G.R. No.

125678 March 18, 2002

PHILAMCARE HEALTH SYSTEMS, INC., petitioner,

vs.
COURT OF APPEALS and JULITA TRINOS, respondents.

Facts of the Case:

Ernani Trinos applied for a health care coverage with Philamcare Health Systems and
he answered “NO” to the question whether he or his family members were treated to
heart trouble, asthma and diabetes. It was then approved for 1 year. During this
coverage, Ernani suffered a heart attack and was confined in the MMC for one month.
The wife tried to claim the benefits under this agreement but was denied by the
Philamcare Health Systems (PHS) on the grounf that there was concealment. It was
found out that Doctors at the MMC discovered that during Ernani’s confinement, he
was hypertensive, diabetic and asthmatic.

He was then discharged in the MMC.

April 13, 1990, Ernani had a fever he was brought to the Chinese General Hospital but
died on the same day.

The wife filed on the RTC of Manila an action for damages and asked for
reimbursement plus moral damages and attorneys fees. The decision of the RTC was in
favor of the wife.

THE CA affirmed as well the decision of the RTC and absolved Dr. Benito Reverente.
Hence, a petition for review was filed on the SC.

Issue: WON a health care agreement is not an insurance contract; hence the
“incontestability clause” under the Insurance Code does not apply.

Held: No. Petition dismissed.

Ratio:

Petitioner claimed that it granted benefits only when the insured is alive during the
one-year duration. It contended that there was no indemnification unlike in insurance
contracts. It supported this claim by saying that it is a health maintenance organization
covered by the DOH and not the Insurance Commission. Lastly, it claimed that the
Incontestability clause didn’t apply because two-year and not one-year effectivity
periods were required.

Section 2 (1) of the Insurance Code defines a contract of insurance as “an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage
or liability arising from an unknown or contingent event.”
Section 3 states: every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children.
In this case, the husband’s health was the insurable interest. The health care
agreement was in the nature of non-life insurance, which is primarily a contract of
indemnity. The provider must pay for the medical expenses resulting from sickness or
injury.

While petitioner contended that the husband concealed material fact of his sickness,
the contract stated that:
“that any physician is, by these presents, expressly authorized to disclose or give
testimony at anytime relative to any information acquired by him in his professional
capacity upon any question affecting the eligibility for health care coverage of the
Proposed Members.”

This meant that the petitioners required him to sign authorization to furnish reports
about his medical condition. The contract also authorized Philam to inquire directly to
his medical history.

Hence, the contention of concealment isn’t valid.

They can’t also invoke the “Invalidation of agreement” clause where failure of the
insured to disclose information was a grounds for revocation simply because the
answer assailed by the company was the heart condition question based on the
insured’s opinion. He wasn’t a medical doctor, so he can’t accurately gauge his
condition.

“Having assumed a responsibility under the agreement, petitioner is bound to answer

the same to the extent agreed upon. In the end, the liability of the health care
provider attaches once the member is hospitalized for the disease or injury covered by
the agreement or whenever he avails of the covered benefits which he has prepaid.”
Section 27 of the Insurance Code- “a concealment entitles the injured party to rescind
a contract of insurance.”
As to cancellation procedure- Cancellation requires certain conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one
or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in
the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance
Code and upon request of insured, to furnish facts on which cancellation is based
None were fulfilled by the provider.

As to incontestability- The trial court said that “under the title Claim procedures of
expenses, the defendant Philamcare Health Systems Inc. had twelve months from the
date of issuance of the Agreement within which to contest the membership of the
patient if he had previous ailment of asthma, and six months from the issuance of the
agreement if the patient was sick of diabetes or hypertension. The periods having
expired, the defense of concealment or misrepresentation no longer lie.”

[G.R. No. 124520. August 18, 1997]

Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO.,
INC., petitioners, vs. COURT OF APPEALS and CKS DEVELOPMENT
CORPORATION, respondents.

Facts of the Case :

The Spouses Cha entered into a lease agreement with CKS Development. Under this
lease contract, the lessees are prohibited to insure against fire the chattels,
merchandise textiles goods and effects in the leased premises WITHOUT first
obtaining the written consent and approval of the Lessor. IF the LESSEE obtain(s) the
insurance without the consent of the Lessor then the policy is deemed assigned and
transferred to the Lessor for its own benefit.

Notwithstanding the stipulation, the Cha spouses obtained an insurance against loss
by fire their merchandise inside the leased premises without the written consent of the
private respondents.
Before the expiration of the lease contract, fire broke out inside the leased premises.
CKS learned about the insurance and wrote a demand letter asking that the proceeds
of the insurance contract be paid directly to CKS but the United refused.

Issue : WON the lease contract entered into between CKS and the Cha Spouses is
valid and is deemed assigned or transferred to the lessor CKS if said policy is
obtained without the prior written of the latter.

Held: Decision of CA is set aside. New decision is entered awarding the proceeds of
the fire insurance policy to the Cha Spouses.
Ratio: It is, of course, basic in the law on contracts that the stipulations contained in a
contract cannot be contrary to law, morals, good customs, public order or public policy.

Sec. 18 of the Insurance Code provides:

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.
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.
Insurable interest in the property insured must exist at 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.

Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a
beneficiary of the fire insurance policy taken by the petitioner-spouses over their
merchandise. This insurable interest over said merchandise remains with the insured,
the Cha spouses. 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
Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be
compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has
no insurable interest in the property insured.
GAISANO CAGAYAN, INC. Petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.

Facts of the Case:

IMC and Levi Strauss (Phils.) Inc. (LSPI) separately obtained from respondent fire
insurance policies with book debt endorsements. The insurance policies provide for
coverage on "book debts in connection with ready-made clothing materials which
have been sold or delivered to various customers and dealers of the Insured anywhere
in the Philippines."

The policies defined book debts as the "unpaid account still appearing in the Book of
Account of the Insured 45 days after the time of the loss covered under this Policy."
The policies also provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect of
the merchandise sold and delivered by the Insured which are outstanding at the date of
loss for a period in excess of six (6) months from the date of the covering invoice or
actual delivery of the merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days
after the close of every calendar month all amount shown in their books of accounts
as unpaid and thus become receivable item from their customers and dealers.
Gaisano is a customer and dealer of the products of IMC and LSPI. On February 25,
1991, the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner,
was consumed by fire. Included in the items lost or destroyed in the fire were stocks
of ready-made clothing materials sold and delivered by IMC and LSPI.
Insurance of America filed a complaint for damages against Gaisano. It alleges that
IMC and LSPI were paid for their claims and that the unpaid accounts of petitioner on
the sale and delivery of ready-made clothing materials with IMC was P2,119,205.00
while with LSPI it was P535,613.00.

The RTC rendered its decision dismissing Insurance's complaint. It held that the fire
was purely accidental; that the cause of the fire was not attributable to the negligence
of the petitioner. Also, it said that IMC and LSPI retained ownership of the delivered
goods and must bear the loss.

The CA rendered its decision and set aside the decision of the RTC. It ordered
Gaisano to pay Insurance the P 2 million and the P 500,000 the latter paid to IMC and
Levi Strauss.

Hence this petition.

Issues:

1. WON the CA erred in construing a fire insurance policy on book debts as one
covering the unpaid accounts of IMC and LSPI since such insurance applies to loss of
the ready-made clothing materials sold and delivered to petitioner

2. WON IMC bears the risk of loss because it expressly reserved ownership of the
goods by stipulating in the sales invoices that "[i]t is further agreed that merely for
purpose of securing the payment of the purchase price the above described
merchandise remains the property of the vendor until the purchase price thereof is
fully paid."
3. WON petitioner is liable for the unpaid accounts
4. WON it has been established that petitioner has outstanding accounts with IMC and
LSPI.

Held:
NO. YES. YES. YES
The petition is partly granted. The decision of the CA is affirmed with the modification
that the order to pay the amount of P 535, 613.00 to respondent is deleted for lack of
factual basis.
Ratio:
1. Nowhere is it provided in the questioned insurance policies that the subject of the
insurance is the goods sold and delivered to the customers and dealers of the insured.
Thus, what were insured against were the accounts of IMC and LSPI with petitioner
which remained unpaid 45 days after the loss through fire, and not the loss or
destruction of the goods delivered.

2. The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
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
Thus, when the seller retains ownership only to insure that the buyer will pay its debt,
the risk of loss is borne by the buyer. Petitioner bears the risk of loss of the goods
delivered.

IMC and LSPI had 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. Indeed, a vendor or seller retains an
insurable interest in the property sold so long as he has any interest therein, in other
words, so long as he would suffer by its destruction, as where he has a vendor's lien.
In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts
appearing in their Books of Account 45 days after the time of the loss covered by the
policies.

3. Petitioner's argument that it is not liable because the fire is a fortuitous event under
Article 117432 of the Civil Code is misplaced. As held earlier, petitioner bears the
loss under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the 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. Accordingly, petitioner's obligation is for the payment of money. As
correctly stated by the CA, where the obligation consists in the payment of money, the
failure of the debtor to make the payment even by reason of a fortuitous event shall
not relieve him of his liability. The rationale for this is that the rule that an 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. It does not apply
when the obligation is pecuniary in nature.

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing,
the loss or destruction of anything of the same kind does not extinguish the
obligation." This rule is based on the principle that the genus of a thing can never
perish. An obligation to pay money is generic; therefore, it is not excused by
fortuitous loss of any specific property of the debtor.

4. With respect to IMC, the respondent has adequately established its claim. The P 3
m claim has been proven. 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. The right of subrogation accrues simply
upon payment by the insurance company of the insurance claim Respondent's action
against petitioner is squarely sanctioned by Article 2207 of the Civil Code which
provides:
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, respondent failed to present sufficient evidence to prove its cause of
action. There was no evidence that respondent has been subrogated to any right which
LSPI may have against petitioner. Failure to substantiate the claim of subrogation is
fatal to petitioner's case for recovery of P535,613.00.

G.R. No. 85141 November 28, 1989

FILIPINO MERCHANTS INSURANCE CO., INC., petitioner,

vs.
COURT OF APPEALS and CHOA TIEK SENG, respondents.

Facts of the Case :

Choa insured 600 tons of fishmeal for the sum of P267,653.59 from Bangkok,
Thailand to Manila against all risks under warehouse to warehouse terms. What was
imported in the SS Bougainville was 59.940 metric tons at $395.42 a ton. The cargo
was unloaded from the ship and 227 bags were found to be in bad condition by the
arrastre.
Choa made a formal claim against the defendant Filipino Merchants Insurance
Company for P51,568.62 He also presented a claim against the ship, but the
defendant Filipino Merchants Insurance Company refused to pay the claim. The
plaintiff brought an action against the company and presented a third party complaint
against the vessel and the arrastre contractor.
The court below, after trial on the merits, rendered judgment in favor of private
respondent, for the sum of P51,568.62 with interest at legal rate.
The common carrier, Compagnie, was ordered to pay as a joint debtor.
On appeal, the respondent court affirmed the decision of the lower court insofar as the
award on the complaint is concerned and modified the same with regard to the
adjudication of the third-party complaint. A motion for reconsideration of the
aforesaid decision was denied. The AC made Filipino Merchants pay but absolved the
common carrier, Compagnie. Hence this petition.

Issues:
1. WON the "all risks" clause of the marine insurance policy held the petitioner liable
to the private respondent for the partial loss of the cargo, notwithstanding the clear
absence of proof of some fortuitous event, casualty, or accidental cause to which the
loss is attributable.
2. WON The Court of Appeals erred in not holding that the private respondent had no
insurable interest in the subject cargo, hence, the marine insurance policy taken out by
private respondent is null and void.

Held: No. No. Petition denied.

Ratio:
1. The "all risks clause" of the Institute Cargo Clauses read as follows:
“5. This insurance is against all risks of loss or damage to the subject-matter insured
but shall in no case be deemed to extend to cover loss, damage, or expense
proximately caused by delay or inherent vice or nature of the subject-matter insured.
Claims recoverable hereunder shall be payable irrespective of percentage.“
An "all risks policy" should be read literally as meaning all risks whatsoever and
covering all losses by an accidental cause of any kind. “Accident” is construed by the
courts in their ordinary and common acceptance.
The very nature of the term "all risks" must be given a broad and comprehensive
meaning as covering any loss other than a willful and fraudulent act of the insured.
This is pursuant to the very purpose of an "all risks" insurance to give protection to
the insured in those cases where difficulties of logical explanation or some mystery
surround the loss or damage to property.
Institute Cargo Clauses extends to all damages/losses suffered by the insured cargo
except (a) loss or damage or expense proximately caused by delay, and (b) loss or
damage or expense proximately caused by the inherent vice or nature of the subject
matter insured.

Generally, the burden of proof is upon the insured to show that a loss arose from a
covered peril, but under an "all risks" policy the burden is not on the insured to prove
the precise cause of loss or damage for which it seeks compensation. The insured
under an "all risks insurance policy" has the initial burden of proving that the cargo
was in good condition when the policy attached and that the cargo was damaged when
unloaded from the vessel. The burden then shifts to the insurer to show the exception
to the coverage. This creates a special type of insurance which extends coverage to
risks not usually contemplated and avoids putting upon the insured the burden of
establishing that the loss was due to the peril falling within the policy's coverage; the
insurer can avoid coverage upon demonstrating that a specific provision expressly
excludes the loss from coverage.
Under an 'all risks' policy, it was sufficient to show that there was damage occasioned
by some accidental cause of any kind, and there is no necessity to point to any
particular cause.
2. Section 13 of the Insurance Code- anyone has an insurable interest in property who
derives a benefit from its existence or would suffer loss from its destruction
Insurable interest in property may consist in (a) an existing interest; (b) an inchoate
interest founded on an existing interest; or (c) an expectancy, coupled with an existing
interest in that out of which the expectancy arises.
Choa, as vendee/consignee of the goods in transit, has such existing interest as may be
the subject of a valid contract of insurance. His interest over the goods is based on the
perfected contract of sale. The perfected contract of sale between him and the shipper
of the goods operates to vest in him an equitable title even before delivery or before
conditions have been performed.

Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract
of sale, the seller is authorized or required to send the goods to the buyer, delivery of
the goods to a carrier, for the purpose of transmission to the buyer is deemed to be a
delivery of the goods to the buyer. The Court has heretofore ruled that the delivery of
the goods on board the carrying vessels partake of the nature of actual delivery since,
from that time, the foreign buyers assumed the risks of loss of the goods and paid the
insurance premium covering them.

G.R. No. L-16163 February 28, 1963

IGNACIO SATURNINO, in his own behalf and as the JUDICIAL GUARDIAN

OF CARLOS SATURNINO, minor, plaintiffs-appellants,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY,
defendant-appellee.

Facts of the Case:

There was a written applicationsubmitted by Saturnino to appellee. The policy was
issued on the same day. On September 19, 1958, Saturnino died of pneumonia.
Appellants here, who are surviving husband and minor child, demanded payment of the
face value of the policy. The claim was rejected and this suit was subsequently
instituted.

Two months prior to the issuance of the policy, Saturnino was operated on for cancer.
Notwithstanding the fact of her operation, Saturnino did not make a disclosure in her
application for insurance.

On the contrary, she stated therein that she did not have, nor had she ever had, among
other ailments listed in the application, cancer or other tumors; that she had not
consulted any physician, undergone any operation or suffered any injury within the
preceding five years; and that she had never been treated for nor did she ever have any
illness or disease peculiar to her sex, particularly of the breast, ovaries, uterus, and
menstrual disorders. The application also recites that the foregoing declarations
constituted "a further basis for the issuance of the policy."

Issue : Whether or not the insured made such false representations of material facts as
to avoid the policy that would constitute concealment.

Held : Yes. 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.

Ratio: 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"

"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 Insurance Law (Section 30) provides that "materiality is to be determined not by
the event, but solely by the probable and reasonable influence of the facts upon the
party to whom the communication is due, in forming his estimate of the proposed
contract, or in making his inquiries."
It was undeniable that what was written by the deceased in the policy was false.
G.R. No. 105135 June 22, 1995

SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner,

vs.
The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA
BACANI, respondents.

Facts of the Case:

Robert John Bacani procured a life insurance contract for himself from
petitioner-company, designating his mother Bernarda Bacani, herein private
respondent, as the beneficiary. He was issued a policy valued at P100,000.00 with
double indemnity in case of accidental death. Sometime after, the insured died in a
plane crash. Bernarda filed a claim with petitioner, seeking the benefits of the
insurance policy taken by her son. However, said insurance company rejected the
claim on the ground that the insured did not disclose material facts relevant to the
issuance of the policy, thus rendering the contract of insurance voidable. Petitioner
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. The RTC, as affirmed by the CA, this fact was concealed, as alleged
by the petitioner. But the fact that was concealed was not the cause of death of the
insured and that matters relating to the medical history of the insured is deemed to be
irrelevant since petitioner waived the medical examination prior to the approval and
issuance of the insurance policy.

ISSUE: Whether or not the concealment of such material fact, despite it not being the
cause of death of the insured, is sufficient to render the insurance contract voidable.

HELD: YES. the petition is GRANTED and the Decision of the Court of Appeals is
REVERSED and SET ASIDE.

Ratio: 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. 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. The SC, therefore, ruled that petitioner
properly exercised its right to rescind the contract of insurance by reason of the
concealment employed by the insured. It must be emphasized that rescission was
exercised within the two-year contestability period as recognized in Section 48 of The
Insurance Code.

G.R. No. 92492 June 17, 1993

THELMA VDA. DE CANILANG, Petitioner, vs. HON. COURT OF APPEALS

and GREAT PACIFIC LIFE ASSURANCE CORPORATION, Respondents.

Facts of the Case:

Canilang was found to have suffered from sinus tachycardia then bronchitis after a
check-up from his doctor. The next day, he applied for a "non-medical" insurance
policy with respondent Grepalife naming his wife, Thelma Canilang, as his
beneficiary. This was to the value of P19,700.
He died of "congestive heart failure," "anemia," and "chronic anemia." The widow
filed a claim with Great Pacific which the insurer denied on the ground that the
insured had concealed material information from it.
Petitioner then filed a complaint against Great Pacific for recovery of the insurance
proceeds. Petitioner testified that she was not aware of any serious illness suffered by
her late husband and her husband had died because of a kidney disorder. The doctor
who gave the check up stated that he treated the deceased for “sinus tachycardia” and
"acute bronchitis."
Great Pacific presented a physician who testified that the deceased's insurance
application had been approved on the basis of his medical declaration. She explained
that as a rule, medical examinations are required only in cases where the applicant has
indicated in his application for insurance coverage that he has previously undergone
medical consultation and hospitalization.
The Insurance Commissioner ordered Great Pacific to pay P19,700 plus legal
interest and P2,000.00 as attorney's fees. On appeal by Great Pacific, the Court of
Appeals reversed. It found that the failure of Jaime Canilang to disclose previous
medical consultation and treatment constituted material information which should
have been communicated to Great Pacific to enable the latter to make proper
inquiries.
Hence this petition by the widow.

Issue: Won Canilang was guilty of misrepresentation

Held: Yes. Petition denied.

Ratio: There was a right of the insurance company to rescind the contract if it was
proven that the insured committed fraud in not affirming that he was treated for heart
condition and other ailments stipulated.

Under the Insurance Code:

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

Sec. 28. Each party to a contract of insurance must communicate to the other, in good
faith, all factors within his knowledge which are material to the contract and as to
which he makes no warranty, and which the other has not the means of ascertaining.
The information concealed must be information which the concealing party knew and
should have communicated. The test of materiality of such information is contained in
Section 31:

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

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

Materiality relates rather to the "probable and reasonable influence of the facts" upon
the party to whom the communication should have been made, in assessing the risk
involved in making or omitting to make further inquiries and in accepting the
application for insurance; that "probable and reasonable influence of the facts"
concealed must, of course, be determined objectively, by the judge ultimately.

Section 27 stated that:

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

The failure to communicate must have been intentional rather than inadvertent.
Canilang could not have been unaware that his heart beat would at times rise to high
and alarming levels and that he had consulted a doctor twice in the two (2) months
before applying for non-medical insurance. Indeed, the last medical consultation took
place just the day before the insurance application was filed. In all probability, Jaime
Canilang went to visit his doctor precisely because of the ailment.
Canilang's failure to set out answers to some of the questions in the insurance
application constituted concealment.
G.R. No. L-34200 September 30, 1982

REGINA L. EDILLON, as assisted by her husband, MARCIAL EDILLON,

petitioners-appellants,
vs.
MANILA BANKERS LIFE INSURANCE CORPORATION and the COURT OF
FIRST INSTANCE OF RIZAL, BRANCH V, QUEZON CITY,
respondents-appellees.

Facts of the Case:

Carmen O, Lapuz applied with Manila Bankers for insurance coverage against
accident and injuries. She gave the date of her birth as July 11, 1904. She paid the
sum of P20.00 representing the premium for which she was issued the corresponding
receipt. The policy was to be effective for 90 days.
During the effectivity, Carmen O. Lapuz died in a vehicular accident in the North
Diversion Road.
Petitioner Regina L. Edillon, a sister of the insured and the beneficiary in the policy,
filed her claim for the proceeds of the insurance. Her claim having been denied,
Regina L. Edillon instituted this action in the trial court.
The insurance corporation relies on a provision contained in the contract excluding its
liability to pay claims under the policy in behalf of "persons who are under the age of
sixteen (16) years of age or over the age of sixty (60) years" They pointed out that the
insured was over sixty (60) years of age when she applied for the insurance coverage,
hence the policy became void.
The trial court dismissed the complaint and ordered edillon to pay P1000. The reason
was that a policy of insurance being a contract of adhesion, it was the duty of the
insured to know the terms of the contract he or she is entering into.
The insured could not have been qualified under the conditions stated in said contract
and should have asked for a refund of the premium.
Issue : WON the acceptance by the private respondent insurance corporation of the
premium and the issuance of the corresponding certificate of insurance should be
deemed a waiver of the exclusionary condition of overage.

Held: Yes. Petition Granted. CA Decision is affirmed.

Ratio: The age of Lapuz was not concealed to the insurance company. Her
application clearly indicated her age of the time of filing the same to be almost 65
years of age. Despite such information which could hardly be overlooked, the
insurance corporation received her payment of premium and issued the corresponding
certificate of insurance without question.

There was sufficient time for the private respondent to process the application and to
notice that the applicant was over 60 years of age and cancel the policy. Under the
circumstances, the insurance corporation is already deemed in estoppel.

To allow a company to accept one's money for a policy of insurance which it then
knows to be void and of no effect, though it knows as it must, that the assured
believes it to be valid and binding, is so contrary to the dictates of honesty and fair
dealing.
[G.R. No. L-34768. February 24, 1984.]

JAMES STOKES, as Attorney-in-Fact of Daniel Stephen Adolfson and DANIEL

STEPHEN ADOLFSON, Plaintiffs-Appellees, v. MALAYAN INSURANCE CO.,
INC., Defendant-Appellant.

Facts of the Case:

Adolfson’s car was being driven by James Stokes, who was authorized to do so by
Adolfson. Stokes, an Irish citizen who had been in the Philippines as a tourist for more
than ninety days, had a valid and subsisting Irish driver’s license but without a
Philippine driver’s license.

After the collision, Adolfson filed a claim with MALAYAN but the latter refused to
pay, contending that Stokes was not an authorized driver under the "Authorized Driver"
clause of the insurance policy in relation to Section 21 of the Land Transportation and
Traffic Code.

Under the insurance policy, "authorized driver" refers to —

"(a) The insured

"(b) Any person driving on the insured’s order or with his permission.

"PROVIDED that the person driving is permitted in accordance with the licensing or
other laws or regulations to drive the motor vehicle and is not disqualified from driving
such motor vehicle by order of a court of law or by reason of any enactment or
regulation in that behalf."
Issue:
WON Stokes is within the range of “authorized driver” stated in the policy.
WON the insurance company is estopped upon receiving payment a day after
incident.

Held: The appealed judgment is reversed.

Ratio: Under the "authorized driver" clause, an authorized driver must not only be
permitted to drive by the insured. It is also essential that he is permitted under the law
and regulations to drive the motor vehicle and is not disqualified from so doing under
any enactment or regulation.
At the time of the accident, Stokes had been in the Philippines for more than 90 days.
Hence, under the law, he could not drive a motor vehicle without a Philippine driver’s
license. He was therefore not an "authorized driver" under the terms of the insurance
policy in question, and MALAYAN was right in denying the claim of the insured
Acceptance of premium within the stipulated period for payment thereof, including the
agreed period of grace, merely assures continued effectivity of the insurance policy in
accordance with its terms. Such acceptance does not estop the insurer from interposing
any valid defense under the terms of the insurance policy.

The principle of estoppel is an equitable principle rooted upon natural justice which
prevents a person from going back on his own acts and representations to the prejudice
of another whom he has led to rely upon them. The principle does not apply to the
instant case. In accepting the premium payment of the insured, MALAYAN was not
guilty of any inequitable act or representation. There is nothing inconsistent between
acceptance of premium due under an insurance policy and the enforcement of its terms.
G.R. No. 48049 June 29, 1989

EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN,

petitioners,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE
INSURANCE COMPANY, respondents.

Facts of the Case:

Tan Lee Siong, father of the petitioners, applied for life insurance in the amount of P
80,000.00 with Philamlife. It was approved. Tan Lee Siong died of hepatoma.
Petitioners then filed a claim for the proceeds. The company denied petitioners' claim
and rescinded the policy by reason of the alleged misrepresentation and concealment
of material facts. The premiums paid on the policy were refunded. The petitioners
filed a complaint in the Insurance Commission. The latter dismissed the complaint.
The Court of Appeals dismissed ' the petitioners' appeal from the Insurance
Commissioner's decision for lack of merit. Hence, this petition.

Issue: WON Philam didn’t have 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. Petition dismissed.

Ratio:

The Insurance Code states in Section 48:

“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 rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.”

The so-called "incontestability clause" in the second paragraph prevents the insurer
from raising the defenses of false representations 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.

The policy was 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.
The "incontestability clause" added by the second paragraph of Section 48 is in force
for two years. After this, the defenses of concealment or misrepresentation no longer
lie.

The petitioners argue that no evidence was presented to show that the medical terms
were explained in a layman's language to the insured. They also argue that no
evidence was presented by respondent company to show that the questions appearing
in Part II of the application for insurance were asked, explained to and understood by
the deceased so as to prove concealment on his part. This couldn’t be accepted
because the insured signed the form. He affirmed the correctness of all the entries.

The company records show that the deceased was examined by Dr. Victoriano Lim
and was found to be diabetic and hypertensive. He was also found to have suffered
from hepatoma. Because of the concealment made by the deceased, the company was
thus misled into accepting the risk and approving his application as medically fit.