G.R. No. L-31845 April 30, 1979
Said respondent supplied the essential data which petitioner
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 plaintiff (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
INSURANCE
Go.
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 type-wrote 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 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 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 effort, 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
1
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 offers to issue a policy for a different plan, the insurance
contract shall not be binding until the applicant accepts the policy
INSURANCE
offered; 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 offering the twenty-
year endowment insurance policy to children less than seven years of
age. What it offered 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
2
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 effect.
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 effect 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 offer 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 offer the 20-year 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 offense 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
INSURANCE
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 offer 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
3
never be ensconced nor disguished. Nonetheless, private respondent, in Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera, JJ.,
apparent bad faith, withheld the fact materal to the risk to be assumed concur.
by the insurance compary. As an insurance agent of Pacific Life, he
ought to know, as he surely must have known. his duty and Fernandez, J., took no part.
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.

INSURANCE 4
89 SCRA 543 Mercantile Law Insurance Law Concealment communicate. Whether intentional or unintentional the concealment
Insurance Contract as an Uberrima Fides Contract entitles the insurer to rescind the contract of insurance.
In March 1957, Ngo Hing filed an application for a 20-yearendowment
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 offered for minors below seven
years old. Grepalife, instead made a counter-offer 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 offer. 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
INSURANCE 5

G.R. No. L-30685 May 30, 1983
NG GAN ZEE, plaintiff-appellee,
vs.
ASIAN CRUSADER LIFE ASSURANCE
CORPORATION, defendant-appellant.
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.
INSURANCE
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 insurance-
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.
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 matter-
6
On 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
INSURANCE
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
7
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, above-quoted,
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:
INSURANCE
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.
8
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
insurance-
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.
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:
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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."
9
 Kwong did not have sufficient knowledge as to distinguish between a
tumor and a peptic ulcer. His statement therefore was made in good
Ng Gan Zee v. Asian faith. Asian should have made an inquiry as to the illness and operation
Crusader Life - of Kwong when it appeared on the face of the application that a question
appeared to be imperfectly answered. Asians failure to inquire
Imperfection in the constituted a waiver of the imperfection in the answer.

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.

INSURANCE 10
 122 SCRA 461 Mercantile Law Insurance Law Concealment Indeed, such statement must be presumed to have been made by him
Misrepresentation Duty of Insurance Company to Make Inquiry without knowledge of its incorrectness and without any deliberate intent
on his part to mislead Asian Crusader.
In May 1962, Kwong Nam applied for a 20-year endowment policywith
Asian Crusader Life Assurance Corporation. Asian Crusader asked the While it may be conceded that, from the viewpoint of a medical expert,
following question: the information communicated was imperfect, the same was
nevertheless sufficient to have induced Asian Crusader to make further
Has any life insurance company ever refused your application for inquiries about the ailment and operation of Kwong Nam. It has been
insurance or for reinstatement of a lapsed policy or offered you a held that where, upon the face of the application, a question appears to
policy different from that applied for? If, so, name company and be not answered at all or to be imperfectly answered, and the insurers
date. issue a policy without any further inquiry, they waive the imperfection
of the answer and render the omission to answer more fully immaterial.
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.
INSURANCE 11

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. 3-903-
766-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.
INSURANCE
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,
12
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 plaintiffs
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".
INSURANCE
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
13
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 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.
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.
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, ineffective (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.

Thus, "goad faith" is no defense in concealment. The insured's failure to SO ORDERED.

disclose the fact that he was hospitalized for two weeks prior to filing
his application for insurance, raises grave doubts about his bonafides. It Padilla, Davide, Jr., Bellosillo and Kapunan, JJ., concur.
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 suffered, for such information
necessarily constitutes an important factor which the insurer takes into
consideration in deciding whether to issue the policy or not . . . "

INSURANCE 14
 245 SCRA 268 (1995)
o INSURANCE LAW: Concealment
o Disclosure of material facts is required
o Good faith is not a defense in determining the materiality of the information to be
disclosed
o Waiver of medical examination by insured is not a defense
o 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:
o 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
INSURANCE
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.
15
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
INSURANCE
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.
16