Insurance Contract Law and Policy Documentation
What this domain tests
Insurance Contract Law and Policy Documentation tests the legal skeleton: formation, the duty of utmost good faith, policy wording, and the rules used to interpret ambiguity. You must know which document does what and when an insurer can rescind.
Core rules
- A contract needs offer (application), acceptance (policy issuance), consideration (premium), legal purpose and capacity.
- Insurance is uberrimae fidei: the applicant must disclose material facts the insurer cannot reasonably discover.
- Representations must be true; concealment of a material fact gives the insurer the right to rescind.
- Warranties are promises or conditions; breach can affect liability depending on materiality and the relief provisions of the Insurance Code.
- Two-year incontestability: the insurer must exercise its right to rescind for misrepresentation or concealment within two years from issue; after that the policy is incontestable.
- Policy structure: declarations, insuring agreement, conditions, exclusions, definitions, endorsements.
- Ambiguity is construed contra proferentem against the insurer; waiver and estoppel can bar a defense.
Worked example
An applicant for PHP 3 million of life cover ticks "no" to hypertension despite taking maintenance medication. He dies of a stroke in month 14. The insurer investigates, proves material nondisclosure, and rescinds within the two-year period; the claim is denied and premiums may be returned per policy terms. Reasoning: the fact was material to underwriting and the insurer acted within the contestability window. Had death occurred in year three, the same nondisclosure would generally no longer support rescission because the incontestability period had run.
Traps that cost marks
- Assuming a minor omission voids a policy automatically; materiality matters.
- Confusing incontestability with the grace period.
- Treating an endorsement as a separate contract rather than part of the policy.
- Ignoring that the insurer bears the ambiguity it drafted.