PSI Ohio Insurance Practice Exam

How do warranties differ from representations in insurance contracts?

1. A warranty is believed to be true

2. A warranty is guaranteed to be true

3. A representation is guaranteed to be true

4. A representation is not documented

The correct answer is: A warranty is guaranteed to be true

In insurance contracts, warranties and representations serve different functions in determining the obligations and responsibilities of the parties involved. A warranty is a specific promise or guarantee made by one party to the contract, indicating that a certain fact or condition about the insured property or behavior will remain true for the duration of the contract. When a warranty is included in an insurance policy, it creates a binding commitment. If the warranty is later found to be untrue, the insurer can deny a claim, even if the misrepresentation was immaterial or did not affect the risk. On the other hand, representations are statements made by the applicant or insured regarding their situation or the property to be covered. While representations are expected to be truthful and accurate, they are not guaranteed to be true in the same strict sense as warranties. If a representation is proven false, the insurer must demonstrate that this falsehood materially affected the risk they were taking on to deny coverage or rescind the policy. Thus, the distinction lies in the level of certainty and obligation: a warranty is a guaranteed truth that must be upheld, while a representation is believed to be true but does not carry the same binding guarantee.