CONCEALMENT (Sec 26-35)

THELMA VDA. DE CANILANG, petitioner,

vs.
HON. COURT OF APPEALS and GREAT PACIFIC LIFE ASSURANCE CORPORATION, respondents.
Facts:
Jaime Canilang consulted Dr. Claudio and was diagnosed as suffering from "sinus tachycardia." Mr. Canilang
consulted the same doctor again on 3 August 1982 and this time was found to have "acute bronchitis."

On the next day, 4 August 1982, Canilang applied for a "non-medical" insurance policy with Grepalife naming his
wife, Thelma, as his beneficiary. Canilang was issued ordinary life insurance with the face value of P19,700.

On 5 August 1983, Canilang died of "congestive heart failure," "anemia," and "chronic anemia." The wife as
beneficiary, filed a claim with Grepalife which the insurer denied on the ground that the insured had concealed
material information from it.

Vda Canilang filed a complaint with the Insurance Commissioner against Grepalife contending that as far as she
knows her husband was not suffering from any disorder and that he died of kidney disorder.

Grepalife was ordered to pay the widow by the Insurance Commissioner holding that there was no intentional
concealment on the Part of Canilang and that Grepalife had waived its right to inquire into the health condition of the
applicant by the issuance of the policy despite the lack of answers to "some of the pertinent questions" in the
insurance application. CA reversed.

Issue:
Whether or not Grepalife is liable.

Held:
SC took note of the fact that Canilang failed to disclose that hat he had twice consulted Dr. Wilfredo B. Claudio who
had found him to be suffering from "sinus tachycardia" and "acute bronchitis. Under the relevant provisions of the
Insurance Code, the information concealed must be information which the concealing party knew and "ought to
[have] communicate[d]," that is to say, information which was "material to the contract.

The information which Canilang failed to disclose was material to the ability of Grepalife to estimate the probable
risk he presented as a subject of life insurance. Had Canilang disclosed his visits to his doctor, the diagnosis made
and the medicines prescribed by such doctor, in the insurance application, it may be reasonably assumed that
Grepalife 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.

The materiality of the information withheld by Canilang from Grepalife did not depend upon the state of mind of
Jaime Canilang. A man's state of mind or subjective belief is not capable of proof in our judicial process, except
through proof of external acts or failure to act from which inferences as to his subjective belief may be reasonably
drawn. Neither does materiality depend upon the actual or physical events which ensue. Materiality relates rather to
the "probable and reasonable influence of the facts" upon the party to whom the communication should have been
made, in assessing the risk involved in making or omitting to make further inquiries and in accepting the application
for insurance; that "probable and reasonable influence of the facts" concealed must, of course, be determined
objectively, by the judge ultimately.

SC found it difficult to take seriously the argument that Grepalife had waived inquiry into the concealment by
issuing the insurance policy notwithstanding Canilang's failure to set out answers to some of the questions in the
insurance application. 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.
 SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner,

vs.

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

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

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 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 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.

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

NG GAN ZEE, plaintiff-appellee,
vs.
ASIAN CRUSADER LIFE ASSURANCE CORPORATION, defendant-appellant.

ESCOLIN, J.:

FACTS:

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, Ng Gan Zee as beneficiary. On the same date, Asian Crusader Life Assurance Corp, 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. Ng Gan Zee presented a claim in due form to the insurance company for payment of the face value of the
policy. Asian Crusader 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.

Ng Gan Zee brought the matter to the Insurance Commissioner, and found no material concealment on the part of
the insured and that, therefore, Ng Gan Zee should be paid the full face value of the policy.

However, appellant refused to settle its obligation and 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 found the argument has no factual basis, but the Asian Crusader maintains that when the insured
was examined for his application for life insurance, he gave the Asian Crusader's medical examiner false and
misleading information as to his ailment and previous operation, that he was operated on for a Tumor [mayoma] of
the stomach and claims that Tumor has been associated with ulcer of stomach. Tumor taken out was hard and of a
hen's egg size and that the operation was two [2] years ago in Chinese General Hospital by Dr. Yap. Now, claims he
is completely recovered.
On the bases of the 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

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?

HELD: NO, Section 27 of the Insurance Law [Act 2427] provides:

Sec. 27. Such party a contract of insurance must communicate to the other, in good faith, all facts
within his knowledge which are material to the contract, and which the other has not the means of
ascertaining, and as to which he makes no warranty. 3

Thus, "concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good faith,
and fair dealing requires that he should communicate it to the assurer, but he designedly and intentionally withholds
the same." 4

It has also been held "that the concealment must, in the absence of inquiries, be not only material, but fraudulent, or
the fact must have been intentionally withheld." 5

Assuming that the aforesaid answer given by the insured is false, as claimed by the appellant. Sec. 27 of the Insurance
Law, 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:

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."
 [ G.R. No. 207526, October 03, 2018 ]
THE INSULAR ASSURANCE CO., LTD., PETITIONER, V. THE HEIRS OF JOSE H. ALVAREZ,
RESPONDENTS.

[G.R. No. 210156, October 3, 2018]

UNION BANK OF THE PHILIPPINES, PETITIONER, V. HEIRS OF JOSE H. ALVAREZ, RESPONDENTS.
LEONEN, J.:

DOCTRINE: The Insurance Code dispenses with proof of fraudulent intent in cases of rescission due to concealment,
but not so in cases of rescission due to false representations. When an abundance of available documentary evidence
can be referenced to demonstrate a design to defraud, presenting a singular document with an erroneous entry does
not qualify as clear and convincing proof of fraudulent intent. Neither does belatedly invoking just one other
document, which was not even authored by the alleged miscreant.

FACTS:
Alvarez and his wife, Adelina, owned a residential lot with improvements covered by TCT No. C-315023 and
registered in the Caloocan City Registry of Deeds. On June 18, 1997, Alvarez applied for and was granted a housing
loan by UnionBank in the amount of P648,000.00. This loan was secured by a promissory note, a real estate mortgage
over the lot, and a mortgage redemption insurance taken on the life of Alvarez with UnionBank as beneficiary.
Alvarez was among the mortgagors included in the list of qualified debtors covered by the Group Mortgage
Redemption Insurance that UnionBank had with Insular Life.

Alvarez passed away on April 17, 1998. UnionBank filed with Insular Life a death claim under Alvarez's name
pursuant to the Group Mortgage Redemption Insurance.However, Insular Life denied the claim after determining
that Alvarez was not eligible for coverage as he was supposedly more than 60 years old at the time of his loan's
approval, hence, the monthly amortizations of the loan stood unpaid.

UnionBank sent the Heirs of Alvarez a demand letter, giving them 10 days to vacate the lot. Subsequently, on
October 4, 1999, the lot was foreclosed and sold at a public auction with UnionBank as the highest bidder.

The heirs of Alvarez filed a Complaint for specific performance to include a demand against Insular Life to fulfill its
obligation as an insurer under the Group Mortgage Redemption Insurance.

In its defense, UnionBank asserted that the Heirs of Alvarez could not feign ignorance over the existence of the loan
and mortgage considering the Special Power of Attorney executed by Adelina in favor of her late husband, which
authorized him to apply for a housing loan with UnionBank.

Insular Life maintained that based on the documents submitted by UnionBank, Alvarez was no longer eligible under
the Group Mortgage Redemption Insurance since he was more than 60 years old when his loan was approved.

Regional Trial Court ruled in favor of the Heirs of Alvarez wherein the court found no indication that Alvarez had
any fraudulent intent when he gave UnionBank information about his age and date of birth.

UnionBank and Insular Life filed separate appeals before the Court of Appeals.

But the Court of Appeals affirmed the Regional Trial Court's ruling. It noted that the errors assigned by Insular Life
and UnionBank to the Regional Trial Court boiled down to the issue of whether or not Alvarez was guilty of
fraudulent misrepresentation as to warrant the rescission of the Group Mortgage Redemption Insurance obtained by
UnionBank on Alvarez's life. It explained that fraud is never presumed and fraudulent misrepresentation as a
defense of the insurer to avoid liability must be established by convincing evidence. Insular Life, in this case, failed to
establish this defense. It only relied on Alvarez's Health Statement Form where he wrote "1942" as his birth year.
However, this form alone was insufficient to prove that he fraudulently intended to misrepresent his age. It noted
that aside from the Health Statement Form, Alvarez had to fill out an application for insurance. This application
would have supported the conclusion that he consistently wrote "1942" in all the documents that he had submitted to
UnionBank. However, the records made no reference to this document. [34]
The Court of Appeals added that assuming that fraudulent misrepresentation entitled Insular Life to rescind the
contract, it should have first complied with certain conditions before it could exercise its right to rescind. The
conditions were:
(1) prior notice of cancellation to [the] insured; (2) notice must be based on the occurrence after effective date of the
policy of one or more grounds mentioned; (3) must be in writing, mailed or delivered to the insured at the address
shown in the policy; and (4) must state the grounds relied upon provided in Section 64 of the Insurance Code and
upon [the] request of [the] insured, to furnish facts on which cancellation is based. [35]
None of these conditions were fulfilled. Finally, the letter of denial dated April 8, 1999 was furnished only to
UnionBank.

Insular Life opted to directly appeal before this Court. Its appeal was docketed as G.R. No. 207526. UnionBank, on the
other hand, filed its Motion for Reconsideration which the Court of Appeals denied and then filed before this Court
its Petition, docketed as G.R. No. 210156.

ISSUE: Does the Insular Life Assurance Co., Ltd. obliged to pay Union Bank of the Philippines the balance of Jose H.
Alvarez's loan given the claim that he lied about his age at the time of the approval of his loan?

HELD: YES

Spouses Manalo v. Roldan-Confesor[85] explained what qualifies as clear and convincing proof:
Clear and convincing proof is ". . . more than mere preponderance, but not to extent of such certainty as is required
beyond reasonable doubt as in criminal cases . . ."while substantial evidence ". . . consists of more than a mere scintilla
of evidence but may be somewhat less than a preponderance . . ." Consequently, in the hierarchy of evidentiary
values, We find proof beyond reasonable doubt at the highest level, followed by clear and convincing evidence,
preponderance of evidence, and substantial evidence, in that order.[86]
The assailed Court of Appeals May 21, 2013 Decision discussed the evidentiary deficiency in Insular Life's cause, i.e.,
how it relied on nothing but a single piece of evidence to prove fraudulent intent:

At bar, Insular Life basically relied on the Health Statement form personally accomplished by Jose Alvarez wherein
he wrote that his birth year was 1942. However, such form alone is not sufficient absent any other indications that he
purposely wrote 1942 as his birth year. It should be pointed out that, apart from a health statement form, an
application for insurance is required first and foremost to be answered and filled-up. However, the records are
deficient of this application which would eventually depict to Us Jose Alvarez's fraudulent intent to misrepresent his
age. For, if he continually written (sic) 1942 in all the documents he submitted with UBP and Insular Life then there is
really a clear precursor of his fraudulent intent. Otherwise, a mere Health Statement form bearing a wrong birth year
should not be relied at.

As aptly pointed out by the court a quo:

....
If the defendant Insular Life had any doubt about the information, particularly the data which are material to the
risk, such as the age of the insured, which defendant Union Bank provided, it is not justified for the insurer to rely
solely therefrom, but it is obligated under the circumstances to make further inquiry. . . . [87]

The Court of Appeals' observations are well-taken. Consistent with the requirement of clear and convincing
evidence, it was Insular Life's burden to establish the merits of its own case. Relative strength as against respondents'
evidence does not suffice.

A single piece of evidence hardly qualifies as clear and convincing. Its contents could just as easily have been an
isolated mistake.

Alvarez must have accomplished and submitted many other documents when he applied for the housing loan and
executed supporting instruments like the promissory note, real estate mortgage, and Group Mortgage Redemption
Insurance. A design to defraud would have demanded his consistency. He needed to maintain appearances across all
documents. Otherwise, he would doom his own ruse.

He needed to have been consistent, not only before Insular Life, but even before UnionBank. Even as it was only
Insular Life's approval that was at stake with the Group Mortgage Redemption Insurance, Alvarez must have
realized that as it was an accessory agreement to his housing loan with UnionBank. Insular Life was well in a
position to verify information, whether through simple cross referencing or through concerted queries with
UnionBank.

Despite these circumstances, the best that Insular Life could come up with before the Regional Trial Court and the
Court of Appeals was a single document. The Court of Appeals was straightforward, i.e., the most basic document
that Alvarez accomplished in relation to Insular Life must have been an insurance application form. Strangely,
Insular Life failed to adduce even this document—a piece of evidence that was not only commonsensical, but also
one which has always been in its possession and disposal.

Even now, before this Court, Insular Life has been unable to address the importuning for it to account for Alvarez's
insurance application form. Given the basic presumption under our rules on evidence "[t]hat evidence willfully
suppressed would be adverse if produced,"[88] this raises doubts, perhaps not entirely on Insular Life's good faith,
but, at the very least, on the certainty and confidence it has in its own evidence.

Rather than demonstrate Alvarez's consistent fraudulent design, Insular Life comes before this Court pleading
nothing but just one other instance when Alvarez supposedly declared himself to have been 55 years old. It claims
that it did not rely solely on Alvarez's Health Statement Form but also on his Background Checking Report.

Reliance on this report is problematic. It was not prepared by Alvarez himself. Rather, it was accomplished by a
UnionBank employee following the conduct of credit investigation. Insular Life notes a statement by UnionBank's
Josefina Barte that all information in the Background Checking Report was supplied by Alvarez. [90] But this is a self-
serving statement, wholly reliant on the assumption of that employee's flawless performance of her duty to record
findings. Precisely, it is a claim that needed to be vetted. It had to be tested under the crucible of a court trial, that is,
through the rigors of presentation and authentication of evidence, cross-examination, and personal perusal by a
judge. Yet, Insular Life would now have this Court sustain its appreciation, solely on the strength of its own
representations.

An erroneous statement's dual occurrence in the Health Statement Form and the Background Checking Report
concededly reduces the likelihood of honest mistakes or overlooked inaccuracies. However, in the context of so many
other documents being available to ascertain the error, a mere dual occurrence does not definitively establish a
fraudulent scheme. This is especially so when the errors could not be directly and exclusively attributed to a single
author.

Pleading just one (1) additional document still fails to establish the consistent fraudulent design that was Insular
Life's burden to prove by clear and convincing evidence. Insular Life had all the opportunity to demonstrate
Alvarez's pattern of consistently indicating erroneous entries for his age. All it needed to do was to inventory the
documents submitted by Alvarez and note the statements he made concerning his age. This was not a cumbersome
task, yet it failed at it. Its failure to discharge its burden of proving must thwart its plea for relief from this Court.

Saturnino vs The Philippine American Life Insurance Company

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

Facts: The policy sued upon is one for 20-year endowment non-medical insurance. This kind of policy dispenses
with the medical examination of the applicant usually required in ordinary life policies. However, detailed
information is called for in the application concerning the applicant’s health and medical history. The written
application in this case was submitted by Saturnino to appellee on November 16, 1957, witnessed by appellee’s agent
Edward A. Santos. The policy was issued on the same day, upon payment of the first year’s premium of P339.25. On
September 19, 1958 Saturnino died of pneumonia, secondary to influenza. Appellants here, who are her surviving
husband and minor child, respectively, demanded payment of the face value of the policy. The claim was rejected
and this suit was subsequently instituted. It appears that two months prior to the issuance of the policy or on
September 9, 1957, Saturnino was operated on for cancer, involving complete removal of the right breast, including
the pectoral muscles and the glands found in the right armpit. She stayed in the hospital for a period of eight days,
after which she was discharged, although according to the surgeon who operated on her she could not be considered
definitely cured, her ailment being of the malignant type. Notwithstanding the fact of her operation Estefania A.
Saturnino did not make a disclosure thereof in her application for insurance. On the contrary, she stated therein that
she did not have, nor had she ever had, among other ailments listed in the application, cancer or other tumors; that
she had not consulted any physician, undergone any operation or suffered any injury within the preceding five years;
and that she had never been treated for nor did she ever have any illness or disease peculiar to her sex, particularly of
the breast, ovaries, uterus, and menstrual disorders. The application also recites that the foregoing declarations
constituted “a further basis for the issuance of the policy.”

Issue: Whether or not the failure of Saturnino to disclose the severity of his previous illness is material to the
avoidance of the insurance policy.

Held: Yes. In the application for insurance signed by the insured in this case, she agreed to submit to a medical
examination by a duly appointed examiner of appellee if in the latter’s opinion such examination was necessary as
further evidence of insurability. In not asking her to submit to a medical examination, appellants maintain, appellee
was guilty of negligence, which precluded it from finding about her actual state of health. No such negligence can be
imputed to appellee. It was precisely because the insured had given herself a clean bill of health that appellee no
longer considered an actual medical checkup necessary.

In the first place the 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 a concealment, whether intentional or unintentional, entitles the insurer to rescind the contract of
insurance, concealment being defined as “negligence to communicate that which a party knows and ought to
communicate” (Sections 24 & 26, Act No. 2427). In the case of Argente v. West Coast Life Insurance Co., 51 Phil. 725,
732, this Court said, quoting from Joyce, The Law of Insurance, 2nd ed., Vol. 3:

“The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the insurer into accepting the
risk, or accepting it at the rate of premium agreed upon. The insurer, relying upon the belief that the assured will disclose every
material fact within his actual or presumed knowledge, is misled into a belief that the circumstance withheld does not exist, and
he is thereby induced to estimate the risk upon a false basis that it does not exist.”

Edillon vs Manila Bankers Life Insurance Corporation

G.R. No. L-34200 September 30, 1982

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. (Rollo,
p. 27.) 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. (Rollo, p. 28.) 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.

Issue: Whether or not there’s concealment of age by the insured to justify the denial of the insurance claims.

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 plain, human justice of this doctrine is perfectly apparent. To allow a company to accept one’s money for a policy
of insurance which it then knows to be void and of no effect, though it knows as it must, that the assured believes it
to be valid and binding, is so contrary to the dictates of honesty and fair dealing, and so closely related to positive
fraud, as to be abhorent to fairminded men. It would be to allow the company to treat the policy as valid long enough
to get the premium on it, and leave it at liberty to repudiate it the next moment. This cannot be deemed to be the real
intention of the parties. To hold that a literal construction of the policy expressed the true intention of the company
would be to indict it, for fraudulent purposes and designs which we cannot believe it to be guilty of.

MA. LOURDES S. FLORENDO, Petitioner,

vs.
PHILAM PLANS, INC., PERLA ABCEDE MA. CELESTE ABCEDE, Respondents.
FACTS:

On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan with respondent Philam
Plans, Inc. (Philam Plans) after some convincing by respondent Perla Abcede. The plan had a pre-need price
of P997,050.00, payable in 10 years, and had a maturity value of P2,890,000.00 after 20 years. Manuel signed the
application and left to Perla the task of supplying the information needed in the application. Respondent Ma. Celeste
Abcede, Perla’s daughter, signed the application as sales counselor.

The comprehensive pension plan also provided life insurance coverage to Florendo. This was covered by a Group
Master Policy that Philam Life issued to Philam Plans. Under the master policy, Philam Life was to automatically
provide life insurance coverage, including accidental death, to all who signed up for Philam Plans’ comprehensive
pension plan. If the plan holder died before the maturity of the plan, his beneficiary was to instead receive the
proceeds of the life insurance, equivalent to the pre-need price. Further, the life insurance was to take care of any
unpaid premium until the pension plan matured, entitling the beneficiary to the maturity value of the pension plan.

On October 30, 1997 Philam Plans issued Pension Plan Agreement to Manuel, with petitioner Ma. Lourdes S.
Florendo, his wife, as beneficiary. In time, Manuel paid his quarterly premiums.

Eleven months later or on September 15, 1998, Manuel died of blood poisoning. Subsequently, Lourdes filed a claim
with Philam Plans for the payment of the benefits under her husband’s plan.10 Because Manuel died before his
pension plan matured and his wife was to get only the benefits of his life insurance, Philam Plans forwarded her
claim to Philam Life.

On May 3, 1999 Philam Plans wrote Lourdes declining her claim. Philam Life found that Manuel was on maintenance
medicine for his heart and had an implanted pacemaker. Further, he suffered from diabetes mellitus and was taking
insulin. Lourdes renewed her demand for payment under the plan but Philam Plans rejected it, prompting her to file
the present action against the pension plan company before the RTC of QC.

On March 30, 2006 the RTC ruled that Manuel was not guilty of concealing the state of his health from his pension
plan application; ordered Philam Plans, Perla and Ma. Celeste, solidarily, to pay Lourdes all the benefits from her
husband’s pension plan, namely: P997,050.00, the proceeds of his term insurance, and P2,890,000.00 lump sum
pension benefit upon maturity of his plan; P100,000.00 as moral damages; and to pay the costs of the suit.

On December 18, 2007, CA reversed the RTC decision,17 holding that insurance policies are traditionally contracts
uberrimae fidae or contracts of utmost good faith. It required Manuel to disclose conditions affecting the risk of which
he was aware or material facts that he knew or ought to know.
ISSUES:

(1) Whether Manuel is guilty of concealing his illness when he kept blank and did not answer questions in his
pension plan application.
(2) Whether Manuel was bound by the failure of Perla and Ma. Celeste to declare the condition of Manuel’s health.
(3) Whether Philam Plans’ approval of Manuel’s pension plan application and acceptance of his premium payments
precluded it from denying Lourdes’ claim.
HELD:

(1) YES. Lourdes contends that Philam Plans should have returned the application to him for completion. Since it
approved the application just as it was, it cannot cry concealment on Manuel’s part, that Philam Plans never queried
Manuel directly regarding the state of his health.

Since Philam Plans waived medical examination for Manuel, it had to rely largely on his stating the truth regarding
his health in his application. He knew more than anyone that he had been under treatment for heart condition and
diabetes for more than five years preceding his application. But he kept those crucial facts from Philam Plans.

When Manuel signed the application, he adopted as his own the written representations and declarations embodied
in it. It is clear from these representations that he concealed his chronic heart ailment and diabetes from Philam Plans.
The pertinent portion of his representations and declarations read as follows:
(c) I have never been treated for heart condition, high blood pressure, cancer, diabetes, lung, kidney or
stomach disorder or any other physical impairment in the last five years.
(d) I am in good health and physical condition.

Manuel signed the application without filling in the details regarding his continuing treatments for heart condition
and diabetes. The assumption is that he has never been treated for the said illnesses in the last five years preceding his
application.
Lourdes insists that Perla, the soliciting agent, knew that Manuel had a pacemaker before he signed up for the
pension plan. But by its tenor, the responsibility for preparing the application belonged to Manuel. Nothing in it
implies that someone else may provide the information that Philam Plans needed. Manuel cannot sign the
application and disown the responsibility for having it filled up. If he furnished Perla the needed information and
delegated to her the filling up of the application, then she acted on his instruction, not on Philam Plans’ instruction.
Manuel still had his pacemaker when he applied for a pension plan and it is an admission that he remained under
treatment for irregular heartbeat within five years preceding that application.

Manuel had been taking medicine when he submitted his pension plan application. These clearly fell within the five-
year period. It is not claimed that Perla was aware of his two other afflictions that needed medical treatments.
Pursuant to Section 27 of IC, Manuel’s concealment entitles Philam Plans to rescind its contract of insurance with
him.

(2) Lourdes contends that the mere fact that Manuel signed the application in blank and let Perla fill in the details did
not make her his agent and bind him to her concealment of his true state of health. There is no evidence of collusion
between them.

Manuel, in signing the pension plan application, he certified that he wrote all the information stated in it or had
someone do it under his direction. Assuming that it was Perla who filled up the application form, Manuel is still
bound by what it contains since he certified that he authorized her action. Philam Plans had every right to act on the
faith of that certification. Manuel was made aware when he signed the pension plan application that, in granting the
same, Philam Plans and Philam Life were acting on the truth of the representations contained in that application.

Manuel, a civil engineer and manager of a construction company, could be expected to know that one must read
every document, especially if it creates rights and obligations affecting him, before signing the same. It could
reasonably be expected that he would not trifle with something that would provide additional financial security to
him and to his wife in his twilight years.

(3) Lourdes contends that any defect or insufficiency in the information provided by his pension plan application
should be deemed waived after the same has been approved, the policy has been issued, and the premiums have
been collected.
The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a one-year
incontestability period.

The incontestability clause precludes the insurer from disowning liability under the policy it issued on the ground of
concealment or misrepresentation regarding the health of the insured after a year of its issuance.

Since Manuel died on the eleventh month following the issuance of his plan,36 the one year incontestability period
has not yet set in.

CA decision AFFIRMED.
REPRESENTATION (Sec 36-48)

Kinds of misrepresentation

THE INSULAR LIFE ASSURANCE CO., LTD., petitioner,

vs.
SERAFIN D. FELICIANO ET AL., respondents.

FACTS:

Evaristo Feliciano, who died on September 29, 1935, was suffering with advanced pulmonary tuberculosis when he
signed his applications for insurance with the petitioner on October 12, 1934. On that same date Doctor Trepp, who
had taken X-ray pictures of his lungs, informed the respondent Dr. Serafin D. Feliciano, brother of Evaristo, that the
latter "was already in a very serious ad practically hopeless condition." Nevertheless the question contained in the
application — "Have you ever suffered from any
ailment or disease of the lungs, pleurisy, pneumonia or asthma?" — appears to have been answered , "No".

False answer above referred to, as well as the others, was written by the Company's soliciting agent David, in
collusion with the medical examiner Dr. Gregorio Valdez, for the purpose of securing the Company's approval of the
application so that the policy to be issued thereon might be credited to said agent in connection with the inter-
provincial contest which the Company was then holding among its soliciting agents to boost the sales of its policies.
Agent David bribed Medical Examiner Valdez with money which the former
borrowed from the applicant's mother by way of advanced payment on the premium, according to the finding of the
Court of Appeals. Said court also found that before the insured signed the application he, as well as the members of
his family, told the agent and the medical examiner that he had been sick and coughing for some time and that he
had gone three times to the Santol Sanatorium and had X-ray pictures of his lungs taken; but that in spite of such
information the agent and the medical examiner told them that the
applicant was a fit subject for insurance.

The policy and the application constitute the entire contract between the parties hereto. Said contract provides
“xxx and the Company shall not be bound by any promise or representation heretofore or hereafter given by any
person other than the above-named officials, and by them only in writing and signed conjointly as stated”

ISSUE:

Whether or not Insular Life is bound by the acts of its agents? Whether or not Feliciano is entitled to the insurance
benefits?

RULING:

NO. Said insurance policy is void ab initio. Insular Life is not bound by the acts of its agents, as in this case there was
connivance between the medical examiner, the agent and Feliciano.From the facts of the case we cannot escape the
conclusion that the insured acted in connivance with the soliciting agent and the medical examiner of the Company
in accepting the policies in question." By accepting the policy Feliciano became charged with knowledge of its
contents, whether he actually read it or not. The insured, therefore, had no right to rely — and we cannot believe he
relied in good faith — upon the oral representation of said agent and
medical examiner that he (the applicant) was a fit subject for insurance notwithstanding that he had been and was
still suffering with advanced pulmonary tuberculosis. We are to conclude that the insured was a co-participant, and
co-responsible with Agent David
and Medical Examiner Valdez, in the fraudulent procurement of the policies in question and that by reason thereof
said policies are void ab initio.
 Saturnino vs. The Philippine American Life Insurance Company
G.R. No. L-16163, February 28, 1963
Makalintal, J.:

FACTS:
The policy sued upon is one for 20-year endowment non-medical insurance. This kind of policy dispenses with the
medical examination of the applicant usually required in ordinary life policies. However, detailed information is
called for in the application concerning the applicant's health and medical history.

The written application in this case was submitted by Saturnino to appellee on November 16, 1957, witnessed by
appellee's agent Edward A. Santos. The policy was issued on the same day, upon payment of the first year's premium
of P339.25. On September 19, 1958 Saturnino died of pneumonia, secondary to influenza. Appellants here, who are
her surviving husband and minor child, respectively, demanded payment of the face value of the policy. The claim
was rejected and this suit was subsequently instituted.

It appears that two months prior to the issuance of the policy or on September 9, 1957, Saturnino was operated on for
cancer, involving complete removal of the right breast, including the pectoral muscles and the glands found in the
right armpit. She stayed in the hospital for a period of eight days, after which she was discharged, although
according to the surgeon who operated on her she could not be considered definitely cured, her ailment being of the
malignant type.

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

ISSUE:

Did the insured make false representations of material facts as to avoid the policy?

RULING:

Yes, the insured made false representations of material facts as to avoid the policy.

The Insurance Law (Section 30) provides that "materiality is to be determined not by the event, but solely by the
probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his
estimate of the proposed contract, or in making his inquiries."

In this case, it seems to be the contention of appellants that the facts subject of the representation were not material in
view of the "non-medical" 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. It is logical to assume that if appellee had been properly apprised of the insured's
medical history she would at least have been made to undergo medical examination in order to determine her
insurability.

Moreover, if it were the law that an insurance company could not depend a policy on the ground of
misrepresentation, unless it could show actual knowledge on the part of the applicant that the statements were false,
then it is plain that it would be impossible for it to protect itself and its honest policyholders against fraudulent and
improper claims. It would be wholly at the mercy of any one who wished to apply for insurance, as it would be
impossible to show actual fraud except in the extremest cases. It could not rely on an application as containing
information on which it could act. There would be no incentive to an applicant to tell the truth.

Edillon vs. Manila Bankers Life Insurance Corporation

G.R. No. L-34200, September 30, 1982
Vasquez, J.:
FACTS:

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. (Rollo, p. 27.) 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. (Rollo, p. 28.) 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 an action.

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) 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:

Is the acceptance by the insurance corporation of the premium and the issuance of the corresponding certificate of
insurance deemed a waiver of the exclusionary condition of overage stated in the said certificate of insurance?

RULING:

Yes, 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, as was held in the case of "Que Chee Gan vs. Law Union Insurance Co., Ltd.,",
98 Phil. 85.

The law, supported by a long line of cases, is expressed by American Jurisprudence (Vol. 29, pp. 611-612) to be as
follows:

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 stopped 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.' (29
Am. Jur., Insurance, section 807, at pp. 611-612.)

In this case, the age of the insured Carmen O. 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 at 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.

The plain, human justice of this doctrine is perfectly apparent. To allow a company to accept one's money for a policy
of insurance which it then knows to be void and of no effect, though it knows as it must, that the assured believes it
to be valid and binding, is so contrary to the dictates of honesty and fair dealing, and so closely related to positive
fraud, as to be abhorent to fairminded men. It would be to allow the company to treat the policy as valid long enough
to get the premium on it, and leave it at liberty to repudiate it the next moment. This cannot be deemed to be the real
intention of the parties. To hold that a literal construction of the policy expressed the true intention of the company
would be to indict it, for fraudulent purposes and designs which we cannot believe it to be guilty of (Wilson vs.
Commercial Union Assurance Co., 96 Atl. 540, 543544).
INCONTESTABILITY CLAUSE

Manila Bankers Life Insurance Corporation vs Aban

G.R. No. 175666 July 29, 2013

Facts:

On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Manila Bankers Life Insurance Corporation
(Bankers Life), designating respondent Cresencia P. Aban (Aban), her niece, as her beneficiary. Petitioner issued
Insurance Policy No. 747411 (the policy), with a face value of P 100,000.00, in Sotero’s favor on August 30, 1993, after
the requisite medical examination and payment of the insurance premium. On April 10, 1996, when the insurance
policy had been in force for more than two years and seven months, Sotero died. Respondent filed a claim for the
insurance proceeds on July 9, 1996. Petitioner conducted an investigation into the claim, and came out with the
following findings: 1. Sotero did not personally apply for insurance coverage, as she was illiterate; 2. Sotero was
sickly since 1990; 3. Sotero did not have the financial capability to pay the insurance premiums on Insurance Policy
No. 747411; 4. Sotero did not sign the July 3, 1993 application for insurance; and 5. Respondent was the one who filed
the insurance application, and x x x designated herself as the beneficiary. Petitoner also claims that its insurance
agent, who solicited the Sotero account, happens to be the cousin of respondent’s husband, and insinuates that both
connived to commit insurance fraud. For the above reasons, petitioner denied respondent’s claim on April 16, 1997
and refunded the premiums paid on the policy.

Issue:

Whether or not Manila Bankers is barred from denying the insurance claims based on fraud or concealment.

Held:

Yes. The “incontestability clause” is a provision in law that 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 (2) 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 rescindible by
reason of fraudulent concealment or misrepresentation of the insured or his agent.

The purpose of the law is to give protection to the insured or his beneficiary by limiting the rescinding of the contract
of insurance on the ground of fraudulent concealment or misrepresentation to a period of only two (2) years from the
issuance of the policy or its last reinstatement.

The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or misrepresentation
within a period of two (2) years. It is not fair for the insurer to collect the premiums as long as the insured is still
alive, only to raise the issue of fraudulent concealment or misrepresentation when the insured dies in order to defeat
the right of the beneficiary to recover under the policy.

Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured. Under the provision,
an insurer is given two years – from the effectivity of a life insurance contract and while the insured is alive – to
discover or prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment or
misrepresentation of the insured or his agent. After the two-year period lapses, or when the insured dies within the
period, the insurer must make good on the policy, even though the policy was obtained by fraud, concealment, or
misrepresentation. This is not to say that insurance fraud must be rewarded, but that insurers who recklessly and
indiscriminately solicit and obtain business must be penalized, for such recklessness and lack of discrimination
ultimately work to the detriment of bona fide takers of insurance and the public in general.
Insurers are required to diligently conduct investigations on each policy they issue within the two-year period
mandated under Section 48. Besides, if insurers cannot vouch for the integrity and honesty of their insurance
agents/salesmen and the insurance policies they issue, then they should cease doing business. If they could not
properly screen their agents or salesmen before taking them in to market their products, or if they do not thoroughly
investigate the insurance contracts they enter into with their clients, then they have only themselves to blame.
Otherwise said, insurers cannot be allowed to collect premiums on insurance policies, use these amounts collected
and invest the same through the years, generating profits and returns therefrom for their own benefit, and thereafter
conveniently deny insurance claims by questioning the authority or integrity of their own agents or the insurance
policies they issued to their premium-paying clients. This is exactly one of the schemes which Section 48 aims to
prevent.
THE POLICY (Sec 49-66)

Perez v. CA- Perfection of the Contract of Insurance

323 SCRA 613 (2000)

Facts:

• Primitivo Perez had been insured with the BF Lifeman Insurance Corporation since 1980 for P20,000.00.
• In October 1987, an agent of Lifeman, Rodolfo Lalog, visited Perez in Quezon and convinced him to apply for
additional insurance coverage of P50,000.00, to avail of the ongoing promotional discount of P400.00 if the
premium were paid annually.

• Primitivo B. Perez accomplished an application form for the additional insurance coverage. Virginia A. Perez,
his wife, paid P2,075.00 to Lalog. The receipt issued by Lalog indicated the amount received was a “deposit."

• Unfortunately, Lalog lost the application form accomplished by Perez and so on October 28, 1987, he asked
the latter to fill up another application form. On November 1, 1987, Perez was made to undergo the required
medical examination, which he passed.
• Lalog forwarded the application for additional insurance of Perez, together with all its supporting papers, to
the office of BF Lifeman Insurance Corporationn in Quezon which office was supposed to forward the papers
to the Manila office.
• On November 25, 1987, Perez died while he was riding a banca which capsized during a storm.
• At the time of his death, his application papers for the additional insurance were still with the Quezon office.
Lalog testified that when he went to follow up the papers, he found them still in the Quezon office and so he
personally brought the papers to the Manila office of BF Lifeman Insurance Corporation. It was only on
November 27, 1987 that said papers were received in Manila.
• Without knowing that Perez died on November 25, 1987, BF Lifeman Insurance Corporation approved the
application and issued the corresponding policy for the P50,000.00 on December 2, 1987
• Virginia went to Manila to claim the benefits under the insurance policies of the deceased. She was paid
P40,000.00 under the first insurance policy for P20,000.00 (double indemnity in case of accident) but the
insurance company refused to pay the claim under the additional policy coverage of P50,000.00, the proceeds
of which amount to P150,000.00 in view of a triple indemnity rider on the insurance policy.
• In its letter of January 29, 1988 to Virginia A. Perez, the insurance company maintained that the insurance for
P50,000.00 had not been perfected at the time of the death of Primitivo Perez. Consequently, the insurance
company refunded the amount of P2,075.00 which Virginia Perez had paid
• Lifeman filed for the rescission and the declaration of nullity. Perez, on the other hand, averred that the
deceased had fulfilled all his prestations under the contract and all the elements of a valid contract are
present.
• RTC ruled in favor of Perez. CA reversed.

Issue:

Whether or not there was a perfected additional insurance contract

Held:

The contract was not perfected.

Insurance is a contract whereby, for a stipulated consideration, one party undertakes to compensate the other for loss
on a specified subject by specified perils. A contract, on the other hand, is a meeting of the minds between two
persons whereby one binds himself, with respect to the other to give something or to render some service.

Consent must be manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the acceptance absolute. When Primitivo filed an application for
insurance, paid P2,075.00 and submitted the results of his medical examination, his application was subject to the
acceptance of private respondent BF Lifeman Insurance Corporation. The perfection of the contract of insurance
between the deceased and respondent corporation was further conditioned upon compliance with the following
requisites stated in the application form:

"There shall be no contract of insurance unless and until a policy is issued on this application and that the said policy
shall not take effect until the premium has been paid and the policy delivered to and accepted by me/us in person
while I/We, am/are in good health."

The assent of private respondent BF Lifeman Insurance Corporation therefore was not given when it merely received
the application form and all the requisite supporting papers of the applicant. Its assent was given when it issues a
corresponding policy to the applicant. Under the above-mentioned provision, it is only when the applicant pays the
premium and receives and accepts the policy while he is in good health that the contract of insurance is deemed to
have been perfected.

It is not disputed, however, that when Primitivo died on November 25, 1987, his application papers for additional
insurance coverage were still with the branch office of respondent corporation in Gumaca and it was only two days
later, or on November 27, 1987, when Lalog personally delivered the application papers to the head office in Manila.
Consequently, there was absolutely no way the acceptance of the application could have been communicated to the
applicant for the latter to accept inasmuch as the applicant at the time was already dead.
PREMIUM (Sec 77-84)
G.R. No. 137172 April 4, 2001
UCPB GENERAL INSURANCE CO., INC., petitioner,
vs.
MASAGANA TELAMART, INC., respondent.

FACTS:
In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision[1] of the Court of Appeals,
which affirmed with modification the judgment of the trial court (a) allowing Respondent to consign the sum of
P225,753.95 as full payment of the premiums for the renewal of the five insurance policies on Respondent’s
properties; (b) declaring the replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993;
and (c) ordering Petitioner to pay Respondent P18,645,000.00 as indemnity for the burned properties covered by the
renewal-replacement policies. The modification consisted in the (1) deletion of the trial court’s declaration that three
of the policies were in force from August 1991 to August 1992; and (2) reduction of the award of the attorney’s fees
from 25% to 10% of the total amount due the Respondent.

Masagana obtained from UCPB five (5) insurance policies on its Manila properties.

The policies were effective from May 22, 1991 to May 22, 1992. On June 13, 1992, Masagana’s properties were razed
by fire. On July 13, 1992, plaintiff tendered five checks for P225,753.45 as renewal premium payments. A receipt was
issued. On July 14, 1992, Masagana made its formal demand for indemnification for the burned insured properties.
UCPB then rejected Masagana’s claims under the argument that the fire took place before the tender of payment.
Hence Masagana filed this case.

The Court of Appeals disagreed with UCPB’s argument that Masagana’s tender of payment of the premiums on 13
July 1992 did not result in the renewal of the policies, having been made beyond the effective date of renewal as
provided under Policy Condition No. 26, which states:
26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the policy period mails or
delivers to the assured at the address shown in the policy notice of its intention not to renew the policy or to
condition its renewal upon reduction of limits or elimination of coverages, the assured shall be entitled to renew the
policy upon payment of the premium due on the effective date of renewal.

Both the Court of Appeals and the trial court found that sufficient proof exists that Masagana, which had procured
insurance coverage from UCPB for a number of years, had been granted a 60 to 90-day credit term for the renewal of
the policies. Such a practice had existed up to the time the claims were filed. Most of the premiums have been paid
for more than 60 days after the issuance. Also, no timely notice of non-renewal was made by UCPB.

The Supreme Court ruled against UCPB in the first case on the issue of whether the fire insurance policies issued by
petitioner to the respondent covering the period from May 22, 1991 to May 22, 1992 had been extended or renewed
by an implied credit arrangement though actual payment of premium was tendered on a later date and after the
occurrence of the risk insured against.

UCPB filed a motion for reconsideration.

The Supreme Court, upon observing the facts, affirmed that there was no valid notice of non-renewal of the policies
in question; as there is no proof at all that the notice sent by ordinary mail was received by Masagana. Also, the
premiums were paid within the grace period.

ISSUE:
Whether or not Section 77 of the Insurance Code of 1978 must be strictly applied to Petitioner’s advantage despite its
practice of granting a 60- to 90-day credit term for the payment of premiums.

RULING:
No. Petition denied.

Ratio:
Section 77 of the Insurance Code provides: No policy or contract of insurance issued by an insurance company is
valid and binding unless and until the premium thereof has been paid…
An exception to this section is Section 78 which provides: Any acknowledgment in a policy or contract of insurance
of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until premium is actually paid.

Makati Tuscany v Court of Appeals- Section 77 may not apply if the parties have agreed to the payment in
installments of the premium and partial payment has been made at the time of loss.
Section 78 allows waiver by the insurer of the condition of prepayment and makes the policy binding despite the fact
that premium is actually unpaid. Section 77 does not expressly prohibit an agreement granting credit extension. At
the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily
accepted.

The Tuscany case has provided another exception to Section 77 that the insurer may grant credit extension for the
payment of the premium. If the insurer has granted the insured a credit term for the payment of the premium and
loss occurs before the expiration of the term, recovery on the policy should be allowed even though the premium is
paid after the loss but within the credit term.

Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit term
within which to pay the premiums. That agreement is not against the law, morals, good customs, public order or
public policy. The agreement binds the parties.

It would be unjust if recovery on the policy would not be permitted against Petitioner, which had consistently
granted a 60- to 90-day credit term for the payment of premiums. Estoppel bars it from taking refuge since Masagana
relied in good faith on such practice. Estoppel then is the fifth exception.

G.R. No. 190702, February 27, 2017

JAIME T. GAISANO, Petitioner,
vs.
DEVELOPMENT INSURANCE AND SURETY CORPORATION, Respondent.

FACTS:
Petitioner was the registered owner of a 1992 Mitsubishi Montero with plate number GTJ-777 while respondent is a
domestic corporation engaged in the insurance business. On September 27, 1996, respondent issued a comprehensive
commercial vehicle policy to petitioner in the amount of P1,500,000.00 over the vehicle for a period of one year
commencing on September 27, 1996. Respondent also issued two other commercial vehicle policies to petitioner
covering two other motor vehicles for the same period.

To collect the premiums and other charges on the policies, respondent's agent, Trans-Pacific, issued a statement of
account to petitioner's company, Noah's Ark. Noah's Ark immediately processed the payments and issued a Far East
Bank check dated September 27, 1996 payable to Trans-Pacific on the same day. The check bearing the amount of
P140,893.50 represents payment for the three insurance policies, with P55,620.60 for the premium and other charges
over the vehicle. However, nobody from Trans-Pacific picked up the check that day (September 27) because its
president celebrating his birthday. Trans-Pacific informed Noah's Ark that its messenger would get the check the
next day, September 28.

In the evening of September 27, 1996, while under the official custody of Noah's Ark marketing manager Achilles
Pacquing as a service company vehicle, the vehicle was stolen in the vicinity of SM. Pacquing reported the loss.
Despite search and retrieval efforts, the vehicle was not recovered.

Oblivious of the incident, Trans-Pacific picked up the check the next day, September 28. It issued an official receipt
acknowledging the receipt of P55,620.60 for the premium and other charges over the vehicle. The check issued to
Trans-¬Pacific for P140,893.50 was deposited with Metrobank for encashment on October 1, 1996.

On October 1, 1996, Pacquing informed petitioner of the vehicle's loss. Thereafter, petitioner reported the loss and
filed a claim with respondent for the insurance proceeds of P1,500,000.00. After investigation, respondent denied
petitioner's claim on the ground that there was no insurance contract. Respondent refused to pay the insurance
proceeds or return the premium paid on the vehicle. The respondent asserted that the non-payment of the premium
rendered the policy ineffective. The premium was received by the respondent only on October 2, 1996, and there was
no known loss covered by the policy to which the payment could be applied.

RTC ruled in favor of petitioner. It considered the premium paid as of September 27, even if the check was received
only on September 28 because (1) respondent's agent, Trans-Pacific, acknowledged payment of the premium on that
date, September 27, and (2) the check that petitioner issued was honored by respondent in acknowledgment of the
authority of the agent to receive it. Instead of returning the premium, respondent sent a checklist of requirements to
petitioner and assigned an underwriter to investigate the claim. The RTC ruled that it would be unjust and
inequitable not to allow a recovery on the policy while allowing respondent to retain the premium paid.

The CA upheld respondent's position that an insurance contract becomes valid and binding only after the premium is
paid pursuant to Section 77 of the Insurance Code. It found that the premium was not yet paid at the time of the loss
on September 27, but only a day after or on September 28, 1996, when the check was picked up by Trans-Pacific. It
also found that none of the exceptions to Section 77 obtains in this case. Nevertheless, the CA ordered respondent to
return the premium it received.

Hence petitioner filed this petition. He argues that the prohibitive tenor of Section 77 does not apply because the
parties stipulated for the payment of premiums. The parties intended the contract of insurance to be immediately
effective upon issuance, despite non-payment of the premium, because respondent trusted petitioner. He adds that
respondent waived its right to a pre-payment in full of the terms of the policy, and is in estoppel.

Petitioner also argues that assuming he is not entitled to recover insurance proceeds, but only to the return of the
premiums paid, then he should be able to recover the full amount of what he paid. The insurance policy covered
three vehicles yet respondent's intention was merely to disregard the contract for only the lost vehicle. According to
petitioner, the principle of mutuality of contracts is violated, at his expense, if respondent is allowed to be excused
from performance on the insurance contract only for one vehicle, but not as to the two others, just because no loss is
suffered as to the two. To allow this "would be to place exclusively in the hands of one of the contracting parties the
right to decide whether the contract should stand or not x x x."

ISSUE:
The lone issue here is whether there is a binding insurance contract between petitioner and respondent.

RULING:
Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. Just like any other contract, it requires a cause or
consideration. The consideration is the premium, which must be paid at the time and in the way and manner
specified in the policy. If not so paid, the policy will lapse and be forfeited by its own terms.

The general rule in insurance laws is that unless the premium is paid, the insurance policy is not valid and binding.
Section 77 of the Insurance Code, applicable at the time of the issuance of the policy, provides: Sec. 77. An insurer is
entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company
is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial
life policy whenever the grace period provision applies.

There is no dispute that the check was delivered to and was accepted by respondent's agent, Trans-Pacific, only on
September 28, 1996. No payment of premium had thus been made at the time of the loss of the vehicle on September
27, 1996. While petitioner claims that Trans-Pacific was informed that the check was ready for pick-up on September
27, 1996, the notice of the availability of the check, by itself, does not produce the effect of payment of the premium.
Trans-Pacific could not be considered in delay in accepting the check because when it informed petitioner that it will
only be able to pick-up the check the next day, petitioner did not protest to this, but instead allowed Trans-Pacific to
do so. Thus, at the time of loss, there was no payment of premium yet to make the insurance policy effective.
There are exceptions to the rule that no insurance contract takes effect unless premium is paid.
1. Sec. 77: In case of a life or industrial life policy whenever the grace period provision applies.
2. Sec. 78: where the insurer acknowledged in the policy or contract of insurance itself the receipt of premium,
even if premium has not been actually paid
3. Makati Tuscany Condominium Corporation vs. Court of Appeals: where the parties agreed that premium
payment shall be in installments and partial payment has been made at the time of loss
4. The insurer may grant credit extension for the payment of the premium. Where the insurer granted the
insured a credit term for the payment of the premium, and loss occurs before the expiration of the term
5. Estoppel as when it has consistently granted a 60 to 90-day credit term for the payment of premiums.

The insurance policy in question does not fall under the first to third exceptions laid out in UCPB General Insurance
Co., Inc. Petitioner argues that his case falls under the fourth and fifth exceptions because the parties intended the
contract of insurance to be immediately effective upon issuance, despite non-payment of the premium. This waiver to
a pre-payment in full of the premium places respondent in estoppel. We do not agree with petitioner.

The fourth and fifth exceptions to Section 77 operate under the facts obtaining in Makati Tuscany Condominium
Corp. and UCPB General Insurance Co., Inc. Both contemplate situations where the insurers have consistently
granted the insured a credit extension or term for the payment of the premium. Here, however, petitioner failed to
establish the fact of a grant by respondent of a credit term in his favor, or that the grant has been consistent. While
there was mention of a credit agreement between Trans¬-Pacific and respondent, such arrangement was not proven
and was internal between agent and principal. Under the principle of relativity of contracts, contracts bind the parties
who entered into it. It cannot favor or prejudice a third person, even if he is aware of the contract and has acted with
knowledge.

We cannot sustain petitioner's claim that the parties agreed that the insurance contract is immediately effective upon
issuance despite non¬payment of the premiums. Even if there is a waiver of pre-payment of premiums, that in itself
does not become an exception to Section 77, unless the insured clearly gave a credit term or extension. To rule
otherwise would render nugatory the requirement in Section 77 that "notwithstanding any agreement to the contrary,
no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium
thereof has been paid, x x x."

The policy states that the insured's application for the insurance is subject to the payment of the premium. There is no
waiver of pre-payment, in full or in installment, of the premiums under the policy. Consequently, respondent cannot
be placed in estoppel.

Thus, we find that petitioner is not entitled to the insurance proceeds because no insurance policy became effective
for lack of premium payment. The consequence of this declaration is that petitioner is entitled to a return of the
premium paid, however, petitioner cannot claim the full amount which includes the payment of premiums for the
two other vehicles.