that such act or omission shall take
place.

(This is a Promissory Warranty. – A statement that promises to do something or not

to do it, which is material to the risk covered.)

1. The insured will not engage in any form of extreme sports such as …..
“SEC. 73. When, before the time arrives for the performance of a warranty relating to the
future, a loss insured against happens, or performance becomes unlawful at the place of
the contract, or impossible, the omission to fulfill the warranty does not avoid the policy.

The insured is excused from executing any promised warranty when the
performance of which he is forced not to perform due to causes beyond his control.
Possible in emergency situations. The insurer must still pay for the loss and cannot use the
fact that a promised warranty was not complied with.

Example: “the insured warrants that it shall submit the vehicle insured to
periodic maintenance check up every 6 months with the authorized dealer or service
center.” If there is loss before the 6 month arrived, the insurer cannot deny the claim on
the ground of breach of contract.

“SEC. 74. The violation of a material warranty, or other material provision of a policy, on
the part of either party thereto, entitles the other to rescind.

Breach of warranty entitles the other party to rescind. Indeed, we have said that
any breach renders the contract or policy voidable.

“SEC. 75. A policy may declare that a violation of specified provisions thereof shall avoid
it, otherwise the breach of an immaterial provision does not avoid the policy.

There must be an express provision regarding a breach that would render the
policy void. Otherwise, the policy will not be avoided especially if the breach is
immaterial or considered very minimal.

“SEC. 76. A breach of warranty without fraud merely exonerates an insurer from the time
that it occurs, or where it is broken in its inception, prevents the policy from attaching to
the risk.
Breach of warranty without fraud will not render the insurance contract void. There
may have been breach but since there is no fraud, the contract is valid or cannot be
invalidated but will release the insurer from payment of claim from the time that the
breach occurred, or when from the inception of the contract no risk was covered
because of the said breach.
‘’