Other Than Life (OTL) Practice Exam

Which of the following statements is true regarding a breach of warranty?

1. It is a minor violation of policy terms

2. It nullifies the entire policy

3. It is a type of insurable interest

4. It only applies to agents, not the insured

The correct answer is: It nullifies the entire policy

A breach of warranty is defined as a violation of a specific contractual requirement that is critical to the insurance policy. When a warranty is breached, it can indeed nullify the entire policy because warranties are considered essential to the agreement between the insurer and the insured. Warranties in an insurance contract are absolute statements or conditions that must be upheld throughout the policy term. If the insured fails to comply with the warranty, the insurer may have the right to void the policy, as the warranty is fundamental to the risk assessment and the terms of coverage. This distinguishes breach of warranty from other violations, which may impact coverage differently and may not lead to the outright nullification of the policy. For example, while minor violations of policy terms might result in reduced coverage or claims denial, a breach of warranty encompasses conditions that are so pivotal that their violation fundamentally alters the contract's terms. Therefore, understanding the significance of breach of warranty is essential in the context of insurance contracts.