Other Insurance Clause
in its answer to wit: (a) lack of formal claim by insured over the
PACIFIC BANKING CORPORATION v. COURT OF APPEALS
and ORIENTAL ASSURANCE CORPORATION, G.R. No. L-
41014, November 28, 1988, J. PARAS
As the insurance policy against fire expressly required that notice
should be given by the insured of other insurance upon the same
property, the total absence of such notice nullifies the policy
Undoubtedly, it is but fair and just that where the insured who is
primarily entitled to receive the proceeds of the policy has by its
fraud and/or misrepresentation, forfeited said right, with more
reason petitioner which is merely claiming as indorsee of said
insured, cannot be entitled to such proceeds.
FACTS:
On October 21,1963, Fire Policy, an open policy, was
issued to the Paramount Shirt Manufacturing Co.(the Insured)
by which private respondent Oriental Assurance Corporation
bound itself to indemnify the insured for any loss or damage, not
exceeding P61,000.00, caused by fire to its property consisting
of stocks, materials and supplies usual to a shirt factory,
including furniture, fixtures, machinery and equipment while
contained in the ground, second and third floors of the building
situated at San Nicolas, Manila, for a period of one year
commencing from that date to October 21, 1964.
The insured was at the time of the issuance of the
policy and is up to this time, a debtor of petitioner Pacific
Banking Corp. in the amount of not less than Eight Hundred
Thousand Pesos (P800,000.00) and the goods described in the
policy were held in trust by the insured for the petitioner under
thrust receipts.
On January 4, 1964, while the aforesaid policy was in
full force and effect, a fire broke out on the subject premises
destroying the goods contained in its ground and second floors.
On January 24, 1964, counsel for the petitioner sent a letter of
demand to private respondent for indemnity due to the loss of
property by fire under the endorsement of said policy.
On January 28, 1964, private respondent informed
counsel for the petitioner that it was not yet ready to accede to
the latter's demand as the former is awaiting the final report of
the insurance adjuster, H.H. Bayne Adjustment Company.
On March 25, 1964, the said insurance adjuster
notified counsel for the petitioner that the insured under the
policy had not filed any claim with it, nor submitted proof of loss
which is a clear violation of Policy Condition No.11, and for
which reason, determination of the liability of private
respondent could not be had.
On April 24, 1964, petitioner's counsel replied to
aforesaid letter asking the insurance adjuster to verify from the
records of the Bureau of Customs the entries of merchandise
taken into the customs bonded warehouse razed by fire as a
reliable proof of loss. For failure of the insurance company to
pay the loss as demanded, petitioner Pacific Banking on April
28, 1 964, filed in the court a quo an action for a sum of money
against the private respondent, Oriental Assurance Corporation,
in the principal sum of P61,000.00 issued in favor of Paramount
Shirt Manufacturing Co.
Respondent Insurance raised the following defenses
loss and (b) premature filing of the suit as neither plaintiff nor
insured had submitted any proof of loss on the basis of which
defendant would determine its liability and the amount thereof,
either to the private respondent or its adjuster H.H. Bayne
Adjustment Co., both in violation of Policy Condition No.11
At the trial, petitioner presented in evidence Exhibit
"H", which is a communication dated December 22, 1965 of the
insurance adjuster, H.H. Bayne Adjustment Co. to Asian Surety
Insurance Co., Inc., revealing undeclared co-insurances with
the following: P30,000.00 with Wellington Insurance;
P25,000. 00 with Empire Surety and P250,000.00 with
Asian Surety; undertaken by insured Paramount on the
same property covered by its policy with private
respondent whereas the only co-insurances declared in the
subject policy are those of P30,000.00 with Malayan
P50,000.00 with South Sea and P25.000.00 with Victory
It will be noted that the defense of fraud and/or
violation of Condition No. 3 in the Policy, in the form of non-
declaration of co-insurances which was not pleaded in the
answer was also not pleaded in the Motion to Dismiss.
TC: private respondent liable to the petitioner under the said
contract of insurance
CA: reversed the decision of the trial court
ISSUE/S:
1. Whether the policy is void for non-disclosure of other
insurance which violated policy conditions No. 3?
2. If the policy is void, whether the mortgage is also bound by its
avoidance?
3. Whether there is cause of action notwithstanding the
violation of policy condition No. 11?
RULING:
1. Yes. Policy Condition No. 3 explicitly provides:
3. The Insured shall give notice to the Company of any
insurance already effected, or which may subsequently be
effected, covering any of the property hereby insured, and unless
such notice be given and the particulars of such insurance or
insurances be stated in or endorsed on this Policy by or on behalf
of the Company before the occurrence of any loss or damage, all
benefit under this policy shall be forfeited.
It is not disputed that the insured failed to reveal
before the loss three other insurances. As found by the Court of
Appeals, by reason of said unrevealed insurances, the insured
had been guilty of a false declaration; a clear misrepresentation
and a vital one because where the insured had been asked to
reveal but did not, that was deception. Otherwise stated, had the
insurer known that there were many co-insurances, it could
have hesitated or plainly desisted from entering into such
contract. Hence, the insured was guilty of clear fraud.
Petitioner's contention that the allegation of fraud is
but a mere inference or suspicion is untenable. In fact, concrete
evidence of fraud or false declaration by the insured was
furnished by the petitioner itself when the facts alleged in the
policy under clauses "Co-Insurances Declared" and "Other
Insurance Clause" are materially different from the actual
number of co-insurances taken over the subject property.
Consequently, "the whole foundation of the contract fails, the
risk does not attach and the policy never becomes a contract
between the parties. Representations of facts are the foundation
of the contract and if the foundation does not exist, the
superstructure does not arise. Falsehood in such
representations is not shown to vary or add to the contract, or
to terminate a contract which has once been made, but to show
that no contract has ever existed (Tolentino, Commercial Laws
of the Philippines, p. 991, Vol. II, 8th Ed.) A void or inexistent
contract is one which has no force and effect from the very
beginning, as if it had never been entered into, and which cannot
be validated either by time or by ratification.
As the insurance policy against fire expressly
required that notice should be given by the insured of other
insurance upon the same property, the total absence of such
notice nullifies the policy.
The argument that notice of co-insurances may be
made orally is preposterous and negates policy condition No. 20
which requires every notice and other communications to the
insurer to be written or printed.
2. Yes. Petitioner points out that Condition No. 3 in the
policy in relation to the "other insurance clause" supposedly to
have been violated, cannot certainly defeat the right of the
petitioner to recover the insurance as mortgagee/assignee.
Particularly referring to the mortgage clause of the policy,
petitioner argues that considering the purpose for which the
endorsement or assignment was made, that is, to protect the
mortgagee/assignee against any untoward act or omission of
the insured, it would be absurd to hold that petitioner is barred
from recovering the insurance on account of the alleged
violation committed by the insured.
However, the mortgage clause is clear in saying:
Mortgage Clause
Loss, if any, under this policy, shall be payable to the PACIFIC
BANKING CORPORATION Manila mortgagee/trustor as its
interest may appear, it being hereby understood and agreed
that this insurance as to the interest of the mortgagee/trustor
only herein, shall not be invalidated by any act or neglect
except fraud or misrepresentation, or arsonof the mortgagor
or owner/trustee of the property insured; provided, that in case
the mortgagor or owner/ trustee neglects or refuses to pay any
premium, the mortgagee/ trustor shall, on demand pay the
same.
The paragraph clearly states the exceptions to the
general rule that insurance as to the interest of the mortgagee,
cannot be invalidated; namely: fraud, or misrepresentation or
arson. As correctly found by the Court of Appeals, concealment
of the aforecited co-insurances can easily be fraud, or in the very
least, misrepresentation.
Undoubtedly, it is but fair and just that where the
insured who is primarily entitled to receive the proceeds of the
policy has by its fraud and/or misrepresentation, forfeited said
right, with more reason petitioner which is merely claiming as
indorsee of said insured, cannot be entitled to such proceeds.
3. No. Generally, the cause of action on the policy accrues
when the loss occurs, But when the policy provides that no
action shall be brought unless the claim is first presented
extrajudicially in the manner provided in the policy, the cause of
action will accrue from the time the insurer finally rejects the
claim for payment.
In the case at bar, policy condition No. 11 specifically
provides that the insured shall on the happening of any loss or
damage give notice to the company and shall within fifteen (15)
days after such loss or damage deliver to the private respondent
(a) a claim in writing giving particular account as to the articles
or goods destroyed and the amount of the loss or damage and
(b) particulars of all other insurances, if any. Likewise, insured
was required "at his own expense to produce, procure and give
to the company all such further particulars, plans, specifications,
books, vouchers, invoices, duplicates or copies thereof,
documents, proofs and information with respect to the claim".
The evidence adduced shows that twenty-four (24)
days after the fire, petitioner merely wrote letters to private
respondent to serve as a notice of loss, thereafter, the former did
not furnish the latter whatever pertinent documents were
necessary to prove and estimate its loss. Instead, petitioner
shifted upon private respondent the burden of fishing out the
necessary information to ascertain the particular account of the
articles destroyed by fire as well as the amount of loss. It is
noteworthy that private respondent and its adjuster notified
petitioner that insured had not yet filed a written claim nor
submitted the supporting documents in compliance with the
requirements set forth in the policy. Despite the notice, the
latter remained unheedful. Since the required claim by insured,
together with the preliminary submittal of relevant documents
had not been complied with, it follows that private respondent
could not be deemed to have finally rejected petitioner's claim
and therefore the latter's cause of action had not yet arisen.
Compliance with condition No. 11 is a requirement sine qua non
to the right to maintain an action as prior thereto no violation of
petitioner's right can be attributable to private respondent. This
is so, as before such final rejection, there was no real necessity
for bringing suit. Petitioner should have endeavored to file the
formal claim and procure all the documents, papers, inventory
needed by private respondent or its adjuster to ascertain the
amount of loss and after compliance await the final rejection of
its claim. Indeed, the law does not encourage unnecessary
litigation.
Verily, petitioner prematurely filed Civil Case No.
56889 and dismissal thereof was warranted under the
circumstances. While it is a cardinal principle of insurance law
that a policy or contract of insurance is to be construed liberally
in favor of the insured and strictly as against the insurer
company, yet, contracts of insurance, like other contracts, are to
be construed according to the sense and meaning of the terms
which the parties themselves have used. If such terms are clear
and unambiguous, they must be taken and understood in their
plain, ordinary and popular sense.
Two-year contestability period
EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO
TAN v. THE COURT OF APPEALS and THE PHILIPPINE
AMERICAN LIFE INSURANCE COMPANY, G.R. No. 48049,
June 29, 1989. J. GUTIERREZ, JR.
The insurer has two years from the date of issuance of the
insurance contract or of its last reinstatement within which to
contest the policy, whether or not, the insured still lives within
such period. After two years, the defenses of concealment or
misrepresentation, no matter how patent or well founded, no
longer lie. Congress felt this was a sufficient answer to the various
tactics employed by insurance companies to avoid liability. The
petitioners' interpretation would give rise to the incongruous
situation where the beneficiaries of an insured who dies right
after taking out and paying for a life insurance policy, would be
allowed to collect on the policy even if the insured fraudulently
concealed material facts.
FACTS:
On September 23,1973, Tan Lee Siong, father of
herein petitioners EMILIO TAN, JUANITO TAN, ALBERTO TAN
and ARTURO TAN, applied for life insurance in the amount of P
80,000.00 with respondent company. Said application was
approved and Policy No. 1082467 was issued effective
November 6,1973, with petitioners the beneficiaries thereof.
On April 26,1975, Tan Lee Siong died of hepatoma.
Petitioners then filed with respondent company their claim for
the proceeds of the life insurance policy. However, in a letter
dated September 11, 1975, respondent company denied
petitioners' claim and rescinded the policy by reason of the
alleged misrepresentation and concealment of material facts
made by the deceased Tan Lee Siong in his application for
insurance. The premiums paid on the policy were thereupon
refunded.
Alleging that respondent company's refusal to pay
them the proceeds of the policy was unjustified and
unreasonable, petitioners filed on November 27, 1975, a
complaint against the former with the Office of the Insurance
Commissioner.
Insurance Commissioner: dismissed petitioners' complaint
CA: dismissed ' the petitioners' appeal from the Insurance
Commissioner's decision for lack of merit.
The petitioners contend that the respondent
company no longer had the right to rescind the contract of
insurance as rescission must allegedly be done during the
lifetime of the insured within two years and prior to the
commencement of action.
ISSUE:
Whether the insurance company can still rescind the contract
on the ground of concealment and misrepresentation
notwithstanding the fact that rescission was done when the
insured was already dead?
RULING:
Yes. The pertinent section in the Insurance Code provides:
Section 48. Whenever a right to rescind a contract of insurance
is given to the insurer by any provision of this chapter, such
right must be exercised previous to the commencement of an
action on the contract.
After a policy of life insurance made payable on the death of the
insured shall have been in force during the lifetime of the
insured for a period of two years from the date of its issue or of
its last reinstatement, the insurer cannot prove that the policy is
void ab initio or is rescindable by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.
According to the petitioners, the Insurance Law was
amended and the second paragraph of Section 48 added to
prevent the insurance company from exercising a right to
rescind after the death of the insured.
The so-called "incontestability clause" precludes the insurer
from raising the defenses of false representations or
concealment of material facts insofar as health and previous
diseases are concerned if the insurance has been in force for at
least two years during the insured's lifetime. The phrase "during
the lifetime" found in Section 48 simply means that the policy is
no longer considered in force after the insured has died. The key
phrase in the second paragraph of Section 48 is "for a period of
two years."
As noted by the Court of Appeals, to wit:
The policy was issued on November 6,1973 and the
insured died on April 26,1975. The policy was thus in force for
a period of only one year and five months. Considering that the
insured died before the two-year period had lapsed, respondent
company is not, therefore, barred from proving that the policy
is void ab initio by reason of the insured's fraudulent
concealment or misrepresentation. Moreover, respondent
company rescinded the contract of insurance and refunded the
premiums paid on September 11, 1975, previous to the
commencement of this action on November 27,1975.
The petitioners contend that there could have been
no concealment or misrepresentation by their late father
because Tan Lee Siong did not have to buy insurance. He was
only pressured by insistent salesmen to do so.
The legislative answer to the arguments posed by the
petitioners is the "incontestability clause" added by the second
paragraph of Section 48.
The insurer has two years from the date of issuance
of the insurance contract or of its last reinstatement within
which to contest the policy, whether or not, the insured still lives
within such period. After two years, the defenses of concealment
or misrepresentation, no matter how patent or well founded, no
longer lie. Congress felt this was a sufficient answer to the
various tactics employed by insurance companies to avoid
liability. The petitioners' interpretation would give rise to the
incongruous situation where the beneficiaries of an insured
who dies right after taking out and paying for a life insurance
policy, would be allowed to collect on the policy even if the
insured fraudulently concealed material facts.
Additional Ratio:
There is no showing that the questions in the application form
for insurance regarding the insured's medical history are in
smaller print than the rest of the printed form or that they are
designed in such a way as to conceal from the applicant their
importance. If a warning in bold red letters or a boxed warning
similar to that required for cigarette advertisements by the
Surgeon General of the United States is necessary, that is for
Congress or the Insurance Commission to provide as protection
against high pressure insurance salesmanship.
The deceased, by affixing his signature on the application form,
affirmed the correctness of all the entries and answers
appearing therein. It is but to be expected that he, a
businessman, would not have affixed his signature on the
application form unless he clearly understood its significance.
For, the presumption is that a person intends the ordinary
consequence of his voluntary act and takes ordinary care of his
concerns.
The evidence for respondent company shows that on September
19,1972, the deceased was examined by Dr. Victoriano Lim and
was found to be diabetic and hypertensive; that by January,
1973, the deceased was complaining of progressive weight loss
and abdominal pain and was diagnosed to be suffering from
hepatoma, Another physician, Dr. Wenceslao Vitug, testified
that the deceased came to see him on December 14, 1973 for
consolation and claimed to have been diabetic for five years.
Because of the concealment made by the deceased of his
consultations and treatments for hypertension, diabetes and
liver disorders, respondent company was thus misled into
accepting the risk and approving his application as medically
standard and dispensing with further medical investigation and
examination. For as long as no adverse medical history is
revealed in the application form, an applicant for insurance is
presumed to be healthy and physically fit and no further medical
investigation or examination is conducted by respondent
company.
SUNLIFE ASSURANCE COMPANY OF CANADA v. The Hon.
COURT OF APPEALS and Spouses ROLANDO and
BERNARDA BACANI, G.R. No. 105135, June 22, 1995, J.
QUIASON
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.
FACTS:
On April 15, 1986, Robert John B. Bacani procured a
life insurance contract for himself from petitioner. He was
issued Policy No. 3-903-766-X valued at P100,000.00, with
double indemnity in case of accidental death. The designated
beneficiary was his mother, respondent Bernarda Bacani.
On June 26, 1987, the insured died in a plane crash.
Respondent Bernarda Bacani filed a claim with petitioner,
seeking the benefits of the insurance policy taken by her son.
Petitioner conducted an investigation and its findings prompted
it to reject the claim.
In its letter, petitioner informed respondent
Bernarda Bacani, that the insured did not disclose material facts
relevant to the issuance of the policy, thus rendering the
contract of insurance voidable. A check representing the total
premiums paid in the amount of P10,172.00 was attached to
said letter.
Petitioner claimed that the insured gave false statements in his
application when he answered the following questions:
5. Within the past 5 years have you:
a) consulted any doctor or other health practitioner?
b) submitted to:
EGG?; X-rays?; blood tests? other tests?
c) attended or been admitted to any hospital or other
medical facility?
6. Have you ever had or sought advice for:
b) urine, kidney or bladder disorder?
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.
Petitioner discovered that two weeks prior to his
application for insurance, the insured was examined and
confined at the Lung Center of the Philippines, where he was
diagnosed for renal failure. During his confinement, the
deceased was subjected to urinalysis, ultra-sonography and
hematology tests.
On November 17, 1988, respondent Bernarda Bacani
and her husband, respondent Rolando Bacani, filed an action for
specific performance against petitioner with the Regional Trial
Court.
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. 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.
TC: 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".
CA: 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
examination prior to the approval and issuance of the insurance
policy.
ISSUE:

Whether the policy may be rescinded on the ground of

concealment?

RULING:

Yes. 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 "non-medical". We disagree. 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.

Thus, "goad faith" is no defense in concealment. The

insured's failure to disclose the fact that he was hospitalized for
two weeks prior to filing his application for insurance, raises
grave doubts about his bonafides. It appears that such
concealment was deliberate on his part.

The argument, that petitioner's waiver of the medical

examination of the insured debunks the materiality of the facts
concealed, is untenable. We reiterate our ruling in Saturnino v.
Philippine American Life Insurance Company, 7 SCRA 316
(1963), that " . . . the waiver of a medical examination [in a non-
medical insurance contract] renders even more material the
information required of the applicant concerning previous
condition of health and diseases suffered, for such information
necessarily constitutes an important factor which the insurer
takes into consideration in deciding whether to issue the policy
or not . . . "Moreover, such argument of private respondents
would make Section 27 of the Insurance Code, which allows the
injured party to rescind a contract of insurance where there is
concealment, ineffective.

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.

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.