Argente v West Coast Life, GR L-24899, 9 March 1928

Facts:

This is an action upon a joint life insurance policy for P15,000 issued by the
defendant, the West Coast Life Insurance Co., on May 15, 1925, in favor of the
plaintiff, Bernardo Argente, and his wife, Vicenta de Ocampo, the latter having died
on November 18, 1925. Fraud in obtaining the policy was pleaded by way of special
defense. On the issue thus suggested, the court adopted the theory of the
defendant, and held the insurance policy null and void, with the result that the
complaint was dismissed, with costs.   chanroblesvirtualawlibrary chanrobles virtual law library

On February 9, 1925, Bernardo Argente signed an application for joint insurance

with his wife in the sum of P2,000. The wife, Vicenta de Ocampo, signed a like
application for the same policy. Both applications, with the exception of the names
and the signatures of the applicants, were written by Jose Geronimo del Rosario, an
agent for the West Coast Life Insurance Co. But all the information contained in the
applications was furnished the agent by Bernardo Argente.   chanroblesvirtualawlibrary chanrobles virtual law library

Pursuant to his application, Bernardo Argente was examined by Dr. Cesareo Sta.
Ana, a medical examiner for the West Coast Life Insurance Co., on February 10,
1925, in the office of the Customs House. The result of such examination was
recorded in the Medical Examiner's Report, and with the exception of the signature
of Bernardo Argente, was in the hand-writing of Doctor Sta. Ana. But the
information or answers to the questions contained on the face of the Medical
Examiner's Report were furnished the doctor by the applicant, Bernardo
Argente.  
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Pursuant to her application, Vicenta de Ocampo, wife of the plaintiff, was examined
by Dr. Cesareo Sta. Ana on February 10, 1925, at her residence in Manila. The result
of the medical examination, including among other things, the answers given by
Vicenta de Ocampo to the questions propounded to her by the physician, appears in
the Medical Examiner's Report.   chanroblesvirtualawlibrary chanrobles virtual law library

On May 9, 1925, Bernardo Argente and his wife submitted to the West Coast Life
Insurance Co. an amended application for insurance, increasing the amount thereof
to P15,000, and asked that the policy be dated May 15, 1925. The amended
application was accompanied by the documents entitled "Short Form Medical
Report." In both of these documents appear certain questions and answers.   chanroblesvirtualawlibrary chanrobles virtual law library

A temporary policy for P15,000 was issued to Bernardo Argente and his wife as of
May 15, but it was not delivered to Bernardo Argente until July 2, 1925, when the
first quarterly premium on the policy was paid. In view of the fact that more than
thirty days had elapsed since the applicants were examined by the company's
physician, each of them was required to file a certificate of health before the policy
was delivered to them.   chanroblesvirtualawlibrary chanrobles virtual law library

1
On November 18, 1925, Vicenta de Ocampo died of cerebral apoplexy. Thereafter
Bernardo Argente presented a claim in due form to the West Coast Life Insurance
Co. for the payment of the sum of P15,000 the amount of the joint life Insurance
policy. Following investigation conducted by the Manager of the Manila office of the
insurance company, it was apparently disclosed that the answers given by the
insured in their medical examinations with regard to their health and previous illness
and medical attendance were untrue. For that reason, the West Coast Life Insurance
Co. refused to pay the claim of Bernardo Argente, and on May 25, 1926, wrote him
to the effect that the claim was rejected because the insurance was obtained
through fraud and misrepresentation.   chanroblesvirtualawlibrary chanrobles virtual law library

It is admitted that it appears in the Medical Examiner's Report that Bernardo

Argente, in response to the question asked by the medical examiner, "Have you ever
consulted a physician for, or have you ever suffered from any ailment or disease of,
the brain or nervous system?" answered "No." To the question, "Have you consulted
a physician for any ailment or disease not included in your above answer," answered
"Yes. Nature of Ailment, Disease or Injury. Scabies, Number of attacks 1, Date
1911. Duration 1 month, Severity Fair, results and, if within five years, name and
address of every physician consulted. Dr. P. Guazon. Cured. Dr. Guazon is dead
now." And to the question, "What physician or physicians, if any, not named above,
have you consulted or been treated by, within the last five years and for what illness
or ailment? (If none, so state)" answered "No." It is, however, not disputed that on
January 10, 11, and 13, 1923, Bernardo Argente was confined in the Philippine
General Hospital where he was treated by Dr. Agerico B. M. Sison for cerebral
congestion and Bell's Palsy.  
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It is further admitted that it appears in the Medical Examiner's Report that Vicenta
de Ocampo, in response to the question asked by the medical examiner, "How
frequently, if at all, and in what quantity Domingo made a diagnosis of
probable "manic-depressive psychosis," and still, later in Mary Chiles Hospital, made
a final diagnosis of "phycho-neurosis."  chanrobles virtual law library

The plaintiff, Bernardo Argente, while readily conceding most of the facts herein
narrated, yet alleges that both he and his wife revealed to the company's physician.
Doctor Sta. Ana, all the facts concerning the previous illnesses and medical
attendance, but that Doctor Sta. Ana, presumably acting in collusion, with the
insurance agent, Jose Geronimo del Rosario, failed to record them in the medical
reports. The evidence on these points consists of the testimony of the plaintiff and
his subordinate clerk, Apolonio Espiritu, on the one hand, and of the testimony of
Doctor Sta. Ana and Jose Geronimo del Rosario on the other. On the question of fact
thus raised, the trial judge found with the insurance company. In so doing, we
believe that His Honor gave proper inclination to the weight of the proof. There
appears no motive whatever on the part of Doctor Sta. Ana to falsify the Medical
Examiner's Reports and thereby not only jeopardize his career as a physician, but
also gravely implicate himself criminally.

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Ruling:
One ground for the rescission of a contract of insurance under the Insurance Act is
"a concealment," which in section 25 is defined as "A neglect to communicate that
which a party knows and ought to communicate." Appellant argues that the alleged
concealment was immaterial and insufficient to avoid the policy. We cannot agree.
In an action on a life insurance policy where the evidence conclusively shows that
the answers to questions concerning diseases were untrue, the truth of falsity of the
answers become the determining factor. In the policy was procured by fraudulent
representations, the contract of insurance apparently set forth therein was never
legally existent. It can fairly be assumed that had the true facts been disclosed by
the assured, the insurance would never have been granted.

Lastly, appellant contends that even if the insurance company had a right to rescind
the contract, such right cannot now be enforced in view of the provisions of section
47 of the Insurance Act providing "Whenever a right to rescind a contract of
insurance is given to their insurer by provision of this chapter, such right must be
exercised previous to the commencement of an action on the contract." This section
was derived from section 2583 of the California Civil Code, but in contrast thereto,
makes use of the imperative "must" instead of the permissive "may." Nevertheless,
there are two answers to the problem as propounded. The first is that the California
law as construed by the code examiners, at whose recommendation it was adopted,
conceded that "A failure to exercise the right (of rescission), cannot, of course,
prejudice any defense to the action which the concealment may furnish." (Codes of
California annotated; Tan Chay Heng vs. West Coast Life Insurance Company
[1927], p. 80, ante.) The second answer is that the insurance company more than
one month previous to the commencement of the present action wrote the plaintiff
and informed him that the insurance contract was void because it had been procured
through fraudulent representations, and offered to refund to the plaintiff the
premium which the latter had paid upon the return of the policy for cancellation. As
held in California as to a fire insurance policy, where any of the material
representations are false, the insurer's tender of the premium and notice that the
policy is canceled, before the commencement of suit thereon, operate to rescind the
contract of insurance. (Rankin vs. Amazon Insurance Co. [1891], 89 Cal., 203.)  chanrobles virtual law library

We are content to rest our judgment on the findings of the trial court, and on the
law governing those facts, with the result that the various assignments of error are
found to be without persuasive merit.

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Great Pacific Life v CA, GR L-31845, 30 April 1979

Facts:

Private respondent, a duly authorized agent of Pacific Life, applied for a 20-year
endowment policy on the life of his one-year old daughter, a mongoloid. He did not
divulge each physical defect of his daughter. He paid the premium and was issued a
binding deposit receipt. However, despite the branch manager’s favorable
recommendation, the Company disapproved the application, because a 20-year
endowment plan is not available for minors. Instead, it offered the Juvenile Triple
Action Plan. The manager wrote back and again strongly recommended the approval
of the application. At this point, the child died of influenza with complication of
broncho-pneumonia.

In a suit filed by private respondent to recover the proceeds of the insurance, the
trial court rendered judgment adverse to both petitioners. The Court of Appeals in its
amended decision affirmed the trial court’s decision in toto.

The decisive issues in these cases are: (1) whether the binding deposit receipt
constituted a temporary contract of the life insurance in question; and (2) whether
private respondent concealed the state of health and physical condition of his child.

It appears that on March 14, 1957, private respondent Ngo Hing filed an application
with the Great Pacific Life Assurance Company (hereinafter referred to as Pacific
Life) for a twenty-year endowment policy in the amount of P50,000.00 on the life of
his one-year old daughter Helen Go. Said respondent supplied the essential data
which petitioner Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu
City wrote on the corresponding form in his own handwriting (Exhibit I-M).
Mondragon finally type-wrote the data on the application form which was signed by
private respondent Ngo Hing. The latter paid the annual premium, the sum of
P1,077.75 going over to the Company, but he retained the amount of P1,317.00 as
his commission for being a duly authorized agent of Pacific Life. Upon the payment
of the insurance premium, the binding deposit receipt (Exhibit E) was issued to
private respondent Ngo Hing. Likewise, petitioner Mondragon handwrote at the
bottom of the back page of the application form his strong recommendation for the
approval of the insurance application. Then on April 30, 1957, Mondragon received a
letter from Pacific Life disapproving the insurance application (Exhibit 3-M). The
letter stated that the said life insurance application for 20-year endowment plan is
not available for minors below seven years old, but Pacific Life can consider the
same under the Juvenile Triple Action Plan, and advised that if the offer is
acceptable, the Juvenile Non-Medical Declaration be sent to the Company.

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The non-acceptance of the insurance plan by Pacific Life was allegedly not
communicated by petitioner Mondragon to private respondent Ngo Hing. Instead, on
May 6, 1957, Mondragon wrote back Pacific Life again strongly recommending the
approval of the 20-year endowment life insurance on the ground that Pacific Life is
the only insurance company not selling the 20-year endowment insurance plan to
children, pointing out that since 1954 the customers, especially the Chinese, were
asking for such coverage (Exhibit 4-M).

It was when things were in such state that on May 28, 1957 Helen Go died of
influenza with complication of broncho-pneumonia. Thereupon, private respondent
sought the payment of the proceeds of the insurance, but having failed in his effort,
he filed the action for the recovery of the same before the Court of First Instance of
Cebu, which rendered the adverse decision as earlier referred to against both
petitioners.

Ruling:

Relative to the second issue of alleged concealment, this Court is of the firm belief
that private respondent had deliberately concealed the state of health and physical
condition of his daughter Helen Go. When private respondent supplied the required
essential data for the insurance application form, he was fully aware that his one-
year old daughter is typically a mongoloid child. Such a congenital physical defect
could never be ensconced nor disguised. Nonetheless, private respondent, in
apparent bad faith, withheld the fact material to the risk to be assumed by the
insurance company. As an insurance agent of Pacific Life, he ought to know, as he
surely must have known, his duty and responsibility to supply such a material fact.
Had he divulged said significant fact in the insurance application form, Pacific Life
would have verified the same and would have had no choice but to disapprove the
application outright.

The contract of insurance is one of perfect good faith (uberrima fides meaning good
faith; absolute and perfect candor or openness and honesty; the absence of any
concealment or deception, however slight [Black’s Law Dictionary, 2nd Edition], not
for the insured alone but equally so for the insurer (Field man’s Insurance Co., Inc.
v. Vda de Songco, 25 SCRA 70). Concealment is a neglect to communicate that
which a party knows and ought to communicate (Section 25, Act No. 2427).
Whether intentional or unintentional the concealment entitles the insurer to rescind
the contract of insurance (Section 26, id.: Yu Pang Cheng v. Court of Appeals, Et Al.,
105 Phil. 930; Saturnino v. Philippine American Life Insurance Company, 7 SCRA
316). Private respondent appears guilty thereof. chanrobles.com : virtual law library

We are thus constrained to hold that no insurance contract was perfected between
the parties with the noncompliance of the conditions provided in the binding receipt,
and concealment, as legally defined, having been committed by herein
private Respondent.

5
Saturnino v Philippine American Life, GR L-16163, 28 February 1963

1. INSURANCE; NON-MEDICAL INSURANCE; MEDICAL HISTORY MATERIAL TO

INSURABILITY OF APPLICANT. — In non-medical insurance, the waiver of medical
examination renders even more material the information required of the applicant
concerning previous condition of health and diseases suffered, for such information
necessarily constitutes an important factor which the insurer takes into consideration
in deciding whether to issue the policy or not.

2. ID.; ID.; CONCEALMENT OF PREVIOUS OPERATION. — The concealment of the

fact of the operation itself is fraudulent, as there could not have been any mistake
about it, no matter what the ailment.

3. ID.; ID.; CONCEALMENT, WHETHER INTENTIONAL OR UNINTENTIONAL, GROUND

FOR RESCISSION. — In this jurisdiction, a concealment, whether intentional or
unintentional, entitles the insurer to rescind the contract of insurance, concealment
being defined as "negligence to communicate that which a party knows and ought to
communicate" (Sections 25 & 26, Act No. 2427).

Facts:

Plaintiffs, now appellants, filed this action in the Court of First Instance of Manila to
recover the sum of P5,000.00, corresponding to the face value of an insurance policy
issued by defendant on the life of Estefania A. Saturnino, and the sum of P1,500.00
as attorney’s fees. Defendant, now appellee, set up special defenses in its answer,
with a counterclaim for damages allegedly sustained as a result of the unwarranted
presentation of this case. Both the complaint and the counterclaim were dismissed
by the trial court; but appellants were declared entitled to the return of the premium
already paid, plus interest at 62 up to January 8, 1959, when a check for the
corresponding amount — P359.65 — was sent to them by appellee.

The policy sued upon is one for 20-year endowment non-medical insurance. This
kind of policy dispenses with the medical examination of the applicant usually
required in ordinary life policies. However, detailed information is called for in the
application concerning the applicant’s health and medical history. The written
application in this case was submitted by Saturnino to appellee on November 16,
1957, witnessed by appellee’s agent Edward A. Santos. The policy was issued on the
same day, upon payment of the first year’s premium of P339.25. On September 19,
1958, Saturnino died of pneumonia, secondly to influenza. Appellants here, who are
her surviving husband and minor child, respectively, demanded payment of the face
value of the policy. The claim was rejected and this suit was subsequently instituted.

6
It appears that the months prior to the issuance of the policy, or on September 9,
1957, Saturnino was operated on for cancer, involving complete removal of the right
breast, including the pectoral muscles and the glands found in the right armpit. She
stayed in the hospital for a period of eight days, after which she was discharged,
although according to the surgeon who operated on her she could not be considered
definitely cured, her ailment being of the malignant type.

Notwithstanding the fact of her operation Estefania A. Saturnino did not make a
disclosure thereof in her application for insurance. On the contrary, she stated
therein that she did not have, nor had she ever had, among other ailments listed in
the application, cancer or other tumors; that she had not consulted any physician,
undergone any operation or suffered any injury within the preceding five years; and
that she had never been treated for, nor did she ever have any illness or disease
peculiar to her sex, particularly of the breast, ovaries, uterus, and menstrual
disorders. The application also recites that the foregoing declarations constituted "a
further basis for the issuance of the policy."
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The question at issue is whether or not the insured made such false representations
of material facts as to avoid the policy. There can be no dispute that the information
given by her in her application for insurance was false, namely, that she had never
had cancer or tumors, or consulted any physician or undergone any operation within
the preceding period of five years. Are the facts thus falsely represented material?
The Insurance Law (Section 30) provides that "materiality is to be determined not
by the event, but solely by the probable and reasonable influence of the in forming
his estimate of the proposed contract, or in facts upon the party to whom the
communication is due, making his inquiries." It seems to be the contention of
appellants that the facts subject of the representations were not material in view of
the "non-medical" nature of the insurance applied for, which does away with the
usual requirement of medical examination before the policy is issued. The contention
is without merit. If anything, the waiver of medical examination renders even more
material the information required of the applicant concerning previous condition of
health and diseases suffered, for such information necessarily constitutes an
important factor which the insurer takes into consideration in deciding whether to
issue the policy or not. It is logical to assume that if appellee had been properly
apprised of the insured’s medical history she would at least have been made to
undergo medical examination in order to determine her insurability.

Appellants also contend there was no fraudulent concealment of the truth as much
as the insured herself did not know, since her doctor never told her, that the disease
for which she had been operated on was cancer. In the first place the concealment
of the fact of the operation itself was fraudulent, as there could not have been any
mistake about it, no matter what the ailment. Secondly, in order to avoid a policy it
is not necessary to show actual fraud on the part of the insured. In the case of
Kasprzyk v. Metropolitan Insurance Co., 140 N.Y.S. 211, 214, it was held: jgc:chanrobles.com.ph

7
"Moreover, if it were the law that an insurance company could not defend a policy on
the ground of misrepresentation, unless it could show actual knowledge on the part
of the applicant that the statements were false, then it is plain that it would be
impossible for it to protect itself and its honest policyholders against fraudulent and
improper claims. It would be wholly at the mercy of any one who wished to apply for
insurance, as it would be impossible to show actual fraud except in the extremest
cases. It could not rely on an application as containing information on which it could
act. There would be no incentive to an applicant to tell the truth."

Ruling:

In this jurisdiction, a concealment, whether intentional or unintentional, entitles the

insurer to rescind the contract of insurance, concealment being defined as
"negligence to communicate that which a party knows and ought to communicate"
(Sections 25 & 26, Act No. 2427). In the case of Argente v. West Coast Life
Insurance Co., 51 Phil. 725, 732, this Court said, quoting from Joyce, The Law of
Insurance, 2nd ed. Vol. 3: jgc:chanrobles.com.ph

"‘The basis of the rule vitiating the contract in cases of concealment is that it
misleads or deceives the insurer into accepting the risk, or accepting it at the rate of
premium agreed upon. The insurer, relying upon the belief that the assured will
disclose every material fact within his actual or presumed knowledge, is misled into
a belief that the circumstance withheld does not exist, and he is thereby induced to
estimate the risk upon a false basis that it does not exist.’"

8
Canilang v CA and Great Pacific Life, GR 92492, 17 June 1993

Facts:

On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as
suffering from "sinus tachycardia." The doctor prescribed the following fro him: Trazepam, a
tranquilizer; and Aptin, a beta-blocker drug. Mr. Canilang consulted the same doctor again on 3
August 1982 and this time was found to have "acute bronchitis."

On next day, 4 August 1982, Jaime Canilang applied for a "non-medical" insurance policy with
respondent Great Pacific Life Assurance Company ("Great Pacific") naming his wife, Thelma
Canilang, as his beneficiary.  Jaime Canilang was issued ordinary life insurance Policy No.
1

345163, with the face value of P19,700, effective as of 9 August 1982.

On 5 August 1983, Jaime Canilang died of "congestive heart failure," "anemia," and "chronic
anemia."  Petitioner, widow and beneficiary of the insured, filed a claim with Great Pacific which
2

the insurer denied on 5 December 1983 upon the ground that the insured had concealed
material information from it.

Petitioner then filed a complaint against Great Pacific with the Insurance Commission for
recovery of the insurance proceeds. During the hearing called by the Insurance Commissioner,
petitioner testified that she was not aware of any serious illness suffered by her late
husband  and that, as far as she knew, her husband had died because of a kidney disorder.  A
3 4

deposition given by Dr. Wilfredo Claudio was presented by petitioner. There Dr. Claudio stated
that he was the family physician of the deceased Jaime Canilang  and that he had previously
5

treated him for "sinus tachycardia" and "acute bronchitis."  Great Pacific for its part presented Dr.
6

Esperanza Quismorio, a physician

and a medical underwriter working for Great Pacific.  She testified that the deceased's insurance
7

application had been approved on the basis of his medical declaration.  She explained that as a
8

rule, medical examinations are required only in cases where the applicant has indicated in his
application for insurance coverage that he has previously undergone medical consultation and
hospitalization.
9

In a decision dated 5 November 1985, Insurance Commissioner Armando Ansaldo ordered

Great Pacific to pay P19,700 plus legal interest and P2,000.00 as attorney's fees after holding
that:

On appeal by Great Pacific, the Court of Appeals reversed and set aside the decision of the
Insurance Commissioner and dismissed Thelma Canilang's complaint and Great Pacific's
counterclaim. 

Issue:

1. . . . the Honorable Court of Appeals, speaking with due respect, erred in not holding that the
issue in the case agreed upon between the parties before the Insurance Commission is whether
or not Jaime Canilang "intentionally" made material concealment in stating his state of health;

2. . . . at any rate, the non-disclosure of certain facts about his previous health conditions does
not amount to fraud and private respondent is deemed to have waived inquiry thereto. 

9
Ruling:

We note that in addition to the negative statements made by Mr. Canilang in paragraph 1 and 2
of the medical declaration, he failed to disclose in the appropriate space, under the caption
"Exceptions," that he had twice consulted Dr. Wilfredo B. Claudio who had found him to be
suffering from "sinus tachycardia" and "acute bronchitis."

The relevant statutory provisions as they stood at the time Great Pacific issued the contract of
insurance and at the time Jaime Canilang died, are set out in P.D. No. 1460, also known as the
Insurance Code of 1978, which went into effect on 11 June 1978. These provisions read as
follows:

Sec. 26. A neglect to communicate that which a party knows and ought to

communicate, is called a concealment.

xxx xxx xxx

Sec. 28. Each party to a contract of insurance must communicate to the other, in
good faith, all factors within his knowledge which are material to the contract and
as to which he makes no warranty, and which the other has not the means of
ascertaining. (Emphasis supplied)

Under the foregoing provisions, the information concealed must be information which the
concealing party knew and "ought to [have] communicate[d]," that is to say, information which
was "material to the contract." The test of materiality is contained in Section 31 of the Insurance
Code of 1978 which reads:

Sec. 31. Materially is to be determined not by the event, but solely by

the probable and reasonable influence of the facts upon the party to whom the
communication is due, in forming his estimate of the disadvantages of the
proposed contract, or in making his inquiries. (Emphasis supplied)

"Sinus tachycardia" is considered present "when the heart rate exceeds 100 beats per
minute."   The symptoms of this condition include pounding in the chest and sometimes
13

faintness and weakness of the person affected. The following elaboration was offered by Great
Pacific and set out by the Court of Appeals in its Decision:

We agree with the Court of Appeals that the information which Jaime Canilang failed to disclose
was material to the ability of Great Pacific to estimate the probable risk he presented as a
subject of life insurance. Had Canilang disclosed his visits to his doctor, the diagnosis made and
medicines prescribed by such doctor, in the insurance application, it may be reasonably
assumed that Great Pacific would have made further inquiries and would have probably refused
to issue a non-medical insurance policy or, at the very least, required a higher premium for the
same coverage.   The materiality of the information withheld by Great Pacific did not depend
15

upon the state of mind of Jaime Canilang. A man's state of mind or subjective belief is not
capable of proof in our judicial process, except through proof of external acts or failure to act
from which inferences as to his subjective belief may be reasonably drawn. Neither does
materiality depend upon the actual or physical events which ensue. Materiality relates rather to
the "probable and reasonable influence of the facts" upon the party to whom the communication
should have been made, in assessing the risk involved in making or omitting to make further
inquiries and in accepting the application for insurance; that "probable and reasonable influence
of the facts" concealed must, of course, be determined objectively, by the judge ultimately.

The insurance Great Pacific applied for was a "non-medical" insurance policy. In Saturnino v.
Philippine-American Life Insurance Company,   this Court held that:
16

10
 . . . if anything, the waiver of medical examination [in a non-medical insurance
contract] renders even more material the information required of the applicant
concerning previous condition of health and diseases suffered, for such
information necessarily constitutes an important factor which the insurer takes
into consideration in deciding whether to issue the policy or not . . . .   (Emphasis
17

supplied)

The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain
information to the insurer was not "intentional" in nature, for the reason that Jaime Canilang
believed that he was suffering from minor ailment like a common cold. Section 27 of the
Insurance Code of 1978 as it existed from 1974 up to 1985, that is, throughout the time range
material for present purposes, provided that:

Sec. 27. A concealment entitles the injured party to rescind a contract of

insurance.

The preceding statute, Act No. 2427, as it stood from 1914 up to 1974, had provided:

Sec. 26. A concealment, whether intentional or unintentional, entitles the injured

party to rescind a contract of insurance. (Emphasis supplied)

Upon the other hand, in 1985, the Insurance Code of 1978 was amended by
B.P. Blg. 874. This subsequent statute modified Section 27 of the Insurance Code of 1978 so as
to read as follows:

Sec. 27. A concealment whether intentional or unintentional entitles the injured

party to rescind a contract of insurance. (Emphasis supplied)

The unspoken theory of the Insurance Commissioner appears to have been that by deleting the
phrase "intentional or unintentional," the Insurance Code of 1978 (prior to its amendment by B.P.
Blg. 874) intended to limit the kinds of concealment which generate a right to rescind on the part
of the injured party to "intentional concealments." This argument is not persuasive. As a simple
matter of grammar, it may be noted that "intentional" and "unintentional" cancel each other out.
The net result therefore of the phrase "whether intentional or unitentional" is precisely to leave
unqualified the term "concealment." Thus, Section 27 of the Insurance Code of 1978 is properly
read as referring to "any concealment" without regard to whether such concealment is intentional
or unintentional. The phrase "whether intentional or unintentional" was in fact superfluous. The
deletion of the phrase "whether intentional or unintentional" could not have had the effect of
imposing an affirmative requirement that a concealment must be intentional if it is to entitle the
injured party to rescind a contract of insurance. The restoration in 1985 by B.P. Blg. 874 of the
phrase "whether intentional or unintentional" merely underscored the fact that all throughout
(from 1914 to 1985), the statute did not require proof that concealment must be "intentional" in
order to authorize rescission by the injured party.

In any case, in the case at bar, the nature of the facts not conveyed to the insurer was such that
the failure to communicate must have been intentional rather than merely inadvertent. For Jaime
Canilang could not have been unaware that his heart beat would at times rise to high and
alarming levels and that he had consulted a doctor twice in the two (2) months before applying
for non-medical insurance. Indeed, the last medical consultation took place just the day before
the insurance application was filed. In all probability, Jaime Canilang went to visit his doctor
precisely because of the discomfort and concern brought about by his experiencing "sinus
tachycardia."

11
We find it difficult to take seriously the argument that Great Pacific had waived inquiry into the
concealment by issuing the insurance policy notwithstanding Canilang's failure to set out
answers to some of the questions in the insurance application. Such failure precisely constituted
concealment on the part of Canilang. Petitioner's argument, if accepted, would obviously erase
Section 27 from the Insurance Code of 1978.

It remains only to note that the Court of Appeals finding that the parties had not agreed in the
pretrial before the Insurance Commission that the relevant issue was whether or not Jaime
Canilang had intentionally concealed material information from the insurer, was supported by
the evidence of record, i.e., the Pre-trial Order itself dated 17 October 1984 and the Minutes of
the Pre-trial Conference dated 15 October 1984, which "readily shows that the word "intentional"
does not appear in the statement or definition of the issue in the said Order and Minutes."

12
Sun Life v Bacani, GR 105135, 22 June 1995

Facts:

On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from
petitioner. He was issued Policy No. 3-903-766-X valued at P100,000.00, with double indemnity
in case of accidental death. The designated beneficiary was his mother, respondent Bernarda
Bacani.

On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim
with petitioner, seeking the benefits of the insurance policy taken by her son. Petitioner
conducted an investigation and its findings prompted it to reject the claim.

In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not disclose
material facts relevant to the issuance of the policy, thus rendering the contract of insurance
voidable. A check representing the total premiums paid in the amount of P10,172.00 was
attached to said letter.

Petitioner claimed that the insured gave false statements in his application when he answered
the following questions:

5. Within the past 5 years have you:

a) consulted any doctor or other health practitioner?

b) submitted to:

EGG?
X-rays?
blood tests?
other tests?

c) attended or been admitted to any hospital or other medical

facility?

6. Have you ever had or sought advice for:

xxx xxx xxx

b) urine, kidney or bladder disorder? (Rollo, p. 53)

The deceased answered question No. 5(a) in the affirmative but limited his answer to a
consultation with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on
February 1986, for cough and flu complications. The other questions were answered in the
negative (Rollo, p. 53).

Petitioner discovered that two weeks prior to his application for insurance, the insured was
examined and confined at the Lung Center of the Philippines, where he was diagnosed for renal
failure. During his confinement, the deceased was subjected to urinalysis, ultra-sonography and
hematology tests.

On November 17, 1988, respondent Bernarda Bacani and her husband, respondent Rolando
Bacani, filed an action for specific performance against petitioner with the Regional Trial Court,
Branch 191, Valenzuela, Metro Manila. Petitioner filed its answer with counterclaim and a list of
exhibits consisting of medical records furnished by the Lung Center of the Philippines.

13
Ruling:

Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to

communicate to the other, in good faith, all facts within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has no means of
ascertaining. Said Section provides:

A neglect to communicate that which a party knows and ought to communicate, is

called concealment.

Materiality is to be determined not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom communication is due, in forming his estimate of
the disadvantages of the proposed contract or in making his inquiries (The Insurance Code, Sec.
31).

The terms of the contract are clear. The insured is specifically required to disclose to the insurer
matters relating to his health.

The information which the insured failed to disclose were material and relevant to the approval
and issuance of the insurance policy. The matters concealed would have definitely affected
petitioner's action on his application, either by approving it with the corresponding adjustment for
a higher premium or rejecting the same. Moreover, a disclosure may have warranted a medical
examination of the insured by petitioner in order for it to reasonably assess the risk involved in
accepting the application.

In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of the
information withheld does not depend on the state of mind of the insured. Neither does it depend
on the actual or physical events which ensue.

Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact that he
was hospitalized for two weeks prior to filing his application for insurance, raises grave doubts
about his bonafides. It appears that such concealment was deliberate on his part.

The argument, that petitioner's waiver of the medical examination of the insured debunks the
materiality of the facts concealed, is untenable. We reiterate our ruling in Saturnino v. Philippine
American Life Insurance Company, 7 SCRA 316 (1963), that " . . . the waiver of a medical
examination [in a non-medical insurance contract] renders even more material the information
required of the applicant concerning previous condition of health and diseases suffered, for such
information necessarily constitutes an important factor which the insurer takes into consideration
in deciding whether to issue the policy or not . . . "

Moreover, such argument of private respondents would make Section 27 of the Insurance Code,
which allows the injured party to rescind a contract of insurance where there is concealment,
ineffective (See Vda. de Canilang v. Court of Appeals, supra).

Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it
is well settled that the insured need not die of the disease he had failed to disclose to the insurer.
It is sufficient that his non-disclosure misled the insurer in forming his estimates of the risks of the
proposed insurance policy or in making inquiries (Henson v. The Philippine American Life
Insurance Co., 56 O.G. No. 48 [1960]).

We, therefore, rule that petitioner properly exercised its right to rescind the contract of insurance
by reason of the concealment employed by the insured. It must be emphasized that rescission
was exercised within the two-year contestability period as recognized in Section 48 of The
Insurance Code.

14
Yu Pang Cheng v CA, GR L-12465, 29 May 1959

Facts:
Plaintiff brought this action to collect from defendant the sum of P10,000.00, value
of an insurance policy taken upon the life of one Yu Pand Eng, plus interest thereon
at the legal rate, the sum of P10,000.00 as moral damages, the further sum of
P3,000.00 as attorney’s fees, and the costs of action.

Defendant, in its answer, set up the defense that the insured was guilty of
misrepresentation and concealment of material facts in that he gave false and
untruthful answers to certain questions asked him in his application for insurance
which were material to the risk insured against and have the effect of avoiding the
insurance policy.

After trial, the court rendered judgment ordering defendant to pay plaintiff the sum
of P10,000.00, with legal interest from the filing of the complaint, plus the sum of
P2,000.00 as attorney’s fees, and the costs of suit. On appeal, the Court of Appeals
reversed the decision of the trial court, holding that the insured was guilty from
liability. Hence the present petition for review.

On September 5, 1950, Yu Pang Eng submitted parts II and III of his application for
insurance consisting if the medical declaration made by him to the medical examiner
of defendant and the medical examiner’s report. On September 7, he submitted part
I of his application which is the declaration made by him to an agent of defendant,
and on September 8, based on said application, and upon payment of the first
premium in the sum of P591.70, defendant issued to the insured entered Policy No.
812858.

On December 27, 1950, the insured entered St. Luke’s Hospital for medical
treatment but he died on February 27, 1951. According to the death certificate, he
died of "infitrating medullary carcinoma, Grade 4, advanced catdiac and of lesser
curvature, stomach metastases spleen." Plaintiff, brother and beneficiary of the
insured, demanded from defendant the payment of the proceeds of the insurance
policy and when the demand was refused, he brought the present action.

The issue to be determined is whether the insured is guilty of concealment of some

facts material to the risk insured against which has the effect of avoiding the policy
as found by respondent court.

The insured, in his application for insurance, particularly in his declarations to the
examining physician, stated the following in answerubg the questions propounded to
him: jgc:chanrobles.com.ph

"14. Have you ever had any of the following diseases or symptoms? Each question
must be read and answered "Yes" or "No." cralaw virtua1aw library

x           x          x

"Gastritis, Ulcer of the Stomach or any disease of that organ? No.

15
"Vertigo, Dizziness, Fainting-spells or Unconsciousness? No.

"Cancer, Tumors or Ulcers of any kind? No.

"15. Have you ever consulted any physician not included in any of the above
answers? Give names and address or physicians list ailments or accidents and date.
No."cralaw virtua1aw library

Ruling:

It appears that the insured entered the Chinese General Hospital for medical
treatment on January 29, 1950having stayed there up to February 11, 1950. Upon
entering the hospital, he complained of dizziness, anemia, abdominal paids and tarry
stools, and in the evening of his admission he had several abdominal pains and his
discharges were with black tarry stools and felt dizzy and weak. The history of his
illness shows that the same "started a year ago as frequent dizziness." An X-ray
picture of his stomach was taken and the diagnosis made of him by his doctors
showed that his illness was "peptic ulcer, bleeding."
cralaw virtua1aw library

It should be noted that the insured’s confinementt in the Chinese General Hospital
took place from January 29, 1950 to February 11, 1950, whereas his application for
insurance wherein he stated his answers to the questions propounded to him by the
examining physician of defendant was submitted to defendant on September 5,
1950. It is apparent that when the insured gave his answers regarding his previous
ailment, particularly with regard to "Gaztritis, Ulcer of the Stomach or any disease of
that organ" and "Vertigo, Dizziness, Fainting-spells or Unconsciousness", he
concealed the ailment of which he was treated in the Chinese General Hospital which
precisely has direct connection with the subject of the questions propounded. The
negative answers given by the insured regarding his previous ailment, or his
concealment of the fact that he was hospitalized and treated for sometime of peptic
ulcer and had suffered form "dizziness, anemia, abdominal pains and tarry stools",
deprived defendant of the opportunity to make the necessary inquiry as to the
nature of his past illness so that it may form its estimate relative to the approval of
his application. Had defendant been given such opportunity, considering the
previous illness of the insured as disclosed by the records of the Chinese General
Hospital, defendant would probably had never consented to the issuance of the
policy in question. In fact, according to the death certificate, the insured died of
"infiltrating medullary carcinoma, Grade 4, advanced cardiac and of lesser curvature,
stomach metastases spleen", which may have a direct connection with his previous
illness.

16
Our Insurance Law provides that A neglect to communicate that which a party
knows and ought to communicate, is called concealment" (Section 25, Act No.
2427). Whether intentional or unintentional, the concealment entitles the insurer to
rescind the contract of insurance (Section 26). Our law even requires the insured to
communicate to the insurer all facts within his knowledge which are material to the
contract and which the other partty has not the means of ascertaining (Section 27),
and the materiality is to be determined not by the event but solely by the probable
and reasonable influence of the facts upon the party to whom the communication is
due (Section 30).

Upon the foregoing reasons, we are persuaded to conclude that respondent court did
not err in declaring the policy ineffective on the ground of concealment and in
relieving appellee from liability thereunder.

17
Ng Zee v Asian Crusader Life Insurance, GR L-30685, 30 May 1983

Facts:

On May 12, 1962, Kwong Nam applied for a 20-year endowment insurance on his life for the sum
of P20,000.00, with his wife, appellee Ng Gan Zee as beneficiary. On the same date, appellant,
upon receipt of the required premium from the insured, approved the application and issued the
corresponding policy. On December 6, 1963, Kwong Nam died of cancer of the liver with
metastasis. All premiums had been religiously paid at the time of his death.

On January 10, 1964, his widow Ng Gan Zee presented a claim in due form to appellant for
payment of the face value of the policy. On the same date, she submitted the required proof of
death of the insured. Appellant denied the claim on the ground that the answers given by the
insured to the questions appealing in his application for life insurance were untrue.

Appellee brought the matter to the attention of the Insurance Commissioner, the Hon. Francisco
Y. Mandamus, and the latter, after conducting an investigation, wrote the appellant that he had
found no material concealment on the part of the insured and that, therefore, appellee should be
paid the full face value of the policy. This opinion of the Insurance Commissioner
notwithstanding, appellant refused to settle its obligation.

Appellant alleged that the insured was guilty of misrepresentation when he answered "No" to the
following question appearing in the application for life insurance-

Has any life insurance company ever refused your application for insurance or for
reinstatement of a lapsed policy or offered you a policy different from that applied
for? If, so, name company and date.

In its brief, appellant rationalized its thesis thus:

... As pointed out in the foregoing summary of the essential facts in this case, the
insured had in January, 1962, applied for reinstatement of his lapsed life
insurance policy with the Insular Life Insurance Co., Ltd, but this was declined by
the insurance company, although later on approved for reinstatement with a very
high premium as a result of his medical examination. Thus notwithstanding the
said insured answered 'No' to the [above] question propounded to him. ... 

Appellant further maintains that when the insured was examined in connection with his
application for life insurance, he gave the appellant's medical examiner false and misleading
information as to his ailment and previous operation. The alleged false statements given by
Kwong Nam are as follows:

18
Ruling:
The lower court answered this question in the negative, and We agree.

Section 27 of the Insurance Law [Act 2427] provides:

Sec. 27. Such party a contract of insurance must communicate to the other, in
good faith, all facts within his knowledge which are material to the contract, and
which the other has not the means of ascertaining, and as to which he makes no
warranty. 3

Thus, "concealment exists where the assured had knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he should communicate it to the assurer, but
he designedly and intentionally withholds the same."  4

It has also been held "that the concealment must, in the absence of inquiries, be not only
material, but fraudulent, or the fact must have been intentionally withheld." 
5

Assuming that the aforesaid answer given by the insured is false, as claimed by the appellant.
Sec. 27 of the Insurance Law, above-quoted, nevertheless requires that fraudulent intent on the
part of the insured be established to entitle the insurer to rescind the contract. And as correctly
observed by the lower court, "misrepresentation as a defense of the insurer to avoid liability is an
'affirmative' defense. The duty to establish such a defense by satisfactory and convincing
evidence rests upon the defendant. The evidence before the Court does not clearly and
satisfactorily establish that defense."

It bears emphasis that Kwong Nam had informed the appellant's medical examiner that the tumor
for which he was operated on was "associated with ulcer of the stomach." In the absence of
evidence that the insured had sufficient medical knowledge as to enable him to distinguish
between "peptic ulcer" and "a tumor", his statement that said tumor was "associated with ulcer of
the stomach, " should be construed as an expression made in good faith of his belief as to the
nature of his ailment and operation. Indeed, such statement must be presumed to have been
made by him without knowledge of its incorrectness and without any deliberate intent on his part
to mislead the appellant.

While it may be conceded that, from the viewpoint of a medical expert, the information
communicated was imperfect, the same was nevertheless sufficient to have induced appellant to
make further inquiries about the ailment and operation of the insured.

Section 32 of Insurance Law [Act No. 24271 provides as follows:

Section 32. The right to information of material facts maybe waived either by the
terms of insurance or by neglect to make inquiries as to such facts where they
are distinctly implied in other facts of which information is communicated.

It has been held that where, upon the face of the application, a question appears to be not
answered at all or to be imperfectly answered, and the insurers issue a policy without any further
inquiry, they waive the imperfection of the answer and render the omission to answer more fully
immaterial. 6

19
As aptly noted by the lower court, "if the ailment and operation of Kwong Nam had such an
important bearing on the question of whether the defendant would undertake the insurance or
not, the court cannot understand why the defendant or its medical examiner did not make any
further inquiries on such matters from the Chinese General Hospital or require copies of the
hospital records from the appellant before acting on the application for insurance. The fact of the
matter is that the defendant was too eager to accept the application and receive the insured's
premium. It would be inequitable now to allow the defendant to avoid liability under the
circumstances."

Finding no reversible error committed by the trial court, the judgment appealed from is hereby
affirmed, with costs against appellant Asian-Crusader life Assurance Corporation.

20
Colado v. Insular Life - Tender of Overdue Payments
51 OG (No 12) 6269
Facts:

>  Vivencio Collado applied for an insurance contract with Insular life in 1948.  His
application was approved and he began started making premium payments.  However, he
defaulted and the insurance was cancelled.

>  He then applied for the reinstatement of his insurance policy in Nov. of 1951 and
tendered the amount of premium for the years 1950-1951.

>  He stated that he was as of Nov. 1951 of good health, and that he had no injuries,
ailments or illnesses and had not been sick for any case since 1948 (his medical check up
when he applied for insurance) and that he had not consulted any physician or
practitioner for any case since the date of such latest medical exam.

>  However, when Vivencio applied for the reinstatement, he was already sick of a fatal
disease known as carcinoma of the liver and that 4 days prior to his application for
insurance, he consulted a doctor regarding his condition.

>  The reinstatement was approved.  Vivencio again failed to pay the premiums for the last
quarter of Nov. 1951 and as such, Insular life sent him a notice canceling the policy.

>  Vivencio then died.  The beneificiaries instituted the present action to recover from
Insular life the death benefits of a life insurance policy valued at 2T.   Insular refused to pay
claiming concealment on the part of Vivencio.

>  Collado contends that Insular life had waived the right to rescine the policy in view of its
repeated acceptance of the overdue premiums for the second and third years.

>  Municipal court of Manila found for Collado and Insular filed an appeal with CFI of
Manila. CFI rendered judgment in favor of Insular and dismissed Collado’s complaint.

Issue:

Whether or nor Insular life was estopped and could no longer cancel the contract due to
the fact that it accepted the tender of overdue payments from Vivencio.

21
Held:
NO.

It is enormously clear that  when the deceased applied for a reinstatement of his policy in
Nov. 1951, he had already been afflicted with the fatal ailment for a period of about four
months.  Furthermore, in submitting together with his application for reinstatement, a
health statement to the effect that he was in good health, Vivencio concealed the material
fact that he had consulted a doctor and was then found to be afflicted with the malady.

The acceptance of Insular life of the overdue premiums did not necessarily deprive it of
the right to cancel the policy in case of default incurred by the Insured in the payment of
future premiums.  The case would be different had the insured died at any time after the
payment of overdue premiums but previous to the reinstatement of the policy, for the,
Insular, by its acceptance of its overdue premiums is deemed to have waived its right to
rescind the policy.

22
Edillon v Manila Bankers Life, GR L-34200, 30 September 1982

Facts:

The material facts are not in dispute. Sometime in April 1969, Carmen O, Lapuz
applied with respondent insurance corporation for insurance coverage against
accident and injuries. She filled up the blank application form given to her and filed
the same with the respondent insurance corporation. In the said application form
which was dated April 15, 1969, she gave the date of her birth as July 11, 1904. On
the same date, she paid the sum of P20.00 representing the premium for which she
was issued the corresponding receipt signed by an authorized agent of the
respondent insurance corporation. (Rollo, p. 27,) Upon the filing of said application
and the payment of the premium on the policy applied for, the respondent insurance
corporation issued to Carmen O. Lapuz its Certificate of Insurance No. 128866.
(Rollo, p. 28.) The policy was to be effective for a period of 90 days.

On May 31, 1969 or during the effectivity of Certificate of Insurance No. 12886,
Carmen O. Lapuz died in a vehicular accident in the North Diversion Road.

On June 7, 1969, petitioner Regina L. Edillon, a sister of the insured and who was
the named beneficiary in the policy, filed her claim for the proceeds of the insurance,
submitting all the necessary papers and other requisites with the
private Respondent. Her claim having been denied, Regina L. Edillon instituted this
action in the Court of First Instance of Rizal on August 27, 1969.

In resisting the claim of the petitioner, the respondent insurance corporation relies
on a provision contained in the Certificate of Insurance, excluding its liability to pay
claims under the policy in behalf of "persons who are under the age of sixteen (16)
years of age or over the age of sixty (60) years . . . ." It is pointed out that the
insured being over sixty (60) years of age when she applied for the insurance
coverage, the policy was null and void, and no risk on the part of the respondent
insurance corporation had arisen therefrom. cralawnad

The trial court sustained the contention of the private respondent and dismissed the
complaint; ordered the petitioner to pay attorney’s fees in the sum of ONE
THOUSAND (P1,000.00) PESOS in favor of the private respondent; and ordered the
private respondent to return the sum of TWENTY (P20.00) PESOS received by way of
premium on the insurancy policy. It was reasoned out that a policy of insurance
being a contract of adhesion, it was the duty of the insured to know the terms of the
contract he or she is entering into; the insured in this case, upon learning from its
terms that she could not have been qualified under the conditions stated in said
contract, what she should have done is simply to ask for a refund of the premium
that she paid. It was further argued by the trial court that the ruling calling for a
liberal interpretation of an insurance contract in favor of the insured and strictly
against the insurer may not be applied in the present case in view of the peculiar
facts and circumstances obtaining therein.

23
Ruling:

We REVERSE the judgment of the trial court. The age of the insured Carmen O.
Lapuz was not concealed to the insurance company. Her application for insurance
coverage which was on a printed form furnished by private respondent and which
contained very few items of information clearly indicated her age of the time of filing
the same to be almost 65 years of age. Despite such information which could hardly
be overlooked in the application form, considering its prominence thereon and its
materiality to the coverage applied for, respondent insurance corporation received
her payment premium and issued the corresponding certificate of insurance without
question. The accident which resulted in the death the insured, a risk covered by the
policy, occurred on May 31, 1969 or FORTY-FIVE (45) DAYS after the insurance
coverage was applied for. There was sufficient time for the private respondent to
process the application and to notice that the applicant was over 60 years of age
and thereby cancel the policy on that ground if it was minded to do so. If the private
respondent failed to act, it is either because it was willing to waive such
disqualification; or, through the negligence or incompetence of its employees for
which it has only itself to blame, it simply overlooked such fact. Under the
circumstances, the insurance corporation is already deemed in estoppel. It inaction
to revoke the policy despite a departure from the exclusionary condition contained in
the said policy constituted a waiver of such condition, as was held in the case of
"Que Chee Gan v. Law Union Insurance Co., Ltd.,", 98 Phil, 85. This case involved a
claim on an insurance policy which contained a provision as to the installation of fire
hydrants the number of which depended on the height of the external wall perimeter
of the bodega that was insured. When it was determined that the bodega should
have eleven (11) fire hydrants in the compound as required by the terms of the
policy, instead of only two (2) that it had, the claim under the policy was resisted on
that ground. In ruling that the said deviation from the terms of the policy did not
prevent the claim under the same, this Court stated the following: jgc:chanrobles.com.ph

"We are in agreement with the trial Court that the appellant is barred by waiver (or
rather estoppel) to claim violation of the so-called fire hydrants warranty, for the
reason that knowing fully all that the number of hydrants demanded therein never
existed from the very beginning, the appellant nevertheless issued the policies in
question subject to such warranty, and received the corresponding premiums. It
would be perilously close to conniving at fraud upon the insured to allow appellant to
claim now as void ab initio the policies that it had issued to the plaintiff without
warning of their fatal defect, of which it was informed, and after it had misled the
defendant into believing that the policies were effective.

The insurance company was aware, even before the policies were issued, that in the
premises insured there were only two fire hydrants installed by Que Chee Gan and
two others nearby, owned by the municipality of Tabaco, contrary to the
requirements of the warranty in question. Such fact appears from positive testimony
for the insured that appellant’s agents inspected the premises; and the simple
denials of appellant’s representative (Jamiczon) can not overcome that proof. That
such Inspection was made it moreover rendered probable by its being a prerequisite
for the fixing of the discount on the premium to which the insured was entitled,
since the discount depended on the number of hydrants, and the fire fighting
equipment available (See ‘Scale of Allowances’ to which the policies were expressly
made subject). The law, supported by a long line of cases, is expressed by American

24
Jurisprudence (Vol. 29, pp. 611-612) to be as follows: chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

‘It is usually held that where the insurer, at the time of the issuance of a policy of
insurance, has knowledge of existing facts which, if insisted on, would invalidate the
contract from its very inception, such knowledge constitutes a waiver of conditions
in the contract inconsistent with the known facts, and the insurer is stopped
thereafter from asserting the breach of such conditions. The law is charitable enough
to assume, in the absence of any showing to the contrary, that an insurance
company intends to execute a valid contract in return for the premium received; and
when the policy contains a condition which renders it voidable at its inception, and
this result is known to the insurer, it will be presumed to have intended to waive the
conditions and to execute a binding contract, rather than to have deceived the
insured into thinking he is insured when in fact he is not, and to have taken his
money without consideration.’ (29 Am. Jur., Insurance, section 807, at pp. 611-
612.)

The reason for the rule is not difficult to find.

‘The plain, human justice of this doctrine is perfectly apparent. To allow a company
to accept one’s money for a policy of insurance which it then knows to be void and
of no effect, though it knows as it must, that the assured believes it to valid and
binding, is so contrary to the dictates of honesty and fair dealing, and so closely
related to positive fraud, as to be abhorrent to fairminded men. It would be to allow
the company to treat the policy as valid long enough to get the premium on it, and
leave it at liberty to repudiate it the next moment. This cannot be deemed to be the
real intention of the parties. To hold that a literal construction of the policy
expressed the true intention of the company would be to indict it, for fraudulent
poses and designs which we cannot believe it to be guilty of.’ (Wilson v. Commercial
Union Assurance Co., 96 Atl. 540, 543-544)." cralaw virtua1aw library

A similar view was upheld in the case of Capital Insurance & Surety Co., Inc. v.
Plastic Era Co., Inc., 65 SCRA 134, which involved a violation of the provision of the
policy requiring the payment of premiums before the insurance shall become
effective. The company issued the policy upon the execution of a promissory note
for the payment of the premium. A check given subsequent by the insured as partial
payment of the premium was dishonored for lack of funds. Despite such deviation
from the terms of the policy, the insurer was held liable.

"Significantly, in the case before Us the Capital Insurance accepted the promise of
Plastic Era to pay the insurance premium within thirty (30) days from the effective
date of policy. By so doing, it has impliedly agreed to modify the tenor of the
insurance policy and in effect, waived the provision therein that it would only pay for
the loss or damage in case the same occurs after the payment of the premium.
Considering that the insurance policy is silent as to the mode of payment, Capital
Insurance is deemed to have accepted the promissory note in payment of the
premium. This rendered the policy immediately operative on the date it was
delivered. The view taken in most cases in the United States: jgc:chanrobles.com.ph

25
"‘. . . is that although one of conditions of an insurance policy is that ‘it shall not be
valid or binding until the first premium is paid’, if it is silent as to the mode of
payment, promissory notes received by the company must be deemed to have been
accepted in payment of the premium. In other words, a requirement for the
payment of the first or initial premium in advance or actual cash may be waived by
acceptance of a promissory note. . . .’"

26
Insular Life v Feliciano, GR L-47593, 29 December 1943

Facts:

Evaristo Feliciano, who died on September 29, 1935, was suffering with advanced pulmonary
tuberculosis when he signed his applications for insurance with the petitioner on October 12,
1934. On that same date Doctor Trepp, who had taken X-ray pictures of his lungs, informed the
respondent Dr. Serafin D. Feliciano, brother of Evaristo, that the latter "was already in a very
serious ad practically hopeless condition." Nevertheless the question contained in the application
— "Have you ever suffered from any ailment or disease of the lungs, pleurisy, pneumonia or
asthma?" — appears to have been answered , "No" And above the signature of the applicant,
following the answers to the various questions propounded to him, is the following printed
statement: 1awphil.net

I declare on behalf of myself and of any person who shall have or claim any interest in
any policy issued hereunder, that each of the above answers is full, complete and true,
and that to the best of my knowledge and belief I am a proper subject for life insurance.
(Exhibit K.)

The false answer above referred to, as well as the others, was written by the Company's
soliciting agent Romulo M. David, in collusion with the medical examiner Dr. Gregorio Valdez, for
the purpose of securing the Company's approval of the application so that the policy to be issued
thereon might be credited to said agent in connection with the inter-provincial contest which the
Company was then holding among its soliciting agents to boost the sales of its policies. Agent
David bribed Medical Examiner Valdez with money which the former borrowed from the
applicant's mother by way of advanced payment on the premium, according to the finding of the
Court of Appeals. Said court also found that before the insured signed the application he, as well
as the members of his family, told the agent and the medical examiner that he had been sick and
coughing for some time and that he had gone three times to the Santol Sanatorium and had X-
ray pictures of his lungs taken; but that in spite of such information the agent and the medical
examiner told them that the applicant was a fit subject for insurance.

Each of the policies sued upon contains the following stipulations:

This policy and the application herefor constitute the entire contract between the parties
hereto. . . . Only the President, or the Manager, acting jointly with the Secretary or
Assistant Secretary (and then only in writing signed by them) have power in behalf of the
Company to issue permits, or to modify this or any contract, or to extend the same time
for making any premium payment, and the Company shall not be bound by any promise
or representation heretofore or hereafter given by any person other than the above-
named officials, and by them only in writing and signed conjointly as stated.

The petitioner insists that upon the facts of the case the policies in question are null and void ab
initio and that all that the respondents are entitled to is the refund of the premiums paid thereon.
After a careful re-examination of the facts and the law, we are persuaded that petitioner's
contention is correct. To the reasons adduced in the dissenting opinion heretofore published, we
only desire to add the following considerations:

27
Ruling:

When Evaristo Feliciano, the applicant for insurance, signed the application in blank and
authorized the soliciting agent and/or medical examiner of the Company to write the answers for
him, he made them his own agents for that purpose, and he was responsible for their acts in that
connection. If they falsified the answers for him, he could not evade the responsibility for he
falsification. He was not supposed to sign the application in blank. He knew that the answers to
the questions therein contained would be "the basis of the policy," and for that every reason he
was required with his signature to vouch for truth thereof.

Moreover, from the facts of the case we cannot escape the conclusion that the insured acted in
connivance with the soliciting agent and the medical examiner of the Company in accepting the
policies in question. Above the signature of the applicant is the printed statement or
representation: " . . . I am a proper subject for life insurance." In another sheet of the same
application and above another signature of the applicant was also printed this statement: "That
the said policy shall not take effect until he first premium has been paid and the policy as been
delivered to and accepted by me, while I am in good health." When the applicant signed the
application he was "having difficulty in breathing, . . . with a very high fever." He had gone three
times to the Santol Sanatorium and had X-ray pictures taken of his lungs. He therefore knew that
he was not "a proper subject for life insurance." When he accepted the policy, he knew that he
was not in good health. Nevertheless, he not only accepted the first policy of P20,000 but then
and there applied for and later accepted another policy of P5,000.

We cannot bring ourselves to believe that the insured did not take the trouble to read the
answers contained in the photostatic copy of the application attached to and made a part of the
policy before he accepted it and paid the premium thereon. He must have notice that the
answers to the questions therein asked concerning his clinical history were false, and yet he
accepted the first policy and applied for another. In any event, he obligated himself to read the
policy when he subscribed to this statement: "My acceptance of any policy issued on this
application will constitute a ratification by me of any corrections in or additions to this application
made by the Company . . ." By accepting the policy he became charged with knowledge of its
contents, whether he actually read it or not. He could not ostrich-like hide his head from it in
order to avoid his part of the bargain and at the same time claim the benefit thereof. He knew, or
was chargeable with knowledge, from the very terms of the two policies sued upon (one of which
is printed in English and the other in Spanish) that the soliciting agent and the medical examiner
had no power to bind the Company by any verbal promise or oral representation. The insured,
therefore, had no right to rely — and we cannot believe he relied in good faith — upon the oral
representation. The insured, therefore, had no right to rely — and we cannot believe he relied in
good faith — upon the oral representation of said agent and medical examiner that he (the
applicant) was a fit subject for insurance notwithstanding that he had been and was still suffering
with advanced pulmonary tuberculosis.

From all the facts and circumstances of this case, we are constrained to conclude that the
insured was a coparticipant, and coresponsible with Agent David and Medical Examiner Valdez,
in the fraudulent procurement of the policies in question and that by reason thereof said policies
are void ab initio.

28
Tan Chay Heng v West Coast Life, GR L-27541, 21 Nov. 1927

Facts:

Plaintiff alleges that he is of age and a resident of Bacolod, Occidental Negros; that the
defendant is a foreign insurance corporation duly organized by the laws of the Philippines to
engage in the insurance business, its main office of which is in the City of Manila; that in the
month of April, 1925, on his application the defendant accepted and approved a life insurance
policy of for the sum of P10,000 in which the plaintiff was the sole beneficiary; that the policy was
issued upon the payment by the said Tan Ceang of the first year's premium amounting to P936;
that in and by its terms, the defendant agreed to pay the plaintiff as beneficiary the amount of the
policy upon the receipt of the proofs of the death of the insured while the policy was in force; that
without any premium being due or unpaid, Tan Ceang died on May 10, 1925; that in June, 1925,
plaintiff submitted the proofs of the death of Tan Ceang with a claim for the payment of the policy
which the defendant refused to pay, for which he prays for a corresponding judgment, with legal
interest from the date of the policy, and costs.

In February, 1926, the defendant filed an answer to the complaint in which it made a general and
specific denial, and then announced its intention to file an amended answer, alleging special
defense, and on August 31, 1926, it filed the following:

SPECIAL DEFENSE

By way of special defense, defendant alleges:

That the insurance policy on the life of Tan Ceang, upon which plaintiff's action is based,
was obtained by the plaintiff in confabulation with one Go Chulian, of Bacolod, Negros
Occidental; Francisco Sanchez of the same place; and Dr. V. S. Locsin, of La Carlota,
Negros Occidental, thru fraud and deceit perpetrated against this defendant in the
following manner, to wit:

1. That on or about the 22d day of February, 1925, in the municipality of Pulupandan,
Occidental Negros, the present plaintiff and the said Go Chulian, Francisco Sanchez and
Dr., V. S. Locsin, conspiring and confederating together for the purpose of defrauding
and cheating the defendant in the sum of P10,000, caused one Tan Caeng to sign an
application for insurance with the defendant in the sum of P10,000, in which application it
was falsely represented to the defendant that the said Tan Ceang was single and was a
merchant, and that the plaintiff Tan Chai Heng, the beneficiary, was his nephew, whereas
in truth and in fact and as the plaintiff and his said coconspirators well knew, the said Tan
Ceang was not single but was legally married to Marcelina Patalita with whom he had
several children; and that he was not a merchant but was a mere employee of another
Chinaman by the name of Tan Quina from whom he received only a meager salary, and
that the present plaintiff was not a nephew of the said Tan Ceang.

2. That on said date, February 22, 1925, the said Tan Ceang was seriously ill, suffering
from pulmonary tuberculosis of about three years' duration, which illness was incurable
and was well known to the plaintiff and his said coconspirators.

3. That on or about the same date, February 22, 1925, the said Dr. V. S. Locsin, in his
capacity as medical examiner for the defendant insurance company, pursuant to the
conspiracy above mentioned, prepared and falsified the necessary medical certificate, in

29
which it was made to appear, among other things, that the said Tan Ceang had never
used morphine, cocaine or any other drug; that he was then in good health and had
never consulted any physician; that he had never spit blood; and that there was no sign
of either present or past disease of his lungs; whereas in truth and in fact, as the plaintiff
and his said coconspirators well knew, the said Tan Ceang was addicted to morphine,
cocaine, and opium and had been convicted and imprisoned therefor, and was then, and
for about three year prior thereto had been suffering from pulmonary tuberculosis.

4. That on or about the same date, to wit, February 22, 1925, the plaintiff and his said
coconspirators, pursuant to the conspiracy above mentioned, cause a confidential report
to the defendant insurance company to be signed by one V. Sy Yock Kian, who was an
employee of Go Chulian, in which confidential report, among other things, it was falsely
represented to the defendant insurance company that the said Tan Ceang was worth
about P40,000, had an annual income of from eight to ten thousand pesos net, had the
appearance of good health, and never had tuberculosis; that the plaintiff and his said
coconspirators well knew that said representations were false; and that they were made
for the purpose of deceiving the defendant and inducing it to accept the said application
for insurance.

5. That after the said application for insurance, medical certificate and confidential report
had been prepared and falsified, as aforesaid, the plaintiff and his said coconspirators
caused the same to be forwarded to the defendant at its office in Manila, the medical
certificate thru the said Dr. V. S. Locsin as medical examiner, and said application for
insurance and confidential report thru the said Francisco Sanchez in his capacity as one
of the agents of the defendant insurance company in the Province of Occidental Negros;
that the defendant, believing that the representations made in said document were true,
and relying thereon, provisionally accepted the said application for insurance on the life
of Tan Ceang in the sum of P10,000 and issued a temporary policy pending the final
approval or disapproval of said application by defendant's home-office in San Francisco,
California, where in case of approval a permanent policy was to be issued; that such
permanent policy was never delivered to the plaintiff because defendant discovered the
fraud before its delivery.

6. That the first agreed annual premium on the insurance in question of P936.50 not
having been paid within sixty (60) days after the date of the supposed medical
examination of the applicant as required by the regulations of the defendant insurance
company, of which regulations the said Francisco Sanchez as agent of the defendant
had knowledge, the plaintiff and his said coconspirators in order to secure the delivery to
them of said temporary policy, and in accordance with said regulations of the defendant
company, caused the said Tan Ceang on April 10, 1925 to sign the following document:  lawphil.net

30
Ruling:
In the instant case, it will be noted that even in its prayer, the defendant does not seek to have
the alleged insurance contract rescinded. It denies that it ever made any contract of insurance on
the life of Tan Ceang or that any such a contract ever existed, and that is the question which it
seeks to have litigated by its special defense. In the very nature of things, if the defendant never
made or entered into the contract in question, there is no contract to rescind, and, hence, section
47 upon which the lower based its decision in sustaining the demurrer does not apply. As stated,
an action to rescind a contract is founded upon and presupposes the existence of the contract
which is sought to be rescinded. If all of the material matters set forth and alleged in the
defendant's special plea are true, there was no valid contract of insurance, for the simple reason
that the minds of the parties never met and never agreed upon the terms and conditions of the
contract. We are clearly of the opinion that, if such matters are known to exist by a
preponderance of the evidence, they would constitute a valid defense to plaintiff's cause of
action. Upon the question as to whether or not they or are not true, we do not at this time have or
express any opinion, but we are clear that section 47 does not apply to the allegations made in
the answer, and that the trial court erred in sustaining the demurrer.

31
Tan v Court of Appeals, GR 48049, 29 June 1989

Facts:

"Petitioners appeal from the Decision of the Insurance Commissioner dismissing

herein petitioners’ complaint against respondent Philippine American Life Insurance
Company for the recovery of the proceeds of Policy No. 1082467 in the amount of
P80,000.00.

"On September 23, 1973, Tan Lee Siong, father of herein petitioners, applied for life
insurance in the amount of P80,000.00 with respondent company. Said application
was approved and Policy No. 1082467 was issued effective November 6, 1973, with
petitioners the beneficiaries thereof (Exhibit A).

"On April 26, 1975, Tan Lee Siong died of hepatoma (Exhibit B). Petitioners then
filed with respondent company their claim for the proceeds of the life insurance
policy. However, in a letter dated September 11, 1975, respondent company denied
petitioners’ claim and rescinded the policy by reason of the alleged
misrepresentation and concealment of material facts made by the deceased Tan Lee
Siong in his application for insurance (Exhibit 3). The premiums paid on the policy
were thereupon refunded.

"Alleging that respondent company’s refusal to pay them the proceeds of the policy
was unjustified and unreasonable, petitioners filed on November 27, 1975, a
complaint against the former with the Office of the Insurance Commissioner,
docketed as I.C. Case No. 218.

"After hearing the evidence of both parties, the Insurance Commissioner rendered
judgment on August 3, 1977, dismissing petitioners’ complaint." (Rollo, pp. 91-92)

The Court of Appeals dismissed the petitioners’ appeal from the Insurance
Commissioner’s decision for lack of merit.

Issue:

The petitioners raise the following issues in their assignment of errors, to wit: chanrob1es virtual 1aw library

A. The conclusion in law of respondent Court that respondent insurer has the right to
rescind the policy contract when insured is already dead is not in accordance with
existing law and applicable jurisprudence.

B. The conclusion in law of respondent Court that respondent insurer may be

allowed to avoid the policy on grounds of concealment by the deceased assured, is
contrary to the provisions of the policy contract itself, as well as, of applicable legal
provisions and established jurisprudence.

32
Ruling:

The contention is without merit.

The pertinent section in the Insurance Code provides: jgc:chanrobles.com.ph

"Section 48. Whenever a right to rescind a contract of insurance is given to the

insurer by any provision of this chapter, such right must be exercised previous to
the commencement of an action on the contract.

"After a policy of life insurance made payable on the death of the insured shall have
been in force during the lifetime of the insured for a period of two years from the
date of its issue or of its last reinstatement, the insurer cannot prove that the policy
is void ab initio or is rescindible by reason of the fraudulent concealment or
misrepresentation of the insured or his agent." cralaw virtua1aw library

According to the petitioners, the Insurance Law was amended and the second
paragraph of Section 48 added to prevent the insurance company from exercising a
right to rescind after the death of the insured.

The so-called "incontestability clause" precludes the insurer from raising the
defenses of false representations or concealment of material facts insofar as health
and previous diseases are concerned if the insurance has been in force for at least
two years during the insured’s lifetime. The phrase "during the lifetime" found in
Section 48 simply means that the policy is no longer considered in force after the
insured has died. The key phrase in the second paragraph of Section 48 is "for a
period of two years."crala

The legislative answer to the arguments posed by the petitioners is the

"incontestability clause" added by the second paragraph of Section 48.

The insurer has two years from the date of issuance of the insurance contract or of
its last reinstatement within which to contest the policy, whether or not, the insured
still lives within such period. After two years, the defenses of concealment or
misrepresentation, no matter how patent or well founded, no longer lie. Congress
felt this was a sufficient answer to the various tactics employed by insurance
companies to avoid liability. The petitioners’ interpretation would give rise to the
incongruous situation where the beneficiaries of an insured who dies right after
taking out and paying for a life insurance policy, would be allowed to collect on the
policy even if the insured fraudulently concealed material facts. cralawnad

The petitioners argue that no evidence was presented to show that the medical
terms were explained in a layman’s language to the insured. They state that the
insurer should have presented its two medical field examiners as witnesses.
Moreover, the petitioners allege that the policy intends that the medical examination
must be conducted before its issuance otherwise the insurer "waives whatever
imperfection by ratification."
cralaw virtua1aw library

We agree with the Court of Appeals which ruled: jgc:chanrobles.com.ph

33
"On the other hand, petitioners argue that no evidence was presented by respondent
company to show that the questions appearing in Part II of the application for
insurance were asked, explained to and understood by the deceased so as to prove
concealment on his part. The same is not well taken. The deceased, by affixing his
signature on the application form, affirmed the correctness of all the entries and
answers appearing therein. It is but to be expected that he, a businessman, would
not have affixed his signature on the application form unless he clearly understood
its significance. For, the presumption is that a person intends the ordinary
consequence of his voluntary act and takes ordinary care of his concerns. [Sec. 5(c)
and (d), Rule 131, Rules of Court].

"The evidence for respondent company shows that on September 19, 1972, the
deceased was examined by Dr. Victoriano Lim and was found to be diabetic and
hypertensive; that by January, 1973, the deceased was complaining of progressive
weight loss and abdominal pain and was diagnosed to be suffering from hepatoma,
(t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another physician, Dr. Wenceslao
Vitug, testified that the deceased came to see him on December 14, 1973 for
consultation and claimed to have been diabetic for five years. (t.s.n., Aug. 23, 1976,
p. 5; Exhibit 6) Because of the concealment made by the deceased of his
consultations and treatments for hypertension, diabetes and liver disorders,
respondent company was thus misled into accepting the risk and approving his
application as medically standard (Exhibit 5-C) and dispensing with further medical
investigation and examination (Exhibit 5-A). For as long as no adverse medical
history is revealed in the application form, and applicant for insurance is presumed
to be healthy and physically fit and no further medical investigation or examination
is conducted by respondent company. (t.s.n., April 8, 1976, pp. 6-8)." (Rollo, pp.
96-98)

There is no strong showing that we should apply the "fine print" or "contract of
adhesion" rule in this case. (Sweet Lines, Inc. v. Teves, 83 SCRA 361 [1978]). The
petitioners cite:
chanrobles virtual lawlibrary

"It is a matter of common knowledge that large amounts of money are collected
from ignorant persons by companies and associations which adopt high sounding
titles and print the amount of benefits they agree to pay in large black-faced type,
following such undertakings by fine print conditions which destroy the substance of
the promise. All provisions, conditions, or exceptions which in any way tend to work
a forfeiture of the policy should be construed most strongly against those for whose
benefit they are inserted, and most favorably toward those against whom they are
meant to operate. (Trinidad v. Orient Protective Assurance Assn., 67 Phil. 184)

34
There is no showing that the questions in the application form for insurance
regarding the insured’s medical history are in smaller print than the rest of the
printed form or that they are designed in such a way as to conceal from the
applicant their importance. If a warning in bold red letters or a boxed warning
similar to that required for cigarette advertisements by the Surgeon General of the
United States is necessary, that is for Congress or the Insurance Commission to
provide as protection against high pressure insurance salesmanship. We are limited
in this petition to ascertaining whether or not the respondent Court of Appeals
committed reversible error. It is the petitioners’ burden to show that the factual
findings of the respondent court are not based on substantial evidence or that its
conclusions are contrary to applicable law and jurisprudence. They have failed to
discharge that burden.

35