SANGCO, KLAIRE CIARRA G.

INSURANCE LAW, Wednesday Class

Topic: REPRESENTATION

Case digest:

Tan Chay Heng vs. West Coast Life, 51 Phil 80

Case principle:

WHEN SECTION 47 OF INSURANCE ACT is NOT A BAR.—A defense to an action to recover insurance that
the policy was obtained through false representations, fraud and deceit is not in the nature of an action
to rescind and, hence, is not barred by section 47 of the Insurance Act. NATURE OF THAT DEFENSE.—A
defense of that nature is founded upon the theory that, through fraud in its execution, the policy is void
ab initio, and that no valid contract was ever made.

Facts:

In April 1925, West Coast Life Insurance Company (West Coast) accepted and issued a temporary life
insurance policy (pending further review) to Tan Ceang. The life insurance was for P10,000.00 and the
premium paid therefor was P936.00. The beneficiary listed in the policy was Tan Chay Heng.

In May 1925, Tan Ceang died. Tan Chay Heng filed an insurance claim which was denied by West Coast.
Tan Chay Heng sued West Coast. West Coast averred, in its ANSWER that Tan Chay Heng, in connivance
with others made Tan Ceang to enter into an insurance policy and name Tan Chay Heng as the
beneficiary; that Tan Ceang was induced to lie on the application form about his health and life
conditions (he was made to account that he was not addicted to opium, morphine, and cocaine when in
fact he was); that Tan Chay Heng was a gang leader involved in the racket of fraudulent insurance
schemes; that by reason of these fraud and machinations, the insurance policy West Coast issued is
void; that West Coast seeks to avoid the insurance policy.

Tan Chay Heng filed a demurrer as it claimed that West Coast’s ANSWER is a cross-complaint and the
facts contained therein was not sufficient as a defense. The lower court directed West Coast to amend
its ANSWER which West Coast duly excepted from and so the lower court ruled in favor of Tan Chay
Heng. The lower court further ruled that under Section 47 of [the old] Insurance Law, if an insurer (West
Coast) has the right to rescind a contract of insurance, it must do so before a suit is brought against the
insurer on the said contract.

ISSUE:

Whether or not Section 47 is applicable in the case at bar.

HELD:

No. West Coast was not seeking for the rescission of the insurance contract. In fact, West Coast avers
that there was no insurance contract at all because the temporary insurance issued in favor of Tan
Ceang was null and void. For West Coast, it was void ab initio because of the fraudulent circumstances
attending to it. Therefore, it cannot be subject to rescission. The Supreme Court however remanded the
case to the lower court to determine the material allegations made by West Coast against Tan Chay
Heng.

Soliman vs. US Life, 104 Phil 1046

Case principle:

The insurer is once again given two years from the date of reinstatement to investigate into the veracity
of the facts represented by the insured in the application for reinstatement. When US life sought to
rescind the contract on the ground of concealment/misrepresentation, two years had not yet elapsed.
Hence, the contract can still be rescinded.

Facts:

US Life issued a 20 yr endowment life policy on the joint lives of Patricio Soliman and his wife Rosario,
each of them being the beneficiary of the other. In Mar. 1949, the spouses were informed that the
premium for Jan 1949 was still unpaid notwithstanding that the 31-day grace period has already expired,
and they were furnished at the same time long-form health certificates for the reinstatement of the
policies. In Apr 1949, they submitted the certificates and paid the premiums. In Jan. 1950, Rosario died
of acute dilation of the heart, and thereafter, Patricio filed a claim for the proceeds of the insurance. US
life denied the claim and filed for the rescission of the contract on the ground that the certificates failed
to disclose that Rosario had been suffering from bronchial asthma for 3 years prior to their submission.

Issue:

Whether or not the contract can still be rescinded.

Held:

Yes. The insurer is once again given two years from the date of reinstatement to investigate into the
veracity of the facts represented by the insured in the application for reinstatement. When US life
sought to rescind the contract on the ground of concealment/misrepresentation, two years had not yet
elapsed. Hence, the contract can still be rescinded.
Philamcare vs. CA, 379 SCRA 356

Case Principle:

Insurance; Health Care Agreements; Misrepresentation; Where matters of opinion are called for,
answers made in good faith and without intent to deceive will not avoid a policy even though they are
untrue.

Facts:

Ernani Trinos applied for a health care coverage with Philam. He answered no to a question asking if he
or his family members were treated to heart trouble, asthma, diabetes, etc.

The application was approved for 1 year. He was also given hospitalization benefits and out-patient
benefits. After the period expired, he was given an expanded coverage for Php 75,000. During the
period, he suffered from heart attack and was confined at MMC. The wife tried to claim the benefits but
the petitioner denied it saying that he concealed his medical history by answering no to the
aforementioned question. She had to pay for the hospital bills amounting to 76,000. Her husband
subsequently passed away. She filed a case in the trial court for the collection of the amount plus
damages. She was awarded 76,000 for the bills and 40,000 for damages. The CA affirmed but
deleted awards for damages. Hence, this appeal.

Issue:

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

Held:

No.

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 materialfact 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.

Henrick v Fire- “in such case the insurer is not justified in relying upon such statement, but is obligated
to make further inquiry.”

Fraudulent intent must be proven to rescind the contract. This was incumbent upon the provider.

“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 membershipof 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.”