13.

MANILA BANKERS LIFE

CRESENCIA P. ABAN (2013)

INSURANCE

CORPORATION

VS.

Facts:

Delia Sotero took out a life insurance policy from Manila Bankers
Life Insurance Corp., designating Cresencia Aban, her niece, as her
beneficiary. Petitioner issued an insurance policy after the requisite
medical examination and payment of the insurance premium.
When the insurance policy had been in force for more than two
years and seven months, Sotero died. Thus, Aban filed a claim for
the insurance proceeds.
However, when the petitioner conducted an investigation, it found
out that Sotero did not personally apply for insurance coverage, as
she was illiterate; that she was sickly since 1990; that she did not
have the financial capability to pay the insurance premiums; that
she did not sign the application for insurance and that the
respondent Aban was the one who filed the insurance application
and designated herself as the beneficiary.
Thus, the respondent denied the claims and refunded the
premiums paid on the policy.
RTC: Petitioner filed a civil case for rescission and/or annulment of
the policy on the ground that the policy was obtained by fraud,
concealment and/or misrepresentation under the insurance code
which thus renders it voidable. However, RTC ruled in favor of
Aban. It found that Sotero has the capacity to take out insurance
contract. It further held that under section 48, petitioner had only 2
years from the effectivity of the policy to question the same; since
the policy had been in force for more than 2 years, petitioner is
now barred from contesting the same or seeking a rescission or
annulment thereof.
CA: It sustained the decision of the RTC. It held that the petitioner
may no longer prove that the subject policy was void ab initio or
rescindable
by
reason
of
fraudulent
concealment
or
misrepresentation after the lapse of more than 2 years from the
issuance.

feasible in the wake of the courts' finding that it was Sotero who obtained
the insurance for herself. This finding of fact binds the Court.
With the above crucial finding of fact - that it was Sotero who obtained the
insurance for herself - petitioner's case is severely weakened, if not totally
disproved. Allegations of fraud, which are predicated on respondent's
alleged posing as Sotero and forgery of her signature in the insurance
application, are at once belied by the trial and appellate courts' finding that
Sotero herself took out the insurance for herself. "[Fraudulent intent on the
part of the insured must be established to entitle the insurer to rescind the
contract" In the absence of proof of such fraudulent intent, no right to
rescind arises.
Section 48 serves a noble purpose, as it regulates the actions of
both the insurer and the insured. Under the provision, an insurer is given
two years - from the effectivity of a life insurance contract and while the
insured is alive - to discover or prove that the policy is void ab initio or is
rescindable by reason of the fraudulent concealment or misrepresentation
of the insured or his agent. After the two-year period lapses, or when the
insured dies within the period, the insurer must make good on the policy,
even though the policy was obtained by fraud, concealment, or
misrepresentation. This is not to say that insurance fraud must be
rewarded, but that insurers who recklessly and indiscriminately solicit and
obtain business must be penalized, for such recklessness and lack of
discrimination ultimately work to the detriment of bona fide takers of
insurance
and
the
public
in
general.
The Court therefore agrees fully with the appellate court's pronouncement
that - [t]he "incontestability clause" is a provision in law that 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 (2) 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 fraudulent
concealment or misrepresentation of the insured or his agent.

Held: No. Petition is Denied.

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 insureds
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."

The Court will not depart from the trial and appellate courts' finding
that it was Sotero who obtained the insurance for herself, designating
respondent as her beneficiary. Both courts are in accord in this respect, and
the Court is loath to disturb this. While petitioner insists that its
independent investigation on the claim reveals that it was respondent,
posing as Sotero, who obtained the insurance, this claim is no longer

As borne by the records, the policy was issued on August 30. 1993, the
insured died on April 10, 1996, and the claim was denied on April 16, 1997.
The insurance policy was thus in force for a period of 3 years, 7 months,
and 24 days. Considering that the insured died after the two-year period,
the plaintiff-appellant is, therefore, barred from proving that the policy is
void ab initio by reason of the insured fraudulent concealment or

Issue:
WON the CA erred in sustaining the application of the incontestability
provision in the insurance code by the RTC.

misrepresentation or want of insurable interest on the part of the

beneficiary,
herein
defendant-appellee.
Well-settled is the rule that it is the plaintiff-appellant's burden to show
that the factual findings of the trial court are not based on substantial
evidence or that its conclusions are contrary to applicable law and
jurisprudence. The plaintiff-appellant failed to discharge that burden.

14. ALPHA INSURANCE AND SURETY CO. VS. ARSENIA SONIA

CASTOR (2013)
Facts:

Respondent entered into a contract of insurance for his motor

vehicle (Toyota revo) with the petitioner wherein said contract
obligates the petitioner to pay the respondent the amount of
P630K in case of loss or damage to said vehicle during the period
covered (Feb 26, 2007 Feb. 26, 2008).
In 2007, the respondent instructed his driver to bring the subject
vehicle to a nearby auto-shop for a tune up. However, the driver no
longer returned the vehicle to respondent and despite diligent
efforts to locate the same, said efforts proved futile.
The respondent immediately reported the same to the police and
notified the petitioner of the said loss. It also demanded to the
petitioner the payment of the insurance proceeds.
The petitioner denied the insurance claim on the ground that the
culprit who stole the vehicle was employed by the respondent and
that under the exceptions in the policy, the Company shall not be
liable for any malicious damage caused by the insured, any
member of his family or by person in the insureds service.
RTC: respondent filed a complaint for sum of money with damages
against the petitioner. The RTC ruled in favor of the respondent .
CA: affirmed the decision of the RTC.

Issue: WON the loss of respondents vehicle is excluded under the

insurance policy.
Held: No. The petition for Review on Certiorari is Denied.
Ruling in favor of respondent, the RTC of Quezon City scrupulously
elaborated that theft perpetrated by the driver of the insured is not an
exception to the coverage from the insurance policy, since Section III
thereof did not qualify as to who would commit the theft. Thus:

Theft perpetrated by a driver of the insured is not an exception to

the coverage from the insurance policy subject of this case. This is evident
from the very provision of Section III "Loss or Damage." The insurance
company, subject to the limits of liability, is obligated to indemnify the
insured against theft. Said provision does not qualify as to who would
commit the theft. Thus, even if the same is committed by the driver of the
insured, there being no categorical declaration of exception, the same
must be covered. As correctly pointed out by the plaintiff, "(A)n insurance
contract should be interpreted as to carry out the purpose for which the
parties entered into the contract which is to insure against risks of loss or
damage to the goods. Such interpretation should result from the natural
and reasonable meaning of language in the policy. Where restrictive
provisions are open to two interpretations, that which is most favorable to
the insured is adopted." The defendant would argue that if the person
employed by the insured would commit the theft and the insurer would be
held liable, then this would result to an absurd situation where the insurer
would also be held liable if the insured would commit the theft. This
argument is certainly flawed. Of course, if the theft would be committed by
the insured himself, the same would be an exception to the coverage since
in that case there would be fraud on the part of the insured or breach of
material warranty under Section 69 of the Insurance Code
Adverse to petitioners claim, the words "loss" and "damage" mean
different things in common ordinary usage. The word "loss" refers to the
act or fact of losing, or failure to keep possession, while the word "damage"
means deterioration or injury to property. Therefore, petitioner cannot
exclude the loss of respondents vehicle under the insurance policy under
paragraph 4 of "Exceptions to Section III," since the same refers only to
"malicious damage," or more specifically, "injury" to the motor vehicle
caused by a person under the insureds service. Paragraph 4 clearly does
not contemplate "loss of property," as what happened in the instant case.
Lastly, a contract of insurance is a contract of adhesion. So, when
the terms of the insurance contract contain limitations on liability, courts
should construe them in such a way as to preclude the insurer from noncompliance with his obligation. Thus, in Eternal Gardens Memorial Park
Corporation v. Philippine American Life Insurance Company, this Court
ruled It must be remembered that an insurance contract is a contract of
adhesion which must be construed liberally in favor of the insured and
strictly against the insurer in order to safeguard the latters interest.

15. Ma. Lourdes S. Florendo vs. Philam Plans, Inc., Perla Abcede,
and Ma. Celeste Abcede (2012)

Issue:
1. WON Manuel is guilty of concealing his illness when he kept blank and
did not answer questions in his pension plan application regarding the
ailments he suffered from.
2. WON Manuel was bound by the failure of Perla and Celeste to declare
the condition of Manuels health in the pension plan application.

Facts:

However, Philam Life denied the claim of Lourdes. It found out that
Manuel was on maintenance medicine for his heart and had an
implanted pacemaker. He also suffered from diabetes mellitus and
was taking insulin. Lourdes renewed her demand for payment
under the plan, but Philam Plans rejected it.
RTC: Lourdes filed an action against the pension plan company. RTC
rendered judgment ordering Philam Plans, Perla and Celeste,
solidarily, to pay Lourdes all the benefits from her husbands
pension plan. RTC ruled that Manuel was not guilty of concealing
the state of his health from his pension plan application.
CA: reversed the RTC. It held that insurance policies are
traditionally contracts uberrimae fidae or contracts of utmost good
faith. As such, it required Manuel to disclose to Philam Plans
conditions affecting the risk of which he was aware or material
facts that he knew or ought to know.

Manuel Florendo filed an application for comprehensive pension

plan with respondent Philam Plans after some convincing by
respondent Perla Abcede. The plan had a pre-need price of
P997,050.00 payable in 10 years and had a maturity value of
P2,890,000.00 after 20 years. Manuel signed the application and
left Perla the task of supplying the information needed in the
application. Respondent Ma. Celeste Abcede, Perlas daughter,
signed the application as sales counselor.
A life insurance was also included in the pension plan wherein
Philam Life was to automatically provide life insurance coverage,
including accidental death, to all who signed up for Philam Plans
comprehensive pension plan. If the plan holder died before the
maturity of the plan, the beneficiary was to instead receive the
proceeds of the life insurance, equivalent to the pre-need price.
Further, the life insurance was to take care of any unpaid premium
until the pension plan matured, entitling the beneficiary to the
maturity value of the pension plan.
Thus, Philam Plans issued Pension Plan Agreement to Manuel with
petitioner, Ma. Lourdes Florendo, his wife, as beneficiary. Manuel
paid his quarterly premiums.
Manuel died of blood poisoning. Thus, Lourder filed a claim with
Philam Plans for the payment of the benefits. Because Manuel died
before his pension plan matured and his wife was to get only the
benefits of his life insurance, Philam Plans forwarder her claim to
Philam Life.

3. WON Philam Plans approval of Manuels pension plan application and

acceptance of his premium payments precluded it from denying Lourdes
claim.
Held: SC affirms in its entirety the decision of the CA.
1. YES. Philam Life waived the medical examination for Manuel. Thus, it
had to rely largely on his stating the truth regarding his health in his
applications. For, after all, he knew more than anyone that he had been
under the treatment for heart condition and diabetes for more than 5 years
preceding his submission of that application. But he kept those crucial facts
from Philam Plans.
2. YES. Manuel, in signing the pension plan application, he certified that he
wrote all the information stated in it or had someone do it under his
direction. Assuming that it was Perla who filled up the application form,
Manuel is still bound by what it contains since he certified that he
authorized her action. Philam Plans had every right to act on the faith of
that certification.
3. NO. The comprehensive pension plan that Philam Plans issued contains a
one-year incontestability period.
VIII. INCONTESTABILITY- After this Agreement has remained in force for one
(1) year, we can no longer contest for health reasons any claim for insurance
under this Agreement, except for the reason that installment has not been paid (lapsed),

or that you are not insurable at the time you bought this pension program by reason of
age. If this Agreement lapses but is reinstated afterwards, the one (1) year contestability
period shall start again on the date of approval of your request for reinstatement.
The above incontestability clause precludes the insurer from disowning liability under
the policy it issued on the ground of concealment or misrepresentation regarding the
health of the insured after a year of its issuance. Since

Manuel died on the eleventh month following the issuance of his plan; the one
year incontestability period has not yet set in. Consequently, Philam Plans was not barred
from questioning Lourdes entitlement to the benefits of her husbands
pension plan.

Amorin received the amount of P12,151. 36 under protest but

asked for its adjustment to cover the total amount of professional
fees which he had paid and 80% of the approved standard charges
based on American Standard, considering that the emergency
procedure occurred in the USA.
However, Fortune Care denied Amorins request.
RTC: He filed a complaint for breach of contract with damages.
Fortune Care argued that the Health Care did not cover
hospitalization costs and professional fees incurred in foreign
countries and its liability to Amorin was extinguished when the
latter accepted from the company the said amount earlier. RTC
ruled in favor of the petitioner on the ground that it took the
contract as a whole and it was convinced that the parties intended
to use the Philippine standard as basis.
CA: reversed and set aside the decision of the RTC. It held that the
health care agreements such as the subject Health Care Contract,
being like insurance contracts, must be liberally construed in favor
of the subscriber and that there was nothing under Article V of the
Health Care Contract which provided that the Philippine Standard
should be used even in the event of an emergency confinement in
a foreign territory.

Issue:
1. WON a member of a health care provider can recover to the extent
agreed in the contract.
2. WON ambiguities should be taken in favor of the member.
Held: Petition is Denied.

16. FORTUNE MEDICARE, INC. VS. DAVID ROBERT U. AMORIN

(2014)
Facts:

David Robert U. Amorin was a cardholder/member of Fortune

Medicare, Inc., a corporation engaged in providing health
maintenance services to its members. The terms of Amorins
medical coverage were provided in a Corporate Health Program
Contract, which was executed, by Fortune Care and the House of
Representatives, where Amorin was a permanent employee.
While on vacation on Hawaii, Amorin underwent an emergency
surgery, specifically appendectomy causing him to incur
professional and hospitalization expenses. He attempted to recover
from Fortune Care the full amount thereof upon his return to
Manila, but the company merely approved the reimbursement as
the amount based on the average cost of appendectomy, net of
medicare deduction, if the procedure were performed in an
accredited hospital in Metro Manila.

1. YES. The Court finds no cogent reason to disturb the CAs finding that
Fortune Cares liability to Amorin under the subject Health Care Contract
should be based on the expenses for hospital and professional fees which
he actually incurred, and should not be limited by the amount that he
would have incurred had his emergency treatment been performed in an
accredited hospital in the Philippines. SC emphasize that for purposes of
determining the liability of a health care provider to its members,
jurisprudence holds that a health care agreement is in the nature of nonlife insurance, which is primarily a contract of indemnity. Once the member
incurs hospital, medical or any other expense arising from sickness, injury
or other stipulated contingent, the health care provider must pay for the
same to the extent agreed upon under the contract.
2. YES. As the CA however held, this must be interpreted in its literal sense,
guided by the rule that any ambiguity shall be strictly construed against
Fortune Care, and liberally in favor of Amorin. The SC agrees with the CA.
As may be gleaned from the Health Care Contract, the parties thereto
contemplated the possibility of emergency care in a foreign country. As the
contract recognized Fortune Cares liability for emergency treatments even

in foreign territories, it expressly limited its liability only insofar as the

percentage of hospitalization and professional fees that must be paid or
reimbursed was concerned, pegged at a mere 80% of the approved
standard charges.
The word "standard" as used in the cited stipulation was vague and
ambiguous, as it could be susceptible of different meanings. Plainly, the
term "standard charges" could be read as referring to the "hospitalization
costs and professional fees" which were specifically cited as compensable
even when incurred in a foreign country. Contrary to Fortune Cares
argument, from nowhere in the Health Care Contract could it be reasonably
deduced that these "standard charges" referred to the "Philippine
standard", or that cost which would have been incurred if the medical
services were performed in an accredited hospital situated in the
Philippines.
All told, in the absence of any qualifying word that clearly limited Fortune
Care's liability to costs that are applicable in the Philippines, the amount
payable by Fortune Care should not be limited to the cost of treatment in
the Philippines, as to do so would result in the clear disadvantage of its
member.
Settled is the rule that ambiguities in a contract are interpreted against the
party that caused the ambiguity. "Any ambiguity in a contract whose terms
are susceptible of different interpretations must be read against the party
who drafted it.

in case of accidental death. The designated beneficiary was his

mother, respondent Bernarda Bacani.
Roberto died in a plane crash. Thus, Bernarda 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. Sunlife discovered that Bacani was
examined and confined in the hospital where he was diagnosed for
renal failure. During his confinement, he was subjected to
urinalysis, ultrasonography and hematology tests. He did not
reveal such fact in his application.
Petitioner informed Bernarda 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
premiums paid was returned.
RTC: Respondents filed an action for specific performance against
the petitioner. RTC ruled in favor of the respondents wherein it held
that the facts concealed by the insured were made in good faith
and under a belief that they need not be disclosed. Moreover, it
held that the health history of the insured was immaterial since the
insurance policy was non-medical.
CA: It affirmed the decision of the RTC. It held that the petitioner
couldnt avoid its obligation by claiming concealment because the
cause of the death was unrelated to the facts concealed by the
insured.

Issues: WON the beneficiary can claim despite the concealment.

Held: NO. Petition is Granted. The Decision of the CA is reversed
and set aside.
Section 26 of the IC 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 mean of ascertaining.
Section 31 of the Insurance Code provides that 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.

17. SUNLIFE ASSURANCE COMPANY OF CANADA vs. CA, SPS.

ROLANDO AND BERNARDA BACANI (1995)
Facts:

Roberto John Bacani procured a life insurance contract for himself

from the petitioner. He was issued a policy with double indemnity

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 the 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. Thus, "good 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 bona fides. It appears that such concealment was
deliberate on his part.

18.

NG GAN ZEE VS. ASIAN CRUSADER LIFE ASSURANCE CORPORATION

(1983)
Facts:

Kwong Nam applied for a 20-year endowment insurance on his life, with his
wife, appellee Ng Gan Zee as beneficiary. The appellant upon receipt of the
required premium from the insured, approved the application and issued the
corresponding policy. However, Kwong Name died of cancer of the liver with
metastasis. All premiums had been religiously paid at the time of his death.
Ng Gan Zee presented a claim in due form to appellant for payment of the face
value of the policy. However, the appellant denied the claim on the ground that
the answers given by the insured to the questions in his application for life
insurance were untrue.
IC: The commissioner 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. But still, appellant refused to settle the
obligation.
The appellant alleged that the insured was guilty of misrepresentation and that
when the insured was examined in connection with his application for life
insurance, he gave the appellants medical examiner false and misleading
information as to his ailment and previous operation.

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. Asian should have
made an inquiry as to the illness and operation of Kwong when it appeared on the face of
the application that a question appeared to be imperfectly answered. Asians failure to
inquire constituted a waiver of the imperfection in the answer.
19. THELMA VDA. DE CANILANG vs. CA and GREAT PACIFIC LIFE
ASSURANCE CORPORATION (1993)
Facts:

Issue: Was appellant, because of insureds aforesaid representation, misled or deceived

into entering the contract or in accepting the risk at the rate of premium agreed upon?

Held: NO. Section 27 of the Insurance Law 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.

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." 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." 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

Jaime Canilang consulted Dr. Claudio and was diagnosed as

suffering from sinus tachycardia, thus he was prescribed a
tranquilizer and a beta-blocker drug. Mr. Canilang consulted the
same doctor again and this time, it was found that he have acute
bronchitis.
Jaime applied for non-medical insurance policy with the
respondent company and named his wife, the petitioner, as his
beneficiary. Thereafter, Jaime died. Thus, Thelma, a widow and
beneficiary, filed a claim with the respondent company. However, it
was denied on the ground that the insured had concealed material
information from it.
IC: complaint for recovery of insurance proceeds. The
commissioner rendered a decision in favor of the petitioner. It
content that the insurance company that as far as she knows her
husband was not suffering from any disorder and that he died of
kidney disorder.
CA: it reversed and set aside the decision of the IC. It found that
the use of the word intentionally by the commissioner in defining
and resolving the issue agreed upon by the parties at pre-trial
before the IC was not supported by evidence; ; that the issue
agreed upon by the parties had been whether the deceased
insured, Jaime Canilang, made a material concealment as the state
of his health at the time of the filing of insurance application,
justifying respondent's denial of the claim. The CA also found that
the failure of Jaime Canilang to disclose previous medical
consultation and treatment constituted material information which
should have been communicated to Great Pacific to enable the
latter to make proper inquiries.

Issue: WON Jaime Canilang intentionally made material concealment in

stating his state of health.
Held: YES. Petition for Review was Denied for lack of Merit.
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)
SC agree with the CA 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. 15
The materiality of the information withheld by Great Pacific did not depend
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 IC 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.
Sec. 27. A concealment whether intentional or
unintentional entitles the injured party to rescind a contract
of insurance. (Emphasis supplied)
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."
SC 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 CA finding that the parties had not agreed in
the pretrial before the IC 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."
20. EMILIO TAN, JUANITO TAN, ALBERTO TAN AND ARTURO TAN vs.
CA and the PHILIPPINE AMERICAN LIFE INSURANCE COMPANY
(1989)
Facts:

Tan Lee Siong, father of the herein petitioners, applied for life
insurance with respondent company with petitioners as
beneficiaries thereof. Tan Lee Siong died of hepatoma. Petitioners
herein filed with respondent company their claim for the proceeds
of the life insurance policy. However, such was denied and the
respondent rescinded the policy by reason of the alleged
misrepresentation and concealment of material facts made by the
deceased. The premiums paid on the policy were thereupon
refunded.
IC: rendered judgment dismissing the petitioners complaint that
the respondents refusal was unjustified and unreasonable.
CA: dismissed the petitioners appeal from the IC for lack of merit.
Petitioners contended that the respondent company no longer had
the right to rescind the contract of insurance as rescission must be
allegedly be done during the lifetime of the insured within 2 years
and prior to the commencement of the action.

Issue: WON the insurance company has the right to rescind the contract
of insurance despite the presence of an incontestability clause.
Held: YES. Petition is hereby denied for lack of merit.

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 insureds
lifetime. The phrase during the lifetime found in Section 48 of the
Insurance Law 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.
The policy was issued on November 6, 1973 and the insured died
on April 26, 1975. The policy was thus in force for a period of only one year
and five months. Considering that the insured died before the two-year
period has lapsed, respondent company is not, therefore, barred from
proving that the policy is void ab initio by reason of the insureds
fraudulent concealment or misrepresentation. Moreover, respondent
company rescinded the contract of insurance and refunded the premiums
paid on November 11, 1975, previous to the commencement of this action
on November 27, 1975.

warehouses to collect the insurance. However, they were

subsequently acquitted.
Thereafter, the civil suit to collect the insurance money proceeded
to its trial and termination in the Court below. PNBs complaint for
intervention was dismissed because the appellee had managed to
pay his indebtedness to the Bank during the pendency of the suit,
and despite the fire losses.
When the petitioner demanded that the insurance company to pay
the proceeds of the insurance, they averred that the contract is
void because the petitioner failed to install 11 hydrants and that
gasoline was found in one of the warehouses.

Issue:
1. WON the policies should be avoided for the reason that there was a
breach of warranty.
2. WON the insured violated the hemp warranty provision against the
storage of gasoline since insured admitted there were 36 cans of gasoline
in Bodega 2 which was a separate structure and not affected by the fire.
Held:
1. NO. Under the Memorandum of Warranty, there should be no less than 1
hydrant for each 150 feet of external wall measurements of the compound,
and since bodegas insured had an external wall per meter of 1640 feet, the
insured should have 11 hydrants in the compound. But he only had 2.

21. QUA CHEE GAN VS. LAW UNION AND ROCK INSURANCE CO.,
LTD. represented by its agent, WARNER, BARNES AND CO., LTD.,
(1955)
Facts:

Qua Chee Gan, a merchant of Albay, owned 4 warehouses or

bodegas in the municipality of Tabaco, Albay, used for the storage
of stocks of copra and of hemp, baled and loose, in which the
appellee dealth extensively. They have been, with their contents,
insured with the defendant company since 1937 and the lose made
payable to the PNB as mortgage of the hemp and crops, to the
extent of its interest.
In 1940, a fire broke down the 3 Bodegas, which gutted and
completely destroyed, including the merchandise stored therein.
Thus, the petitioner informed the defendant company thru
telegram. The defendant company sent a fire adjusters to
investigate the premises. Thereafter, fire claims was submitted but
the insurance company resisted payment, claiming that violation of
warranties and conditions, filing of fraudulent claims and that the
fire had been deliberately caused by the insured or by other
persons in connivance with him.
The petitioner then, with his brother, was indicted of the crime of
arson, it being claimed that they had set fire to the destroyed

Even so, the insurer is barred by estoppel to claim violation of the fire
hydrants warranty, because knowing that the number of hydrants it
demanded never existed from the very beginning, appellant nevertheless
issued the policies subject to such warranty and received the
corresponding premiums. The insurance company was aware, even before
the policies were issued, that in the premises there were only 2 hydrants
and the Municipality owned 2 others, contrary to the requirements of the
warranties in question.
It should be close to conniving at fraud upon the insured to allow the
insurer to claim now as void the policies it issued to the insured, without
warning him of the fatal defect, of which the insurer was informed, and
after it had misled the insured into believing that the policies were
effective.
According to American Jurisprudence: It is a well-settled rule that the
insurer at the time of the issuance of a policy has the 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 known facts, and the insurer is stopped
thereafter from asserting the breach of such conditions. The reason for the
rule is: To allow a company to accept ones money for a policy of insurance
which it knows to be void and of no effect, though it knows as it must that
the insured believes it to be valid and binding is so contrary to the dictates

of honesty and fair dealing, as so closely related to positive fraud, as to be

abhorrent to fair-minded 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.

Moreover, taking into account the well-known rule that ambiguities or

obscurities must strictly be interpreted against the party that cause them,
the memorandum of warranty invoked by the insurer bars the latter from
questioning the existence of the appliances called for, since its initial
expression the undernoted appliances for the extinction of fire being kept
on the premises insured hereby.. admits of the interpretation as an
admission of the existence of such appliances which insurer cannot now
contradict, should the parole evidence apply.

2. NO. It is well to note that gasoline is not specifically mentioned among

the prohibited articles listed in the so-called hemp warranty. The clause
relied upon by the insurer speaks of oils. Ordinarily, oils mean lubricants
and not gasoline or kerosene. Here again, by reason of the exclusive
control of the insurance company over the terms of the contract, the
ambiguity must be held strictly against the insurer and liberally in favor of
the insured, especially to avoid forfeiture.
Furthermore, the gasoline kept was only incidental to the insureds
business. It is a well settled rule that keeping of inflammable oils in the
premises though prohibited by the policy does NOT void it if such keeping
is incidental to the business. Also, the hemp warranty forbade the storage
only in the building to which the insurance applies, and/or in any building
communicating therewith; and it is undisputed that no gasoline was stored
in the burnt bodegas and that Bodega No. 2, which was where the gasoline
was found, stood isolated from the other bodegas.

22. IGNACIO SATURNINO (Judicial Guardian of Carlos Saturnino) VS. THE

PHILIPPINE AMERICAN LIFE INSURANCE COMPANY (1963)
Facts:

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 applicants health and medical history.
Saturnino died of pneumonia, secondary 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, thus suit was subsequently
instituted.

Two months prior to the issuance of the policy, Saturnino was operated on for
cancer, involving complete removal of the right breast, including pectoral
muscles and the glands found in the right armpit. Notwithstanding the said
operation, Saturnino did not make a disclosure thereof in her application for
insurance.
She stated therein that she did not have, nor had she ever had, among others
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
5 years; and that she has 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.

Issue: WON the insured made such false representations of material facts as to avoid the
policy.
Held: YES. 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 then falsely
represented material?
Section 30 of the Insurance Code provides that "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, in
forming his estimate of the proposed contract, or in making his inquiries." It
seems to be the contention of appellants that the facts subject of the
representation 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 appraised 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 inasmuch 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 this jurisdiction 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"