INSURANCE | BATCH 5 (CASES 63-80)

Batch 4 G04 (2015)

CASE 63: ARGENTE vs. WEST COAST LIFE
Author: PATRICIA CAALITA
Topic: CONCEALMENT
DOCTRINE: One ground for the rescission of a contract of insurance under the Insurance Act is "a
concealment," which in section 25 is defined as "A neglect to communicate that which a party knows and
ought to communicate. In an action on a life insurance policy where the evidence conclusively shows that
the answers to questions concerning diseases were untrue, the truth of falsity of the answers becomes
the determining factor. If the policy was procured by fraudulent representations, the contract of insurance
apparently set forth therein was never legally existent. It can fairly be assumed that had the true facts
been disclosed by the assured, the insurance would never have been granted.
FACTS: When Vicenta de Ocampo died of cerebral apoplexy, Bernardo Argente, her husband and
plaintiff herein presented a claim to the respondent insurance company for the payment of the amount of
the joint life Insurance policy applied for by the spouses. Following investigation conducted by the
Manager of the Manila office of the insurance company, it was apparently disclosed that the answers
given by the insured in their medical examinations with regard to their health and previous illness and
medical attendance were untrue. For that reason, the West Coast Life Insurance Co. refused to pay the
claim of Bernardo Argente, and on May 25, 1926, wrote him to the effect that the claim was rejected
because the insurance was obtained through fraud and misrepresentation.
All the information contained in the applications was furnished the agent by Bernardo Argente.
It is admitted that it appears in the Medical Examiner's Report that Bernardo Argente, in response to the
question asked by the medical examiner, "Have you ever consulted a physician for, or have you ever
suffered from any ailment or disease of, the brain or nervous system?" answered "No." And to the
question, "What physician or physicians, if any, not named above, have you consulted or been treated by,
within the last five years and for what illness or ailment? (If none, so state)" answered "No." It is, however,
not disputed that on January 10, 11, and 13, 1923, Bernardo Argente was confined in the Philippine
General Hospital where he was treated by Dr. Agerico B. M. Sison for cerebral congestion and Bell's
Palsy.
It is further admitted that it appears in the Medical Examiner's Report that Vicenta de Ocampo, in
response to the question asked by the medical examiner, "How frequently, if at all, and in what quantity do
you use beer, wine, spirits or other intoxicants?" answered "Beer only in small quantities occasionally." To
the question, "Have you ever consulted a physician for or have you ever suffered from any ailment or
disease of the brain or nervous system?" answered "No." To the question, "What physician or physicians,
if any, not named above, have you consulted or been treated by, within the last five years and for what
illness or ailment? (If none, so state)" answered "None." And to the question, "Are you in good health as
far as you know and believe?" answered "Yes." It is, however, not disputed that Vicenta de Ocampo was
taken by a patrolman, at the request of her husband, Bernardo Argent to the Meisic police station, and
from there was transferred to the San Lazaro Hospital. Her case was diagnosed by the admitting
physician as "alcoholism," but later Doctor Domingo made a diagnosis of probable "manic-depressive
psychosis," and still, later in Mary Chiles Hospital, made a final diagnosis of "phycho-neurosis."
The trial court ruled in favor of the insurance company and found that the spouses gave false information
to the doctor with regard to their health.
ISSUE: WON there is concealment in the present case, hence plaintiff may not claim from the respondent
insurance company
RULING: YES. One ground for the rescission of a contract of insurance under the Insurance Act is "a
concealment," which in section 25 is defined as "A neglect to communicate that which a party knows and
ought to communicate." Plaintiff argues that the alleged concealment was immaterial and insufficient to
avoid the policy. The Court did not agree.
In Joyce, The Law of Insurance, second edition, volume 3, Chapter LV, is found the following:
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Concealment exists where the assured has knowledge of a fact material to the risk, and honesty, good
faith, and fair dealing requires that he should communicate it to the assured, but he designated and
intentionally with holds the same.
Another rule is that if the assured undertakes to state all the circumstances affecting the risk, a full and
fair statement of all is required.
It is also held that the concealment must, in the absence of inquiries, be not only material, but fraudulent,
or the fact must have been intentionally withheld; so it is held under English law that if no inquiries are
made and no fraud or design to conceal enters into the concealment the contract is not avoided. And it is
determined that even though silence may constitute misrepresentation or concealment it is not itself
necessarily so as it is a question of fact. Nor is there a concealment justifying a forfeiture where the fact of
insanity is not disclosed no questions being asked concerning the same. . . .
But it would seem that if a material fact is actually known to the assured, its concealment must of itself
necessarily be a fraud, and if the fact is one which the assured ought to know, or is presumed to know,
the presumption of knowledge ought to place the assured in the same position as in the former case with
relation to material facts; and if the jury in such cases find the fact material, and one tending to increase
the risk, it is difficult to see how the inference of a fraudulent intent or intentional concealment can be
avoided. And it is declared that if a material fact concealed by assured it is equivalent to a false
representation that it does not exist and that the essentials are the truth of the representations whether
they were intended to mislead and did insurer accept them as true and act upon them to his prejudice. So
it is decided that under a stipulation voiding the policy for concealment or misrepresentation of any
material fact or if his interest is not truly stated or is either than the sole and unconditional ownership the
facts are unimportant that insured did not intend to deceive or withhold information as to encumbrances
even though no questions were asked. And if insured while being examined for life insurance and
knowing that she had heart disease, falsely stated that she was in good health, and though she could not
read the application, it was explained to her and the questions asked through an interpreter, and the
application like the policy contained and provision that no liability should be incurred unless the policy was
delivered while the insured was in good health, the court properly directed a verdict for the insurer, though
a witness who was present at the examination testified that the insured was not asked whether she had
heart disease.
The basis of the rule vitiating the contract in case 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 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.
If the assured has exclusive knowledge of material facts, he should fully and fairly disclose the same,
whether he believes them material or not. But notwithstanding this general rule it will not infrequently
happen, especially in life risks, that the assured may have a knowledge actual or presumed of material
facts, and yet entertain an honest belief that they are not material. . . . The determination of the point
whether there has or has not been a material concealment must rest largely in all cases upon the form of
the questions propounded and the exact terms of the contract. Thus, where in addition to specifically
named diseases the insured was asked whether he had any sickness within ten years, to which he
answered "No," and it was proven that within that period he had a slight of pharyngitis, it was held a
question properly for the jury whether such an inflammation of the throat was a "sickness" within the intent
of the inquiry.
DISPOSITIVE: Respondents won. Trial Court judgment affirmed.
CASE 64: GREAT PACIFIC V CA (1979)
Author: Jasmine Molon
Topic: Concealment
DOCTRINE: 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,
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Batch 4 G04 (2015)
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.
FACTS: Ngo Hing filed an application with the Great Pacific for a twenty-year endowment policy in the
amount of P50,000.00 on the life of his one-year old daughter Helen. He supplied the essential data
which petitioner Mondragon, the Branch Manager, wrote on the form. The latter paid the annual premium
the sum of P1,077.75 going over to the Company, but he retained the amount of P1,317.00 as his
commission for being a duly authorized agent of Pacific Life.Upon the payment of the insurance premium,
the binding deposit receipt was issued 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 Mondragon received a letter from Pacific Life disapproving the insurance application.
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 offer 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 the customers were asking for such coverage.Helen Go died of influenza. Ngo Hing sought
the payment of the proceeds of the insurance, but having failed in his effort, he filed the action for the
recovery before the Court of First Instance of Cebu, which ruled against him.
ISSUE: Whether Ngo Hing concealed the state of health and physical condition of Helen Go, which
rendered void the policy
Held: Yes. Petition dismissed.
Ratio: 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.
The concealment entitles the insurer to rescind the contract of insurance.
DISPOSITIVE: 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.
CASE 65: SATURNINO V PHILIPPINE AMERICAN LIFE (1963)
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Author: KADJIM, Mohammad Annesir I.

Topic: Concealment
DOCTRINE: 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.
FACTS: In September 1957, Estefania Saturnino was operated for cancer in which her right breast was
removed. She was advised by her surgeon that shes not totally cured because her cancer was
malignant. In November 1957, she applied for an insurance policy under Philamlife (Philippine American
Life Insurance Company). She did not disclose the fact that she was operated nor did she disclose any
medical histories. Philamlife, upon seeing the clean bill of health from Estefania waived its right to have
Estefania undergo a medical checkup. In September 1958, Estefania died of pneumonia secondary to
influenza. Her heirs now seek to enforce the insurance claim
ISSUE: WON the insured made such false representations of material facts as to avoid the policy.
RULING: YES. There can be no dispute that the information given by her in the application for insurance
was false, namely, that she never had cancer or tumors or consulted any physician or undergone any
operation within the preceding period of 5 years. The question to determine is: Are the facts then falsely
represented material? The Insurance Law 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 making his inquiries. The
contention of appellants is that the facts subject of the representation were not material in view of the nonmedical nature of the insurance applied for, which does away with the usual requirement of medical
examination before the policy is issued. The contention is without merit. If anything, the waiver of
medical examination 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.
Appellants also contend that there was no fraudulent concealment of the truth inasmuch as the insured
herself did not know, since her doctor never told her, that the disease for which she had been operated on
was cancer. In the first place, concealment of the fact of the operation itself was fraudulent, as there
could not have been any mistake about it, no matter what the ailment. Secondly, in order to avoid a policy,
it is not necessary to show actual fraud on the part of the insured. In this jurisdiction, concealment,
whether intentional or unintentional entitled 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 a rate of premium agreed upon. The insurer, relying upon the
belief that the insured will disclose every material fact within his actual or presumed knowledge, is misled
into a belief that the circumstances withheld does not exist, and he is thereby induced to estimate the risk
upon a false basis that it does not exist.
DISPOSITIVE: 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.
CASE 66: CANILANG V. CA AND GREAT PACIFIC LIFE
Author: Shirley Marie Cada
Topic: Concealment
DOCTRINE: Section 27 of the Insurance Code of 1978 is properly read as referring to "any concealment"
without regard to whether such concealment is intentional or unintentional. The restoration in 1985 by B.P.
Blg. 874 of the phrase "whether intentional or unintentional" merely underscored the fact that all
throughout (from 1914 to 1985), the statute did not require proof that concealment must be "intentional" in
order to authorize rescission by the injured party.
FACTS: Canilang died of "congestive heart failure," "anemia," and "chronic anemia." Petitioner, widow
and beneficiary of the insured, filed a claim with Great Pacific which the insurer denied. Petitioner then
filed a complaint against Great Pacific with the Insurance Commission for recovery of the insurance
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proceeds. During the hearing called by the Insurance Commissioner, petitioner testified that she was not
aware of any serious illness suffered by her late husband and that, as far as she knew, her husband had
died because of a kidney disorder. A deposition was given by Dr. Wilfredo Claudio stating that he was the
family physician of Canilang and that he had previously treated him for "sinus tachycardia" and "acute
bronchitis." Insurance Commissioner ordered Great Pacific to pay petitioner, holding that there was no
intentional concealment on the part of the insured as he had thought that he was merely suffering from a
minor ailment and simple cold.
CA 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.
ISSUE: WON Jaime Canilang "intentionally" made material concealment in stating his state of health
HELD: Yes. The insurance Great Pacific applied for was a "non-medical" insurance policy. Jaime
Canilang failed to disclose that he had twice consulted Dr. Wilfredo B. Claudio who had found him to be
suffering from "sinus tachycardia" and "acute bronchitis." Had Canilang 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 or, at the very least, required a higher premium for the
same coverage.
Section 27 of the Insurance Code of 1978 provided that:
Sec. 27.
A concealment entitles the injured party to rescind a contract of insurance.
The preceding statute, Act No. 2427, as it stood from 1914 up to 1974, had provided:
Sec. 26.
A concealment, whether intentional or unintentional, entitles the injured party to rescind a
contract of insurance.
Upon the other hand, in 1985, the Insurance Code of 1978 was amended by B.P. Blg. 874. This
subsequent statute modified Section 27 of the Insurance Code of 1978 so as to read as follows:
Sec. 27.
A concealment whether intentional or unintentional entitles the injured party to rescind a
contract of insurance.
Such failure precisely constituted concealment on the part of Canilang. Petitioner's argument, if accepted,
would obviously erase Section 27 from the Insurance Code of 1978.
DISPOSITIVE: Petition denied.
CASE 67: SUNLIFE ASSURANCE v. CA & BACANI
Author: Kim Medrano
Topic: Concealment
DOCTRINE: Matters relating to the health of the insured are material and relevant to the approval and
issuance of the life insurance policy as these definitely affect the insurers action on the application.
Good faith is no defense in concealment.
FACTS: Robert Bacani procured a life insurance contract for himself from Sunlife Assurance. He was
issued a policy valued at P100,000, with double indemnity in case of accidental death. The designated
beneficiary was his mother, respondent Bernarda Bacani.
Year after, the insured died in a plane crash. Bernarda filed a claim with Sunlife seeking the benefits of
the insurance policy however it was rejected on the ground that the insured did not disclose material facts
relevant to the insurance policy, thus rendering the contract of insurance voidable. The deceased
answered in his application that he consulted with a doctor in Chinese General Hospital but only for cough
and flu complications. The other questions were answered in the negative.
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Sunlife discovered that 2 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, ultrasonography and hematology tests.
Bernarda and her husband filed an action for specific performance against Sunlife. The TC ruled in favor
of Bernarda & her husband, and 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 nonmedical. On appeal, CA affirmed the TCs
decision. MR having been denied, Sunlife filed the petition with the SC.
ISSUE: Whether or not the insured is guilty of concealment/misrepresentation, which would render the
insurance contract void
RULING: YES.
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.
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 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
petitioner in order for it to reasonably assess the risk involved in accepting the application.
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.
The insureds failure to disclose the fact that he was hospitalized for two weeks prior to filing his
application for insurance, raises grave doubts about his bona fides. It appears that such concealment was
deliberate on his part.
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 nondisclosure misled the insurer in forming his estimates of the risks of the proposed insurance
policy or in making inquiries.
CASE 68: Yu PANG CHENG v CA
Author: Bernina Pascual
Topic: Concealment
DOCTRINE: Our Insurance Law provides that "A neglect to communicate that which a party knows and
ought to communicate, is called concealment" (Section 25, Act No. 2427). Whether intentional or
unintentional, the concealment entitles the insurer to rescind the contract of insurance (Section 26). The
insurance law requires the insured to communicate to the insurer all facts within his knowledge which are
material to the contract and which the other party has not the means of ascertaining (Section 27), and the
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 (Section 30 of Act 2427.)
FACTS: Petitioner brought this action to collect from the defendant the value of insurance policy taken
upon the life of Yu Pang Eng. In its defense, the defendant said that the insured was guilty of
misrepresentation and concealment of material facts in that he gave false and untruthful answers to
certain questions asked him in his application for insurance which were material to the risk insured
against and have the effect of avoiding the insurance policy. TC rendered judgment in favor of the
petitioner ordering the defendant to pay the amount of insurance policy, with interest. On appeal, CA
reversed the decision of the TC holding that the insured was guilty of concealment of material facts which
relieves defendant from liability.

INSURANCE | BATCH 5 (CASES 63-80)

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September 5, 1950, the insured submitted his application for insurance consisting of medical declarations.
With regard to the question on previous ailments, particularly with regard to "Gastritis, Ulcer of the
Stomach or any disease of that organ" and "Vertigo, Dizziness, Faintingspells or Unconsciousness" the
insured answered in the negative.
However, it appears that the insured entered Chinese Gen. Hospital on January 29, 1950 for having
medical treatment up to February 11, 1950. He complained of dizziness, anemia, abdominal pains and
tarry stools. An Xray picture of his stomach was taken and the diagnosis made of him by his doctors
showed that his illness was "peptic ulcer, bleeding."
ISSUE: Whether or not the insured is guilty of concealment of some facts material to the risk insured
against which has the effect of avoiding the policy
RULING: YES.
When the insured gave his answers regarding his previous ailments, he concealed the ailment of which
he was treated in the Chinese General Hospital which precisely has direct connection with the subject of
the questions propounded. The negative answers given by the insured regarding his previous ailment, or
his concealment of the fact that he was hospitalized and treated for sometime of peptic ulcer and had
suffered from "dizziness, anemia, abdominal pains and tarry stools", deprived defendant of the
opportunity to make the necessary inquiry as to the nature of his past illness so that it may form its
estimate relative to the approval of his application. Had defendant been given such opportunity,
considering the previous illness of the insured as disclosed by the records of the Chinese General
Hospital, defendant would probably had never consented to the issuance of the policy in question. In fact,
according to the death certificate, the insured died of "infiltrating medullary carcinoma, Grade, 4,
advanced cardiac and of lesser curvature, stomach metastases spleen", which may have a direct
connection with his previous illness.
CASE 69: NG GAN ZEE v. ASIAN CRUSADER LIFE ASSURANCE CORPORATION
Author: Jc Pajo
Topic: Concealment, Page 3
DOCTRINE: (1) 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. (2) That the concealment must, in the absence of
inquiries, be not only material, but fraudulent, or the fact must have been intentionally withheld.
FACTS: May 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 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. Ng Gan Zee, then, presented a claim against Asian Crusader. But this was denied
by the Asian Crusader on the ground that the answers given by the insured to questions appealing in his
application were untrue. This was brought by Ng Gan Zee to the Insurance Commissioner to be
investigated by the latter. The investigation held that there were no material concealment on part of the
insured and therefore, the Ng Gan Zee should be paid. Appellant still alleges that the insured was guilty of
misrepresentation when he answered No to the 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. Thus, Asian Crusader rationalizes that: 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. Asian Crusader further

maintains that when the insured examined in connection with his application, the insured allegedly gave
false and misleading information to his ailment and previous operation.
The appellant directs our direction to: [1] the report of the physician who treated Kwong Nam at the
Hospital about 2 years before he applied for an insurance policy. According to said report, the doctor 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 report of the doctor 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 lower court ruled in favor of Ng Gam Zee. Thus, the case was brought to the Supreme Court being a
question of law.
ISSUE: 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?
RULING: We agree with the lower court.
Section 27 of the Insurance Law states, 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.
It is correctly observed by the lower court that misrepresentation as a defense of the insurer to avoid
liability is an affirmative defense. It should emphasized that Kwong Nam had informed Asian Crusader
that the tumor for which he was operated on was associated with ulcer of the stomach. 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.
DISPOSITIVE: 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.
CASE 70: Collado v Insular life (1955)
Author: Janine :)
Topic: Concealment, page 3
FACTS: Vivencio Collado applied for an insurance contract with Insular life in 1948. His application was
approved and he began started making premium payments. However, he defaulted and the insurance
was cancelled. He then applied for the reinstatement of his insurance policy in Nov. of 1951 and tendered
the amount of premium for the years 1950-1951.
He stated that he was as of Nov. 1951 of good health, and that he had no injuries, ailments or illnesses
and had not been sick for any case since 1948 (his medical check up when he applied for insurance) and
that he had not consulted any physician or practitioner for any case since the date of such latest medical
exam.
However, when Vivencio applied for the reinstatement, he was already sick of a fatal disease known as
carcinoma of the liver and that 4 days prior to his application for insurance, he consulted a doctor
regarding his condition.
The reinstatement was approved. Vivencio again failed to pay the premiums for the last quarter of Nov.
1951 and as such, Insular life sent him a notice canceling the policy.
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Vivencio then died. The beneificiaries instituted the present action to recover from Insular life the death
benefits of a life insurance policy valued at 2T. Insular refused to pay claiming concealment on the part
of Vivencio.
Collado contends that Insular life had waived the right to rescind the policy in view of its repeated
acceptance of the overdue premiums for the second and third years.
Municipal court of Manila ruled in favor for Collado and Insular filed an appeal with CFI of Manila. CFI
rendered judgment in favor of Insular and dismissed Collados complaint. Hence this petition.
ISSUE: Whether or nor Insular life was estopped from claiming that there was concealment on the part of
Vivencio as to his true health and could no longer cancel the contract due to the fact that it accepted the
tender of overdue payments from the insured thereof.
RULING: NO. It is enormously clear that when the deceased applied for a reinstatement of his policy in
Nov. 1951, he had already been afflicted with the fatal ailment for a period of about four months.
Furthermore, in submitting together with his application for reinstatement, a health statement to the effect
that he was in good health, Vivencio concealed the material fact that he had consulted a doctor and was
then found to be afflicted with the malady.
The acceptance of Insular life of the overdue premiums did not necessarily deprive it of the right to cancel
the policy in case of default incurred by the Insured in the payment of future premiums. The case would
be different had the insured died at any time after the payment of overdue premiums but previous to the
reinstatement of the policy, for the, Insular, by its acceptance of its overdue premiums is deemed to have
waived its right to rescind the policy.
The evidence at hand shows that insofar as the payment of the last quarterly premium for 1951 was
concerned, Insular had availed of the right to rescind the policy by notifying the Insured that the policy had
lapsed.
DISPOSITIVE: Petitioner Collado lose!
CASE 71: EDILLON v. MANILA BANKERS LIFE INSURANCE CORPORATION
Author: Ralph Agbisit
Topic: Representation, page 3
Doctrine: It is usually held that where the insurer, at the time of the issuance of a policy of insurance, has
knowledge of existing facts which, if insisted on, would invalidate the contract from its very inception, such
knowledge constitutes a waiver of conditions in the contract inconsistent with the known facts, and the
insurer is estopped thereafter from asserting the breach of such conditions.
Facts: Sometime in April 1969, Carmen O, Lapuz applied with respondent insurance corporation for
insurance coverage against accident and injuries. She filled up the blank application form given to her and
filed the same with the respondent insurance corporation. In the said application form which was dated
April 15, 1969, she gave the date of her birth as July 11, 1904. On the same date, she paid the sum of
P20.00 representing the premium for which she was issued the corresponding receipt signed by an
authorized agent of the respondent insurance corporation. Upon the filing of said application and the
payment of the premium on the policy applied for, the respondent insurance corporation issued to Carmen
O. Lapuz its Certificate of Insurance No. 128866.The policy was to be effective for a period of 90 days.
On May 31, 1969 or during the effectivity of Certificate of Insurance No. 12886, Carmen O. Lapuz died in
a vehicular accident in the North Diversion Road. On June 7, 1969, petitioner Regina L. Edillon, a sister of
the insured and who was the named beneficiary in the policy, filed her claim for the proceeds of the
insurance, submitting all the necessary papers and other requisites with the private respondent. Her claim
having been denied, Regina L. Edillon instituted this action in the Court of First Instance of Rizal on
August 27, 1969. In resisting the claim of the petitioner, the respondent insurance corporation relies on a
provision contained in the Certificate of Insurance, 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)
9

years ..." It is pointed out that the insured being over sixty (60) years of age when she applied for the
insurance coverage, the policy was null and void, and no risk on the part of the respondent insurance
corporation had arisen therefrom. The trial court sustained the contention of the private respondent and
dismissed the complaint.
Issue: Whether or not Manila Bankers Life Insurance Corp. is absolved from liability on the basis of the
provision, in the insurance certificate, which excludes them from liability to pay claims on behalf of
persons over the age of 60 years?
Held: No. The age of the insured Carmen 0. Lapuz was not concealed to the insurance company .
Her application for insurance coverage which was on a printed form furnished by private respondent and
which contained very few items of information 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 in the application
form, considering its prominence thereon and its materiality to the coverage applied for, the respondent
insurance corporation received her payment of premium and issued the corresponding certificate of
insurance without question. The accident which resulted in the death of the insured, a risk covered by the
policy, occurred on May 31, 1969 or FORTY-FIVE (45) DAYS after the insurance coverage was applied
for. 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 thereby cancel the policy on that ground if it was
minded to do so. If the private respondent failed to act, it is either because it was willing to waive
such disqualification; or, through the negligence or incompetence of its employees for which it
has only itself to blame, it simply overlooked such fact. Under the circumstances, the insurance
corporation is already deemed in estoppel. Its inaction to revoke the policy despite a departure
from the exclusionary condition contained in the said policy constituted a waiver of such
condition.
The Court cited the case of Qua Chee Gan v Law Union Insurace:
It is usually held that where the insurer, at the time of the issuance of a policy of
insurance, has knowledge of existing facts which, if insisted on, would invalidate the
contract from its very inception, such knowledge constitutes a waiver of conditions in
the contract inconsistent with the known facts, and the insurer is estopped thereafter
from asserting the breach of such conditions. The law is charitable enough to assume, in
the absence of any showing to the contrary, that an insurance company intends to execute a
valid contract in return for the premium received; and when the policy contains a condition
which renders it voidable at its inception, and this result is known to the insurer, it will be
presumed to have intended to waive the conditions and to execute a binding contract, rather
than to have deceived the insured into thinking he is insured when in fact he is not, and to
have taken is money without consideration.
CASE 72: INSULAR LIFE v FELICIANO
Author: Rebecca Flores
Topic: Representation, page 3
DOCTRINE: If an agent of the insurer, after obtaining from an applicant for insurance a correct and
truthful answer to interrogatories contained in the application for insurance, without knowledge of
the applicant fills in false answers, either fraudulently or otherwise, the insurer cannot assert the
falsity of such answers as a defense to liability on the policy, and this is true generally without
regard to the subject matter of the answers or the nature of the agent's duties or limitations on his
authority, at least if not brought to the attention of the applicant.
FACTS: Feliciano filed an application for insurance with Insular Life upon the solicitation of one of
its agents. 2 insurance policies were issued to him. Feliciano died. Insular refused to pay on the
ground that the policies were fraudulently obtained, the insured having given false answers and
statements in the application as well as in the medical report. This action was brought to recover on
the policies.
The lower court found that at the time Feliciano filed his application and at the time he was
subjected to physical examination by the medical examiner, he was already suffering from
tuberculosis, which appeared negative in both application and medical report. It also found that
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Feliciano was made to sign the application and the examiners report in blank, and that the black
spaces were filled in by the agent and the medical examiner, who made it appear that Feliciano
was fit subject for insurance. It also held that neither the insured nor any member of his family
concealed the real state of health of the insured. That as a matter of fact the insured, as well as the
members of his family, told the agent and the medical examiner that the applicant had been sick
and coughing for sometime and that he had also gone 3 times to the Santo Sanatorium.
Two main issues to be resolived: 1) one leading to the validation of a policy where its agent, without
fraud, collusion or bad faith on the part of the isnured, falsified answers given by the insured 2)
leading to the avoidance of the policy under the circumstances.
ISSUE: Whether or not Insular Life has the right to avoid the policy when its agent knowingly and
intentionally wrote down the answers in the application differing from those made by the insured?
RULING: No. In the present case, the agent knew all the time the true state of health of the
insured. The insurer's medical examiner approved the application knowing full well that the
applicant was sick. The situation is one in which one of two innocent parties must bear a loss for
his reliance upon a third person. In this case, it was the insurer who gave the agent authority to
deal with the applicant. It was the one who selected the agent, thus implying that the insured could
put his trust on him. It was the one who drafted and accepted the policy and consummated the
contract. It seems reasonable that as between the two of them, the one who employed and gave
character to the third person as its agent should be the one to bear the loss.
The company received the money of the applicant as the price of the risk to. be taken by it. If the
policy should be avoided, it must be because it was void from the very beginning, and the result
would be that the insurer, while it received the money, never assumed any risk. The result would
be, in the language of one of the cases, "to place every simple or uneducated person seeking
insurance at the mercy of the insurer who could, through its agent, insert in every application,
unknown to the applicant and over his signature, some false statements which would enable him to
avoid all liability while retaining the price paid for the supposed insurance."
DISPOSITIVE: Feliciano won! Insular cannot avoid the policy. It is bound by the acts of its agent.
CASE 73: TAN CHAY HENG V. WEST COAST LIFE
Author: Charlene Dacara
Topic: Representation, page 3
DOCTRINE: Section 17 of the Insurance Code provides that the measure of an insurable interest in
property is the extent to which the insured might be damnified by loss or injury thereof.
FACTS: Plaintiff alleges that the defendant is a foreign insurance corporation duly organized by the laws
of the Philippines to engage in the insurance business. The defendant accepted his application and
approved a life insurance policy of for the sum of P10,000 in which the plaintiff was the sole beneficiary.
The policy was issued upon the payment by the said Tan Ceang of the first year's premium amounting to
P936; that in and by its terms, the defendant agreed to pay the plaintiff as beneficiary the amount of the
policy upon the receipt of the proofs of the death of the insured while the policy was in force; that without
any premium being due or unpaid, Tan Ceang died on May 10, 1925. Plaintiff then submitted the proofs of
the death of Tan Ceang with a claim for the payment of the policy which the defendant refused to pay.
The defendant filed an answer to the complaint in which it made a general and specific denial, and then
announced its intention to file an amended answer, alleging special defense. West Coast averred 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
11

issued is void; that West Coast seeks to avoid the insurance policy. Tan Chay Heng filed a demurrer as it
claimed that West Coasts answer is a cross-complaint and the facts contained therein was not sufficient
as a defense.
RTC: Demurrer is sustained, and the defendant is given a period of five days within which to amend its
aforesaid answer. As a result of the trial the general issues, the lower court rendered judgment for the
plaintiff for P10,000, with legal interest from January 4, 1926, and costs, to which the defendant duly
excepted and filed a motion for a new trial, which was overruled.
On appeal the defendant assigns the following errors:
The trial court erred
1. In sustaining plaintiff's demurrer to the special defense contained in defendant's amended answer.
2. In holding, in effect, that an insurer cannot avoid a policy which had been procured by fraud unless he
brings an action to rescind it before he is sued thereon.
3. In rejecting all proofs offered by the defendant during the trial for the purpose of defeating plaintiff's
fraudulent claim.
4. In not absolving the defendant from plaintiff's complaint.
ISSUE: WON West Coasts action for rescission is therefore barred by the collection suit filed by Tan
Chay.
RULING: NO. In the instant case, it will be noted that even in its prayer, the defendant does not seek to
have the alleged insurance contract rescinded. It denies that it ever made any contract of insurance on
the life of Tan Ceang or that any such a contract ever existed, and that is the question which it seeks to
have litigated by its special defense. In the very nature of things, if the defendant never made or entered
into the contract in question, there is no contract to rescind, and, hence, section 47 upon which the lower
based its decision in sustaining the demurrer does not apply. As stated, an action to rescind a contract is
founded upon and presupposes the existence of the contract which is sought to be rescinded. If all of the
material matters set forth and alleged in the defendant's special plea are true, there was no valid contract
of insurance, for the simple reason that the minds of the parties never met and never agreed upon the
terms and conditions of the contract. We are clearly of the opinion that, if such matters are known to exist
by a preponderance of the evidence, they would constitute a valid defense to plaintiff's cause of action.
Upon the question as to whether or not they or are not true, we do not at this time have or express any
opinion, but we are clear that section 47 does not apply to the allegations made in the answer, and that
the trial court erred in sustaining the demurrer.
DISPOSITIVE: The judgment of the lower court is reversed and the case is remanded for such other and
further proceedings as are not inconsistent with this opinion, with costs against the plaintiff.
Case 74: TAN VS. CA, 1989
Author: Olive Cachapero
Topic: Representation, pg 3
DOCTRINE: The so-called "incontestability clause" precludes the insurer from raising the defenses of
false representations or concealment of material facts 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
phrase "during the lifetime" found in Section 48 simply means that the policy is no longer considered in
force after the insured has died. The key phrase in the second paragraph of Section 48 is " for a period of
two years."
FACTS: On September 23,1973, Tan Lee Siong, father of herein petitioners, applied for life insurance in
the amount of P 80,000.00 with respondent Philippine American Life Insurance Company. Said
application was approved, with petitioners the beneficiaries thereof. Tan Lee Siong died of hepatoma on
April 26,1975. Petitioners then filed with respondent company their claim for the proceeds of the life
insurance policy. Respondent company denied petitioners' claim and rescinded the policy by reason of
the alleged misrepresentation and concealment of material facts made by the deceased Tan Lee Siong in
his application for insurance. The premiums paid on the policy were thereupon refunded.

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Alleging that respondent company's refusal to pay them the proceeds of the policy was unjustified and
unreasonable, petitioners filed a complaint against the former with the Office of the Insurance
Commissioner.
Insurance Commissioner dismissed petitioners' complaint.
CA dismissed petitioners' appeal from the Insurance Commissioner's decision for lack of merit.
Petitioners contend that the respondent company no longer had 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. According to the petitioners, the Insurance Law
was amended and the second paragraph of Section 48 added to prevent the insurance company
from exercising a right to rescind after the death of the insured.
ISSUES: WON respondent insurer may be allowed to avoid the policy on grounds of concealment by the
deceased assured. YES
The pertinent section in the Insurance Code provides:
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.
HELD: The so-called "incontestability clause" precludes the insurer from raising the defenses of false
representations or concealment of material facts 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 phrase " during
the lifetime" found in Section 48 simply means that the policy is no longer considered in force after the
insured has died. The key phrase in the second paragraph of Section 48 is "for a period of two years."
As noted by the Court of Appeals, to wit:
The policy was issued on November 6, 1973 and the insured died on April 26,1975. The policy
was thus in force for a period of only one year and five months. Considering that the insured died
before the two-year period had lapsed, respondent company is not, therefore, barred from
proving that the policy is void ab initio by reason of the insured's fraudulent concealment or
misrepresentation. Moreover, respondent company rescinded the contract of insurance and
refunded the premiums paid on September 11, 1975, previous to the commencement of this
action on November 27, 1975.
Petitioners contend that there could have been no concealment or misrepresentation by their late father
because Tan Lee Siong did not have to buy insurance. He was only pressured by insistent salesmen by
solicitations and visits. Assured was a man of means. He could have obtained a bigger insurance, not just
P80,000.00. If his purpose were to misrepresent and to conceal his ailments in anticipation of death
during the two-year period, he certainly could have gotten a bigger insurance. He did not.
It is of common knowledge that the selling of insurance today is subjected to the
whirlwind pressure of modern salesmanship. Insurance companies send detailed instructions
to their agents to solicit and procure applications. These agents are to be found all over the
length and breadth of the land. They are stimulated to more active efforts by contests and by
the keen competition offered by the other rival insurance companies. They supply all the
information, prepare and answer the applications, submit the applications to their companies,
conclude the transactions, and otherwise smooth out all difficulties. The agents in short do
what the company set them out to do. In the face of all the above, it would be unjust if, having
been subjected to the whirlwind pressure of insurance salesmanship this Court itself has long
denounced, the assured who dies within the two-year period, should stand charged of
fraudulent concealment and misrepresentation." (Insular Life v. Feliciano)

13

The legislative answer to the arguments posed by the petitioners is the "incontestability clause" added by
the second paragraph of Section 48.
The insurer has two years from the date of issuance of the insurance contract or of its last reinstatement
within which to contest the policy, whether or not, the insured still lives within such period. After two years,
the defenses of concealment or misrepresentation, no matter how patent or well founded, no longer lie.
Congress felt this was a sufficient answer to the various tactics employed by insurance companies to
avoid liability. The petitioners' interpretation would give rise to the incongruous situation where the
beneficiaries of an insured who dies right after taking out and paying for a life insurance policy, would be
allowed to collect on the policy even if the insured fraudulently concealed material facts.
As to evidence of concealment
or misrepresentation
The petitioners argue that no evidence was presented to show that the medical terms were explained in a
layman's language to the insured. The same is not well taken
We agree with the Court of Appeals which ruled:
The deceased, by affixing his signature on the application form, affirmed the correctness
of all the entries and answers appearing therein. It is but to be expected that he, a
businessman, would not have affixed his signature on the application form unless he
clearly understood its significance. For, the presumption is that a person intends the
ordinary consequence of his voluntary act and takes ordinary care of his concerns.
The evidence for respondent company shows that on September 19,1972, the deceased
was examined by Dr. Victoriano Lim and was found to be diabetic and hypertensive; that
by January, 1973, the deceased was complaining of progressive weight loss and
abdominal pain and was diagnosed to be suffering from hepatoma. Another physician, Dr.
Wenceslao Vitug, testified that the deceased came to see him on December 14, 1973 for
consolation and claimed to have been diabetic for five years. Because of the
concealment made by the deceased of his consultations and treatments for
hypertension, diabetes and liver disorders, respondent company was thus misled
into accepting the risk and approving his application as medically standard and
dispensing with further medical investigation and examination. For as long as no
adverse medical history is revealed in the application form, an applicant for insurance is
presumed to be healthy and physically fit and no further medical investigation or
examination is conducted by respondent company.
Dispositive: Petition is denied.
CASE 75: PACIFIC BANKING CORP. v. COURT OF APPEALS (1988)
Author: Michelle Sy
Topic: The Policy, page 3
DOCTRINE: As the insurance policy against fire expressly required that notice should be given by the
insured of other insurance upon the same property, the total absence of such notice nullifies the policy.
FACTS: On October 21,1963, an open policy, was issued to the Paramount Shirt Manufacturing Co.
(insured, for brevity), by which private respondent Oriental Assurance Corporation bound itself to
indemnify the insured for any loss or damage, not exceeding P61,000.00, caused by fire to its property
consisting of stocks, materials and supplies usual to a shirt factory, including furniture, fixtures, machinery
and equipment while contained in the ground, second and third floors of the building situated at number
256 Jaboneros St., San Nicolas, Manila, for a period of one year commencing from that date to October
21, 1964.
The insured was at the time of the issuance of the policy and is up to this time, a debtor of petitioner in the
amount of not less than Eight Hundred Thousand Pesos (P800,000.00) and the goods described in the
policy were held in trust by the insured for the petitioner under thrust receipts.

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Said policy was duly endorsed to petitioner as mortgagee/ trustor of the properties insured, with the
knowledge and consent of private respondent to the effect that "loss if any under this policy is payable to
the Pacific Banking Corporation".
On January 4, 1964, while the aforesaid policy was in full force and effect, a fire broke out on the subject
premises destroying the goods contained in its ground and second floors.
On January 24, 1964, counsel for the petitioner sent a letter of demand to private respondent for
indemnity due to the loss of property by fire under the endorsement of said policy.
For failure of the insurance company to pay the loss as demanded, petitioner (plaintiff therein) on April 28,
1 964, filed in the court a quo an action for a sum of money against the private respondent, Oriental
Assurance Corporation, in the principal sum of P61,000.00 issued in favor of Paramount Shirt
Manufacturing Co.
At the trial, petitioner presented in evidence Exhibit "H", which is a communication dated December 22,
1965 of the insurance adjuster, H.H. Bayne Adjustment Co. to Asian Surety Insurance Co., Inc., revealing
undeclared co-insurances with the following: P30,000.00 with Wellington Insurance; P25,000. 00 with
Empire Surety and P250,000.00 with Asian Surety; undertaken by insured Paramount on the same
property covered by its policy with private respondent whereas the only co-insurances declared in the
subject policy are those of P30,000.00 with Malayan P50,000.00 with South Sea and P25.000.00 with
Victory.
Condition No. 3 in the Policy, in the form of non-declaration of co-insurances.
ISSUE: Whether or not the insured violated policy conditions No.3? YES
RULING:
Policy Condition No.3 explicitly provides:
The Insured shall give notice to the Company of any insurance already effected, or which may
subsequently be effected, covering any of the property hereby insured, and unless such notice be
given and the particulars of such insurance or insurances be stated in or endorsed on this Policy
by or on behalf of the Company before the occurrence of any loss or damage, all benefit under
this policy shall be forfeited.
It is not disputed that the insured failed to reveal before the loss three other insurances. As found by the
Court of Appeals, by reason of said unrevealed insurances, the insured had been guilty of a false
declaration; a clear misrepresentation and a vital one because where the insured had been asked to
reveal but did not, that was deception. Otherwise stated, had the insurer known that there were many coinsurances, it could have hesitated or plainly desisted from entering into such contract. Hence, the
insured was guilty of clear fraud.
DISPOSITIVE:
Petition is dismissed for lack of merit. Decision appealed from is affirmed.
CASE 76: ORIENTAL ASSURANCE V COURT OF APPEALS (1991)
Author: Carlo Guevara
Topic: The Policy (page 3)
DOCTRINE: Sec. 129, Insurance Code: A total loss may be either actual or constructive. An actual total
loss is caused by: (a) A total destruction of the thing insured; (b) The irretrievable loss of the thing by
sinking, or by being broken up; (c) Any damage to the thing which renders it valueless to the owner for the
purpose for which he held it; or (d) Any other event which effectively deprives the owner of the
possession, at the port of destination, of the thing insured. (Section 130, Insurance Code).
A constructive total loss is one which gives to a person insured a right to abandon, under Section 139 of
the Insurance Code.
15

FACTS: Private respondent Panama Sawmill Co., Inc. (Panama) bought, in Palawan, 1,208 pieces of
apitong logs, with a total volume of 2,000 cubic meters. It hired Transpacific Towage, Inc., to transport the
logs by sea to Manila and insured it against loss for P1-M with petitioner Oriental Assurance Corporation
(Oriental Assurance). There is a claim by Panama, however, that the insurance coverage should have
been for P3-M were it not for the fraudulent act of one Benito Sy Yee Long to whom it had entrusted the
amount of P6,000.00 for the payment of the premium for a P3-M policy.
The said Oriental Assurance issued Marine Insurance Policy contained a clause stating: Warranted that
this Insurance is against TOTAL LOSS ONLY.
The logs were loaded on two (2) barges: (1) on barge PCT-7000,610 pieces of logs with a volume of
1,000 cubicmeters; and (2) on Barge TPAC-1000, 598 pieces of logs, also with a volume of 1,000 cubic
meters.The two barges were towed by one tug-boat, the MT 'Seminole' But, as fate would have it, during
the voyage, rough seas and strong winds caused damage to Barge TPAC-1000 resulting in the loss of
497 pieces of logs out of the 598 pieces loaded thereon.
Panama demanded payment for the loss but Oriental Assurance refused on the ground that its contracted
liability was for "TOTAL LOSS ONLY." The rejection was upon the recommendation of the Tan Gatue
Adjustment Company.
Panama filed a Complaint for Damages against Ever Insurance Agency (allegedly, also liable), Benito Sy
Lee Yong and Oriental Assurance, before the RTC. The lower court ruled in favor of Panama. The CA
affirmed the judgment of the RTC. Both Courts shared the view that the insurance contract should be
liberally construed in order to avoid a denial of substantial justice; and that the logs loaded in the two
barges should be treated separately such that the loss sustained by the shipment in one of them may be
considered as "constructive total loss" and correspondingly compensable. Oriental filed a Petition for
Review on Certiorari with the SC. Panama maintains that the constructive total loss should be based on a
policy value of P3-M and not P1-M.
ISSUE: WON Oriental can be held liable under its marine insurance policy based on the theory of a
divisible contract of insurance and, consequently, a constructive total loss.
RULING: No liability attaches. The terms of the contract constitute the measure of the insurer liability
and compliance therewith is a condition precedent to the insured's right to recovery from the insurer.
Whether a contract is entire or severable is a question of intention to be determined by the language
employed by the parties. The policy in question shows that the subject matter insured was the entire
shipment of 2,000 cubic meters of apitong logs. The fact that the logs were loaded on two different barges
did not make the contract several and divisible as to the items insured. The logs on the two barges were
not separately valued or separately insured. Only one premium was paid for the entire shipment, making
for only one cause or consideration. The insurance contract must, therefore, be considered indivisible.
More importantly, the insurer's liability was for "total loss only." A total loss may be either actual or
constructive (Sec. 129, Insurance Code). An actual total loss is caused by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being broken up;
(c) Any damage to the thing which renders it valueless to the owner for the purpose for which he
held it; or
(d) Any other event which effectively deprives the owner of the possession, at the port of
destination, of the thing insured. (Section 130, Insurance Code).
A constructive total loss is one which gives to a person insured a right to abandon, under Section 139 of
the Insurance Code.
SECTION 139. A person insured by a contract of marine insurance may abandon the thing
insured, or any particular portion thereof separately valued by the policy, or otherwise separately
insured, and recover for a total loss thereof, when the cause of the loss is a peril injured against,

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(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to
recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths ;
The requirements for the application of Section 139 of the Insurance Code, quoted above, have not been
met. The logs involved, although placed in two barges, were not separately valued by the policy, nor
separately insured. Resultantly, the logs lost in barge TPAC-1000 in relation to the total number of logs
loaded on the same barge cannot be made the basis for determining constructive total loss. The logs
having been insured as one inseparable unit, the correct basis for determining the existence of
constructive total loss is the totality of the shipment of logs. Of the entirety of 1,208, pieces of logs, only
497 pieces thereof were lost or 41.45% of the entire shipment. Since the cost of those 497 pieces does
not exceed 75% of the value of all 1,208 pieces of logs, the shipment cannot be said to have sustained a
constructive total loss under Section 139(a) of the Insurance Code.
In the absence of either actual or constructive total loss, there can be no recovery by the insured Panama
against the insurer, Oriental Assurance.
DISPOSITIVE: Petitioner Oriental Assurance won.
CASE 78: ENRIQUEZ V. SUN LIFE (1971)
Author: Geloace
Topic: The policy
DOCTRINE:
Only the mailing of acceptance perfects a contract of insurance. As the locus poenitentie is ended when
the acceptance has passed beyond the control of the party.
FACTS: On September 24, 1917, Joaquin Herrer made application to the Sun Life Assurance Company
of Canada through its office in Manila for a life annuity. Two days later he paid the sum of P6,000 to the
manager of the company's Manila office and was given a receipt.
The application was immediately forwarded to the head office of the company at Montreal, Canada. On
November 26, 1917, the head office gave notice of acceptance by cable to Manila. (Whether on the same
day the cable was received notice was sent by the Manila office of Herrer that the application had been
accepted, is a disputed point, which will be discussed later.) On December 4, 1917, the policy was issued
at Montreal. On December 18, 1917, attorney Aurelio A. Torres wrote to the Manila office of the company
stating that Herrer desired to withdraw his application. The following day the local office replied to Mr.
Torres, stating that the policy had been issued, and called attention to the notification of November 26,
1917. This letter was received by Mr. Torres on the morning of December 21, 1917. Mr. Herrer died on
December 20, 1917.
ISSUE: WON contract for a life annuity was perfected.
RULING: NO. Article 16 of the civil code provides that any deficiency in the special law shall be supplied
by the Code. The Insurance Code does not provide for law on the principle of acceptance, thus the Civil
Code shall govern.
Civil Code provides that the acceptance made by letter binds the person making the offer only from the
date it has came to its knowledge. The contract of life annuity was not perfected. There was no
satisfactory evidence that the application acceptance came to the knowledge of Herrer. (Article 1262)
Only the mailing of acceptance, it has been said, completes the contract of insurance, as the locus
poenitentiae is ended when the acceptance has passed beyond the control of the party.
CASE 79: TANG VS CA AND PHILIPPINE AMERICAN LIFE INSURANCE COMPANY
Author: Jan Dennis Reyes
Topic: The Policy

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DOCTINE: It should be noted that under Art. 1332 above quoted, the obligation to show that the terms of
the contract had been fully explained to the party who is unable to read or understand the language of the
contract, when fraud or mistake is alleged, devolves on the party seeking to enforce it.
FACTS: Lee See Guat, an illiterate who spoke only chinese, applied for a life insurance. The application
consists of two parts, both in English language. The second part of her application dealt with her state of
health and because her answers indicated that she was healthy, the private respondent issued her the
policy, and indicated the petitioner as beneficiary.
Lee See Guat applied for another policy which was approved, but Part I of the application reads: I/we
hereby declare and agree that all questions, statements answers contained herein, as well as those made
to or to be mafe to the medical examiner in part II are full, complete and true and bind all the parties in
interest under the policy herein applied for; that there shall be no contract of insurance unless a policy is
issued on this application and the fun first premium thereon, according to the mode of payment specified
in answer to question 4D above, actually paid during the lifetime and good health of the Proposed
Insured."
Lee See Guat died of Lung cancer. Thus, petitioner claimed the benefits from the policy, but respondent
refused to pay on the ground of concealment and misrepresentation on the two policies. Thus filing the
instant case.
ISSUE: whether or not the respondent can refuse to give the benefits to petitioner because when
asked as to her health condition, she said she was healthy, but in truth and in fact she was
suffering from cancer.
HELD: yes. There is no doubt that she deliberately concealed material facts about her physical condition
and history and/or conspired with whoever assisted her in relaying false information to the medical
examiner, assuming that the examiner could not communicate directly with her."
It is petitioner who is seeking to enforce them even as fraud or mistake is not alleged. Accordingly,
respondent company was under no obligation to prove that the terms of the insurance contracts were fully
explained to the other party. Even if we were to say that the insurer is the one seeking the performance of
the contracts by avoiding paying the claim, it has to be noted as above stated that there has been no
imputation of mistake or fraud by the illiterate insured whose personality is represented by her beneficiary
the petitioner herein. In sum, Art. 1332 is inapplicable to the case at bar. Considering the findings of both
the CFI and Court of Appeals that the insured was guilty of concealment as to her state of health, we have
to affirm
CASE 80: RIZAL COMMERCIAL BANKING CORPORATION VS. CA
Author: Jimuel Dave L. Matias
Topic: Policy
DOCTRINE: Section 53 of the Insurance Code ordains that the insurance proceeds of the endorsed
policies shall be applied exclusively to the proper interest of the person for whose benefit it was made.
FACTS: GOYU applied for credit facilities and accommodations with RCBC. After due evaluation, RCBC
through its key officers, petitioners Uy Chun Bing and Eli D. Lao, recommended GOYUs application for
approval by RCBCs executive committee. A credit facility in the amount of P30 million was initially
granted. Upon GOYUs application and Uys and Laos recommendation, RCBCs executive committee
increased GOYUs credit facility to P50 million, then to P90 million, and finally to P117 million.
As security for its credit facilities with RCBC, GOYU executed two real estate mortgages and two chattel
mortgages in favor of RCBC. Under each of these four mortgage contracts, GOYU committed itself to
insure the mortgaged property with an insurance company approved by RCBC, and subsequently, to
endorse and deliver the insurance policies to RCBC.
GOYU obtained in its name a total of ten insurance policies from MICO. Alchester Insurance Agency, Inc.,
the insurance agent where GOYU obtained the Malayan insurance policies, issued nine endorsements in
favor of RCBC seemingly upon instructions of GOYU.

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INSURANCE | BATCH 5 (CASES 63-80)

Batch 4 G04 (2015)
One of GOYUs factory buildings in Valenzuela was gutted by fire. Consequently, GOYU submitted its
claim for indemnity on account of the loss insured against. MICO denied the claim on the ground that the
insurance policies were either attached pursuant to writs of attachments/garnishments issued by various
courts or that the insurance proceeds were also claimed by other creditors of GOYU alleging better rights
to the proceeds than the insured. GOYU filed a complaint for specific performance and damages.
RCBC, one of GOYUs creditors, also filed with MICO its formal claim over the proceeds of the insurance
policies, but said claims were also denied for the same reasons that MICO denied GOYUs claims.
In an interlocutory order, the Regional Trial Court of Manila (Branch 3), confirmed that GOYUs other
creditors, namely, Urban Bank, Alfredo Sebastian, and Philippine Trust Company obtained their
respective writs of attachments from various courts, covering an aggregate amount of P14,938,080.23,
and ordered that the proceeds of the ten insurance policies be deposited with the said court minus the
aforementioned P14,938,080.23. Accordingly, MICO deposited the amount of P50,505,594.60 with
Branch 3 of the Manila RTC.
After trial, Branch 3 of the Manila RTC rendered judgment in favor of GOYU.
From this judgment, all parties interposed their respective appeals. GOYU was unsatisfied with the
amounts awarded in its favor. MICO and RCBC disputed the trial courts findings of liability on their part.
The Court of Appeals partly granted GOYUs appeal, but sustained the findings of the trial court with
respect to MICO and RCBCs liabilities.
ISSUE: WON RCBC, as mortgagee, has any right over the insurance policies taken by GOYU, the
mortgagor, in case of the occurrence of loss.
RULING: We do not quite agree.
GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of
insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is
made. The peculiarity of the circumstances obtaining in the instant case presents a justification to take
exception to the strict application of said provision, it having been sufficiently established that it was the
intention of the parties to designate RCBC as the party for whose benefit the insurance policies were
taken out. Consider thus the following:
1. It is undisputed that the insured pieces of property were the subject of mortgage contracts entered into
between RCBC and GOYU in consideration of and for securing GOYUs credit facilities from RCBC. The
mortgage contracts contained common provisions whereby GOYU, as mortgagor, undertook to have the
mortgaged property properly covered against any loss by an insurance company acceptable to RCBC.
2. GOYU voluntarily procured insurance policies to cover the mortgaged property from MICO, no less than a
sister company of RCBC and definitely an acceptable insurance company to RCBC.
3. Endorsement documents were prepared by MICOs underwriter, Alchester Insurance Agency, Inc., and copies
thereof were sent to GOYU, MICO, and RCBC. GOYU did not assail, until of late, the validity of said
endorsements.
4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit facilities extended by
RCBC which was conditioned upon the endorsement of the insurance policies to be taken by GOYU to cover
the mortgaged properties.

This Court cannot over stress the fact that upon receiving its copies of the endorsement documents
prepared by Alchester, GOYU, despite the absence of its written conformity thereto, obviously considered
said endorsement to be sufficient compliance with its obligation under the mortgage contracts since
RCBC accordingly continued to extend the benefits of its credit facilities and GOYU continued to benefit
therefrom. Just as plain too is the intention of the parties to constitute RCBC as the beneficiary of the
various insurance policies obtained by GOYU. The intention of the parties will have to be given full force
and effect in this particular case. The insurance proceeds may, therefore, be exclusively applied to RCBC,
which under the factual circumstances of the case, is truly the person or entity for whose benefit the
policies were clearly intended.
Moreover, the laws evident intention to protect the interests of the mortgagee upon the mortgaged
property is expressed in Article 2127 of the Civil Code which states:
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ART. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents
or income not yet received when the obligation becomes due, and to the amount of the indemnity granted or
owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public use,
with the declarations, amplifications and limitations established by law, whether the estate remains in the
possession of the mortgagor, or it passes into the hands of a third person.

The proceeds of the 8 insurance policies endorsed to RCBC aggregate to P89,974,488.36. Being
exclusively payable to RCBC by reason of the endorsement by Alchester to RCBC, which we already
ruled to have the force and effect of an endorsement by GOYU itself, these 8 policies cannot be attached
by GOYUs other creditors up to the extent of the GOYUs outstanding obligation in RCBCs favor. Section
53 of the Insurance Code ordains that the insurance proceeds of the endorsed policies shall be applied
exclusively to the proper interest of the person for whose benefit it was made. In this case, to the extent of
GOYUs obligation with RCBC, the interest of GOYU in the subject policies had been transferred to RCBC
effective as of the time of the endorsement. These policies may no longer be attached by the other
creditors of GOYU, like Alfredo Sebastian in the present G.R. No. 128834, which may nonetheless
forthwith be dismissed for being moot and academic in view of the results reached herein. Only the two
other policies amounting to P19,646,224.92 may be validly attached, garnished, and levied upon by
GOYUs other creditors. To the extent of GOYUs outstanding obligation with RCBC, all the rest of the
other insurance policies above-listed which were endorsed to RCBC, are, therefore, to be released from
attachment, garnishment, and levy by the other creditors of GOYU.
DISPOSITIVE: The petition of Rizal Commercial Banking Corporation against the respondent Court in
CA-GR CV 48376 is DISMISSED for being moot and academic in view of the results herein arrived at.
Respondent Sebastians right as attaching creditor must yield to the preferential rights of Rizal
Commercial Banking Corporation over the Malayan insurance policies as first mortgagee.

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