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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:
In insurance contracts:
- Neglect to communicate that which a party knows and ought to communicate, is called a concealment. (Section 26, Insurance Code of the Philippines)
- A representation is to be deemed false when the facts fail to correspond with its assertions or stipulations. (Section 43, Insurance Code of the Philippines)
CONCEALMENT
When does concealment exist?
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. vs. The Heirs of Jose Alvarez, G.R. No. 207526, October 3, 2018)
When does concealment allow the rescission of an insurance contract?
A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance. (Section 27, Republic Act No. 10607)
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, ibid.)
In what situations is neither party to a contract of insurance obligated to communicate information to the other party?
Neither party to a contract of insurance is bound to communicate information of the matters following, except in answer to the inquiries of the other:
a) Those which the other knows;
b) 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) Those of which the other waives communication;
d) Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material; and
e) Those which relate to a risk excepted from the policy and which are not otherwise material.
Is good faith a defense in concealment?
Materiality of the information withheld does not depend on the state of mind of the insured. Neither does it depend on the actual or physical events which ensue. Thus, “good faith” is no defense in concealment. (Sunlife Assurance Company of Canada vs. The Hon. Court of Appeals, G.R. No. 105135, June 22, 1995)
MATERIAL MISREPRESENTATION
What are the types of representations allowed in insurance contracts?
Representations in insurance contracts may be oral or written. (Section 36, Insurance Code of the Philippines)
When can representations be made in relation to the issuance of an insurance policy?
Representations may be made either at the time of issuance or before issuance of the policy. (Section 37, Insurance Code of the Philippines)
How should a person insured handle information they do not personally know?
If a person insured lacks personal knowledge of a fact, they may repeat information they have from others, with an explanation, or submit the information to the insurer. They are not responsible for its truth unless it comes from an agent of the insured whose duty is to provide such information. (Section 43, ibid.)
What constitutes a false representation?
A representation is deemed false when the facts fail to correspond with its assertions or stipulations. (Section 44, ibid.)
When is the injured party entitled to rescind a contract due to a false representation?
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, ibid.)
How is the materiality of a representation determined?
The materiality of a representation is determined by the same rules as the materiality of a concealment. (Section 46, ibid.)
Do the provisions regarding representations apply to modifications of insurance contracts?
Yes, the provisions regarding representations apply to modifications of insurance contracts as well as to their original formation. (Section 47, ibid.)
When must the insurer exercise the right to rescind a contract of insurance?
The insurer must exercise the right to rescind a contract of insurance before the commencement of an action on the contract. (Section 48, ibid.)
What is misrepresentation as a defense of the insurer?
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. (The Insular Assurance Co., Ltd. vs. The Heirs of Jose Alvarez, G.R. No. 207526, October 3, 2018)
Is good faith a defense?
Yes. The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. The Insurance Code dispenses with proof of fraudulent intent in cases of rescission due to concealment, but not so in cases of rescission due to false representations. (Ibid.)
Read also:
Insurance Contract: The One with Perfect Good Faith
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