INSURANCE REPORT:

MATERIALITY OF
RISK

MARY GRACE G. TAMPUS

LLB 315: INSURANCE
ATTY. BACATAN
2017
INTRODUCTION

Risk is fairly a very common concept. As per definition, risk is that probability or
threat of injury, damage, or loss that may be caused by external or internal
vulnerabilities. It is a condition in which there is a possibility of an adverse
deviation from a desired outcome that is expected for.

In our everyday lives, we encounter different kinds of risk and by the mere
mention of it, we can therefore infer that in a given situation, the outcome is
uncertain and therefore, there exists a possibility that the outcome shall not be in
our favor. Hence, it is of common nature to man that we take some precautionary
measures or some sort of calculation before deciding to participate with an
activity or before making a choice. In fact in our day to day lives, one measure of
limiting the possibility of damaging or losing some things that are valuable to us
is to apply for insurance. Upon obtaining insurance it helps in cushioning danger
one might encounter and in fact, risk is an essential element of insurance.

Applying for insurance equates to practicing that level of rationality that in case
one encounters loss, one shall be compensated of the effects of taking such risk.
However, not all risks are insurable considering that when one applies for
insurance, insurer must see to it if there are risks which the insurance applied on
covers it.

It is therefore important that upon application for insurance, whatever insurance

is applied for, person who wants to be insured or the person who wants
something to be insured relate and communicate to the insurer whatever facts it
may be equating to risk to see if the insurer will accept the risk. In fact, it is not
only the insured who shall do the relating and communicating of facts amounting
to a risk which is material or may be material within his knowledge to the contract
of insurance but also the insurer. In this situation then will the test of materiality of
risk will enter which is enshrined in Section 31 of Presidential Decree 612 as
amended by RA 10607 which states that:

Sec. 31: Materiality is to be determined not by the event, but solely by the
probable and reasonable influence of facts upon the party whom the
communication is due, in forming his estimate of the disadvantages of the
proposed contract, or in making his inquires.

By this test of materiality, insurer makes sure that whatever facts the insured
divulges it is covered by the insurance contract. Facts that equate to risk shall be
deemed material if it influences either of the parties to enter into the said
insurance contract. Also, even if such fact amounting to risk may not be material
but such fact was subjected to an inquiry, such risk then will tantamount to a
material risk. In fact, materiality of risk is so important in such a way that it is
used to determine whether any of the devices for ascertaining and controlling risk
and loss is committed. By such test of materiality, insurer will know if insured may
be liable for a concealment, misrepresentation, or warranty.

JURISPRUDENCE

In application to provisions of law concerning materiality of risk, it has been held

in Argente v. West Coast Life 51 Phil 725 that if the assured has exclusive
knowledge of material facts, he should fully and fairly disclose the same, whether
he believes them material or not, assured should fully and fairly disclose the
same, whether he believes them to be material or not. It further discoursed that if
the assured has some affection or ailment of one or more of the organs so
mentioned in the application as inquired about so well-defined and marked as to
materially derange for a time, all the more the assured has to reveal such fact
which in this case, Argente failed to disclose material facts amounting to risk
concerning his and his wifes condition of the nervous system which the Supreme
Court adjudged to be concealment.

It was also cited in Vda. De Canilang v. Court of Appeals the different sections
in the Insurance Code of the Philippines which relates to materiality of risk which
are:

Sec. 28: Each party to a contract of insurance must communicate to the

other, in good faith, all factors within his knowledge which are material to
the contract and as to which he makes no warranty, and which the other
has not the means of ascertaining;

And

Sec. 30: Materiality is to be determined not by the event, but solely by the
probable and reasonable influence of facts upon the party to whom the
communication is due, in forming his estimate of disadvantages of
proposed contract, or in making his inquires.

and further held in this case that the information which the petitioner in the said
case failed to disclose was indeed material to the ability of insurer to estimate the
probable risk the petitioner presented as subject of life of insurance. Supreme
Court went on further that had the petitioner disclosed his visits to his doctor,
diagnosis made and medicines prescribed in the insurance application, it may be
reasonably assumed that insurer would have made further inquiries despite the
insurance applied to was a non-medical life insurance and would have probably
refused to issue the said insurance or at the very least, required a higher
premium for the same coverage. The said case only imparts that the type of
insurance applied does not in any way become a factor as to the disclosure of a
material fact and solidified the idea that even if upon the insureds belief that said
risk is material he must disclose it anyway to the insurer.
ILLUSTRATION

Suppose Steven wants to insure his house against fire, or rather, wants to apply
for fire insurance with GLAM FIRE INSURANCE COMPANY. Three days before
he applied for the said fire insurance, he received threatening letters by the
rebels from the South stating in the said letter that if he doesnt give P100 Million
pesos as immediately as possible, the rebels will burn down his house.

On the day of his application for fire insurance, he did not disclose the said
threatening letters because he believed that those were merely prank letters and
were untrue. Subsequently, his application for fire insurance was granted. Ten
days after the approval of the fire insurance, his house was indeed burned down
considering he did not heed to the rebels request.

In the said case, the insurer can very well refuse or deny the liability of loss and
in effect rescind the fire insurance contract as the act of Steven tantamount to
concealment. As already held by the jurisprudences, even if he doesnt believe
that such facts are not material to the insurance, he still has the duty to disclose
said facts.