Concealment (Insurance Law)

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1. Concept

Concealment is – a “neglect to communicate that which a party knows and ought to communicate.”[1] Thus, each party is required to communicate in good faith to the other 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.[2]

Best Legal Practices
Disclose as much as possible – As a contract of insurance is one of uberrimae fidae (utmost good faith), each party should disclose as much as possible any relevant information.

2. Rescission

a. Due to concealment

Whether intentional or unintentional, the injured party is entitled to rescind the contract of insurance.[3]

b. Due to intentional and fraudulent omission

The insurer has the right to rescind the contract of insurance if the insured intentionally and fraudulently omits to communicate information of matters proving or tending to prove the falsity of a warranty.[4]

Vda. De Sindayen v. The Insular Life Assurance Co., Ltd. (September 1935)
Arturo Sindayen, while vacationing, applied for a life policy with an agent of Insular. Before Sindayen went back to the city, he informed the agent to give the policy to his aunt once it has been approved. When the agent delivered the policy to the said aunt, he asked how was Sindayen. The aunt replied that he was in good condition since she hadn’t heard of any news. Unknown to them, Sindayen was suffering from a serious illness at that time. Later, he died. Insular claims that the policy is void since at the time of the delivery the insured was not in good condition contrary to the condition in the policy.
HELD: Insular was liable. The agent was not a mere automaton. He asked whether Sindayen was alright, and he was informed by the said aunt, in good faith, that Sindayen was alright. Hence, delivery of the agent binds the principal, which is the insurance company. The act of delivery of the policy in the absence of fraud or other ground for rescission, consummates the insurance.
A number of these cases [held] that the delivery of the policy by the agent to the insured consummates the contract even though the agent knew that the insured was not in good health at the time, the theory being that his knowledge is the company’s knowledge and his delivery of the policy is the company’s delivery; that when the delivery is made notwithstanding this knowledge of the defect, the company is deemed to have waived the defect. Although that appears to be the prevailing view in the American decisions… and leads to the same conclusion, namely, that the act of delivery of the policy in the absence of fraud or other ground for rescission consummates the insurance, we are inclined to the view that it is more consonant with the well known practice of life insurance companies and the evidence in the present case to rest our decision on the proposition that Mendoza was authorized by the company to make the delivery of the policy when he received the payment of the first premium and he was satisfied that the insured was in good health.”
Best Legal Practices
Offeror is insured and offeree is insurer – Unlike other contracts, the offeror is the insured (client/customer) and the offeree is the insurance company. In the Vda. de Sindayen case, the contract of insurance was perfected since consent by the offeree (insurance company) was already made known to the offeror (insured) upon delivery of the insurance contract.

3. What need not be communicated

Except when asked of the other, neither party to a contract of insurance is obliged to communicate the following information:[5]
1) Those which the other knows;[6]
2) 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;[7]
3) Those of which the other waives communication;[8]
4) Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material;[9] and
5) Those which relate to a risk excepted from the policy and which are not otherwise material.[10]

4. When is an information material

The materiality of information communicated is 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.”[11]

a. Obligation to know all general causes open to inquiry, all political and material perils, and all general usages of trade

Either party to a contract of insurance is obligated to know all the general causes that are open to each other’s equal inquiry, as well as those that may affect the political and material perils contemplated and all general usages of trade.[12]

b. Waiver of right to information of material facts

The right to information of material facts may be waived in either of these cases: (a) by the terms of insurance, or (b) by neglect to make inquiry as to such facts, where they are distinctly implied in other facts of which information is communicated.[13]

c. Information of nature or amount of interest of insured communicated only if inquired

Except as required to be stated in an insurance policy,[14] information of the nature or amount of the interest of one insured is not required to be communicated unless directly asked and in answer to such inquiry.[15]

d. Judgment on matters in question not required to be communicated even if inquired

Either party to a contract of insurance is not obligated to communicate information of his own judgment upon matters in question even if asked or inquired.[16]

[1] Ibid. Section 26.

[2] Ibid. Section 28.

[3] Ibid. Section 27.

[4] Ibid. Section 29.

[5] Ibid. Section 30.

[6] Ibid. Section 30 (a).

[7] Ibid. Section 30 (b).

[8] Ibid. Section 30 (c).

[9] Ibid. Section 30 (d).

[10] Ibid. Section 30 (e).

[11] Ibid. Section 31.

[12] Ibid. Section 32.

[13] Ibid. Section 33.

[14] Ibid. Section 51.

[15] Ibid. Section 34.

[16] Ibid. Section 35.

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