INSURANCE |Aug 1| 1

[G.R. No. 154514. July 28, 2005]

WHITE GOLD MARINE SERVICES, INC., petitioner, vs. PIONEER INSURANCE
AND SURETY CORPORATION AND THE STEAMSHIP MUTUAL
UNDERWRITING ASSOCIATION (BERMUDA) LTD., respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the Decision[1] dated July 30, 2002 of the Court of
Appeals in CA-G.R. SP No. 60144, affirming the Decision[2] dated May 3, 2000 of the
Insurance Commission in I.C. Adm. Case No. RD-277. Both decisions held that there
was no violation of the Insurance Code and the respondents do not need license as
insurer and insurance agent/broker.
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protection and
indemnity coverage for its vessels from The Steamship Mutual Underwriting
Association (Bermuda) Limited (Steamship Mutual) through Pioneer Insurance and
Surety Corporation (Pioneer). Subsequently, White Gold was issued a Certificate of
Entry and Acceptance.[3] Pioneer also issued receipts evidencing payments for the
coverage. When White Gold failed to fully pay its accounts, Steamship Mutual refused
to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum
of money to recover the latters unpaid balance. White Gold on the other hand, filed a
complaint before the Insurance Commission claiming that Steamship Mutual violated
Sections 186[4] and 187[5] of the Insurance Code, while Pioneer violated Sections 299,
[6]
300[7] and 301[8] in relation to Sections 302 and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there was no
need for Steamship Mutual to secure a license because it was not engaged in the
insurance business. It explained that Steamship Mutual was a Protection and
Indemnity Club (P & I Club). Likewise, Pioneer need not obtain another license as
insurance agent and/or a broker for Steamship Mutual because Steamship Mutual was
not engaged in the insurance business. Moreover, Pioneer was already licensed, hence,
a separate license solely as agent/broker of Steamship Mutual was already
superfluous.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its
decision, the appellate court distinguished between P & I Clubs vis--vis conventional
insurance. The appellate court also held that Pioneer merely acted as a collection
agent of Steamship Mutual.

In this petition, petitioner assigns the following errors allegedly committed by the
appellate court,
FIRST ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT
DOING BUSINESS IN THE PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS
TRANSACTIONS THROUGH ITS AGENT AND/OR BROKER HENCE AS AN INSURER IT
NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE
PHILIPPINES.
SECOND ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY
EVIDENCE THAT RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS.
THIRD ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED NOT
SECURE A LICENSE WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF
RESPONDENT STEAMSHIP.
FOURTH ASSIGNMENT OF ERROR
THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT
PIONEER AND [IN NOT REMOVING] THE OFFICERS AND DIRECTORS OF RESPONDENT
PIONEER.[9]
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club,
engaged in the insurance business in the Philippines? (2) Does Pioneer need a license
as an insurance agent/broker for Steamship Mutual?
The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual
admits it does not have a license to do business in the Philippines although Pioneer is
its resident agent. This relationship is reflected in the certifications issued by the
Insurance Commission.

INSURANCE |Aug 1| 2
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the
insurance business. To buttress its assertion, it cites the definition of a P & I Club
in Hyopsung Maritime Co., Ltd. v. Court of Appeals [10] as an association composed of
shipowners in general who band together for the specific purpose of providing
insurance cover on a mutual basis against liabilities incidental to shipowning that the
members incur in favor of third parties. It stresses that as a P & I Club, Steamship
Mutuals primary purpose is to solicit and provide protection and indemnity coverage
and for this purpose, it has engaged the services of Pioneer to act as its agent.
Respondents contend that although Steamship Mutual is a P & I Club, it is not
engaged in the insurance business in the Philippines. It is merely an association of
vessel owners who have come together to provide mutual protection against liabilities
incidental to shipowning.[11] Respondents aver Hyopsung is inapplicable in this case
because the issue in Hyopsung was the jurisdiction of the court over Hyopsung.

Basically, an insurance contract is a contract of indemnity. In it, one undertakes

for a consideration to indemnify another against loss, damage or liability arising from
an unknown or contingent event.[14]
In particular, a marine insurance undertakes to indemnify the assured against
marine losses, such as the losses incident to a marine adventure. [15] Section 99[16] of
the Insurance Code enumerates the coverage of marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where the
members are both the insurer and insured. In it, the members all contribute, by a
system of premiums or assessments, to the creation of a fund from which all losses
and liabilities are paid, and where the profits are divided among themselves, in
proportion to their interest. [17] Additionally, mutual insurance associations, or clubs,
provide three types of coverage, namely, protection and indemnity, war risks, and
defense costs.[18]

Is Steamship Mutual engaged in the insurance business?

Section 2(2) of the Insurance Code enumerates what constitutes doing an
insurance business or transacting an insurance business. These are:

A P & I Club is a form of insurance against third party liability, where the third
party is anyone other than the P & I Club and the members. [19] By definition then,
Steamship Mutual as a P & I Club is a mutual insurance association engaged in the
marine insurance business.

(a) making or proposing to make, as insurer, any insurance contract;

(b) making, or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or
activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the
meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the
foregoing in a manner designed to evade the provisions of this Code.
...
The same provision also provides, the fact that no profit is derived from the
making of insurance contracts, agreements or transactions, or that no separate or
direct consideration is received therefor, shall not preclude the existence of an
insurance business.[12]
The test to determine if a contract is an insurance contract or not, depends on
the nature of the promise, the act required to be performed, and the exact nature of
the agreement in the light of the occurrence, contingency, or circumstances under
which the performance becomes requisite. It is not by what it is called. [13]

The records reveal Steamship Mutual is doing business in the country albeit
without the requisite certificate of authority mandated by Section 187 [20] of the
Insurance Code. It maintains a resident agent in the Philippines to solicit insurance
and to collect payments in its behalf. We note that Steamship Mutual even renewed its
P & I Club cover until it was cancelled due to non-payment of the calls. Thus, to
continue doing business here, Steamship Mutual or through its agent Pioneer, must
secure a license from the Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is
necessary. Thus, no insurer or insurance company is allowed to engage in the
insurance business without a license or a certificate of authority from the Insurance
Commission.[21]
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate
of registration[22] issued by the Insurance Commission. It has been licensed to do or
transact insurance business by virtue of the certificate of authority [23] issued by the
same agency. However, a Certification from the Commission states that Pioneer does
not have a separate license to be an agent/broker of Steamship Mutual. [24]
Although Pioneer is already licensed as an insurance company, it needs a
separate license to act as insurance agent for Steamship Mutual. Section 299 of the
Insurance Code clearly states:

INSURANCE |Aug 1| 3
SEC. 299 . . .

PARAS, C.J.:

No person shall act as an insurance agent or as an insurance broker in the solicitation

or procurement of applications for insurance, or receive for services in obtaining
insurance, any commission or other compensation from any insurance company doing
business in the Philippines or any agent thereof, without first procuring a license so to
act from the Commissioner, which must be renewed annually on the first day of
January, or within six months thereafter. . .

On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc.,
after payment of corresponding premium, obtained from the petitioner ,Filipinas Cia.
de Seguros, fire policy No. 29333 in the sum of P1000,000, covering merchandise
contained in a building located at No. 711 Roman Street, Binondo Manila. On February
27, 1942, or during the Japanese military occupation, the building and insured
merchandise were burned. In due time the respondent submitted to the petitioner its
claim under the policy. The salvage goods were sold at public auction and, after
deducting their value, the total loss suffered by the respondent was fixed at P92,650.
The petitioner refused to pay the claim on the ground that the policy in favor of the
respondent had ceased to be in force on the date the United States declared war
against Germany, the respondent Corporation (though organized under and by virtue
of the laws of the Philippines) being controlled by the German subjects and the
petitioner being a company under American jurisdiction when said policy was issued on
October 1, 1941. The petitioner, however, in pursuance of the order of the Director of
Bureau of Financing, Philippine Executive Commission, dated April 9, 1943, paid to the
respondent the sum of P92,650 on April 19, 1943.

Finally, White Gold seeks revocation of Pioneers certificate of authority and

removal of its directors and officers. Regrettably, we are not the forum for these
issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30,
2002 of the Court of Appeals affirming the Decision dated May 3, 2000 of the
Insurance Commission is hereby REVERSED AND SET ASIDE. The Steamship Mutual
Underwriting Association (Bermuda) Ltd., and Pioneer Insurance and Surety
Corporation are ORDERED to obtain licenses and to secure proper authorizations to do
business as insurer and insurance agent, respectively. The petitioners prayer for the
revocation of Pioneers Certificate of Authority and removal of its directors and officers,
is DENIED. Costs against respondents.
SO ORDERED.

The present action was filed on August 6, 1946, in the Court of First Instance of Manila
for the purpose of recovering from the respondent the sum of P92,650 above
mentioned. The theory of the petitioner is that the insured merchandise were burned
up after the policy issued in 1941 in favor of the respondent corporation has ceased to
be effective because of the outbreak of the war between the United States and
Germany on December 10, 1941, and that the payment made by the petitioner to the
respondent corporation during the Japanese military occupation was under pressure.
After trial, the Court of First Instance of Manila dismissed the action without
pronouncement as to costs. Upon appeal to the Court of Appeals, the judgment of the
Court of First Instance of Manila was affirmed, with costs. The case is now before us
on appeal by certiorari from the decision of the Court of Appeals.
The Court of Appeals overruled the contention of the petitioner that the respondent
corporation became an enemy when the United States declared war against Germany,
relying on English and American cases which held that a corporation is a citizen of the
country or state by and under the laws of which it was created or organized. It
rejected the theory that nationality of private corporation is determine by the
character or citizenship of its controlling stockholders.

G.R. No. L-2294

May 25, 1951

FILIPINAS
COMPAIA
DE
vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.
Ramirez
and
Ewald Huenefeld for respondent.

Ortigas

SEGUROS, petitioner,

for

petitioner.

There is no question that majority of the stockholders of the respondent corporation

were German subjects. This being so, we have to rule that said respondent became an
enemy corporation upon the outbreak of the war between the United States and
Germany. The English and American cases relied upon by the Court of Appeals have
lost their force in view of the latest decision of the Supreme Court of the United States
in Clark vs. Uebersee Finanz Korporation, decided on December 8, 1947, 92 Law. Ed.
Advance Opinions, No. 4, pp. 148-153, in which the controls test has been adopted. In
"Enemy Corporation" by Martin Domke, a paper presented to the Second International
Conference of the Legal Profession held at the Hague (Netherlands) in August. 1948
the following enlightening passages appear:

INSURANCE |Aug 1| 4
Since World War I, the determination of enemy nationality of corporations has
been discussion in many countries, belligerent and neutral. A corporation was
subject to enemy legislation when it was controlled by enemies, namely
managed under the influence of individuals or corporations, themselves
considered as enemies. It was the English courts which first the Daimler case
applied this new concept of "piercing the corporate veil," which was adopted
by the peace of Treaties of 1919 and the Mixed Arbitral established after the
First World War.
The United States of America did not adopt the control test during the First
World War. Courts refused to recognized the concept whereby Americanregistered corporations could be considered as enemies and thus subject to
domestic legislation and administrative measures regarding enemy property.
World War II revived the problem again. It was known that German and other
enemy interests were cloaked by domestic corporation structure. It was not
only by legal ownership of shares that a material influence could be exercised
on the management of the corporation but also by long term loans and other
factual situations. For that reason, legislation on enemy property enacted in
various countries during World War II adopted by statutory provisions to the
control test and determined, to various degrees, the incidents of control.
Court decisions were rendered on the basis of such newly enacted statutory
provisions in determining enemy character of domestic corporation.
The United States did not, in the amendments of the Trading with the Enemy
Act during the last war, include as did other legislations the applications of the
control test and again, as in World War I, courts refused to apply this concept
whereby the enemy character of an American or neutral-registered
corporation is determined by the enemy nationality of the controlling
stockholders.
Measures of blocking foreign funds, the so called freezing regulations, and
other administrative practice in the treatment of foreign-owned property in
the United States allowed to large degree the determination of enemy
interest in domestic corporations and thus the application of the control test.
Court decisions sanctioned such administrative practice enacted under the
First War Powers Act of 1941, and more recently, on December 8, 1947, the
Supreme Court of the United States definitely approved of the control theory.
In Clark vs. Uebersee Finanz Korporation, A. G., dealing with a Swiss
corporation allegedly controlled by German interest, the Court: "The property
of all foreign interest was placed within the reach of the vesting power (of the
Alien Property Custodian) not to appropriate friendly or neutral assets but to
reach enemy interest which masqueraded under those innocent fronts. . . .
The power of seizure and vesting was extended to all property of any foreign
country or national so that no innocent appearing device could become a
Trojan horse."

It becomes unnecessary, therefore, to dwell at length on the authorities cited in

support of the appealed decision. However, we may add that, in Haw Pia vs. China
Banking Corporation,* 45 Off Gaz., (Supp. 9) 299, we already held that China Banking
Corporation came within the meaning of the word "enemy" as used in the Trading with
the Enemy Acts of civilized countries not only because it was incorporated under the
laws of an enemy country but because it was controlled by enemies.
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that
"anyone except a public enemy may be insured." It stands to reason that an insurance
policy ceases to be allowable as soon as an insured becomes a public enemy.
Effect of war, generally. All intercourse between citizens of belligerent
powers which is inconsistent with a state of war is prohibited by the law of
nations. Such prohibition includes all negotiations, commerce, or trading with
the enemy; all acts which will increase, or tend to increase, its income or
resources; all acts of voluntary submission to it; or receiving its protection;
also all acts concerning the transmission of money or goods; and all contracts
relating thereto are thereby nullified. It further prohibits insurance upon trade
with or by the enemy, upon the life or lives of aliens engaged in service with
the enemy; this for the reason that the subjects of one country cannot be
permitted to lend their assistance to protect by insurance the commerce or
property of belligerent, alien subjects, or to do anything detrimental too their
country's interest. The purpose of war is to cripple the power and exhaust the
resources of the enemy, and it is inconsistent that one country should destroy
its enemy's property and repay in insurance the value of what has been so
destroyed, or that it should in such manner increase the resources of the
enemy, or render it aid, and the commencement of war determines, for like
reasons, all trading intercourse with the enemy, which prior thereto may have
been lawful. All individuals therefore, who compose the belligerent powers,
exist, as to each other, in a state of utter exclusion, and are public enemies.
(6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)
In the case of an ordinary fire policy, which grants insurance only from year,
or for some other specified term it is plain that when the parties become alien
enemies, the contractual tie is broken and the contractual rights of the
parties, so far as not vested. lost. (Vance, the Law on Insurance, Sec. 44, p.
112.)
The respondent having become an enemy corporation on December 10, 1941, the
insurance policy issued in its favor on October 1, 1941, by the petitioner (a Philippine
corporation) had ceased to be valid and enforcible, and since the insured goods were
burned after December 10, 1941, and during the war, the respondent was not entitled
to any indemnity under said policy from the petitioner. However, elementary rules of
justice (in the absence of specific provision in the Insurance Law) require that the
premium paid by the respondent for the period covered by its policy from December
11, 1941, should be returned by the petitioner.

INSURANCE |Aug 1| 5
The Court of Appeals, in deciding the case, stated that the main issue hinges on the
question of whether the policy in question became null and void upon the declaration
of war between the United States and Germany on December 10, 1941, and its
judgment in favor of the respondent corporation was predicated on its conclusion that
the policy did not cease to be in force. The Court of Appeals necessarily assumed that,
even if the payment by the petitioner to the respondent was involuntary, its action is
not tenable in view of the ruling on the validity of the policy. As a matter of fact, the
Court of Appeals held that "any intimidation resorted to by the appellee was not unjust
but the exercise of its lawful right to claim for and received the payment of the
insurance policy," and that the ruling of the Bureau of Financing to the effect that "the
appellee was entitled to payment from the appellant was, well founded." Factually,
there can be no doubt that the Director of the Bureau of Financing, in ordering the
petitioner to pay the claim of the respondent, merely obeyed the instruction of the
Japanese Military Administration, as may be seen from the following: "In view of the
findings and conclusion of this office contained in its decision on Administrative Case
dated February 9, 1943 copy of which was sent to your office and the concurrence
therein of the Financial Department of the Japanese Military Administration,
and following the instruction of said authority, you are hereby ordered to pay the claim
of Messrs. Christern, Huenefeld & Co., Inc. The payment of said claim, however, should
be made by means of crossed check." (Emphasis supplied.)
It results that the petitioner is entitled to recover what paid to the respondent under
the circumstances on this case. However, the petitioner will be entitled to recover only
the equivalent, in actual Philippines currency of P92,650 paid on April 19, 1943, in
accordance with the rate fixed in the Ballantyne scale.
Wherefore, the appealed decision is hereby reversed and the respondent corporation is
ordered to pay to the petitioner the sum of P77,208.33, Philippine currency, less the
amount of the premium, in Philippine currency, that should be returned by the
petitioner for the unexpired term of the policy in question, beginning December 11,
1941. Without costs. So ordered.

G.R. No. 113899 October 13, 1999

GREAT
PACIFIC
LIFE
ASSURANCE
CORP., petitioner,
vs.
COURT OF APPEALS AND MEDARDA V. LEUTERIO, respondents.
QUISUMBING, J.:
This petition for review, under Rule 45 of the Rules of Court, assails the
Decision 1 dated May 17, 1993, of the Court of Appeals and its Resolution 2 dated
January 4, 1994 in CA-G.R. CV No. 18341. The appellate court affirmed in toto the
judgment of the Misamis Oriental Regional Trial Court, Branch 18, in an insurance
claim filed by private respondent against Great Pacific Life Assurance Co. The
dispositive portion of the trial court's decision reads:
WHEREFORE, judgment is rendered adjudging the defendant GREAT
PACIFIC LIFE ASSURANCE CORPORATION as insurer under its Group
policy No. G-1907, in relation to Certification B-18558 liable and
ordered to pay to the DEVELOPMENT BANK OF THE PHILIPPINES as
creditor of the insured Dr. Wilfredo Leuterio, the amount of EIGHTY
SIX THOUSAND TWO HUNDRED PESOS (P86,200.00); dismissing the
claims for damages, attorney's fees and litigation expenses in the
complaint and counterclaim, with costs against the defendant and
dismissing the complaint in respect to the plaintiffs, other than the
widow-beneficiary, for lack of cause of action. 3
The facts, as found by the Court of Appeals, are as follows:
A contract of group life insurance was executed between petitioner Great Pacific Life
Assurance Corporation (hereinafter Grepalife) and Development Bank of the
Philippines (hereinafter DBP). Grepalife agreed to insure the lives of eligible housing
loan mortgagors of DBP.
On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP
applied for membership in the group life insurance plan. In an application form, Dr.
Leuterio answered questions concerning his health condition as follows:
7. Have you ever had, or consulted, a physician for
a heart condition, high blood pressure, cancer,
diabetes, lung; kidney or stomach disorder or any
other physical impairment?
Answer: No. If so give details _____________.
8. Are you now, to the best of your knowledge, in
good health?

INSURANCE |Aug 1| 6
Answer: [x] Yes [ ] NO.

On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance

coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness amounting
to eighty-six thousand, two hundred (P86,200.00) pesos.1wphi1.nt
On August 6, 1984, Dr. Leuterio died due to "massive cerebral hemorrhage."
Consequently, DBP submitted a death claim to Grepalife. Grepalife denied the claim
alleging that Dr. Leuterio was not physically healthy when he applied for an insurance
coverage on November 15, 1983. Grepalife insisted that Dr. Leuterio did not disclose
he had been suffering from hypertension, which caused his death. Allegedly, such nondisclosure constituted concealment that justified the denial of the claim.

ACCORDANCE WITH ITS GROUP INSURANCE

CONTRACT WITH DEFENDANT-APPELLANT.
4. THE LOWER COURT ERRED IN HOLDING THAT
THERE WAS NO CONCEALMENT OF MATERIAL
INFORMATION ON THE PART OF WILFREDO
LEUTERIO IN HIS APPLICATION FOR MEMBERSHIP
IN THE GROUP LIFE INSURANCE PLAN BETWEEN
DEFENDANT-APPELLANT OF THE INSURANCE
CLAIM ARISING FROM THE DEATH OF WILFREDO
LEUTERIO. 6
Synthesized below are the assigned errors for our resolution:

On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V.
Leuterio, filed a complaint with the Regional Trial Court of Misamis Oriental, Branch 18,
against Grepalife for "Specific Performance with Damages." 5 During the trial, Dr.
Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejia's
findings, based partly from the information given by the respondent widow, stated that
Dr. Leuterio complained of headaches presumably due to high blood pressure. The
inference was not conclusive because Dr. Leuterio was not autopsied, hence, other
causes were not ruled out.
On February 22, 1988, the trial court rendered a decision in favor of respondent widow
and against Grepalife. On May 17, 1993, the Court of Appeals sustained the trial
court's decision. Hence, the present petition. Petitioners interposed the following
assigned errors:
1. THE LOWER COURT ERRED IN HOLDING
DEFENDANT-APPELLANT
LIABLE
TO
THE
DEVELOPMENT BANK OF THE PHILIPPINES (DBP)
WHICH IS NOT A PARTY TO THE CASE FOR
PAYMENT OF THE PROCEEDS OF A MORTGAGE
REDEMPTION INSURANCE ON THE LIFE OF
PLAINTIFF'S HUSBAND WILFREDO LEUTERIO ONE
OF ITS LOAN BORROWERS, INSTEAD OF
DISMISSING THE CASE AGAINST DEFENDANTAPPELLANT [Petitioner Grepalife] FOR LACK OF
CAUSE OF ACTION.
2. THE LOWER COURT ERRED IN NOT DISMISSING
THE CASE FOR WANT OF JURISDICTION OVER THE
SUBJECT OR NATURE OF THE ACTION AND OVER
THE PERSON OF THE DEFENDANT.
3. THE LOWER COURT ERRED IN ORDERING
DEFENDANT-APPELLANT TO PAY TO DBP THE
AMOUNT OF P86,200.00 IN THE ABSENCE OF ANY
EVIDENCE TO SHOW HOW MUCH WAS THE
ACTUAL
AMOUNT
PAYABLE
TO
DBP
IN

1. Whether the Court of Appeals erred in holding

petitioner liable to DBP as beneficiary in a group
life insurance contract from a complaint filed by
the widow of the decedent/mortgagor?
2. Whether the Court of Appeals erred in not
finding that Dr. Leuterio concealed that he had
hypertension, which would vitiate the insurance
contract?
3. Whether the Court of Appeals erred in holding
Grepalife liable in the amount of eighty six
thousand, two hundred (P86,200.00) pesos
without proof of the actual outstanding mortgage
payable by the mortgagor to DBP.
Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not
the real party in interest, hence the trial court acquired no jurisdiction over the case. It
argues that when the Court of Appeals affirmed the trial court's judgment, Grepalife
was held liable to pay the proceeds of insurance contract in favor of DBP, the
indispensable party who was not joined in the suit.
To resolve the issue, we must consider the insurable interest in mortgaged properties
and the parties to this type of contract. The rationale of a group insurance policy of
mortgagors, otherwise known as the "mortgage redemption insurance," is a device for
the protection of both the mortgagee and the mortgagor. On the part of the
mortgagee, it has to enter into such form of contract so that in the event of the
unexpected demise of the mortgagor during the subsistence of the mortgage contract,
the proceeds from such insurance will be applied to the payment of the mortgage
debt, thereby relieving the heirs of the mortgagor from paying the obligation. 7 In a
similar vein, ample protection is given to the mortgagor under such a concept so that
in the event of death; the mortgage obligation will be extinguished by the application
of the insurance proceeds to the mortgage indebtedness. 8 Consequently, where the
mortgagor pays the insurance premium under the group insurance policy, making the
loss payable to the mortgagee, the insurance is on the mortgagor's interest, and the
mortgagor continues to be a party to the contract. In this type of policy insurance, the

INSURANCE |Aug 1| 7
mortgagee is simply an appointee of the insurance fund, such loss-payable clause does
not make the mortgagee a party to the contract. 9
Sec. 8 of the Insurance Code provides:
Unless the policy provides, where a mortgagor of property effects
insurance in his own name providing that the loss shall be payable to
the mortgagee, or assigns a policy of insurance to a mortgagee, the
insurance is deemed to be upon the interest of the mortgagor, who
does not cease to be a party to the original contract, and any act of
his, prior to the loss, which would otherwise avoid the insurance, will
have the same effect, although the property is in the hands of the
mortgagee, but any act which, under the contract of insurance, is to
be performed by the mortgagor, may be performed by the
mortgagee therein named, with the same effect as if it had been
performed by the mortgagor.
The insured private respondent did not cede to the mortgagee all his rights or
interests in the insurance, the policy stating that: "In the event of the debtor's death
before his indebtedness with the Creditor [DBP] shall have been fully paid, an amount
to pay the outstanding indebtedness shall first be paid to the creditor and the balance
of sum assured, if there is any, shall then be paid to the beneficiary/ies designated by
the debtor." 10 When DBP submitted the insurance claim against petitioner, the latter
denied payment thereof, interposing the defense of concealment committed by the
insured. Thereafter, DBP collected the debt from the mortgagor and took the
necessary
action
of
foreclosure
on
the
residential
lot
of
private
respondent. 11 In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co. 12 we held:
Insured, being the person with whom the contract was made, is
primarily the proper person to bring suit thereon. * * * Subject to
some exceptions, insured may thus sue, although the policy is taken
wholly or in part for the benefit of another person named or
unnamed, and although it is expressly made payable to another as
his interest may appear or otherwise. * * * Although a policy issued
to a mortgagor is taken out for the benefit of the mortgagee and is
made payable to him, yet the mortgagor may sue thereon in his own
name, especially where the mortgagee's interest is less than the full
amount recoverable under the policy, * * *.
And in volume 33, page 82, of the same work, we read the
following:

The second assigned error refers to an alleged concealment that the petitioner
interposed as its defense to annul the insurance contract. Petitioner contends that Dr.
Leuterio failed to disclose that he had hypertension, which might have caused his
death. 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 assured, but he designedly and intentionally withholds the same. 15
Petitioner merely relied on the testimony of the attending physician, Dr. Hernando
Mejia, as supported by the information given by the widow of the decedent. Grepalife
asserts that Dr. Mejia's technical diagnosis of the cause of death of Dr. Leuterio was a
duly documented hospital record, and that the widow's declaration that her husband
had "possible hypertension several years ago" should not be considered as hearsay,
but as part of res gestae.
On the contrary the medical findings were not conclusive because Dr. Mejia did not
conduct an autopsy on the body of the decedent. As the attending physician, Dr. Mejia
stated that he had no knowledge of Dr. Leuterio's any previous hospital
confinement. 16 Dr. Leuterio's death certificate stated that hypertension was only "the
possible cause of death." The private respondent's statement, as to the medical
history of her husband, was due to her unreliable recollection of events. Hence, the
statement of the physician was properly considered by the trial court as hearsay.
The question of whether there was concealment was aptly answered by the appellate
court, thus:
The insured, Dr. Leuterio, had answered in his insurance application
that he was in good health and that he had not consulted a doctor or
any of the enumerated ailments, including hypertension; when he
died the attending physician had certified in the death certificate that
the former died of cerebral hemorrhage, probably secondary to
hypertension. From this report, the appellant insurance company
refused to pay the insurance claim. Appellant alleged that the
insured had concealed the fact that he had hypertension.
Contrary to appellant's allegations, there was no sufficient proof that
the insured had suffered from hypertension. Aside from the
statement of the insured's widow who was not even sure if the
medicines taken by Dr. Leuterio were for hypertension, the appellant
had not proven nor produced any witness who could attest to Dr.
Leuterio's medical history . . .
xxx xxx xxx

Insured may be regarded as the real party in interest, although he

has assigned the policy for the purpose of collection, or has assigned
as collateral security any judgment he may obtain. 13
And since a policy of insurance upon life or health may pass by transfer, will or
succession to any person, whether he has an insurable interest or not, and such
person may recover it whatever the insured might have recovered, 14 the widow of the
decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

Appellant insurance company had failed to establish that there was

concealment made by the insured, hence, it cannot refuse payment
of the claim. 17
The fraudulent intent on the part of the insured must be established to entitle the
insurer to rescind the contract.18 Misrepresentation as a defense of the insurer to avoid
liability is an affirmative defense and the duty to establish such defense by satisfactory

INSURANCE |Aug 1| 8
and convincing evidence rests upon the insurer. 19 In the case at bar, the petitioner
failed to clearly and satisfactorily establish its defense, and is therefore liable to pay
the proceeds of the insurance.1wphi1.nt
And that brings us to the last point in the review of the case at bar. Petitioner claims
that there was no evidence as to the amount of Dr. Leuterio's outstanding
indebtedness to DBP at the time of the mortgagor's death. Hence, for private
respondent's failure to establish the same, the action for specific performance should
be dismissed. Petitioner's claim is without merit. A life insurance policy is a valued
policy. 20 Unless the interest of a person insured is susceptible of exact pecuniary
measurement, the measure of indemnity under a policy of insurance upon life or
health is the sum fixed in the policy. 21 The mortgagor paid the premium according to
the coverage of his insurance, which states that:
The policy states that upon receipt of due proof of the Debtor's death
during the terms of this insurance, a death benefit in the amount of
P86,200.00 shall be paid.
In the event of the debtor's death before his indebtedness with the
creditor shall have been fully paid, an amount to pay the outstanding
indebtedness shall first be paid to the Creditor and the balance of
the Sum Assured, if there is any shall then be paid to the
beneficiary/ies designated by the debtor."22 (Emphasis omitted)
However, we noted that the Court of Appeals' decision was promulgated on May 17,
1993. In private respondent's memorandum, she states that DBP foreclosed in 1995
their residential lot, in satisfaction of mortgagor's outstanding loan. Considering this
supervening event, the insurance proceeds shall inure to the benefit of the heirs of the
deceased person or his beneficiaries. Equity dictates that DBP should not unjustly
enrich itself at the expense of another (Nemo cum alterius detrimenio protest). Hence,
it cannot collect the insurance proceeds, after it already foreclosed on the mortgage.
The proceeds now rightly belong to Dr. Leuterio's heirs represented by his widow,
herein private respondent Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the Court
of Appeals in CA-G.R. CV 18341 is AFFIRMED with MODIFICATION that the petitioner
is ORDERED to pay the insurance proceeds amounting to Eighty-six thousand, two
hundred (P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo Leuterio
(deceased), upon presentation of proof of prior settlement of mortgagor's
indebtedness
to
Development
Bank
of
the
Philippines.
Costs
against
petitioner.1wphi1.nt

G.R. No. L-54216 July 19, 1989

THE
PHILIPPINE
AMERICAN
INSURANCE
COMPANY, petitioner,
vs.
HONORABLE GREGORIO G. PINEDA in his capacity as Judge of the Court of
First Instance of Rizal, and RODOLFO C. DIMAYUGA, respondents.

PARAS, J.:
Challenged before Us in this petition for review on certiorari are the Orders of the
respondent Judge dated March 19, 1980 and June 10, 1980 granting the prayer in the
petition in Sp. Proc. No. 9210 and denying petitioner's Motion for Reconsideration,
respectively.
The undisputed facts are as follows:
On January 15, 1968, private respondent procured an ordinary life insurance policy
from the petitioner company and designated his wife and children as irrevocable
beneficiaries of said policy.
Under date February 22, 1980 private respondent filed a petition which was docketed
as Civil Case No. 9210 of the then Court of First Instance of Rizal to amend the
designation of the beneficiaries in his life policy from irrevocable to revocable.
Petitioner, on March 10, 1980 filed an Urgent Motion to Reset Hearing. Also on the
same date, petitioner filed its Comment and/or Opposition to Petition.
When the petition was called for hearing on March 19, 1980, the respondent Judge
Gregorio G. Pineda, presiding Judge of the then Court of First Instance of Rizal, Pasig
Branch XXI, denied petitioner's Urgent Motion, thus allowing the private respondent to
adduce evidence, the consequence of which was the issuance of the questioned Order
granting the petition.
Petitioner promptly filed a Motion for Reconsideration but the same was denied in an
Order June 10, 1980. Hence, this petition raising the following issues for resolution:
I
WHETHER OR NOT THE DESIGNATION OF THE IRREVOCABLE
BENEFICIARIES COULD BE CHANGED OR AMENDED WITHOUT THE
CONSENT OF ALL THE IRREVOCABLE BENEFICIARIES.

INSURANCE |Aug 1| 9
II
WHETHER OR NOT THE IRREVOCABLE BENEFICIARIES HEREIN, ONE
OF WHOM IS ALREADY DECEASED WHILE THE OTHERS ARE ALL
MINORS, COULD VALIDLY GIVE CONSENT TO THE CHANGE OR
AMENDMENT IN THE DESIGNATION OF THE IRREVOCABLE
BENEFICIARIES.
We are of the opinion that his Honor, the respondent Judge, was in error in issuing the
questioned Orders.
Needless to say, the applicable law in the instant case is the Insurance Act, otherwise
known as Act No. 2427 as amended, the policy having been procured in 1968. Under
the said law, the beneficiary designated in a life insurance contract cannot be changed
without the consent of the beneficiary because he has a vested interest in the policy
(Gercio v. Sun Life Ins. Co. of Canada, 48 Phil. 53; Go v. Redfern and the International
Assurance Co., Ltd., 72 Phil. 71).
In this regard, it is worth noting that the Beneficiary Designation Indorsement in the
policy which forms part of Policy Number 0794461 in the name of Rodolfo Cailles
Dimayuga states that the designation of the beneficiaries is irrevocable (Annex "A" of
Petition in Sp. Proc. No. 9210, Annex "C" of the Petition for Review on Certiorari), to
wit:
It is hereby understood and agreed that, notwithstanding the
provisions of this policy to the contrary, inasmuch as the designation
of the primary/contingent beneficiary/beneficiaries in this Policy has
been made without reserving the right to change said beneficiary/
beneficiaries, such designation may not be surrendered to the
Company, released or assigned; and no right or privilege under the
Policy may be exercised, or agreement made with the Company to
any change in or amendment to the Policy, without the consent of
the said beneficiary/beneficiaries. (Petitioner's Memorandum, p. 72,
Rollo)
Be it noted that the foregoing is a fact which the private respondent did not bother to
disprove.
Inevitably therefore, based on the aforequoted provision of the contract, not to
mention the law then applicable, it is only with the consent of all the beneficiaries that
any change or amendment in the policy concerning the irrevocable beneficiaries may
be legally and validly effected. Both the law and the policy do not provide for any other
exception, thus, abrogating the contention of the private respondent that said
designation can be amended if the Court finds a just, reasonable ground to do so.
Similarly, the alleged acquiescence of the six (6) children beneficiaries of the policy
(the beneficiary-wife predeceased the insured) cannot be considered an effective
ratification to the change of the beneficiaries from irrevocable to revocable.
Indubitable is the fact that all the six (6) children named as beneficiaries were minors
at the time,** for which reason, they could not validly give their consent. Neither

could they act through their father insured since their interests are quite divergent
from one another. In point is an excerpt from the Notes and Cases on Insurance Law
by Campos and Campos, 1960, readingThe insured ... can do nothing to divest the beneficiary of his rights
without his consent. He cannot assign his policy, nor even take its
cash surrender value without the consent of the beneficiary. Neither
can the insured's creditors seize the policy or any right thereunder.
The insured may not even add another beneficiary because by doing
so, he diminishes the amount which the beneficiary may recover and
this he cannot do without the beneficiary's consent.
Therefore, the parent-insured cannot exercise rights and/or privileges pertaining to the
insurance contract, for otherwise, the vested rights of the irrevocable beneficiaries
would be rendered inconsequential.
Of equal importance is the well-settled rule that the contract between the parties is
the law binding on both of them and for so many times, this court has consistently
issued pronouncements upholding the validity and effectivity of contracts. Where there
is nothing in the contract which is contrary to law, good morals, good customs, public
policy or public order the validity of the contract must be sustained. Likewise,
contracts which are the private laws of the contracting parties should be fulfilled
according to the literal sense of their stipulations, if their terms are clear and leave no
room for doubt as to the intention of the contracting parties, for contracts are
obligatory, no matter in what form they may be, whenever the essential requisites for
their validity are present (Phoenix Assurance Co., Ltd. vs. United States Lines, 22
SCRA 675, Phil. American General Insurance Co., Inc. vs. Mutuc, 61 SCRA 22.)
In the recent case of Francisco Herrera vs. Petrophil Corporation, 146 SCRA 385, this
Court ruled that:
... it is settled that the parties may establish such stipulations,
clauses, terms, and conditions as they may want to include; and as
long as such agreements are not contrary to law, good morals, good
customs, public policy or public order, they shall have the force of
law between them.
Undeniably, the contract in the case at bar, contains the indispensable elements for its
validity and does not in any way violate the law, morals, customs, orders, etc. leaving
no reason for Us to deny sanction thereto.
Finally, the fact that the contract of insurance does not contain a contingency when the
change in the designation of beneficiaries could be validly effected means that it was
never within the contemplation of the parties. The lower court, in gratuitously
providing for such contingency, made a new contract for them, a proceeding which we
cannot tolerate. Ergo, We cannot help but conclude that the lower court acted in
excess of its authority when it issued the Order dated March 19, 1980 amending the
designation of the beneficiaries from "irrevocable" to "revocable" over the
disapprobation of the petitioner insurance company.

INSURANCE |Aug 1| 10
WHEREFORE, premises considered, the questioned Orders of the respondent Judge are
hereby nullified and set aside.
SO ORDERED.

G.R. No. 124520 August 18, 1997

Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO.,
INC., petitioners,
vs.
COURT OF APPEALS and CKS DEVELOPMENT CORPORATION, respondents.

PADILLA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set
aside a decision of respondent Court of Appeals.
The undisputed facts of the case are as follows:
1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease
contract with private respondent CKS Development Corporation (hereinafter CKS), as
lessor, on 5 October 1988.
2. One of the stipulations of the one (1) year lease contract states:
18. . . . The LESSEE shall not insure against fire the chattels, merchandise,
textiles, goods and effects placed at any stall or store or space in the leased
premises without first obtaining the written consent and approval of the
LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of
the LESSOR then the policy is deemed assigned and transferred to the
LESSOR for its own benefit; . . . 1
3. Notwithstanding the above stipulation in the lease contract, the Cha spouses
insured against loss by fire the merchandise inside the leased premises for Five
Hundred Thousand (P500,000.00) with the United Insurance Co., Inc. (hereinafter
United) without the written consent of private respondent CKS.
4. On the day that the lease contract was to expire, fire broke out inside the leased
premises.
5. When CKS learned of the insurance earlier procured by the Cha spouses (without its
consent), it wrote the insurer (United) a demand letter asking that the proceeds of the
insurance contract (between the Cha spouses and United) be paid directly to CKS,
based on its lease contract with the Cha spouses.
6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha
spouses and United.
7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a
decision * ordering therein defendant United to pay CKS the amount of P335,063.11

INSURANCE |Aug 1| 11
and defendant Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00 as
attorney's fees and costs of suit.
8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a
decision ** dated 11 January 1996, affirming the trial court decision, deleting
however the awards for exemplary damages and attorney's fees. A motion for
reconsideration by United was denied on 29 March 1996.
In the present petition, the following errors are assigned by petitioners to the Court of
Appeals:
I
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT
THE STIPULATION IN THE CONTRACT OF LEASE TRANSFERRING THE
PROCEEDS OF THE INSURANCE TO RESPONDENT IS NULL AND VOID FOR
BEING CONTRARY TO LAW, MORALS AND PUBLIC POLICY
II
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE
CONTRACT OF LEASE ENTERED INTO AS A CONTRACT OF ADHESION AND
THEREFORE THE QUESTIONABLE PROVISION THEREIN TRANSFERRING THE
PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE RULED OUT IN
FAVOR OF PETITIONER
III
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF
AN INSURANCE POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE SAID
POLICY IN CONTRAVENTION OF THE INSURANCE LAW
IV
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF
AN INSURANCE POLICY ON THE BASIS OF A STIPULATION WHICH IS VOID
FOR BEING WITHOUT CONSIDERATION AND FOR BEING TOTALLY
DEPENDENT ON THE WILL OF THE RESPONDENT CORPORATION. 2
The core issue to be resolved in this case is whether or not the aforequoted paragraph
18 of the lease contract entered into between CKS and the Cha spouses is valid insofar
as it provides that any fire insurance policy obtained by the lessee (Cha spouses) over
their merchandise inside the leased premises is deemed assigned or transferred to the
lessor (CKS) if said policy is obtained without the prior written consent of the latter.
It is, of course, basic in the law on contracts that the stipulations contained in a
contract cannot be contrary to law, morals, good customs, public order or public
policy. 3

Sec. 18 of the Insurance Code provides:

Sec. 18. No contract or policy of insurance on property shall be enforceable
except for the benefit of some person having an insurable interest in the
property insured.
A non-life insurance policy such as the fire insurance policy taken by petitionerspouses over their merchandise is primarily a contract of indemnity. Insurable interest
in the property insured must exist at the time the insurance takes effect and at the
time the loss occurs. 4 The basis of such requirement of insurable interest in property
insured is based on sound public policy: to prevent a person from taking out an
insurance policy on property upon which he has no insurable interest and collecting the
proceeds of said policy in case of loss of the property. In such a case, the contract of
insurance is a mere wager which is void under Section 25 of the Insurance Code,
which provides:
Sec. 25. Every stipulation in a policy of Insurance for the payment of loss,
whether the person insured has or has not any interest in the property
insured, or that the policy shall be received as proof of such interest, and
every policy executed by way of gaming or wagering, is void.
In the present case, it cannot be denied that CKS has no insurable interest in the
goods and merchandise inside the leased premises under the provisions of Section 17
of the Insurance Code which provide:
Sec. 17. The measure of an insurable interest in property is the extent to
which the insured might be damnified by loss of injury thereof.
Therefore, respondent CKS cannot, under the Insurance Code a special law be
validly a beneficiary of the fire insurance policy taken by the petitioner-spouses over
their merchandise. This insurable interest over said merchandise remains with the
insured, the Cha spouses. The automatic assignment of the policy to CKS under the
provision of the lease contract previously quoted is void for being contrary to law
and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to
the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United)
cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS)
who has no insurable interest in the property insured.
The liability of the Cha spouses to CKS for violating their lease contract in that the Cha
spouses obtained a fire insurance policy over their own merchandise, without the
consent of CKS, is a separate and distinct issue which we do not resolve in this case.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET
ASIDE and a new decision is hereby entered, awarding the proceeds of the fire
insurance policy to petitioners Nilo Cha and Stella Uy-Cha.
SO ORDERED.

INSURANCE |Aug 1| 12
G.R. No. L-31845 April 30, 1979
GREAT
PACIFIC
LIFE
ASSURANCE
vs.
HONORABLE COURT OF APPEALS, respondents.

COMPANY, petitioner,

G.R. No. L-31878 April 30, 1979

LAPULAPU
D.
MONDRAGON, petitioner,
vs.
HON. COURT OF APPEALS and NGO HING, respondents.
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner
Company.
Voltaire Garcia for petitioner Mondragon.
Pelaez, Pelaez & Pelaez for respondent Ngo Hing.

DE CASTRO, J.:
The two above-entitled cases were ordered consolidated by the Resolution of this
Court dated April 29, 1970, (Rollo, No. L-31878, p. 58), because the petitioners in
both cases seek similar relief, through these petitions for certiorari by way of appeal,
from the amended decision of respondent Court of Appeals which affirmed in toto the
decision of the Court of First Instance of Cebu, ordering "the defendants (herein
petitioners Great Pacific Ligfe Assurance Company and Mondragon) jointly and
severally to pay plaintiff (herein private respondent Ngo Hing) the amount of
P50,000.00 with interest at 6% from the date of the filing of the complaint, and the
sum of P1,077.75, without interest.
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 endownment 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 premuim the sum of P1,077.75 going
over to the Company, but he reatined the amount of P1,317.00 as his commission for
being a duly authorized agebt of Pacific Life. Upon the payment of the insurance
premuim, 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

INSURANCE |Aug 1| 13
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.
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 insurance plan to children, pointing out that since
1954 the customers, especially the Chinese, were asking for such coverage (Exhibit 4M).
It was when things were in such state that on May 28, 1957 Helen Go died of influenza
with complication of bronchopneumonia. 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 refered to against both petitioners.
The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit
E) constituted a temporary contract of the life insurance in question; and (2) whether
private respondent Ngo Hing concealed the state of health and physical condition of
Helen Go, which rendered void the aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents required before a deposit is
considered a BINDING RECEIPT. These conditions state that:
A. If the Company or its agent, shan have received the premium
deposit ... and the insurance application, ON or PRIOR to the date of
medical examination ... said insurance shan be in force and in
effect from the date of such medical examination, for such period as
is covered by the deposit ...,PROVIDED the company shall be
satisfied that on said date the applicant was insurable on standard
rates under its rule for the amount of insurance and the kind of
policy requested in the application.
D. If the Company does not accept the application on standard rate
for the amount of insurance and/or the kind of policy requested in
the application but issue, or offers to issue a policy for a different
plan and/or amount ..., the insurance shall not be in force and in
effect until the applicant shall have accepted the policy as issued
or offered by the Company and shall have paid the full premium
thereof. If the applicant does not accept the policy, the deposit shall
be refunded.

E. If the applicant shall not have been insurable under Condition A

above, and the Company declines to approve the application the
insurance applied for shall not have been in force at any time and
the sum paid be returned to the applicant upon the surrender of this
receipt. (Emphasis Ours).
The aforequoted provisions printed on Exhibit E show that the binding deposit receipt
is intended to be merely a provisional or temporary insurance contract and only upon
compliance of the following conditions: (1) that the company shall be satisfied that the
applicant was insurable on standard rates; (2) that if the company does not accept the
application and offers to issue a policy for a different plan, the insurance contract shall
not be binding until the applicant accepts the policy offered; otherwise, the deposit
shall be reftmded; and (3) that if the applicant is not ble according to the standard
rates, and the company disapproves the application, the insurance applied for shall not
be in force at any time, and the premium paid shall be returned to the applicant.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in
question is merely an acknowledgment, on behalf of the company, that the latter's
branch office had received from the applicant the insurance premium and had
accepted the application subject for processing by the insurance company; and that
the latter will either approve or reject the same on the basis of whether or not the
applicant is "insurable on standard rates." Since petitioner Pacific Life disapproved the
insurance application of respondent Ngo Hing, the binding deposit receipt in question
had never become in force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely
conditional and does not insure outright. As held by this Court, where an agreement is
made between the applicant and the agent, no liability shall attach until the principal
approves the risk and a receipt is given by the agent. The acceptance is merely
conditional and is subordinated to the act of the company in approving or rejecting the
application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure
by itself (De Lim vs. Sun Life Assurance Company of Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication of April 30, 1957
(Exhibit 3-M), Pacific Life disapproved the insurance application in question on the
ground that it is not offering the twenty-year endowment insurance policy to children
less than seven years of age. What it offered instead is another plan known as the
Juvenile Triple Action, which private respondent failed to accept. In the absence of a
meeting of the minds between petitioner Pacific Life and private respondent Ngo Hing
over the 20-year endowment life insurance in the amount of P50,000.00 in favor of
the latter's one-year old daughter, and with the non-compliance of the abovequoted
conditions stated in the disputed binding deposit receipt, there could have been no
insurance contract duly perfected between thenl Accordingly, the deposit paid by
private respondent shall have to be refunded by Pacific Life.
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of
insurance, like other contracts, must be assented to by both parties either in person or
by their agents ... The contract, to be binding from the date of the application, must

INSURANCE |Aug 1| 14
have been a completed contract, one that leaves nothing to be dione, nothing to be
completed, nothing to be passed upon, or determined, before it shall take effect.
There can be no contract of insurance unless the minds of the parties have met in
agreement."
We are not impressed with private respondent's contention that failure of petitioner
Mondragon to communicate to him the rejection of the insurance application would not
have any adverse effect on the allegedly perfected temporary contract (Respondent's
Brief, pp. 13-14). In this first place, there was no contract perfected between the
parties who had no meeting of their minds. Private respondet, being an authorized
insurance agent of Pacific Life at Cebu branch office, is indubitably aware that said
company does not offer the life insurance applied for. When he filed the insurance
application in dispute, private respondent was, therefore, only taking the chance that
Pacific Life will approve the recommendation of Mondragon for the acceptance and
approval of the application in question along with his proposal that the insurance
company starts to offer the 20-year endowment insurance plan for children less than
seven years. Nonetheless, the record discloses that Pacific Life had rejected the
proposal and recommendation. Secondly, having an insurable interest on the life of his
one-year old daughter, aside from being an insurance agent and an offense associate
of petitioner Mondragon, private respondent Ngo Hing must have known and followed
the progress on the processing of such application and could not pretend ignorance of
the Company's rejection of the 20-year endowment life insurance application.
At this juncture, We find it fit to quote with approval, the very apt observation of then
Appellate Associate Justice Ruperto G. Martin who later came up to this Court, from
his dissenting opinion to the amended decision of the respondent court which
completely reversed the original decision, the following:
Of course, there is the insinuation that neither the memorandum of
rejection (Exhibit 3-M) nor the reply thereto of appellant Mondragon
reiterating the desire for applicant's father to have the application
considered as one for a 20-year endowment plan was ever duly
communicated to Ngo; Hing, father of the minor applicant. I am not
quite conninced that this was so. Ngo Hing, as father of the applicant
herself, was precisely the "underwriter who wrote this case" (Exhibit
H-1). The unchallenged statement of appellant Mondragon in his
letter of May 6, 1957) (Exhibit 4-M), specifically admits that said Ngo
Hing was "our associate" and that it was the latter who "insisted that
the plan be placed on the 20-year endowment plan." Under these
circumstances, it is inconceivable that the progress in the processing
of the application was not brought home to his knowledge. He must
have been duly apprised of the rejection of the application for a 20year endowment plan otherwise Mondragon would not have asserted
that it was Ngo Hing himself who insisted on the application as
originally filed, thereby implictly declining the offer to consider the
application under the Juvenile Triple Action Plan. Besides, the
associate of Mondragon that he was, Ngo Hing should only be
presumed to know what kind of policies are available in the company

for minors below 7 years old. What he and Mondragon were

apparently trying to do in the premises was merely to prod the
company into going into the business of issuing endowment policies
for minors just as other insurance companies allegedly do. Until such
a definite policy is however, adopted by the company, it can hardly
be said that it could have been bound at all under the binding slip for
a plan of insurance that it could not have, by then issued at all.
(Amended Decision, Rollo, pp- 52-53).
2. 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 piysical
condition of his daughter Helen Go. Wher private regpondeit 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 disguished. Nonetheless, private respondent, in apparent bad
faith, withheld the fact materal to the risk to be assumed by the insurance compary.
As an insurance agent of Pacific Life, he ought to know, as he surely must have
known. his duty and responsibility to such a material fact. Had he diamond said
significant fact in the insurance application fom 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 demotion, however slight [Black's Law Dictionary, 2nd Edition], not for
the alone but equally so for the insurer (Field man's Insurance Co., Inc. vs. Vda de
Songco, 25 SCRA 70). Concealment is a neglect to communicate that which a partY
knows aDd 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 vs. Court of Appeals, et al, 105 Phil 930; Satumino
vs. Philippine American Life Insurance Company, 7 SCRA 316). Private respondent
appears guilty thereof.
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 comraitted by herein private respondent.
WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one
is hereby entered absolving petitioners Lapulapu D. Mondragon and Great Pacific Life
Assurance Company from their civil liabilities as found by respondent Court and
ordering the aforesaid insurance company to reimburse the amount of P1,077.75,
without interest, to private respondent, Ngo Hing. Costs against private respondent.

INSURANCE |Aug 1| 15

G.R. No. L-30685 May 30, 1983

NG
GAN
ZEE, plaintiff-appellee,
vs.
ASIAN CRUSADER LIFE ASSURANCE CORPORATION, defendant-appellant.
Alberto Q. Ubay for plaintiff-appellee.
Santiago F. A lidio for defendant-appellant.

ESCOLIN, J.:
This is an appeal from the judgment of the Court of First Instance of Manila, ordering
the appellant Asian-Crusader Life Assurance Corporation to pay the face value of an
insurance policy issued on the life of Kwong Nam the deceased husband of appellee Ng
Gan Zee. Misrepresentation and concealment of material facts in obtaining the policy
were pleaded to avoid the policy. The lower court rejected the appellant's theory and
ordered the latter to pay appellee "the amount of P 20,000.00, with interest at the
legal rate from July 24, 1964, the date of the filing of the complaint, until paid, and
the costs. "
The Court of Appeals certified this appeal to Us, as the same involves solely a question
of law.

INSURANCE |Aug 1| 16
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 insuranceHas 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.

... The evidence shows that the Insular Life Assurance Co., Ltd.
approved Kwong Nam's request for reinstatement and amendment of
his lapsed insurance policy on April 24, 1962 [Exh. L-2 Stipulation of
Facts, Sept. 22, 1965). The Court notes from said application for
reinstatement and amendment, Exh. 'L', that the amount applied for
was P20,000.00 only and not for P50,000.00 as it was in the lapsed
policy. The amount of the reinstated and amended policy was also
for P20,000.00. It results, therefore, that when on May 12, 1962
Kwong Nam answered 'No' to the question whether any life
insurance company ever refused his application for reinstatement of
a lapsed policy he did not misrepresent any fact.
... the evidence shows that the application of Kwong Nam with the
Insular Life Assurance Co., Ltd. was for the reinstatement and
amendment of his lapsed insurance policy-Policy No. 369531 -not an
application for a 'new insurance policy. The Insular Life Assurance
Co., Ltd. approved the said application on April 24, 1962. Policy No.
369531 was reinstated for the amount of P20,000.00 as applied for
by Kwong Nam [Exhs. 'L', 'L-l' and 'L-2']. No new policy was issued
by the Insular Life Assurance Co., Ltd. to Kwong Nam in connection
with said application for reinstatement and amendment. Such being
the case, the Court finds that there is no misrepresentation on this
matter. 2
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:

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. ... 1
The lower court found the argument bereft of factual basis; and We quote with
approval its disquisition on the matterOn the first question there is no evidence that the Insular Life
Assurance Co., Ltd. ever refused any application of Kwong Nam for
insurance. Neither is there any evidence that any other insurance
company has refused any application of Kwong Nam for insurance.

Operated on for a Tumor [mayoma] of the stomach. Claims that

Tumor has been associated with ulcer of stomach. Tumor taken out
was hard and of a hen's egg size. Operation was two [2] years ago
in Chinese General Hospital by Dr. Yap. Now, claims he is completely
recovered.
To demonstrate the insured's misrepresentation, appellant directs Our attention to:
[1] The report of Dr. Fu Sun Yuan the physician who treated Kwong Nam at the
Chinese General Hospital on May 22, 1960, i.e., about 2 years before he applied for an
insurance policy on May 12, 1962. According to said report, Dr. Fu Sun Yuan had
diagnosed the patient's ailment as 'peptic ulcer' for which, an operation, known as a
'sub-total gastric resection was performed on the patient by Dr. Pacifico Yap; and
[2] The Surgical Pathology Report of Dr. Elias Pantangco showing that the specimen
removed from the patient's body was 'a portion of the stomach measuring 12 cm. and
19 cm. along the lesser curvature with a diameter of 15 cm. along the greatest
dimension.

INSURANCE |Aug 1| 17
On the bases of the above undisputed medical data showing that the insured was
operated on for peptic ulcer", involving the excision of a portion of the stomach,
appellant argues that the insured's statement in his application that a tumor, "hard
and of a hen's egg size," was removed during said operation, constituted material
concealment.

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:

The question to be resolved may be propounded thus: Was appellant, because of

insured's aforesaid representation, misled or deceived into entering the contract or in
accepting the risk at the rate of premium agreed upon?

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.

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.

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
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.
SO ORDERED.

G.R. No. 105135 June 22, 1995

SUNLIFE
ASSURANCE
COMPANY
OF
CANADA, petitioner,
vs.
The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA
BACANI, respondents.

QUIASON, J.:

INSURANCE |Aug 1| 18
This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court
to reverse and set aside the Decision dated February 21, 1992 of the Court of Appeals
in CA-G.R. CV No. 29068, and its Resolution dated April 22, 1992, denying
reconsideration thereof.

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).

We grant the petition.

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.

I
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:

any

On January 14, 1990, private respondents filed a "Proposed Stipulation with Prayer for
Summary Judgment" where they manifested that they "have no evidence to refute the
documentary evidence of concealment/misrepresentation by the decedent of his health
condition (Rollo, p. 62).
Petitioner filed its Request for Admissions relative to the authenticity and due
execution of several documents as well as allegations regarding the health of the
insured. Private respondents failed to oppose said request or reply thereto, thereby
rendering an admission of the matters alleged.
Petitioner then moved for a summary judgment and the trial court decided in favor of
private respondents. The dispositive portion of the decision is reproduced as follows:

5. Within the past 5 years have you:

a) consulted
practitioner?

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.

doctor

or

other

health

b) submitted to:
EGG?
X-rays?
blood
other tests?

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)

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs

and against the defendant, condemning the latter to pay the former
the amount of One Hundred Thousand Pesos (P100,000.00) the face
value of insured's Insurance Policy No. 3903766, and the Accidental
Death Benefit in the amount of One Hundred Thousand Pesos
(P100,000.00) and further sum of P5,000.00 in the concept of
reasonable attorney's fees and costs of suit.
Defendant's counterclaim is hereby Dismissed (Rollo, pp. 43-44).
In ruling for private respondents, the trial court concluded 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".
Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial
court. The appellate court ruled that petitioner cannot avoid its obligation by claiming
concealment because the cause of death was unrelated to the facts concealed by the
insured. It also sustained the finding of the trial court that matters relating to the
health history of the insured were irrelevant since petitioner waived the medical

INSURANCE |Aug 1| 19
examination prior to the approval and issuance of the insurance policy. Moreover, the
appellate court agreed with the trial court that the policy was "non-medical" ( Rollo, pp.
4-5).

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.

Petitioner's motion for reconsideration was denied; hence, this petition.

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.

II
We reverse the decision of the Court of Appeals.
The rule that factual findings of the lower court and the appellate court are binding on
this Court is not absolute and admits of exceptions, such as when the judgment is
based on a misappreciation of the facts (Geronimo v. Court of Appeals, 224 SCRA 494
[1993]).
In weighing the evidence presented, the trial court concluded that indeed there was
concealment and misrepresentation, however, the same was made in "good faith" and
the facts concealed or misrepresented were irrelevant since the policy was "nonmedical". We disagree.
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.

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.
WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is
REVERSED and SET ASIDE.
SO ORDERED.