Insurance agents are often authorized to issue receipts, called binders, to the effect that insurance has been contracted by a party from a certain time. These binders constitute sufficient evidence to enable the insured to enforce his contract of insurance. Agents are sometimes authorized to enter a memorandum in their books of insurance, called entries in their binding books. These constitute sufficient evidence of the formation of a contract between insurer and insured, to enable the latter to enforce his contract in case of loss.
173. Warranties and Representations in Insurance Contracts. The term, warranty is commonly used in connection with contracts of sales of personal property, where it is used to designate a collateral contract connected with the principal contract in question. In connection with insurance contracts, it means a statement or stipulation which, by reference or express term, is itself made a part of the contract of insurance. The principal distinction between a warranty in connection with sale of personal property, and in connection with contracts of insurance, is that in the former case, breach of warranty usually does not discharge the contract, but simply gives rise to an action for damages, while in case of contracts of insurance, breach of warranty discharges the contract itself. Life insurance companies generally require formal written application by which the applicant for insurance is required to answer questions. These questions and answers are made a part of the policy or contract of insurance, either by reference, or by incorporation, and become warranties. If they are not true, the policy may be avoided by reason thereof. To constitute a warranty, a stipulation must be made a part of the insurance contract either by direct reference, or by express incorporation therein. To constitute a warranty, the contract of insurance must contain a stipulation that the statement or assertion in question is a warranty. If a warranty proves false, no matter if innocently made, the contract is discharged thereby. Warranties are strictly construed. Much injustice has been done by reason of warranties in insurance contracts.
Some states provide by statute, that neither the application for insurance, nor the rules and regulations of the company shall be considered as warranties unless expressly incorporated in the policy as warranties. A distinction is made between representations and warranties. A representation is a statement made as an inducement to enter into a contract of insurance. It is regarded as one of the preliminaries to the contract of insurance and not as a vital part of the contract itself. If a representation proves not to be true in some particular, the contract of insurance is not discharged by reason thereof. To constitute a ground for avoiding a contract, a representation must be false, fraudulent, and material to the contract. It is sometimes said that a warranty is a stipulation in the contract of insurance itself, and must be complied with whether true or not, while a representation is usually given verbally, or in a separate document, and need only be substantially complied with.
In case of doubt as to whether statements are representations or warranties, courts incline toward treating them as representations. Answers to questions were made in an application for insurance followed by the statement, "The above are true and fair answers to the foregoing questions in which there are no misrepresentations or suppression of facts, and I acknowledge and agree that the above statement shall form the basis of the agreement with the insurance company." The policy of insurance did not state that these questions were incorporated as warranties. In a suit on the policy, the court held the answers to be representations and not warranties.
174. Life, Term, and Tontine Policies. Life policy is the term applied to a contract of insurance payable only at the death of the insured. Term or endowment policy is the term applied to insurance payable at the death of the insured, or at the expiration of a certain term or period of years, if the insured survives such period. The term, tontine insurance, is the name applied to insurance paid out of the proceeds of unpaid policies during a certain period or term. If the insured survives the term, and pays the premium he benefits by receiving a share of the proceeds received from the policies of those members who do not survive the period, or who let their policies lapse for other reasons. The term is taken from the name of the person who devised the plan. It is sometimes called cumulative dividend insurance. It is written in many different forms.
175. Marine Insurance. Contracts of insurance against injuries to a ship or cargo at sea are called marine insurance contracts. This is the oldest form of insurance. In securing insurance of this character, the insured impliedly warrants that the vessel is seaworthy. This is the only kind of insurance in which there is an implied warranty. The term general average is used in connection with marine insurance. If it becomes necessary to sacrifice a part of a cargo to save the balance, the owners of part of the cargo saved, together with the owners of the boat, must contribute pro rata toward the loss of the party whose goods are sacrificed. That is, all owners of cargo and boat must stand the loss in proportion to their holdings. The one whose goods are sacrificed is placed in no better or worse situation than the others.
176. Standard Policies. Some states require by statute, that insurance companies issue policies, the terms of which are fixed by statute. This gives the insured the benefit of a uniform policy, the terms of which are easily comprehended, and which are the same in all cases. These statutory policies are known as standard policies.
177. Suicide Clauses. Contracts of insurance frequently contain the stipulation that the contract shall be void if the insured suicides. This stipulation is enforceable if it can be proven that the insured suicided while sane. It is generally held to be unenforceable if the insured suicided while insane. An insurance company may stipulate that the contract shall be void if the insured suicides when either sane or insane. Such a stipulation is enforceable. The ordinary insurance contract, however, which contains any suicide clause provides against suicide only, and does not contain any stipulation as to the sanity of the insured at the time he commits the act. It is usually held that the burden is upon the insurance company to prove that the insured was sane at the time he committed suicide. If a policy contains no suicide clause whatever, suicide will not avoid the policy unless it is proven that the purpose of the suicide was to defraud the insurance company. If it is proven that one takes out a policy of insurance with the intent to commit suicide, the policy is not enforceable in case of suicide.
178. Fidelity and Casuality Insurance. Contracts of insurance by which the honesty and faithfulness of agents and employees are insured are termed fidelity insurance contracts. A, a bank, employs B as clerk. A requires B to furnish a bond, by the terms of which the signers of the bond agree to pay A for any losses arising from B's dishonesty or carelessness. This bond or contract is known as a fidelity insurance contract.
Insurance contracts providing against losses arising out of accidents to property are termed casualty insurance. Losses by theft or burglary, or from steam boiler explosions are common examples.