We know that an insurance policy is a contract between an insured and the insurer. The contract of insurance is based on good faith between parties and it will be assumed that parties to the contract make true and full representation of conditions of his/her health to the insured. The full and true representation by insured will help insurer to decide the eligibility of the insured and the amount of premium against policy issued. An insurance company will underwrite the policy based on representation received from the insured. It may be possible that true representation by insured may deprive him for taking an insurance policy, in this case an insurer may issue insurance policy to the insured on payment of excess premium.
A representation is a verbal or written statement made by the assured or his agent before, or at the time of making contract, and it generally consist of verbal communications made, or written instructions shown by the insured to the insurer.
A warranty in a contract of insurance is a condition and a contingency, and unless that be performed, there is no contract.
A warranty in an Insurance Policy is a statement attesting that something the insured person says is true. For a contract to be valid and insured has to warrant that the assumptions an insurance company is making in his/her representation that are true. Suppose if you are taking a life insurance policy, in this case you have to warrant to the insurance company that you are not ill.
Insurance Warranties A warranty, on the other hand, is an undertaking by the insured to the effect that he shall or shall not do a certain thing or that some conditions shall be fulfilled or whereby he affirms or negatives the existence of a particular state of affairs. Warranties may be either express or implied.
LET’S CONSIDER MAJOR DIFFERENCES
Pawson Vs. Watson it was decided that “If there is a warranty nothing tantamount will do or answer the purpose; it must strictly be performed as being part to the agreement”.
DE Hahn Vs. Hartley it was decided that “There is material distinction between a warranty and a representation. A representation may be equitably and substantially answered but a warranty must be strictly complied. A warranty in a contract of insurance is a condition and a contingency, and unless that be performed, there is no contract. It is perfectly immaterial for what purpose a warranty is introduced, but being inserted the contract does not exist unless it be literary complied with.”
“There are two other distinctions between a warranty and a representation which it is important to notice. A breach of warranty will avoid the policy, although it does not relate to a matter material to the risk insured against, and in the second place a warranty must be strictly and literally complied with. On the other hand, a misrepresentation will not discharge the insurer when it is not material misrepresentation, nor will he be discharged if the representation be substantially correct, that is to say, if the difference between what is represented and what is actually correct would not be considered material by a prudent insurer.”
“ it the first principal of the law of insurance on all occasion, that where a representation is material it must be complied with if material, that the materiality may be inquired into and shown, but if there is warranty ,it is part of the contract that the matter is such as it is represented to be, therefore , the materiality or immateriality of a representation which is warranted signifies nothing.
LET’S CONSIDER A DECLARATION IN AN INSURANCE POLICY;
An insurance policy contains following clause: “I also warrant and agree that I will not commit suicide, whether sane or insane, during the period of one year from the date of the contract.”
The policy state that in consideration of the “Application for the policy which is hereby made part of the contract”, the company promised to pay to the plaintiffs, who were creditors of the assured the sum assured upon proof of his death within five years from the date of policy. Now in this case the assured has committed suicide in fit of insanity, within a period of one year from the date of issue of the policy, the insured in this case invoke defence of breach of warranty and not liable to pay to the creditors of the assured.
The main difference between a representation and warranty is that in case of representation it may be made either orally or in written and need not to be incorporated in the policy document. But in case of a warranty it must be in writing and must be included in policy document and must be complied with to fulfil contract of insurance.
Statement of facts made during negotiations are usually called representations, they have fulfilled their objects when the final acceptance is achieved and forms no part of the subsequent part of Contract of Insurance. A representation generally made at the initial stage and before any agent or authorised person of an insurer. The insurer underwrites insurance policy and decide amount of premium to be changed on the basis of representation made by the prospects. A true and fair representation is at most requirement of a valid contract of insurance. A contract of insurance may be avoided by insurer if there found material misrepresentation of statement of facts at the time of issue of insurance policy.
A warranty on other hand, is a statement which is contractual in nature. The proviso is clearly a part of the contract between the parties and non-compliance with the conditions, stated in the proviso, the policy is unquestionably void. In case of a warranty, the statement must be true in fact without any qualification of judgement, opinion or belief. Good faith or fraud are not to be taken into consideration.
i) As a general rule, answers to questions will be construed as representations, and not as warranties, unless the form of the contract clearly shows that they were intended to be taken as warranties.
ii) Not every answer to a question put by the insurer is a warranty. Answers may be mere statements of intention or opinion, and not intended as a warranty or a representation. They will only be treated as warranties if it is clear from the contract that both the parties meant them to be warranties.
iii) Where, therefore an answer amounts to a warranty its incorrectness constitutes a defence to an action on the policy, even if it be not material and is made in good faith.
iv) If representations are made part of the contract, they become warranties, and, in case of their being untrue, the policy will be avoided, even if the loss does not arise the fact concealed or misrepresented.
v) A warranty is absolute in the sense that it must be literally and completely complied with. If its operation is suspended, even for a short interval, on account of its breach, the liability of insurers is at an end.
vi) Suppose a policy of fire insurance contains an absolute or total prohibition against the keeping or storing of any inflammable article, like naphtha or kerosene oil, the policy is avoided, if such articles are stored or kept in the insured premises and have been removed before the fire occurs. On the other hand, if the condition is that the insured is not entitled to recover, if the fire takes place while, if any of the prohibited articles was kept or stored in the insured premises, the liability of the insurers re-attaches as soon as the obnoxious articles are removed. The presence of prohibited articles at the premises of the insured merely suspense the liability of the insurers to pay under the policy and once articles removed from the premises before fire the insurer will not avoid his liability to pay the insured.
DISCLAIMER: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Some judgements of counts have been taken as it is available. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, author assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws and take appropriate advice of consultants. The user of the information agrees that the information is not professional advice and is subject to change without notice. Author assume no responsibility for the consequences of the use of such information.