PART FIVE

GROUNDS FOR RESCISSION

GROUNDS
Concealment

Misrepresentation Breach of warranty, express or

implied
Other grounds - Section 64-65

CONCEALMENT

CONCEALMENT
neglect

to communicate that which a party knows and ought to communicate.

Requisites of Concealment
(a)party knows the fact which he

neglects disclose

to communicate or

(b) party concealing is duty bound to disclose such fact to the other

Requisites of Concealment
a) party

concealing makes no warranty as to concealed fact

a) other party has no means of

ascertaining concealed

the

fact

WHAT MUST BE COMMUNICATED

All facts within his knowledge Material to the contract Other party has no means of

ascertaining He makes no warranty Information which prove or tend to prove falsity of warranty

WHAT NEED NOT BE COMMUNICATED

Those which the other knows

Those which, in the exercise of

ordinary case, the other ought to know and which the other has no reason to suppose him ignorant

WHAT NEED NOT BE COMMUNICATED

Those

of which the other waives communication existence of a risk excluded by a warranty, and which are not otherwise material; and

Those which prove or tend to prove the

Those which relate to a risk excepted

from the policy, and which are not otherwise material

What need not be communicated

General

causes open to his inquiry which may affect the political or material perils contemplated (32)

General usages of trade (32)

What need not be communicated

Nature or amount of interest,

except in answer to an inquiry (34)

Information of his own judgment

(35)

TEST OF MATERIALITY
Determined not by event Probable and reasonable influence

of facts upon the party to whom communication is due in forming his estimate of the disadvantages of the proposed contract OR in making his inquiries

TEST OF MATERIALITY
Assessment

of risk, in making/omitting further inquiries, cause him to reject the risk or accept it at higher premium rate/different terms

Materiality
Sunlife v. CA, 245 SCRA 268 -

where the applicant concealed prior medical history and he died in a plane crash, there was still concealment notwithstanding the apparent lack of relation between the fact concealed and the cause of death

WAIVER OF RIGHT TO INFORMATION

By terms of insurance OR Neglect to make inquiries

concealment

entitles unguilty party to rescind

the

CONCEALMENT In Marine Insurance

in addition to Section 28

all

information he possesses material to the risk except those in Section 30

CONCEALMENT In Marine Insurance

state

exact and whole relation to all matters represents

truth in that he

information of belief or expectation

of a third person as to a material fact is MATERIAL

insured is presumed to know prior

loss at time of insuring

Concealment in Marine Insurance

General

Rule: Concealment entitles the innocent party to rescind

Exception: Section 110

Section 110
Concealment as to following does NOT vitiate the entire contract but exonerates the insurer from loss resulting from risk concealed. (a) national character of insured (b) liability of thing insured to capture and detention

Section 110
c) liability to seizure from breach of foreign laws of trade (d) the want of necessary document (e) the use of false and simulated papers

INCONTESTABILITY CLAUSE IN LIFE INSURANCE

Section 48, 2nd par if life insurance has been in force during the lifetime of the insured for a period of 2 years from DATE OF ISSUE or LAST REINSTATEMENT the insurer cannot prove that the policy is void ab initio or is rescindible by reason of fraudulent concealment or misrepresentation of the insured or his agent.

Illustration
A is issued a life insurance policy on April 2, 2000 He conceals the fact that he has tuberculosis A dies on April 3, 2002. Insurance company must pay.

Although there was concealment, the policy has been in force during the lifetime of A for 2 years from April 2, 2000.

When Incontestability Clause DOES NOT apply

Person has no insurable interest

Cause of death is an excepted peril

Premiums have not been paid
Conditions of the policy relating to military or

naval service have been violated

When Incontestability Clause DOES NOT apply

Fraud of a vicious type is present when

policy was taken out

Beneficiary failed to furnish proof of

death or to comply with any condition imposed by the policy after the loss has happened
That the action was not brought within

time specified

MISREPRESENTATION

MISREPRESENTATION
Representations

factual statements made by the insured at the time of, or prior to the issuance of the policy

MISREPRESENTATION
Statement (a) as a fact of something which is untrue

(b) which the insured stated with knowledge that it is untrue and with an intent to deceive, or which he states positively as true without knowing it to be true and which has a tendency to mislead, and (c) where such fact in either case is material to the risk

Test of Falsity & Materiality Sec. 44 when the facts fail to correspond with its assertion or stipulations

Sec. 45 materiality is determined using thesame test in concealment (Sec. 31)

Misrepresentation as a ground to rescind

entitled to rescind from the

time the representation becomes false

right to rescind by insurer is

waived by acceptance of premiums despite knowledge of ground to rescind

Misrepresentations as to Age in Life Insurance

no rescission

proceeds shall be such as

the premium would have purchased at the correct age

Misrepresentation in Marine Insurance

entitles the insurer to rescind eventual

falsity of a representation as to expectation without fraud, does NOT avoid a marine insurance contract