August 12, 2019
AN insurance company uses the information given by a potential policyholder when coming up with an insurance policy contract.
This information about the person or the situation of a property being insured is called material facts.
Such information is used to assess the degree of risk which will help the insurance company in deciding whether to consider the risk or not, and if so, how much premium it should charge.
The insured does not have to share or provide his or her personal data, only those that can affect his or her decision to obtain an insurance contract, especially those that relate to physical or moral hazards.
On the part of the insurance company, information is deemed relevant and must be provided by the insured if it can influence its decision whether to approve or reject an application or to adjust the premium based on the material fact.
However, the required information should not raise the risk or contribute to any loss.
It is considered a material fact so long as it could affect the decision of the parties (the insurer and the insured) on whether to proceed with the insurance contract or not.
There is “concealment” if such material information is not provided by a party in an insurance contract although he or she has knowledge of it or at least ought to know such information.
Insurance laws require that contracting parties inform each other, in utmost good faith, about known facts that are relevant to the contract and as to which he makes no warranty, and which the other has no means of knowing.
In short, there is an obligation on both the part of the insured and insurer not to resort to deception by giving misleading information.
In case of concealment in the making of the policy, the contract may be deemed invalid and any claims from it may be denied.
In property insurance, a material fact includes the nature, construction, or use of an insured building, or whether it is particularly exposed to risk.
For instance, information about the transfer of an insured equipment to a place where it was exposed to greater risk should be made known to the insurance company upon renewing the property insurance.
In case of life insurance, having a risky job or hobby as well as the results of health tests should be made known to the insurer.
For liability insurance, like a comprehensive car insurance, records of traffic violations, such as previous revocation of a driver’s license, would be considered material information and must be shared with the insurer.
Note that it does not matter if the concealed material information was not the cause of the damage, loss or death.
The fact that such information was concealed or hidden already invalidates any claim against the insurance policy.
For instance, a life insurance policyholder did not give his history of lung disease and later died from a car accident. His beneficiaries will not be able to file a claim due to the material concealment of the insured’s medical history.
An insurance company may disregard a claim on the ground of concealment if the party involved knew of the hidden material fact or ought to have knowledge of it, the insurance company has no way of knowing it, and no warranty was extended by the involved party regarding the concealed fact.
If an insurance agent fills out the application form for the potential policyholder upon the request of the latter, the policyholder is still responsible for the information written therein, especially when it is in his or her capacity to be well-informed of the contents written in the form.
On the other hand, there are also some cases when material concealment may not be used as basis to invalidate a claim, such as if communication of it has been waived by the insurer, or when the insurer naturally knows such information.
There is also no concealment made when the answer is “no” in a life insurance policy application form on a question about illnesses, say, kidney ailments.
This may be considered as an honest opinion made in good faith if the potential client is not a medical doctor, has not undergone recent kidney-related tests nor had full knowledge of the nature of the said illness.
However, it is counted as concealment if the insured had recently consulted a doctor, had his blood and urine tested, or sought advice for urine, kidney, or bladder disorder.
If the material fact hidden by the insured was known to the insurance company, but the latter still pursued the contract and collected premium payments from the former, it would be deemed that the latter had intended to waive the conditions and to fulfill a valid contract.
If an insured honestly revealed to the insurance company a previous doctor’s appointment when he or she learned about his or her heart disease, but the insurance company still pushed through with the life insurance contract and began collecting premiums without inquiring more about the diagnosed heart disease, the latter cannot avoid the liabilities covered in said policy.
The author is the deputy commissioner for legal services of the Insurance Commission. He may be contacted at email@example.com.
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