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Insurance Title VI - Rescission of Insurance Contracts: Concealment,…

- - - - 3. Grounds for rescission - These devices become grounds for rescission of the contract.
      - (a) Concealment and Representations - Contract was developed so that the insurer could secure the same information from the applicant so that they can form a just estimate of its quality.
      - (b) Warranties and Conditions - To make more definite the general words to describe the risk as to designation of specific property interest to be covered and the specification of perils
      - (c) Exception - Makes the coverage more definite by excluding certain specified risks that would have otherwise been included in the general language.
      - (d) Executory warranties and conditions - Conditions that should not exist in the future, otherwise, the insurer can rescind the contract because he is no longer to bear the risk.
      - (e) Conditions precedent - used by the insurer to protect himself from fraudulent claims of loss.
    - - Primary Concerns of Parties in an Insurance Contract
        
        (1) Correct Estimation of Risk - Wherein the insurer will assume the risk
        
        (2) Precise delimiation of risk - to determine the duty to pay of the insurer
        
        (3)Control of risk by insurer - to guard against increase of risk and change of conditions
        
        (4) Determining whether loss occurred - if same occurs then the amount of loss.
  - - - 2. Matters
        
        3. Test of Materiality IC 31 - If the applicant is aware of the existence of some circumstances which he knows would influence the insurer acting upon his application, good faith requires him to disclose that circumstance, though unasked.
        
        Definition - The effect which the knowledge of the fact would have in making the contract. The fact need not increase the risk or contribute to any loss or damage suffered.
        
        Mere Influence - Sufficient that the fact would influence the party in making the contract. whether the insurer would have agreed to issue the policy had it known of the facts concealed or perhaps impose additional terms or require higher premium.
        
        State of Mind - Materiality does not depend on the state of mind of the insured neither does it depend on the actual or physical event which ensues. Materiality relates to the probable and reasonable influence of the facts upon the party to whom the communication should have been made. In assessing the risk involved in making or omitting to make further inquiries and in accepting the application for insurance.
        
        Matters that Must be Disclosed IC 28
        
        Material to the contract
        
        The other party has no means of ascertaining said facts
        
        The party who fails to communicate makes no warrant.
        
        Matters which need not be disclosed (IC 30)
        
        a. Those which the other knows - This is because concealment requires knowledge of the insured at the time of the application for insurance. If knowledge is acquired subsequent, not concealment.
        
        Ratio - Insurer takes on risk on the basis of the material facts subsisting at the time the policy was entered into.
        
        However where knowledge of the information is acquired after the submission of the application and pending action thereon by the insurer, [such] is a situation not specifically covered by the Code.
        
        (b)Ought to Know - Those which, in the exercise of ordinary care, the other ought to know, and of which the former has no reason to suppose him ignorant
        
        c. Waiver - Those of which the other waives communication
        
        (d)Proof of Risk not Covered/Immaterial - Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material
        
        Exception - if the insured has knowledge of facts and circumstances which would prove or tend to prove that what was warranted was actually a falsehood. Fraudulent concealment of such facts allows the insurer to void or rescind.
        
        (e)Relating to Immaterial Risk - Those which relate to a risk excepted from the policy and which are not otherwise material.
        
        Other Matters that need not be Disclosed
        
        General Clauses/General Usage of Trade - IC 32
        
        Information on Own judgment IC 35 - Neither is a party bound to communicate, even upon inquiry, information of his own judgment
        
        Exception IC 34 - Information of the nature or amount of the interest of one insured need not be communicated unless in answer to an inquiry, except as prescribed by Section 51
        
        Waiver of Right to Information IC 33 - Right to information of material facts may be waived, either by
        
        a. Terms - the terms of the insurance
        
        b.Neglect - by neglect to make inquiry as to such facts, where they are distinctly implied in other facts of which information is communicated
      - Each party to a contract of insurance must communicate to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining.(IC 28)
        
        Requisites of Concealment
        
        Knowledge - The party knows the fact which he neglects to communicate or disclose to another;
        
        Duty - Such party concealing has a duty to disclose such fact
        
        Warranty - The party concealing made no warranty of the fact concealed; and
        
        Means to Ascertain - The other party has no means of ascertaining the fact concealed.
      - Failure to Disclose - renders the contract voidable.
        
        Duty to Disclose - Ends with the completion or effectivity of the contract. This is because concealment must take place at the time the contract was entered into.
        
        Life Insurance - applicant should inform of insurer of changes to his health between date of submission and date of delivery.
        
        Fraud or Deceit - no need for rescission on the grounds of ordinary concealment i.e. concealment of material facts. (Sec. 27)
        
        Sec. 29 - deals with omission of the insured facts which prove falsity of a warranty. Requires fraud.
    - - 1. Active form of Concealment - Representation is a statement made by the insured at the time of, or prior to, the issuance of the policy (may be about a past, existing fact, or future happening). It is an oral or written statement of a material fact, made by the insured to the insurer tending to induce the latter to assume the risk.
        
        2. IC 36-48
        
        Form and When Made IC 40 - like concealment, representation is made at the time of the commencement of the insurance contract. Subsequent to this, no guilt for misrepresentation attaches.
        
        Representation as to Future IC 39 - a representation as to the future (promissory) is deemed to be a promise, unless mere statement of belief or expectation.
        
        Representation as to information IC 43 - insured is allowed to give information of which he has no personal knowledge about if the info turns out to be false, he is not held responsible therefor.
        
        Effect of misrepresentation IC 44-45 - Can avoid the policy if it is false in a material and substantial aspect.
        
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        Qualifying policy - representations are not part of the policy. As such, may not qualify express provisions in it. However, may quality an implied warranty.
        
        Truth - need not be materially true or accurate. Sufficient that it is substantially or materially true or complied with.
        
        Forms
        
        Affirmative - allegations of fact as then existing; the existence or nonexistence of a fact when the contract begins
        
        Promissory - Statements concerning what is to happen during the existence of the contract; any promise to be fulfilled after the contract has come into existence or any statement concerning the happening of an event
        
        Requisites of Misrepresentation
        
        a.Statement of a fact which is untrue
        
        b.Which the insured stated with knowledge that such is untrue and with an intent to deceive, or when he states something positively as true without knowing it to be true
        
        c.Material to the risk will render the contract of insurance voidable at the option of the insurer.
        
        Purpose of Representation - Representation refers only to the time of the making of the contract.
        
        a. Estimation of Risk - information given is used to estimate the character and assumption of risk.
        
        b. Basis of Contract - describes and defines the risk assumed.
        
        Withdrawal - because not part of the contract, it may be altered or withdrawn BEFORE the contract takes place, but not after there is an assumption of risk on the basis of the representation.
        
        c. Collateral Inducement - intended as the same to induce the insurer to accept the risk
      - D. Cases on concealment and Misrepresentation
        
        E. Incontestable clause in life insurance policies
        
        Concept - refers to a clause in life or health insurance that provides that where the policy has been in force for a given length of time, insurer shall not be able to contest it as to statements contained in the application.
        
        1. Defenses not barred
        
        Requisites for incontestability:
        
        a. Policy is a life insurance policy
        
        b. Payable upon the death of the insured (not if payable upon maturity by lapse
        of time)
        
        c. Has been in force during the lifetime of the insured for at least 2 years from
        its date of issue or of its last reinstatement
        
        F. Warranties - May be express or implied.
        
        Concept - a statement or promise in the policy agreed upon by both parties either contained in the policy itself or incorporated by proper reference.
        
        Kinds - Express/Implied/Affirmative/Promissory
        
        Materiality and Fraud
        
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        G. Grounds & Exercise of rights of rescission