What are the grounds for the rescission of an insurance contract?

The insurer has the right to rescind the policy under the following grounds:

1. Intentional or unintentional concealment;

2. Intentional or fraudulent omission;
3. Misrepresentation;
4. Violation of material warranty or other material provisions of the policy; and
5. Violation of a provision wherein the policy declares that the violation of which
would avoid the policy. (Republic Act No. 10607 or the Insurance Code)

Intentional or unintentional concealment

Intentional or unintentional concealment on the part of the insured entitles the insurer to
rescind the insurance policy.

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. V.
Heirs of Jose Alvarez, G.R. No. 207526, October 03, 2018)

The law says: “A concealment whether intentional or unintentional entitles the injured
party to rescind a contract of insurance.” (Section 27, Insurance Code)

The law further states that: “Each party to a contract of insurance must communicate to
the other, in good faith, all facts within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has not the
means of ascertaining. (Section 28, Insurance Code)

Jurisprudence says: “If the assured undertakes to state all the circumstances affecting
the risk, a full and fair statement of all is required.” (The Insular Assurance Co., Ltd. V.
Heirs of Jose Alvarez, G.R. No. 207526, October 03, 2018)
Intentional or fraudulent omission

Intentional or fraudulent omission on the part of the one insured to communicate information
of matters proving or tending to prove the falsity of a warranty likewise entitles the insurer to
rescind the insurance policy.

The law says: “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, Insurance Code)

Misrepresentation

A representation is to be deemed false when the facts fail to correspond with its assertions
or stipulations (Section 44, Insurance Code).

When a representation is false on material point whether affirmative or promissory, the

injured party has the right to rescind the insurance contract.

The law says: “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, Insurance Code)

Jurisprudence says: “The fraudulent intent on the part of the insured must be
established to entitle the insurer to rescind the contract. 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.” (Manulife Philippines, Inc. v. Hermenegilda Ybañez, G.R. No. 204736,
November 28, 2016)
Violation of material warranty or other material provisions of the policy

The law says: “The violation of a material warranty, or other material provision of a
policy, on the part of either party thereto, entitles the other to rescind.” (Section 48,
Insurance Code)

What is warranty?

Jurisprudence says: “A warranty is a statement of or promise set forth in the policy, or by

reference incorporated therein, the untruthfulness or non-fulfillment of which in any respect,
and without reference to whether the insurer was in fact prejudiced by such untruth or
nonfulfillment, renders the policy voidable by the insurer.” (Prudential Guarantee and
Assurance, Inc. v. Trans-Asia Shipping Lines, G.R. No. 151890, June 20, 2006)

PLEASE NOTE:

It is a statement or promise stated in the policy or incorporated therein by reference, whereby the
INSURED expressly or impliedly (Section 67) contracts as to the past, present or future (Section 68)
existence of certain facts conditions or circumstances the LITERAL TRUTH of which is essential to
the validity of the contract.

Examples:
AS TO PAST - That he never had a heart ailment
AS TO THE PRESENT - That he is in good health/ That house is being utilized as a residence.
AS TO THE FUTURE - That insured will not store explosives

FORM
No particular form of words is necessary to create a warranty (Section 69). What is essential is what
the parties intend a statement to be, and if so intended as a warranty it must be included as part of the
contract. NOTE:(1) Whether a warranty is constituted or not depends upon the intention of the parties,
the nature of the contract, or the words used thereto (2) In case of doubt, the statement is presumed
to be a representation not a warranty

WHAT ARE THE KINDS OF WARRANTIES

1. Affirmative
Those that relate to matters that exist AT or BEFORE the issuance of the policy.
Example: that the vessel is equipped with a competent crew.

2. Promissory
Those where the insured promises or undertakes that certain matters shall exist or will be done
or will be omitted after the policy takes effect. It is a statement in the policy, which imports that it is
intended to do or not to do a thing which materially affects the risk, is a warranty that such act or
omission shall take place (Section 72).
Example: That a house shall not be leased out. That the insured’s premises will be fenced.

NOTE: that unless the contrary intention appears, the courts will presume that the warranty is merely
an affirmative warranty
Example: A description of the property as being a two storey residence- there is no promissory
warranty that it will be maintained as a residence OR there is a statement that “ there is a security
guard on duty at night” is not a promissory warranty that a security guard will be maintained.
3. Express
A statement in a policy of a matter relating to the person or thing insured, or to the risk as a fact
(Section 71) and where the assertion or promise is clearly set forth in the policy or incorporated
therein by reference. They can be affirmative or promissory warranties.

AN EXPRESS WARRANTY MADE AT OR BEFORE THE EXECUTION OF THE POLICY SHOULD

BE CONTAINED (a) in the policy itself. (b) in another instrument signed by the insured and referred to
in the policy as making a part of it (Section 70). This includes a RIDER - it is a part of the policy, it
need not be signed unless the rider was issued after the original policy took effect.

4. Implied
Where the assertion or promise is not expressly set forth in the policy but because of the general
tenor of the terms of the policy or from the very nature of the insurance contract, a warranty is
necessarily inferred or understood. Note that the law only provides for implied warranties in contracts
of marine insurance. See Sections 113 (seaworthiness) and 126 (deviation).

EFFECT OF VIOLATION OF A WARRANTY

The violation of a material warranty, or other material provision of the policy, on the part of either party
thereto, entitles the other to rescind (Section 74) Note that the insured can exercise the right also
when the insurer violates a warranty, like when it refuses to grant a loan on the policy. BUT as far as
the insured, NOTE ALSO that (1) while a policy may declare that a violation of specified provisions
thereof shall avoid it, OTHERWISE the breach of an immaterial provision does not avoid the policy
(Section 75).

MEANING- ORDINARILY A BREACH OF AN IMMATERIAL PROVISION DOES NOT AVOID A

POLICY, however, if stipulated that any breach avoids the policy, the policy is avoided. (2) a breach of
warranty without fraud, merely exonerates an insurer from the time it occurs, or where it is broken at
its inception, prevents the policy from attaching to the risk (Section 76). MEANING- that if the breach
is without fraud- the policy is avoided only from the time of the breach, prior to the breach it is still
effective.

Consequently, the insured is entitled to a pro-rate return of the premium paid under Section 79 (b) or
all premiums, if the breach occurs at the inception of the contract, as such is void ab initio and had
never become binding.

NOTE that a CAUSAL CONNECTION between the violation of the warranty is not necessary. So,
even if the violation did not contribute to the loss the other party may still rescind

Example: An insured building against fire. A warranty stated that no hazardous goods would be
stored.A stored fireworks. The building was burned and the fireworks were discovered stored in the
area not affected by the fire. The Insurer was not held liable as the storage had increased the risk
Violation of a provision wherein the policy declares that the violation of which would
avoid the policy

The law says: A policy may declare that a violation of specified provisions thereof
shall avoid it, otherwise the breach of an immaterial provision does not avoid the
policy. (Section 48, Insurance Code)

When must the insurer exercise the right to rescind the contract on the ground of
concealment or misrepresentation?

The law says: “Whenever a right to rescind a contract of insurance is given to the
insurer by any provision of this chapter, such right must be exercised prior to the
commencement of an action on the contract.

After a policy of life insurance made payable on the death of the insured shall have been in
force during the lifetime of the insured for a period of two (2) years from the date of its issue
or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is
rescindable by reason of the fraudulent concealment or misrepresentation of the insured or
his agent.” (Section 48, Insurance Code)

What are the conditions that must be met before an insurer can exercise its right to
rescind an insurance contract?

Jurisprudence says:

“Accordingly, an insurer can exercise its right to rescind an insurance contract when the
following conditions are present, to wit:

1) the policy limits the use or condition of the thing insured;

2) there is an alteration in said use or condition;

3) the alteration is without the consent of the insurer;

4) the alteration is made by means within the insured’s control; and

5) the alteration increases the risk of loss.” (Malayan Insurance Company, Inc. v. PAP Co.,
Ltd., G.R. No. 200784, August 07, 2013)
 SETTLEMENT OF CLAIMS

TITLE 9: LOSS

Section 85. An agreement not to transfer the claim of the insured against the insurer after
the loss has happened, is void if made before the loss except as otherwise provided in the
case of life insurance.

Section 86. Unless otherwise provided by the policy, an insurer is liable for a loss of which a
peril insured against was the proximate cause, although a peril not contemplated by the
contract may have been a remote cause of the loss; but he is not liable for a loss of which
the peril insured against was only a remote cause.

Section 87. An insurer is liable where the thing insured is rescued from a peril insured
against that would otherwise have caused a loss, if, in the course of such rescue, the thing is
exposed to a peril not insured against, which permanently deprives the insured of its
possession, in whole or in part; or where a loss is caused by efforts to rescue the thing
insured from a peril insured against.

Section 88. Where a peril is especially excepted in a contract of insurance, a loss, which
would not have occurred but for such peril, is thereby excepted although the immediate
cause of the loss was a peril which was not excepted.

Section 89. An insurer is not liable for a loss caused by the willful act or through the
connivance of the insured; but he is not exonerated by the negligence of the insured, or of
the insurance agents or others.

TITLE 10 : NOTICE OF LOSS

Section 90. In case of loss upon an insurance against fire, an insurer is exonerated, if written
notice thereof be not given to him by an insured, or some person entitled to the benefit of the
insurance, without unnecessary delay. For other non-life insurance, the Commissioner may
specify the period for the submission of the notice of loss.

Section 91. When a preliminary proof of loss is required by a policy, the insured is not bound
to give such proof as would be necessary in a court of justice; but it is sufficient for him to
give the best evidence which he has in his power at the time.

Section 92. All defects in a notice of loss, or in preliminary proof thereof, which the insured
might remedy, and which the insurer omits to specify to him, without unnecessary delay, as
grounds of objection, are waived.

Section 93. Delay in the presentation to an insurer of notice or proof of loss is waived if
caused by any act of him, or if he omits to take objection promptly and specifically upon that
ground.

Section 94. If the policy requires, by way of preliminary proof of loss, the certificate or
testimony of a person other than the insured, it is sufficient for the insured to use reasonable
diligence to procure it, and in case of the refusal of such person to give it, then to furnish
reasonable evidence to the insurer that such refusal was not induced by any just grounds of
disbelief in the facts necessary to be certified or testified.
ADDITIONAL INFORMATION: