NG GAN ZEE VS ASIAN CRUSADER LIFE
As pointed out in the foregoing summary of the
ASSURANCE CORPORATION
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.
On May 12, 1962, Kwong Nam applied for a 20-year
endowment insurance on his life for the sum of
P20,000.00, with his wife, appellee Ng Gan Zee as
beneficiary. On the same date, appellant, upon receipt of
the required premium from the insured, approved the
application and issued the corresponding policy. On
December 6, 1963, Kwong Nam died of cancer of the
liver with metastasis. All premiums had been religiously
paid at the time of his death.
On January 10, 1964, his widow Ng Gan Zee presented a
claim in due form to appellant for payment of the face
value of the policy. On the same date, she submitted the
required proof of death of the insured. Appellant denied
the claim on the ground that the answers given by the
insured to the questions appealing in his application for
life insurance were untrue.
Appellee brought the matter to the attention of the
Insurance Commissioner, the Hon. Francisco Y.
Mandamus, and the latter, after conducting an
investigation, wrote the appellant that he had found no
material concealment on the part of the insured and that,
therefore, appellee should be paid the full face value of
the policy. This opinion of the Insurance Commissioner
notwithstanding, appellant refused to settle its obligation.
Appellant alleged that the insured was guilty of
misrepresentation when he answered "No" to the
following question appearing in the application for life
insurance-
Has any life insurance company ever refused your
application for insurance or for reinstatement of a lapsed
policy or offered you a policy different from that applied
for? If, so, name company and date.
In its brief, appellant rationalized its thesis thus:
...
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. ... 1chanrobles
virtual law library
The lower court found the argument bereft of factual
basis; and We quote with approval its disquisition on the
matter-
On 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.
... 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:
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: chanrobles virtual law library
[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 chanrobles virtual law library
[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.chanroblesvirtualawlibrary chanrobles virtual
law library
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.
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? chanrobles virtual law library
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." 4chanrobles virtual law
library
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." chanrobles virtual law library
It bears emphasis that Kwong Nam had informed the
appellant's medical examiner that the tumor for which he
was operated on was "associated with ulcer of the
stomach." In the absence of evidence that the insured had
sufficient medical knowledge as to enable him to
distinguish between "peptic ulcer" and "a tumor", his
statement that said tumor was "associated with ulcer of
the stomach, " should be construed as an expression made
in good faith of his belief as to the nature of his ailment
and operation. Indeed, such statement must be presumed
to have been made by him without knowledge of its
incorrectness and without any deliberate intent on his part
to mislead the appellant.
While it may be conceded that, from the viewpoint of a
medical expert, the information communicated was
imperfect, the same was nevertheless sufficient to have
induced appellant to make further inquiries about the
ailment and operation of the insured.
Section 32 of Insurance Law [Act No. 24271 provides as
follows:
Section 32. The right to information of material facts
maybe waived either by the terms of insurance or by
neglect to make inquiries as to such facts where they are
distinctly implied in other facts of which information is
communicated.
It has been held that where, upon the face of the
application, a question appears to be not answered at all
or to be imperfectly answered, and the insurers issue a
policy without any further inquiry, they waive the
imperfection of the answer and render the omission to
answer more fully immaterial. 6chanrobles virtual law
library
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.
EDILLON VS MANILA BANKERS LIFE
SYNOPSIS
Carmen Lapuz applied with respondent insurance
corporation for coverage against accident and injuries. On
the application form she gave her age at 64 years old and
paid the premium thereon. Thereafter, she was issued a
certificate of insurance. During the effectivity of said
policy, she died in a vehicular accident. Petitioner-
appellant, who was named as beneficiary to the policy,
filed her claim for the proceeds of the insurance. The
insurance company rejected her claims on the ground that
the Certificate of Insurance excludes its liability to pay
claims under the policy in behalf of persons who are over
60 years old; thus, the insured being over 60 when she
applied for coverage, the policy was null and void. The
trial court sustained the contention of the Insurance
Company and dismissed the complaint. Petitioner
appealed the decision to the Supreme Court on a question
of law. The issue raised is whether or not the acceptance
by the private respondent corporation of the premium and
its issuance of the corresponding Certificate of Insurance
should be deemed a waiver of exclusionary condition of
coverage.
The Supreme Court reversed the decision of the trial
court. It held that the insurance corporation’s inaction to
revoke the policy despite a departure from the
exclusionary condition contained in the policy constituted
a waiver of such condition.
DECISION
VASQUEZ, J.:
The question of law raised in this case that justified a
direct appeal from a decision of the Court of First Instance
Rizal, Branch V, Quezon City, to be taken directly to the
Supreme Court is whether or not the acceptance by the
private respondent insurance corporation of the premium
and the issuance of the corresponding certificate of
insurance should be deemed a waiver of the exclusionary
condition of overage stated in the said certificate of
insurance.
The material facts are not in dispute. Sometime in April
1969, Carmen O, Lapuz applied with respondent
insurance corporation for insurance coverage against
accident and injuries. She filled up the blank application
form given to her and filed the same with the respondent
insurance corporation. In the said application form which
was dated April 15, 1969, she gave the date of her birth as
July 11, 1904. On the same date, she paid the sum of
P20.00 representing the premium for which she was
issued the corresponding receipt signed by an authorized
agent of the respondent insurance corporation. (Rollo, p.
27,) Upon the filing of said application and the payment
of the premium on the policy applied for, the respondent
insurance corporation issued to Carmen O. Lapuz its
Certificate of Insurance No. 128866. (Rollo, p. 28.) The
policy was to be effective for a period of 90 days.
On May 31, 1969 or during the effectivity of Certificate
of Insurance No. 12886, Carmen O. Lapuz died in a
vehicular accident in the North Diversion Road.
On June 7, 1969, petitioner Regina L. Edillon, a sister of
the insured and who was the named beneficiary in the
policy, filed her claim for the proceeds of the insurance,
submitting all the necessary papers and other requisites
with the private Respondent. Her claim having been
denied, Regina L. Edillon instituted this action in the
Court of First Instance of Rizal on August 27, 1969.
In resisting the claim of the petitioner, the respondent
insurance corporation relies on a provision contained in
the Certificate of Insurance, excluding its liability to pay
claims under the policy in behalf of "persons who are
under the age of sixteen (16) years of age or over the age
of sixty (60) years . . . ." It is pointed out that the insured
being over sixty (60) years of age when she applied for
the insurance coverage, the policy was null and void, and
no risk on the part of the respondent insurance corporation insurance policy which contained a provision as to the
had arisen therefrom. installation of fire hydrants the number of which
depended on the height of the external wall perimeter of
The trial court sustained the contention of the private
the bodega that was insured. When it was determined that
respondent and dismissed the complaint; ordered the
the bodega should have eleven (11) fire hydrants in the
petitioner to pay attorney’s fees in the sum of ONE
compound as required by the terms of the policy, instead
THOUSAND (P1,000.00) PESOS in favor of the private
of only two (2) that it had, the claim under the policy was
respondent; and ordered the private respondent to return
resisted on that ground. In ruling that the said deviation
the sum of TWENTY (P20.00) PESOS received by way
from the terms of the policy did not prevent the claim
of premium on the insurancy policy. It was reasoned out
under the same, this Court stated the following:
that a policy of insurance being a contract of adhesion, it
was the duty of the insured to know the terms of the
"We are in agreement with the trial Court that the
contract he or she is entering into; the insured in this case,
appellant is barred by waiver (or rather estoppel) to claim
upon learning from its terms that she could not have been
violation of the so-called fire hydrants warranty, for the
qualified under the conditions stated in said contract, what
reason that knowing fully all that the number of hydrants
she should have done is simply to ask for a refund of the
demanded therein never existed from the very beginning,
premium that she paid. It was further argued by the trial
the appellant nevertheless issued the policies in question
court that the ruling calling for a liberal interpretation of
subject to such warranty, and received the corresponding
an insurance contract in favor of the insured and strictly
premiums. It would be perilously close to conniving at
against the insurer may not be applied in the present case
fraud upon the insured to allow appellant to claim now as
in view of the peculiar facts and circumstances obtaining
void ab initio the policies that it had issued to the plaintiff
therein.
without warning of their fatal defect, of which it was
informed, and after it had misled the defendant into
We REVERSE the judgment of the trial court. The age of
believing that the policies were effective.
the insured Carmen O. Lapuz was not concealed to the
insurance company. Her application for insurance
The insurance company was aware, even before the
coverage which was on a printed form furnished by
policies were issued, that in the premises insured there
private respondent and which contained very few items of
were only two fire hydrants installed by Que Chee Gan
information clearly indicated her age of the time of filing
and two others nearby, owned by the municipality of
the same to be almost 65 years of age. Despite such
Tabaco, contrary to the requirements of the warranty in
information which could hardly be overlooked in the
question. Such fact appears from positive testimony for
application form, considering its prominence thereon and
the insured that appellant’s agents inspected the premises;
its materiality to the coverage applied for, respondent
and the simple denials of appellant’s representative
insurance corporation received her payment premium and
(Jamiczon) can not overcome that proof. That such
issued the corresponding certificate of insurance without
Inspection was made it moreover rendered probable by its
question. The accident which resulted in the death the
being a prerequisite for the fixing of the discount on the
insured, a risk covered by the policy, occurred on May 31,
premium to which the insured was entitled, since the
1969 or FORTY-FIVE (45) DAYS after the insurance
discount depended on the number of hydrants, and the fire
coverage was applied for. There was sufficient time for
fighting equipment available (See ‘Scale of Allowances’
the private respondent to process the application and to
to which the policies were expressly made subject). The
notice that the applicant was over 60 years of age and
law, supported by a long line of cases, is expressed by
thereby cancel the policy on that ground if it was minded
American Jurisprudence (Vol. 29, pp. 611-612) to be as
to do so. If the private respondent failed to act, it is either
follows:
because it was willing to waive such disqualification; or,
‘It is usually held that where the insurer, at the time of the
through the negligence or incompetence of its employees
issuance of a policy of insurance, has knowledge of
for which it has only itself to blame, it simply overlooked
existing facts which, if insisted on, would invalidate the
such fact. Under the circumstances, the insurance
contract from its very inception, such knowledge
corporation is already deemed in estoppel. It inaction to
constitutes a waiver of conditions in the contract
revoke the policy despite a departure from the
inconsistent with the known facts, and the insurer is
exclusionary condition contained in the said policy
stopped thereafter from asserting the breach of such
constituted a waiver of such condition, as was held in the
conditions. The law is charitable enough to assume, in the
case of "Que Chee Gan v. Law Union Insurance Co.,
absence of any showing to the contrary, that an insurance
Ltd.,", 98 Phil, 85. This case involved a claim on an
company intends to execute a valid contract in return for
the premium received; and when the policy contains a
condition which renders it voidable at its inception, and
this result is known to the insurer, it will be presumed to
have intended to waive the conditions and to execute a
binding contract, rather than to have deceived the insured
into thinking he is insured when in fact he is not, and to
have taken his money without consideration.’ (29 Am.
Jur., Insurance, section 807, at pp. 611-612.)
The reason for the rule is not difficult to find.
‘The plain, human justice of this doctrine is perfectly
apparent. To allow a company to accept one’s money for
a policy of insurance which it then knows to be void and
of no effect, though it knows as it must, that the assured
believes it to valid and binding, is so contrary to the
dictates of honesty and fair dealing, and so closely related
to positive fraud, as to be abhorrent to fairminded men. It
would be to allow the company to treat the policy as valid
long enough to get the premium on it, and leave it at
liberty to repudiate it the next moment. This cannot be
deemed to be the real intention of the parties. To hold that
a literal construction of the policy expressed the true
intention of the company would be to indict it, for
fraudulent poses and designs which we cannot believe it
to be guilty of.’ (Wilson v. Commercial Union Assurance
Co., 96 Atl. 540, 543-544)."
A similar view was upheld in the case of Capital
Insurance & Surety Co., Inc. v. Plastic Era Co., Inc., 65
SCRA 134, which involved a violation of the provision of
the policy requiring the payment of premiums before the
insurance shall become effective. The company issued the
policy upon the execution of a promissory note for the
payment of the premium. A check given subsequent by
the insured as partial payment of the premium was
dishonored for lack of funds. Despite such deviation from
the terms of the policy, the insurer was held liable.
"Significantly, in the case before Us the Capital Insurance
accepted the promise of Plastic Era to pay the insurance
premium within thirty (30) days from the effective date of
policy. By so doing, it has impliedly agreed to modify the
tenor of the insurance policy and in effect, waived the
provision therein that it would only pay for the loss or
damage in case the same occurs after the payment of the
premium. Considering that the insurance policy is silent
as to the mode of payment, Capital Insurance is deemed
to have accepted the promissory note in payment of the
premium. This rendered the policy immediately operative
on the date it was delivered. The view taken in most cases
in the United States:
"‘. . . is that although one of conditions of an insurance
policy is that ‘it shall not be valid or binding until the first
premium is paid’, if it is silent as to the mode of payment,
promissory notes received by the company must be
deemed to have been accepted in payment of the
premium. In other words, a requirement for the payment
of the first or initial premium in advance or actual cash
may be waived by acceptance of a promissory note. . . .’"
WHEREFORE, the judgment appealed from is hereby
REVERSED and SET ASIDE. In lieu thereof, the private
respondent insurance corporation is hereby ordered to pay
the petitioner the sum of TEN THOUSAND (P10,000)
PESOS as proceeds of Insurance Certificate No. 128866
with interest at the legal rate from May 31, 1969 until
fully paid, the further sum of TWO THOUSAND
(P2,000.00) PESOS as and for attorney’s fees, and the
costs of suit
SATURNINO VS PHILAM LIFE
Plaintiffs, now appellants, filed this action in the Court of
First Instance of Manila to recover the sum of P5,000.00,
corresponding to the face value of an insurance policy
issued by defendant on the life of Estefania A. Saturnino,
and the sum of P1,500.00 as attorney’s fees. Defendant,
now appellee, set up special defenses in its answer, with
a counterclaim for damages allegedly sustained as a result
of the unwarranted presentation of this case. Both the
complaint and the counterclaim were dismissed by the
trial court; but appellants were declared entitled to the
return of the premium already paid, plus interest at 62 up
to January 8, 1959, when a check for the corresponding
amount — P359.65 — was sent to them by appellee.
The policy sued upon is one for 20-year endowment non-
medical insurance. This kind of policy dispenses with the
medical examination of the applicant usually required in
ordinary life policies. However, detailed information is
called for in the application concerning the applicant’s
health and medical history. The written application in this
case was submitted by Saturnino to appellee on
November 16, 1957, witnessed by appellee’s agent
Edward A. Santos. The policy was issued on the same
day, upon payment of the first year’s premium of
P339.25. On September 19, 1958, Saturnino died of
pneumonia, secondly to influenza. Appellants here, who
are her surviving husband and minor child, respectively,
demanded payment of the face value of the policy. The
claim was rejected and this suit was subsequently
instituted.
It appears that the months prior to the issuance of the
policy, or on September 9, 1957, Saturnino was operated
on for cancer, involving complete removal of the right
breast, including the pectoral muscles and the glands
found in the right armpit. She stayed in the hospital for a
period of eight days, after which she was discharged,
although according to the surgeon who operated on her
she could not be considered definitely cured, her ailment
being of the malignant type.
Notwithstanding the fact of her operation Estefania A.
Saturnino did not make a disclosure thereof in her
application for insurance. On the contrary, she stated
therein that she did not have, nor had she ever had, among
other ailments listed in the application, cancer or other
tumors; that she had not consulted any physician,
undergone any operation or suffered any injury within the
preceding five years; and that she had never been treated
for, nor did she ever have any illness or disease peculiar
to her sex, particularly of the breast, ovaries, uterus, and
menstrual disorders. The application also recites that the
foregoing declarations constituted "a further basis for the
issuance of the policy."cralaw virtua1aw library
The question at issue is whether or not the insured made
such false representations of material facts as to avoid the
policy. There can be no dispute that the information given
by her in her application for insurance was false, namely,
that she had never had cancer or tumors, or consulted any
physician or undergone any operation within the
preceding period of five years. Are the facts thus falsely
represented material? The Insurance Law (Section 30)
provides that "materiality is to be determined not by the
event, but solely by the probable and reasonable influence
of the in forming his estimate of the proposed contract, or
in facts upon the party to whom the communication is due,
making his inquiries." It seems to be the contention of
appellants that the facts subject of the representations
were not material in view of the "non-medical" nature of
the insurance applied for, which does away with the usual
requirement of medical examination before the policy is
issued. The contention is without merit. If anything, the
waiver of medical examination renders even more
material the information required of the applicant
concerning previous condition of health and diseases
suffered, for such information necessarily constitutes an
important factor which the insurer takes into
consideration in deciding whether to issue the policy or
not. It is logical to assume that if appellee had been
properly apprised of the insured’s medical history she
would at least have been made to undergo medical
examination in order to determine her insurability.
Appellants argue that due information concerning the
insured’s previous illness and operation had been given to
appellee’s agent Edward A. Santos, who filed the
application form after it was signed in blank by Estefania
A. Saturnino. This was denied by Santos in his testimony,
and the trial court found such testimony to be true. This is
a finding of fact which is binding upon us, this appeal
having been taken upon questions of law alone. We do not
deem it necessary, therefore, to consider appellee’s
additional argument, which was upheld by the trial court,
that in signing the application form in blank and leaving
it to Edward A. Santos to fill (assuming that to be the
truth) the insured in effect made Santos her agent for that
purpose and consequently was responsible for the errors
in the entries made by him in that capacity.
In the application for insurance signed by the insured in
this case, she agreed to submit to a medical examination
by a duly appointed examiner of appellee if in the latter’s
opinion such examination was necessary as further
evidence of insurability. In not asking her to submit to a
medical examination, appellants maintain, appellee was
guilty of negligence, which precluded it from finding
about her actual state of health. No such negligence can
be imputed to appellee. It was precisely because the
insured had given herself a clean bill of health that
appellee no longer considered an actual medical checkup
necessary.
Appellants also contend there was no fraudulent
concealment of the truth as much as the insured herself
did not know, since her doctor never told her, that the
disease for which she had been operated on was cancer.
In the first place the concealment of the fact of the
operation itself was fraudulent, as there could not have
been any mistake about it, no matter what the ailment.
Secondly, in order to avoid a policy it is not necessary to
show actual fraud on the part of the insured. In the case of
Kasprzyk v. Metropolitan Insurance Co., 140 N.Y.S. 211,
214, it was held:
"Moreover, if it were the law that an insurance company
could not defend a policy on the ground of
misrepresentation, unless it could show actual knowledge
on the part of the applicant that the statements were false,
then it is plain that it would be impossible for it to protect
itself and its honest policyholders against fraudulent and
improper claims. It would be wholly at the mercy of any
one who wished to apply for insurance, as it would be
impossible to show actual fraud except in the extremest
cases. It could not rely on an application as containing
information on which it could act. There would be no
incentive to an applicant to tell the truth."
In this jurisdiction, a concealment, whether intentional or
unintentional, entitles the insurer to rescind the contract
of insurance, concealment being defined as "negligence to
communicate that which a party knows and ought to
communicate" (Sections 25 & 26, Act No. 2427). In the
case of Argente v. West Coast Life Insurance Co., 51 Phil.
725, 732, this Court said, quoting from Joyce, The Law of
Insurance, 2nd ed. Vol. 3
"‘The basis of the rule vitiating the contract in cases of
concealment is that it misleads or deceives the insurer into
accepting the risk, or accepting it at the rate of premium
agreed upon. The insurer, relying upon the belief that the
assured will disclose every material fact within his actual
or presumed knowledge, is misled into a belief that the
circumstance withheld does not exist, and he is thereby
induced to estimate the risk upon a false basis that it does
not exist.’"
The judgment appealed from, dismissing the complaint
and awarding the return to appellants of the premium
already paid, with interest at 6% up to January 29, 1959,
is affirmed, with costs against appellants.
SUN LIFE ASSURANCE CO VS CA
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.
We grant the petition.
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:
5. Within the past 5 years have you:
a) consulted any doctor or other health practitioner?
b) submitted to:
EGG?
X-rays?
blood tests?
other tests?
c) attended or been admitted to any hospital or other
medical facility?
6. Have you ever had or sought advice for:
xxx xxx xxX
b) urine, kidney or bladder disorder? (Rollo, p. 53)
The deceased answered question No. 5(a) in the
affirmative but limited his answer to a consultation with a
certain Dr. Reinaldo D. Raymundo of the Chinese
General Hospital on February 1986, for cough and flu
complications. The other questions were answered in the
negative (Rollo, p. 53).
Petitioner discovered that two weeks prior to his
application for insurance, the insured was examined and
confined at the Lung Center of the Philippines, where he
was diagnosed for renal failure. During his confinement,
the deceased was subjected to urinalysis, ultra-
sonography and hematology tests.
On November 17, 1988, respondent Bernarda Bacani and
her husband, respondent Rolando Bacani, filed an action
for specific performance against petitioner with the
Regional Trial Court, Branch 191, Valenzuela, Metro
Manila. Petitioner filed its answer with counterclaim and
a list of exhibits consisting of medical records furnished
by the Lung Center of the Philippines.
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:
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".chanroblesvirtualawlibrarychanrobles virtual
law library
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 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).Petitioner's
motion for reconsideration was denied; hence, this
petition.
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 "non-medical". 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.
In Vda. de Canilang v. Court of Appeals, 223 SCRA 443
(1993), we held that materiality of the information
withheld does not depend on the state of mind of the
insured. Neither does it depend on the actual or physical
events which ensue.
Thus, "goad faith" is no defense in concealment. The
insured's failure to disclose the fact that he was
hospitalized for two weeks prior to filing his application
for insurance, raises grave doubts about his bonafides. It
appears that such concealment was deliberate on his part.
The argument, that petitioner's waiver of the medical
examination of the insured debunks the materiality of the
facts concealed, is untenable. We reiterate our ruling
in Saturnino v. Philippine American Life Insurance
Company, 7 SCRA 316 (1963), that " . . . the waiver of a
medical examination [in a non-medical insurance
contract] renders even more material the information
required of the applicant concerning previous condition of
health and diseases suffered, for such information
necessarily constitutes an important factor which the
insurer takes into consideration in deciding whether to
issue the policy or not . . . "
Moreover, such argument of private respondents would
make Section 27 of the Insurance Code, which allows the
injured party to rescind a contract of insurance where
there is concealment, ineffective (See Vda. de Canilang v.
Court of Appeals, supra).
Anent the finding that the facts concealed had no bearing
to the cause of death of the insured, it is well settled that
the insured need not die of the disease he had failed to
disclose to the insurer. It is sufficient that his non-
disclosure misled the insurer in forming his estimates of
the risks of the proposed insurance policy or in making
inquiries (Henson v. The Philippine American Life
Insurance Co., 56 O.G. No. 48 [1960]).
We, therefore, rule that petitioner properly exercised its
right to rescind the contract of insurance by reason of the
concealment employed by the insured. It must be
emphasized that rescission was exercised within the two-
year contestability period as recognized in Section 48 of
The Insurance Code.
WHEREFORE, the petition is GRANTED and the
Decision of the Court of Appeals is REVERSED and SET
ASIDE
VDA DE CANILANG VS CA
On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo
B. Claudio and was diagnosed as suffering from
"sinus tachycardia." The doctor prescribed the following
for him: Trazepam, a tranquilizer; and Aptin, a beta-
blocker drug. Mr. Canilang consulted the same doctor
again on 3 August 1982 and this time was found to have
"acute bronchitis."
On the next day, 4 August 1982, Jaime Canilang applied
for a "non-medical" insurance policy with respondent
Great Pacific Life Assurance Company ("Great Pacific")
naming his wife, petitioner Thelma Canilang, as his
beneficiary.[1] Jaime Canilang was issued ordinary life
insurance Policy No. 345163, with the face value of
P19,700, effective as of 9 August 1982.
On 5 August 1983, Jaime Canilang died of "congestive
heart failure," "anemia," and "chronic
[2]
anemia." Petitioner, widow and beneficiary of the
insured, filed a claim with Great Pacific which the insurer
denied on 5 December 1983 upon the ground that the
insured had concealed material information from it.
Petitioner then filed a complaint against Great Pacific
with the Insurance Commission for recovery of the
insurance proceeds. During the hearing called by the
Insurance Commissioner, petitioner testified that she was
not aware of any serious illness suffered by her late
husband[3] and that, as far as she knew, her husband had
died because of a kidney disorder.[4] A deposition given
by Dr. Wilfredo Claudio was presented by petitioner.
There Dr. Claudio stated that he was the family physician
of the deceased Jaime Canilang[5] and that he had
previously treated him for "sinus tachycardia" and "acute
bronchitis."[6] Great Pacific for its part presented Dr.
Esperanza Quismorio, a physician and a medical
underwriter working for Great Pacific.[7] She testified that
the deceased's insurance application had been approved
on the basis of his medical declaration.[8] She explained
that as a rule, medical examinations are required only in
cases where the applicant has indicated in his application
for insurance coverage that he has previously undergone
medical consultation and hospitalization.[9]
In a decision dated 5 November 1985, Insurance
Commissioner Armando Ansaldo ordered Great Pacific to
pay P19,700.00 plus legal interest and P2,000.00 as
attorney's fees after holding that:
1. the ailment of Jaime Canilang was not so serious
that, even if it had been disclosed, it would not have
affected Great Pacific's decision to insure him;
2. Great Pacific had waived its right to inquire into the
health condition of the applicant by the issuance of the
policy despite the lack of answers to "some of the
pertinent questions" in the insurance application;
3. there was no intentional concealment on the part of
the insured Jaime Canilang as he had thought that he was
merely suffering from a minor ailment and simple
cold;[10] and
4. Batas Pambansa Blg. 874 which voids an insurance
contract, whether or not concealment was intentionally
made, was not applicable to Canilang's case as that law
became effective only on 1 June 1985.
On appeal by Great Pacific, the Court of Appeals reversed
and set aside the decision of the Insurance Commissioner
and dismissed Thelma Canilang's complaint and Great
Pacific's counterclaim. The Court of Appeals found that
the use of the word "intentionally" by the Insurance
Commissioner in defining and resolving the issue agreed
upon by the parties at pre-trial before the Insurance
Commissioner was not supported by the evidence; that the
issue agreed upon by the parties had been whether the
deceased insured, Jaime Canilang, made
a material concealment as to the state of his health at the
time of the filing of insurance application, justifying
respondent's denial of the claim. The Court of Appeals
also found that the failure of Jaime Canilang to disclose
previous medical consultation and treatment constituted
material information which should have been
communicated to Great Pacific to enable the latter to
make proper inquiries. The Court of Appeals finally held
that the Ng Gan Zee case which had
involved misrepresentation was not applicable in respect
of the case at bar which involves concealment.
Petitioner Thelma Canilang is now before this Court on a
Petition for Review on Certiorari alleging that:
"1. x x x the Honorable Court of Appeals, speaking with
due respect, erred in not holding that the issue in the case
agreed upon between the parties before the Insurance
Commission is whether or not Jaime Canilang
'intentionally' made material concealment in stating his
state of health;
2. x x x at any rate, the non-disclosure of certain facts
about his previous health conditions does not amount to
fraud and private respondent is deemed to have waived
inquiry thereto."[11]
The medical declaration which was set out in the
application for insurance executed by Jaime Canilang
read as follows:
"MEDICAL DECLARATION
'I hereby declare that:
(1) I have not been confined in any hospital, sanitarium
or infirmary, nor received any medical or surgical
advice/attention within the last five (5) years.
(2) I have never been treated nor consulted a physician
for a heart condition, high blood pressure, cancer,
diabetes, lung, kidney, stomach disorder, or any other
physical impairment.
(3) I am, to the best of my knowledge, in good health.
EXCEPTIONS:
_____________________________________________
_____________________________________________
_______
_____________________________________________
_____________________________________________
_______
_____________________________________________
_____________________________________________
_______
GENERAL DECLARATION
I hereby declare that all the foregoing answers and
statements are complete, true and correct. I hereby agree
that if there be any fraud or misrepresentation in the above
statements material to the risk, the INSURANCE
COMPANY upon discovery within two (2) years from the
effective date of insurance shall have the right to declare
such insurance null and void. That the liabilities of the
Company under the said Policy/ TA/Certificate shall
accrue and begin only from the date of commencement of
risk stated in the Policy/TA/Certificate, provided that the
first premium is paid and the Policy/TA/Certificate is
delivered to, and accepted by me in person, when I am in
actual good health.
Signed at Manila this 4th day of August, 1992.
Illegible
Signature of Applicant."[12]
We note that in addition to the negative statements made
by Mr. Canilang in paragraphs 1 and 2 of the medical
declaration, he failed to disclose in the appropriate space,
under the caption "Exceptions," that he had twice
consulted Dr. Wilfredo B. Claudio who had found him to
be suffering from "sinus tachycardia" and "acute
bronchitis."
The relevant statutory provisions as they stood at the time
Great Pacific issued the contract of insurance and at the
time Jaime Canilang died, are set out in P.D. No. 1460,
also known as the Insurance Code of 1978, which went
into effect on 11 June 1978. These provisions read as
follows:
"Sec. 26. A neglect to communicate that which a party
knows and ought to communicate, is called a
concealment."
xxx xxx xxx
Sec. 28. Each party to a contract of insurance must
communicate to the other, in good faith, all factors within
his knowledge which are material to the contract and as to
which he makes no warranty, and which the other has not
the means of ascertaining." (Emphases supplied)
Under the foregoing provisions, the information
concealed must be information which the concealing
party knew and "ought to [have] communicate[d]," that is
to say, information which was "material to the contract."
The test of materiality is contained in Section 31 of the
Insurance Code of 1978 which reads:
"Sec. 31. Materiality is to be determined not by the event,
but solely by the probable and reasonable influence of the
facts upon the party to whom the communication is due,
in forming his estimate of the disadvantages of the
proposed contract, or in making his inquiries." (Emphases
supplied)
"Sinus tachycardia" is considered present "when the heart
rate exceeds 100 beats per minute."[13] The symptoms of
this condition include pounding in the chest and
sometimes faintness and weakness of the person affected.
The following elaboration was offered by Great Pacific
and set out by the Court of Appeals in its Decision:
"Sinus tachycardia is defined as sinus-initiated; heart rate
faster than 100 beats per minute. (Harrison's Principles of
Internal Medicine, 8th ed. [1978], p. 1193.) It is, among
others, a common reaction to heart disease, including
myocardial infarction, and heart failure per se. (Henry
J.L. Marriot, M.D., Electrocardiography, 6th ed. [1977],
p. 127.) The medication prescribed by Dr. Claudio for
treatment of Canilang's ailment on June 18, 1982,
indicates the condition that said physician was trying to
manage. Thus, he prescribed Trazepam, (Philippine Index
of Medical Specialties (PIMS), Vol. 14, No. 3, Dec. 1985,
p. 112.) which is anti-anxiety, anti-convulsant, muscle-
relaxant; and Aptin, (Idem, p. 36) a cardiac drug, for
palpitations and nervous heart. Such treatment could have
been a very material information to the insurer in
determining the action to be taken on Canilang's
application for life insurance coverage."[14]
We agree with the Court of Appeals that the information
which Jaime Canilang failed to disclose was material to
the ability of Great Pacific to estimate the probable risk
he presented as a subject of life insurance. Had Canilang
disclosed his visits to his doctor, the diagnosis made and
the medicines prescribed by such doctor, in the insurance
application, it may be reasonably assumed that Great
Pacific would have made further inquiries and would have
probably refused to issue a non-medical insurance policy
or, at the very least, required a higher premium for the
same coverage.[15] The materiality of the information
withheld by Great Pacific did not depend upon the state
of mind of Jaime Canilang. A man's state of mind or
subjective belief is not capable of proof in our judicial
process, except through proof of external acts or failure to
act from which inferences as to his subjective belief may
be reasonably drawn. Neither does materiality depend
upon the actual or physical events which ensue.
Materiality relates rather to the "probable and reasonable
influence of the facts" upon the party to whom the
communication should have been made, in assessing the
risk involved in making or omitting to make further
inquiries and in accepting the application for insurance;
that "probable and reasonable influence of the facts"
concealed must, of course, be determined objectively, by
the judge ultimately.
The insurance Great Pacific applied for was a "non--
medical" insurance policy. In Saturnino v. Philippine-
American Life Insurance Company,[16] this Court held
that:
"x x x if anything, the waiver of medical examination [in
a non-medical insurance contract] renders even more
material the information required of the applicant
concerning previous condition of health and diseases
suffered, for such information necessarily constitutes an
important factor which the insurer takes into
consideration in deciding whether to issue the policy or
not x x x."[17](Emphases supplied)
The Insurance Commissioner had also ruled that the
failure of Great Pacific to convey certain information to
the insurer was not "intentional" in nature, for the reason
that Jaime Canilang believed that he was suffering from
minor ailment like a common cold. Section 27 of the
Insurance Code of 1978 as it existed from 1974 up to
1985, that is, throughout the time range material for
present purposes, provided that:
"Sec. 27. A concealment entitles the injured party to
rescind a contract of insurance."
The preceding statute, Act No. 2427, as it stood from
1914 up to 1974, had provided:
"Sec. 26. A concealment, whether intentional or
unintentional, entitles the injured party to rescind a
contract of insurance." (Emphases supplied)
Upon the other hand, in 1985, the Insurance Code of 1978
was amended by B.P. Blg. 874. This subsequent statute
modified Section 27 of the Insurance Code of 1978 so as
to read as follows:
"Sec. 27. A concealment whether intentional or
unintentional entitles the injured party to rescind a
contract of insurance." (Emphases supplied)
The unspoken theory of the Insurance Commissioner
appears to have been that by deleting the phrase
"intentional or unintentional," the Insurance Code of 1978 insurer, was supported by the evidence of record, i.e., the
(prior to its amendment by B.P. Blg. 874) intended to limit Pre-trial Order itself dated 17 October 1984 and the
the kinds of concealment which generate a right to rescind Minutes of the Pre-trial Conference dated 15 October
on the part of the injured party to "intentional 1984, which "readily shows that the word 'intentional'
concealments." This argument is not persuasive. As a does not appear in the statement or definition of the issue
simple matter of grammar, it may be noted that in the said Order and Minutes."[18]
"intentional" and "unintentional" cancel each other out.
WHEREFORE, the Petition for Review is DENIED for
The net result therefore of the phrase "whether intentional
lack of merit and the Decision of the Court of Appeals
or unintentional" is precisely to leave unqualified the
dated 16 October 1989 in C.A.-G.R. SP No. 08696 is
term "concealment." Thus, Section 27 of the Insurance
hereby AFFIRMED. No pronouncement as to costs.
Code of 1978 is properly read as referring to
"any concealment" without regard to whether such
concealment is intentional or unintentional. The phrase
"whether intentional or unintentional" was in fact
superfluous. The deletion of the phrase "whether
intentional or unintentional" could not have had the effect
of imposing an affirmative requirement that a
concealment must be intentional if it is to entitle the
injured party to rescind a contract of insurance. The
restoration in 1985 by B.P. Blg. 874 of the phrase
"whether intentional or unintentional" merely
underscored the fact that all throughout (from 1914 to
1985), the statute did not require proof that concealment
must be "intentional" in order to authorize rescission by
the injured party.
In any case, in the case at bar, the nature of the facts not
conveyed to the insurer was such that the failure to
communicate must have beenintentional rather than
merely inadvertent. For Jaime Canilang could not have
been unaware that his heart beat would at times rise to
high and alarming levels and that he had consulted a
doctor twice in the two (2) months before applying for
non-medical insurance. Indeed, the last medical
consultation took place just the day before the insurance
application was filed. In all probability, Jaime Canilang
went to visit his doctor precisely because of the
discomfort and concern brought about by his
experiencing "sinus tachycardia."
We find it difficult to take seriously the argument that
Great Pacific had waived inquiry into the concealment by
issuing the insurance policy notwithstanding Canilang's
failure to set out answers to some of the questions in the
insurance application. Such failure precisely constituted
concealment on the part of Canilang. Petitioner's
argument, if accepted, would obviously erase Section 27
from the Insurance Code of 1978.
It remains only to note that the Court of Appeals finding
that the parties had not agreed in the pretrial before the
Insurance Commission that the relevant issue was
whether or not Jaime Canilang
had intentionally concealed material information from the