What is the main distinction between a representation and a warranty in insurance contracts?

The main distinction between a representation and a warranty in insurance contracts lies in their definitions and implications regarding truth and liability. A representation is a statement made by one party, usually the insured, regarding a fact that they believe to be true at the time it is made. These statements are based on the understanding and belief of the person making them. If it is later found that the representation was false, it could lead to issues such as denial of coverage if the insurer can prove that the misrepresentation was material to the underwriting process.

On the other hand, a warranty is an assurance that certain statements about the insured risk are factual and must always remain true throughout the policy period. Unlike representations, warranties hold a higher standard of accuracy, as they are meant to be guarantees of truth that the parties know to be true or should know to be true. A breach of a warranty can lead to the immediate cancellation of the policy or denial of a claim, even if the breach did not impact the loss in question.

This distinction is crucial in understanding how statements made during the insurance application process are treated legally, thus making the correct answer highlight the importance of belief and knowledge in the relationship between representations and warranties in insurance contracts.