Devices in Ascertaining and Controlling Risk and Loss

There exists in insurance law devices used for determining and controlling risk and loss. These are: concealment, representation, warranties, conditions and exceptions.

Concealment happens when one party has information that must be given to the other party but it didn't. Representation consists of factual statements that the insured made before or during the issuance of the policy that were designed to convince the insurer to enter into the insurance contract. Warranties are statements or promises made by the insured and included in the policy, either by incorporation by proper reference or written into the policy itself, the non-fulfillment or falsity which in any respect and regardless of whether or not the insurer was prejudiced by the falsehood or non-fulfillment; they can be express, implied, affirmative or promissory. Conditions are a means which protect the insurer from fraudulent claims of loss and take the form of conditions precedent and are inserted into the policy; notice of loss or detailed proofs to be submitted within a limited period are examples of such. Exceptions are perils which aren't covered by the policy; the make the policy's coverage more definite by excluding specific risks from the general description of the risk. We don't need to explain much on conditions and exceptions.

Concealment

Both parties to the insurance contract are required to communicate all facts in their knowledge that are material (to which they make no warranty and the other party has no way of determining) to the contract to each other in good faith. In short, both parties must be honest. If some facts weren't revealed, there is concealment already. If there is concealment the insurer can rescind the contract; it doesn't matter if the concealment was intentional or not. Good faith is not a defense against concealment. Information can, however, be waived either if the terms of the insurance say so or if in the information communicated there were other facts that could be implied from the data.

The facts are material if they influence a party in forming an estimate of of the disadvantages (and advantages) of the contract or in making inquiries. Waiving a medical exam in a non-medical insurance contract makes information of previous health conditions and illnesses suffered more material (Sunlife vs. Bacani, 246 SCRA 268.)

The following are the requisites for concealment:

1.) The concealed matter must be material

2.) The insured is obliged to reveal it

3.) They are among those fact to which the insured makes no warranties

4.) The insurer has no way of ascertaining them

Exceptions to concealment are the following:

1.) Incontestability clause

If a life insurance policy has been in effect for at least 2 years, the insurer can't rescind the contract for fraudulent concealment or misrepresentation by the insured.

2.) Certain marine insurance contracts

The following matters won't affect the contract unless they're responsible for the loss: national character of the insured, the insured thing's liability to capture or detention, liability to seizure under foreign laws, lack of necessary documents and used of fake documents.

Matters which don't need disclosure:

1.) Matters which the other party knows

2.) Those where the other party waives communication

3.) Those that prove/tend to prove the existence of a risk not covered by the warranty and aren't otherwise material

4.) Those which one party ought to know through due diligence and which the other party doesn't need to consider the first party ignorant of

5.) Those related to a risk not included in the policy and not considered material

These above-mentioned matters don't need to be communicated unless the other party asks. All parties are bound to know the general causes open to their inquiry equally with that of the other and which could affect the political or material perils contemplated; as well as all general usages of trade. Information on the nature or amount of interest of the insured doesn't need to be revealed unless asked of (except as prescribed by sec. 51 of the Insurance Code.) Both parties aren't bound to communicate information on their own judgment on the matters in question, even in an inquiry.

Representations

Representations are oral or written statements made by the insured to convince the insured to enter into a contract of insurance. There are 2 kinds: affirmative and promissory. Affirmative representations are affirmations of fact when the contract begins and promissory ones are promises to be kept after the policy is issued. Representations can be made before or during the issuance of the insurance policy. Representations as to the future are considered promises unless they're merely statements of belief or expectation. Materiality of representations follow the same rules as those of concealment.

Representations may be changed or withdrawn before (not after) the insurance becomes effective.

If representation was obtained from a third person, he can repeat the information on the subject matter which he believes to be true; he must also explain that he does so on th information of others. He may also submit the information in its entirety to the insurer. In either case, he isn't responsible for the truth of the matter unless he's an agent of the insured.

Representations are considered false if the facts can't be reconciled with its assertions or stipulations. If a representation is false on a material point the injured party can rescind the contract unless premium payments are accepted even if the insurer knew the representation was false.

Warranties

Warranties are statements or promises made by the insured and included in the policy, either by incorporation by proper reference or written into the policy itself, the non-fulfillment or falsity which in any respect and regardless of whether or not the insurer was prejudiced by the falsehood or non-fulfillment; they can be express, implied, affirmative or promissory. Warranties may refer to past, present and future

The purpose of a warranty is to eliminate potentially increasing hazards that are due either to the acts of the insured (ex. Burning your own store so you can collect the insurance) or chage the property's condition.

Warranties vs. Representations

A warranty is part of the contract that is actually written on the policy referred to in it. It is conclusively presumed to be material and must be strictly complied with.

A representation is a collateral inducement that can be written in the policy or given orally and must be proved to be material. It requires only substantial truth and compliance.

Kinds of warranties:

1.) Express

2.) Affirmative

Deemed included in the contract although not expressly mentioned (ex. Seaworthiness of a vessel).

3.) Promissory

The insured stipulates that certain facts or conditions shall be complied with or the thing shall be done or omitted.

Breach of Warranties

1.) Breach of material warranty

Violation of a material provision of the policy entitles the other party to rescind the contract.

2.) Breach of immaterial provision

Generally, the policy doesn't become void except if the policy provides.

3.) Breach of warranties without fraud

Insurer is exonerated when the breach occurs or if it is broken in its inception, prevents the policy from attaching to the risk.

Other Insurance Clause

This is a condition in the policy that requires the insured to inform the insurer of any other insurance covering the property that is lawful and allowed under sec. 75 of the Insurance Code.

For a violation of this clause to occur, the other insurance must be on the same subject matter, with the same interest and the same risk.