Applying for an insurance policy requires giving relevant information to the insurance company and most of the time this is personal information. In life insurance, the applicant is asked his age, health condition, hobbies, habits, and medical background.
A concept of English law, a misrepresentation is an untrue or misleading statement of fact made during negotiations by one party to another, the statement then inducing that other party to enter into a contract.
Property insurance applicants also provide those details in addition to the location and value of the property being insured. This set of information, or representations, is usually given to the insurance company through the application form, or in some cases this is communicated verbally.
Representations are statements made to persuade an insurer to issue the policy. With these facts, the insurer will be able to assess the risk and offer an appropriate premium and coverage for such level of risk. These representations are generally given at the time the policy is issued or even prior to the issuance. Moreover, representations may also be made at the time or before a policy renewal.
Representations are important because an insurance contract is largely based on them. Any misrepresentation made, especially on material information, does not change or add to an existing contract nor end one.
No risk will be attached because the information relayed, which was supposed to be the basis of the risk assessment, was based on falsehood. Thus, it is as if there is no insurance contract made.
For example, there is a material misrepresentation when the one indicated in the application form says that he has not smoked for a year, even though in fact he has not been able to fully quit the vice. Likewise, lying about your weight may also be considered a misrepresentation.
As opposed to the concept of hiding or concealing a material information, representation involves positively asserting or confirming an information being asked by the insurer.
Representations may also pertain to the future, such as a promise that something will become true and factual eventually at the time the insurance will become effective, but concealment usually refers to past events.
Yet, in both cases, a party may cancel a contract if there was indeed concealment or misrepresentation of facts. In terms of measuring the importance or materiality of the information, the same standard applies.
As long as the information is important for the contract, or in other actions related to premium setting and terms and coverage of the contract, that fact is material.
But how could one say that the information shared by the applicant is true? The law states that representations should be interpreted in favor of the insured and need only be true to a large extent.
For instance, an estimate on the value of a property to be insured may be enough information, since the owner may not always know the true market value of the property.
In interpreting the time to which the information given refers to, the presumption is that it refers to the date on which the contract becomes effective.
Misrepresentation on the age of the insured, or of any person, considered in determining the insurance premium or benefits, does not automatically invalidate an insurance policy especially if it was an honest mistake.
The only result would be that any amount payable or benefit that will be received under the policy shall be the amount that is equivalent to the premium paid by the insured that he would have purchased at the correct age.
If at that correct age, the insured is not qualified for any policy coverage or its riders, a refund of premiums may be made, minus any indebtedness under the policy.
Because information about age is very crucial, especially in life insurance policies, the insurers must be careful in their evaluation and not just depend on the representation made by the insured. One option is to require the submission of a certificate of live birth.
When there is a misrepresentation, the victim has the right to revoke the contract from the time when the representation becomes false.
There are cases, however, when this is not applicable. One is when there is a waiver of the right to cancel the contract, when an action has already been started on the contract, and when the incontestable clause applies. An incontestable clause stops the insurer from invalidating an insurance coverage due to a misrepresentation by the insured after a specific amount of time.
Lastly, if there is a misrepresentation by the insured who has already paid the premium, the policy contract may still be canceled even after accepting the premium despite having knowledge of such misrepresented fact, provided that it does not fall under the cases stated above when a withdrawal of the insurance policy is not applicable.
Source: The Manila Times