Victor Antonio M.

Lim
Juris Doctor

Insurance

Representation
In contracts, a Representation is a statement made by one of two contracting parties to the
other, before or at the time of making the contract, in regard to some fact, circumstance, or state
of facts pertinent to the contract, which is influential in bringing about the agreement. In
Insurance, a collateral statement, either by writing not inserted in the policy or by patrol, of such
facts or circumstances, relative to the proposed adventure, as are necessary to be communicated
to the underwriters, to enable them to form a just estimate of the risks. 1 Marsh. Ins. 450.
Under Section 36, Title V of the Insurance Code of the Philippines, a Representation may
be oral or written. The statement may or maybe not in writing, and may either be express or by
obvious implication. Lee v. Howard Fire Ins. Co., 11 Cush (Mash.) 324; Augusta Insurance &
Banking Co. of Georgia v. Abbott, 12 Md. 34S.

Definition with Examples:

1. A statement of fact made with the purpose of getting someone to become party to a
transaction or contract. The presentation of fact may be by words or by conduct and it
should induce a person to act. For example, the buyer relied on the seller's representation
that the roof did not leak;
2. The act or an instance of standing for or acting on behalf of another especially acting as
an attorney for a client. For example, Mr. John represented the plaintiff in the litigation;
3. The fact of a litigant's having such a close alignment of interests with another person that
the other is considered as having been present in the litigation. For example, the named
plaintiff provided adequate representation for the absent class members;
4. In law of descent and distribution, representation is the principle by which the issue of an
individual who died inherits the portion of an estate that such person would have taken if
he or she was alive;
5. In International law representation is a friendly but firm statement of a perceived wrong.
This is the mildest form of complaint that one nation can make to another. This is also
termed diplomatic representation.

Warranty
A warranty is an assurance, promise, or guaranty by one party that a particular
statement of fact is true and may be relied upon by the other party. In Dawson the House of
Lords held, extracted from the judgments of Justice Haldane and Finlay: "The proper
signification of the word (warranty) in the law is an agreement which refers to the subject
matter of a contract, but, not being an essential part of the contract either intrinsically or by
agreement, is collateral to the main purpose of such a contract. Yet irrespective of this, the

word came to be employed in England where what was meant was something of wider
operation, a pure condition. The expression warranty imports that a particular state of facts in
the present or in the future is a term of the contract, and further, that if a warranty is not made
good the contract of insurance is void. It is not necessary that the term warranty should be
used, as any form of words expressing the existence of a particular state of facts as a
condition of the contract is enough to constitute a warranty. If there is such a warranty the
materiality of the facts in themselves is irrelevant; by contract their existence is a condition
of the contract." Dawson's Ltd. v. Bonnin, [1922] 2 A.C. 413

Under Section 67, Title VII of the Insurance Code of the Philippines, A warranty is either
expressed or implied. Justice Dickson of Canada's Supreme Court used these words in FraserReid: A warranty is a term in a contract which does not go to the root of the agreement between
the parties but simply expresses some lesser obligation, the failure to perform which can give rise
to an action for damages, but never to the rights to rescind or repudiate the contract. An
affirmation at the time of sale is a warranty provided it appears on the evidence to have been
intended. No special form of words is necessary. It must be a collateral undertaking forming part
of the contract by agreement of the parties express or implied, and must be given during the
course of the dealing which leads to the bargain, and should then enter into the bargain as part of
it. Fraser-Reid v. Droumtsekas, [1980] 1 S.C.R. 720.

Examples:
1. Express Warranty
A warranty created by the specific words of the warrantor promising the purchaser of
goods that the merchandise being sold possesses or lacks certain qualities.
2. Implied Warranty
A warranty arising from the existence of certain laws governing the conditions under
which a certain thing may be transferred, rather than from the words of the seller.
3. Limited Warranty
Warranty limited as to period of time or scope, e.g., a warranty for an automobile may be
for only certain components of the car, or for a specified number of miles or months.
4. Warranty of fitness for a certain purpose
A warranty that the merchandise is suited for use for the special purpose for which the
buyer is acquiring it, rather than merely fit for general use.

5. Warranty of habitability
A landlords promise that from the start of the lease there are no hidden difficulties or
defects that might affect the use of the premises for residential purposes, and that the
premises will remain habitable for the leases duration.

Representation distinguished from Warranty

There is an important distinction between a representation and a warranty. The former,
which precedes the contract of insurance, and is not part of it, need he only materially true: the
latter is a part of the contract, and must be exactly and literally, fulfilled, or else the contract is
broken and inoperative. Glendale Woolen Co. v. Protection Ins. Co., Conn. 19, 54 Am. Dec. 309.

Fraud and Misrepresentation of Insurance Companies

Misrepresentation is an assertion or manifestation by words or conduct that is not in
accord with the facts.
Misrepresentation is a tort, or a civil wrong. This means that a misrepresentation can
create civil liability if it results in a pecuniary loss. For example, assume that a real estate
speculator owns swampland but advertises it as valuable commercially zoned land. This is a
misrepresentation. If someone buys the land relying on the speculator's statement that it is
commercially valuable, the buyer may sue the speculator for monetary losses resulting from the
purchase.
To create liability for the maker of the statement, a misrepresentation must be relied on
by the listener or reader. Also, the speaker must know that the listener is relying on the factual
correctness of the statement. Finally, the listener's reliance on the statement must have been
reasonable and justified, and the misrepresentation must have resulted in a pecuniary loss to the
listener.
A misrepresentation need not be intentionally false to create liability. A statement made
with conscious ignorance or areckless disregard for the truth can create liability. Nondisclosure o
f material or important facts by a fiduciary or anexpert, such as a doctor, lawyer, or accountant, c
an result in liability. If the speaker is engaged in the business of sellingproducts, any statement, n
o matter how innocent, may create liability if the statement concerns the character or qualityof a
product and the statement is not true. In such a case, the statement must be one of fact. This does
not include socalled puffing, or the glowing opinions of a seller in the course of a sales pitch (suc
h statements as "you'll love this car,"or "it's a great deal").
A misrepresentation in a contract can give a party the right to rescind the contract. A Res
cission of a contract returnsthe parties to the positions they held before the contract was made. A
party can rescind a contract for misrepresentationonly if the statement was material, or critical, to
the agreement.

A misrepresentation on the part of the insured in an insurance policy can give the insurer
the right to cancel the policy orrefuse a claim. An insurer may do this only if the misrepresentatio
n was material to the risk insured against and wouldhave influenced the insurer in determining w
hether to issue a policy. For example, if a person seeking auto insurancestates that she has no maj
or chronic illnesses, the insurer's subsequent discovery that the applicant had an incurabledisease
at the time she completed the insurance form probably will not give the insurer the right to cance
l the autopolicy. However, if the person was seeking Health Insurance, such a misrepresentation
may justify cancellation of the policy or a denial of coverage. Generally, cancellation or denial of
insurance coverage for a misrepresentation can occur only if the insurance applicant was aware
of the inaccuracy of the statement. (Kionka, Edward J. 1988. Torts. St. Paul, Minn.: West.)

In Emilio Tan v. Court of Appeals, G.R. No. 48049, 29 June 1989, the court The so-called
incontestability clause precludes the insurer from raising the defenses of false representations
or concealment of material facts insofar as health and previous diseases are concerned if the
insurance has been in force for at least two years during the insureds lifetime. The phrase
during the lifetime found in Section 48 of the Insurance Law simply means that the policy is
no longer considered in force after the insured has died. The key phrase in the second paragraph
of Section 48 is for a period of two years.
The policy was issued on November 6, 1973 and the insured died on April 26, 1975. The
policy was thus in force for a period of only one year and five months. Considering that the
insured died before the two-year period has lapsed, respondent company is not, therefore, barred
from proving that the policy is void ab initio by reason of the insureds fraudulent concealment
or misrepresentation. Moreover, respondent company rescinded the contract of insurance and
refunded the premiums paid on November 11, 1975, previous to the commencement of this
action on November 27, 1975.

References:
1 Marsh. Ins. 450.
Lee v. Howard Fire Ins. Co., 11 Cush (Mash.) 324; Augusta Insurance & Banking Co. of
Georgia v. Abbott, 12 Md. 34S.
Dawson's Ltd. v. Bonnin, [1922] 2 A.C. 413
Fraser-Reid v. Droumtsekas, [1980] 1 S.C.R. 720.
Glendale Woolen Co. v. Protection Ins. Co., Conn. 19, 54 Am. Dec. 309.
Kionka, Edward J. 1988. Torts. St. Paul, Minn.: West.

Emilio Tan v. Court of Appeals, G.R. No. 48049, 29 June 1989