Ng v Asian Crusade

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

Facts:

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, Asian Crusader, upon receipt of the
required premium from the insured, approved the application and issued the corresponding policy.
Kwong Nam died of cancer of the liver with metastasis. All premiums had been paid at the time of his
death.

Ng Gan Zee presented a claim 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 in his application for life insurance were untrue.

Appellee brought the matter to the attention of the Insurance Commissioner. 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. The
company 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.

The lower court ruled against the company on lack of evidence.

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 company contended that he was operated on for peptic ulcer 2
years before the policy was applied for and that he never disclosed such an operation.

Issue:

WON Asian Crusader was deceived into entering the contract or in accepting the risk at the rate of
premium agreed upon because of insured's representation?

Held:

No. Petition dismissed.

Ratio:

Section 27 of the Insurance Law:

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.

"Concealment exists where the assured had knowledge of a fact material to the risk, and honesty,
good faith, and fair dealing requires that he should communicate it to the assurer, but he designedly
and intentionally withholds the same."
It has also been held "that the concealment must, in the absence of inquiries, be not only material, but
fraudulent, or the fact must have been intentionally withheld."

Fraudulent intent on the part of the insured must 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 of the 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.

While the information communicated was imperfect, the same was sufficient to have induced appellant
to make further inquiries about the ailment and operation of the insured.

Section 32 of Insurance Law:

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.

Where 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.

The company or its medical examiner did not make any further inquiries on such matters from the
hospital 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."

ESCRA

Mercantile Law; Insurance; Concealment; When concealment exists; Nature of concealment.Thus,

concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good
faith, and fair dealing requires that he should communicate it to the assurer, but he designedly and
intentionally withholds the same. It has also been held that the concealment must, in the absence of
inquiries, be not only material, but fraudulent, or the fact must have been intentionally withheld.

Same; Same; Same; Misrepresentation; Fraudulent intent of insured must be established to entitle
insurer to rescind insurance contract; Misrepresentation, as defense of insurer, is an affirmative
defense which must be proved.Sec. 27 of the Insurance Law, abovequoted, 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.

Same; Same; Same; Statement of insured that tumor he was operated on was associated with ulcer
of the stomach, an expression made in good faith as to the nature of his ailment and operation and
without knowledge of its incorrectness and without any deliberate intent to mislead the insurer.It
bears emphasis that Kwong Nam had informed the appellants 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.

Same; Same; Same; Failure of insurer to undertake a further inquiry on insurance application on the
question of the insureds ailment and operation which is important in determination of grant of
insurance or not, constitutes waiver by insurer of imperfection in the answer and renders omission to
answer more fully immaterial; Case at bar.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. 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 insureds premium. It would be
inequitable now to allow the defendant to avoid liability under the circumstances.

Vda Canilang v CA G.R. No. 92492 June 17, 1993

J. Feliciano

Facts:

Canilang was found to have suffered from sinus tachycardia then bronchitis after a check-up from his
doctor. The next day, he applied for a "non-medical" insurance policy with respondent Grepalife
naming his wife, Thelma Canilang, as his beneficiary. This was to the value of P19,700.

He died of "congestive heart failure," "anemia," and "chronic anemia." The widow filed a claim with
Great Pacific which the insurer denied on the ground that the insured had concealed material
information from it.

Petitioner then filed a complaint against Great Pacific for recovery of the insurance proceeds.
Petitioner testified that she was not aware of any serious illness suffered by her late husband and her
husband had died because of a kidney disorder. The doctor who gave the check up stated that he
treated the deceased for sinus tachycardia and "acute bronchitis."

Great Pacific presented a physician who testified that the deceased's insurance application had been
approved on the basis of his medical declaration. 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.

The Insurance Commissioner ordered Great Pacific to pay P19,700 plus legal interest and P2,000.00
as attorney's fees. On appeal by Great Pacific, the Court of Appeals reversed. It 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.

Hence this petition by the widow.

Issue:
Won Canilang was guilty of misrepresentation

Held:

Yes. Petition denied.

Ratio:

There was a right of the insurance company to rescind the contract if it was proven that the insured
committed fraud in not affirming that he was treated for heart condition and other ailments stipulated.
Apart from certifying that he didnt suffer from such a condition, Canilang also failed to disclose in the
that he had twice consulted a doctor who had found him to be suffering from "sinus tachycardia" and
"acute bronchitis."

Under the Insurance Code:

Sec. 26. A neglect to communicate that which a party knows and ought to communicate, is called a
concealment.

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.

The information concealed must be information which the concealing party knew and should have
communicated. The test of materiality of such information is contained in Section 31:

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.

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 he disclosed his visits to
his doctor, the diagnosis made and medicines prescribed by such doctor, in the insurance application,
it may be reasonably assumed that Great Pacific would have made further inquiries and would have
probably refused to issue a non-medical insurance policy.

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 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 Canilang believed that he
was suffering from minor ailment like a common cold. Section 27 stated that:

Sec. 27. A concealment whether intentional or unintentional entitles the injured party to rescind a
contract of insurance.

The failure to communicate must have been intentional rather than inadvertent. 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 ailment.
Canilang's failure to set out answers to some of the questions in the insurance application constituted
concealment.

ESCRA

Insurance Law; Concealment; 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.
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. The materiality
of the information withheld by Great Pacific did not depend upon the state of mind of Jaime Canilang.
A mans 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.

Yu v CA
G.R. No. L-12465, May 29, 1959

Facts:

Yu Pang Eng submitted application for insurance consisting of the medical declaration made by him
to the medical examiner and the report. Yu then paid the premium in the sum of P591.70.

The insured, in his application for insurance, said no to ever having stomach disease, cancer, and
fainting-spells. He also claimed to not have consulted a physician regarding such diseases.

After submitting the form, he entered the hospital where he complained of dizziness, anemia,
abdominal pains and tarry stools. He was found to have peptic ulcer.

The insured entered another hospital for medical treatment but he died of "infiltrating medullary
carcinoma, Grade 4, advanced cardiac and of lesser curvature, stomach metastases spleen."

Yu Pang Cheng aimed to collect P10,000.00 on life of one Yu Pang Eng from an insurance company.
The company set up the defense that the insured was guilty of misrepresentation and concealment of
material facts. They subsequently refused to give the indemnity.

The trial court rendered judgment ordering defendant to pay plaintiff the sum of P10,000.00, plus
P2,000.00 as attorney's fees. The Court of Appeals reversed the decision of the trial court, holding
that the insured was guilty of concealment of material facts. Hence the present petition.

Issue:

Whether or not the insured is guilty of concealment of some facts material to the risk insured that
consequently avoids the policy.

Held:
Yes. Petition dismissed.

Ratio:

The first confinement took place from January 29, 1950 to February 11, while his application was
submitted on September 5, 1950. When he gave his answers to the policy, he concealed the ailment
of which he was treated in the hospital.

The negative answers given by the insured regarding his previous ailment deprived defendant of the
opportunity to make the necessary inquiry as to the nature of his past illness so that as it may form its
estimate relative to the approval of his application. Had defendant been given such opportunity, the
company would probably had never consented to the issuance of the policy in question. In fact,
according to the death certificate, the insureds death may have direct connection with his previous
illness.

Under the law, a neglect to communicate that which a party knows and ought to communicate, is
called concealment. This entitles the insurer to rescind the contract. The insured is required to
communicate to the insurer all facts within his knowledge which are material to the contract and which
the other party has not the means of ascertaining. The 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.

Argente vs. West Coast- One ground for the rescission of a contract of insurance under the insurance
Act is "a concealment", which in section 25 is defined "A neglect to communicate that which a party
knows and ought to communicate."

In an action on a life insurance policy where the evidence conclusively shows that the answers to
questions concerning diseases were untrue, the truth or falsity of the answers become the determining
factor. If the policy was procured by fraudulent representations, the contract of insurance was never
legally existent. It can fairly be assumed that had the true facts been disclosed by the assured, the
insurance would never have been granted.

ESCRA

INSURANCE; WORDS AND PHRASES; "CONCEALMENT.""A neglect to communicate that which

a party knows and ought to communicate is called concealment." (Section 25, Act No. 2427.) 2. ID.;
CONCEALMENT AS GROUND FOR RESCESSION OF CONTRACT.Whether intentional or
unintentional the concealment entitles the insurer to rescind the contract of insurance. (Section 26 of
Act No. 2427.)

ID.; DUTY OF INSURED TO COMMUNICATE ALL FACTS TO INSURER.The insurance law

requires the insured to communicate to the insurer all facts within his knowledge which are material to
the contract and which the other party has not the means of ascertaining (Section 27), and the
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 (Section 30 of Act 2427.)

Great Pacific Life Assurance Company vs. Court of Appeals

89 SCRA 543, No. L-31845, No. L-31878 April 30, 1979

Facts:

A contract of group life insurance was executed between petitioner Great Pacific and Development
Bank Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP.
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?

8. Are you now, to the best of your knowledge, in good health?

Grepalife issued a coverage to the value of P86,200.00 pesos.

Dr. Leuterio died due to massive cerebral hemorrhage. 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. Grepalife insisted that Dr. Leuterio did not disclose he had been
suffering from hypertension, which caused his death. Allegedly, such non-disclosure constituted
concealment that justified the denial of the claim.

The widow, respondent Medarda V. Leuterio, filed against Grepalife.

The trial court rendered a decision in favor of respondent widow and against Grepalife. The Court of
Appeals sustained the trial courts decision.

Issues:

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.

Held:

No to all three. Petition dismissed.

Ratio:

1. 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 courts 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.
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 debtors 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. When DBPs claim was denied, it collected the debt from
the mortgagor and took the necessary action of foreclosure on the residential lot of private respondent.
Gonzales vs. Yek Tong Lin- Insured, being the person with whom the contract was made, is primarily
the proper person to bring suit thereon. 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 mortgagees interest is less than the full amount recoverable
under the policy. 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.
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.

2. The medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on the body
of the decedent. The medical certificate stated that hypertension was the possible cause of death.
Hence, the statement of the physician was properly considered by the trial court as hearsay.

Contrary to appellants allegations, there was no sufficient proof that the insured had suffered from
hypertension. Aside from the statement of the insureds 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. Leuterios medical history.

Appellant insurance company had failed to establish that there was concealment made by the insured,
hence, it cannot refuse payment of the claim.

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and
the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer.

3. A life insurance policy is a valued policy. 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. The mortgagor paid the premium according to the coverage of his
insurance.

In the event of the debtors 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.

DBP foreclosed one of the deceased persons lots to satisfy the mortgage. Hence, the insurance
proceeds shall inure to the benefit of the heirs of the deceased person or his beneficiaries.

ESCRA

Binding deposit receipt; Concept and Nature; When binding deposit receipt not effective.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 latters 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.
Same; Same; No insurance contract between private person and insurance company for non-
acceptance of alternative insurance plan of the company and non-compliance of conditions in binding
deposit receipt; Refund of deposit proper.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 latters 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 them. Accordingly, the deposit paid by private
respondent shall have to be refunded by Pacific Life.

Same; Same; Completed Contract; Concept Of; Contract of insurance must be completed contract to
be binding.As held in De Lim vs. Sun Life Assurance Company of Canada, supra, a contract of
insurance, like otter contracts, must be asserted to by both parties either in parson or by their agents.
x x x. The contract, to be binding from the date of the application, must have been a completed
contract, one that leaves nothing to be done, 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.

Same; Concealment; Nature and kind of concealment which renders ineffective application for
insurance coverage; Duties required of insurance agents.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 physical condition of his daughter Helen Go. When private respondent 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 disguised. Nonetheless, private respondent, in apparent bad faith, withheld the fact material to the
risk to be assumed by the insurance company. As an insurance agent of Pacific Life, he ought to know,
as he surely must have known, his duty and responsibility to supply such a material fact. Had he
divulged said significant fact in the insurance application form. Pacific Life would have verified the
same and would have had no choice but to disapprove the application outright.

Same; Same; Nature and effect of concealment on insurance contract.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 deception, however slight [Blacks Law Dictionary,
2nd Edition], not for the insured alone but equally so for the insurer Fieldmans Insurance Co., Inc. vs.
Vda. de Songco, 25 SCRA 70). Concealment is a neglect to communicate that which a party known
and 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; Saturnino vs. Philippine American Life Insurance Company,
7 SCRA 316). Private respondent appears guilty thereof.

Musgi vs. West Coast Life Insurance Co

61 Phil., 864, No. 41794, August 30, 1935

Facts:

Arsenio Garcia was insured by West Coast twice in 1931. In both policies, he was asked to answer
the question: what physician or practitioners have you consulted or been treated by, and for what
illness or ailment? In both policies, he answered in the negative. It turned out that from 1929 to 1939,
he went to see several physicians for a number of ailments. So when he died in 1942, the company
refused to pay the proceeds of the insurance.
Issue:

Whether or not the answer given by Arsenio in the policies justifies the companys refusal to pay?

Held:

YES.

Aresenio knew that he was suffering from a number of ailments, yet, he concealed this. Such
concealment and his false statements constituted fraud, because the insurance company by reasons
of such statement accepted the risk which it would otherwise have rejected.

ESCRA

CONTRACTS OF INSURANCE; STATEMENT OF FALSE CONSIDERATION.The question raised

for our determination is whether the two answers given by the insured in his applications are false,
and if they were the cause, or one of the causes, which induced the def endant to issue the policies.
On the first point, the f acts set out leave no room for doubt. The insured knew that he had suffered
from a number of ailments, including incipient pulmonary tuberculosis, before subscribing the
applications, yet he concealed them and omitted the hospital where he was confined as well as the
name of the lady physician who treated him. That this concealment and the false statements
constituted fraud, is likewise clear, because the defendant by reason thereof accepted the risk which
it would otherwise have flatly refused.

ID. ; NULLITY ; APPLICABILITY OF CIVIL LAW.When not otherwise specially provided for by the
Insurance Law, the contract of life insurance is governed by the general rules of the civil law regarding
contracts. Article 1261 of the Civil Code provides that there is no contract unless there should be, in
addition to consent and a definite object, a consideration for the obligation established. And article
1276 provides that the statement of a false consideration shall render the contract void.

Argente vs. West Coast Life Insurance Co.,

51 Phil. 725, No. 28499 March 19, 1928

Facts:

Bernardo Argente signed an application for joint insurance with his wife in the sum of P2,000. The
wife, Vicenta de Ocampo, signed for the same. All the information contained in the applications was
furnished the agent by Bernardo Argente.

Argente was examined by Dr. Sta. Ana, a medical examiner for the West Coast. The result was
recorded in the Medical Examiner's Report, and with the exception of the signature of Bernardo
Argente, was in the hand-writing of Doctor Sta. Ana. But the information or answers to the questions
contained on the face of the Medical Examiner's Report were furnished the doctor by Argente.

Vicenta de Ocampo, wife of the plaintiff, was examined at her residence by the same doctor.

The spouses submitted to West Coast Life an amended application, increasing the amount to P15,000,
and asked that the policy be dated May 15, 1925. The amended application was accompanied by the
documents entitled "Short Form Medical Report." In both of these documents appear certain questions
and answers.

A temporary policy for P15,000 was issued to Bernardo Argente and his wife as of May 15, but it was
not delivered until the first quarterly premium on the policy was paid. More than thirty days had elapsed
since the applicants were examined. Each of them was required to file a certificate of health before
the policy was delivered.

Vicenta de Ocampo died of cerebral apoplexy. Argente presented a claim in due form to the West
Coast Life Insurance Co. for the payment of the sum of P15,000. It was apparently disclosed that the
answers given by the insured in their medical examinations with regard to their health were untrue.
West Coastrefused to pay the claim and wrote Argente to the effect that the claim was rejected due to
fraud.

The trial court held the policy null and void, hence this appeal.

Issue:

WON Argente and Ocampo were guilty of concealment and thereby misled the insurer into accepting
the risk?

Held:

Yes. Petition dismissed.

Ratio:

Vicenta de Ocampo, in response to the question asked by the medical examiner, answered no to
"Have you ever consulted a physician for or have you ever suffered from any ailment or disease of the
brain or nervous system?" She also answered none as to the question whether she consumed
alcohol of not.

To the question, "What physician or physicians, if any, not named above, have you consulted or been
treated by, within the last five years and for what illness or ailment?" she answered "None."
But the facts show that she was taken to San Lazaro Hospital, her case was diagnosed by the
admitting physician as "alcoholism, moreover, she was diagnosed with "phycho-neurosis."
Section 25 of the Insurance Code defined concealment as "a neglect to communicate that which a
party knows and ought to communicate."

The court held that the alleged concealment was not immaterial and insufficient to avoid the policy. In
an action on a life insurance policy where the evidence conclusively shows that the answers to
questions concerning diseases were untrue, the truth of falsity of the answers become the determining
factor. If the true facts been disclosed by the assured, the insurance would never have been granted.
Concealment must, in the absence of inquiries, be not only material, but fraudulent, or the fact must
have been intentionally withheld. If no inquiries are made and no fraud or design to conceal enters
into the concealment the contract is not avoided.

The assurer is entitled to know every material fact of which the assured has exclusive or peculiar
knowledge, as well as all material facts which directly tend to increase the hazard or risk which are
known by the assured, or which ought to be or are presumed to be known by him. And a concealment
of such facts vitiates the policy.

If the assured has exclusive knowledge of material facts, he should fully and fairly disclose the same,
whether he believes them material or not. The determination of the point whether there has or has not
been a material concealment must rest largely in all cases upon the exact terms of the contract.

ECSRA
INSURANCE; CONCEALMENT AS GROUND FOR RESCISSION OF CONTRACT OF INSURANCE;
SECTION 25 OF THE INSURANCE ACT APPLIED AND CONSTRUED.One ground for the
rescission of a contract of insurance under the Insurance Act is "a concealment/' which 726 726
PHILIPPINE REPORTS ANNOTATED Argente vs. West Coast Life Insurance Co. in section 25 is
defined as "A neglect to communicate that which a party knows and ought to communicate." Applied
to the facts, it is held that the concealment was material and sufficient to avoid the policy. It can fairly
be assumed that had the true facts been disclosed by the assured, the insurance would never have
been granted.

ID. ; ID. ; ID.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 f act 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 principal question,
therefore, must be, Was the assurer misled or deceived into entering a contract obligation or in fixing
the premium of insurance by a withholding of material information or facts within the assured's
knowledge or presumed knowledge?

ID. ; ID. ; SECTION 47 OF THE INSURANCE ACT APPLIED AND CONSTRUED.Section 47 of

the Insurance Act providing "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" was derived from section 2583 of the California Civil Code, but in contrast
thereto, makes use of the imperative "must" instead of the permissive "may."

ID. ; ID. ; ID.A failure to exercise the right of rescission cannot prejudice any defense to the action
which the concealment may furnish. 5. ID. ; ID. ; ID.Where any of the material representations are
false, the insurer's tender of the premium and notice that the policy is canceled, before the
commencement of suit thereon, operate to rescind the contract of insurance, and are a sufficient
compliance with the law.

Pacific Banking Corp. vs. Court of Appeals

168 SCRA 1, No. L-41014 November 28, 1988

Facts:

An open fire insurance policy, was issued to Paramount Shirt Manufacturing by Oriental Assurance
Corporation to indemnify P61,000.00, caused by fire to the factorys stocks, materials and supplies.
The insured was a debtor of Pacific Banking in the amount of (P800,000.00) and the goods described
in the policy were held in trust by the insured for Pacific Banking under trust receipts. The policy was
endorsed to Pacific Banking as mortgagee/ trustor of the properties insured, with the knowledge and
consent of private respondent to the effect that "loss if any under this policy is payable to the Pacific
Banking Corporation". A fire broke out on the premises destroying the goods contained in the building.
The bank sent a letter of demand to Oriental for indemnity. The company wasnt ready to give since it
was awaiting the adjusters report. The company then made an excuse that the insured had not filed
any claim with it, nor submitted proof of loss which is a clear violation of Policy Condition No.11, as a
result, determination of the liability of private respondent could not be made. Pacific Banking filed in
the trial court an action for a sum of money for P61,000.00 against Oriental Assurance. At the trial,
petitioner presented communications of the insurance adjuster to Asian Surety revealing undeclared
co-insurances with the following: P30,000 with Wellington Insurance; P25,000 with Empire Surety and
P250,000 with Asian Surety undertaken by insured Paramount on the same property covered by its
policy with Oriental 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.
The defense of fraud, 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. The trial court denied the respondents motion.
Oriental filed another motion to include additional evidence of the co-insurance which could amount
to fraud. The trial court still made Oriental liable for P 61,000. The CA reversed the trial court decision.
Pacific Banking filed a motion for reconsideration of the said decision of the respondent Court of
Appeals, but this was denied for lack of merit.

Issues:

1. WON unrevealed co-insurances Violated policy conditions No. 3

2. WON the insured failed to file the required proof of loss prior to court action.

Held: Yes. Petition dismissed.

Ratio:

1. 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.

The insured failed to reveal before the loss three other insurances. 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.

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.

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.
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. Hence, they claimed that the purpose for which the endorsement
or assignment was made was 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.

It is obvious that petitioner has missed all together the import of subject mortgage clause which
specifically provides:

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
neglectexcept 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. 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.

Petitioner further stressed that fraud which was not pleaded as a defense in private respondent's
answer or motion to dismiss, should be deemed to have been waived. It will be noted that the fact of
fraud was tried by express or at least implied consent of the parties. Petitioner did not only object to
the introduction of evidence but on the contrary, presented the very evidence that proved its existence.

2. 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.

Twenty-four days after the fire did petitioner merely wrote letters to private respondent to serve as a
notice of loss. It didnt even furnish other documents. 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. 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
there was no cause of action.

It appearing that insured has violated or failed to perform the conditions under No. 3 and 11 of the
contract, and such violation or want of performance has not been waived by the insurer, the insured
cannot recover, much less the herein petitioner.

ESCRA

Insurance; Co-insurance; Fraud; Insured was guilty of clear fraud for failure to reveal three other
insurances.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 (Rollo, p. 25).

Same; Same; Same; Contention that the allegation of fraud is but a mere inference or suspicion is
untenable.Petitioners 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 (Tongoy v. C.A., 123 SCRA 99 [1983]; Avila v. C.A. 145 SCRA [1986]).

Same; Same; Same; Absence of notice of other insurances nullifies the policy.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. Same; Same; Same;
Fraud or misrepresentation or arson are exceptions to the general rule that insurance as to the interest
of the mortgagee cannot be invalidated.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 (Rollo, p. 27).

Same; Same; Same; Same; Petitioner which is merely claiming as indorsee of the insured cannot be
entitled to the proceeds.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.

Same; Same; Same; The fact of fraud was tried by express or at least implied consent of the parties.
Petitioner further stressed that fraud which was not pleaded as a defense in private respondents
answer or motion to dismiss, should be deemed to have been waived. It will be noted that the fact of
fraud was tried by express or at least implied consent of the parties. Petitioner did not only object to
the introduction of evidence but on the contrary, presented the very evidence that proved its existence.

Same; Same; Same; Same; Court can consider a fact which surfaced only after trial proper.Be that
as it may, it is established that the Supreme Court has ample authority to go beyond the pleadings
where in the interest of justice and the promotion of public policy, there is a need to make its own
finding to support its conclusion. Otherwise stated, the Court can consider a fact which surfaced only
after trial proper.

Same; Action; Cause of action accrues from the time the insurer finally rejects the claim for payment.
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.

Same; Same; Same; Compliance with condition No. 11 is a requirement sine qua non to the right to
maintain an action as prior thereto no violation of petitioners right can be attributable to private
respondent.The evidence adduced shows that twenty-four (24) days after the fire, petitioner merely
wrote letters to private respondent to serve as 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 petitioners claim and therefore the latters
cause of action had not yet arisen. Compliance with condition No. 11 is a requirement sine quo non to
the right to maintain an action as prior thereto no violation of petitioners right can be attributable to
private respondent. This is so, as before such final rejection, there was no real necessity for bringing
suit.

Same; 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.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.

Same; Same; Insurance contracts are contracts of indemnity and compliance of the insured with the
terms of the policy is a condition precedent to the right of recovery.Contracts of insurance are
contracts of indemnity upon the terms and conditions specified in the policy. The parties have a right
to impose such reasonable conditions at the time of the making of the contract as they may deem wise
and necessary. The agreement has the force of law between the parties. The terms of the policy
constitute the measure of the insurers liability, and in order to recover, the insured must show himself
within those terms. The compliance of the insured with the terms of the policy is a condition precedent
to the right of recovery.

Eguaras vs. Great Eastern Life Assurance Co. and Smith.

33 Phil. 263, No. 10436 January 24, 1916

Facts:

Francisca Eguaras filed a written complaint in court, alleging as a cause of action that her son-in-law
Dominador Albay had applied in writing to the defendant insurance company to insure his life for the
sum of P5,000, naming as the beneficiary in case of his death the plaintiff FranciscaEguaras; that after
compliance with the requisites and the investigation carried on by the defendant company, it accepted
the application for insurance and issued the policy; that, said policy being in force, the insured died,
and despite the fact that the beneficiary submitted satisfactory proofs of his death and that the
defendant company investigated the event, still it refused and continues to refuse to pay to the plaintiff
the value of the policy.

Defendant set forth in special defense that the insurance policy issued in the name of Dominador
Albay had been obtained through fraud and deceit known and consent to by the interested parties and
is therefore completely illegal, void, and ineffective.

A criminal case for frustrated estafa was filed by defendant against Ponciano Remigio, Castor Garcia
and Francisca Eguaras. They were acquitted, and claim that the judgment produces theeffect of res
judicata in the present suit.

Issue:

WON the life insurance obtained by Dominador Albay was issued through fraud and deceit

Held:

YES.

Ratio:
In a contract where one of the contracting parties may have given his consent through error, violence,
intimidation, or deceit, and in any of such cases the contract is void, even though, despite this nullity,
no crime was committed. There may not have been estafa in the case at bar, but it was conclusively
demonstrated by the trial that deceit entered into the insurance contract, fulfillment whereof is claimed,
and therefore the conclusions reached by the court in the judgment it rendered in the criminal
proceedings for estafa do not affect this suit, nor can they produce in the present suit the force of res
judicata.

Reasoning:

It is proven that the signatures on the insurance applications reading "Dominado Albay" are false and
forged; that the person who presented himself to Dr. Vidal to be examined was not the real Dominador
Albay, but Castor Garcia who was positively identified by Dr. Vidal; that at the time of the application
for insurance and the issuance of the policy which is the subject matter of this suit the real Dominador
Albay was informed of all those machinations, wherefore it is plain that the insurance contract between
the defendant and Dominador Albay is null and void because it is false, fraudulent and illegal.

ESCRA

INSURANCE; FRAUD; SUBSTITUTION AT EXAMINATION.An insurance contract is fraudulent

when for the execution thereof a healthy and robust person is substituted, in place of the one to be
insured, at the physical examination made by a physician employed by the insurance company to
determine the state of health of the person whose life is sought to be insured against certain risks, for
the consent of the insurance company, one of the contracting parties; was obtained by means of
deceitful, insidious or false statements, even though these do not constitute estafa or any other
criminal act subject to the penal law.

ID.; ID.; ID.; CONCLUSIVENESS OF FORMER ADJUDICATION IN ACTION FOR "ESTAFA."The

judgment of acquittal rendered in the criminal case for estafa, prosecuted against the beneficiary of
the insurance, the agent of the insurance company, and others who intervened in said fraudulent
contract, does not produce the effect of res adjudicata, in the suit instituted by the beneficiary for
collection of the insurance; and therefore the insurance company has the right to contend that the
insurance contract is null and void, because it was executed by means of fraud and deceit that
invalidate the contract which gave rise to the obligation by virtue whereof payment is asked of the
value of the insurance policy f raudulently secured.

ID.; ID.; ID.; ID.In the criminal case for estafa the question raised was whether the acts performed
by the beneficiary of the insurance and her accomplices partook of the nature of a crime, and it was
decided in the negative; but the judgment of the court so declaring does not affect the suit regarding
whether the company gave its consent to the insurance contract through error or deceit, in which case
the contract would be void, even though, despite this nullity, no crime had been committed. There may
not have been estafa, but if there occurred fraud or deceit of a civil nature, peremptory exception can
be taken on such ground, and this cannot be overcome by the plea of res adjudicata based on the
acquittal in the criminal case.