Start Here: 5 Things You MUST Know
Fraud requires 6 elements — ALL must be present to void a contract
Concealment = misrepresentation by silence. Collusion = conspiracy to defraud
Unilateral mistake = usually NOT a defense. Bilateral mistake = more likely voidable
Representations = substantially true (modern rule). Warranties = exactly true (old rule)
Fraud remedy = rescission OR damages. Innocent misrepresentation = rescission ONLY
1. What is Genuine Assent?
Genuine Assent
The contracting parties' actual consent to form a contract. Even if all four elements exist (agreement, capacity, consideration, legal purpose), the contract may be voidable if genuine assent is lacking.
Genuine assent may be absent in 5 situations:
Fraud
Mistake
Duress
Undue Influence
Innocent Misrep.
2. Fraud
Fraud
An intentional misrepresentation resulting in harm. Makes a contract voidable at the defrauded party's option. ALL 6 elements must be present:
False Representation
A false statement of fact (not opinion).
Of a Material Fact
A fact that would influence a party's decision.
Knowingly Made
The person knows it is false or acts with reckless disregard.
Intent to Deceive
The person intends to mislead the other party.
Justifiable Reliance
The deceived party reasonably relied on the false statement.
Detriment
The deceived party suffered actual harm or loss.
Remedies for Fraud
Rescission
Complete unmaking of the contract. Restored to original position.
Damages
Sue for monetary compensation. Generally choose rescission OR damages, not both.
Fraud in Insurance Contracts
Collusion
An agreement by 2+ people to defraud another.
Concealment
A misrepresentation by silence. A defense if: (1) insured knew the fact was material AND (2) concealed it with intent to defraud.
3. Mistake
A mistake is a perception that does not agree with the facts. The effect on a contract depends on whether ONE or BOTH parties are mistaken.
Unilateral Mistake
ONE party is mistaken. Usually NOT a defense.
Exception: If the other party knew or should have known about the mistake, the contract may be voidable.
Example: A contractor bids $50,000 instead of $500,000 (missed a zero). If the client knew this was obviously wrong (10x lower than all other bids), the contractor may escape.
Bilateral Mistake
BOTH parties share the same mistaken perception. More likely to make contract voidable.
Example: Both buyer and seller believe a ring is costume jewelry worth $200. It turns out to be worth $50,000. The seller may rescind the contract.
Mistakes in Insurance
Mistakes of Law
Generally do NOT allow voiding a contract. Everyone is presumed to know the law.
Reformation
An equitable remedy: court rewrites the contract to reflect the parties' actual intentions.
4. Duress & Undue Influence
Duress
The use of violence, restraint, or threats to compel a party to act against their wishes. Deprives the person of free will. Types: physical force, threats of prosecution, threats of economic harm.
Insurance Example: Claims Duress
Setup: After a car accident, an adjuster tells an injured claimant in the hospital: "Sign this $5,000 release or we deny your entire claim."
Result: Release may be voidable due to duress. The adjuster exploited the claimant's vulnerable position.
Undue Influence
Improper use of power or trust to deprive a person of free will. Occurs in confidential relationships: attorney-client, doctor-patient, guardian-ward, trustee-beneficiary, parent-child.
Insurance Example: Agent Undue Influence
Setup: An agent visits an 82-year-old widow weekly, gains her trust, then convinces her to cash out a $500,000 whole life policy for an unsuitable annuity with a 15-year surrender charge.
Result: Transaction may be voided. The agent exploited a confidential relationship for personal gain (massive commission).
5. Innocent Misrepresentation & Representations vs. Warranties
Innocent Misrepresentation
A false statement of material fact made WITHOUT knowledge of its falsity and WITHOUT intent to deceive. Remedy is typically rescission only (not damages).
Fraud vs. Innocent Misrepresentation
Fraud
Intentional deception. Remedy: rescission OR damages.
Innocent Misrepresentation
No intent to deceive. Remedy: rescission ONLY (no damages).
Representations vs. Warranties (Heavily Tested)
Representation (Modern Rule)
A statement that must be substantially true. Minor inaccuracies do NOT void the policy. Insurer must prove the misrepresentation was material (would have changed their decision).
Warranty (Old/Strict Rule)
A statement that must be exactly true. Any breach, even minor, can technically void the policy. Much harsher for policyholders.
Real-World Scenario: Why This Matters
The Setup: A homeowner states the house has a burglar alarm. In reality, the alarm has not worked for 6 months.
What Happens: The home is damaged by a fire (unrelated to the alarm).
The Result: Under the warranty rule, the insurer could void the policy (any breach, regardless of relevance). Under the representation rule, the insurer must prove the non-working alarm was material to the risk — since the loss was a fire, not a burglary, the insurer likely cannot deny the claim.
Most states now use the representation (substantially true) standard to protect policyholders.
Cheat Sheet
Print this page for quick reference6 Elements of Fraud (ALL Required)
- 1. False representation (fact, not opinion)
- 2. Of a material fact
- 3. Knowingly made
- 4. With intent to deceive
- 5. Justifiable reliance
- 6. Resulting in detriment
Mistake Rules
- Unilateral = usually NOT a defense
- Bilateral = more likely voidable
- Law mistakes = NOT a defense
- Reformation = court corrects the contract
Assent Defenses
- Duress = threats/force = voidable
- Undue influence = trust abuse = voidable
- Innocent misrep = rescission only
- Fraud = rescission OR damages
Insurance Terms
- Collusion = conspiracy to defraud
- Concealment = silence as misrepresentation
- Representation = substantially true (modern)
- Warranty = exactly true (old rule)
Exam Trap Alerts
1. Representations vs. Warranties
Representations = substantially true standard (modern majority). Warranties = exactly true (old, harsher). Most states now use representations to protect policyholders. This is HEAVILY tested.
2. Fraud Requires ALL 6 Elements
Missing even one element means no fraud. The exam may describe a scenario missing one element (like no detriment or no reliance) to see if you catch it.
3. Concealment Requires Intent
For concealment to be a defense, the insured must have (1) known the fact was material AND (2) concealed it with intent to defraud. Accidentally forgetting is not concealment.
4. Unilateral vs. Bilateral Mistake
Unilateral mistake = usually stuck with the contract. Bilateral mistake = more likely to void. Exception: if the other party knew about a unilateral mistake.
5. Innocent Misrepresentation = Rescission ONLY
No intent to deceive means no damages. The remedy is only rescission (unmaking the contract). Fraud allows rescission OR damages.
6. Mistakes of Law Are NOT a Defense
Everyone is presumed to know the law. Ignorance of the law does not make a contract voidable, even when the law is ambiguous.
Quick Reference Summary
Genuine Assent
Absent with fraud, mistake, duress, undue influence, or innocent misrep.
Fraud (6 Elements)
False + material + knowing + intent + reliance + detriment.
Collusion vs. Concealment
Collusion = conspiracy. Concealment = silence as misrepresentation.
Mistakes
Unilateral = usually bound. Bilateral = likely voidable. Law = not a defense.
Duress & Undue Influence
Threats/force or trust abuse = voidable. Look for power imbalance.
Rep. vs. Warranty
Representation = substantially true. Warranty = exactly true. Modern = representation.