BENEFIT OF CONTRACT INSURANCE
BENEFIT OF CONTRACT INSURANCE
(A) Personal contract
Insurance contracts are usually personal agreements between the insurance company and the insured
individual, and are not transferable to another person without the insurer's consent. (Life insurance and some
maritime insurance policies are notable exceptions to this standard.) As an illustration, if the owner of a car
sells the vehicle and no provision is made for the buyer to continue the existing car insurance (which, in
actuality, would simply be the writing of the new policy), then coverage will cease with the transfer of title to
the new owner.
(b) Warranties and Representations
A warranty is a statement that is considered guaranteed to be true and, once declared, becomes an actual
part of the contract. Typically, a breach of warranty provides sufficient grounds for the contract to be voided.
Conversely, a representation is a statement that is believed to be true to the best of the other party's
knowledge. In order to void a contract based on a misrepresentation, a party must prove that the information
misrepresented is indeed material to the agreement. According to the laws of most states and in most
circumstances, the responses that a person gives on an insurance application are considered to be a
representations, and not warranties.
As an example, consider an individual seeking life insurance coverage. He or she would routinely be
required to complete an application, on which the applicant's sex and age would be requested. The accuracy
of this information is necessary for the insurer to correctly ascertain its risk and determine the policy
premium. If the applicant gives these responses incorrectly, they would likely be deemed (in the absence of
outright fraud) as misrepresentations, and could possibly be used by the insurance company as grounds for
voiding the policy.
There is, however, a difference between the representation (or misrepresentation) of a fact and the
expression of an opinion. Take, for instance, a common insurance application question such as, "To the best
of your knowledge, do you now believe yourself to be in good health?" An applicant answering 'yes' while
knowing that he or she suffers from a particular condition would be guilty of misrepresenting an actual fact.
However, if the applicant had no symptoms of any kind that would be recognizable to an average person and
no doctor's opinion to the contrary, he or she would simply be stating an opinion and not making a
misrepresentation.
(c) Misrepresentations and Concealments
A misrepresentation is a statement, whether written or oral, that is false. Generally speaking, in order for an
insurance company to void a contract because of misrepresented information, the information in question
must be material to the decision to extend coverage.
Concealment, on the other hand, is the failure to disclose information that one clearly knows about. To void a
contract on the grounds of concealment, the insurer typically must prove that the applicant willfully and
intentionally concealed information that was of a material nature.
(d) Fraud
Fraud is the intentional attempt to persuade, deceive, or trick someone in an effort to gain something of
value. Although misrepresentations or concealments may be used to perpetrate fraud, by no means are all
misrepresentations and concealments acts of fraud. For instance, if an insurance applicant intentionally lies
in order to obtain coverage or make a false claim, it could very well be grounds for the charge of fraud.
However, if an applicant misrepresents some piece of information with no intent for gain (such as, for
example, failing to disclose a medical treatment that the applicant is personally embarrassed to discuss),
then no fraud has occurred.
(e) Impersonation (False pretenses)
When one person assumes the identity of another for the purpose of committing a fraud, that person is guilty
of the offense of impersonation (also known as false pretenses). For instance, an individual that would likely
be turned down for insurance coverage due to questionable health might request a friend to stand in for him
(or her) in order to complete a physical examination.
(e) Parol (or Oral) evidence rule
This principle limits the effects that oral statements made before a contract's execution can have on the
Insurance Contract and Indian Market Conditions
contract. The assumption here is that any oral agreements made before the contract was written were
automatically incorporated into the drafting of the contract. Once the contract is executed, any prior oral
statements will therefore not be allowed in a court of law to alter or counter the contract.
Insurance contracts are usually personal agreements between the insurance company and the insured
individual, and are not transferable to another person without the insurer's consent. (Life insurance and some
maritime insurance policies are notable exceptions to this standard.) As an illustration, if the owner of a car
sells the vehicle and no provision is made for the buyer to continue the existing car insurance (which, in
actuality, would simply be the writing of the new policy), then coverage will cease with the transfer of title to
the new owner.
(b) Warranties and Representations
A warranty is a statement that is considered guaranteed to be true and, once declared, becomes an actual
part of the contract. Typically, a breach of warranty provides sufficient grounds for the contract to be voided.
Conversely, a representation is a statement that is believed to be true to the best of the other party's
knowledge. In order to void a contract based on a misrepresentation, a party must prove that the information
misrepresented is indeed material to the agreement. According to the laws of most states and in most
circumstances, the responses that a person gives on an insurance application are considered to be a
representations, and not warranties.
As an example, consider an individual seeking life insurance coverage. He or she would routinely be
required to complete an application, on which the applicant's sex and age would be requested. The accuracy
of this information is necessary for the insurer to correctly ascertain its risk and determine the policy
premium. If the applicant gives these responses incorrectly, they would likely be deemed (in the absence of
outright fraud) as misrepresentations, and could possibly be used by the insurance company as grounds for
voiding the policy.
There is, however, a difference between the representation (or misrepresentation) of a fact and the
expression of an opinion. Take, for instance, a common insurance application question such as, "To the best
of your knowledge, do you now believe yourself to be in good health?" An applicant answering 'yes' while
knowing that he or she suffers from a particular condition would be guilty of misrepresenting an actual fact.
However, if the applicant had no symptoms of any kind that would be recognizable to an average person and
no doctor's opinion to the contrary, he or she would simply be stating an opinion and not making a
misrepresentation.
(c) Misrepresentations and Concealments
A misrepresentation is a statement, whether written or oral, that is false. Generally speaking, in order for an
insurance company to void a contract because of misrepresented information, the information in question
must be material to the decision to extend coverage.
Concealment, on the other hand, is the failure to disclose information that one clearly knows about. To void a
contract on the grounds of concealment, the insurer typically must prove that the applicant willfully and
intentionally concealed information that was of a material nature.
(d) Fraud
Fraud is the intentional attempt to persuade, deceive, or trick someone in an effort to gain something of
value. Although misrepresentations or concealments may be used to perpetrate fraud, by no means are all
misrepresentations and concealments acts of fraud. For instance, if an insurance applicant intentionally lies
in order to obtain coverage or make a false claim, it could very well be grounds for the charge of fraud.
However, if an applicant misrepresents some piece of information with no intent for gain (such as, for
example, failing to disclose a medical treatment that the applicant is personally embarrassed to discuss),
then no fraud has occurred.
(e) Impersonation (False pretenses)
When one person assumes the identity of another for the purpose of committing a fraud, that person is guilty
of the offense of impersonation (also known as false pretenses). For instance, an individual that would likely
be turned down for insurance coverage due to questionable health might request a friend to stand in for him
(or her) in order to complete a physical examination.
(e) Parol (or Oral) evidence rule
This principle limits the effects that oral statements made before a contract's execution can have on the
Insurance Contract and Indian Market Conditions
contract. The assumption here is that any oral agreements made before the contract was written were
automatically incorporated into the drafting of the contract. Once the contract is executed, any prior oral
statements will therefore not be allowed in a court of law to alter or counter the contract.
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