RAMON D. VILLANUEVA JR.

JD-3A
II. CONTRACT OF INSURANCE
Enriquez v. Sun Life Assurance Co. of Canada

G.R. No. L-15895, 29 November 1920, 41 Phil. 269

FACTS:

On Sept. 24 1917, Herrer made an application to SunLife through its office in Manila for life annuity. Two (2)
days later, he paid the sum of 6T to the company’s manager in its Manila office and was given a receipt.
On Nov. 26, 1917, the head office gave notice of acceptance by cable to Manila. On the same date, the Manila
office prepared a letter notifying Herrer that his application has been accepted and this was placed in the
ordinary channels of transmission, but as far as known was never actually mailed and never received by
Herrer. Herrer died on Dec. 20, 1917. The plaintiff as administrator of Herrer’s estate brought this action to
recover the 6T paid by the deceased.

ISSUES:

Whether or not the insurance contract was perfected.

HELD:

NO. The contract for life annuity was NOT perfected because it had NOT been proved satisfactorily that the
acceptance of the application ever came to the knowledge of the applicant. An acceptance of an offer of
insurance NOT actually or constructively communicated to the proposer does NOT make a contract of
insurane, as the locus poenitentiae is ended when an acceptance has passed beyond the control of the party.

Great Pacific v CA G.R. No. L-31845 April 30, 1979

Facts:
Ngo Hing filed an application with the Great Pacific for a twenty-year endowment policy in the amount of
P50,000.00 on the life of his one-year old daughter Helen. He supplied the essential data which petitioner
Mondragon, the Branch Manager, wrote on the form. The latter paid the annual premium the sum of
P1,077.75 going over to the Company, but he retained the amount of P1,317.00 as his  commission for being a
duly authorized agent of Pacific Life.
Upon the payment of the insurance premium, the binding deposit receipt was issued Ngo Hing. Likewise,
petitioner Mondragon handwrote at the bottom of the back page of the application form his strong
recommendation for the approval of the insurance application. Then Mondragon received a letter from Pacific
Life disapproving the insurance application. The letter stated that the said life insurance application for 20-
year endowment plan is not available for minors below seven years old, but Pacific Life can consider the same
under the Juvenile Triple Action Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical
Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by petitioner
Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote back Pacific Life
again strongly recommending the approval of the 20-year endowment insurance plan to children, pointing out
that since the customers were asking for such coverage.
Helen Go died of influenza. Ngo Hing sought the payment of the proceeds of the insurance, but having failed
in his effort, he filed the action for the recovery before the Court of First Instance of Cebu, which ruled against
him.

Issues:
1. Whether the binding deposit receipt constituted a temporary contract of the life insurance in question
2. Whether Ngo Hing concealed the state of health and physical condition of Helen Go, which rendered void
the policy

Held:  No. Yes. Petition dismissed.

Ratio:
The receipt was intended to be merely a provisional insurance contract. Its perfection was subject to
compliance of the following conditions: (1) that the company shall be satisfied that the applicant was insurable
on standard rates; (2) that if the company does not accept the application and offers to issue a policy for a
different plan, the insurance contract shall not be binding until the applicant accepts the policy offered;
otherwise, the deposit shall be refunded; and (3) that if the company disapproves the application, the
insurance applied for shall not be in force at any time, and the premium paid shall be returned to the
applicant.
The receipt is merely an acknowledgment that the latter's branch office had received from the applicant the
insurance premium and had accepted the application subject for processing by the insurance company. There
was still approval or rejection the same on the basis of whether or not the applicant is "insurable on standard
rates." Since Pacific Life disapproved the insurance application of respondent Ngo Hing, the
binding deposit receipt in question had never become in force at any time. The binding deposit receipt
is conditional and does not insure outright. This was held in Lim v Sun.
The deposit paid by private respondent shall have to be refunded by Pacific Life.
2.  Ngo Hing had deliberately concealed the state of health of his daughter Helen Go. When he supplied data,
he was fully aware that his one-year old daughter is typically a mongoloid child. He withheld the fact material
to the risk insured. 
“The contract of insurance is one of perfect good faith uberrima fides meaning good faith, absolute and
perfect candor or openness and honesty; the absence of any concealment or demotion, however slight.” 
The concealment entitles the insurer to rescind the contract of insurance.
III. INSURABLE INTEREST
Insurance Case Digest: Cha V. CA (1997)G.R. No. 124520  August 18, 1997

Lessons Applicable: Effect of Lack of Insurable Interest (Insurance)

FACTS:  

 Spouses Nilo Cha and Stella Uy-Cha and CKS Development Corporation entered a 1 year lease contract
with a stipulation not to insure against fire the chattels, merchandise, textiles, goods and effects placed at
any stall or store or space in the leased premises without first obtaining the written consent and approval
of the lessor.  But it insured against loss by fire their merchandise inside the leased premises for P500,000
with the United Insurance Co., Inc. without the written consent of CKS
 On the day the lease contract was to expire, fire broke out inside the leased premises and CKS learning
that the spouses procured an insurance wrote to United to have the proceeds be paid directly to them.
But United refused so CKS filed against Spouses Cha and United.
 RTC: United to pay CKS the amount of P335,063.11 and Spouses Cha to pay P50,000 as exemplary
damages, P20,000 as attorney’s fees and costs of suit
 CA: deleted exemplary damages and attorney’s fees
ISSUE: W/N the CKS has insurable interest because the spouses Cha violated the stipulation

HELD: NO. CA set aside. Awarding the proceeds to spouses Cha.

 Sec. 18.  No contract or policy of insurance on property shall be enforceable except for the benefit of
some person having an insurable interest in the property insured
 A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity.  Insurable interest in the property insured must exist a t
the time the insurance takes effect and at the time the loss occurs.  The basis of such requirement of
insurable interest in property insured is based on sound public policy: to prevent a person from taking out
an insurance policy on property upon which he has no insurable interest and collecting the proceeds of
said policy in case of loss of the property.  In such a case, the contract of insurance is a mere wager which
is void under Section 25 of the Insurance Code.
 SECTION 25.  Every stipulation in a policy of Insurance for the payment of loss, whether the person
insured has or has not any interest in the property insured, or that the policy shall be received as proof of
such interest, and every policy executed by way of gaming or wagering, is void
 Section 17.  The measure of an insurable interest in property is the extent to which the insured might
be damnified by loss of injury thereof
 The automatic assignment of the policy to CKS under the provision of the lease contract previously
quoted is void for being contrary to law and/or public policy.  The proceeds of the fire insurance policy
thus rightfully belong to the spouses.  The liability of the Cha spouses to CKS for violating their lease
 contract in that Cha spouses obtained a fire insurance policy over their own merchandise, without the
consent of CKS, is a separate and distinct issue which we do not resolve in this case.

Geagonia vs. Court of Appeals [GR 114427, 6 February 1995]

First Division, Davide Jr. (J): 4 concur

Facts: Armando Geagonia is the owner of Norman's Mart located in the public market of San Francisco,
Agusan del Sur. On 22 December 1989, he obtained from Country Bankers Insurance Corporation fire
insurance policy No. F-14622 2 for P100,000.00. The period of the policy was from 22 December 1989 to 22
December 1990 and covered the following: "Stock-in-trade consisting principally of dry goods such as RTW's
for men and women wear and other usual to assured's business." Geagonia declared in the policy under the
subheading entitled CO-INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer for P50,000.00.
From 1989 to 1990, Geagonia had in his inventory stocks amounting to P392,130.50, itemized as follows:
Zenco Sales, Inc., P55,698.00; F. Legaspi Gen. Merchandise, 86,432.50; and Cebu Tesing Textiles, 250,000.00
(on credit); totalling P392,130.50. The policy contained the following condition, that "the insured shall give
notice to the Company of any insurance or insurances already effected, or which may subsequently be
effected, covering any of the property or properties consisting of stocks in trade, goods in process and/or
inventories only hereby insured, and unless notice be given and the particulars of such insurance or insurances
be stated therein or endorsed in this policy pursuant to Section 50 of the Insurance Code, by or on behalf of
the Company before the occurrence of any loss or damage, all benefits under this policy shall be deemed
forfeited, provided however, that this condition shall not apply when the total insurance or insurances in force
at the time of the loss or damage is not more than P200,000.00." On 27 May 1990, fire of accidental origin
broke out at around 7:30 p.m. at the public market of San Francisco, Agusan del Sur. Geagonia's insured
stocks-in-trade were completely destroyed prompting him to file with Country Bankers a claim under the
policy. On 28 December 1990, Country Bankers denied the claim because it found that at the time of the loss
Geagonia's stocks-in-trade were likewise covered by fire insurance policies GA-28146 and GA-28144, for
P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc. (PFIC). These policies
indicate that the insured was "Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause
reading ""MORTGAGEE: Loss, if any, shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as their
interest may appear subject to the terms of this policy. CO-INSURANCE DECLARED: P100,000. — Phils. First
CEB/F-24758" The basis of Country Bankers' denial was Geagonia's alleged violation of Condition 3 of the
policy. Geagonia then filed a complaint against Country Bankers with the Insurance Commission (Case 3340)
for the recovery of P100,000.00 under fire insurance policy F-14622 and for attorney's fees and costs of
litigation. He attached his letter of 18 January 1991 which asked for the reconsideration of the denial. He
admitted in the said letter that at the time he obtained Country Bankers's fire insurance policy he knew that
the two policies issued by the PFIC were already in existence; however, he had no knowledge of the provision
in Country Bankers' policy requiring him to inform it of the prior policies; this requirement was not mentioned
to him by Country Bankers' agent; and had it been so mentioned, he would not have withheld such
information. He further asserted that the total of the amounts claimed under the three policies was below the
actual value of his stocks at the time of loss, which was P1,000,000.00. In its decision of 21 June 1993, the
Insurance Commission found that Geagonia did not violate Condition 3 as he had no knowledge of the
existence of the two fire insurance policies obtained from the PFIC; that it was Cebu Tesing Textiles which
procured the PFIC policies without informing him or securing his consent; and that Cebu Tesing Textile, as his
creditor, had insurable interest on the stocks. These findings were based on Geagonia's testimony that he
came to know of the PFIC policies only when he filed his claim with Country Bankers and that Cebu Tesing
Textile obtained them and paid for their premiums without informing him thereof. The Insurance Commission
ordered Country Bankers to pay Geagibua the sum of P100,000.00 with legal interest from the time the
complaint was filed until fully satisfied plus the amount of P10,000.00 as attorney's fees. With costs. Its motion
for the reconsideration of the decision having been denied by the Insurance Commission in its resolution of 20
August 1993, Country Bankers appealed to the Court of Appeals by way of a petition for review (CA-GR SP
31916). In its decision of 29 December 1993, the Court of Appeals reversed the decision of the Insurance
Commission because it found that Geagonia knew of the existence of the two other policies issued by the
PFIC. His motion to reconsider the adverse decision having been denied, Geagonia filed the petition for review
on certiorari.

Issue [1]: Whether the non-disclosure of other insurance policies violate condition 3 of the policy, so as to
deny Geagonia from recovering on the policy.

Held [1]: Condition 3 of Country Bankers's Policy F-14622 is a condition which is not proscribed by law. Its
incorporation in the policy is allowed by Section 75 of the Insurance Code, Such a condition is a provision
which invariably appears in fire insurance policies and is intended to prevent an increase in the moral hazard.
It is commonly known as the additional or "other insurance" clause and has been upheld as valid and as a
warranty that no other insurance exists. Its violation would thus avoid the policy. However, in order to
constitute a violation, the other insurance must be upon the same subject matter, the same interest therein,
and the same risk. The fire insurance policies issued by the PFIC name Geagonia as the assured and contain a
mortgage clause which reads: "Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their
interest may appear subject to the terms of the policy." This is clearly a simple loss payable clause, not a
standard mortgage clause. The Court concludes that (a) the prohibition in Condition 3 of the subject policy
applies only to double insurance, and (b) the nullity of the policy shall only be to the extent exceeding
P200,000.00 of the total policies obtained. The first conclusion is supported by the portion of the condition
referring to other insurance "covering any of the property or properties consisting of stocks in trade, goods in
process and/or inventories only hereby insured," and the portion regarding the insured's declaration on the
subheading CO-INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the sum of P50,000.00. A
double insurance exists where the same person is insured by several insurers separately in respect of the same
subject and interest. Since the insurable interests of a mortgagor and a mortgagee on the mortgaged property
are distinct and separate; the two policies of the PFIC do not cover the same interest as that covered by the
policy of Country Bankers, no double insurance exists. The non-disclosure then of the former policies was not
fatal to Geagonia's right to recover on Country Bankers' policy.

Issue [2]: Whether the violation of Condition 3 of the policy renders the policy void.

Held [2]: Unlike the "other insurance" clauses involved in General Insurance and Surety Corp. vs. Ng Hua, 106
Phil. 1117 [1960], or in Pioneer Insurance & Surety Corp. vs. Yap, 61 SCRA 426 [1974] which reads "The insured
shall give notice to the company of any insurance or insurances 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 benefits under this Policy shall be forfeited"; or in the 1930 case of
Santa Ana vs. Commercial Union Assurance Co., 55 Phil. 329, 334 [1930], which provided "that any
outstanding insurance upon the whole or a portion of the objects thereby assured must be declared by the
insured in writing and he must cause the company to add or insert it in the policy, without which such policy
shall be null and void, and the insured will not be entitled to indemnity in case of loss," Condition 3 in Country
Bankers' policy F-14622 does not absolutely declare void any violation thereof. It expressly provides that the
condition "shall not apply when the total insurance or insurances in force at the time of the loss or damage is
not more than P200,000.00." By stating within Condition 3 itself that such condition shall not apply if the total
insurance in force at the time of loss does not exceed P200,000.00, Country Bankers was amenable to assume
a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in mind was to discourage over-
insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in fire policies is to
prevent over-insurance and thus avert the perpetration of fraud. When a property owner obtains insurance
policies from two or more insurers in a total amount that exceeds the property's value, the insured may have
an inducement to destroy the property for the purpose of collecting the insurance. The public as well as the
insurer is interested in preventing a situation in which a fire would be profitable to the insured.

RizalCommercialBankingCorporation(RCBC)vs.CourtofAppeals[GR128833,20April1998]; also RCBC vs. Court

Facts: Goyu & Sons, Inc. (Goyu) applied for credit facilities and accommodations with Rizal Commercial
Banking Corporation (RCBC) at its Binondo Branch. After due evaluation, RCBC Binondo Branch, through its key
officers, petitioners Uy Chun Bing and Eli D. Lao, recommended Goyu's application for approval by RCBC's
executive committee. A credit facility in the amount of P30 million was initially granted. Upon Goyu's
application and Uy's and Lao's recommendation, RCBC's executive committee increased Goyu's credit facility
to P50 million, then to P90 million, and finally to P117 million. As security for its credit facilities with RCBC,
Goyu executed two real estate mortgages and two chattel mortgages in favor of RCBC, which were registered
with the Registry of Deeds at Valenzuela, Metro Manila. Under each of these four mortgage contracts, Goyu
committed itself to insure the mortgaged property with an insurance company approved by RCBC, and
subsequently, to endorse and deliver the insurance policies to RCBC. Goyu obtained in its name a total of 10
insurance policies from MICO. In February 1992, Alchester Insurance Agency, Inc., the insurance agent where
Goyu obtained the Malayan insurance policies, issued 9 endorsements in favor of RCBC seemingly upon
instructions of Goyu. On 27 April 1992, one of Goyu's factory buildings in Valenzuela was gutted by fire.
Consequently, Goyu submitted its claim for indemnity on account of the loss insured against. MICO denied the
claim on the ground that the insurance policies were either attached pursuant to writs of
attachments/garnishments issued by various courts or that the insurance proceeds were also claimed by other
creditors of Goyu alleging better rights to the proceeds than the insured. Goyu filed a complaint for specific
performance and damages which was docketed at the Regional Trial Court of the National Capital Judicial
Region (Manila, Branch 3) as Civil Case 93-65442. RCBC, one of Goyu's creditors, also filed with MICO its formal
claim over the proceeds of the insurance policies, but said claims were also denied for the same reasons that
AGCO denied Goyu's claims. In an interlocutory order dated 12 October 1993, the Regional Trial Court of
Manila (Branch 3), confirmed that Goyu's other creditors, namely, Urban Bank, Alfredo Sebastian, and
Philippine Trust Company obtained their respective writs of attachments from various courts, covering an
aggregate amount of P14,938,080.23, and ordered that the proceeds of the 10 insurance policies be deposited
with the said court minus the aforementioned P14,938,080.23. Accordingly, on 7 January 1994, MICO
deposited the amount of P50,505,594.60 with Branch 3 of the Manila RTC. In the meantime, another notice of
garnishment was handed down by another Manila RTC sala (Branch 28) for the amount of P8,696,838.75.
After trial, Branch 3 of the Manila RTC rendered judgment in a favor of Goyu, ordering Malayan to pay Goyu its
fire loss claims in the total amount of P74,040,518.58 less the amount of P50,000,000.00 which is deposited
with the Court; damages by way of interest for the duration of the delay since 27 July 1992 (90 days after
Malayan's receipt of the required proof of loss and notice of loss) at the rate of twice the ceiling prescribed by
the Monetary Board, on the amounts of (1) P50,000,000.00 from 27 July 1992 up to the time said amount was
deposited with the Court on 7 January 1994; and (2) P24,040,518.58 — from 17 July 1992 up to the time when
the writs of attachments were received by Malayan. The court also ordered RCBC to pay Goyu actual and
compensatory damages in the amount of P2,000,000.00, and both Malayan and RCBC to solidarily pay Goyu
(1) P1,000,000.00 as exemplary damages; (2) P1,000,000.00 as, and for, attorneys fees; and (3) Costs of suit.
The Court, on the Counterclaim of RCBC, ordered Goyu to pay its loan obligations with RCBC in the amount of
P68,785,069.04, as of 27 April 1992, with interest thereon at the rate stipulated in the respective promissory
notes (without surcharges and penalties). From this judgment, all parties interposed their respective appeals.
Goyu was unsatisfied with the amounts awarded in its favor. MICO and RCBC disputed the trial court's findings
of liability on their part. The Court of Appeals partly granted Goyu's appeal, but sustained the findings of the
trial court with respect to MICO and RCBC's liabilities. The appellate court modified the decision by ordering
Malayan to pay Goyu its fire loss claim in the total amount of P74,040,518.58 less than the amount of
P50,505,549.60 (per O.R. No. 3649285) plus deposited in court and damages by way of interest commencing
27 July 1992 until the time Goyu receives the said amount at the rate of 37% per annum which is twice the
ceiling prescribed by the Monetary Board; ordering RCBC to pay Goyu actual and compensatory damages in
the amount of P5,000,000.00; and Malayan and RCBC, Uy Chun Bing and Eli Lao to pay Goyu solidarily in the
amounts of (1) P1,500,000.00 as exemplary damages; and (2) P1,500,000.00 as and for attorney's fees. The
Court, on RCBC's Counterclaim, ordered Goyuto pay its loan obligation with RCBC in the amount of
P68,785.069.04 as of 27 April 1992 without any interest, surcharges and penalties. RCBC and Malayan
appealed separately but, in view of the common facts and issues involved, their individual petitions were
consolidated.

Issue [1]: Whether RCBC, as mortgagee, has any right over the insurance policies taken by Goyu, the
mortgagor, in case of the occurrence of loss.

Held [1]: YES. It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in
the same mortgaged property, such that each one of them may insure the same property for his own sole
benefit. There is no question that Goyu could insure the mortgaged property for its own exclusive benefit.
Herein, although it appears that Goyu obtained the subject insurance policies naming itself as the sole payee,
the intentions of the parties as shown by their contemporaneous acts, must be given due consideration in
order to better serve the interest of justice and equity. It is to be noted that nine endorsement documents
were prepared by Alchester in favor of RCBC. The Court is in a quandary how Alchester could arrive at the idea
of endorsing any specific insurance policy in favor of any particular beneficiary or payee other than the insured
had not such named payee or beneficiary been specifically disclosed by the insured itself. It is also significant
that Goyu voluntarily and purposely took the insurance policies from MICO, a sister company of RCBC, and not
just from any other insurance company. Alchester would not have found out that the subject pieces of
property were mortgaged to RCBC had not such information been voluntarily disclosed by Goyu itself. Had it
not been for Goyu, Alchester would not have known of Goyu's intention of obtaining insurance coverage in
compliance with its undertaking in the mortgage contracts with RCBC, and verify, Alchester would not have
endorsed the policies to RCBC had it not been so directed by Goyu. On equitable principles, particularly on the
ground of estoppel, the Court is constrained to rule in favor of mortgagor RCBC. RCBC, in good faith, relied
upon the endorsement documents sent to it as this was only pursuant to the stipulation in the mortgage
contracts. Such reliance is justified under the circumstances of the case. Goyu failed to seasonably repudiate
the authority of the person or persons who prepared such endorsements. Over and above this, Goyu
continued, in the meantime, to enjoy the benefits of the credit facilities extended to it by RCBC. After the
occurrence of the loss insured against, it was too late for Goyu to disown the endorsements for any imagined
or contrived lack of authority of Alchester to prepare and issue said endorsements. If there had not been
actually an implied ratification of said endorsements by virtue of Goyu's inaction in this case, Goyu is at the
very least estopped from assailing their operative effects. To permit Goyu to capitalize on its non-
confirmation of these endorsements while it continued to enjoy the benefits of the credit facilities of RCBC
which believed in good faith that there was due endorsement pursuant to their mortgage contracts, is to
countenance grave contravention of public policy, fair dealing, good faith, and justice. Such an unjust
situation, the Court cannot sanction. Under the peculiar circumstances, the Court is bound to recognize RCBC's
right to the proceeds of the insurance policies if not for the actual endorsement of the policies, at least on the
basis of the equitable principle of estoppel.

Issue [2]: Whether Goyu can insist that the proceeds of insurance shall exclusively apply to the interest of the
person in whose name or for whose benefit it is made.
Held [2]: NO. Goyu cannot seek relief under Section 53 of the Insurance Code which provides that the
proceeds of insurance shall exclusively apply to the interest of the person in whose name or for whose benefit
it is made. The peculiarity of the circumstances obtaining in the instant case presents a justification to take
exception to the strict application of said provision, it having been sufficiently established that it was the
intention of the parties to designate RCBC as the party for whose benefit the insurance policies were taken
out. Consider thus the following: (1) It is undisputed that the insured pieces of property were the subject of
mortgage contracts entered into between RCBC and Goyu in consideration of and for securing Goyu's credit
facilities from RCBC. The mortgage contracts contained common provisions whereby Goyu, as mortgagor,
undertook to have the mortgaged property properly covered against any loss by an insurance company
acceptable to RCBC. (2) Goyu voluntarily procured insurance policies to cover the mortgaged property from
MICO, no less than a sister company of RCBC and definitely an acceptable insurance company to RCBC. (3)
Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Agency, Inc., and copies
thereof were sent to Goyu, MICO and RCBC. Goyu did not assail, until of late, the validity of said
endorsements. (4) Goyu continued until the occurrence of the fire, to enjoy the benefits of the credit facilities
extended by RCBC which was conditioned upon the endorsement of the insurance policies to be taken by
Goyu to cover the mortgaged properties. The fact that upon receiving its copies of the endorsement
documents prepared by Alchester, Goyu, despite the absence written conformity thereto, obviously
considered said endorsement to be sufficient compliance with its obligation under the mortgage contracts
since RCBC accordingly continued to extend the benefits of its credit facilities and Goyu continued to benefit
therefrom. Just as plain too is the intention of the parties to constitute RCBC as the beneficiary of the various
insurance policies obtained by Goyu. The intention of the parties will have to be given full force and effect in
this particular case. The insurance proceeds may, therefore, be exclusively applied to RCBC, which under the
factual circumstances of the case, is truly the person or entity for whose benefit the policies were clearly
intended. Moreover, the law's evident intention to protect the interests of the mortgagee upon the
mortgaged property is expressed in Article 2127 of the Civil Code. The proceeds of the 8 insurance policies
endorsed to RCBC aggregate to P89,974,488.36. Being exclusively payable to RCBC by reason of the
endorsement by Alchester to RCBC, which we already ruled to have the force and effect of an endorsement by
Goyu itself, these 8 policies can not be attached by Goyu's other creditors up to the extent of the Goyu's
outstanding obligation in RCBC's favor. Section 53 of the Insurance Code ordains that the insurance proceeds
of the endorsed policies shall be applied exclusively to the proper interest of the person for whose benefit it
was made. In this case, to the extent of Goyu's obligation with RCBC, the interest of Goyu in the subject
policies had been transferred to RCBC effective as of the time of the endorsement. These policies may no
longer be attached by the other creditors of Goyu, like Alfredo Sebastian in GR 128834, which may
nonetheless forthwith be dismissed for being moot and academic in view of the results reached herein. Only
the two other policies amounting to P19,646,224.92 may be validly attached, garnished, and levied upon by
Goyu's other creditors. To the extent of Goyu's outstanding obligation with RCBC, all the rest of the other
insurance policies which were endorsed to RCBC, are, therefore, to be released from attachment,
garnishment, and levy by the other creditors of Goyu.
Insurance Case Digest: Gaisano Cagayan, Inc. V. Insurance Company Of North America (2006)

G.R. No. 147839             June 8, 2006

Lessons Applicable: Existing Interest (Insurance)

FACTS:

 Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. while Levi Strauss
(Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co
 IMC and LSPI separately obtained from Insurance Company of North America fire insurance policies for
their book debt endorsements related to their ready-made clothing materials which have been sold or
delivered to various customers and dealers of the Insured anywhere in the Philippines which are unpaid 45
days after the time of the loss
 February 25, 1991: Gaisano Superstore Complex in Cagayan de Oro City, owned by Gaisano Cagayan,
Inc., containing the ready-made clothing materials sold and delivered by IMC and LSPI was consumed by
fire. 
 February 4, 1992: Insurance Company of North America filed a complaint for damages against Gaisano
Cagayan, Inc. alleges that IMC and LSPI filed their claims under their respective fire insurance policies
which it paid thus it was subrogated to their rights
 Gaisano Cagayan, Inc: not be held liable because it was destroyed due to fortuities event or
force majeure
 RTC: IMC and LSPI retained ownership of the delivered goods until fully paid, it must bear the loss (res
perit domino)
 CA: Reversed - sales invoices is an exception under Article 1504 (1) of the Civil Code to res perit domino
ISSUE: W/N Insurance Company of North America can claim against Gaisano Cagayan for the debt that was
isnured

HELD: YES. petition is partly GRANTED. order to pay P535,613 is DELETED

 insurance policy is clear that the subject of the insurance is the book debts and NOT goods sold and
delivered to the customers and dealers of the insured
 ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is
transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the
buyer's risk whether actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of
the contract and the ownership in the goods has been retained by the seller merely to secure performance
by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such
delivery;
 IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full
payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where
ownership is the basis for consideration of who bears the risk of loss, in property insurance, one's interest
is not determined by concept of title, but whether insured has substantial economic interest in the
property
 Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real
or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril
might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable
interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing
interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. 
 Anyone has an insurable interest in property who derives a benefit from its existence or would suffer
loss from its destruction.
 it is sufficient that the insured is so situated with reference to the property that he would be
liable to loss should it be injured or destroyed by the peril against which it is insured
 an insurable interest in property does not necessarily imply a property interest in, or a lien
upon, or possession of, the subject 
 matter of the insurance, and neither the title nor a beneficial interest is requisite to the
existence of such an interest
 insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and LSPI that
remained unpaid 45 days after the fire - obligation is pecuniary in nature
 obligor should be held exempt from liability when the loss occurs thru a fortuitous event only
holds true when the obligation consists in the delivery of a determinate thing and there is no stipulation
holding him liable even in case of fortuitous event
 Article 1263 of the Civil Code in an obligation to deliver a generic thing, the loss or destruction of
anything of the same kind does not extinguish  the obligation (Genus nunquan perit)
 The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as
insurer and IMC as the insured, but also the amount paid to settle the insurance claim
 Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person
who has violated the contract. 
 As to LSPI, no subrogation receipt was offered in evidence. 
 Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of the
amount of P535,613
IV. DEVICES FOOR ASCERTAINING AND CONTROLLING RISK AND LOSS
GreatPacificLifeAssuranceCorp.vs.CourtofAppeals[GR113899,13October1999]

Second Division, Quisumbing (J): 3 concur, 1 on official leave

Facts: A contract of group life insurance was executed between Great Pacific Life Assurance Corporation
(Grepalife) and Development Bank of the Philippines (DBP). Grepalife agreed to insure the lives of eligible
housing loan mortgagors of DBP. On 11 November 1983, Dr. Wilfredo Leuterio, a physician and a housing
debtor of DBP applied for membership in the group life insurance plan. In an application form, Dr. Leuterio
answered questions concerning his health condition as follows: "7. Have you ever had, or consulted, a
physician for a heart condition, high blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any
other physical impairment? Answer: No. If so give details ___________. 8. Are you now, to the best of your
knowledge, in good health? Answer: [ x ] Yes [ ] No." On 15 November 1983, Grepalife issued Certificate B-
18558, as insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness amounting to
P86,200.00. On 6 August 1984, Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP
submitted a death claim to Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not physically
healthy when he applied for an insurance coverage on 15 November 1983. 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. On 20 October 1986, the widow of
the late Dr. Leuterio, Medarda V. Leuterio, filed a complaint with the Regional Trial Court of Misamis Oriental,
Branch 18, against Grepalife for "Specific Performance with Damages." During the trial, Dr. Hernando Mejia,
who issued the death certificate, was called to testify. Dr. Mejia’s findings, based partly from the information
given by the widow, stated that Dr. Leuterio complained of headaches presumably due to high blood pressure.
The inference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes were not ruled
out. On 22 February 1988, the trial court rendered a decision in favor of the widow and against Grepalife. On
17 May 1993, the Court of Appeals sustained the trial court’s decision. Grepalife filed the petition for review.

Issue: Whether Dr. Leuterio failed to disclose that he had hypertension, which might have caused his death,
and thus concealment can be interposed by Grepalife as a defense to annul the insurance contract.

Held: Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good
faith, and fair dealing requires that he should communicate it to the assured, but he designedly and
intentionally withholds the same. Grepalife merely relied on the testimony of the attending physician, Dr.
Hernando Mejia, as supported by the information given by the widow of the decedent. Grepalife asserts that
Dr. Mejia’s technical diagnosis of the cause of death of Dr. Leuterio was a duly documented hospital record,
and that the widow’s declaration that her husband had "possible hypertension several years ago" should not
be considered as hearsay, but as part of res gestae. On the contrary, the medical findings were not conclusive
because Dr. Mejia did not conduct an autopsy on the body of the decedent. As the attending physician, Dr.
Mejia stated that he had no knowledge of Dr. Leuterio’s any previous hospital confinement. Dr. Leuterio’s
death certificate stated that hypertension was only "the possible cause of death." The widow’s statement, as
to the medical history of her husband, was due to her unreliable recollection of events. Hence, the statement
of the physician was properly considered by the trial court as hearsay. The insured, Dr. Leuterio, had answered
in his insurance application that he was in good health and that he had not consulted a doctor or any of the
enumerated ailments, including hypertension; when he died the attending physician had certified in the death
certificate that the former died of cerebral hemorrhage, probably secondary to hypertension. Contrary to
Grepalife’s allegations, there was no sufficient proof that the insured had suffered from hypertension. Aside
from the statement of the insured’s widow who was not even sure if the medicines taken by Dr. Leuterio were
for hypertension, Grepalife had not proven nor produced any witness who could attest to Dr. Leuterio’s
medical history. Grepalife 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. Herein, Grepalife failed to clearly and satisfactorily establish its defense, and is therefore liable to
pay the proceeds of the insurance.

SunlifeAssuranceCompanyofCanadavs.CourtofAppeals[GR105135,22June1995]

First Division, Quiason (J): 4 concur

Facts: On 15 April 1986, Robert John B. Bacani procured a life insurance contract for himself from Sunlife
Assurance Company of Canada. He was issued Policy 3-903-766-X valued P100,000.00, with double indemnity
in case of accidental death. The designated beneficiary was his mother, Bernarda Bacani. On 26 June 1987, the
insured died in a plane crash. Bernarda Bacani filed a claim with Sunlife, seeking the benefits of the insurance
policy taken by her son. Sunlife conducted an investigation and its findings prompted it to reject the claim. In
its letter, Sunlife informed Bacani, that the insured did not disclosed material facts relevant to the issuance of
the policy, thus rendering the contract of insurance voidable. A check representing the total premiums paid in
the amount of P10,172.00 was attached to said letter. Sunlife claimed that the insured gave false statements
in his application when he answered the following questions: "5. Within the past 5 years have you: a)
consulted any doctor or other health practitioner? b) submitted to: ECG? X-rays? blood tests? other tests? c)
attended or been admitted to any hospital or other medical facility? 6. Have you ever had or sought advice for:
xxx b) urine, kidney or bladder disorder?" The deceased answered questions No. 5(a) in the affirmative but
limited his answer to a consultation with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital
on February 1986, for cough and flu complications. The other questions were answered in the negative.
Sunlife discovered that two weeks prior to his application for insurance, the insured was examined and
confined at the Lung Center of the Philippines, where he was diagnosed for renal failure. During his
confinement, the deceased was subjected to urinalysis, ultra-sonography and hematology tests. On 17
November 1988, Bernarda Bacani and her husband, respondent Rolando Bacani, filed an action for specific
performance against Sunlife with the Regional Trial Court, Branch 191, Valenzuela, Metro Manila. Sunlife filed
its answer with counterclaim and a list off exhibits consisting of medical records furnished by the Lung Center
of the Philippines. On 14 January 1990, Bacani filed a "Proposed Stipulation with Prayer for Summary
Judgment" where they manifested that they "have no evidence to refute the documentary evidence of
concealment/misrepresentation by the decedent of his health condition." Sunlife filed its Request for
Admissions relative to the authenticity and due execution of several documents as well as allegations
regarding the health of the insured. The Bacanis failed to oppose said request or reply thereto, thereby
rendering an admission of the matters alleged. Sunlife then moved for a summary judgment and the trial court
decided in favor of the Bacanis, ordering Sunlife to pay the former the amount of P100,000.00 the face value
of insured's Insurance Policy 3903766, and the Accidental Death Benefit in the amount of P100,000.00 and
further sum of P5,000.00 in the concept of reasonable attorney's fees and the costs of the suit. Sunlife's
counterclaim was dismissed. Sunlife appealed to the Court of Appeals, which affirmed the decision of the trial
court. Sunlife's motion for reconsideration was denied, hence, Sunlife filed the petition for review on
certiorari.
Issue [1]: Whether good faith is a defense in concealment.

Held [1]: NO. Section 26 of the Insurance Code is explicit in requiring a party to a contract of insurance to
communicate to the other, in good faith, all facts within his knowledge which are material to the contract and
as to which he makes no warranty, and which the other has no means of ascertaining. Said Section provides
that "a neglect to communicate that which a party knows and ought to communicate, is called concealment."
Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the
facts upon the party to whom communication is due, in forming his estimate of the disadvantages of the
proposed contract or in making his inquiries. The terms of the contract are clear. The insured is specifically
required to disclose to the insurer matters relating to his health. The information which the insured failed to
disclose were material and relevant to the approval and the issuance of the insurance policy. The matters
concealed would have definitely affected Bacani's action on his application, either by approving it with the
corresponding adjustment for a higher premium or rejecting the same. Moreover, a disclosure may have
warranted a medical examination of the insured by Sunlife in order for it to reasonably assess the risk involved
in accepting the application. In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), the Court held that
materiality of the information withheld does not depend on the state of mind of the insured. Neither does it
depend on the actual or physical events which ensue. Thus, "good faith" is no defense in concealment. The
insured's failure to disclose the fact that he was hospitalized for two weeks prior to filing his application for
insurance, raises grave doubts about his bonafides. It appears that such concealment was deliberate on his
part.

Issue [2]: Whether Sunlife's waiver of the medical examination of the insured debunks the materiality of the
facts concealed.

Held [2]: NO. The argument, that Sunlife's waiver of the medical examination of the insured debunks the
materiality of the facts concealed, is untenable. In Saturnino v. Philippine American Life Insurance Company, 7
SCRA 316 (1963), the Court held that "the waiver of a medical examination [in a non-medical insurance
contract] renders even more material the information required of the applicant concerning previous condition
of health and diseases suffered, for such information necessarily constitutes an important factor which the
insurer takes into consideration in deciding whether to issue the policy or not." Moreover, such argument
would make Section 27 of the Insurance Code, which allows the injured party to rescind a contract of
insurance where there is concealment, ineffective. Anent the finding that the facts concealed had no bearing
to the cause of death of the insured, it is well settled that the insured need not die of the disease he had failed
to disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates of
the risks of the proposed insurance policy or in making inquiries.

Vda.deCanilangvs.CourtofAppeals[GR92492,17June1993]

Third Division, Feliciano (J): 4 concur

Facts: On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as suffering from
"sinus tachycardia." The doctor prescribed the following for him: Trazepam, a tranquilizer; and Aptin, a beta-
blocker drug. Mr. Canilang consulted the same doctor again on 3 August 1982 and this time was found to have
"acute bronchitis." On the next day, 4 August 1982, Jaime Canilang applied for a "non-medical" insurance
policy with Great Pacific Life Assurance Company (Grepalife) naming his wife, Thelma Canilang, as his
beneficiary. Jaime Canilang was issued ordinary life insurance Policy 345163, with the face value of P19,700,
effective as of 9 August 1982. On 5 August 1983, Jaime Canilang died of "congestive heart failure," "anemia,"
and "chronic anemia." Vda. de Canilang, widow and beneficiary of the insured, filed a claim with Grepalife
which the insurer denied on 5 December 1983 upon the ground that the insured had concealed material
information from it.

Vda. de Canilang then filed a complaint against Grepalife with the Insurance Commission for recovery of the
insurance proceeds. During the hearing called by the Insurance Commissioner, Vda. de Canilang testified that
she was not aware of any serious illness suffered by her late husband and that, as far as she knew, her
husband had died because of a kidney disorder. A deposition given by Dr. Wilfredo Claudio was presented by
Vda. de Canilang. There Dr. Claudio stated that he was the family physician of the deceased Jaime Canilang
and that he had previously treated him for "sinus tachycardia" and "acute bronchitis." Grepalife for its part
presented Dr. Esperanza Quismorio, a physician and a medical underwriter working for Grepalife. She 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. In a decision dated 5 November 1985, Insurance Commissioner Armando Ansaldo ordered
Grepalife to pay P19,700.00 plus legal interest and P2,000.00 as attorney's fees. On appeal by Grepalife, the
Court of Appeals reversed and set aside the decision of the Insurance Commissioner and dismissed Thelma
Canilang's complaint and Grepalife's counterclaim. The Court of Appeals found that the use of the word
"intentionally" by the Insurance Commissioner in defining and resolving the issue agreed upon by the parties
at pre-trial before the Insurance Commissioner was not supported by the evidence; that the issue agreed upon
by the parties had been whether the deceased insured, Jaime Canilang, made a material concealment as to
the state of his health at the time of the filing of insurance application, justifying Grepalife's denial of the
claim. Vda. de Canilang Thelma Canilang filed the petition for review on certiorari.

Issue [1]: Whether the information Canilang failed to disclose was material to the ability of Grepalife to
estimate the probable risk he presented as a subject of life insurance.

Held [1]: YES. The information which Jaime Canilang failed to disclose was material to the ability of Grepalife
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 Grepalife 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 Grepalife did not depend upon the state of mind of Jaime
Canilang. A man's state of mind or subjective belief is not capable of proof in our judicial process, except
through proof of external acts or failure to act from which inferences as to his subjective belief may be
reasonably drawn. Neither does materiality depend upon the actual or physical events which ensue.
Materiality relates rather to the "probable and reasonable influence of the facts" upon the party to whom the
communication should have been made, in assessing the risk involved in making or omitting to make further
inquiries and in accepting the application for insurance; that "probable and reasonable influence of the facts"
concealed must, of course, be determined objectively, by the judge ultimately.

Issue [2]: Whether Grepalife had waived inquiry into the concealment by issuing the insurance policy
notwithstanding Canilang's failure to set out answers to some of the questions in the insurance application.

Held [2]: NO. The insurance applied for was a "non-medical" insurance policy. In Saturnino v. Philippine-
American Life Insurance Company, the Court held that "if anything, the waiver of medical examination [in a
non-medical insurance contract] renders even more material the information required of the applicant
concerning previous condition of health and diseases suffered, for such information necessarily constitutes an
important factor which the insurer takes into consideration in deciding whether to issue the policy or not." It
cannot be excused that that the failure of Canilang to convey certain information to the insurer was not
intentional in nature. Section 27 of the Insurance Code of 1978 is properly read as referring to "any
concealment" without regard to whether such concealment is intentional or unintentional. The phrase
"whether intentional or unintentional" was in fact superfluous. The deletion of the phrase "whether
intentional or unintentional" could not have had the effect of imposing an affirmative requirement that a
concealment must be intentional if it is to entitle the injured party to rescind a contract of insurance. The
restoration in 1985 by BP 874 of the phrase "whether intentional or unintentional" merely underscored the
fact that all throughout (from 1914 to 1985), the statute did not require proof that concealment must be
"intentional" in order to authorize rescission by the injured party. In any case, herein, the nature of the facts
not conveyed to the insurer was such that the failure to communicate must have been intentional rather than
merely inadvertent. For Jaime Canilang could not have been unaware that this heart beat would at times rise
to high and alarming levels and that he had consulted a doctor twice in the 2 months before applying for non-
medical insurance. Indeed, the last medical consultation took place just the day before the insurance
application was filed. In all probability, Jaime Canilang went to visit his doctor precisely because of the
discomfort and concern brought about by his experiencing "sinus tachycardia." Grepalife had not waived
inquiry into the concealment by issuing the insurance policy notwithstanding Canilang's failure to set out
answers to some of the questions in the insurance application. Such failure precisely constituted concealment
on the part of Canilang. Vda. de Canilang's argument, if accepted, would obviously erase Section 27 from the
Insurance Code of 1978.

Tan vs. Court of Appeals [GR 48049, 29 June 1989]

Third Division, Gutierrez Jr. (J): 3 concur, 1 took no part

Facts: On 23 September 1973, Tan Lee Siong, father of Emilio, Juanito, Alberto, and Arturo Tan, applied for life
insurance in the amount of P80,000.00 with the Philippine American Life Insurance Company (Philamlife). Said
application was approved and Policy 1082467 was issued effective 6 November 1973, with Emilio Tan, et al. as
beneficiaries. On 26 April 1975, Tan Lee Siong died of hepatoma. Emilio Tan, et al. then filed with Philamlife
their claim for the proceeds of the life insurance policy. However, in a letter dated 11 September 1975,
Philamlife denied Emilio Tan et al.'s claim and rescinded the policy by reason of the alleged misrepresentation
and concealment of material facts made by the deceased Tan Lee Siong in his application for insurance. The
premiums paid on the policy were thereupon refunded. Alleging that Philamlife's refusal to pay them the
proceeds of the policy was unjustified and unreasonable, Emilio Tan et al. filed on 27 November 1975, a
complaint against the former with the Office of the Insurance Commissioner (I.C. Case 218). After hearing the
evidence of both parties, the Insurance Commissioner rendered judgment on 3 August 3, 1977, dismissing the
complaint. The Court of Appeals dismissed their appeal from the Insurance Commissioner's decision for lack of
merit. Emilio Tan et al. filed the petition for review on certiorari.

Issue: Whether Philamlife no longer had the right to rescind the contract of insurance as rescission must
allegedly be done during the lifetime of the insured within two years and prior to the commencement of
action.

Held: NO. Section 48 of the Insurance Code provides that "Whenever a right to rescind a contract of insurance
is given to the insurer by any provision of this chapter, such right must be exercised previous to the
commencement of an action on the contract. "After a policy of life insurance made payable on the death of
the insured shall have been in force during the lifetime of the insured for a period of two years from the date
of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible
by reason of the fraudulent concealment or misrepresentation of the insured or his agent." Herein, the policy
was issued on 6 November 1973 and the insured died on 26 April 1975. The policy was thus in force for a
period of only one year and five months. Considering that the insured died before the two-year period had
lapsed, Philamlife is not, therefore, barred from proving that the policy is void ab initio by reason of the
insured's fraudulent concealment or misrepresentation. Moreover, Philamlife rescinded the contract of
insurance and refunded the premiums paid on 11 September 1975, previous to the commencement of this
action on 27 November 1975. Under the "incontestability clause," the insurer has two years from the date of
issuance of the insurance contract or of its last reinstatement within which to contest the policy, whether or
not, the insured still lives within such period. After two years, the defenses of concealment or
misrepresentation, no matter how patent or well founded, no longer lie. Congress felt this was a sufficient
answer to the various tactics employed by insurance companies to avoid liability. The interpretation of Emilio
Tan et al. to said provision -- that the Insurance Law was amended and the second paragraph of Section 48
added to prevent the insurance company from exercising a right to rescind after the death of the insured; that
the so-called "incontestability clause" precludes the insurer from raising the defenses of false representations
or concealment of material facts insofar as health and previous diseases are concerned if the insurance has
been in force for at least two years during the insured's lifetime; and that the phrase "during the lifetime"
found in Section 48 simply means that the policy is no longer considered in force after the insured has died.
The key phrase in the second paragraph of Section 48 is "for a period of two years" -- would give rise to the
incongruous situation where the beneficiaries of an insured who dies right after taking out and paying for a life
insurance policy, would be allowed to collect on the policy even if the insured fraudulently concealed material
facts.