Concealment

Sec. 26. A neglect to communicate that which a party knows and ought to communicate, is
called concealment.

The devices of concealment and representations were developed for the purpose of enabling
the insurer to secure the same information with respect to the risk that was possessed by the
applicant for insurance, so that he might be equally capable of forming a just estimate of its
quality.

Concealment is a neglect to communicate that which a party knows and ought to communicate.
It is the withholding, whether intentional or unintentional, by the insured of any fact that is
material to the risk.

Requisites of concealment:
1. A party knows the fact which he neglects to communicate or disclose to the other;
2. Such party is duty bound to disclose such fact;
3. Such party makes no warranty of the fact concealed;
4. The other party has not the means of ascertaining the fact concealed.

Sec. 27. A concealment whether intentional or unintentional entitles the injured party to rescind
a contract of insurance.

Concealment makes the contract voidable at the insurer’s option.

The insurer need not prove fraud in order to rescind a contract on the ground of concealment.

Sec. 28. 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.
Sec. 29. 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.
Sec. 30. Neither party to a contract of insurance is bound to communicate information of the
matters following, except in answer to the inquiries of the other:
(a) Those which the other knows;
 (b) Those which, in the exercise of ordinary care, the other ought to know, and of which the
former has no reason to suppose him ignorant;
(c) Those of which the other waives communication;
(d) Those which prove or tend to prove the existence of a risk excluded by a warranty, and
which are not otherwise material; and
(e) Those which relate to a risk excepted from the policy and which are not otherwise
material.

Matters made the subject of inquiry must be deemed material, even though otherwise they
might not be so regarded and the insured is required to make full and true disclosure to
questions asked.
The failure of an apparently complete answer to make full disclosure will avoid the policy. But an
answer incomplete on its face will not defeat the policy in the absence of bad faith.

Sec. 31. Materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in forming
his estimate of the disadvantages of the proposed contract, or in making his inquiries.

To be material, a fact need not increase the risk or contribute to any loss or damage suffered. It
is sufficient if the knowledge of it would influence the parties in making the contract.

The insured cannot be guilty of concealment where the fact concealed is not material.

Concealment must take place at the time the contract is entered into in order that the policy may
be avoided and not afterwards.

Sec. 32. Each party to a contract of insurance is bound to know all the general causes which
are open to his inquiry, equally with that of the other, and which may affect the political or
material perils contemplated; and all the general usages of trade.

Insurer is charged with the knowledge of the general trade usages and rules of navigation, kind
of seasons, and all the risks connected with navigation.

Sec. 33. The right to information of material facts may be waived, either by the terms of
insurance or by neglect to make inquiry as to such facts, where they are distinctly implied in
other facts of which information is communicated.
If the applicant has answered the questions asked in the application, he is justified in assuming
that no further information is desired.
Sec. 34. Information of the nature or amount of the interest of one insured need not be
communicated unless in answer to an inquiry, except as prescribed by Section 51.

Sec. 35. Neither party to a contract of insurance is bound to communicate, even upon inquiry,
information of his own judgment upon the matters in question.

Representation
Sec. 36. A representation may be oral or written.

Representation is a statement made by the insured at the time of, or prior to, the issuance of the
policy, relative to the risk to be insured, as to an existing or past fact or state of facts, or
concerning a future happening, to give information to the insurer and otherwise induce him to
enter into the insurance contract.

Misrepresentation
- Untrue
- Intent to deceive or states positively as true without knowing it to be true which has a
tendency to mislead
- Material to the risk
- Renders contract voidable even though innocently made without wrongful intent

Sec. 37. A representation may be made at the time of, or before, issuance of the policy.

Representation must precede the execution of the contract.

The insurer must be induced by the misrepresentation of the applicant for insurance to issue the
policy at a specified premium. Clearly, a representation made after the policy is issued could not
have influenced either party to enter into the contract. However, a representation may be
performed after the issuance of the policy.

Sec. 38. The language of a representation is to be interpreted by the same rules as the
language of contracts in general.
Representations are construed liberally in favor of the insured, and are required to be only
substantially true.

Sec. 39. A representation as to the future is to be deemed a promise, unless it appears that it
was merely a statement of belief or expectation.

Sec. 40. A representation cannot qualify an express provision in a contract of insurance, but it
may qualify an implied warranty.

Sec. 41. A representation may be altered or withdrawn before the insurance is effected, but not
afterwards.

Sec. 42. A representation must be presumed to refer to the date on which the contract goes in
effect.

Sec. 43. When a person insured has no personal knowledge of a fact, he may nevertheless
repeat information which he has upon the subject, and which he believes to be true, with the
explanation that he does so on the information of others; or he may submit the information, in its
whole extent, to the insurer; and in neither case is he responsible for its truth, unless it proceeds
from an agent of the insured, whose duty is to give the information.

Sec. 44. A representation is to be deemed false when the facts fail to correspond with its
assertions or stipulations.

Sec. 45. 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.

Sec. 46. The materiality of a representation is determined by the same rules as the materiality of
a concealment.

Sec. 48
- A contract of insurance may be rescinded on the ground of concealment, false
representation, or breach of warranty.
- 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 previous 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 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.
- Incontestability means that after the requisites are shown to exist, the insurer shall be
estopped from contesting the policy or setting up any defense, except as is allowed, on
the ground of public policy.
- Requisites:
1. Life insurance policy
2. Payable on the death of insured
3. In force during the lifetime of the insured for at least 2 years from its date of issue or
last reinstatement
- When policy becomes incontestable, the insurer may not refuse to pay the same by
claiming that:
1. The policy is void ab initio
2. Rescissible by reason of the fraudulent concealment of the insured or his agent, no
matter how patent or well-founded
3. Rescissible by fraudulent misrepresentation of the insured or his agent
- The period of two years for contesting a life insurance policy by the insurer may be
shortened but it cannot be extended by stipulation.
- The phrase “during the lifetime” means that the policy is no longer considered in force
after the insured has died.