Representation and Misrepresentation in

Insurance
 

Representation and Misrepresentation in

Insurance

Section 36. A representation may be oral or written.

What is a representation?
A representation is a factual statement made by the insured at the time of, or prior to,
the issuance of the policy to give, information to the insurer and otherwise induce him
to enter into the insurance contract.

What is the difference between a representation and

concealment?
A concealment is a negative act, meaning it is the failure to do something which is
required while representation is positive act as the insured volunteers such
facts.  Concealment usually occurs prior to making of the  insurance contract, while
a representation may be made at the time of the issuance of the contract.

What is a misrepresentation?
A Misrepresentation is a statement:

1.       As a fact of something which is untrue

2.       Which the insured stated with knowledge that it is untrue and with an intent to deceive
or which he states as true without knowing it to be true and which has the tendency to
mislead; and

3.       Where such fact in either case is material to the risk.

What is the effect of a misrepresentation?
A misrepresentation by the insured renders the insurance contract voidable at the option of
the insurer, although the policy is not thereby rendered void ab initio.

Is misrepresentation synonymous with concealment?

NO.  Misrepresentation is an active form of concealment.

What is the duty of the person applying for insurance?

It is duty to give the insurer all such information concerning the risk as will be of use to the
latter in estimating its character and in determining whether or not to assume it.  This
information may be given orally or written in papers not connected with the contract such as
in the application or examiner’s report.  Sometimes, it may appear on the policy itself.

Why is such information important?

The information forms the basis of the contract as made.  It describes, marks out and defines
the risk assumed.   Hence the untruthfulness of any representation will necessarily avoid the
contract.

Example of misrepresentations such that the insurer avoids any

liability to the insured
If the insurer was made to believe that he was insuring a brick house when in truth and in fact,
the house was made of nipa, or when the insurer insured a man of thirty and it turns out that
the man who dies was a 130.

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

Section  41 provides that “A representation may be altered or withdrawn before the insurance
is effected, but not afterwards.”
Section 38.  The language of a representation is to be interpreted by the same rules as the
language of contracts in general.

How are misrepresentations construed?

They are construed liberally in favor of the insured.

Must the representations be literally true?

No.  It is sufficient that they be substantially true.

How can a representation be substantially true and not literally

true?
De Leon cites two examples:

If one is asked if he drinks, the question will be construed as referring to habitual use.  So if
you drink only when there is an occasion, they you can say NO.

If you are asked if you had any illnesses,  local disease or injury in any organ, you can still say
NO even if three weeks before you were suffering from LBM because you ate one kaing of
avocados.

Section 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.

What are the different kinds of representations?

They may either be:

1.       Oral or written;

2.       Made at the time of the issuance of the policy or before;

3.       Affirmative or promissory

What is an affirmative representation?
It is any allegation as to the existence or non-existence of a fact when the contract begins.  An
example would be when the insured states that the house subject of the insurance is used
only for residential purposes.

What is a promissory representation?

A promissory representation 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.

What is the nature of a promissory representation?

First, it used to indicate a parol 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 to an action on the policy, but proof that the promise was made with
fraudulent intent and will serve to defeat the insurance.

Second, it is an undertaking by the insured, inserted in the policy, but NOT specifically made
a warranty, is called a promissory representation.  It is however in such a case merely an
executory term of the contract, and not properly a representation.  A promissory
representation, is therefore, substantially a condition or a warranty.

Examples of promissory representations

1.       An applicant for fire insurance on a building orally promised that the building will be
occupied.

2.       An applicant for fire insurance on a building orally promised to install two fire
extinguishers within the bldg.

3.       A TV hostess saying “Will be back.. promise.. saranghameda po…”

Does a false representation based on an opinion or expectation
avoid the policy?
IT DEPENDS.  A representation of an expectation, intention, belief opinion or judgment of the
insured, although false, will NOT avoid the policy of insurance if there is NO actual fraud in
inducing the acceptance of the risk or its acceptance at a lower rate of premium and this is
likewise the rule although the statement is material to the risk.  In such a case, the insurer is
not justified in relying upon such statement but is obligated to make further inquiry.

What must the insurer then to do to avoid liability?

The insurer must prove both the materiality of the insured’s opinion and the latter’s intent to
deceive.  If the representation is one of fact, all the insurer needs to prove is its falsity and
materiality.  The intent to deceive is already presumed.

When is a representation deemed a mere expression of opinion?

An oral representation as to a future event, or condition over which the insured has no
control, with reference to property or life insured will be deemed a mere expression of
opinion, which will avoid a contract ONLY when made in bad faith.

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

but it may qualify an implied warranty.

Why is it that a representation cannot qualify an express

provision in a contract of insurance?
A representation cannot qualify an express provision or an express warranty in a contract of
insurance because a representation is not a part of the contract but only a collateral
inducement to it.

Examples
1)       If the policy expressly provides that the house insured is used as a warehouse, any
representation made by the insured prior to the issuance of the policy to the effect that the
house was used only as a residence is NOT a defense in the action for the recovery of the
amount of the insurance.

2)       The representation of the insured to the effect that the last time the vessel was
drydocked was six months ago would NOT qualify the implied warranty that the vessel is
seaworthy.

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

What is the reason for this provision?

As representations induce the insurer in assuming the risk insured against and in issuing the
insurance policy, it is but logical that representations may not be altered or withdrawn after
the insurance is affected.

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

To what time does representation refer?

Representations refer only to the time of making the contract.  We earlier said that
promissory statements of conditions that exist subsequent to the completion of the contract
are conditions or warranties and not representations (See annotations under Sec. 39).  But
now, we refer ONLY to conditions represented as ALREADY EXISTING.  These conditions must
exist during the making of the contract.

When is there false representation?

There is NO false representation if the representation was true at the time the contract takes
effect, although it became false at the time it was made.

There is false representation if although the representation was true at the time it was made,
it subsequently became false at the time the contract took effect.

What is concealment?
 Category: Law on Insurance

CONCEALMENT

Section 26. A neglect to communicate that which a party knows and ought to communicate
is called a concealment.

What are the four primary concerns of parties to an insurance

contract?
In making a contract so highly aleatory such as that of insurance, the parties have four
primary concerns to wit:

1.       The correct estimation of the risk which enables the insurer to decide whether he is
willing to assume it, and if so, at what rate or premium;

2.       The precise delimitation of the risk which determines the extent of the contingent duty
to pay undertaken by the insurer;

3.       Such control of the risk after it is assumed as will enable the insurer to guard against
the increase of the risk because of change in conditions; and

4.       Determining whether a loss occurred, and if so, the amount of such loss.
 What is concealment?
Concealment is a neglect to communicate that which a party knows and ought to
communicate.

What are the requisites of concealment?

There can be no concealment unless:

1)       A party knows the fact which he neglects to communicate or disclose to the other;

2)       Such party concealing duty bound to disclose such fact to the other

4)       The other party has no means of ascertaining the fact concealed

Section 27. A concealment whether intentional or unintentional entitles the injured party to
rescind a contract of insurance.

What is the effect of concealment?

As a rule, failure on the part of the insured to disclose conditions affecting the risk of which he
is aware, makes the contract voidable at the insured’s option.  The reason is that insurance
policies are traditionally contracts uberrime fidae, that is, contracts of the outmost good
faith.  This doctrine is essential on account of the fact that the full circumstances of the
subject-matter of insurance are, as a rule, known to the insured only, and the insurer, in
deciding whether or not to accept a risk, must rely primarily upon the information supplied to
him by the appellant.

In order to rescind a contract on the ground of concealment,

must the insurer prove fraud?
NO.  Under Sec. 27, the insurer need not prove fraud in order to rescind a contract on the
ground of concealment.  The duty of communication is independent of the intention and is
violated by the fact of concealment, even when there is no intention to deceive.  Sec. 27
provides that the effect of concealment is the same regardless of whether the concealment is
intentional or unintentional.

Why does the law make no distinction between international

and unintentional concealment?
Because you have to prove fraud.  And if you have to prove fraud, you have to prove intention
to deceive.  And it is so hard to prove intention to deceive because we are not mind-readers.

What is the reason behind Sec. 27?

The reason behind the Sec. is that in cases of concealment, the insurer is misled or deceived
into accepting the risk , or accepting it at the rate of premium agreed upon.  The insurer,
relying upon the belief that the insured will disclose every material fact within his actual or
presumed knowledge, is misled into a belief that the circumstance withheld does NOT exist,
and he is thereby induced to estimate the risk upon a false basis.

What is the criterion then if we were to apply Sec. 27?

We must ask ourselves the question:  Was the insurer misled or deceiving into entering a
contract obligation or in fixing the premium of insurance by the withholding of material
information or facts within the insured’s knowledge or presumed knowledge?  The
application of Sec 27, necessarily depends on the answer to this question.