Devices for ascertaining and controlling risk and loss:

concealment , representations, warranties, conditions, and exceptions.

 Concealment - a neglect to communicate that which a party knows and ought to communicate.
 Representation – a statement made by the insured, may be oral or written, as to a past fact or
future happening, to give information to the insurer and otherwise induce him to enter the contract.
 Misrepresentation – statement as a fact but which is untrue, made by the insured with
knowledge of it being false and with intent to deceive or which he states positively as true
without knowledge of it being true, and where such fact is material.

TITLE 4
CONCEALMENT

I.) Concealment - a neglect to communicate that which a party knows and ought to communicate.
A.) Requisites of Concealment:
i) A party knows the fact which he neglects to communicate or disclose to the other
ii) The party concealing is duty bound to disclose such fact to the other
iii) The party concealing makes no warranty of the fact concealed, and
iv) The other party has not the means of ascertaining the fact concealed.

B.) Effect of Concealment:

i) Makes the contract voidable at the option of the injured party, that is, the injured party
can choose to rescind the contract or not.
a.) Concealment can be intentional or unintentional.
b.) The insurer need not prove fraud in order to rescind the contract on the ground of
concealment.

C.) Matters to be communicated, even in the absence of inquiry:

i) All facts within his knowledge only when:
a.) they are material to the contract
b.) the other has not the means of ascertaining the said facts
c.) as to which the party with the duty to communicate makes no warranty.
 The test is: If the applicant is aware of the existence of some circumstances
which he knows would influence the insurer in acting upon his application, good
faith requires him to disclose that circumstance, though unasked.
 Failure of insurer to verify cannot make the effect of concealment void. Insurer
has no obligation to verify. He has the right to rely on the insured’s statements.

D.) An intentional and fraudulent omission, by the insured, to communicate information

proving the falsity of a warranty, entitles the insurer to rescind.
i) For example: Ship is always presumed seaworthy, failure to disclose that the ship is, in
fact, in peril, avoids the contract.
E.) Matters need not be communicated, EXCEPT when asked:
i) Those which the other knows
ii) Those which, in the exercise of ordinary care, the other ought to know
iii) Those of which the other waives communication
iv) Those which prove or tend to prove existence of risk excluded by a warranty
v) Those which relate to a risk excepted by the police

F.) Test of materiality

i) Materiality is not determined by the event, but by the effect of the facts if it was known
by the parties making the contract.
ii) It need not increase the risk, it is sufficient that such knowledge of the fact would
influence the other in estimating the disadvantages of the contract.
a.) The insured cannot be guilty of concealment where the fact concealed is not
material!
 Example, if the insured concealed the fact that he was examined through CT
scan, there is no concealment if the result of the examination is negative.

G.) Concealment must take place at the time the contract is entered into and not afterwards.
i) If the contract has already become binding and complete, information acquired need
not be disclosed anymore.

H.) Waiver of right to information of material facts

i) Can be made expressly or impliedly.
ii) There is waiver if there is neglect to make inquiry as to the facts already communicated.
a.) Applicant is justified to assume that there are no more further questions.
(1) For example, if a fire insurance applicant answers yes to the question if the
property to be insured is being used, but there is no further inquiry as to what
purpose, then, there is no concealment, even when it is actually being used as a
restaurant or other purpose increasing the risk of fire. There is waiver.

I.) Information as to the nature and amount of interest of the insured need not be
communicated, EXCEPT:
i) when there is an inquiry, and
ii) if the insured is not the absolute owner of the property insured.

J.) Opinion or judgment of insured.

i) There is no duty to disclose judgment or opinion.
a.) No concealment or representation if what was disclosed or concealed was mere
opinion, even if it turns out to be false.
 TITLE 5
REPRESENTATION:

I.) Representation - a statement made by the insured, may be oral or written, as to a past fact or
future happening, to give information to the insurer and otherwise induce him to enter the contract.

A.) Kinds of Representation:

i) Affirmative representation –allegation as to the existence or non-existence of a fact
when the contract begins.
ii) Promissory representation – a promise to be fulfilled after the contract has come into
existence, or statement concerning what is to happen during the existence of the
insurance.

 Effect of misrepresentation: insurance contract is voidable, even if without wrongful intent or

innocently made.

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

o Representations are construed liberally in favor of the insured, and are required to be only
substantially true.

o A representation of the expectation, intention, belief, opinion or judgment of the insured,

although false, will not avoid a policy of insurance if there is no actual fraud.

o Representation cannot qualify an express provision but can qualify an implied warranty.

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

o If the insured has no personal knowledge of a fact, he may repeat information obtained from
others, expressly stating he has no personal knowledge but through others. If information turns
out to be false, he will not be responsible.

o Representation is false if facts do not correspond with the assertions or stipulations.

o If there is false representation on a material point, contract can be rescinded. But right to
rescind contract is waived if premium payments are accepted despite knowledge of the
ground of rescission. Fraud need not be proved.

o Materiality of a representation is determined by the court.

 Similarities between Concealment and Representation:
1. The same test of materiality.
2. Effect of concealment and misrepresentation is rescission of the contract.
3. Injured party can rescind contract, whether concealment or representation is intentional or
not.
4. Rules on concealment and representation apply to the insurer.

 In non-life policy – Rescind contract first before insured files action to enforce contract. But
there is no actual time limit.
In life policy – Insurer can contest only within first 2 years from effectivity of contract.

o The period of 2 years can be shortened but not extended.

 Requisites of Incontestability clause:

1. It is a life insurance policy.
2. It is payable on the death of the insured.
3. It is in force during the lifetime of the insured for at least 2 years from date of its issuance or
reinstatement.

 Defenses not barred by incontestable clause:

1. Person taking insurance lacked insurable interest as required by law.
2. Cause of death is an excepted risk.
3. Premiums have not been paid.
4. Conditions of policy relating to naval or military service have been violated.
5. Proof of death is not furnished.
6. Fraud is of a vicious type. (Beneficiary feloniously kills insured, insured substitutes another
for medical exams, policy taken out with scheme to murder insured)
7. Action was not brought within time specified.
 TITLE 6
POLICY:

I. Policy - the written document embodying the terms and stipulations of the contract of insurance
between the insured and the insurer.
 Signed only by the insurer, need not be signed by the insured, EXCEPT when there are express
warranties in an entirely separate instrument forming part of the policy.

A.) Contract of Adhesion – a contract formed where one party has superior bargaining power,
imposing its choice of terms on the other party. Applicant is driven to accept contract on a
‘take it or leave it’ basis.
i.) General Rule: In case of doubt, ambiguities are construed liberally in favor of the
insured and strictly against the insurer. EXCEPT when:
(1) Petitioner is an acute businessman of experience, presumed to have full
knowledge.
(2) The terms of the contract are clear and unambiguous, and parties’ intentions
are clear.

B.) Form of Insurance Policies

i.) Are generally required in standard forms approved by the Insurance Commissioner.
ii.) Must be in printed form, EXCEPT
 Group insurance and group annuity policies, they can be typewritten.
iii.) In case of conflict between written and printed portions, written portion prevails.

C.) Perfection of Insurance Contracts – it must be assented to by both the parties.

i.) Acceptance of application
a.) If application has not been accepted or rejected, there is no contract yet, but mere
offer or proposal.
(1) Mere signing of application with payment of first premium does not bind insurer
to issue policy, without evidence of any contract.
 For contract to be binding from date of application, it must be complete,
one that leaves nothing to be done anymore.
b.) Contract is not perfected if applicant of life insurance dies before its approval, or
does not know it has been accepted.
c.) Acceptance of insurance policy must be unconditional, but need not be formal.
 Reception and retention of policy without objection beyond reasonable
time is deemed accepted.
ii.) Compliance with conditions precedent
a.) Parties may impose additional conditions precedent to its validity. All conditions
must be fulfilled in order for policy to be binding.
 b.) No premium paid, no valid and binding insurance contract, EXCEPT
(1) When there is credit given
(2) There is a waiver or agreement obviating the necessity of prepayment.
c.) If premium has been paid, contract is perfected upon approval of application, even
if policy is not yet issued, unless stipulated otherwise.
d.) Binding Receipt – intended as provisional/temporary insurance contract issued by
insurance agents. Conditional acceptance by the insurer.
 Does not insure by itself. Insurer must first approve the risk.
 Issued to make coverage effective on:
(2) Date of application; or
(3) Date of medical examination
iii.) Cover Notes – issued to bind the Insurance temporarily pending the issuance of policy.

D.) Delivery of Policy

i.) Delivery – the act of putting the insurance policy – the physical document – into the
possession of the insured.
 Not a prerequisite to a valid insurance contract.
a.) Importance of delivery:
(1) Evidence of the making of the contract and its terms
(2) Communication of insurer’s acceptance of the insured’s offer
(3) May determine policy period
(4) Marks the end of insurer’s opportunity to decline coverage
b.) Modes of delivery of policy:
(1) Actual/Constructive delivery – actual if there is manual transfer, constructive if
no further conditions are to be fulfilled or upon intention of the parties.
 Death of applicant after delivery of policy to the insurer’s agent - there are
two conflicting views:
i. Beneficiary cannot recover because agent is not the agent of the
insured.
ii. Beneficiary can recover because contract is deemed complete upon
delivery of policy to the insurance agent.
a. Actual delivery is not essential to give policy binding effect.
ii.) Effect of delivery of policy:
a.) If delivery is conditional, condition must first be fulfilled to make policy binding.
b.) If delivery is unconditional, insurance becomes effective at the same time of
delivery of policy.
(1) EXCEPT when premium has not yet been paid.
 No presumption of extension of credit.
E.) Attached Papers on a Contract of Insurance:
i.) Binding effect – they become a part of the policy if sufficiently and properly attached
and referred to therein in a manner as to leave no doubt as to intention of parties.
a.) The descriptive title of the ‘attached paper’ must be mentioned and written on the
blank spaces of the policy.
(1) Lack of description will not affect the other provisions, except when without
such rider, the contract would be incomplete.
ii.) Kinds of ‘attached papers':
a.) Warranties - inserted or attached to a policy to eliminate specific potential
increases of hazard during the policy term owing to:
(1) Actions of the insured; or
(2) Condition of the property.
b.) Clause – agreement between the insurer and the insured on certain matter relating
to the liability of the insurer in case of loss.
(1) Three-fourths Clause – insurer’s liability shall not exceed ¾ of the loss or damage
(2) Loss Payable Clause – loss is payable to a named party or parties.
(3) Change of Ownership Clause – provides that it will inure to the benefit of
anyone, during continuance of risk, who may become the owner of the interest
insured.
c.) Endorsement – provision added to the insurance contract altering its scope or
application.
(1) Example, extending perils covered, correcting errors, or in the nature of permit.
d.) Rider – is a small printed or typed stipulation contained on a slip of paper attached
to the policy, constituting additional binding stipulations, forming integral part of
the policy.
(1) Necessity: To add new provisions, make changes, or waive existing provisions,
without the trouble and expense of making a new contract.
iii.) In case of conflict between attached papers and printed stipulations of policy: the
attached paper prevails, being a more deliberate expression of the agreement of the
contracting parties.
iv.) Effect of lack of insured’s signature:
a.) Will not prevent its inclusion and construction if:
(1) The rider, etc., is physically attached to the insurance policy,
(2) contemporaneous with its execution, and
(3) delivered to the insured so attached,
 but even if the rider, etc., was issued after original policy, if it was applied for by
the insured or owner.
b.) Will prevent if rider, etc. are issued after original policy, but NOT APPLIED FOR BY
INSURED.

F.) Duties of the Insurer and the Insured

i.) Effect of Failure of Insured to Read Policy
 a.) Two Rules:
(1) Majority Rule - most courts hold that the insured's acceptance and retention of
the policy unread is not negligence per se as will defeat his right to reformation.
 Rationale: Insurance contracts are contracts of adhesion and not of
bargaining.
(2) Minority Rule - The insured has the duty to read his policy and is bound by his
contract as written whether he reads it or not, he has the duty of exercising
ordinary care. Exceptions:
i. Insured could not have discovered the false statement or error by such
reading;
ii. Induced by the fraud of insurer’s agent not to read the policy;
iii. Insured is illiterate or unable to read English;
iv. The contract is long, complicated and difficult to understand even if
read.
b.) Trend today: Adherence to rigid rule is reduced. So called “duty to read” has less
significance. Protection of insureds is willingly increased.
ii.) Insurer’s Duty to Explain the Policy
a.) Principle: If the terms of the policy are clear, unambiguous, and explicit, the insurer
has no affirmative duty to explain the policy.
(1) Caveats:
 Doctrine of reasonable expectations of insured
 Options available to the insured
 Information expected by insured from insurer’s agent
 Contractual rights of insured to impartial review and arbitration after denial
of coverage

G.) Group Insurance – coverage of a number of individuals by means of a single or blanket

policy. Commonly provides life or health insurances. It is made in addition to workers’
compensation insurance.
 Advantage: Premium rates are lower than those sold to individuals.
 In group insurance policies, the employer is the agent of the insurer.
i. Why? Employee has no knowledge of or control over employer’s actions
in handling the policy.
 Employees are real parties in interest.
i. labor of the employees is the true source of the benefits

H.) Contents of Policy: NAPPIRT (Name, Amount, Premium, Property, Interest, Risk, Term)
i.) Names of parties
a.) Important: The identity of the parties can be sufficiently established.
(1) Doesn’t matter if incorrectly spelled.
(2) Doesn’t matter if name of insured appears or not, there are other descriptions.
 Ex. “for the owner” or “for whom it may concern” is valid
 ii.) Amount of insurance – REQUIRED to exactly determine the amount of indemnity to be
paid in case of loss or damage. Also, it’s the basis for computing premiums.
a.) Not required in open or running policies
b.) Amount is the maximum limit on insurer’s liability
(1) If it’s a life or health or accident insurance, a fixed sum is payable (not measured
by the proved amount of insured’s loss.
c.) Deductible – stated amount to be deducted from any loss which is shoulder by the
insured, insurer is liable only for excess of said amount.
iii.) Premium – REQUIRED to represent the consideration of the contract.
a.) The rate or amount increases as the risk of loss increases.
iv.) Property or life insured – constitutes the subject matter of the contract.
v.) Interest of insured in property
a.) REQUIRED IF the one taking the insurance is not the absolute owner of the thing
insured.
(1) For example: Mortgagee
vi.) Risks insured against
vii.) Term or duration of insurance – period during which the insurance is to continue.
a.) Duration may be expressed in terms of dates, or in terms of distance or voyage.
 Insurer would not be liable UNLESS the loss occurred during such duration
of the insurance.
b.) Life of the Policy – the period of time during which the insurer assumes the risk of
loss.
(1) Annual policies – policies issued for a term of 12 months
(2) Short period policies – those for a lesser period.

I.) Insurable Risks

i.) Kinds of insurable risks:
a.) Personal risks - those involving the person, concerned with time of death or
disability.
(1) Divided into life and health risks.
b.) Property risks – involving loss or damage to property, arising from destruction of
property.
(1) Direct Losses – by fire, lightning, windstorm, flood, and other forces of nature.
(2) Indirect Losses - loss of profits, rents, or favorable leases
c.) Liability risks – involving the liability for the injury to the person or property of
others
 Occasioned by the operation of law (TORT), sometimes called “Third party
risks”.
ii.) Risk vs. Peril vs. Hazards
a.) Risk – the chance of loss; or possibility of occurrence of loss.
 (1) No risk if loss if absolutely certain to happen or not.
b.) Peril – contingent or unknown event which may cause a loss, its existence creates
the risk.
 Examples: fires, flood, theft, death, illness
c.) Hazard – condition or factor, tangible or intangible, which may create or increase
the chance of loss from a given peril. The sum total of hazards constitutes the perils
which cause the risk.
(1) Physical hazards – everything relating to location, structure, occupancy,
exposure, etc.
(2) Moral hazards – mental attitudes psychological in nature, including dishonesty,
insanity, carelessness, indifference

TITLE 7
WARRANTY:

II. Policy - the written document embodying the terms and stipulations of the contract of insurance
between the insured and the insurer.