Iris Anthonniette Sunga

INSURANCE 6 MAY, 2016

REPRESENTATION AND WARRANTY

Representation
A "representation" are assurance that are made by one party to another to induce the latter to
enter into a contractual relationship with confidence. It is a fact that precedes a contract.
Representation is a part of past or existing fact that is deemed necessary to be communicated to
the party so that he can make a fair assessment of the risk involved in the contract. Failure of a
representation to be true is generally a breach of a contact; if material, it may result in the ability
to rescind the contract. Usually one side is responsible for a representation to another.1 The party
must ensure that representations he is giving are true and correct to his knowledge so that, he is
not found guilty of misrepresentation later on.
Warranty
A "warranty" is a statement made by the insured party on an application for most kinds of
insurance as an ongoing promise that a state of facts will be true in all respects. If untrue in any
respect, even if the untruth is not known to the applicant, the contract may be voided without
regard to the materiality of the statement.2 Failure of a warranty to be true is generally a breach
of a contact. Usually a warranty is for a set period of time; if the facts become untrue in that
period of time there is a breach. Usually one side is responsible for a warranty to another (but
there could be reciprocal warranties).
What is the difference between Representation and Warranty?
WARRANTY

REPRESENTATION

Part of the contract

Mere collateral
inducement

Written on the policy,

actually or by reference

May be written in the

policy or may be oral.

Presumed material

Must be proved to be
material

Must be strictly
complied with

Requires only
substantial truth and
compliance

1 http://thelawdictionary.org
2 http://www.online-health-insurance.com
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Representations are statements made before the contract is made, which affects the willingness
of the parties to accept the risk of entering into an agreement, while warranties are promises
made by the insured and insurer, written explicitly in the insurance policy, that statements
affecting the validity of the contract are true.
Representations assures one party about the validity of the other and the arrangement while
warranties take care of promises made about the quality and reliability of the product or service.
Representations are facts that cover the past up to the signing of the contract and help a party to
make up his mind in completing a contract while warranties covers the present contract and the
future and require full compliance from the parties as a breach of warranties often leads to
cancellation of the contract.
Fraud and Misrepresentation of Insurance Companies
Insurance generally refers to the exchange of risk for money. An insurance policy is an
agreement whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event. 3 The insurance company
receives money in the form of premium payments in exchange for the certain risks it will
assume, and the insured receives the peace of mind that an accident, damage, or death will not
financially ruin him or her.4
Insurance fraud, also known as "bad faith insurance practices," are fraudulent activities on the
part of insurers such as denying valid insurance claims, denying coverage to individuals for
certain conditions that should be covered, failing to properly investigate claims, and deliberately
underpaying claims.5
Laws, such as the Insurance Code of the Philippines (P.D. 612), prohibiting bad faith insurance
practices are based upon the rationale that in every insurance contract, there is an implied
promise between the parties to treat each other fairly and act in good faith. Because contacts
have the binding power of law, an insurance company's bad faith action to deny a policyholder
the benefit of the contract is a violation of the contract and therefore illegal.

3 Section 2 par. 2, Insurance Code of the Philippines (P.D. 612)

4 https://www.justia.com
5 http://www.criminaldefenselawyer.com
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