Insurance Law Reviewer ‘20

Based on the Book of De Leon.

PART E SECTION 114. The eventual falsity of a

representation as to expectation does not, in the
B. In Marine Insurance absence of fraud, avoid a contract of marine
insurance.
SECTION 112. A concealment in a marine insurance,
in respect to any of the following matters, does not Representations of expectation or intention are
vitiate the entire contract, but merely exonerates the statements of future facts or events which are in
insurer from a loss resulting from the risk their nature contingent and which the insurer is
concealed: bound to know that the insured could not have
intended to state as known facts, but as intentions
(a) The national character of the insured; or expectations merely. Hence, unless made with
(b) The liability of the thing insured to capture fraudulent intent, their failure of fulfillment is not a
benguetand detention; ground for rescission.
(c) The liability to seizure from breach of foreign
laws of trade; B. In Life Insurance- Incontestability Clause
(d) The want of necessary documents; and
(e) The use of false and simulated papers. SECTION 48. After a policy of life insurance made
payable on the death of the insured shall have been
As a rule, the concealment of a material fact entitles in force during the lifetime of the insured for a period
the injured party to rescind the entire contract of of two (2) years from the date of its issue or of its
insurance. last reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindable by reason of
However, concealment of any of the matters the fraudulent concealment or misrepresentation of
indicated from paragraphs (a) to (e) of Section 110 the insured or his agent.
does not avoid the policy ab initio. If the vessel be
lost due to any of the causes mentioned in Section Grounds to rescind a contract of insurance
110, which was concealed, the insurer is not liable; 1. Concealment;
but if the vessel be lost due to other perils of the sea, 2. False representation; and
like a storm, the insurer is not exonerated from 3. Breach of warranty.
liability.
An action to rescind a contract, under the first
SUB-TITLE 1-D paragraph of Section 48, is founded upon and
Representation presupposes the existence of the contract, which is
rescinded.
SECTION 113. If a representation by a person
insured by a contract of marine insurance, is In non-life policy, in order that the insurer may
intentionally false in any material respect, or in rescind a contract of insurance, such right must be
respect of any fact on which the character and exercised prior to the commencement of an action
nature of the risk depends, the insurer may rescind on the contract. In other words, the insurer is no
the entire contract. longer entitled to rescind a contract of insurance
after the insured has filed an action to collect the
Effect of false representation by insured amount of the insurance.
1. Intentional. Any misrepresentation of a material
fact made with fraudulent intent avoids the In life policy, the defenses mentioned are available
policy. only during the first two years of a life insurance
2. Not intentional. If the misrepresentation is not policy.
intentional or fraudulent but the fact
misrepresented is material to the risk, the Incontestability of life policies
insurer may also rescind the contract from the Incontestable clauses, in life insurance policies,
time the representation becomes false. stipulating that the policy shall be incontestable
after a stated period are in general use. They create

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 Insurance Law Reviewer ‘20
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a kind of contractual statute of limitations on 6. That the beneficiary failed to furnish proof of
certain defenses that may be raised by the insurer. death or to comply with any condition imposed
by the policy after the loss has happened; or
Incontestability means that after the requisites are 7. That the action was not brought within the time
shown to exist, the insurer shall be estopped from specified.
contesting the policy or setting up any defense,
except as is allowed, on the ground of public policy. SECTION 233. In the case of individual life or
endowment insurance, the policy shall contain in
In order that the insurance shall be incontestable, substance the following conditions:
the following requisites must be present: (b) A provision that the policy shall be
1. The policy is a life insurance policy; incontestable after it shall have been in force
2. It is payable on the death of the insured; and during the lifetime of the insured for a period of
3. It has been in force during the lifetime of the two (2) years from its date of issue as shown in
insured for at least two years from its date the policy, or date of approval of last
of issue or of its last reinstatement. reinstatement, except for nonpayment of
premium and except for violation of the
The period of two years for contesting a life conditions of the policy relating to military or
insurance policy by the insurer may be shortened naval service in time of war;
but it cannot be extended by stipulation.
SECTION 234. No policy of group life insurance
Effect when policy becomes incontestable shall be issued and delivered in the Philippines
When a policy of life insurance becomes unless it contains in substance the following
incontestable, the insurer may not refuse to pay the provisions, or provisions which in the opinion of the
same by claiming that: Commissioner are more favorable to the persons
1. The policy is void ab initio; or insured, or at least as favorable to the persons
2. It is rescissible by reason of the fraudulent insured and more favorable to the policyholders:
concealment of the insured or his agent, no (b) A provision that the validity of the policy shall
matter how patent or well-founded; or not be contested, except for nonpayment of
3. It is rescissible by reason of the fraudulent premiums after it has been in force for two (2)
misrepresentations of the insured or his agent. years from its date of issue; and that no
statement made by any insured under the policy
Defenses not barred by incontestable clause relating to his insurability shall be used in
The incontestability of a policy under the law is not contesting the validity of the insurance with
absolute. Otherwise, a beneficiary of any person respect to which such statement was made
who had procured a life policy more than two years after such insurance has been in force prior to
before his death would automatically be entitled to the contest for a period of two (2) years during
the proceeds upon that person’s death. such person's lifetime nor unless contained in a
written instrument signed by him;
The insurer may still contest the policy by way of
defense to a suit brought upon the policy or by SECTION 236. In the case of industrial life
action to rescind the same, on any of the following insurance, the policy shall contain in substance the
grounds: following provisions:
1. That the person taking the insurance lacked (b) A provision that the policy shall be
insurable interest as required by law; incontestable after it has been in force during
2. That the cause of the death of the insured is an the lifetime of the insured for a specified period,
excepted risk; not more than two (2) years from its date of
3. That the premiums have not been paid; issue, except for nonpayment of premiums and
4. That the conditions of the policy relating to except for violation of the conditions of the
military or naval service have been violated; policy relating to naval or military service, or
5. That the fraud is of a particularly vicious type; services auxiliary thereto, and except as to
provisions relating to benefits in the event of

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disability as defined in the policy, and those the former with the Office of the Insurance
granting additional insurance specifically Commissioner.
against death by accident or by accidental
means, or to additional insurance against loss The Insurance Commissioner rendered judgment,
of, or loss of use of, specific members of the dismissing petitioners' complaint.
body;
The Court of Appeals dismissed the petitioners'
appeal from the Insurance Commissioner's
INDIVIDUAL GROUP LIFE INDUSTRIAL
decision for lack of merit.
LIFE LIFE
Non-payment Violation of Non-payment The petitioners contend that the respondent
of Premium. provisions on of Premium. company no longer had the right to rescind the
benefits in contract of insurance as rescission must allegedly
case of be done during the lifetime of the insured within two
disability.
years and prior to the commencement of action.
Violations of Violation of Violations of
Conditions of provisions Conditions of Issue: WON the insurer can still contest the
the policy granting the policy insurance policy. YES.
relating to additional relating to
military or insurance military or Ruling: Section 48. Whenever a right to rescind a contract of
naval service against death naval service insurance is given to the insurer by any provision of this
chapter, such right must be exercised previous to the
in time of war. by accident or in time of war.
commencement of an action on the contract.
by loss or loss
of use of After a policy of life insurance made payable on the death of the
specific insured shall have been in force during the lifetime of the
members of insured for a period of two years from the date of its issue or of
its last reinstatement, the insurer cannot prove that the policy
the body.
is void ab initio or is rescindible by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.
EMILIO TAN, JUANITO TAN, ALBERTO TAN and
ARTURO TAN vs. THE COURT OF APPEALS and The so-called "incontestability clause" precludes
THE PHILIPPINE AMERICAN LIFE INSURANCE the insurer from raising the defenses of false
COMPANY. representations or concealment of material facts
[G.R. No. L-48049. June 29, 1989.] insofar as health and previous diseases are
Facts: Tan Lee Siong, father of herein petitioners, concerned if the insurance has been in force for at
applied for life insurance in the amount of least two years during the insured's lifetime. The
P80,000.00 with respondent company. phrase "during the lifetime" found in Section 48
simply means that the policy is no longer
On April 26, 1975, Tan Lee Siong died of hepatoma. considered in force after the insured has died. The
Petitioners then filed with respondent company key phrase in the second paragraph of Section 48 is
their claim for the proceeds of the life insurance "for a period of two years."
policy. However, respondent company denied
petitioners' claim and rescinded the policy by In this case the policy was issued on November 6,
reason of the alleged misrepresentation and 1973 and the insured died on April 26, 1975. The
concealment of material facts made by the policy was thus in force for a period of only one year
deceased Tan Lee Siong in his application for and five months. Considering that the insured died
insurance. before the two-year period had lapsed, respondent
company is not, therefore, barred from proving that
Alleging that respondent company's refusal to pay the policy is void ab initio by reason of the insured's
them the proceeds of the policy was unjustified and fraudulent concealment or misrepresentation.
unreasonable, petitioners filed, a complaint against

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Moreover, respondent company rescinded the investigation and its findings prompted it to reject
contract of insurance and refunded the premiums the claim.
paid on September 11, 1975, previous to the
Petitioner informed respondent Bernarda Bacani,
commencement of this action on November 27,
that the insured did not disclosed material facts
1975.
relevant to the issuance of the policy, thus rendering
xxx xxx xxx the contract of insurance voidable.

The petitioners contend that there could have been Petitioner claimed that the insured gave false
no concealment or misrepresentation by their late statements in his application when he answered the
father because Tan Lee Siong did not have to buy following questions:
insurance. He was only pressured by insistent
"5. Within the past 5 years have you:
salesmen to do so.
a) consulted any doctor or other health practitioner?
The legislative answer to the arguments posed by b) submitted to:
the petitioners is the "incontestability clause" ECG?
X-rays?
added by the second paragraph of Section 48.
blood tests?
The insurer has two years from the date of issuance other tests?
of the insurance contract or of its last reinstatement c) attended or been admitted to any hospital or other
medical facility?
within which to contest the policy, whether or not,
"6. Have you ever had or sought advice for:
the insured still lives within such period. After two
xxx xxx xxx
years, the defenses of concealment or b) urine, kidney or bladder disorder?"
misrepresentation, no matter how patent or well
founded, no longer lie. Congress felt this was a The deceased answered question No. 5(a) in the
sufficient answer to the various tactics employed by affirmative but limited his answer to a consultation
insurance companies to avoid liability. The with a certain Dr. Reinaldo D. Raymundo of the
petitioners' interpretation would give rise to the Chinese General Hospital on February 1986, for
incongruous situation where the beneficiaries of an cough and flu complications. The other questions
insured who dies right after taking out and paying were answered in the negative.
for a life insurance policy, would be allowed to
collect on the policy even if the insured fraudulently Petitioner discovered that two weeks prior to his
concealed material facts. application for insurance, the insured was
examined and confined at the Lung Center of the
SUNLIFE ASSURANCE COMPANY OF Philippines, where he was diagnosed for renal
CANADA vs. The Hon. COURT OF APPEALS and failure. During his confinement, the deceased was
Spouses ROLANDO and BERNARDA BACANI. subjected to urinalysis, ultra-sonography and
[G.R. No. 105135. June 22, 1995.] hematology tests.
Facts: Robert John B. Bacani procured a life Respondent Bernarda Bacani and her husband,
insurance contract for himself from petitioner. He respondent Rolando Bacani, filed an action for
was issued Policy No. 3-903-766-X valued specific performance against petitioner with the
P100,000.00, with double indemnity in case of Regional Trial Court. Petitioner filed its answer with
accidental death. The designated beneficiary was counterclaim and a list off exhibits consisting of
his mother, respondent Bernarda Bacani. medical records furnished by the Lung Center of the
On June 26, 1987, the insured died in a plane crash. Philippines.
Respondent Bernarda Bacani filed a claim with The trial court concluded that the facts concealed
petitioner, seeking the benefits of the insurance by the insured were made in good faith and under
policy taken by her son. Petitioner conducted an the belief that they need not be disclosed. Moreover,
it held that the health history of the insured was

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Based on the Book of De Leon.

immaterial since the insurance policy was "non- The argument, that petitioner's waiver of the
medical." medical examination of the insured debunks the
materiality of the facts concealed, is untenable. We
Court of Appeals affirmed the decision of the trial
reiterate our ruling in Saturnino v. Philippine
court. The appellate court ruled that petitioner
American Life Insurance Company, that ". . . the
cannot avoid its obligation by claiming
waiver of a medical examination [in a non-medical
concealment because the cause of death was
insurance contract] renders even more material the
unrelated to the facts concealed by the insured.
information required of the applicant concerning
Issue: WON petitioner can rescind the contract by previous condition of health and diseases suffered,
reason of concealment. YES. for such information necessarily constitutes an
important factor which the insurer takes into
Ruling: Section 26 provides: "A neglect to consideration in deciding whether to issue the
communicate that which a party knows and ought policy or not . . . ."
to communicate, is called concealment."
Moreover, such argument of private respondents
Materiality is to be determined not by the event, but would make Section 27 of the Insurance Code,
solely by the probable and reasonable influence of which allows the injured party to rescind a contract
the facts upon the party to whom communication is of insurance where there is concealment,
due, in forming his estimate of the disadvantages of ineffective.
the proposed contract or in making his inquiries
Anent the finding that the facts concealed had no
The terms of the contract are clear. The insured is bearing to the cause of death of the insured, it is well
specifically required to disclose to the insurer settled that the insured need not die of the disease
matters relating to his health. he had failed to disclose to the insurer. It is
The information which the insured failed to disclose sufficient that his non-disclosure misled the insurer
were material and relevant to the approval and the in forming his estimates of the risks of the proposed
issuance of the insurance policy. The matters insurance policy or in making inquiries.
concealed would have definitely affected We, therefore, rule that petitioner properly exercised
petitioner's action on his application, either by its right to rescind the contract of insurance by
approving it with the corresponding adjustment for reason of the concealment employed by the
a higher premium or rejecting the same. Moreover, insured. It must be emphasized that rescission was
a disclosure may have warranted a medical exercised within the two-year contestability period
examination of the insured by petitioner in order for as recognized in Section 48 of The Insurance Code.
it to reasonably assess the risk involved in
accepting the application.
MANILA BANKERS LIFE INSURANCE
In Vda. de Canilang v. Court of Appeals, we held that CORPORATION, vs. CRESENCIA P. ABAN.
[G.R. No. 175666. July 29, 2013.]
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
Facts: Sotero took out a life insurance policy
which ensue.
from Manila Bankers Life Insurance Corporation,
Thus, "good faith" is no defense in concealment. designating Aban, her niece, as her beneficiary.
The insured's failure to disclose the fact that he was
Petitioner issued Insurance Policy No. 747411 (the
hospitalized for two weeks prior to filing his
policy), with a face value of P100,000.00, in Sotero's
application for insurance, raises grave doubts about
favor on August 30, 1993, after the requisite medical
his bonafides. It appears that such concealment
examination and payment of the insurance
was deliberate on his part.
premium.

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On April 10, 1996, when the insurance policy had the insurer must make good on the policy, even
been in force for more than two years and seven though the policy was obtained by fraud,
months, Sotero died. Respondent filed a claim for concealment, or misrepresentation. This is not to
the insurance proceeds. Petitioner conducted an say that insurance fraud must be rewarded, but that
investigation into the claim, and came out with the insurers who recklessly and indiscriminately solicit
following findings: and obtain business must be penalized, for such
recklessness and lack of discrimination ultimately
1. Sotero did not personally apply for insurance
work to the detriment of bona fide takers of
coverage, as she was illiterate;
2. Sotero was sickly since 1990; insurance and the public in general.
3. Sotero did not have the financial capability to pay the Section 48 regulates both the actions of the
insurance premiums on Insurance Policy No.
insurers and prospective takers of life insurance. It
747411;
gives insurers enough time to inquire whether the
4. Sotero did not sign the July 3, 1993 application for
insurance; [and] policy was obtained by fraud, concealment, or
5. Respondent was the one who filed the insurance misrepresentation; on the other hand, it forewarns
application, and . . . designated herself as the scheming individuals that their attempts at
beneficiary. insurance fraud would be timely uncovered — thus
deterring them from venturing into such nefarious
Petitioner denied respondent's claim on April 16, enterprise. At the same time, legitimate policy
1997 and refunded the premiums paid on the policy holders are absolutely protected from unwarranted
and filed a civil case for rescission and/or denial of their claims or delay in the collection of
annulment of the policy. insurance proceeds occasioned by allegations of
fraud, concealment, or misrepresentation by
The main thesis of the Complaint was that the insurers, claims which may no longer be set up after
policy was obtained by fraud, concealment and/or the two-year period expires as ordained under the
misrepresentation under the Insurance Code, which law.
thus renders it voidable under Article 1390 of the
Thus, the self-regulating feature of Section 48 lies
Civil Code.
in the fact that both the insurer and the insured are
given the assurance that any dishonest scheme to
The Regional Trial Court ruled in favor of
obtain life insurance would be exposed and
Respondent.
attempts at unduly denying a claim would be struck
down. Life insurance policies that pass the
The Court of Appeals thus sustained the trial court.
statutory two-year period are essentially treated as
Applying Section 48 to petitioner’s case.
legitimate and beyond question, and the individuals
who wield them are made secure by the thought
Issue: WON the petitioner may rescind the
that they will be paid promptly upon claim. In this
insurance contract by reason of concealment. NO.
manner, Section 48 contributes to the stability of
Ruling: Section 48 serves a noble purpose, as it the insurance industry.
regulates the actions of both the insurer and the
Section 48 prevents a situation where the insurer
insured.
knowingly continues to accept annual premium
Under the provision, an insurer is given two years — payments on life insurance, only to later on deny a
from the effectivity of a life insurance contract and claim on the policy on specious claims of fraudulent
while the insured is alive — to discover or prove that concealment and misrepresentation, such as what
the policy is void ab initio or is rescindible by reason obtains in the instant case. Thus, instead of
of the fraudulent concealment or misrepresentation conducting at the first instance an investigation
of the insured or his agent. After the two-year period into the circumstances surrounding the issuance of
lapses, or when the insured dies within the period, Insurance Policy No. 747411 which would have

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 Insurance Law Reviewer ‘20
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timely exposed the supposed flaws and After two years, the defenses of concealment or
irregularities attending it as it now professes, misrepresentation, no matter how patent or well-
petitioner appears to have turned a blind eye and founded, will no longer lie.
opted instead to continue collecting the premiums
The so-called "incontestability clause" precludes
on the policy. For nearly three years, petitioner
the insurer from raising the defenses of false
collected the premiums and devoted the same to its
representations or concealment of material facts
own profit. It cannot now deny the claim when it is
insofar as health and previous diseases are
called to account. Section 48 must be applied to it
concerned if the insurance has been in force for at
with full force and effect.
least two years during the insured's lifetime. The
The Court therefore agrees fully with the appellate phrase "during the lifetime" found in Section 48
court's pronouncement that — simply means that the policy is no longer
considered in force after the insured has died. The
[t]he "incontestability clause" is a provision in law
key phrase in the second paragraph of Section 48 is
that after a policy of life insurance made payable on
"for a period of two years."
the death of the insured shall have been in force
during the lifetime of the insured for a period of two As borne by the records, the policy was issued on
(2) years from the date of its issue or of its last August 30, 1993, the insured died on April 10, 1996,
reinstatement, the insurer cannot prove that the and the claim was denied on April 16, 1997. The
policy is void ab initio or is rescindible by reason of insurance policy was thus in force for a period of 3
fraudulent concealment or misrepresentation of the years, 7 months, and 24 days. Considering that the
insured or his agent. insured died after the two-year period, the plaintiff-
appellant is, therefore, barred from proving that the
The purpose of the law is to give protection to the
policy is void ab initio by reason of the insured's
insured or his beneficiary by limiting the rescinding
fraudulent concealment or misrepresentation or
of the contract of insurance on the ground of
want of insurable interest on the part of the
fraudulent concealment or misrepresentation to a
beneficiary, herein defendant-appellee.
period of only two (2) years from the issuance of the
policy or its last reinstatement. Petitioner claims that its insurance agent, who
solicited the Sotero account, happens to be the
The insurer is deemed to have the necessary
cousin of respondent's husband, and thus
facilities to discover such fraudulent concealment
insinuates that both connived to commit insurance
or misrepresentation within a period of two (2)
fraud. If this were truly the case, then petitioner
years. It is not fair for the insurer to collect the
would have discovered the scheme earlier if it had
premiums as long as the insured is still alive, only
in earnest conducted an investigation into the
to raise the issue of fraudulent concealment or
circumstances surrounding the Sotero policy. But
misrepresentation when the insured dies in order to
because it did not and it investigated the Sotero
defeat the right of the beneficiary to recover under
account only after a claim was filed thereon more
the policy.
than two years later, naturally it was unable to
At least two (2) years from the issuance of the policy detect the scheme. For its negligence and inaction,
or its last reinstatement, the beneficiary is given the the Court cannot sympathize with its plight. Instead,
stability to recover under the policy when the its case precisely provides the strong argument for
insured dies. The provision also makes clear when requiring insurers to diligently conduct
the two-year period should commence in case the investigations on each policy they issue within the
policy should lapse and is reinstated, that is, from two-year period mandated under Section 48, and
the date of the last reinstatement. not after claims for insurance proceeds are filed
with them.

Besides, if insurers cannot vouch for the integrity

and honesty of their insurance agents/salesmen

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and the insurance policies they issue, then they Atty. Jesus Jr. died as a result of a gunshot. As
should cease doing business. If they could not such, Ma. Daisy filed a Claimant's Statement
properly screen their agents or salesmen before with Sun Life to seek the death benefits indicated in
taking them in to market their products, or if they do his insurance policy.
not thoroughly investigate the insurance contracts
Sun Life denied the claim and instead filed a
they enter into with their clients, then they have only
Complaint for Rescission before the RTC and
themselves to blame. Otherwise said, insurers
prayed for judicial confirmation of Atty. Jesus Jr.'s
cannot be allowed to collect premiums on
rescission of insurance policy.
insurance policies, use these amounts collected
and invest the same through the years, generating In its Complaint, Sun Life alleged that Atty. Jesus
profits and returns therefrom for their own benefit, Jr. did not disclose in his insurance application his
and thereafter conveniently deny insurance claims previous medical treatment at the National Kidney
by questioning the authority or integrity of their own Transplant Institute. According to Sun Life, the
agents or the insurance policies they issued to their undisclosed fact suggested that the insured was in
premium-paying clients. This is exactly one of the "renal failure" and at a high risk medical condition.
schemes which Section 48 aims to prevent. Consequently, had it known such fact, it would not
have issued the insurance policy in favor of Atty.
Insurers may not be allowed to delay the payment
Jesus Jr.
of claims by filing frivolous cases in court, hoping
that the inevitable may be put off for years — or even For their defense, the respondents claimed that
decades — by the pendency of these unnecessary Atty. Jesus Jr. did not commit misrepresentation in
court cases. In the meantime, they benefit from his application for insurance. They averred that
collecting the interest and/or returns on both the Atty. Jesus Jr. was in good faith when he signed the
premiums previously paid by the insured and the insurance application and even authorized Sun Life
insurance proceeds which should otherwise go to to inquire further into his medical history for
their beneficiaries. The business of insurance is a verification purposes. According to them, the
highly regulated commercial activity in the country, complaint is just a ploy to avoid the payment of
and is imbued with public interest. "[A]n insurance insurance claims.
contract is a contract of adhesion which must be
construed liberally in favor of the insured and The Regional Trial Court held that Sun Life violated
strictly against the insurer in order to safeguard the Sections 241, paragraph 1 (b), (d), and (e) and
[former's] interest." 242 of the Insurance Code when it refused to pay
the rightful claim of the respondents.
SUN LIFE OF CANADA (PHILIPPINES), The RTC held that Atty. Jesus Jr. did not commit
INC., vs. MA. DAISY S. SIBYA, JESUS MANUEL material concealment and misrepresentation when
S. SIBYA III, JAIME LUIS S. SIBYA, and The Estate he applied for life insurance with Sun Life
of the deceased ATTY. JESUS SIBYA, JR.
[G.R. No. 211212. June 8, 2016.] The Court of Appeals issued its Decision affirming
Facts: Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied the RTC decision it ruled there was no fraudulent
for life insurance with Sun Life. In his Application intent on the part of Atty. Jesus Jr. in submitting his
for Insurance, he indicated that he had sought insurance application. Instead, it found that Atty.
advice for kidney problems. Jesus Jr. admitted in his application that he had
sought medical treatment for kidney ailment.
Sun Life approved Atty. Jesus Jr.'s application. The
policy indicated the respondents as beneficiaries Issue: WON the CA erred when it affirmed the RTC
and entitles them to a death benefit of decision finding that there was no concealment or
P1,000,000.00 should Atty. Jesus Jr. dies on or misrepresentation when Atty. Jesus Jr. submitted
before February 5, 2021, or a sum of money if Atty. his insurance application with Sun Life. NO.
Jesus Jr. is still living on the endowment date.

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Ruling: In Manila Bankers Life Insurance Corporation v. medical history since [Sun Life] had the means of
Aban, the Court held that if the insured dies within ascertaining [Atty. Jesus Jr.'s] medical record.
the two-year contestability period, the insurer is
With regard to allegations of misrepresentation, we
bound to make good its obligation under the policy,
note that [Atty. Jesus Jr.] was not a medical doctor,
regardless of the presence or lack of concealment
and his answer "no recurrence" may be construed
or misrepresentation. The Court held:
as an honest opinion. Where matters of opinion or
Section 48 serves a noble purpose, as it regulates the judgment are called for, answers made in good faith
actions of both the insurer and the insured. Under the and without intent to deceive will not avoid a policy
provision, an insurer is given two years — from the even though they are untrue. (Citations omitted and
effectivity of a life insurance contract and while the italics in the original)
insured is alive — to discover or prove that the policy is
void ab initio or is rescindible by reason of the fraudulent In the present case, Sun Life failed to clearly and
concealment or misrepresentation of the insured or his satisfactorily establish its allegations and is
agent. After the two-year period lapses, or when the therefore liable to pay the proceeds of the
insured dies within the period, the insurer must make insurance.
good on the policy, even though the policy was obtained
by fraud, concealment, or misrepresentation. This is not
to say that insurance fraud must be rewarded, but that I. MISREPRESENTATION
insurers who recklessly and indiscriminately solicit and
obtain business must be penalized, for such A. In General
recklessness and lack of discrimination ultimately work TITLE 5
to the detriment of bona fide takers of insurance and the Representation
public in general. (Emphasis ours) SECTION 36. A representation may be oral or
written.
In the present case, Sun Life issued Atty. Jesus Jr.'s
policy on February 5, 2001. Thus, it has two years Representation is a statement made by the insured
from its issuance, to investigate and verify whether at the time of, or prior to, the issuance of the policy,
the policy was obtained by fraud, concealment, or relative to the risk to be insured, as to an existing or
misrepresentation. Upon the death of Atty. Jesus past fact or state of facts, or concerning a future
Jr., however, on May 11, 2001, or a mere three happening, to give information to the insurer and
months from the issuance of the otherwise induce him to enter into the insurance
policy, Sun Life loses its right to rescind the policy. contract. It may also be made by the insurer.
As discussed in Manila Bankers, the death of the
insured within the two-year period will render the Misrepresentation in insurance is a statement
right of the insurer to rescind the policy nugatory. 1. As a fact of something which is untrue,
As such, the incontestability period will now set in. 2. Which the insured stated with knowledge that it
is untrue and with an intent to deceive, or which
Assuming, however, for the sake of argument, that he states positively as true without knowing it to
the incontestability period has not yet set in, the be true and which has a tendency to mislead,
Court agrees, nonetheless, with the CA when it held and
that Sun Life failed to show that Atty. Jesus Jr. 3. Where such fact in either case is material to the
committed concealment and misrepresentation. risk.

As correctly observed by the CA, Atty. Jesus Jr. Such misrepresentation by the insured renders the
admitted in his application his medical treatment insurance contract voidable at the option of the
for kidney ailment. Moreover, he executed an insurer, even though innocently made and without
authorization in favor of Sun Life to conduct wrongful intent.
investigation in reference with his medical history.
SECTION 37. A representation may be made at the
Given the express language of the Authorization, it time of, or before, issuance of the policy.
cannot be said that [Atty. Jesus Jr.] concealed his

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 Insurance Law Reviewer ‘20
Based on the Book of De Leon.

Representation must precede the execution of the A representation cannot qualify an express
contract. The insurer must be induced by the provision or an express warranty in a contract of
misrepresentation of the applicant for insurance to insurance. This is because a representation is not a
issue the policy at a specified premium. A part of the contract but only a collateral inducement
representation made after the policy is issued could to it.
not have influenced either party to enter into the
contract. A representation may, however, qualify an implied
warranty.
SECTION 38. The language of a representation is to
be interpreted by the same rules as the language of SECTION 41. A representation may be altered or
contracts in general. withdrawn before the insurance is effected, but not
afterwards.
Representations are construed liberally in favor of
the insured and are required to be only substantially A representation is not a part of the contract. Hence,
true. Warranties, by contrast, must be literally true, it may be altered or withdrawn before the contract
or the contract will fail. actually takes effect but not afterwards.

SECTION 39. A representation as to the future is to SECTION 42. A representation must be presumed to
be deemed a promise, unless it appears that it was refer to the date on which the contract goes into
merely a statement of belief or expectation. effect.

Kinds of representation Representations refer only to the time of making the

1. It may be oral or written. contract. Statements promissory of conditions to
2. It may be made at the time of issuing the policy exist subsequent to the completion of the contract
or before, and may be conditions or warranties, not
3. It may be affirmative or promissory. representations.

An affirmative representation is any allegation as to There is no false representation if it is true at the

the existence or non-existence of a fact when the time the contract takes effect although false at the
contract begins. time it was made and vice versa, there is false
representation if it is true at the time it was made
A promissory representation is any promise to be but false at the time the contract takes effect.
fulfilled after the contract has come into existence
or any statement concerning what is to happen SECTION 43. When a person insured has no
during the existence of the insurance. It may be an personal knowledge of a fact, he may nevertheless
oral promise made in connection with the insurance repeat information which he has upon the subject,
but not incorporated in the policy. and which he believes to be true, with the
explanation that he does so on the information of
A representation of the expectation, intention, belief, others; or he may submit the information, in its
opinion or judgment of the insured, although false, whole extent, to the insurer; and in neither case is
will not avoid a policy of insurance if there is no he responsible for its truth, unless it proceeds from
actual fraud in inducing the acceptance of the risk an agent of the insured, whose duty it is to give the
or its acceptance at a lower rate of premium. The information.
same is true even though the statement is material
to the risk. Under this section, the insured is given discretion to
communicate to the insurer what he knows of a
SECTION 40. A representation cannot qualify an matter of which he has no personal knowledge. If
express provision in a contract of insurance, but it the representation turns out to be false, he is not
may qualify an implied warranty. responsible therefor, provided he gives explanation
that he does so on the information of others.

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 Insurance Law Reviewer ‘20
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On the other hand, where a party orders insurance, The signatures that appear on the papers referring
and afterwards received information material to the to the insurance are so different from those which
risk or has knowledge of a loss, he ought to appear on the other documents which
communicate it to his agent as soon as it can be unquestionably bear the signature of the real Albay
communicated. If he does not do so, the policy is (ex. in March 1912 when he sold a tract of land and
avoided. his oath as elector in May 1912, and the great
difference that exist between the two signatures)
FRANCISCA EGUARAS, vs. THE GREAT EASTERN shows already stated that there was a person who
LIFE ASSURANCE COMPANY, LTD., and WEST G. passed himself off as Albay and had been signing
SMITH, THE GREAT EASTERN LIFE ASSURANCE different forms in his name.
COMPANY, LTD.
[G.R. No. 10436. January 24, 1916.] Issue: WON the insurance contract between GELA
Facts: Counsel for Francisca Eguaras alleging as a and Albay null and void for being false, fraudulent,
cause of action that her son-in-law Dominador and illegal. YES.
Albay had applied in writing to insure his life for the
Ruling: The contract was false, fraudulent, and
sum of P5,000, naming as the beneficiary Eguaras.
illegal.
After compliance with the requisites and the
investigation carried on by the defendant company, An insurance contract is fraudulent when for the
and it had been satisfied concerning the physical execution thereof a healthy and robust person is
condition of the applicant, it accepted. substituted, in place of the one to be insured, at the
physical examination made by a physician
On December 6, 1912, Albay died in the municipality
employed by the insurance company to determine
of Santa Cruz, Laguna. Despite the fact that the
the state of health of the person whose life is sought
beneficiary submitted satisfactory proofs of his
to be insured against certain risks, for the consent
death and that the defendant company investigated
of the insurance company, one of the contracting
the event, still it refused and continues to refuse to
parties, was obtained by means of deceitful,
pay to the plaintiff the value of the policy.
insidious or false statements, even though these do
GELA alleged that the policy was obtained through not constitute estafa or any other criminal act
fraud and deceit. This was the basis of a criminal subject to the penal law.
complaint Eguaras and Ponciano Remegio
It is essential to the nature of the deceit that said
(insurance agent) for the crime of frustrated estafa
deceit be prior to or contemporaneous with the
in the Court of First Instance of Laguna, but that
consent that is a necessary requisite for perfecting
they had been acquitted.
the contract, but not that it may have occurred or
Dr. Vidal testified that he examined a person (for the happened thereafter. A contract is therefore
application) and that this person was introduced to deceitful, for the execution whereof the consent of
him by Remegio as Albay and signed under the one of the parties has been secured by means of
name of Albay after the examination. When he was fraud, because he was persuaded by words or
urged to state positively whether he had any doubt insidious machinations, statements or false
that the person he had examined was the accused promises, and a defective consent wrung from him,
Castor Garcia, he first asked permission to examine even though such do not constitute estafa or any
the latter's body, and finally reaffirmed that Garcia other criminal subject to the penal law.
was the very person he had examined. He further
The fraud which gave rise to the mistaken consent,
stated that Remegio had visited his house in Manila
given by the defendant company to the application
to request that he testify in favor of said Remegio,
for insurance made by Albay and to the execution of
and at the same time had offered him P600 not to
the contract, consisted in the substitution at the
identify the person of Castor Garcia the trial.
examination of Castor Garcia in place of the insured
Dominador Albay. When Castor Garcia presented

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 Insurance Law Reviewer ‘20
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himself to be examined by the physician Vidal in On May 9, 1925, Bernardo Argente and his wife
place of Dominador Albay, serious deceit occurred submitted to the West Coast Life Insurance Co. an
in perfecting the insurance contract, for had there amended application for insurance, increasing the
no deceit, the company would not have granted the amount thereof to P15,000, and asked that the
insurance applied for by Albay, nor would it have policy be dated May 15,1925. The amended
executed the contract. application was accompanied by the documents
entitled "Short Form Medical Report." In both of
As the deceit practiced in the said contract is of a
these documents appear certain questions and
serious nature, the same is ipso facto void and
answers.
ineffective, in accordance with the provisions of
article 1270 of the Civil Code. Such a change in the A temporary policy for P15,000 was issued to
person constitutes one of the means of fraud which, Bernardo Argente and his wife as of May 15, 1925,
although it may not partake of the nature of a crime, but it was not delivered to Bernardo Argente until
essentially nullifies the insurance contract July 2, 1925, when the first quarterly premium on
executed. the policy was paid. In view of the fact that more
than thirty days had elapsed since the applicants
It is not a question whether the acts performed by
were examined by the company's physician, each of
Eguaras and others interested in the proceeds of
them was required to file a certificate of health
the insurance were criminal, but whether in taking
before the policy was delivered to them.
out the insurance on the life of Dominador Albay
there occurred in the operation deceit and fraud of On November 18, 1925, Vicenta de Ocampo died of
a civil nature, in the form and under the conditions cerebral apoplexy. Thereafter Bernardo Argente
defined by the Civil Code. presented a claim in due form to the West Coast Life
Insurance Co. for the payment of the sum of
BERNARDO ARGENTE, vs. WEST COAST LIFE P15,000 the amount of the joint life insurance
INSURANCE CO. policy. Following investigation conducted by the
[G.R. No. 28499. March 19, 1928.] Manager of the Manila office of the insurance
Facts: Bernardo Argente signed an application for company, it was apparently disclosed that the
joint insurance with his wife in the sum of P2,000. answers given by the insured in their medical
The wife, Vicenta de Ocampo, signed a like examinations with regard to their health and
application for the same policy. Both applications, previous illnesses and medical attendance were
with the exception of the names and the signatures untrue. For that reason, the West Coast Life
of the applicants, were written by Jose Geronimo Insurance Co. refused to pay the claim of Bernardo
del Rosario, an agent for the West Coast Life Argente, and wrote him to the effect that the claim
Insurance Co. But all the information contained in was rejected because the insurance was obtained
the applications was furnished the agent by through fraud and misrepresentation.
Bernardo Argente. The plaintiff, Bernardo Argente, alleges that both he
Pursuant their application, Bernardo Argente and and his wife revealed to the company's physician,
Vicenta de Ocampo, wife of the plaintiff was Doctor Sta. Ana, all the facts concerning their
examined by Dr. Cesareo Sta. Ana. The result of previous illnesses and medical attendance, but that
such examination was recorded in the Medical Doctor Sta. Ana, presumably acting in collusion with
Examiner's Report, and with the exception of the the insurance agent, Jose Geronimo del Rosario,
signature of Bernardo Argente, was in the hand- failed to record them in the medical reports.
writing of Doctor Sta. Ana. But the information or The court found that the representations made by
answers to the questions contained on the face of Bernardo Argente and by his wife in their
the Medical Examiner's Report were furnished the applications to the defendant for life insurance were
doctor by the applicant, Bernardo Argente. false with respect to their state of health during the
period of five years preceding the date of such

12
 Insurance Law Reviewer ‘20
Based on the Book of De Leon.

applications, and that they knew the by the assured, the insurance would never have
representations made by them in their applications been granted.
were false. The court further found from the
Concealment must, in the absence of inquiries, be
evidence that the answers given by Bernardo
not only material, but fraudulent, or the fact must
Argente and his wife at the time of the medical
have been intentionally withheld. If no inquiries are
examination by Doctor Sta. Ana were false with
made and no fraud or design to conceal enters into
respect to the condition of their health at that time
the concealment the contract is not avoided.
and for a period of several years prior thereto.
The assurer is entitled to know every material fact
One ground for the rescission of a contract of
of which the assured has exclusive or peculiar
insurance under the Insurance Act is "a
knowledge, as well as all material facts which
concealment," which in section 25 is defined as "A
directly tend to increase the hazard or risk which are
neglect to communicate that which a party knows
known by the assured, or which ought to be or are
and ought to communicate." Appellant argues that
presumed to be known by him. And a concealment
the alleged concealment was immaterial and
of such facts vitiates the policy.
insufficient to avoid the policy.
If the assured has exclusive knowledge of material
Issue: WON Argente and Ocampo were guilty of
facts, he should fully and fairly disclose the same,
concealment and thereby misled the insurer into
whether he believes them material or not. The
accepting the risk. YES.
determination of the point whether there has or has
Ruling: Vicenta de Ocampo, in response to the not been a material concealment must rest largely
question asked by the medical examiner, answered in all cases upon the exact terms of the contract.
no to "Have you ever consulted a physician for or
have you ever suffered from any ailment or disease IGNACIO SATURNINO, in his own behalf and as the
of the brain or nervous system?" She also answered JUDICIAL GUARDIAN OF CARLOS SATURNINO,
“none” as to the question whether she consumed minor, vs. THE PHILIPPINE AMERICAN LIFE
alcohol of not. INSURANCE COMPANY.
[G.R. No. L-16163. February 28, 1963.]
To the question, "What physician or physicians, if
any, not named above, have you consulted or been Facts: Estefania Saturnino obtained a 20-year
treated by, within the last five years and for what endowment non-medical insurance. This kind of
illness or ailment?" she answered "None." policy dispenses with the medical examination of
the applicant usually required in ordinary life
But the facts show that she was taken to San policies.
Lazaro Hospital, her case was diagnosed by the
admitting physician as "alcoholism”, moreover, she It appears that two months prior to the issuance of
was diagnosed with "phycho-neurosis." the policy, Saturnino was operated on for cancer,
involving complete removal of the right breast,
Section 25 of the Insurance Code defined
including the pectoral muscles and the glands
concealment as "a neglect to communicate that
found in the right armpit. She stayed in the hospital
which a party knows and ought to communicate."
for a period of eight days, after which she was
The court held that the alleged concealment was discharged, although according to the surgeon who
not immaterial and insufficient to avoid the policy. operated on her she could not be considered
In an action on a life insurance policy where definitely cured, her ailment being of the malignant
the evidence conclusively shows that the answers type.
to questions concerning diseases were untrue, the
truth of falsity of the answers become the Notwithstanding the fact of her operation Estefania
determining factor. If the true facts been disclosed A. Saturnino did not make a disclosure thereof in
her application for insurance. On the contrary, she

13
 Insurance Law Reviewer ‘20
Based on the Book of De Leon.

stated therein that she did not have, nor had she In the application for insurance signed by the
ever had, among other ailments listed in the insured in this case, she agreed to submit to a
application, cancer or other tumors; that she had medical examination by a duly appointed examiner
not consulted any physician, undergone any of Philamlife if in the latter's opinion such
operation or suffered any injury within the examination was necessary as further evidence of
preceding five years; and that she had never been insurability. In not asking her to submit to a medical
treated for nor did she ever have any illness or examination, appellants maintain, Philamlife was
disease peculiar to her sex, particularly of the guilty of negligence, which precluded it from finding
breast, ovaries, uterus, and menstrual disorders. about her actual state of health. No such negligence
The application also recites that the foregoing can be imputed to Philamlife. It was precisely
declarations constituted "a further basis for the because the insured had given herself a clean bill of
issuance of the policy." health that appellee no longer considered an actual
medical checkup necessary. It is logical to assume
Sometime after, Saturnino died of pneumonia, that if Philamlife had been properly apprised of the
secondary to influenza. Appellants here, who are insured's medical history she would at least have
her surviving husband and minor child, respectively, been made to undergo medical examination in order
demanded payment of the face value of the policy. to determine her insurability.
The claim was rejected and hence an action was
subsequently instituted. 1. As a ground to rescind

Issue: WON the insured made such false SECTION 45. If a representation is false in a
representations of material facts as to avoid the material point, whether affirmative or promissory,
policy. YES. the injured party is entitled to rescind the contract
from the time when the representation becomes
Ruling: The Insurance Law (Section 30) provides false.
that: “materiality is to be determined not by the event,
Fraud or intent to misrepresent facts is not
but solely by the probable and reasonable influence of
the facts upon the party to whom the communication is
essential to entitles the injured party to rescind a
due, in forming his estimate of the proposed contract, or contract of insurance on the ground of false
in making his inquiries.” representation. It does not matter that the
representation relied on by the insurer is made in
the honest belief that it is true.
A concealment, whether intentional or
unintentional, entitles the insurer to rescind the
To be deemed false, it is sufficient if the
contract of insurance, concealment being defined
representation fails to correspond with the facts in
as “negligence to communicate that which a party a material point.
knows and ought to communicate”.
Effect of collusion or fraud of agent of insurer
The basis of the rule vitiating the contract in cases Collusion between the agent and the insured in
of concealment is that it misleads or deceives the misrepresenting the facts will vitiate the policy even
insurer into accepting the risk, or accepting it at the though the agent is acting within the apparent
rate of premium agreed upon. The insurer, relying scope of his authority. When there is collusion, the
upon the belief that the assured will disclose every agent thereby ceases to represent his principal and
material facts within his actual or presumed represents himself; so the insurer is not estopped
knowledge, is misled into a belief that the from avoiding the policy.
circumstance withheld does not exist, and he is
thereby induced to estimate the risk upon a false SECTION 48. Whenever a right to rescind a contract
of insurance is given to the insurer by any provision
basis that it does not exist.
of this chapter, such right must be exercised

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 Insurance Law Reviewer ‘20
Based on the Book of De Leon.

previous to the commencement of an action on the When a policy of life insurance becomes
contract. incontestable, the insurer may not refuse to pay the
same by claiming that:
Grounds to rescind a contract of insurance 1. The policy is void ab initio; or
1. Concealment; 2. It is rescissible by reason of the fraudulent
2. False representation; and concealment of the insured or his agent, no
3. Breach of warranty. matter how patent or well-founded; or
3. It is rescissible by reason of the fraudulent
An action to rescind a contract, under the first misrepresentations of the insured or his agent.
paragraph of Section 48, is founded upon and
presupposes the existence of the contract, which is Defenses not barred by incontestable clause
rescinded. The incontestability of a policy under the law is not
absolute. Otherwise, a beneficiary of any person
In non-life policy, in order that the insurer may who had procured a life policy more than two years
rescind a contract of insurance, such right must be before his death would automatically be entitled to
exercised prior to the commencement of an action the proceeds upon that person’s death.
on the contract. In other words, the insurer is no
longer entitled to rescind a contract of insurance The insurer may still contest the policy by way of
after the insured has filed an action to collect the defense to a suit brought upon the policy or by
amount of the insurance. action to rescind the same, on any of the following
grounds:
In life policy, the defenses mentioned are available 1. That the person taking the insurance lacked
only during the first two years of a life insurance insurable interest as required by law;
policy. 2. That the cause of the death of the insured is an
excepted risk;
Incontestability of life policies 3. That the premiums have not been paid;
Incontestable clauses, in life insurance policies, 4. That the conditions of the policy relating to
stipulating that the policy shall be incontestable military or naval service have been violated;
after a stated period are in general use. They create 5. That the fraud is of a particularly vicious type;
a kind of contractual statute of limitations on 6. That the beneficiary failed to furnish proof of
certain defenses that may be raised by the insurer. death or to comply with any condition imposed
by the policy after the loss has happened; or
Incontestability means that after the requisites are 7. That the action was not brought within the time
shown to exist, the insurer shall be estopped from specified.
contesting the policy or setting up any defense,
except as is allowed, on the ground of public policy. NG GAN ZEE vs. ASIAN CRUSADER LIFE
ASSURANCE CORPORATION.
In order that the insurance shall be incontestable, [G.R. No. L-30685. May 30, 1983.]
the following requisites must be present: Facts: Kwong Nam applied for a 20-year
1. The policy is a life insurance policy; endowment insurance on his life for the sum of
2. It is payable on the death of the insured; and
P20,000.00, with his wife, appellee Ng Gan Zee, as
3. It has been in force during the lifetime of the
beneficiary. On the same date, appellant, approved
insured for at least two years from its date of
issue or of its last reinstatement. the application and issued the corresponding
policy. On December 6, 1963, Kwong Nam died of
The period of two years for contesting a life cancer of the liver with metastasis. All premiums
insurance policy by the insurer may be shortened had been religiously paid at the time of his death.
but it cannot be extended by stipulation.
His widow Ng Gan Zee presented a claim in due
form to appellant for payment of the face value of
Effect when policy becomes incontestable
the policy. On the same date, she submitted the

15
 Insurance Law Reviewer ‘20
Based on the Book of De Leon.

required proof of death of the insured. Appellant of a hen's egg size," was removed during said
denied the claim on the ground that the answers operation, constituted material concealment.
given by the insured to the questions appearing in The question to be resolved may be propounded
his application for life insurance were untrue. thus:

Appellant alleged that the insured was guilty of Issue: Was appellant, because of insured's
misrepresentation when he answered "No" to the aforesaid representation, misled or deceived into
following question appearing in the application for entering the contract or in accepting the risk at the
life insurance — rate of premium agreed upon. NO.
"Has any life insurance company ever refused your Ruling: Section 27 of the Insurance Law [Act 2427]
application for insurance or for reinstatement of a lapsed provides:
policy or offered you a policy different from that applied
for? If, so, name company and date." "Sec. 27. Such party to a contract of insurance must
communicate to the other, in good faith, all facts within
Appellant further maintains that when the insured his knowledge which are material to the contract, and
was examined in connection with his application for which the other has not the means of ascertaining, and
life insurance, he gave the appellant's medical as to which he makes no warranty."
examiner false and misleading information as to his
Thus, "concealment exists where the assured had
ailment and previous operation.
knowledge of a fact material to the risk, and
"Operated on for a Tumor [mayoma] of the stomach. honesty, good faith, and fair dealing requires that he
Claims that Tumor has been associated with ulcer of should communicate it to the assurer, but he
stomach Tumor taken out was hard and of a hen's egg designedly and intentionally withholds the same."
size. Operation was two [2] years ago in Chinese General
Hospital by Dr. Yap. Now, claims he is completely It has also been held "that the concealment must, in
recovered." the absence of inquiries, be not only material, but
fraudulent, or the fact must have been intentionally
To demonstrate the insured's misrepresentation,
withheld."
appellant directs Our attention to:
Assuming that the aforesaid answer given by the
1. The report of Dr. Fu Sun Yuan, the physician who
insured is false, as claimed by the appellant. Sec. 27
treated Kwong Nam at the Chinese General Hospital
on May 22, 1960, i.e., about 2 years before he applied of the Insurance Law, above-quoted, nevertheless
for an insurance policy on May 12, 1962. According requires that fraudulent intent on the part of the
to said report, Dr. Fu Sun Yuan had diagnosed the insured be established to entitle the insurer to
patient's ailment as 'peptic ulcer' for which an rescind the contract. And as correctly observed by
operation, known as a 'sub-total gastric resection' the lower court, "misrepresentation as a defense of
was performed on the patient by Dr. Pacifico Yap; the insurer to avoid liability is an 'affirmative'
and defense. The duty to establish such a defense by
2. The Surgical Pathology Report of Dr. Elias Pantangco satisfactory and convincing evidence rests upon
showing that the specimen removed from the
the defendant. The evidence before the Court does
patient's body was 'a portion of the stomach
not clearly and satisfactorily establish that
measuring 12 cm. and 19 cm. along the lesser
curvature with a diameter of 15 cm. along the defense."
greatest dimension. It bears emphasis that Kwong Nam had informed
the appellant's medical examiner that the tumor for
On the bases of the above undisputed medical data which he was operated on was ''associated with
showing that the insured was operated on for ulcer of the stomach." In the absence of evidence
"peptic ulcer", involving the excision of a portion of that the insured had sufficient medical knowledge
the stomach, appellant argues that the insured's as to enable him to distinguish between "peptic
statement in his application that a tumor, "hard and
ulcer" and "a tumor", his statement that said tumor

16
 Insurance Law Reviewer ‘20
Based on the Book of De Leon.

[G.R. No. 198588. July 11, 2012.]

was "associated with ulcer of the stomach, " should
be construed as an expression made in good faith Facts: Petitioner United Merchants Corporation
of his belief as to the nature of his ailment and (UMC) is engaged in the business of buying, selling,
operation. Indeed, such statement must be and manufacturing Christmas lights. UMC's
presumed to have been made by him without General Manager Alfredo Tan insured UMC's stocks
knowledge of its incorrectness and without any in trade of Christmas lights against fire with
deliberate intent on his part to mislead the defendant Country Bankers Insurance.
appellant.
On 7 May 1996, UMC and CBIC executed
While it may be conceded that, from the viewpoint Endorsement F/96-154 and Fire Invoice No. 16583A
of a medical expert, the information communicated to form part of the Insurance Policy. Endorsement
was imperfect, the same was nevertheless F/96-154 provides that UMC's stocks in trade were
sufficient to have induced appellant to make further insured against additional perils, to wit: "typhoon,
inquiries about the ailment and operation of the flood, ext. cover, and full earthquake." CBIC issued
insured. Endorsement F/96-157 where the name of the
assured was changed from Alfredo Tan to UMC.
Section 32 of Insurance Law [Act No. 2427] provides
as follows: On 3 July 1996, a fire gutted the warehouse rented
by UMC. CBIC designated CRM Adjustment
"Section 32. The right to information of material
Corporation (CRM) to investigate and evaluate
facts may be waived either by the terms of
UMC's loss by reason of the fire. CBIC's reinsurer,
insurance or by neglect to make inquiries as to such
Central Surety, likewise requested the National
facts where they are distinctly implied in other facts
Bureau of Investigation (NBI) to conduct a parallel
of which information is communicated."
investigation. UMC, through CRM, submitted to
It has been held that where, "upon the face of the CBIC its Sworn Statement of Formal Claim, with
application, a question appears to be not answered proofs of its loss. UMC received CBIC's letter,
at all or to be imperfectly answered, and the insurers rejecting UMC's claim due to breach of Condition
issue a policy without any further inquiry, they waive No. 15 of the Insurance Policy. Condition No. 15
the imperfection of the answer and render the states:
omission to answer more fully immaterial. If the claim be in any respect fraudulent, or if any false
As aptly noted by the lower court, "if the ailment and declaration be made or used in support thereof, or if any
fraudulent means or devices are used by the Insured or
operation of Kwong Nam had such an important
anyone acting in his behalf to obtain any benefit under
bearing on the question of whether the defendant
this Policy; or if the loss or damage be occasioned by the
would undertake the insurance or not, the court willful act, or with the connivance of the Insured, all the
cannot understand why the defendant or its medical benefits under this Policy shall be forfeited.
examiner did not make any further inquiries on such
matters from the Chinese General Hospital or UMC filed a Complaint against CBIC with the
require copies of the hospital records from the Regional Trial Court.
appellant before acting on the application for The Regional Trial Court, rendered a Decision in
insurance. The fact of the matter is that the favor of UMC.
defendant was too eager to accept the application
and receive the insured's premium. It would be The Court of Appeals promulgated its Decision in
inequitable now to allow the defendant to avoid favor of CBIC.
liability under the circumstances."
UMC contends that because it had already
established a prima facie case against CBIC which
UNITED MERCHANTS failed to prove its defense, UMC is entitled to claim
CORPORATION, vs. COUNTRY BANKERS INSURAN the full coverage under the Insurance Policy. On the
CE CORPORATION. other hand, CBIC contends that because arson and

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fraud attended the claim, UMC is not entitled to that claimed in the proof of loss voids the insurance
recover under Condition No. 15 of the Insurance policy. Mere filing of such a claim will exonerate the
Policy. insurer.

Issue: WON UMC is entitled to recover under Considering that all the circumstances point to the
Condition No. 15 of the Insurance Policy. NO. inevitable conclusion that UMC padded its claim
and was guilty of fraud, UMC violated Condition No.
Ruling: Condition No. 15 of the Insurance Policy
15 of the Insurance Policy. Thus, UMC forfeited
provides that all the benefits under the policy shall
whatever benefits it may be entitled under the
be forfeited, if the claim be in any respect fraudulent,
Insurance Policy, including its insurance claim.
or if any false declaration be made or used in
support thereof, to wit: While it is a cardinal principle of insurance law that
a contract of insurance is to be construed liberally
15. If the claim be in any respect fraudulent, or if any false
in favor of the insured and strictly against the
declaration be made or used in support thereof, or if any
fraudulent means or devices are used by the Insured or insurer company, contracts of insurance, like other
anyone acting in his behalf to obtain any benefit under contracts, are to be construed according to the
this Policy; or if the loss or damage be occasioned by the sense and meaning of the terms which the parties
willful act, or with the connivance of the Insured, all the themselves have used. If such terms are clear and
benefits under this Policy shall be forfeited. unambiguous, they must be taken and understood
in their plain, ordinary and popular sense. Courts are
It has long been settled that a false and material
not permitted to make contracts for the parties; the
statement made with an intent to deceive or defraud
function and duty of the courts is simply to enforce
voids an insurance policy.
and carry out the contracts actually made.
The most liberal human judgment cannot attribute
such difference to mere innocent error in estimating BENGUET EXPLORATION,
or counting but to a deliberate intent to demand INC. vs. COURT OF APPEALS, SWITZERLAND
from insurance companies payment for indemnity GENERAL INSURANCE, CO., LTD., and SEAWOOD
of goods not existing at the time of the fire. This SHIPPING, INC.
constitutes the so-called "fraudulent claim" which, [G.R. No. 117434. February 9, 2001.]

by express agreement between the insurers and the Facts: Private respondent Seawood Shipping was
insured, is a ground for the exemption of insurers chartered by petitioner Benguet to transport copper
from civil liability. concentrates. It was insured by Switzerland
Insurance.
In its Reply, UMC admitted the discrepancies when
it stated that "discrepancies in its statements were When the cargo was unloaded in Japan, however,
not covered by the warranty such that any Rogelio Lumibao received a report from a surveyor
discrepancy in the declaration in other instruments in Japan stating that the cargo was 355 metric tons
or documents as to matters that may have some short of the amount stated in the bill of lading. For
relation to the insurance coverage voids the this reason, petitioner Benguet made a claim of the
policy." loss to Seawood Shipping and Switzerland
Insurance.
On UMC's allegation that it did not breach any
warranty, it may be argued that the discrepancies Petitioner Benguet made a formal demand for the
do not, by themselves, amount to a breach of value of the alleged shortage. As both Seawood
warranty. However, the Insurance Code provides Shipping and Switzerland Insurance refused the
that "a policy may declare that a violation of demand, petitioner Benguet brought these cases
specified provisions thereof shall avoid it." Thus, in against Seawood Shipping and Switzerland
fire insurance policies, which contain provisions Insurance.
such as Condition No. 15 of the Insurance Policy, a
fraudulent discrepancy between the actual loss and

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Based on the evidence presented, the trial court cannot preclude a defendant from introducing any
rendered its decision dismissing petitioner's defense on the merits which does not contradict the
complaint as well as Switzerland Insurance's third- execution of the instrument introduced in evidence.
party complaint against Seawood Shipping.
In this case, respondents presented evidence which
On appeal, its decision was affirmed by the Court of casts doubt on the veracity of these documents.
Appeals. Respondent Switzerland Insurance presented
Export Declaration No. 1131/85 (Exh. 11) 32 which
Petitioner Benguet contends that the Court of
petitioner's own witness, Rogelio Lumibao,
Appeals gravely erred in ruling that it failed to
prepared, 33 in which it was stated that the copper
establish the loss or shortage of the subject cargo
concentrates to be transported to Japan had a
because such loss was sufficiently established by
gross weight of only 2,050 wet metric tons or 1,845
documentary and testimonial evidence, as well as
dry metric tons, 10 percent more or less. 34 On the
the admissions of private respondents.
other hand, Certified Adjusters, Inc., to which
Petitioner contends that the genuineness and due Switzerland Insurance had referred petitioner's
execution of the documents presented, i.e., Bill of claim, prepared a report which showed that a total
Lading, Certificate of Loading, Certificate of Weight, of 2,451.630 wet metric tons of copper
Mate's Receipt, were properly established by the concentrates were delivered at Poro Point. 35 As
testimony of its witness, Ernesto Cayabyab, and the report stated:
that as a result, there is a prima facie presumption
It is to be pointed out that there were no actual
that their contents are true.
weighing made at Benguet Exploration, Inc.'s site.
Issue: WON petitioner is entitled to claim from The procedure done was that after weighing the
insurance policy by reason of its claim of shortage. trucks before and after unloading at Philex Poro
NO. Point Installation, the weight of the load was
determined and entered on "Philex" Trip Ticket
Ruling: The admission of the due execution and which was later on copied and entered by the truck
genuineness of a document simply means that "the driver on Benguet Exploration, Inc.'s Transfer Slip.
party whose signature it bears admits that he
signed it or that it was signed by another for him Considering the discrepancies in the various
with his authority; that at the time it was signed it documents showing the actual amount of copper
was in words and figures exactly as set out in the concentrates transported to Poro Point and loaded
pleading of the party relying upon it; that the in the vessel, there is no evidence of the exact
document was delivered; and that any formal amount of copper concentrates shipped. Thus,
requisites required by law, such as a seal, an whatever presumption of regularity in the
acknowledgment, or revenue stamp, which it lacks, transactions might have risen from the
are waived by him." 29 In another case, we held that genuineness and due execution of the Bill of Lading,
"When the law makes use of the phrase Certificate of Weight, Certificate of Loading, and
'genuineness and due execution of the instrument' Mate's Receipt was successfully rebutted by the
it means nothing more than that the instrument is evidence presented by respondent Switzerland
not spurious, counterfeit, or of different import on Insurance which showed disparities in the actual
its face from the one executed." 30 It is equally true, weight of the cargo transported to Poro Point and
however, that — loaded on the vessel. This fact is compounded by
the admissions made by Lumibao and Cayabyab
Execution can only refer to the actual making and that they had no personal knowledge of the actual
delivery, but it cannot involve other matters without amount of copper concentrates loaded on the
enlarging its meaning beyond reason. The only vessel.
object of the rule was to enable a plaintiff to make
out a prima facie, not a conclusive case, and it 2. Test of falsity

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SECTION 44. A representation is to be deemed false to enter into the

when the facts fail to correspond with its assertions insurance contract.
or stipulations.

Definition of Misrepresentation
Unlike in warranties, representations are not
required to be literally true; they need only be
substantially true. In order that a policy shall be
avoided, a representation relied upon must be false
in a substantial and material respect.

A representation is substantially true when it is true

in every particular material to the risk, or is so far
true that the conduct of the insurer would not have
been different if the exact truth had been alleged.

However, in marine insurance, substantial truth of

representation is not sufficient. The insured is
required to state the exact and whole truth in
relation to all matters that he represents, or upon
inquiry discloses or assumes to disclose.

3. Materiality

SECTION 46. The materiality of a representation is

determined by the same rules as the materiality of
a concealment.

The materiality of the representation 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 representation is made, in
forming his estimates of the disadvantages of the
proposed contract or in making inquiries.

CONCEALMENT MISREPRESENTATION
Materiality of concealment is determined by the
same rules as applied in cases of
misrepresentation.
Concealment of the part of the insured has the
same effect as misrepresentation and gives the
insurer a right to rescind the contract.
Whether intentional or not, the injured party is
entitled to rescind a contract of insurance on
ground of concealment or false representation.
The rules on concealment and representation
apply likewise to the insurer.
The insured withholds The insured makes
information of material erroneous statements
facts from the insurer of facts with the intent
of inducing the insurer

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