TANG V.

CA- INSURANCE FRAUD OR MISTAKE

90 SCRA 236
Facts:
> On Sept. 25, 2965, Lee Su Guat, widow, 61 years old and illiterate who spoke only Chinese, applied for life insurance for 60T with Philamlife. The application was in two parts, both in English. > The second part dealt with her state of health. Her answers having shown that she was health, Philamlife issued her a policy effective Oct. 23, 1965 with her nephew Vicente Tang as beneficiary. > On Nov. 15, 1965, Lee again applied for additional insurance of her life for 40T. Since it was only recent from the time she first applied, no further medical exam was made but she accomplished Part 1 (which certified the truthfulness of statements made in Part. 2) > The policy was again approved. On Apri 20 1966, Lee Su Guat died of Lung cancer. > Tang claimed the amount o 100T but Philamlife refused to pay on the ground that the insured was guilty of concealment and misrepresentation. > Both trial court and CA ruled that Lee was guilty of concealment. > Tangs position, however, is that because Lee was illiterate and spoke only Chinese, she could not be held guilty of concealment of her health history because the application for insurance was English, and the insurer has not proven that the terms thereof had been fully explained to her as provided by Art. 1332 of CC.

Issue:
Whether or not Art. 1332 applies.

Held:
NO. Art. 1332 is NOT applicable. Under said article, the obligation to show that the terms of the contract had been fully explained to the party who is unable to read or understand the language of the

contract, when fraud or mistake is alleged, devolves on the party seeking to enforce it. Here, the insurance company is NOT seeking to enforce the contract; on the contrary, it is seeking to avoid its performance.

It is petitioner who is seeking to enforce it, even as fraud or mistake is NOT alleged. Accordingly, Philamlife was under no obligation to prove that the terms of the insurance contract were fully explained to the other party. Even if we were to say that the insurer is the one seeking the performance of the cont contracts by avoiding paying the claim, it has to be noted as above stated that there has been NO imputation of mistake of fraud by the illiterate insured whose personality is represented by her beneficiary. In sum, Art. 1332 is inapplicable, and considering the findings of both the trial court and the CA as to the Concealment of Lee, the SC affirms their decisions.

Concurring: J., Antonio In a contract of insurance, each party must communicate to the other, in good faith, all facts within his knowledge which are material to the contract, and which the other has no means of ascertaining. As a general rule, the failure by the insured to disclose conditions affecting the risk of which he is aware makes the contract voidable at the option of the insurer.

The reason for this rule is that insurance policies are traditionally contracts uberrimae fidei, which means most abundant good faith, absolute and perfect candor or openness and honesty, absence of any concealment or deception however slight. Here the CA found that the insured deliberately concealed material facts about her physical condition and history and/or concealed with whoever assisted her in relaying false information to the medical examiner. Certainly, the petitioner cannot assume inconsistent positions by attempting to enforce the contract of insurance for the purpose of collecting the proceeds of the policy and at the same time nullify the contract by claiming that it was executed through fraud or mistake.

NOTE: Art. 1332: When one of the parties is unable to read or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to him.

Pacific Timber Export Corporation vs. Court of Appeals [GR L-38613, 25 February 1982] First Division, De Castro (J): 6 concur Facts: On 19 March 1963, the Pacific Timber Export Corporation (PTEC) secured temporary insurance fromthe Workmen's Insurance Company Inc. (WICI) for its exportation of 1,250,000 board feet of PhilippineLauan and Apitong logs to be shipped from the Diapitan Bay, Quezon Province to Okinawa and Tokyo, Japan.WICI issued on said date Cover Note 1010, insuring the said cargo of PTEC "Subject to the Terms andConditions of the WORKMEN'S INSURANCE COMPANY, INC. printed Marine Policy form as filed withand approved by the Office of the Insurance Commissioner." The regular marine cargo policies were issuedby WICI in favor of PTEC on 2 April 1963. The two marine policies bore the numbers of 53 HO 1032 and 53HO 1033. Policy 53 HO 1032 was for 542 pieces of logs equivalent to 499,950 board feet. Policy 53 HO 1033was for 853 pieces of logs equivalent to 695, 548 board feet. The total cargo insured under the two marinepolicies accordingly consisted of 1,395 logs, or the equivalent of 1,195,498 bd. ft. After the issuance of CoverNote 1010, but before the issuance of the two marine policies 53 HO 1032 and 53 HO 1033, some of the logsintended to be exported were lost during loading operations in the Diapitan Bay. The logs were to be loadedon the 'SS Woodlock' which docked about 500 meters from the shortline of the Diapitan Bay. The logs weretaken from the log pond of PTEC and from which they were towed in rafts to the vessel. At about 10:00 a.m.on 29 March 1963, while the logs were alongside the vessel, bad weather developed resulting in 75 pieces oflogs which were rafted together to break loose from each other 45 pieces of logs were salvaged, but 30 pieceswere verified to have been lost or washed away as a result of the accident. In a letter dated 4 April 1963,PTEC informed WICI about the loss of approximately 32 pieces of logs during loading of the SS Woodlock.Although dated 4 April 1963, the letter was received in the office of WICI only on 15 April 1963. PTECsubsequently submitted a Claim Statement demanding payment of the loss under Policies 53 HO 1033, and 53HO 1033, in the total amount of P19,286.79. On 17 July 1963, WICI requested the First PhilippineAdjustment Corporation to inspect the loss and assess the damage. The adjustment company submitted itsReport on 23 August 1963. In said report, the adjuster found that 'the loss of 30 pieces of logs is not coveredby Policies 53 HO 1032 and 1033 inasmuch as said policies covered the actual number of logs loaded onboard the SS Woodlock. However, the loss of 30 pieces of logs is within the 1,250,000 bd. ft. covered byCover Note 1010 insured for $70,000.00. On 14 September 1963, the adjustment company submitted acomputation of WICI's probable liability on the loss sustained by the shipment, in the total amount ofP11,042.04. On 13 January 1964, WICI wrote PTEC denying the latter's claim, on the ground that itsinvestigation revealed that the entire shipment of logs covered by the two marine policies 53 HO 1032 and 53HO 1033 were received in good order at their point of destination. It was further stated that the said loss maynot be considered as covered under Cover Note 1010 because the said Note had become null and void byvirtue of the issuance of Marine Policies 53 HO 1032 and 1033. The denial of the claim by WICI was broughtby PTEC to the attention of the Insurance Commissioner by means of a letter dated 21 March 1964. In a replyletter dated 30 March 1964, Insurance Commissioner Francisco Y. Mandanas observed that it is only fair andequitable to indemnify the insured under Cover Note 1010, and advised early settlement of the said marineloss and salvage claim. On 26 June 1964, WICI informed the Insurance Commissioner that, on advice of theirattorneys, the claim of PTEC is being denied on the ground that the cover note is null and void for lack ofvaluable consideration. The Court of First Instance of Manila ruled in favor of PTEC and against WICI whichordered the latter to pay the sum of P11,042.04 with interest at the rate of 12% interest from receipt of noticeof loss on 15 April 1963 up to the complete payment, the

sum of P3,000.00 as attorney's fees and the costs.The Court of Appeals, however, reversed the decision of the trial court and thus dismissed PTEC's complaint Commercial Law Insurance Law, 2006 ( 22 )

Narratives (Berne Guerrero) with costs. PTEC filed the petition for review. Issue: Whether the Cover Note is without consideration, is null and void, and thus recovery cannot be madethereon. Held: NO. The Cover Note was not without consideration. The fact that no separate premium was paid on theCover Note before the loss insured against occurred, does not militate against the validity of PTEC'scontention, for no such premium could have been paid, since by the nature of the Cover Note, it did notcontain, as all Cover Notes do not contain particulars of the shipment that would serve as basis for thecomputation of the premiums. As a logical consequence, no separate premiums are intended or required to bepaid on a Cover Note. This is a fact admitted by an official of WICI, Juan Jose Camacho, in charge of issuingcover notes of WICI. At any rate, it is not disputed that PTEC paid in full all the premiums as called for by thestatement issued by WICI after the issuance of the two regular marine insurance policies, thereby leaving noaccount unpaid by PTEC due on the insurance coverage, which must be deemed to include the Cover Note. Ifthe Note is to be treated as a separate policy instead of integrating it to the regular policies subsequentlyissued, the purpose and function of the Cover Note would be set at naught or rendered meaningless, for it is ina real sense a contract, not a mere application for insurance which is a mere offer. It may be true that themarine insurance policies issued were for logs no longer including those which had been lost during loadingoperations. This had to be so because the risk insured against is not for loss during loading operationsanymore, but for loss during transit, the logs having already been safely placed aboard. This would make nodifference, however, insofar as the liability on the cover note is concerned, for the number or volume of logslost can be determined independently, as in fact it had been so ascertained at the instance of WICI itself whenit sent its own adjuster to investigate and assess the loss, after the issuance of the marine insurance policies.The adjuster went as far as submitting his report to WICI, as well as its computation of WICI's liability on theinsurance coverage. This coverage could not have been no other than what was stipulated in the Cover Note,for no loss or damage had to be assessed on the coverage arising from the marine insurance policies. Forobvious reasons, it was not necessary to ask PTEC to pay premium on the Cover Note, for the loss insuredagainst having already occurred, the more practical procedure is simply to deduct the premium from theamount due PTEC on the Cover Note. The non-payment of premium on the Cover Note is, therefore, no causefor PTEC to lose what is due it as if there had been payment of premium, for non-payment by it was notchargeable against its fault. Had all the logs been lost during the loading operations, but after the issuance ofthe Cover Note, liability on the note would have already arisen even before payment of premium. This is howthe cover note as a "binder" should legally operate; otherwise, it would serve no practical purpose in the realmof commerce, and is supported by the doctrine that where a policy is delivered without requiring payment ofthe premium, the presumption is that a credit was intended and policy is valid.

Insurance Case Digest: Malayan Insurance Co., Inc. V. Arnaldo (1987) G.R. No. L-67835 October 12, 1987 Lessons Applicable: Authority to Receive Payment/Effect of Payment (Insurance) Laws Applicable: Article 64, Article 65, Section 77, Section 306 of the Insurance Code

FACTS:

June 7, 1981: Malayan insurance co., inc. (MICO) issued to Coronacion Pinca, Fire Insurance Policy for her property effective July 22, 1981, until July 22, 1982

October 15,1981: MICO allegedly cancelled the policy for non-payment, of the premium and sent the corresponding notice to Pinca December 24, 1981: payment of the premium for Pinca was received by Domingo Adora, agent of MICO January 15, 1982: Adora remitted this payment to MICO,together with other payments January 18, 1982: Pinca's property was completely burned February 5, 1982: Pinca's payment was returned by MICO to Adora on the ground that her policy had been cancelled earlier but Adora refused to accept it and instead demanded for payment Under Section 416 of the Insurance Code, the period for appeal is thirty days from notice of the decision of the Insurance Commission. The petitioner filed its motion for reconsideration on April 25, 1981, or fifteen days such notice, and the reglementary period began to run again after June 13, 1981, date of its receipt of notice of the denial of the said motion for reconsideration. As the herein petition was filed on July 2, 1981, or nineteen days later, there is no question that it is tardy by four days. Insurance Commission: favored Pinca MICO appealed ISSUE: W/N MICO should be liable because its agent Adora was authorized to receive it

HELD: YES. petition is DENIED

SEC. 77. An insurer is entitled to payment of the premium as soon as the thing is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies. SEC. 306. xxx xxx xxx

Any insurance company which delivers to an insurance agant or insurance broker a policy or contract of insurance shall be demmed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon. Payment to an agent having authority to receive or collect payment is equivalent to payment to the principal himself; such payment is complete when the money delivered is into the agent's hands and is a discharge of the indebtedness owing to the principal. SEC. 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following: (a) (b) (c) non-payment of premium; conviction of a crime arising out of acts increasing the hazard insured against; discovery of fraud or material misrepresentation;

(d) (e)

discovery of willful, or reckless acts or commissions increasing the hazard insured against; physical changes in the property insured which result in the property becoming uninsurable;or

(f) a determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code. As for the method of cancellation, Section 65 provides as follows:

(1)

SEC. 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the named insured at the address shown in the policy, and shall state (a) which of the grounds set forth in section sixty-four is relied upon and (b) that, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based. A valid cancellation must, therefore, require concurrence of the following conditions: There must be prior notice of cancellation to the insured;

(2) The notice must be based on the occurrence, after the effective date of the policy, of one or more of the grounds mentioned;

(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the address shown in the policy; (4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon written request of the insured, the insurer will furnish the facts on which the cancellation is based. All MICO's offers to show that the cancellation was communicated to the insured is its employee'stestimony that the said cancellation was sent "by mail through our mailing section." without more It stands to reason that if Pinca had really received the said notice, she would not have made payment on the original policy on December 24, 1981. Instead, she would have asked for a new insurance, effective on that date and until one year later, and so taken advantage of the extended period. Incidentally, Adora had not been informed of the cancellation either and saw no reason not to accept the said payment Although Pinca's payment was remitted to MICO's by its agent on January 15, 1982, MICO sought to return it to Adora only on February 5, 1982, after it presumably had learned of the occurrence of the loss insured against on January 18, 1982 make the motives of MICO highly suspicious

UCPB General Insurance vs. Masagana Telamart Inc. [GR 137172, 14 April 2001] Resolution En Banc, Davide Jr (CJ): 9 concur, 2 file separate dissenting opinions to which 3 joined Facts: In the Supreme Court's decision of 15 June 1999, it reversed and set aside the decision of the Court ofAppeals, which affirmed with modification the judgment of the trial court (a) allowing Masagana to consignthe sum of P225,753.95 as full payment of the premiums for the renewal of the five insurance policies onMasagana's properties; (b) declaring the replacement-renewal policies effective and binding from 22 May1992 until 22 May 1993; and (c) ordering UCPBGen to pay Masagana P18,645,000.00 as indemnity for theburned properties covered by the renewal-replacement policies. The modification consisted in the (1) deletionof the trial court's declaration that three of the policies were in force from August 1991 to August 1992; and(2) reduction of the award of the attorney's fees from 25% to 10% of the total amount due the Masagana. Masagana seasonably filed a motion for the reconsideration of the adverse verdict. Issue [1]: Whether there are exceptions to Section 77, to allow Masagana to recover from UCPBGen. Held [1]: YES. The first exception is provided by Section 77 itself, and that is, in case of a life or industriallife policy whenever the grace period provision applies. The second is that covered by Section 78 of theInsurance Code, which provides that "Any acknowledgment in a policy or contract of insurance of the receiptof premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding anystipulation therein that it shall not be binding until premium is actually paid." A third exception was laid downin Makati Tuscany Condominium Corporation vs. Court of Appeals, 5 wherein the Court ruled that Section 77may not apply if the parties have agreed to the payment in installments of the premium and partial paymenthas been made at the time of loss. Further, in Tuscany, the Court also quoted with approval the followingpronouncement of the Court of Appeals in its Resolution denying the motion fo r reconsideration of itsdecision that "While the import of Section 77 is that prepayment of premiums is strictly required as acondition to the validity of the contract, We are not prepared to rule that the request to make installmentpayments duly approved by the insurer would prevent the entire contract of insurance from going into effectdespite payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Codein effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in theinsurance policy of receipt of premium as conclusive evidence of payment so far as to make the policybinding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties fromstipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreementgranting credit extension, and such an agreement is not contrary to morals, good customs, public order orp u b l i c p o l i c y ( D e L e o n , T h e I n s u r a n c e C o d e , p . 1 7 5 ) . S o i s a n u n d e r s t a n d i n g t o a l l o w i n s u r e d t o p a y premiums in installments not so prescribed. At the very least, both parties should be deemed in estoppel toquestion the arrangement they have voluntarily accepted." By the approval of the aforequoted findings andconclusion of the Court of Appeals, Tuscany has also provided a fourth exception to Section 77, namely, thatthe insurer may grant credit extension for the payment of the premium. This simply means that if the insurerhas granted the insured a credit term for the payment of the premium and loss occurs before the expiration ofthe term, recovery on the policy should be allowed even though the premium is paid after the loss but withinthe credit term. Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract toprovide a credit term within which to pay the premiums. That agreement is not against the law, morals, goodcustoms, public order or public policy. The agreement binds the parties. Herein, it would be unjust and inequitable if recovery on the policy would not be permitted against UCPBGen, which had consistently granted a 60- to 90-day credit term for the payment of premiums despite its full awareness of Section 77.Estoppel bars it from taking refuge under said Section, si nce Masagana relied in good faith on such practice.Estoppel then is the fifth exception to Section 77 Commercial Law Insurance Law, 2006 ( 27 )

Makati Tuscany Condominium Corporation vs. Court of Appeals [GR 95546, 6 November 1992] First Division, Bellosillo (J): 3 concur, 1 on leave Facts: Sometime in early 1982, American Home Assurance Co. (AHAC), represented by AmericanInternational Underwriters (Phils.), Inc., (AIUI) issued in favor of Makati Tuscany Condominium Corporation(Tuscany) Insurance Policy AH-CPP-9210452 on the latter's building and premises, for a period beginning 1March 1982 and ending 1 March 1983, with a total premium of P466,103.05. The premium was paid oninstallments on 12 March 1982, 20 May 1982, 21 June 1982 and 16 November 1982, all of which wereaccepted by AHAC. On 10 February 1983, AHAC issued to Tuscany Insurance Policy No. AH-CPP-9210596, Commercial Law Insurance Law, 2006 ( 24 )

Narratives (Berne Guerrero) which replaced and renewed the previous policy, for a term covering 1 March 1903 to 1 March 1984. Thepremium in the amount of P466,103.05 was again paid on installments on 13 April 1983, 13 July 1983, 3August 1983, 9 September 1983, and 21 November 1983. All payments were likewise accepted by AHAC. On20 January 1984, the policy was again renewed and AHAC issued to Tuscany Insurance Policy AH-CPP9210651 for the period 1 March 1984 to 1 March 1985. On this renewed policy, Tuscany made twoinstallment payments, both accepted by AHAC, the first on 6 February 1984 for P52,000.00 and the second,on 6 June 1984 for P100,000.00. Thereafter, Tuscany refused to pay the balance of the premium.Consequently, AHAC filed an action to recover the unpaid balance of P314,103.05 for Insurance Policy AH-CPP-9210651. In its answer with counterclaim, Tuscany admitted the issuance of Insurance Policy AH-CPP-9210651. It explained that it discontinued the payment of premiums because the policy did not contain acredit clause in its favor and the receipts for the installment payments covering the policy for 1984-85, as wellas the two (2) previous policies, stated the following reservations: (2) Acceptance of this payment shall notwaive any of the company rights to deny liability on any claim under the policy arising before such paymentsor after the expiration of the credit clause of the policy; and (3) Subject to no loss prior to premium payment.If there be any loss such is not covered. Tuscany further claimed that the policy was never binding and valid,and no risk attached to the policy. It then pleaded a counterclaim for P152,000.00 for the premiums alreadypaid for 1984-85, and in its answer with amended counterclaim, sought the refund of P924,206.10representing the premium payments for 1982-85. After some incidents, Tuscany and AHAC moved forsummary judgment. On 8 October 1987, the trial court dismissed the complaint and the counterclaim. Bothparties appealed from the judgment of the trial court. Thereafter, the Court of Appeals rendered a decisionmodifying that of the trial court by ordering Tuscany to pay the balance of the premiums due on Policy AH-CPP-921-651, or P314,103.05 plus legal interest until fully paid, and affirming the denial of the counterclaim.Tuscany filed the petition. Issue: Whether payment by installment of the premiums due on an insurance policy invalidates the contractof insurance.

Held: NO. The subject policies are valid even if the premiums were paid on installments. The records clearlyshow that Tuscany and AHAC intended subject insurance policies to be binding and effective notwithstandingthe staggered payment of the premiums. The initial insurance contract entered into in 1982 was renewed in1983, then in 1984. In those 3 years, the insurer accepted all the installment payments. Such acceptance ofpayments speaks loudly of the insurer's intention to honor the policies it issued to Tuscany. Certainly, basicprinciples of equity and fairness would not allow the insurer to continue collecting and accepting thepremiums, although paid on installments, and later deny liability on the lame excuse that the premiums werenot prepaid in full. Thus, while the import of Section 77 is that prepayment of premiums is strictly required asa condition to the validity of the contract, the Court was not prepared to rule that the request to makeinstallment payments duly approved by the insurer, would prevent the entire contract of insurance from goinginto effect despite payment and acceptance of the initial premium or first installment. Section 78 of theInsurance Code in effect allows waiver by the insurer of the condition of prepayment by making anacknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as tomake the policy binding despite the fact that premium is actually unpaid. Section 77 merely precludes theparties from stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibitan agreement granting credit extension, and such an agreement is not contrary to morals, good customs,public order or public policy. So is an understanding to allow insured to pay premiums in installments not soproscribed. At the very least, both parties should be deemed in estoppel to question the arrangement they havevoluntarily accepted. It appearing from the peculiar circumstances that the parties actually intended to makethe three (3) insurance contracts valid, effective and binding, Tuscany may not be allowed to renege on itsobligation to pay the balance of the premium after the expiration of the whole term of the third policy (AH-CPP-9210651) in March 1985. Moreover, where the risk is entire and the contract is indivisible, the insured isnot entitled to a refund of the premiums paid if the insurer was exposed to the risk insured for any period,however brief or momentary.