G.

RESCISISION OF INSURANCE CONTRACTS RULING:

1. CONCEALMENT 1. NO. The receipt was intended to be merely a

provisional insurance contract. Its perfection was
subject to compliance of the following conditions: (1)
GREAT PACIFIC LIFE ASSURANCE COMPANY vs that the company shall be satisfied that the applicant
HONORABLE COURT OF APPEALS was insurable on standard rates; (2) that if the
company does not accept the application and offers to
FACTS: Ngo Hing filed an application with the Great issue a policy for a different plan, the insurance
Pacific for a twenty-year endowment policy in the contract shall not be binding until the applicant accepts
amount of P50,000.00 on the life of his one-year old the policy offered; otherwise, the deposit shall be
daughter Helen. He supplied the essential data which refunded; and (3) that if the company disapproves the
petitioner Mondragon, the Branch Manager, wrote on application, the insurance applied for shall not be in
the form. The latter paid the annual premium the sum force at any time, and the premium paid shall be
of P1,077.75 going over to the Company, but he returned to the applicant.
retained the amount of P1,317.00 as his commission
for being a duly authorized agent of Pacific Life.
The receipt is merely an acknowledgment that the
Upon the payment of the insurance premium, the
latter's branch office had received from the applicant
binding deposit receipt was issued Ngo Hing. Likewise,
the insurance premium and had accepted the
petitioner Mondragon handwrote at the bottom of the
application subject for processing by the insurance
back page of the application form his strong
company. There was still approval or rejection the
recommendation for the approval of the insurance
same on the basis of whether or not the applicant is
application. Then Mondragon received a letter from
"insurable on standard rates." Since Pacific Life
Pacific Life disapproving the insurance application. The
disapproved the insurance application of respondent
letter stated that the said life insurance application for
Ngo Hing, the binding deposit receipt in question had
20-year endowment plan is not available for minors
never become in force at any time. The binding deposit
below seven years old, but Pacific Life can consider the
receipt is conditional and does not insure outright. This
same under the Juvenile Triple Action Plan, and
was held in Lim v Sun.
advised that if the offer is acceptable, the Juvenile Non-
Medical Declaration be sent to the company.
The deposit paid by private respondent shall have to
be refunded by Pacific Life.
The non-acceptance of the insurance plan by Pacific
Life was allegedly not communicated by petitioner
Mondragon to private respondent Ngo Hing. Instead, 2. YES. Ngo Hing had deliberately concealed the state
on May 6, 1957, Mondragon wrote back Pacific Life of health of his daughter Helen Go. When he supplied
again strongly recommending the approval of the 20- data, he was fully aware that his one-year old daughter
year endowment insurance plan to children, pointing is typically a mongoloid child. He withheld the fact
out that since the customers were asking for such material to the risk insured.
coverage.
“The contract of insurance is one of perfect good faith
Helen Go died of influenza. Ngo Hing sought the uberrima fides meaning good faith, absolute and
payment of the proceeds of the insurance, but having perfect candor or openness and honesty; the absence
failed in his effort, he filed the action for the recovery of any concealment or demotion, however slight.” The
before the Court of First Instance of Cebu, which ruled concealment entitles the insurer to rescind the contract
against him. of insurance.

ISSUE:

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
NG GAN ZEE vs COURT OF APPEALS, AND absence of inquiries, be not only material, but
TEODORO CORTEZ fraudulent, or the fact must have been intentionally
withheld.”
FACTS: Kwong Nam applied for a 20-year endowment
insurance on his life for the sum of P20,000.00, with his Sec. 27 of the Insurance Law, abovequoted,
wife, appellee Ng Gan Zee as beneficiary. On the same nevertheless requires that fraudulent intent on the part
date, Asian Crusader, upon receipt of the required of the insured be established to entitle the insurer to
premium from the insured, approved the application rescind the contract. And as correctly observed by the
and issued the corresponding policy. Kwong Nam died lower court, “misrepresentation as a defense of the
of cancer of the liver with metastasis. All premiums had insurer to avoid liability is an ‘affirmative’ defense. The
been paid at the time of his death. duty to establish such a defense by satisfactory and
convincing evidence rests upon the defendant. The
Ng Gan Zee presented a claim for payment of the face evidence before the Court does not clearly and
value of the policy. On the same date, she submitted satisfactorily establish that defense.”
the required proof of death of the insured. Appellant
denied the claim on the ground that the answers given It bears emphasis that Kwong Nam had informed the
by the insured to the questions in his application for life appellant’s medical examiner that the tumor for which
insurance were untrue. he was operated on was “associated with ulcer of the
stomach.” In the absence of evidence that the insured
Appellee brought the matter to the attention of the had sufficient medical knowledge as to enable him to
Insurance Commissioner. The latter, after conducting distinguish between “peptic ulcer” and “a tumor”, his
an investigation, wrote the appellant that he had found statement that said tumor was “associated with ulcer of
no material concealment on the part of the insured and the stomach,” should be construed as an expression
that, therefore, appellee should be paid the full face made in good faith of his belief as to the nature of his
value of the policy. The company refused to settle its ailment and operation. Indeed, such statement must be
obligation. presumed to have been made by him without
knowledge of its incorrectness and without any
Appellant alleged that the insured was guilty of deliberate intent on his part to mislead the appellant.
misrepresentation when he answered "No" to the
following question appearing in the application for life Where, “upon the face of the application, a question
insurance appears to be not answered at all or to be imperfectly
answered, and the insurers issue a policy without any
Has any life insurance company ever refused your further inquiry, they waive the imperfection of the
application for insurance or for reinstatement of a answer and render the omission to answer more fully
lapsed policy or offered you a policy different from that immaterial. As aptly noted by the lower court, “if the
applied for? If, so, name company and date. The lower ailment and operation of Kwong Nam had such an
court ruled against the company on lack of evidence. important bearing on the question of whether the
defendant would undertake the insurance or not, the
court cannot understand why the defendant or its
Appellantfurther maintains that when the insured was
medical examiner did not make any further inquiries on
examined in connection with his application for life
such matters from the Chinese General Hospital or
insurance, he gave the appellant's medical examiner
require copies of the hospital records from the
false and misleading information as to his ailment and
appellant before acting on the application for
previous operation. The company contended that he
insurance. The fact of the matter is that the defendant
was operated on for peptic ulcer 2 years before the
was too eager to accept the application and receive the
policy was applied for and that he never disclosed such
insured’s premium. It would be inequitable now to allow
an operation.
the defendant to avoid liability under the
circumstances.”
ISSUE: Whether or not Asian Crusader was deceived
into entering the contract or in accepting the risk at the
rate of premium agreed upon because of insured's
representation? (NO)

RULING: Thus, “concealment exists where the

assured had knowledge of a fact material to the risk,
and honesty, good faith, and fair dealing requires that
he should communicate it to the assurer, but he
designedly and intentionally withholds the same.” It has
also been held “that the concealment must, in the
NEW LIFE ENTERPRISES AND JULIAN SY vs denied for breach of policy conditions." Reliance
COURT OF APPEALS Insurance purveyed the same message in its letter
dated November 23, 1982 and signed by Executive
FACTS: Julian Sy and Jose Sy Bang have formed a Vice-President Mary Dee Co which said that "plaintiff's
business partnership in the City of Lucena. Under the claim is denied for breach of policy conditions." The
business name of New Life Enterprises, the letter of denial received by the plaintiff from Equitable
partnership engaged in the sale of construction Insurance Corporation was of the same tenor, as said
materials at its place of business, a two storey building letter dated February 22, 1983, and signed by Vice-
situated at Iyam, Lucena City. The facts show that President Elma R. Bondad, said "we find that certain
Julian Sy insured the stocks in trade of New Life policy conditions were violated, therefore, we regret,
Enterprises with Western Guaranty Corporation, we have to deny your claim, as it is hereby denied in its
Reliance Surety and Insurance. Co., Inc., and entirety."
Equitable Insurance Corporation.
In relation to the case against Reliance Surety and
On May 15, 1981, Western Guaranty Corporation Insurance Company, a certain Atty. Serafin D. Dator,
issued Fire Insurance Policy No. 37201 in the amount acting in behalf of the plaintiff, sent a letter dated
of P350,000.00. This policy was renewed on May, 13, February 13, 1983 to Executive Vice- President Mary
1982. Dee Co asking that he be informed as to the specific
policy conditions allegedly violated by the plaintiff. In
On July 30,1981, Reliance Surety and Insurance Co., her reply-letter dated March 30, 1983, Executive Vice-
Inc. issued Fire Insurance Policy No. 69135 in the President Mary Dee Co informed Atty. Dator that Julian
amount of P300,000.00 (Renewed under Renewal Sy violated Policy Condition No. "3" which requires the
Certificate No. 41997) An additional insurance was insured to give notice of any insurance or insurances
issued by the same company on November 12, 1981 already effected covering the stocks in trade.
under Fire Insurance Policy No. 71547 in the amount
of P700,000.00. Because of the denial of their claims for payment by
the three (3) insurance companies, petitioner filed
On February 8, 1982, Equitable Insurance Corporation separate civil actions against the former before the
issued Fire Insurance Policy No. 39328 in the amount Regional Trial Court of Lucena City.
of P200,000.00.
ISSUE: Whether or not Conditions 3 and 27 of the
Thus when the building occupied by the New Life Insurance Contracts were violated by petitioners
Enterprises was gutted by fire at about 2:00 o'clock in thereby resulting in their forfeiture of all the benefits
the morning of October 19, 1982, the stocks in the thereunder? (YES)
trade inside said building were insured against fire in
the total amount of P1,550,000.00. According to the RULING: The terms of the contract are clear and
certification issued by the Headquarters, Philippine unambiguous. The insured is specifically required to
Constabulary / Integrated National Police, Camp disclose to the insurer any other insurance and its
Crame, the cause of fire was electrical in nature. particulars which he may have effected on the same
According to the plaintiffs, the building and the stocks subject matter. The knowledge of such insurance by
inside were burned. After the fire, Julian Sy went to the the insurer’s agents, even assuming the acquisition
agent of Reliance Insurance whom he asked to thereof by the former, is not the “notice” that would
accompany him to the office of the company so that he estop the insurers from denying the claim. Besides, the
can file his claim. He averred that in support of his so-called theory of imputed knowledge, that is,
claim, he submitted the fire clearance, the insurance knowledge of the agent is knowledge of the principal,
policies and inventory of stocks. He further testified that aside from being of dubious applicability here has
the three insurance companies are sister companies, likewise been roundly refuted by respondent court
and as a matter of fact when he was following-up his whose factual findings we find acceptable.
claim with Equitable Insurance, the Claims Manager
told him to go first to Reliance Insurance and if said Furthermore, when the words and language of
company agrees to pay, they would also pay. The documents are clear and plain or readily
same treatment was given him by the other insurance understandable by an ordinary reader thereof, there is
companies. Ultimately, the three insurance companies absolutely no room for interpretation or construction
denied plaintiffs' claim for payment. anymore. Courts are not allowed to make contracts for
the parties; rather, they will intervene only when the
In its letter of denial dated March 9, 1983, Western terms of the policy are ambiguous, equivocal, or
Guaranty Corporation through Claims Manager uncertain. The parties must abide by the terms of the
Bernard S. Razon told the plaintiff that his claim "is contract because such terms constitute the measure of
the insurer’s liability and compliance therewith is a
condition precedent to the insured’s right of recovery
from the insurer.

While it is a cardinal principle of insurance law that a

policy or contract of insurance is to be construed
liberally in favor of the insured and strictly against the
insurer company, yet contracts of insurance, like other
contracts, are to be construed according to the sense
and meaning of the terms which the parties themselves
have used. If such terms are clear and unambiguous,
they must be taken and understood in their plain,
ordinary and popular sense. Moreover, obligations
arising from contracts have the force of law between
the contracting parties and should be complied with in
good faith.

Petitioners should be aware of the fact that a party is

not relieved of the duty to exercise the ordinary care
and prudence that would be exacted in relation to other
contracts. The conformity of the insured to the terms of
the policy is implied from his failure to express any
disagreement with what is provided for.
SUNLIFE ASSURANCE COMPANY OF CANADA vs RULING: Section 26 of The Insurance Code is explicit
COURT OF APPEALS in requiring a party to a contract of insurance to
communicate to the other, in good faith, all facts within
FACTS: Robert John B. Bacani procured a life his knowledge which are material to the contract and
insurance contract for himself from Sunlife. He was as to which he makes no warranty, and which the other
issued a policy for P100,000.00, with double indemnity has no means of ascertaining.
in case of accidental death. The designated beneficiary
was his mother, Bernarda Bacani. Said Section provides: "A neglect to communicate that
which a party knows and ought to communicate. is
The insured died in a plane crash. Respondent called concealment."
Bernarda Bacani filed a claim with petitioner, seeking
the benefits of the insurance policy taken by her son. Materiality is to be determined not by the event, but
Petitioner conducted an investigation and its findings solely by the probable and reasonable influence of the
prompted it to reject the claim. facts upon the party to whom communication is due, in
forming his estimate of the
Sunlife informed Bacani that the insured did not
disclose material facts relevant to the issuance of the disadvantages of the proposed contract or in making
policy, thus rendering the contract of insurance his inquiries (The Insurance Code, Sec. 31). The terms
voidable. A check representing the total premiums paid of the contract are clear. The insured is specifically
in the amount of P10,172.00 was attached to said required to disclose to the insurer matters
letter.
relating to his health. The information which the insured
Petitioner claimed that the insured gave false failed to disclose were material and relevant
statements in his application. The deceased answered
claimed that he consulted a Dr. Raymundo of the to the approval and issuance of the insurance policy.
Chinese General Hospital for cough and flu The matters concealed would have definitely
complications. The other questions were answered in
the negative. affected petitioner’s action on his application, either by
approving it with the corresponding adjustment for a
Petitioner discovered that two weeks prior to his higher premium or rejecting the same. Moreover, a
application for insurance, the insured was examined disclosure may have warranted a medical examination
and confined at the Lung Center of the Philippines, of the insured by petitioner in order for it to reasonably
where he was diagnosed for renal failure. During his assess the risk involved in accepting the application. In
confinement, the deceased was subjected to urinalysis Vda. de Canilang v. Court of Appeals, 223 SCRA 443
tests. (1993), we held that materiality of the information
withheld does not depend on the state of mind of the
Bernarda Bacani and her husband filed an action for insured. Neither does it depend on the actual or
specific performance against petitioner with the RTC. physical events which ensue. Thus, "good faith" is no
The court ruled in favor of the spouses and ordered defense in concealment. The insured’s failure to
Sunlife to pay P100,000.00. disclose the fact that he was hospitalized for two weeks
In ruling for private respondents, the trial court prior to filing his application for insurance, raises grave
concluded that the facts concealed by the insured were doubts about his bonafides. It appears that such
made in good faith and under a belief that they need concealment was deliberate on his part.
not be disclosed. The court also held that the medial
history was irrelevant because it wasn’t medical The argument, that petitioner’s waiver of the medical
insurance. examination of the insured debunks the materiality of
the facts concealed, is untenable. We reiterate our
The Court of Appeals affirmed the decision of the trial ruling in Saturnino v. Philippine American Life
court. The appellate court ruled that petitioner cannot Insurance Company, 7 SCRA 316 (1963), that "x x x
avoid its obligation by claiming concealment because the waiver of a medical
the cause of death was unrelated to the facts
concealed by the insured. Petitioner's motion for examination [in a non-medical insurance contract
reconsideration was denied. Hence, this petition renders even more material the information required of
the applicant concerning previous condition of health
ISSUE: Whether or not the insured was guilty of and diseases suffered, for such information necessarily
misrepresentation which made the contract void? constitutes an important factor which the insurer takes
(YES) into consideration in deciding whether to issue the
policy or not." Moreover, such argument of private
respondents would make Section 27 of the Insurance
Code, which allows the injured party to rescind a
contract of insurance where there is concealment,
ineffective

Anent the finding that the facts concealed had no

bearing to the cause of death of the insured, it is well
settled that the insured need not die of the disease he
had failed to disclose to the insurer. It is sufficient that
his non-disclosure misled the insurer in forming his
estimates of the risks of the proposed insurance policy
or in making inquiries.
IGNACIO SATURNINO vs THE PHILIPPINE diseases suffered, for such information necessarily
AMERICAN LIFE INSURANCE COMPANY constitutes an important factor which the insurer takes
into consideration in deciding whether to issue the
policy or not. It is logical to assume that if appellee had
FACTS: The policy sued upon is one for 20-year been properly apprised of the insured's medical history
endowment non-medical insurance. This kind of policy she would at least have been made to undergo medical
dispenses with the medical examination of the examination in order to determine her insurability.
applicant usually required in ordinary life policies.
However, detailed information is called for in the Appellants argue that due information concerning the
application concerning the applicant's health and insured's previous illness and operation had been
medical history. given to appellees agent Edward A. Santos, who filled
the application form after it was signed in blank by
The policy was issued on the same day, upon payment Estefania A. Saturnino. This was denied by Santos in
of the first year's premium of P339.25. On September his testimony, and the trial court found such testimony
19, 1958 Saturnino died of pneumonia, secondary to to be true. This is a finding of fact which is binding upon
influenza. Appellants here, who are her surviving us, this appeal having been taken upon questions of
husband and minor child, respectively, demanded law alone. We do not deem it necessary, therefore, to
payment of the face value of the policy. The claim was consider appellee's additional argument, which was
rejected and this suit was subsequently instituted. upheld by the trial court, that in signing the application
form in blank and leaving it to Edward A. Santos to fill
It appears that two months prior to the issuance of the (assuming that to be the truth) the insured in effect
policy or on September 9, 1957, Saturnino was made Santos her agent for that purpose and
operated on for cancer, involving complete removal of consequently was responsible for the errors in the
the right breast, including the pectoral muscles and the entries made by him in that capacity.
glands found in the right armpit. She stayed in the
hospital for a period of eight days, after which she was In the application for insurance signed by the insured
discharged, although according to the surgeon who in this case, she agreed to submit to a medical
operated on her she could not be considered definitely examination by a duly appointed examiner of appellee
cured, her ailment being of the malignant type. if in the latter's opinion such examination was
necessary as further evidence of insurability. In not
Notwithstanding the fact of her operation Estefania A. asking her to submit to a medical examination,
Saturnino did not make a disclosure thereof in her appellants maintain, appellee was guilty of negligence,
application for insurance. On the contrary, she stated which precluded it from finding about her actual state
therein that she did not have, nor had she ever had, of health. No such negligence can be imputed to
among other ailments listed in the application, cancer appellee. It was precisely because the insured had
or other tumors; that she had not consulted any given herself a clean bill of health that appellee no
physician, undergone any operation or suffered any longer considered an actual medical checkup
injury within the preceding five years; and that she had necessary.
never been treated for nor did she ever have any illness
or disease peculiar to her sex, particularly of the breast, Appellants also contend there was no fraudulent
ovaries, uterus, and menstrual disorders. The concealment of the truth inasmuch as the insured
application also recites that the foregoing declarations herself did not know, since her doctor never told her,
constituted "a further basis for the issuance of the that the disease for which she had been operated on
policy." was cancer. In the first place the concealment of the
fact of the operation itself was fraudulent, as there
ISSUE: Whether or not the insured made such false could not have been any mistake about it, no matter
representation of material facts as to avoid the policy. what the ailment. Secondly, in order to avoid a policy it
(yes) is not necessary to show actual fraud on the part of the
insured. In the case of Kasprzyk v. Metropolitan
Insurance Co., 140 N.Y.S. 211, 214, it was held:
RULING: There can be no dispute that the information
given by her in her application for insurance was false, Moreover, if it were the law that an insurance company
namely, that she had never had cancer or tumors, or could not depend a policy on the ground of
consulted any physician or undergone any operation misrepresentation, unless it could show actual
within the preceding period of five years. knowledge on the part of the applicant that the
statements were false, then it is plain that it would be
If anything, the waiver of medical examination renders impossible for it to protect itself and its honest
even more material the information required of the policyholders against fraudulent and improper claims.
applicant concerning previous condition of health and
It would be wholly at the mercy of any one who wished
to apply for insurance, as it would be impossible to
show actual fraud except in the extremest cases. It
could not rely on an application as containing
information on which it could act. There would be no
incentive to an applicant to tell the truth.

Wherefore, the parties respectfully pray that the

foregoing stipulation of facts be admitted and approved
by this Honorable Court, without prejudice to the
parties adducing other evidence to prove their case not
covered by this stipulation of facts. 1äwphï1.ñët

In this jurisdiction a concealment, whether intentional

or unintentional, entitles the insurer to rescind the
contract of insurance, concealment being defined as
"negligence to communicate that which a party knows
and ought to communicate" (Sections 24 & 26, Act No.
2427). In the case of Argente v. West Coast Life
Insurance Co., 51 Phil. 725, 732, this Court said,
quoting from Joyce, The Law of Insurance, 2nd ed.,
Vol. 3:

"The basis of the rule vitiating the contract in cases of

concealment is that it misleads or deceives the insurer
into accepting the risk, or accepting it at the rate of
premium agreed upon. The insurer, relying upon the
belief that the assured will disclose every material fact
within his actual or presumed knowledge, is misled into
a belief that the circumstance withheld does not exist,
and he is thereby induced to estimate the risk upon a
false basis that it does not exist."

The judgment appealed from, dismissing the complaint

and awarding the return to appellants of the premium
already paid, with interest at 6% up to January 29,
1959, affirmed, with costs against appellants.
THELMA VDA. DE CANILANG vs COURT OF whom the communication should have been made, in
APPEALS and GREAT PACIFIC LIFE ASSURANCE assessing the risk involved in making or omitting to
CORPORATION make further inquiries and in accepting the application
for insurance; that “probable and reasonable influence
FACTS: Canilang consulted Dr. Claudio and was of the facts” concealed must, of course, be determined
diagnosed as suffering from "sinus tachycardia." Mr. objectively, by the judge ultimately.
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, Canilang
applied for a "non-medical" insurance policy with
Grepalife naming his wife, as his beneficiary. Canilang
was issued ordinary life insurance with the face value
of P19,700.

On 5 August 1983, Canilang died of "congestive heart

failure," "anemia," and "chronic anemia." The wife as
beneficiary, filed a claim with Grepalife which the
insurer denied on the ground that the insured had
concealed material information from it.
Vda Canilang filed a complaint with the Insurance
Commissioner against Grepalife contending that as far
as she knows her husband was not suffering from any
disorder and that he died of kidney disorder.

Grepalife was ordered to pay the widow by the

Insurance Commissioner holding that there was no
intentional concealment on the Part of Canilang and
that Grepalife had waived its right to inquire into the
health condition of the applicant by the issuance of the
policy despite the lack of answers to "some of the
pertinent questions" in the insurance application. CA
reversed.

ISSUE: Whether or not Grepalife is liable? (YES)

RULING: We agree with the Court of Appeals that the

information which Jaime Canilang failed to disclose
was material to the ability of Great Pacific to estimate
the probable risk he presented as a subject of life
insurance. Had Canilang disclosed his visits to his
doctor, the diagnosis made and the medicines
prescribed by such doctor, in the insurance application,
it may be reasonably assumed that Great Pacific would
have made further inquiries and would have probably
refused to issue a non-medical insurance policy or, at
the very least, required a higher premium for the same
coverage.

The materiality of the information withheld by Great

Pacific did not depend upon the state of mind of Jaime
Canilang. A 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
THE INSULAR LIFE ASSURANCE CO., LTD. vs The Complaint was later amended and converted into
HEIRS OF ALVAREZ one for specific performance to include a demand
against Insular Life to fulfill its obligation as an insurer
FACTS: Alvarez and his wife, Adelina, owned a under the Group Mortgage Redemption Insurance.
residential lot with improvements covered by Transfer
Certificate of Title (TCT) No. C-315023 and registered In its defense, UnionBank asserted that the Heirs of
in the Caloocan City Registry of Deeds. Alvarez could not feign ignorance over the existence of
the loan and mortgage considering the Special Power
On June 18, 1997, Alvarez applied for and was granted of Attorney24 executed by Adelina in favor of her late
a housing loan by UnionBank in the amount of husband, which authorized him to apply for a housing
P648,000.00. This loan was secured by a promissory loan with UnionBank.
note, a real estate mortgage over the lot,11 and a
mortgage redemption insurance taken on the life of For its part, Insular Life maintained that based on the
Alvarez with UnionBank as beneficiary. Alvarez was documents submitted by UnionBank, Alvarez was no
among the mortgagors included in the list of qualified longer eligible under the Group Mortgage Redemption
debtors covered by the Group Mortgage Redemption Insurance since he was more than 60 years old when
Insurance that UnionBank had with Insular Life. his loan was approved.

Alvarez passed away on April 17, 1998. In May 1998, ISSUE: Whether or not petitioner The Insular Life
UnionBank filed with Insular Life a death claim under Assurance Co., Ltd. is obliged to pay Union Bank of the
Alvarez's name pursuant to the Group Mortgage Philippines the balance of Jose H. Alvarez's loan given
Redemption Insurance. In line with Insular Life's the claim that he lied about his age at the time of the
standard procedures, UnionBank was required to approval of his loan? (YES)
submit documents to support the claim. These
included: (1) Alvarez's birth, marriage, and death RULING: Fraud is not to be presumed, for "otherwise,
certificates; (2) the attending physician's statement; (3) courts would be indulging in speculations and
the claimant's statement; and (4) Alvarez's statement surmises." Moreover, it is not to be established lightly.
of account. Rather, "[i]t must be established by clear and
convincing evidence . . . [; a] mere preponderance of
Insular Life denied the claim after determining that evidence is not even adequate to prove fraud."These
Alvarez was not eligible for coverage as he was precepts hold true when allegations of fraud are raised
supposedly more than 60 years old at the time of his as grounds justifying the invalidation of contracts, as
loan's approval. the fraud committed by a party tends to vitiate the other
party's consent.
With the claim's denial, the monthly amortizations of
the loan stood unpaid. UnionBank sent the Heirs of Citing Section 27 of the Insurance Code, however,
Alvarez a demand letter, giving them 10 days to vacate Insular Life asserts that in cases of rescission due to
the lot. Subsequently, on October 4, 1999, the lot was concealment, i.e., when a party "neglect[s] to
foreclosed and sold at a public auction with UnionBank communicate that which [he or she] knows and ought
as the highest bidder. to communicate," proof of fraudulent intent is not
necessary.
On February 14, 2001, the Heirs of Alvarez filed a
Complaint for Declaration of Nullity of Contract and Section 27. A concealment whether intentional or
Damages against UnionBank, a certain Alfonso P. unintentional entitles the injured party to rescind a
Miranda (Miranda), who supposedly benefitted from contract of insurance
the loan, and the insurer which was identified only as
John Doe. The Heirs of Alvarez denied knowledge of The statutory text is unequivocal. Insular Life correctly
any loan obtained by Alvarez. notes that proof of fraudulent intent is unnecessary for
the rescission of an insurance contract on account of
The Heirs of Alvarez claimed that after Alvarez's death, concealment.
they came upon a document captioned "Letter of
Undertaking," which appeared to have been sent by This is neither because intent to defraud is intrinsically
UnionBank to Miranda. In this document, UnionBank irrelevant in concealment, nor because concealment
bound itself to deliver to Miranda P466,000.00 of the has nothing to do with fraud. To the contrary, it is
approved P648,000.00 housing loan, provided that because in insurance contracts, concealing material
Miranda would deliver to it TCT No. C-315023, "free facts51 is inherently fraudulent: "if a material fact is
from any liens and/or encumbrances." actually known to the [insured], its concealment must
of itself necessarily be a fraud." When one knows a communicate." However, Alvarez did not withhold
material fact and conceals it, "it is difficult to see how information on or neglect to state his age. He made an
the inference of a fraudulent intent or intentional actual declaration and assertion about it.
concealment can be avoided." Thus, a concealment,
regardless of actual intent to defraud, "is equivalent to What this case involves, instead, is an allegedly false
a false representation." representation. Section 44 of the Insurance Code
states, "A representation is to be deemed false when
In Vda. de Canilang v. Court of Appeals, this Court the facts fail to correspond with its assertions or
considered an alternative version of Section 27, i.e., stipulations." If indeed Alvarez misdeclared his age
prior to the Insurance Code's amendment by Batas such that his assertion fails to correspond with his
Pambansa Blg. 874, which omitted the qualifier factual age, he made a false representation, not a
"whether intentional or unintentional." Vda. de concealment.
Canilang clarified that even without this qualifier,
Section 27 still covers '"any concealment' without At no point does Chapter 1, Title 5 of the Insurance
regard to whether such concealment is intentional or Code replicate Section 27's language negating the
unintentional," thus: distinction between intentional and unintentional
concealment. Section 45 is Chapter 1, Title 5's
The Insurance Commissioner had also ruled that the counterpart provision to Section 27, and concerns
failure of Great Pacific to convey certain information to rescission due to false representations. It reads:
the insurer was not "intentional" in nature, for the Section 45. If a representation is false in a material
reason that Jaime Canilang believed that he was point, whether affirmative or promissory, the injured
suffering from minor ailment like a common cold. party is entitled to rescind the contract from the time
Section 27 of the Insurance Code of 1978 as it existed when the representation becomes false.
from 1974 up to 1985, that is, throughout the time
range material for present purposes, provided that: Not being similarly qualified as rescission under
Section 27, rescission under Section 45 remains
Sec. 27. A concealment entitles the injured party to subject to the basic precept of fraud having to be
rescind a contract of insurance. The preceding statute, proven by clear and convincing evidence. In this
Act No. 2427, as it stood from 1914 up to 1974, had respect, Ng Gan Zee's and similar cases'
provided: pronouncements on the need for proof of fraudulent
intent in cases of misrepresentation are logically
Sec. 26. A concealment, whether intentional or sound, albeit the specific reference to Argente as
unintentional, entitles the injured party to rescind a ultimate authority is misplaced. Thus, while Great
contract of insurance. Pacific Life confounded concealment with
misrepresentation by its citation of Ng Gan Zee, it
Upon the other hand, in 1985, the Insurance Code of nevertheless acceptably stated that:
1978 was amended by B.P. Blg. 874. This subsequent
statute modified Section 27 of the Insurance Code of The fraudulent intent on the part of the insured must be
1978 so as to read as follows: established to entitle the insurer to rescind the contract.
Misrepresentation as a defense of the insurer to avoid
Sec. 27. A concealment whether intentional or liability is an affirmative defense and the duty to
unintentional entitles the injured party to rescind a establish such defense by satisfactory and convincing
contract of insurance. evidence rests upon the insurer.

While Insular Life correctly reads Section 27 as making

no distinction between intentional and unintentional
concealment, it erroneously pleads Section 27 as the
proper statutory anchor of this case.

The Insurance Code distinguishes representations

from concealments. Chapter 1, Title 4 is on
concealments. It spans Sections 26 to 35 of the
Insurance Code; it is where Section 27 is found.
Chapter 1, Title 5 is on representations. It spans
Sections 36 to 48 of the Insurance Code.

Section 26 defines concealment as "[a] neglect to

communicate that which a party knows and ought to
 2. MISREPRESENTATIONS creates rights and obligations affecting him, before
signing the same. Manuel is not unschooled that the
MA. LOURDES S. FLORENDO vs PHILAM PLANS, Court must come to his succor. It could reasonably be
INC., ET AL expected that he would not trifle with something that
would provide additional trifle with something that
would provide additional financial security to him and
FACTS: Manuel Florendo filed an application for
to his wife in his twilight years.
comprehensive pension plan with respondent Philam
Plans, Inc. Ma. Lourdes S. Florendo, his wife, was
stated as beneficiary. On October 30, 1997 Philam In a final attempt to defend her claim for benefits under
Plans issued Pension Plan Agreement. Eleven months Manuel’s pension plan, Lourdes points out that any
later or on September 15, 1998, Manuel died of blood defect or insufficiency in the information provided by his
poisoning. pension plan application should be deemed waived
after the same has been approved, the policy has been
issued, and the premiums have been collected. The
Subsequently, Lourdes filed a claim with Philam Plans
Court cannot agree. The comprehensive pension plan
for the payment of the benefits under her husband’s
that Philam Plans issued contains a one-year
plan. Because Manuel died before his pension plan
incontestability period. It states: VIII.
matured and his wife was to get only the benefits of his
INCONTESTABILITY After this Agreement has
life insurance, Philam Plans forwarded her claim to
remained in force for one (1) year, we can no longer
Philam Life. Philam Life declined the claim and found
contest for health reasons any claim for insurance
that Manuel was on maintenance medicine for his heart
under this Agreement, except for the reason that
and had an implanted pacemaker. Further, he suffered
installment has not been paid (lapsed), or that you are
from diabetes mellitus and was taking insulin. Lourdes
not insurable at the time you bought this pension
contends that Manuel had concealed nothing since
Perla, the soliciting agent, knew that Manuel had a program by reason of age. If this Agreement lapses but
is reinstated afterwards, the one (1) year contestability
pacemaker implanted on his chest in the 70s or about
period shall start again on the date of approval of your
20 years before he signed up for the pension plan and
request for reinstatement. The above incontestability
that it is the soliciting agent who filled up the form.
clause precludes the insurer from disowning liability
under the policy it issued on the ground of concealment
ISSUE: Whether or not there was misrepresentation on or misrepresentation regarding the health of the
the part of Manuel that would avoid the policy? (YES) insured after a year of its issuance. Since Manuel died
on the eleventh month following the issuance of his
RULING: As already stated, Manuel had been taking plan, the one year incontestability period has not yet
medicine for his heart condition and diabetes when he set in. Consequently, Philam Plans was not barred
submitted his pension plan application. These clearly from questioning Lourdes’ entitlement to the benefits of
fell within the five-year period. More, even if Perla’s her husband’s pension plan.
knowledge of Manuel’s pacemaker may be applied to
Philam Plans under the theory of imputed knowledge,
it is not claimed that Perla was aware of his two other
afflictions that needed medical treatments. Pursuant to
Section 27 of the Insurance Code, Manuel’s
concealment entitles Philam Plans to rescind its
contract of insurance with him.

As the Court said in New Life Enterprises v. Court of

Appeals, 207 SCRA 669 (1992): It may be true that x x
x insured persons may accept policies without reading
them, and that this is not negligence per se. But, this is
not without any exception. It is and was incumbent
upon petitioner Sy to read the insurance contracts, and
this can be reasonably expected of him considering
that he has been a businessman since 1965 and the
contract concerns indemnity in case of loss in his
money-making trade of which important consideration
he could not have been unaware as it was precisely the
reason for his procuring the same. The same may be
said of Manuel, a civil engineer and manager of a
construction company. He could be expected to know
that one must read every document, especially if it
EMILIO TAN vs COURT OF APPEALS

FACTS: Tan Lee Siong applied for life insurance in the

amount of P80,000.00 with Philam Life. Said
application was approved and Policy No. 1082467 was
issued effective November 6, 1973 with the petitioners
as beneficiaries. On April 26, 1975, Tan Lee Siong died
of hepatoma. Petitioners then filed with Philam Life
their claim. However, respondent company denied
petitioners' claim and rescinded the policy by reason of
the alleged misrepresentation and concealment of
material facts made by the deceased Tan Lee Siong in
his application for insurance. The premiums paid on the
policy were thereupon refunded. Petitioners filed a
complaint before the Insurance Commissioner. The
latter dismissed their claim of procees. On appeal
before the Court of Appeals, it was also dismissed.

ISSUE: Whether or not Philam Life no longer had the

right to rescind the contract of insurance based on
misrepresentation as rescission must allegedly be
done during the lifetime of the insured within two years
and prior to the commencement of action? (NO)

RULING: As noted by the Court of Appeals, to wit:

"The policy was issued on November 6, 1973 and the
insured died on April 26, 1975. The policy was thus in
force for a period of only one year and five months.

Considering that the insured died before the two-year

period had lapsed, respondent company is not,
therefore, barred from proving that the policy is void ab
initio by reason of the insured's fraudulent concealment
or misrepresentation. Moreover, respondent company
rescinded the contract of insurance and refunded the
premiums paid on September 11, 1975, previous to the
commencement of this action on November 27, 1975."

The insurer has two years from the date of issuance of

the insurance contract or of its last reinstatement within
which to contest the policy, whether or not, the insured
still lives within such period.

After two years, the defenses of concealment or

misrepresentation, no matter how patent or well
founded, no longer lie. Congress felt this was a
sufficient answer to the various tactics employed by
insurance companies to avoid liability.

The petitioners' interpretation would give rise to the

incongruous situation where the beneficiaries of an
insured who dies right after taking out and paying for a
life insurance policy, would be allowed to collect on the
policy even if the insured fraudulently concealed
material facts.
MANILA BANKERS LIFE INSURANCE The insurer is deemed to have the necessary facilities
CORPORATION vs CRESENCIA P. ABAN to discover such fraudulent concealment or
misrepresentation within a period of two (2) years. It is
FACTS: Delia Sotero took out a life insurance policy not fair for the insurer to collect the premiums as long
from Manila Bankers Life Insurance as the insured is still alive, only to raise the issue of
Corporation,designating respondent Cresencia P. fraudulent concealment or misrepresentation when the
Aban, her niece, as her beneficiary. Petitioner issued insured dies in order to defeat the right of the
Insurance Policy No. 747411 (the policy), with a face beneficiary to recover under the policy.
value of P100,000.00, in Sotero's favor on August 30,
1993, after the requisite medical examination and At least two (2) years from the issuance of the policy or
payment of the insurance premium. On April 10, 1996, its last reinstatement, the beneficiary is given the
when the insurance policy had been in force for more stability to recover under the policy when the insured
than two years and seven months, Sotero died. dies. The provision also makes clear when the two year
period should commence in case the policy should
Respondent filed a claim for the insurance proceeds on lapse and is reinstated, that is, from the date of the last
July 9, 1996. Petitioner investigated the claim and reinstatement. After two years, the defenses of
found that Sotero did not personally apply for insurance concealment or misrepresentation, no matter how
coverage, as she was illiterate. Petitioner filed a civil patent or well-founded, will no longer lie.
case for rescission and/or annulment of the policy and
alleged that the policy was obtained by fraud, The so-called "incontestability clause" precludes the
concealment and/or misrepresentation. Respondent insurer from raising the defenses of false
filed a Motion to Dismiss. claiming that petitioner's representations or concealment of material facts
cause of action was barred by prescription pursuant to insofar as health and previous diseases are concerned
Section 48. The trial court granted the motion to if the insurance has been in force for at least two years
dismiss by Aban. On appeal, it affirmed the trial court. during the insured’s lifetime. The phrase "during the
lifetime" found in Section 48 simply means that the
ISSUE: Whether or not there was misrepresentation on policy is no longer considered in force after the insured
the part of the insured that would avoid the policy in has died. The key phrase in the second paragraph of
relation to the prescription period in Section 48? (NO) Section 48 is "for a period of two years."

RULING: As borne by the records, the policy was

issued on August 30, 1993, the insured died on April
10, 1996, and the claim was denied on April 16, 1997.
The insurance policy was thus in force for a period of 3
years, 7 months, and 24 days. Considering that the
insured died after the two-year period, the plaintiff-
appellant is, therefore, barred from proving that the
policy is void ab initio by reason of the insured’s
fraudulent concealment or misrepresentation or want
of insurable interest on the part of the beneficiary,
herein defendant-appellee.

The "incontestability clause" is a provision in law that

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 (2) 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 fraudulent concealment or
misrepresentation of the insured or his agent.

The purpose of the law is to give protection to the

insured or his beneficiary by limiting the rescinding of
the contract of insurance on the ground of fraudulent
concealment or misrepresentation to a period of only
two (2) years from the issuance of the policy or its last
reinstatement.
FLORENDO VS PHILAM PLANS premium payments precluded it from denying Lourdes’
claim.
FACTS: On October 23, 1997 Manuel Florendo filed
an application for comprehensive pension plan with RULING:
respondent Philam Plans after some convincing by
respondent Perla Abcede. The plan had a pre-need 1. Yes, Manuel is guilty of concealing his
price of ₱997,050.00, payable in 10 years, and had a illness.
maturity value of ₱2,890,000.00 after 20 years. Manuel
signed the application and left to Perla the task of Since Manuel signed the application without filling in
supplying the information needed in the the details regarding his continuing treatments for heart
application.Respondent Ma. Celeste Abcede, Perla’s condition and diabetes, the assumption is that he has
daughter, signed the application as sales counselor. never been treated for the said illnesses in the last five
years preceding his application. This is implicit from the
Aside from pension benefits, the comprehensive phrase “If your answer to any of the statements above
pension plan also provided life insurance coverage to (specifically, the statement: I have never been treated
Florendo.This was covered by a Group Master Policy for heart condition or diabetes) reveal otherwise,
that Philam Life issued to Philam Plans. Under the please give details in the space provided for.” But this
master policy, Philam Life was to automatically provide is untrue since he had been on “Coumadin,” a
life insurance coverage, including accidental death, to treatment for venous thrombosis,and insulin, a drug
all who signed up for Philam Plans’ comprehensive used in the treatment of diabetes mellitus, at that time.
pension plan.
2. Yes, Manuel was bound by the failure of
On September 15, 1998, Manuel died of blood respondents Perla and Ma. Celeste to declare the
poisoning. Subsequently, Manuel’s wife Lourdes filed condition of his health in the pension plan application.
a claim with Philam Plans for the payment of the
benefits under her husband’s plan. However, Philam Lourdes contends that the mere fact that Manuel
Plans declined Lourdes’ claim. Apparently, Philam Life signed the application in blank and let Perla fill in the
found that Manuel was on maintenance medicine for required details did not make her his agent and bind
his heart and had an implanted pacemaker. Further, he him to her concealment of his true state of health. But,
suffered from diabetes mellitus and was taking insulin. Manuel forgot that in signing the pension plan
application, he certified that he wrote all the information
Lourdes renewed her demand for payment under the stated in it or had someone do it under his direction.
planbut Philam Plans rejected it,prompting her to file
action against the pension plan company. Assuming that it was Perla who filled up the application
form, Manuel is still bound by what it contains since he
The RTC ruled in favor of Lourdes. However, the Court certified that he authorized her action. Philam Plans
of Appeals (CA) reversed the RTC decision, holding had every right to act on the faith of that certification.
that insurance policies are traditionally contracts
uberrimae fidae or contracts of utmost good faith. As 3. No, Philam Plans’ approval of Manuel’s pension plan
such, it required Manuel to disclose to Philam Plans application and acceptance of his premium payments
conditions affecting the risk of which he was aware or precluded it from denying Lourdes’ claim.
material facts that he knew or ought to know.
The comprehensive pension plan that Philam Plans
ISSUES: issued contains a one-year incontestability
period. Since Manuel died on the eleventh month
1. Whether or not Manuel is guilty of concealing his following the issuance of his plan, the one year
illness when he kept blank and did not answer incontestability period has not yet set in. Consequently,
questions in his pension plan application regarding the Philam Plans was not barred from questioning Lourdes’
ailments he suffered from entitlement to the benefits of her husband’s pension
plan.
2. Whether or not Manuel was bound by the failure of
respondents Perla and Ma. Celeste to declare the
condition of his health in the pension plan application;
and

3. Whether or not Philam Plans’ approval of Manuel’s

pension plan application and acceptance of his
 3. BREACH OF WARRANTIES

QUA CHEE GAN vs AW UNION AND ROCK

INSURANCE CO., LTD. represented by its agent,
WARNER, BARNES, AND CO., LTD.

FACTS: Qua Chee Gan obtained fire insurance

policies from Law Union and Rock Insurance for his
four warehouses used for storing copra and hemp.
Under the policies, Qua Chee Gan should install fire
hydrants every 150 feet or 11 hydrants in the
warehouse premises, however, he installed only 2
hydrants.

Nevertheless, Law Union proceeded with the

insurance and collected premiums from Qua Chee
Gan. In the 1940s, three of the warehouses were razed
by fire prompting Qua Chee Gan to demand insurance
payment from Law Union. The insurance company
refused, alleging that the policies should have been
avoided for breach of warranties.

ISSUE: Whether or not the insurance company may

avoid liability and void the policies it issued due to
insured’s breach of warranty? (NO

RULING: Respondent insurance company is now

barred by waiver (or rather estoppel) to claim violation
of the so-called fire hydrants warranty, for the reason
that knowing fully all that the number of hydrants
demanded therein never existed from the very
beginning, respondent nevertheless issued the policies
in question subject to such warranty, and received the
corresponding premiums. It would be perilously close
to conniving at fraud upon the insured to allow
respondent to claim now as void ab initio the policies
that it had issued to the plaintiff without warning of their
fatal defect, of which it was informed, and after it had
misled it into believing that the policies were effective.

American jurisprudence provides the reason for this

rule: To allow a company to accept one’s money for a
policy of insurance which it knows to be void and of no
effect, though it knows as it must that the insured
believes it to be valid and binding is so contrary to the
dictates of honesty and fair dealing, as so closely
related to positive fraud, as to be abhorrent to fair-
minded men. It would be to allow the company to treat
the policy as valid long enough to get the premium on
it, and leave it at liberty to repudiate it the next moment.

It is a well settled rule of law that an insurer which with

knowledge of facts entitling it to treat a policy as no
longer in force, receives and accepts a premium on the
policy, estopped to take advantage of the forfeiture.
MALAYAN INSURANCE COMPANY, INC vs PAP
CO. , LTD.,

FACTS: Respondent PAP Co. procured a fire

insurance policy from petitioner Malayan Insurance for
its machineries and equipment which was mortgaged
to RCBC. The policy was renewed on an “as is” basis
after a year. The insured machineries and equipment
were lost by fire prompting PAP Co. to file an insurance
claim from Malayan. Malayan, however, denied the
claim upon the ground that, at the time of the loss, the
insured machineries and equipment were transferred
by PAP Co. to a location different from that indicated in
the policy in violation of their affirmative warranty.
Contesting the denial, PAP Co. argued that Malayan
cannot avoid liability as it was informed of the transfer
by RCBC.

ISSUE: Whether or not the Court of Appeals erred in

affirming the lower court’s ruling holding Malayan
Insurance liable despite PAP Co.’s alleged
concealment, misrepresentation, and breach of an
affirmative Warranty? (YES)

RULING: The appellate court erred in holding Malayan

Insurance liable. By the clear and express condition in
the renewal policy, the removal of the insured property
to any building or place required the consent of
Malayan. Any transfer effected by the insured, without
the insurer’s consent, would free the latter from any
liability. The records, however, are bereft of any
convincing and concrete evidence that Malayan was
notified of the transfer of the insured properties from
the Sanyo factory to the Pace factory. What PAP did to
prove that Malayan was notified was to show that it
relayed the fact of transfer to RCBC, the entity which
made the referral and the named beneficiary in the
policy. Malayan and RCBC might have been sister
companies, but such fact did not make one an agent of
the other.

The fact that RCBC referred PAP to Malayan did not

clothe it with authority to represent and bind the said
insurance company. After the referral, PAP dealt
directly with Malayan. The Court noted that PAP’s
Branch Manager, Mr. Yoneda only admitted that the
insured properties were transferred to a different
location only after the renewal of the fire insurance
policy.

There being an uncontested removal, the transfer was

at PAP’s own risk. Malayan is thus entitled to rescind
the insurance contract as it clearly committed
concealment, misrepresentation and a breach of
warranty. Moreover, under Section 168 of the
Insurance Code, the insurer is entitled to rescind the
insurance contract in case of an alteration in the use or
condition of the thing insured.
NEW LIFE ENTERPRISES vs COURT OF APPEALS

FACTS: Petitioner New Life Enterprises is a

partnership formed by Julian Sy and Jose Sy Bang.
Julian Sy insured the stocks in trade of the partnership
with Western Guaranty Corporation, Reliance Surety
and Insurance Co. and Equitable Insurance
Corporation. These three insurance corporations
issued fire insurance policies on different dates. When
the building occupied by New Life Enterprises was
gutted by fire, Julian Sy demanded payment from the
insurance companies. The insurance companies,
however, denied his claim for payment; their letters of
denial are all of the same tenor, explaining that the
denial is due to breach of policy conditions otherwise
known as the “Otherwise Insurance Clause”. Petitioner
contends that they are not to be blamed for the
omissions, alleging that the agent Alvarez for Western
and Yap Kam Chuan for Reliance and Equitable knew
about the existence of the additional insurance
coverage and that they were not informed about the
requirement that such other or additional insurance
should be stated in the policy, as they have not read
the policy.

ISSUE: Whether or not conditions in the insurance

contracts were violated by petitioners thereby resulting
in their forfeiture of all the benefits thereunder? (YES)

RULING: The terms of the contract are clear and

unambiguous.

The insured is specifically required to disclose to the

insurer any other insurance and its particulars which he
may have effected on the same subject matter. The
knowledge of such insurance by the insurer’s agents,
even assuming the acquisition thereof by the former, is
not the “notice” that would estop the insurers from
denying the claim. Besides, the so-called theory of
imputed knowledge, that is, knowledge of the agent is
knowledge of the principal, aside from being of dubious
applicability here has likewise been refuted by the
appellate court whose factual findings we find
acceptable.

While it is a cardinal principle of insurance law that a

policy or contract of insurance is to be construed
liberally in favour of the insured and strictly against the
insurer company, yet contracts of insurance, like other
contracts, are to be construed according to the sense
and meaning of the terms which the parties themselves
have used. If such terms are clear and unambiguous,
they must be taken and understood in their plain,
ordinary, and popular sense. Moreover, obligations
arising from contracts have the force of law between
the contracting parties and should be complied with in
good faith.
K. S. YOUNG vs MIDLAND TEXTILE INSURANCE the building insured increased the risk. x x x The
COMPANY plaintiff was enjoying, if his contention may be allowed,
the benefits of an insurance policy upon one risk,
FACTS: K.S. Young has a business of a candy and whereas, as a matter of fact, it was issued upon an
fruit store in Escolta and occupied a building as a entirely different risk
residence and bodega. Young entered into a contract
of insurance with Midland Textile Insurance in case
said residence and bodega and its contents should be
destroyed by fire. One of the conditions of said contract
of insurance is found in "warranty B" and is as follows:
"Warranty B. It is hereby declared and agreed that
during the pendency of this policy no hazardous goods
be stored or kept for sale, and no hazardous trade or
process be carried on, in the building to which this
insurance applies, or in any building connected
therewith.” On the 4th or 5th of February 1913, the
plaintiff placed in said residence and bodega three
boxes filled with fireworks intended to be used in the
celebration if Chinese New Year. A few days after, the
insured building got partially destroyed by fire. The said
fireworks, however, were found in the part of the
building not destroyed by the fire and that they in no
way contributed to the fire or to the loss occasioned
thereby.

ISSUE: Whether or not the placing of said fireworks in

the building insured, being hazardous goods, is a
violation of the terms of the contract of insurance and
especially of Warranty B? (YES)

RULING: It is a breach of warranty. Contracts of

insurance are contracts of indemnity upon the terms
and conditions specified in the policy. The parties have
a right to impose such reasonable conditions at the
time of the making of the contract as they may deem
wise and necessary. If the insured cannot bring himself
within the conditions of the policy, he is not entitled to
recover for the loss. The terms of the policy constitute
the measure of the insurer’s liability, and in order to
recover the insured must show himself within those
terms; and if it appears that the contract has been
terminated by a violation, on the part of the insured, of
its conditions, then there can be no right of recovery.
The compliance of the insured with the terms of the
contract is a condition precedent to the right of
recovery. If the insured has violated or failed to perform
the conditions of the contract, and such a violation or
want of performance has not been waived by the
insurer, then the insured cannot recover.

Appellant’s argument that the “storing” of the fireworks

on the premises did not contribute in any way to the
damage occasioned by the fire is untenable. The
violation of the terms of the contract, by virtue of the
provisions of the policy itself, terminated, at the election
of either party, the contractual relations. The plaintiff
paid a premium based upon the risk at the time the
policy was issued. [T]he placing of the firecrackers in
E. M. BACHRACH vs BRITISH AMERICAN
ASSURANCE COMPANY

FACTS: Plaintiff Bachrach commenced an action

against defendant British American Assurance
Company to recover a certain sum of money based on
the fire insurance policy. The defendant answered the
complaint, admitting some of the facts alleged by the
plaintiff and denying others. The defendant also
alleged certain facts under which it claimed that it was
released from all obligations whatever under said
policy. Among others, it alleged that the plaintiff
maintained a paint and varnish shop in the said building
where the goods which were insured were stored;
immediately preceding the outbreak of the alleged fire,
plaintiff willfully placed a gasoline can containing 10
gallons of gasoline in the upper story of said building in
close proximity to a portion of said goods, which can
was so placed as to permit the gasoline to run on the
floor of said second story, and after so placing said
gasoline, the plaintiff, placed in close proximity to said
escaping gasoline a lighted lamp containing alcohol,
thereby greatly increasing the risk of fire.

ISSUE: Whether or not using the building as a paint

and varnish shop annulled the policy and the keeping
of gasoline and alcohol was a violation of the conditions
of the policy as to render the same null and void? (NO)

RULING: NO, the policy is not avoided and

consequently the insurer should still be held liable. The
lower court in its decision said “It is well settled that the
keeping of inflammable oils on the premises, though
prohibited by the policy, does not void it if such keeping
is incidental to the business. Thus, where a furniture
factory keeps benzine for the purposes of operation, or
where it is used for the cleaning machinery, the insurer
cannot on that ground avoid payment of loss, though
the keeping of the benzine on the premises is expressly
prohibited.” It may be added that there was no
provision in the policy prohibiting the keeping of paints
and varnishes upon the premises where the insured
property was stored. If the company intended to rely
upon a condition of that character, it ought to have
been plainly expressed in the policy.