Warranties in insurance policies serve as fundamental elements that define the terms and conditions governing the agreement between insurers and the insured. They encompass specific promises or statements crucial to upholding the validity of the policy. Let’s delve into the intricacies of warranties, their impact on policy validity, and the distinctions from representations.
What is a warranty?
A warranty is a statement 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 prejudice by such untruth or nonfulfillment, renders the policy voidable by the insurer.
When does a breach of a warranty relating to the future not avoid the policy?
The omission to fulfill the warranty does not avoid the policy when before the time arrives for the performance of a warranty relating to the future:
- A loss insured against happens; or
- The performance becomes unlawful at the place of the contract or impossible.
What is the effect of breach of warranty?
Breach of warranty by the insured renders the contract defeasible. However, in order to avoid the policy, the insurer must prove such breach consistent with the rule that any violation must be established by the person who is making such allegation.
Note: The insurer may elect to waive his right to avoid the policy in case of breach by the insured. This waiver by the insurer may be express or implied. For example, there is implied waiver when the insurer renewed the policy knowing that there was breach of warranty.
What is the remedy in case of breach?
A party may rescind the policy if there is a breach of warranty on the part of the other party.
What is the effect of breach of warranty without fraud?
A breach of warranty without fraud merely exonerates an insurer from the time that it occurs, or where it is broken in its inception, prevents the policy from attaching to the risk.
What is the distinction between warranty and representation?
In warranty, it is part of the contract. In representation, it is not party of the contract but a collateral inducement.
In warranty, it is written on a policy or its rider; while in representation, it can be oral or in writing.
In warranty, it is presumed to be material. In representation, it must be established to be material.
In warranty, there must be strict compliance. In representation, it must be substantially true.
Source:
The Insurance Code
