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.