 When there may be a right to rescind due to false  Representation v concealment

representation Misrepresentation Concealment

Active form of deceit Passive form of deceit
-If a representation is false in a material point, whether affirmative or Because there is an oral or Because there is neglect or
written false statement to failure to disclose a material
promissory:
induce fact
the injured party is entitled to rescind the contract
from the time when the representation becomes false.
The right to rescind granted by this Code to the insurer is waived:  When are representation made ?
by the acceptance of premium payments  at the time of, or prior to, the issuance of the policy to induce
DESPITE knowledge of the ground for rescission the insurer to enter into the insurance contract

 What is representation ? misrepresentation ?

Representation Misrepresentation
Factual statements made by the  A fact which is untrue  What is affirmative representation ? promissory
insured at the time of, or  Stated: representation ?
prior to , the issuance of the 1. With knowledge that it is
policy to induce the insurer to untrue with intent to
enter into the insurance contract Affirmative - It is any allegation as to the existence or non-
deceive OR
2. Stated positively as true existence of a fact when the contract begins. An example
without knowing it to be would be when the insured states that the house subject of the
true and which has a insurance is used only for residential purposes.
tendency to mislead
Promissory - A promissory representation is any promise to be
 Where such fact in either fulfilled after the contract has come into existence or any
case is material to the statement concerning what is to happen during the existence of
risk the insurance.
• Renders the contract
VOIDABLE:
1. At the option of insurer
2. Regardless of intent

• Misrepresentation may be
viewed as an active form of
concealment
 What are kinds of representation ?
 They may either be:
 What is the incontestability clause
1. Oral or written;
o When does it arise
 Section 48 serves a noble purpose, as it regulates the actions of
2. Made at the time of the issuance of the policy or before;
both the insurer and the insured. Under the provision, an insurer is
given two years – from the effectivity of a life insurance contract
3. Affirmative or promissory and while the insured is alive – to discover or prove that the policy
is void ab initio or is rescindible by reason of the fraudulent
concealment or misrepresentation of the insured or his agent. After
 Is it necessary all representation to be true ? the two-year period lapses, or when the insured dies within the
• Unlike warranties, representation are not required to be literally period, the insurer must make good on the policy, even though the
true, policy was obtained by fraud, concealment, or misrepresentation.
only be substantially true  "incontestability clause" is a provision in law that after a policy of
life insurance made payable on the death of the insured shall have
• Substantial AND material misrepresentation, avoids the contract been in force during the lifetime of the insured for a period of two
o EX: marine insurance – insurer is required to state the exact (2) years from the date of its issue or of its last reinstatement, the
and whole truth insurer cannot prove that the policy is void ab initio or is rescindible
by reason of fraudulent concealment or misrepresentation of the
• The representation is substantially true and valid - EVEN if there insured or his agent.
are
some discrepancies which are minor or not material to the risk  Can you extend or shorten an incontestability clause
- No
 When is representation false ?
SEC 44 - A representation is deemed to be false when the facts  Effect of incontestability clause
fail to
correspond with its assertions or stipulations 1. precludes the insurer from raising the defenses of false
representations or concealment of material facts insofar as
health and previous diseases are concerned if the insurance
 Does the representation still takes effect despite the has been in force for at least two years during the insured’s
lifetime.
renewal of the contract

 What happens when the insurer knows the

misrepresentation but continues to accept the premium
o Sec, 45 foot note de leon commentary
 Defenses not barred by incontestability clause  Kinds of warranty
• Defenses not barred by incontestability clause:
1. Lack of insurable interest 1. An express warranty is an agreement contained in the policy or
2. Cause of death is an excepted risk clearly incorporated therein as part thereof whereby the insured
3. Non-payment of premium
stipulates that certain facts relating to the risk are or shall be true or
4. Conditions relating to military or naval service violated
certain acts relating to the same subjects have been or shall be
5. Fraud is of a particularly vicious type (scheme to murder,
6. insured substitutes a person for exam, beneficiary kills done.
insured)
7. Beneficiary failed to furnish proof of death or to comply 2. An implied warrranty is a warranty which from the very nature of the
with any condition imposed by policy after loss happened contract or from the general tenor of the words, although no express
8. Action not brought within time specified warranty is mentioned, is necessarily embodied in the policy as a
part thereof and which binds the insured as though expressed in the
contract.
 What does the phrase “during the lifetime” mean in sec. 48
- The phrase "during the lifetime" found in Section 48 simply 3. An affirmative warranty is one which asserts the existence of a fact
means that the policy is no longer considered in force after the or condition at the time it is made.
insured has died. The key phrase in the second paragraph of
Section 48 is "for a period of two years."
4. A promissory warranty, not infrequently called "executory" warranty,
 What is warranty is one where the insured stipulates that certain facts or conditions
 Warranty is a statement or promise by the insured set forth in pertaining to the risk shall exist or that certain things with reference
the thereto shall be done or omitted. It is in the nature of a condition
policy itself or incorporated in it by proper reference, the untruth or
subsequent.
nonfulfillment of which in any respect and without reference to
whether the insurer was in fact prejudiced by such untruth or
nonfulfillment, renders the policy voidable by the insurer  Purpose of warranty
 Warranty v representation
Warranty Representation  Example of past, present, and future warranty (de leon
Considered parts of the Collateral inducements to a
contract contract commentary)
Always written on the face May be written in a totally
of the policy separate paper or may be oral
 Sec. 73 exceptions
Strictly complied with Substantial truth only
Falsity of the warrant = Void on the ground of fraud
Breach of contract 1. When loss occurs before time for performance
Material Must show the materiality of a 2. When performance becomes unlawful.
representation 3. When performance becomes impossible
 When can an immaterial provision avoid the policy ?

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.