I.B · Contract Law
Representations, warranties and misrepresentation
Representation: a statement to the insurer about the facts, oral or written (Ins. Code §350), made at the time the policy is issued or before (§351). Think of the answers on an application.
It may be altered or withdrawn before the insurance is effected, but not afterward (§355).
It is false when the facts fail to correspond with what it asserts (§358). An honest mistake is still false.
If it is false on a material point, the injured party may rescind from the time the representation becomes false (§359).
Representations vs. the policy's own words (§354): a representation cannot qualify an express provision in the contract, but it may qualify an implied warranty. What the applicant said cannot override what the policy expressly states. Memory hook: express provision, no; implied warranty, yes.
Warranty: a promise or statement about the risk that is made part of the contract.
A warranty is either express or implied (§440), and no particular form of words is needed (§442).
An express warranty must be in the policy or in a signed instrument the policy refers to (§443).
It may relate to the past, the present, the future, or any of these (§444). A statement in the policy that something materially affecting the risk will be done is a warranty (§445), such as a sports league promising a certified trainer at every game.
Violation of a material warranty lets the other party rescind (§447). No loss has to happen first, and no intent to deceive is needed.
Misrepresentation by producers (§§780-784): knowingly making a misrepresentation to a policyholder to induce a lapse, forfeiture or surrender of insurance is prohibited (§781). A violation is punishable by a fine up to $25,000 (or up to three times the victim's loss if that loss exceeds $10,000), up to one year in county jail, or both (§782). After a hearing, the Commissioner may suspend a knowing violator's license for up to three years (§783).
Remember
· Representation: may change before the insurance is effected, not after (§355); false = facts don't match (§358).
· A material false representation (§359) or a material warranty violation (§447) allows rescission.
· §354: a representation cannot qualify an express provision but may qualify an implied warranty. §783: up to 3-year suspension.
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