G.R. No.

L-31845 April 30, 1979

GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,
vs.
HONORABLE COURT OF APPEALS, respondents.
G.R. No. L-31878 April 30, 1979
LAPULAPU D. MONDRAGON, petitioner,
vs.
HON. COURT OF APPEALS and NGO HING, respondents.
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna &
Manalo for petitioner Company.
Voltaire Garcia for petitioner Mondragon.
Pelaez, Pelaez & Pelaez for respondent Ngo Hing.
DE CASTRO, J.:
The two above-entitled cases were ordered consolidated by the
Resolution of this Court dated April 29, 1970, (Rollo, No. L-31878, p.
58), because the petitioners in both cases seek similar relief,
through these petitions for certiorari by way of appeal, from the
amended decision of respondent Court of Appeals which affirmed in
toto the decision of the Court of First Instance of Cebu, ordering "the
defendants (herein petitioners Great Pacific Ligfe Assurance
Company and Mondragon) jointly and severally to pay plaintif
(herein private respondent Ngo Hing) the amount of P50,000.00 with
interest at 6% from the date of the filing of the complaint, and the
sum of P1,077.75, without interest.
It appears that on March 14, 1957, private respondent Ngo Hing
filed an application with the Great Pacific Life Assurance Company
(hereinafter referred to as Pacific Life) for a twenty-year
endownment policy in the amount of P50,000.00 on the life of his
one-year old daughter Helen Go. Said respondent supplied the
essential data which petitioner Lapulapu D. Mondragon, Branch
Manager of the Pacific Life in Cebu City wrote on the corresponding
form in his own handwriting (Exhibit I-M). Mondragon finally typewrote the data on the application form which was signed by private
respondent Ngo Hing. The latter paid the annual premuim the sum
of P1,077.75 going over to the Company, but he reatined the
amount of P1,317.00 as his commission for being a duly authorized
agebt of Pacific Life. Upon the payment of the insurance premuim,
the binding deposit receipt (Exhibit E) was issued to private
respondent Ngo Hing. Likewise, petitioner Mondragon handwrote at
the bottom of the back page of the application form his strong

recommendation for the approval of the insurance application. Then

on April 30, 1957, Mondragon received a letter from Pacific Life
disapproving the insurance application (Exhibit 3-M). The letter
stated that the said life insurance application for 20-year
endowment plan is not available for minors below seven years old,
but Pacific Life can consider the same under the Juvenile Triple
Action Plan, and advised that if the ofer is acceptable, the Juvenile
Non-Medical Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life was
allegedly not communicated by petitioner Mondragon to private
respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote
back Pacific Life again strongly recommending the approval of the
20-year endowment insurance plan to children, pointing out that
since 1954 the customers, especially the Chinese, were asking for
such coverage (Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen
Go died of influenza with complication of bronchopneumonia.
Thereupon, private respondent sought the payment of the proceeds
of the insurance, but having failed in his efort, he filed the action
for the recovery of the same before the Court of First Instance of
Cebu, which rendered the adverse decision as earlier refered to
against both petitioners.
The decisive issues in these cases are: (1) whether the binding
deposit receipt (Exhibit E) constituted a temporary contract of the
life insurance in question; and (2) whether private respondent Ngo
Hing concealed the state of health and physical condition of Helen
Go, which rendered void the aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents required before
a deposit is considered a BINDING RECEIPT. These conditions state
that:
A. If the Company or its agent, shan have received the premium
deposit ... and the insurance application, ON or PRIOR to the date of
medical examination ... said insurance shan be in force and in
effect from the date of such medical examination, for such period as
is covered by the deposit ...,PROVIDED the company shall be
satisfied that on said date the applicant was insurable on standard
rates under its rule for the amount of insurance and the kind of
policy requested in the application.
D. If the Company does not accept the application on standard rate
for the amount of insurance and/or the kind of policy requested in
the application but issue, or offers to issue a policy for a different
plan and/or amount ..., the insurance shall not be in force and in
effect until the applicant shall have accepted the policy as issued

or offered by the Company and shall have paid the full premium
thereof.If the applicant does not accept the policy, the deposit shall
be refunded.
E. If the applicant shall not have been insurable under Condition A
above, and the Company declines to approve the application the
insurance applied for shall not have been in force at any time and
the sum paid be returned to the applicant upon the surrender of this
receipt. (Emphasis Ours).
The aforequoted provisions printed on Exhibit E show that the
binding deposit receipt is intended to be merely a provisional or
temporary insurance contract and only upon compliance of the
following conditions: (1) that the company shall be satisfied that the
applicant was insurable on standard rates; (2) that if the company
does not accept the application and ofers to issue a policy for a
diferent plan, the insurance contract shall not be binding until the
applicant accepts the policy ofered; otherwise, the deposit shall be
reftmded; and (3) that if the applicant is not ble according to the
standard rates, and the company disapproves the application, the
insurance applied for shall not be in force at any time, and the
premium paid shall be returned to the applicant.
Clearly implied from the aforesaid conditions is that the binding
deposit receipt in question is merely an acknowledgment, on behalf
of the company, that the latter's branch office had received from the
applicant the insurance premium and had accepted the application
subject for processing by the insurance company; and that the latter
will either approve or reject the same on the basis of whether or not
the applicant is "insurable on standard rates." Since petitioner
Pacific Life disapproved the insurance application of respondent Ngo
Hing, the binding deposit receipt in question had never become in
force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is,
manifestly, merely conditional and does not insure outright. As held
by this Court, where an agreement is made between the applicant
and the agent, no liability shall attach until the principal approves
the risk and a receipt is given by the agent. The acceptance is
merely conditional and is subordinated to the act of the company in
approving or rejecting the application. Thus, in life insurance, a
"binding slip" or "binding receipt" does not insure by itself (De Lim
vs. Sun Life Assurance Company of Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication of
April 30, 1957 (Exhibit 3-M), Pacific Life disapproved the insurance
application in question on the ground that it is not ofering the
twenty-year endowment insurance policy to children less than seven
years of age. What it ofered instead is another plan known as the

Juvenile Triple Action, which private respondent failed to accept. In

the absence of a meeting of the minds between petitioner Pacific
Life and private respondent Ngo Hing over the 20-year endowment
life insurance in the amount of P50,000.00 in favor of the latter's
one-year old daughter, and with the non-compliance of the
abovequoted conditions stated in the disputed binding deposit
receipt, there could have been no insurance contract duly perfected
between thenl Accordingly, the deposit paid by private respondent
shall have to be refunded by Pacific Life.
As held in De Lim vs. Sun Life Assurance Company of Canada, supra,
"a contract of insurance, like other contracts, must be assented to
by both parties either in person or by their agents ... The contract,
to be binding from the date of the application, must have been a
completed contract, one that leaves nothing to be dione, nothing to
be completed, nothing to be passed upon, or determined, before it
shall take efect. There can be no contract of insurance unless the
minds of the parties have met in agreement."
We are not impressed with private respondent's contention that
failure of petitioner Mondragon to communicate to him the rejection
of the insurance application would not have any adverse efect on
the allegedly perfected temporary contract (Respondent's Brief, pp.
13-14). In this first place, there was no contract perfected between
the parties who had no meeting of their minds. Private respondet,
being an authorized insurance agent of Pacific Life at Cebu branch
office, is indubitably aware that said company does not ofer the life
insurance applied for. When he filed the insurance application in
dispute, private respondent was, therefore, only taking the chance
that Pacific Life will approve the recommendation of Mondragon for
the acceptance and approval of the application in question along
with his proposal that the insurance company starts to ofer the 20year endowment insurance plan for children less than seven years.
Nonetheless, the record discloses that Pacific Life had rejected the
proposal and recommendation. Secondly, having an insurable
interest on the life of his one-year old daughter, aside from being an
insurance agent and an ofense associate of petitioner Mondragon,
private respondent Ngo Hing must have known and followed the
progress on the processing of such application and could not
pretend ignorance of the Company's rejection of the 20-year
endowment life insurance application.
At this juncture, We find it fit to quote with approval, the very apt
observation of then Appellate Associate Justice Ruperto G. Martin
who later came up to this Court, from his dissenting opinion to the
amended decision of the respondent court which completely
reversed the original decision, the following:

Of course, there is the insinuation that neither the memorandum of

rejection (Exhibit 3-M) nor the reply thereto of appellant Mondragon
reiterating the desire for applicant's father to have the application
considered as one for a 20-year endowment plan was ever duly
communicated to Ngo; Hing, father of the minor applicant. I am not
quite conninced that this was so. Ngo Hing, as father of the
applicant herself, was precisely the "underwriter who wrote this
case" (Exhibit H-1). The unchallenged statement of appellant
Mondragon in his letter of May 6, 1957) (Exhibit 4-M), specifically
admits that said Ngo Hing was "our associate" and that it was the
latter who "insisted that the plan be placed on the 20-year
endowment plan." Under these circumstances, it is inconceivable
that the progress in the processing of the application was not
brought home to his knowledge. He must have been duly apprised
of the rejection of the application for a 20-year endowment plan
otherwise Mondragon would not have asserted that it was Ngo Hing
himself who insisted on the application as originally filed, thereby
implictly declining the ofer to consider the application under the
Juvenile Triple Action Plan. Besides, the associate of Mondragon that
he was, Ngo Hing should only be presumed to know what kind of
policies are available in the company for minors below 7 years old.
What he and Mondragon were apparently trying to do in the
premises was merely to prod the company into going into the
business of issuing endowment policies for minors just as other
insurance companies allegedly do. Until such a definite policy is
however, adopted by the company, it can hardly be said that it
could have been bound at all under the binding slip for a plan of
insurance that it could not have, by then issued at all. (Amended
Decision, Rollo, pp- 52-53).
2. Relative to the second issue of alleged concealment. this Court is
of the firm belief that private respondent had deliberately concealed
the state of health and piysical condition of his daughter Helen Go.
Wher private regpondeit supplied the required essential data for the
insurance application form, he was fully aware that his one-year old
daughter is typically a mongoloid child. Such a congenital physical
defect could never be ensconced nor disguished. Nonetheless,
private respondent, in apparent bad faith, withheld the fact materal
to the risk to be assumed by the insurance compary. As an
insurance agent of Pacific Life, he ought to know, as he surely must
have known. his duty and responsibility to such a material fact. Had
he diamond said significant fact in the insurance application fom
Pacific Life would have verified the same and would have had no
choice but to disapprove the application outright.
The contract of insurance is one of perfect good faith uberrima fides
meaning good faith, absolute and perfect candor or openness and
honesty; the absence of any concealment or demotion, however
slight [Black's Law Dictionary, 2nd Edition], not for the alone but

equally so for the insurer (Field man's Insurance Co., Inc. vs. Vda de
Songco, 25 SCRA 70). Concealment is a neglect to communicate
that which a partY knows aDd Ought to communicate (Section 25,
Act No. 2427). Whether intentional or unintentional the concealment
entitles the insurer to rescind the contract of insurance (Section 26,
Id.: Yu Pang Cheng vs. Court of Appeals, et al, 105 Phil 930;
Satumino vs. Philippine American Life Insurance Company, 7 SCRA
316). Private respondent appears guilty thereof.
We are thus constrained to hold that no insurance contract was
perfected between the parties with the noncompliance of the
conditions provided in the binding receipt, and concealment, as
legally defined, having been comraitted by herein private
respondent.
WHEREFORE, the decision appealed from is hereby set aside, and in
lieu thereof, one is hereby entered absolving petitioners Lapulapu D.
Mondragon and Great Pacific Life Assurance Company from their
civil liabilities as found by respondent Court and ordering the
aforesaid insurance company to reimburse the amount of P1,077.75,
without interest, to private respondent, Ngo Hing. Costs against
private respondent.
SO ORDERED.
Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera,
JJ., concur.
Fernandez, J., took no part.

89 SCRA 543 Mercantile Law Insurance Law Concealment

Insurance Contract as an Uberrima Fides Contract
In March 1957, Ngo Hing filed an application for a 20yearendowment policy for the life of his one-year old daughter with
the Great Pacific Life Assurance Company (Grepalife). Lapulapu
Mondragon was the insurance agent who assisted Ngo Hing. The
insurance policy was for P50,000.00. The proper form was filled out
and Ngo Hing paid the insurance premium. He received a binding
deposit receipt in return. Said receipt however was subject to
certain conditions, among which is the acceptance of Grepalife.
Grepalife eventually denied the insurance application because the
endowment plan by Grepalife is not ofered for minors below seven
years old. Grepalife, instead made a counter-ofer which Ngo Hing
failed to accept because Mondragon, instead of communicating the
said denial to Ngo Hing, wrote a letter to Grepalife trying to
convince Grepalife to allow one-year olds to be covered by
endowment plans.
In May 1957, Ngo Hings one-year old daughter died. Ngo Hing
tried to collect the insurance claim but Grepalife refused as it
claimed that the insurance contract was never perfected sans their
acceptance.
ISSUE: Whether or not Grepalife should pay the insurance claim.
HELD: No. As properly ruled by the lower court as well as the Court
of Appeals, the insurance contract was never completed because
Grepalife never accepted the insurance ofer. The binding deposit
receipt issued to Ngo Hing is only acknowledgement of his
application and receipt of his payment for the insurance premium.
The Supreme Court also noted that Ngo Hing failed to disclose the
fact that his one-year old daughter was a mongoloid. Such
congenital defect was withheld by Ngo Hing with bad faith and such
risk to be assumed by the insurance company.
The contract of insurance is one of perfect good faith uberrima fides
meaning good faith, absolute and perfect candor or openness and
honesty; the absence of any concealment or demotion, however
slight not for the insured alone but equally so for the insurer.
Concealment is a neglect to communicate that which a party knows
and ought to communicate. Whether intentional or unintentional the
concealment entitles the insurer to rescind the contract of
insurance.

G.R. No. L-30685 May 30, 1983

NG GAN ZEE, plaintif-appellee,
vs.
ASIAN CRUSADER LIFE ASSURANCE CORPORATION, defendantappellant.
Alberto Q. Ubay for plaintiff-appellee.
Santiago F. A lidio for defendant-appellant.
ESCOLIN, J.:
This is an appeal from the judgment of the Court of First Instance of
Manila, ordering the appellant Asian-Crusader Life Assurance
Corporation to pay the face value of an insurance policy issued on
the life of Kwong Nam the deceased husband of appellee Ng Gan
Zee. Misrepresentation and concealment of material facts in
obtaining the policy were pleaded to avoid the policy. The lower
court rejected the appellant's theory and ordered the latter to pay
appellee "the amount of P 20,000.00, with interest at the legal rate
from July 24, 1964, the date of the filing of the complaint, until paid,
and the costs. "
The Court of Appeals certified this appeal to Us, as the same
involves solely a question of law.
On May 12, 1962, Kwong Nam applied for a 20-year endowment
insurance on his life for the sum of P20,000.00, with his wife,
appellee Ng Gan Zee as beneficiary. On the same date, appellant,
upon receipt of the required premium from the insured, approved
the application and issued the corresponding policy. On December 6,
1963, Kwong Nam died of cancer of the liver with metastasis. All
premiums had been religiously paid at the time of his death.
On January 10, 1964, his widow Ng Gan Zee presented a claim in
due form to appellant for payment of the face value of the policy. On
the same date, she submitted the required proof of death of the
insured. Appellant denied the claim on the ground that the answers
given by the insured to the questions appealing in his application for
life insurance were untrue.
Appellee brought the matter to the attention of the Insurance
Commissioner, the Hon. Francisco Y. Mandamus, and the latter, after
conducting an investigation, wrote the appellant that he had found
no material concealment on the part of the insured and that,
therefore, appellee should be paid the full face value of the policy.

This opinion of the Insurance Commissioner notwithstanding,

appellant refused to settle its obligation.
Appellant alleged that the insured was guilty of misrepresentation
when he answered "No" to the following question appearing in the
application for life insuranceHas any life insurance company ever refused your application for
insurance or for reinstatement of a lapsed policy or ofered you a
policy diferent from that applied for? If, so, name company and
date.
In its brief, appellant rationalized its thesis thus:
... As pointed out in the foregoing summary of the essential facts in
this case, the insured had in January, 1962, applied for
reinstatement of his lapsed life insurance policy with the Insular Life
Insurance Co., Ltd, but this was declined by the insurance company,
although later on approved for reinstatement with a very high
premium as a result of his medical examination. Thus
notwithstanding the said insured answered 'No' to the [above]
question propounded to him. ... 1
The lower court found the argument bereft of factual basis; and We
quote with approval its disquisition on the matterOn the first question there is no evidence that the Insular Life
Assurance Co., Ltd. ever refused any application of Kwong Nam for
insurance. Neither is there any evidence that any other insurance
company has refused any application of Kwong Nam for insurance.
... The evidence shows that the Insular Life Assurance Co., Ltd.
approved Kwong Nam's request for reinstatement and amendment
of his lapsed insurance policy on April 24, 1962 [Exh. L-2 Stipulation
of Facts, Sept. 22, 1965). The Court notes from said application for
reinstatement and amendment, Exh. 'L', that the amount applied for
was P20,000.00 only and not for P50,000.00 as it was in the lapsed
policy. The amount of the reinstated and amended policy was also
for P20,000.00. It results, therefore, that when on May 12, 1962
Kwong Nam answered 'No' to the question whether any life
insurance company ever refused his application for reinstatement of
a lapsed policy he did not misrepresent any fact.
... the evidence shows that the application of Kwong Nam with the
Insular Life Assurance Co., Ltd. was for the reinstatement and
amendment of his lapsed insurance policy-Policy No. 369531 -not an
application for a 'new insurance policy. The Insular Life Assurance
Co., Ltd. approved the said application on April 24, 1962. Policy No.
369531 was reinstated for the amount of P20,000.00 as applied for

by Kwong Nam [Exhs. 'L', 'L-l' and 'L-2']. No new policy was issued
by the Insular Life Assurance Co., Ltd. to Kwong Nam in connection
with said application for reinstatement and amendment. Such being
the case, the Court finds that there is no misrepresentation on this
matter. 2
Appellant further maintains that when the insured was examined in
connection with his application for life insurance, he gave the
appellant's medical examiner false and misleading information as to
his ailment and previous operation. The alleged false statements
given by Kwong Nam are as follows:
Operated on for a Tumor [mayoma] of the stomach. Claims that
Tumor has been associated with ulcer of stomach. Tumor taken out
was hard and of a hen's egg size. Operation was two [2] years ago
in Chinese General Hospital by Dr. Yap. Now, claims he is completely
recovered.
To demonstrate the insured's misrepresentation, appellant directs
Our attention to:
[1] The report of Dr. Fu Sun Yuan the physician who treated Kwong
Nam at the Chinese General Hospital on May 22, 1960, i.e., about 2
years before he applied for an insurance policy on May 12, 1962.
According to said report, Dr. Fu Sun Yuan had diagnosed the
patient's ailment as 'peptic ulcer' for which, an operation, known as
a 'sub-total gastric resection was performed on the patient by Dr.
Pacifico Yap; and
[2] The Surgical Pathology Report of Dr. Elias Pantangco showing
that the specimen removed from the patient's body was 'a portion of
the stomach measuring 12 cm. and 19 cm. along the lesser
curvature with a diameter of 15 cm. along the greatest dimension.
On the bases of the above undisputed medical data showing that
the insured was operated on for peptic ulcer", involving the excision
of a portion of the stomach, appellant argues that the insured's
statement in his application that a tumor, "hard and of a hen's egg
size," was removed during said operation, constituted material
concealment.
The question to be resolved may be propounded thus: Was
appellant, because of insured's aforesaid representation, misled or
deceived into entering the contract or in accepting the risk at the
rate of premium agreed upon?
The lower court answered this question in the negative, and We
agree.

Section 27 of the Insurance Law [Act 2427] provides:

Sec. 27. Such party a contract of insurance must communicate to
the other, in good faith, all facts within his knowledge which are
material to the contract, and which the other has not the means of
ascertaining, and as to which he makes no warranty. 3
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." 4
It has also been held "that the concealment must, in the absence of
inquiries, be not only material, but fraudulent, or the fact must have
been intentionally withheld." 5
Assuming that the aforesaid answer given by the insured is false, as
claimed by the appellant. Sec. 27 of the Insurance Law, abovequoted, nevertheless requires that fraudulent intent on the part of
the insured be established to entitle the insurer to rescind the
contract. And as correctly observed by the lower court,
"misrepresentation as a defense of the insurer to avoid liability is an
'affirmative' defense. The duty to establish such a defense by
satisfactory and convincing evidence rests upon the defendant. The
evidence before the Court does not clearly and satisfactorily
establish that defense."
It bears emphasis that Kwong Nam had informed the appellant's
medical examiner that the tumor for which he was operated on was
"associated with ulcer of the stomach." In the absence of evidence
that the insured had sufficient medical knowledge as to enable him
to distinguish between "peptic ulcer" and "a tumor", his statement
that said tumor was "associated with ulcer of the stomach, " should
be construed as an expression made in good faith of his belief as to
the nature of his ailment and operation. Indeed, such statement
must be presumed to have been made by him without knowledge of
its incorrectness and without any deliberate intent on his part to
mislead the appellant.
While it may be conceded that, from the viewpoint of a medical
expert, the information communicated was imperfect, the same was
nevertheless sufficient to have induced appellant to make further
inquiries about the ailment and operation of the insured.
Section 32 of Insurance Law [Act No. 24271 provides as follows:
Section 32. The right to information of material facts maybe waived
either by the terms of insurance or by neglect to make inquiries as

to such facts where they are distinctly implied in other facts of

which information is communicated.
It has been held that where, upon the face of the application, a
question appears to be not answered at all or to be imperfectly
answered, and the insurers issue a policy without any further
inquiry, they waive the imperfection of the answer and render the
omission to answer more fully immaterial. 6
As aptly noted by the lower court, "if the ailment and operation of
Kwong Nam had such an important bearing on the question of
whether the defendant would undertake the insurance or not, the
court cannot understand why the defendant or its medical examiner
did not make any further inquiries on such matters from the Chinese
General Hospital or require copies of the hospital records from the
appellant before acting on the application for insurance. The fact of
the matter is that the defendant was too eager to accept the
application and receive the insured's premium. It would be
inequitable now to allow the defendant to avoid liability under the
circumstances."
Finding no reversible error committed by the trial court, the
judgment appealed from is hereby affirmed, with costs against
appellant Asian-Crusader life Assurance Corporation.
SO ORDERED.
Makasiar (Chairman), Aquino, Concepcion, Jr., Guerrero and De
Castro), JJ., concur.
Abad Santos, J., I reserve my vote.

Ng v Asian Crusader G.R. No. L-30685 May 30, 1983

J. Escolin:

Facts:
Kwong Nam applied for a 20-year endowment insurance on his life for the sum of P20,000.00,
with his wife, appellee Ng Gan Zee as beneficiary. On the same date, Asian Crusader, upon receipt
of the required premium from the insured, approved the application and issued the corresponding
policy. Kwong Nam died of cancer of the liver with metastasis. All premiums had been paid at the
time of his death.
Ng Gan Zee presented a claim for payment of the face value of the policy. On the same date, she
submitted the required proof of death of the insured. Appellant denied the claim on the ground that
the answers given by the insured to the questions in his application for life insurance were untrue.
Appellee brought the matter to the attention of the Insurance Commissioner. The latter, after
conducting an investigation, wrote the appellant that he had found no material concealment on the
part of the insured and that, therefore, appellee should be paid the full face value of the policy. The
company refused to settle its obligation.
Appellant alleged that the insured was guilty of misrepresentation when he answered "No" to the
following question appearing in the application for life insuranceHas any life insurance company ever refused your application for insurance or for reinstatement of
a lapsed policy or offered you a policy different from that applied for? If, so, name company and
date.
The lower court ruled against the company on lack of evidence.
Appellant further maintains that when the insured was examined in connection with
his application for life insurance, he gave the appellant's medical examiner false and misleading
information as to his ailment and previous operation. The company contended that he was
operated on for peptic ulcer 2 years before the policy was applied for and that he never disclosed
such an operation.

Issue: WON 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?
Held: No. Petition dismissed.
Ratio:
Section 27 of the Insurance Law:
Sec. 27. Such party a contract of insurance must communicate to the other, in good faith, all facts
within his knowledge which are material to the contract, and which the other has not the means of
ascertaining, and as to which he makes no warranty.

"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 absence of inquiries, be not only material,
but fraudulent, or the fact must have been intentionally withheld."
Fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract. And ascorrectly observed by the lower court, "misrepresentation as a defense of the
insurer to avoid liability is an 'affirmative' defense. The duty to establish such a defense by
satisfactory and convincing evidence rests upon the defendant. The evidence before the Court does
not clearly and satisfactorily establish that defense."
It bears emphasis that Kwong Nam had informed the appellant's medical examiner of the tumor.
His statement that said tumor was "associated with ulcer of the stomach" should be construed as
an expression made in good faith of his belief as to the nature of his ailment and operation.
While the information communicated was imperfect, the same was sufficient to have
induced appellant to make further inquiries about the ailment and operation of the insured.
Section 32 of Insurance Law:
Section 32. The right to information of material facts maybe waived either by the terms of
insurance or by neglect to make inquiries as to such facts where they are distinctly implied in
other facts of which information is communicated.
Where a question appears to be not answered at all or to be imperfectly answered, and the insurers
issue a policy without any further inquiry, they waive the imperfection of the answer and render
the omission to answer more fully immaterial.
The company or its medical examiner did not make any further inquiries on such matters from the
hospital before acting on the application for insurance. The fact of the matter is that
the defendant was too eager to accept the application and receive the insured's premium. It would
be inequitable now to allow the defendant to avoid liability under the circumstances."

Ng Gan Zee v. Asian Crusader

Life - Imperfection in the
Application Form
122 SCRA 61
Facts:
> In 1962, Kwon Nam applied for a 20yr endowment insurance on
his life with his wife, Ng Gan Zee as the beneficiary.

> He stated in his application that he was operated on for tumor of

the stomach associated with ulcer.
> In 1963, Kwong died of cancer of the liver with metastasis. Asian
refused to pay on the ground of alse information.
> It was found that prior to his application, Kwong was diagnosed
to have peptic ulcers, and that during the operation what was
removed from Kwongs body was actually a portion of the stomach
and not tumor.
Issue:
Whether or not the contract may be rescinded on the ground of the
imperfection in the application form.

Held:
NO.
Kwong did not have sufficient knowledge as to distinguish between
a tumor and a peptic ulcer. His statement therefore was made in
good faith. Asian should have made an inquiry as to the illness and
operation of Kwong when it appeared on the face of the application
that a question appeared to be imperfectly answered. Asians
failure to inquire constituted a waiver of the imperfection in the
answer.

122 SCRA 461 Mercantile Law Insurance Law Concealment

Misrepresentation Duty of Insurance Company to Make Inquiry
In May 1962, Kwong Nam applied for a 20-year endowment
policywith Asian Crusader Life Assurance Corporation. Asian
Crusader asked the following question:
Has any life insurance company ever refused your application for insurance or for
reinstatement of a lapsed policy or offered you a policy different from that applied for? If, so,
name company and date.

Kwong Nam answered No to the above question.

Kwong Nam was also examined by Asian Crusaders medical
examiner to whom he disclosed that he was once operated and a
tumor was removed from his stomach and such was associated
with ulcer of the stomach.
Kwong Nams application was approved. In May 1963, he died. His
widow, Ng Gan Zee, filed an insurance claim but Asian Crusader
refused her claim as it insisted that Kwong Nam concealed material
facts from them when he was applying for the insurance; that he
misrepresented the fact that he was actually denied application by
Insular Life when he was renewing his application with them; that
Kwong Nam was actually operated for peptic ulcer.
ISSUE: Whether or not Ng Gan Zee can collect the insurance claim.
HELD: Yes. Asian Crusader was not able to prove that Kwong Nams
statement that Insular Life did not deny his insurance renewal with
them is untrue. In fact, evidence showed that in April 1962, Insular
Life approved Kwong Nams request of reinstatement only with the
condition that Kwong Nams plan will be lowered from P50,000.00 to
P20,000.00 considering his medical history.
Kwong Nam did not conceal anything from Asian Crusader. His
statement that his operation, in which a tumor the size of a hens
egg was removed from his stomach, was only associated with ulcer
of the stomach and not peptic ulcer can be considered as an
expression made in good faith of his belief as to the nature of his
ailment and operation. Indeed, such statement must be presumed
to have been made by him without knowledge of its incorrectness
and without any deliberate intent on his part to mislead Asian
Crusader.
While it may be conceded that, from the viewpoint of a medical
expert, the information communicated was imperfect, the same was

nevertheless sufficient to have induced Asian Crusader to make

further inquiries about the ailment and operation of Kwong Nam. It
has been held that where, upon the face of the application, a
question appears to be not answered at all or to be imperfectly
answered, and the insurers issue a policy without any further
inquiry, they waive the imperfection of the answer and render the
omission to answer more fully immaterial.

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.
QUIASON, J.:
This is a petition for review for certiorari under Rule 45 of the
Revised Rules of Court to reverse and set aside the Decision dated
February 21, 1992 of the Court of Appeals in CA-G.R. CV No. 29068,
and its Resolution dated April 22, 1992, denying reconsideration
thereof.
We grant the petition.
I
On April 15, 1986, Robert John B. Bacani procured a life insurance
contract for himself from petitioner. He was issued Policy No. 3-903766-X valued at P100,000.00, with double indemnity in case of
accidental death. The designated beneficiary was his mother,
respondent Bernarda Bacani.
On June 26, 1987, the insured died in a plane crash. Respondent
Bernarda Bacani filed a claim with petitioner, seeking the benefits of
the insurance policy taken by her son. Petitioner conducted an
investigation and its findings prompted it to reject the claim.
In its letter, petitioner informed respondent Bernarda Bacani, that
the insured did not disclose material facts relevant to the issuance
of the policy, thus rendering the contract of insurance voidable. A

check representing the total premiums paid in the amount of

P10,172.00 was attached to said letter.
Petitioner claimed that the insured gave false statements in his
application when he answered the following questions:
5. Within the past 5 years have you:
a) consulted any doctor or other health practitioner?
b) submitted to:
EGG?
X-rays?
blood tests?
other tests?
c) attended or been admitted to any hospital or other medical
facility?
6. Have you ever had or sought advice for:
xxx xxx xxx
b) urine, kidney or bladder disorder? (Rollo, p. 53)
The deceased answered question No. 5(a) in the affirmative but
limited his answer to a consultation with a certain Dr. Reinaldo D.
Raymundo of the Chinese General Hospital on February 1986, for
cough and flu complications. The other questions were answered in
the negative (Rollo, p. 53).
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.
During his confinement, the deceased was subjected to urinalysis,
ultra-sonography and hematology tests.
On November 17, 1988, respondent Bernarda Bacani and her
husband, respondent Rolando Bacani, filed an action for specific
performance against petitioner with the Regional Trial Court, Branch
191, Valenzuela, Metro Manila. Petitioner filed its answer with
counterclaim and a list of exhibits consisting of medical records
furnished by the Lung Center of the Philippines.
On January 14, 1990, private respondents filed a "Proposed
Stipulation with Prayer for Summary Judgment" where they
manifested that they "have no evidence to refute the documentary

evidence of concealment/misrepresentation by the decedent of his

health condition (Rollo, p. 62).
Petitioner filed its Request for Admissions relative to the authenticity
and due execution of several documents as well as allegations
regarding the health of the insured. Private respondents failed to
oppose said request or reply thereto, thereby rendering an
admission of the matters alleged.
Petitioner then moved for a summary judgment and the trial court
decided in favor of private respondents. The dispositive portion of
the decision is reproduced as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintifs
and against the defendant, condemning the latter to pay the former
the amount of One Hundred Thousand Pesos (P100,000.00) the face
value of insured's Insurance Policy No. 3903766, and the Accidental
Death Benefit in the amount of One Hundred Thousand Pesos
(P100,000.00) and further sum of P5,000.00 in the concept of
reasonable attorney's fees and costs of suit.
Defendant's counterclaim is hereby Dismissed (Rollo, pp. 43-44).
In ruling for private respondents, the trial court concluded that the
facts concealed by the insured were made in good faith and under a
belief that they need not be disclosed. Moreover, it held that the
health history of the insured was immaterial since the insurance
policy was "non-medical".
Petitioner appealed to the Court of Appeals, which affirmed the
decision of the trial court. The appellate court ruled that petitioner
cannot avoid its obligation by claiming concealment because the
cause of death was unrelated to the facts concealed by the insured.
It also sustained the finding of the trial court that matters relating to
the health history of the insured were irrelevant since petitioner
waived the medical examination prior to the approval and issuance
of the insurance policy. Moreover, the appellate court agreed with
the trial court that the policy was "non-medical" (Rollo, pp. 4-5).
Petitioner's motion for reconsideration was denied; hence, this
petition.
II
We reverse the decision of the Court of Appeals.
The rule that factual findings of the lower court and the appellate
court are binding on this Court is not absolute and admits of
exceptions, such as when the judgment is based on a

misappreciation of the facts (Geronimo v. Court of Appeals, 224

SCRA 494 [1993]).
In weighing the evidence presented, the trial court concluded that
indeed there was concealment and misrepresentation, however, the
same was made in "good faith" and the facts concealed or
misrepresented were irrelevant since the policy was "non-medical".
We disagree.
Section 26 of The Insurance Code is explicit in requiring a party to a
contract of insurance to communicate to the other, in good faith, all
facts within his knowledge which are material to the contract and as
to which he makes no warranty, and which the other has no means
of ascertaining. Said Section provides:
A neglect to communicate that which a party knows and ought to
communicate, is called concealment.
Materiality is to be determined not by the event, but solely by the
probable and reasonable influence of the facts upon the party to
whom communication is due, in forming his estimate of the
disadvantages of the proposed contract or in making his inquiries
(The Insurance Code, Sec. 31).
The terms of the contract are clear. The insured is specifically
required to disclose to the insurer matters relating to his health.
The information which the insured failed to disclose were material
and relevant to the approval and issuance of the insurance policy.
The matters concealed would have definitely afected petitioner's
action on his application, either by approving it with the
corresponding adjustment for a higher premium or rejecting the
same. Moreover, a disclosure may have warranted a medical
examination of the insured by petitioner in order for it to reasonably
assess the risk involved in accepting the application.
In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we
held that materiality of the information withheld does not depend on
the state of mind of the insured. Neither does it depend on the
actual or physical events which ensue.
Thus, "goad faith" is no defense in concealment. The insured's
failure to disclose the fact that he was hospitalized for two weeks
prior to filing his application for insurance, raises grave doubts
about his bonafides. It appears that such concealment was
deliberate on his part.
The argument, that petitioner's waiver of the medical examination
of the insured debunks the materiality of the facts concealed, is

untenable. We reiterate our ruling in Saturnino v. Philippine

American Life Insurance Company, 7 SCRA 316 (1963), that " . . .
the waiver of a medical examination [in a non-medical insurance
contract] renders even more material the information required of
the applicant concerning previous condition of health and diseases
sufered, for such information necessarily constitutes an important
factor which the insurer takes into consideration in deciding whether
to issue the policy or not . . . "
Moreover, such argument 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,
inefective (See Vda. de Canilang v. Court of Appeals, supra).
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 (Henson v. The Philippine American Life Insurance Co., 56
O.G. No. 48 [1960]).
We, therefore, rule 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.
WHEREFORE, the petition is GRANTED and the Decision of the Court
of Appeals is REVERSED and SET ASIDE.
SO ORDERED.
Padilla, Davide, Jr., Bellosillo and Kapunan, JJ., concur.

245 SCRA 268 (1995)

o

INSURANCE LAW: Concealment

Disclosure of material facts is required

Good faith is not a defense in determining the materiality of the information to be disclosed

Waiver of medical examination by insured is not a defense

Cause of death is immaterial in case of concealment

FACTS:
Bacani procured a life insurance contract for himself from Sunlife Assurance. Specifically, the
policy included a double indemnity in case of accidental death, designating his mother as
beneficiary.
Later, Bacani died in a plane crash and so the mother filed a claim. After investigation, Sunlife
rejected the claim on ground of non-disclosure of material facts. They said that Bacani did not
mention that two weeks prior to his insurance application he was examined and confined at the
Lung Center of the Philippines, where he was diagnosed for renal failure.
The trial court ruled that the facts concealed by the insured were made in good faith and under the
belief that they need not be disclosed. Also, it held that the health history of the insured was
immaterial since the insurance policy was non-medical.
The CA affirmed, stating that the cause of death was unrelated to the facts concealed by the
insured.
ISSUE:

Whether or not the concealment made by Bacani warranted the rejection of the insurance
claim
HELD:
The Supreme Court reversed the decision of the CA and ruled that rescission of the insurance
contract was proper.
Disclosure of Material Facts required
Under sec. 26 of the Insurance Code, a party to a contract of insurance is required 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.
Materiality is to be determined not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom communication is due, in forming his estimate of
the disadvantages of the proposed contract or in making his inquiries. (The Insurance Code, sec.
31)
The information which the insured failed to disclose was material and relevant to the approval and
issuance of the insurance policy. The matters concealed would have definitely affected petitioners
action on his application, either by approving it with the corresponding adjustment for a higher

premium or rejecting the same. Moreover, a disclosure may have warranted a medical examination
of the insured by the petitioner in order for it to reasonably assess the risk involved in accepting
the application.
Good Faith not a defense
Materiality of the information withheld does not depend on the state of mind of the insured.
Neither does it depend on the actual or physical events which ensue.
Thus, good faith is no defense in concealment.
Waiver of Medical Examination not a defense
The waiver of the medical examination of the insured does not mean that material facts need not
be disclosed. In fact, it renders even more material the information required of the applicant
concerning previous condition of health and diseases suffered, for such information necessarily
constitutes an important factor which the insurer takes into consideration in deciding whether to
issue the policy or not.
Cause of Death
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.

Sunlife v CA G.R. No. 105135 June 22, 1995

J. Quiason
Facts:
Robert John B. Bacani procured a life insurance contract for himself from Sunlife. He was issued
a policy for P100,000.00, with double indemnity in case of accidental death. The
designated beneficiary was his mother, Bernarda Bacani.
The insured died in a plane crash. Respondent Bernarda Bacani filed a claim with petitioner,
seeking the benefits of the insurance policy taken by her son. Petitioner conducted an investigation
and its findings prompted it to reject the claim.
Sunlife informed Bacani that the insured did not disclose material facts relevant to the issuance of
the policy, thus rendering the contract of insurance voidable. A check representing the total
premiums paid in the amount of P10,172.00 was attached to said letter.
Petitioner claimed that the insured gave false statements in his application. The
deceased answered claimed that he consulted a Dr. Raymundo of the Chinese General Hospital for
cough and flu complications. The other questions wereanswered in the negative.
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. During his confinement, the deceased was subjected to urinalysis tests.
Bernarda Bacani and her husband filed an action for specific performance against petitioner with
the RTC. The court ruled in favor of the spouses and ordered Sunlife to pay P100,000.00.
In ruling for private respondents, the trial court concluded that the facts concealed by the insured
were made in good faith and under a belief that they need not be disclosed. The court also held
that the medial history was irrelevant because it wasnt medical insurance.
The Court of Appeals affirmed the decision of the trial court. The appellate court ruled that
petitioner cannot avoid its obligation by claiming concealment because the cause of death was
unrelated to the facts concealed by the insured. Petitioner's motion for reconsideration was denied.
Hence, this petition.

Issue: WON the insured was guilty of misrepresentation which made the contract void.
Held: Yes. Petition dismissed.
Ratio:
Section 26 of The Insurance Code required 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.
A neglect to communicate that which a party knows and ought to communicate, is called
concealment.

Materiality is to be determined not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom communication is due, in forming his estimate of
the disadvantages of the proposed contract or in making his inquiries.
The terms of the contract are clear. The insured is specifically required to disclose to the insurer
matters relating to his health.
The information which the insured failed to disclose were material and relevant to the approval
and issuance of the insurance policy. The matters concealed would have definitely affected
petitioner's action on his application, either by approving it with the corresponding adjustment for
a higher premium or rejecting the same. Moreover, a disclosure may have warranted a
medical examination of the insured by petitioner in order for it to reasonably assess the risk
involved in accepting the application.
Vda. de Canilang v. Court of Appeals- materiality of the information withheld does not depend on
the state of mind of the insured. Neither does it depend on the actual or physical events which
ensue.
Good faith" is no defense in concealment. The insured's failure to disclose the fact that he was
hospitalized raises grave doubts about his eligibility. Such concealment was deliberate on his part.
The argument, that petitioner's waiver of the medical examination of the insured debunks the
materiality of the facts concealed, is untenable.
Saturnino v. Philippine American Life Insurance " . . . the waiver of a medical examination [in a
non-medical insurance contract] renders even more material the information required of
the applicant concerning previous condition of health and diseases suffered, for such information
necessarily constitutes an important factor which the insurer takes into consideration in deciding
whether to issue the policy or not . . . "
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 as held in Henson.