Warranty vs Representation ***

• All statements in an insurance contract are representations.

MR. WATSON: The applicant believes them to be true. Representations are considered "substantially true."  Ask me what that means?

STUDENTS: What does that mean?

MR. WATSON: That it’s what the applicant believes to be true, to the best of their knowledge.

MR. WATSON: Representations are the opposite of a warranty, a guarantee. Now, what is a Warranty ?

STUDENTS: A guarantee.

MR. WATSON: It's a guarantee, isn't it? Warranties are statements in the application, which becomes part of the contract.  Warranties are considered “literally true.” Representations are substantially true and warranties are literally true.  We’ll say that again in another chapter, but you need to remember it so we might as well mention it here.  

MR. WATSON: Now, listen to these statements on a life insurance application. What's your first name?

MAN: Josh.

MR. WATSON: Josh, you are filling out a life insurance application. Do you have cancer? Guys, does he know?

STUDENTS: No, not that I know of.

MR. WATSON: (indicating a female student) How old are you?

WOMAN: 21.

MR. WATSON: Do you have heart problems?

WOMAN: Not that I know of.

MR. WATSON: The question on the application is a yes or no. All statements are representations , which stops her from having to say "not that I know of." The answer is no. See, warranties are statements that you guarantee to be true. Even at 21 years old, can you guarantee that you don't have heart problems? No way.

MR. WATSON: A representation is a statement that by definition means "to the best of my belief and knowledge, I don't have heart problems." All statements on an application are considered to be what?

STUDENTS: Representations .

MR. WATSON: Because you can't make a guaranteed statement about your health. Do you have heart problems?

WOMAN: No.

MR. WATSON: Not that she knows of. Does that make sense? If the law said that your statements were warranties, we would be holding you to a standard that you couldn't maintain. Because there's not a person that can guarantee right now he doesn't have heart problems. A 21-year-old probably does not, but you can't guarantee it. Do y’all understand what I'm talking about?

STUDENTS: Yes.

MR. WATSON: So all statements on an insurance application are what?

STUDENTS: Representations .

 

Material Facts relating to the applicant's answers

MR. WATSON: Now listen carefully. To deny a claim based upon a statement that you made, that statement had to be a material fact. Unless you lie intentionally (fraud) about a material fact, we can't deny the claim. So we need to ask, what is a material fact? Do you agree?

STUDENTS: Right.

MR. WATSON: The insurer issues policies based on material facts. The question is, "to issue or not to issue." A material fact is a fact that, had we known this fact, we might not have issued the policy.

STUDENTS: That is the question.

MR. WATSON: Now, is age a material fact?

STUDENTS: No.

MR. WATSON: No. No matter your age, we will still issue the policy. But age will determine the price.

MR. WATSON: How about sex/gender?

STUDENTS: No.

MR. WATSON: No. Because you are a woman, or you're a man, we'll still issue the policy. We are not going to use those two pieces of information to determine whether or not to issue the policy, are we?

WOMAN: But it will change price.

MR. WATSON: Indeed. But we are not talking about that. It will affect price, won't it?

WOMAN: Yes.

MR. WATSON: But are we going to use that to determine whether or not to issue the policy? No. Everybody okay so far?

STUDENTS: Yes.