Notes on the Termination of Insurance Policies Due to False Warranties and Concealment

When applying for insurance, the proposer (insured, agent or third party) must complete a proposal form from the underwriter, declaring all the important facts the underwriter requires to assess the risk, especially those that may alter the way in which the underwriter would have underwritten the risk if knowing those facts.

Any false warranties or concealment of the facts referred above, will entitle the insurance company to terminate the insurance contract, even if the false warranties or concealments had no influence in occurrence of the loss[1].

Notwithstanding that the Mexican Insurance Contract Law entitles the insurance company to consider the insurance contract terminated, this does not mean that the effects of the insurance contract are automatically terminated, but that the termination does not need to be declared by a judge. The contract will be considered terminated once the termination is notified[2] to the insured within the established timeframe as provided by the Mexican Insurance Contract Law.

The underwriter must notify the insured the termination of the insurance contract within thirty calendar days following the date on which the insurance company came to know the misrepresentation or concealment.

Additionally, the authentic communication of the termination must contain at least:

• the cause or causes that originated the termination;
• the exact address of the insured;
• policy number;
• reference to the applicable articles of the law;
• copy of the signed questionnaire filed with the underwriter;
• the documentation that proves the false warranties or concealment.

Otherwise, the insured will have no proper means to prepare its defense, contravening the bona fides that governs the insurance contract.

It is important to mention that if the insured failed to inform the insurance company of certain relevant facts for the underwriter to be able to assess the risk, but said underwriter knew or should have known said relevant facts and still decided to write the insurance, the right to terminate the insurance contract will cease to exist, for example, in the case of health insurance, notwithstanding that the insured failed to inform certain medical conditions, if the insurance company requested a medical examination and upon its review, still insured the proposer, considering that the medical exam should assist the underwriter to determine any preexistent conditions, the right to terminate the insurance contract will not apply.

For more information regarding the termination of insurance policies, please do not hesitate to contact Alvaro Adame (alvaro.adame@agb.mx) or Ramiro Besil (ramiro.besil@agb.mx).

[1] Despite the false warranties or concealment, the underwriter may not terminate the contract in the following cases: (i) If the company caused the false warranty or concealment;( ii)If the company knew or should have known the fact that has been misrepresented; (iii)If the company knew or should have known exactly the fact that has been misrepresented; (iv)If the company waived the right to terminate the contract for that reason; (v)If the proposer does not answer one of the questions and yet the company enters into the contract unless the question must be considered answered in a certain sense and this answer appears as an misrepresentation of the facts.

[2] Mexican law provides that the termination must me “authentically communicated”; however, there is no stipulation as to what authentically is. Nevertheless, according to case law by the Mexican Supreme Court, considering the bona fides that governs the insurance contract, the termination notice must be palpable and tangible. The undersigned’s opinion is that the proper way to prove that the termination notice was authentically communicated as well as palpable and tangible, is to do so through a Mexican notary public.