Understanding Representations and Warranties ~ Insurance Academy

REPRESENTATION

is an oral or written statement made during the negotiation for a contract whether or not regarding important facts (Material Facts) or not, the statement must be truly true (Substantially True) or true according to the best belief of the prospective Insured.

WARRANTIES

is a promise that must be carried out with full responsibility by the Insured, so this warranty is a subsidiary to the main agreement, if it is violated, the party experiencing the loss can claim compensation.

In the insurance agreement, the warranty is a fundamental requirement and if it is not fulfilled, the aggrieved party can deny the contract.

Warranty is a guarantee that:

-. Something will be done, or

-. Something will not be done, or

-. A certain fact exists, or

-. A certain fact does not exist.

Therefore, the warranty in the insurance contract is a fundamental condition of the contract in question and gives the Insurer the right to refuse the contract. If this is violated by the Insured, the Insurer may refuse responsibility for a loss.

Purpose of the Insurer to establish / enforce Warranties:

a. To ensure that the Insured maintains or manages the subject matter of the insurance properly.

Example: In Fire Insurance, a warranty can be applied that garbage must be cleaned/removed after every working hour.

b. To ensure that certain greater risks will not be incurred without the knowledge or permission of the Insurer, because the premium that has been calculated or charged is based on the fact that there is no greater risk

Example: In fire insurance, a warranty can be applied that no dangerous oils are stored in excess of a certain amount in the insured building/factory.

Warranty is divided into 2 (two) types, namely:

a. Express Warranty. is a warranty or condition stated in the policy. eg: Warranty Payment Clause etc.

b. Implied Warranty. is a warranty or provision that is not expressly written or stated in the policy. For example: the ship must be in a seaworthy condition.

By: Ign. Rusman, source: IGTC E-Learning