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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
AT A GLANCE:
The insurer has the right to rescind the policy under the following grounds:
- Intentional or unintentional concealment;
- Intentional or fraudulent omission;
- Misrepresentation;
- Violation of material warranty or other material provisions of the policy; and
- Violation of a provision wherein the policy declares that the violation of which would avoid the policy. (Republic Act No. 10607 or the Insurance Code)
Republic Act No. 10607 or the Insurance Code provides that “a contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event” (Section 2(a), Insurance Code). As with any other contract, parties are entitled to rescission in case of a breach of material obligations. The Insurance Code has set forth grounds which may entitle an insurer to rescind an insurance policy.
What are the conditions that must be met before an insurer can exercise its right to rescind an insurance contract?
Jurisprudence says:
“Accordingly, an insurer can exercise its right to rescind an insurance contract when the following conditions are present, to wit:
1) the policy limits the use or condition of the thing insured;
2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insured’s control; and
5) the alteration increases the risk of loss.” (Malayan Insurance Company, Inc. v. PAP Co., Ltd., G.R. No. 200784, August 07, 2013)
Intentional or unintentional concealment
Intentional or unintentional concealment on the part of the insured entitles the insurer to rescind the insurance policy.
Concealment exists where the assured has knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that he should communicate it to the assured, but he designedly and intentionally withholds the same (The Insular Assurance Co., Ltd. V. Heirs of Jose Alvarez, G.R. No. 207526, October 03, 2018)
The law says:
“A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance.” (Section 27, Insurance Code)
The law further states that:
“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. (Section 28, Insurance Code)
Jurisprudence says:
“If the assured undertakes to state all the circumstances affecting the risk, a full and fair statement of all is required.” (The Insular Assurance Co., Ltd. V. Heirs of Jose Alvarez, G.R. No. 207526, October 03, 2018)
Intentional or fraudulent omission
Intentional or fraudulent omission on the part of the one insured to communicate information of matters proving or tending to prove the falsity of a warranty likewise entitles the insurer to rescind the insurance policy.
The law says:
“An intentional and fraudulent omission, on the part of one insured, to communicate information of matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind.” (Section 29, Insurance Code)
Misrepresentation
A representation is to be deemed false when the facts fail to correspond with its assertions or stipulations (Section 44, Insurance Code). When a representation is false on material point whether affirmative or promissory, the injured party has the right to rescind the insurance contract.
The law says:
“If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time when the representation becomes false. (Section 45, Insurance Code)
Jurisprudence says:
“The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer.” (Manulife Philippines, Inc. v. Hermenegilda Ybañez, G.R. No. 204736, November 28, 2016)
Violation of material warranty or other material provisions of the policy
The law says:
“The violation of a material warranty, or other material provision of a policy, on the part of either party thereto, entitles the other to rescind.” (Section 48, Insurance Code)
What is warranty?
Jurisprudence says:
“A warranty is a statement of or promise set forth in the policy, or by reference incorporated therein, the untruthfulness or non-fulfillment 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.” (Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines, G.R. No. 151890, June 20, 2006)
Violation of a provision wherein the policy declares that the violation of which would avoid the policy
The law says:
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. (Section 48, Insurance Code)
When must the insurer exercise the right to rescind the contract on the ground of concealment or misrepresentation?
The law says:
“Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two (2) years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent.” (Section 48, Insurance Code)
What are the conditions that must be met before an insurer can exercise its right to rescind an insurance contract?
Jurisprudence says:
“Accordingly, an insurer can exercise its right to rescind an insurance contract when the following conditions are present, to wit:
1) the policy limits the use or condition of the thing insured;
2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insured’s control; and
5) the alteration increases the risk of loss.” (Malayan Insurance Company, Inc. v. PAP Co., Ltd., G.R. No. 200784, August 07, 2013)
Related article: Basics of an Insurance Contract
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