Interpretation: Insurance Law Midterms Reviewer Sunny & Chinita Notes

INSURANCE LAW MIDTERMS REVIEWER
Sunny & Chinita Notes

INSURANCE
● It’s a contract INTERPRETATION
● RA 10607
● It’s an agreement
Gaisano Cagayan vs. Insurance Co of N. America
● ELEMENTS of a contract of insurance
G.R. No. 147839 June 8, 2006
● Contract of insurance (defined in the code) vs
insurance contract (policy itself, the document
containing the terms of the agreement) Facts:
Intercapitol Marketing Corporation (IMC) is the maker of
Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the
DEFINITION OF A CONTRACT OF INSURANCE
local distributor of products bearing trademarks owned by
● Section 2, RA 10607: A contract of insurance is
Levi Strauss & Co.. IMC and LSPI separately obtained from
an agreement whereby one undertakes for a
respondent fire insurance policies with book debt
consideration to indemnify another against
endorsements. The policies defined book debts as the
loss, damage or liability arising from an
unknown or contingent event. "unpaid account still appearing in the Book of Account of
● PARTIES the Insured 45 days after the time of the loss covered under
o Insurer this Policy.” The fire insurance policy also provided for the
o Insured = assured condition that respondent insurance company shall not be
o Beneficiary (life insurance contracts) liable for any unpaid account in respect of the merchandise
sold and delivered by the Insured which are outstanding at
What are the elements for a valid contract of insurance? - the date of loss.
PARIS (applies only to CoI)
Petitioner is a customer and dealer of the products of IMC
1. Premium – Section 77 of RA 10607
2. Assumption of Risk – insurer must be willing to and LSPI. Petitioner’s Superstore Complex in Cagayan de
Oro City, was consumed by fire. Included in the items lost or
assume the risk, otherwise, there can be no valid
destroyed in the fire were stocks of ready-made clothing
CoI
3. Risk materials sold and delivered by IMC and LSPI.
4. Insurable interest – interest of the insured over Subsequently, respondent filed a complaint for damages
certain persons/things of which he may suffer against petitioner. It alleges that IMC and LSPI filed with
pecuniary loss. Do you have insurable interest? respondent their claims under their respective fire
Yes, because you will suffer pecuniary loss if that insurance policies with book debt endorsements. It contends
property gets lost. that it paid the claims of IMC and LSPI and, by virtue
thereof, respondent was subrogated to their rights against
REMEMBER: Make a qualification: Insurable interest in petitioner. Petitioner contends that it cannot be made liable
because the property covered by the insurance policies were
property (there must be pecuniary
advantage/benefit for its continued existence) vs life lost through fortuitous events. Furthermore, the
interpretation of the fire insurance policy on book debts does
(the basis of pecuniary interest is the relationship,
not cover the unpaid accounts of IMC and LSPI for it
kahit wala siyang kwenta)
applies to loss of the ready-made clothing materials sold and
5. Scheme to distribute losses
delivered to petitioner. Moreover, IMC bears the risk of loss
Example: A commits suicide on January 1, 2018. On because it expressly reserved ownership of the goods by
January 2, B, the wife of A, filed insurance policy, insuring stipulating in the sales invoices that"[i]t is further agreed
A. Is the insurance valid? Apply the elements. that merely for purpose of securing the payment of the
purchase price the above described merchandise remains
Characteristics of a Contract of Insurance (CAPUI) the property of the vendor until the purchase price thereof is
1. Conditional – pregnant with a lot of conditions. fully paid."
Compliance is necessary for the validity. If violated,
Issues:
may be rescinded.
1. WON the interpretation of the fire insurance policy on
2. Adhesion – the insurance company prepares the
contract and the other party merely adheres to it “book debts” covers the unpaid accounts of IMC and
3. Personal – between the insurer and the insured. LSPI?
The transfer must be consented to or agreed upon, 2. WON IMC and LSPI bears the risk of loss over the
otherwise it is void. clothes destroyed by fire?
4. Uberrimae fedei – UTMOST GOOD FAITH – if it
is less than utmost good faith, then your contract Ruling:
can be rescinded. Sunlife vs Sibya (2016) 1. Yes, the insurance policy on book debts covers the
5. Indemnity – you cannot be indemnified more than unpaid accounts of IMC and LSPI. It is well-settled
the actual damage you sustained that when the words of a contract are plain and readily
understood, there is no room for construction. When
the terms of the agreement are clear and explicit that
they do not justify an attempt to read into it any
alleged intention of the parties, the terms are to be
understood literally just as they appear on the face of
the contract. In this case, the questioned insurance
policies provide coverage for "book debts in connection
with ready-made clothing materials which have been
Page 1 of 33
sold or delivered to various customers and dealers of Petitioner filed suit due to Malayan’s reticence to pay.
the Insured anywhere in the Philippines."; and defined Malayan claimed that arrest by civil authorities wasn’t
book debts as the "unpaid account still appearing in covered by the policy. The trial court ruled in TKC’s favor
the Book of Account of the Insured 45 days after the with damages to boot. The appellate court affirmed the
time of the loss covered under this Policy. "Nowhere is decision under the reason that clause 12 of the policy
it provided in the questioned insurance policies that regarding an excepted risk due to arrest by civil authorities
the subject of the insurance is the goods sold and was deleted by Section 1.1 of the Institute War Clauses
delivered to the customers and dealers of the insured. which covered ordinary arrests by civil authorities. Failure
Thus, what were insured against were the accounts of of the cargo to arrive was also covered by the Theft,
IMC and LSPI with petitioner which remained unpaid Pilferage, and Non-delivery Clause of the contract.
45 days after the loss through fire, and not the loss or
destruction of the goods delivered. Hence this petition.
2. No, the risk of loss is on petitioner. Under the Civil Issues:

Code, when the seller retains ownership only to insure 1. WON the arrest of the vessel was a risk covered
that the buyer will pay its debt, the risk of loss is borne under the subject insurance policies.
by the buyer. However, IMC and LSPI did not lose 2. WON the insurance policies must strictly construed
complete interest over the goods. They have an against the insurer.
insurable interest until full payment of the value of the
delivered goods. Section 13 of our Insurance Code Held: Yes. Yes. Petition dismissed.
defines insurable interest as "every interest in 1. Section 12 or the "Free from Capture & Seizure
property, whether real or personal, or any relation Clause" states: "Warranted free of capture, seizure,
thereto, or liability in respect thereof, of such nature arrest, restraint or detainment, and the
that a contemplated peril might directly damnify the consequences thereof or of any attempt thereat…
insured." Parenthetically, under Section 14 of the same Should Clause 12 be deleted, the relevant current
Code, an insurable interest in property may consist in: institute war clauses shall be deemed to form part
(a) an existing interest; (b) an inchoate interest of this insurance.”
founded on existing interest; or (c) an expectancy,
coupled with an existing interest in that out of which This was really replaced by the subsection 1.1 of section 1 of
the expectancy arises. Unlike the civil law concept of Institute War Clauses (Cargo) which included “the risks
res perit domino, where ownership is the basis for excluded from the standard form of English Marine Policy
consideration of who bears the risk of loss, in property by the clause warranted free of capture, seizure, arrest,
insurance, one's interest is not determined by concept restraint or detainment, and the consequences thereof of
of title, but whether insured has substantial economic hostilities or warlike operations, whether there be a
interest in the property. Therefore, an insurable declaration of war or not.”
interest in property does not necessarily imply a
property interest in, or a lien upon, or possession of, The petitioner’s claim that the Institute War Clauses can be
the subject matter of the insurance, and neither the operative in case of hostilities or warlike operations on
title nor a beneficial interest is requisite to the account of its heading "Institute War Clauses" is not
existence of such an interest, it is sufficient that the tenable. It reiterated the CA’s stand that “its interpretation
insured is so situated with reference to the property in recent years to include seizure or detention by civil
that he would be liable to loss should it be injured or authorities seems consistent with the general purposes of
destroyed by the peril against which it is insured. In the clause.”
this case, the insurable interest of IMC and LSPI
pertain to the unpaid accounts appearing in their This interpretation was regardless of the fact whether the
Books of Account 45 days after the time of the loss arrest was in war or by civil authorities. The petitioner was
covered by the policies. Thus, whether fire is a said to have confused the Institute War clauses and the
fortuitous event or petitioner was negligent are F.C.S. in English law.
matters immaterial to this case. What is relevant here “It stated that "the F.C. & S. Clause was "originally
is whether it has been established that petitioner has incorporated in insurance policies to eliminate the risks of
outstanding accounts with IMC and LSPI. warlike operations". It also averred that the F.C. & S.
Clause applies even if there be no war or warlike
Malayan Insurance Corp. vs. C.A. G.R. No. 119599 operations. In the same vein, it contended that subsection
1.1 of Section 1 of the Institute War Clauses (Cargo)
Facts: "pertained exclusively to warlike operations" and yet it also
TKC Marketing imported 3,000 metric tons of soya from stated that "the deletion of the F.C. & S. Clause and the
Brazil to Manila. It was insured by Malayan at the value of consequent incorporation of subsection 1.1 of Section 1 of
almost 20 million pesos. The vessel, however, was stranded the Institute War Clauses (Cargo) was to include "arrest,
on South Africa because of a lawsuit regarding the etc. even if it were not a result of hostilities or warlike
possession of the soya. TKC consulted Malayan on recovery operations."
of the amount, but the latter claimed that it wasn’t covered
by the policy. The soya was sold in Africa for Php 10 million, The court found that the insurance agency tried to interpret
but TKC wanted Malayan to shoulder the remaining value executive and political acts as those not including ordinary
of 10 million as well. arrests in the exceptions of the FCS clause , and claims that
the War Clauses now included executive and political acts
without including ordinary arrests in the new stipulation.
Page 2 of 33
testimony that Marcelo Garcia whom he considered as the
“A strained interpretation which is unnatural and forced, as real lessee, was occupying the building when it was burned.
to lead to an absurd conclusion or to render the policy
nonsensical, should, by all means, be avoided.” Ironically, during the trial, Verendia admitted that it was
not Robert Garcia who signed the lease contract but it was
2. Indemnity and liability insurance policies are Marcelo Garcia cousin of Robert, who had also been paying
construed in accordance with the general rule of the rentals all the while. Verendia, however, failed to
resolving any ambiguity therein in favor of the explain why Marcelo had to sign his cousin's name when he
insured, where the contract or policy is prepared by in fact was paying for the rent and why he (Verendia)
the insurer. A contract of insurance, being a himself, the lessor, allowed such a ruse. Fidelity's
contract of adhesion, means that any ambiguity conclusions on these proven facts appear, therefore, to have
should be resolved against the insurer. sufficient bases: Verendia concocted the lease contract to
deflect responsibility for the fire towards an alleged "lessee",
Verendia v. CA G.R. No. 75605 January 22, 1993 inflated the value of the property by the alleged monthly
rental of P6,500) when in fact, the Provincial Assessor of
Facts: Rizal had assessed the property's fair market value to be
Fidelity and Surety Insurance Company issued Fire only P40,300.00, insured the same property with two other
Insurance Policy effective between June 23, 1980 and June insurance companies for a total coverage of around
23, 1981 covering Rafael Verendia's residential in the P900,000, and created a dead-end for the adjuster by the
amount of P385,000.00. The Monte de Piedad & Savings disappearance of Robert Garcia.
Bank was the designated beneficiary. Also, he insured the
same building with two other companies, namely, The Basically a contract of indemnity, an insurance contract is
Country Bankers Insurance for P56,000.00 and The the law between the parties. Its terms and conditions
Development Insurance for P400,000.00. While the three constitute the measure of the insurer's liability and
fire insurance policies were in force, the insured property compliance therewith is a condition precedent to the
was completely destroyed by fire on December 28, 1980. insured's right to recovery from the insurer. As it is also a
Fidelity was accordingly informed of the loss and despite contract of adhesion, an insurance contract should be
demands, refused payment under its policy, thus prompting liberally construed in favor of the insured and strictly
Verendia to file a complaint for the recovery of P385, 000. against the insurer company which usually prepares it.
Fidelity, averred that the policy was avoided by reason of
over-insurance, that Verendia maliciously represented that Considering, however, the foregoing discussion pointing to
the building at the time of the fire was leased under a the fact that Verendia used a false lease contract to support
contract executed on June 25, 1980 to a certain Roberto his claim under Fire Insurance Policy, the terms of the
Garcia, when actually it was a Marcelo Garcia who was the policy should be strictly construed against the insured.
lessee. Verendia failed to live by the terms of the policy, specifically
Section 13 thereof which is expressed in terms that are clear
The trial court rendered a decision in favor of Fidelity, and unambiguous, that all benefits under the policy shall be
ruling that Paragraph 3 of the policy was also violated by forfeited "if the claim be in any respect fraudulent, or if any
Verendia for failure to inform Fidelity of his other insurance false declaration be made or used in support thereof, or if
coverages with Country Bankers Insurance and any fraudulent means or devises are used by the Insured or
Development Insurance. The appellate court reversed for anyone acting in his behalf to obtain any benefit under the
the following reasons: (a) there was no misrepresentation policy".
concerning the lease for the contract was signed by Marcelo
Garcia in the name of Roberto Garcia; and (b) Paragraph 3 Verendia, having presented a false declaration to support
of the policy contract requiring Verendia to give notice to his claim for benefits in the form of a fraudulent lease
Fidelity of other contracts of insurance was waived by contract, he forfeited all benefits therein by virtue of Section
Fidelity as shown by its conduct in attempting to settle the 13 of the policy in the absence of proof that Fidelity waived
claim of Verendia. such provision.
Issue: Whether or not Verendia can claim on the insurance New Life Enterprises v. Court of Appeals
despite the misrepresentation as to the lessee and the over- 207 SCRA 669
insurance.
Facts:
Held: Julian Sy and Jose Sy Bang have formed a business
No. The contract of lease upon which Verendia relies to partnership under the business name of New Life
support his claim for insurance benefits, was entered into Enterprises, the partnership engaged in the sale
between him and one Robert Garcia, a couple of days after of construction materials. Julian Sy insured the stocks
the effectivity of the insurance policy. When the rented in trade of New Life Western Guaranty Corporation,
residential building was razed to the ground, it appears that Reliance Surety and Insurance. Co., Inc., and Equitable
Robert Garcia was still within the premises. However, Insurance Corporation.
according to the investigation by the police, the building
appeared to have "no occupants" and that Mr. Roberto On May 15, 1981, Western Guaranty Corporation
Garcia was "renting on the other side of said compound". issued Fire Insurance Policy No. 37201 in the amount
These pieces of evidence belie Verendia's uncorroborated of P350,000.00. On July 30,1981, Reliance Surety and
Insurance Co., Inc. issued Fire Insurance Policy No.
Page 3 of 33
69135 in the amount of P300,000. between the contracting parties and should be
On February 8, 1982, Equitable Insurance complied with in good faith.
Corporation issued Fire Insurance Policy No. 39328 in the
amount of P200,000.00. Diosdado C. Ty vs. Filipinas Compania De Seguros,
People’s Surety & Insurance Co., Inc., South Sea
When the building occupied by the New Life Enterprises Surety & Insurance Co., Inc. The Philippine Guaranty
was gutted by fire the stocks in the Company, Inc., Universal Insurance & Indemnity Co.,
trade inside said building were insured against and Plaridel Surety & Insurance Co., Inc.
fire in the total amount of P1,550,000.00. According to G.R. No. L-21821-22 and L-21824-27 May 31, 1966
the certification issued by the Headquarters Philippine
Constabulary /Integrated National Police, Camp Facts:
Crame, the cause of fire was electrical in nature. A mechanic operator in Broadway Cotton Factory in
Julian Sy went to the agent of Reliance Insurance whom he Caloocan. He took Personal Accident Policies (PAP) from
asked to accompany him to the office of several insurance companies, the herein respondents,
the company so that he can file his claim. effective for 12 months. During its effectivity, a fire broke
The three insurance companies denied plaintiffs' claim for out in the factory where Ty was working. As he was trying
payment based on the same ground, that is violation or to put out said fire with the help of a fire extinguisher, a
breach of policy condition which requires the insured to give heavy object fell upon his left hand which causes temporary
notice of any insurance or insurances already effected total disability as certified by his attending surgeon.
covering the stocks in trade. Because of the denial of
their claims for payment by the three (3) insurance Ty filed a claim with the respondent insurance companies
companies, petitioner filed separate civil action, the trial basing his claim under the provision of the insurance
court ruled in favor of petitioner ordering to pay their contract, uniform in all the cases. The pertinent portion of
claims. CA reversed the judgment of the trial court. said provision reads: “The loss of a hand shall mean the
loss, by amputation through the bones of the wrist. The
Issue: Whether or not the conditions of the insurance respondent insurance companies refused to pay his claim for
company were violated by the petitioner. compensation under the policies, thus, TY filed motions in
the Municipal Court of Manila, which rendered a favorable
Held: Yes. The terms of the contract are clear and decision. However, on appeal to CFI, the cases were
unambiguous. dismissed, holding that in order to be compensable, the loss
must result in the amputation of that hand. Hence, the
The insured is specifically required to disclose to the insurer appeal by the insured.
any other insurance and its particulars which he may have
effected on the same subject matter. The knowledge of such Issue: Whether or not the temporary total disability of Ty’s
insurance by the insurer's agents, even assuming the left hand is compensable
acquisition thereof by the former, is not the "notice" that
would estop the insurers from denying the claim. Besides, Ruling:
the so-called theory of imputed knowledge, that is, The agreement contained in the insurance policies is the
knowledge of the agent is law between the parties. As the terms of the policies are
knowledge of the principal, aside from being clear, express and specific that only amputation of the left
of dubious applicability here likewise been roundly refuted hand should be considered as a loss thereof, an
by respondent court whose factual findings we find interpretation that would include the mere fracture or other
acceptable. temporary disability not covered by the policies would
certainly be unwarranted. The provision is clear enough to
Furthermore, when the words and language documents are inform the party entering into that contract that the loss to
clear and plain or readily understandable by an ordinary be considered a disability entitled to indemnity, must be
reader thereof, there is absolutely no room for severance or amputation of that affected member from the
interpretation or construction anymore. Courts are not body of the insured. AFFIRMED.
allowed to make contracts for the parties; rather, they will
intervene only when the terms of the policy are ambiguous, GULF RESORTS vs PHILIPPINE CHARTER
equivocal, or uncertain. The parties must abide by the terms INSURANCE CORPORATION
of the contract because such terms constitute the measure of
G.R. No. 156167. May 16, 2005
the insurer’s liability and compliance therewith is a
condition precedent to the insured’s right of recovery from
FACTS:
the insurer.
GULF RESORTS owns Plaza Resort in La Union, which it
insured originally with American Home Assurance
While it is a cardinal principle of insurance law that a policy
Company (AHAC). Under the policy with AHAC, the risk of
or contract of insurance is to be construed liberally in favor
loss from earthquake shock was originally extended only to
of the insured and strictly against the insurer company, yet
Gulf Resort’s two swimming pools, but a rider was
contracts of insurance, like other contracts, are to be
subsequently added later on for coverage against
construed according to the sense and meaning of the terms
earthquake shock for all properties provided additional
which the parties themselves have used. If such terms are
payments were made. Gulf later on agreed to insure with
clear and unambiguous, they must be taken and understood
Phil Charter properties covered by the AHAC policy,
in their plain, ordinary and popular sense. Moreover,
provided that the policy wording and rates in said policy be
obligations arising from contracts have the force of law
copied in the policy to be issued by Phil Charter. The latter,
Page 4 of 33
in compliance with the condition set by Gulf, copied the determine its character. Petitioner cannot focus on the
policy in drafting its Insurance Policy, albeit there was earthquake shock endorsement to the exclusion of the other
variance in some terms, specifically in the replacement cost provisions. All the provisions and riders, taken and
endorsement, but the principal provisions of the policy interpreted together, indubitably show the intention of the
remained essentially similar to AHAC’s policy. parties to extend earthquake shock coverage to the two
swimming pools only.
The following are some of the essential provisions in the
AHAC policy copied in the new Phil Charter policy: A careful examination of the premium recapitulation will
show that it is the clear intent of the parties to extend
1. In the designation of location of risk, only the two earthquake shock coverage only to the two swimming pools.
swimming pools were specified as included for Section 2(1) of the Insurance Code defines a contract of
earthquake shock coverage. insurance as an agreement whereby one undertakes for a
2. Policy Condition No. 6: This insurance does not cover consideration to indemnify another against loss, damage or
any loss or damage occasioned by or through or in liability arising from an unknown or contingent event.
consequence, directly or indirectly of any of the
following occurrences, namely:-- Thus, an insurance contract exists where the following
(a) Earthquake, volcanic eruption or other convulsion elements concur:
of nature.
1. The insured has an insurable interest; 2. The
Fourth, the rider attached to the policy, titled insured is subject to a risk of loss by the happening
Extended Coverage Endorsement (To Include the of the designated peril; 3. The insurer assumes the
Perils of Explosion, Aircraft, Vehicle and Smoke)…. risk; 4. Such assumption of risk is part of a general
scheme to distribute actual losses among a large
3. Earthquake Endorsement (rider) group of persons bearing a similar risk; and 5. In
consideration of the insurer's promise, the insured
In consideration of the payment by the Insured to the pays a premium.
Company of the sum of P. . . . . . . . . . . . . . . . . additional
premium the Company agrees, notwithstanding what is An insurance premium is the consideration paid an insurer
stated in the printed conditions of this Policy to the for undertaking to indemnify the insured against a specified
contrary, that this insurance covers loss or damage peril. In fire, casualty, and marine insurance, the premium
(including loss or damage by fire) to any of the property payable becomes a debt as soon as the risk attaches. In the
insured by this Policy occasioned by or through or in subject policy, no premium payments were made with
consequence of Earthquake. regard to earthquake shock coverage, except on the two
swimming pools. There is no mention of any premium
Provided always that all the conditions of this Policy payable for the other resort properties with regard to
shall apply (except in so far as they may be hereby earthquake shock. This is consistent with the history of
expressly varied) and that any reference therein to loss petitioner’s previous insurance policies from AHAC.
or damage by fire should be deemed to apply also to loss
or damage occasioned by or through or in consequence of Further, there is no ambiguity in the terms of the contract
Earthquake and its riders. Petitioner cannot rely on the general rule
that insurance contracts are contracts of adhesion which
As what it has done before with AHAC, Gulf paid premiums should be liberally construed in favor of the insured and
for earthquake shock coverage for the two swimming pools strictly against the insurer company which usually prepares
only and made no additional premiums for general shock it. Petitioner cannot claim it did not know the provisions of
coverage under the rider. the policy. From the inception of the policy, petitioner had
required the respondent to copy verbatim the provisions and
Then, the 1990 Luzon Earthquake damaged properties in terms of its latest insurance policy from AHAC-AIU.
the resort, including the two swimming pools. Gulf then Consequently, we cannot apply the "fine print" or "contract
filed a claim for all the properties. The claim was denied. of adhesion" rule in this case as the parties intent to limit
Gulf filed a suit, contending that pursuant to the rider in the coverage of the policy to the two swimming pools only is
the endorsement, no qualifications were placed on the scope not ambiguous.
of the earthquake shock coverage. Further, Gulf argues that
the policy it entered to is a contract of adhesion and should Simon De La Cruz vs. The Capital Ins. and Surety Inc.
be interpreted in its favour. Thus, the policy extended G.R. No. L-21574. June 30, 1966
earthquake shock coverage to all of the insured properties.
Facts:
ISSUE: Can Gulf claim coverage for all its properties Eduardo de la Cruz, employed as a mucker in the Itogon-
damaged by earthquake? Suyoc Mines, Inc. in Baguio, was the holder of an accident
insurance policy "against death or disability caused by
HELD: accidental means". January 1, 1957: For the celebration of
No. It is basic that all the provisions of the insurance policy the New Year, the Itogon-Suyoc Mines, Inc. sponsored a
should be examined and interpreted in consonance with boxing contest for general entertainment wherein Eduardo,
each other. All its parts are reflective of the true intent of a non-professional boxer participated. In the course of his
the parties. The policy cannot be construed piecemeal. bout with another non-professional boxer of the same
Certain stipulations cannot be segregated and then made to height, weight, and size, Eduardo slipped and was hit by his
control; neither do particular words or phrases necessarily
Page 5 of 33
opponent on the left part of the back of the head, causing fire with defendant Country Bankers Insurance Corporation
Eduardo to fall, with his head hitting the rope of the ring. (CBIC) for P15,000,000.00. UMC and CBIC executed
He was brought to the Baguio General Hospital the Endorsement F/96-154 and Fire Invoice No. 16583A to form
following day. He died due to hemorrhage, intracranial. part of the Insurance Policy. Endorsement F/96-154
Simon de la Cruz, the father of the insured and who was provides that UMC’s stocks in trade were insured against
named beneficiary under the policy, thereupon filed a claim additional perils, to wit: "typhoon, flood, ext. cover, and full
with the insurance company. The Capital Insurance and earthquake." The sum insured was also increased to
Surety co., inc. denied stating that the death caused by his P50,000,000.00 effective 7 May 1996 to 10 January 1997. On
participation in a boxing contest was not accidental, 3 July 1996, a fire gutted the warehouse rented by UMC.
however the RTC: favored Simon. CBIC designated CRM Adjustment Corporation (CRM) to
investigate and evaluate UMC’s loss by reason of the fire.
Issue: CBIC’s reinsurer, Central Surety, likewise requested the
Whether or not the cause of death is considered as an National Bureau of Investigation (NBI) to conduct a parallel
accident investigation. On 6 July 1996, UMC, through CRM,
submitted to CBIC its Sworn Statement of Formal Claim,
Held: with proofs of its loss.
Yes, Eduardo slipped, which was unintentional. The terms
"accident" and "accidental" as used in insurance contracts, On 20 November 1996, UMC demanded for at least fifty
have not acquired any technical meaning and are construed percent (50%) payment of its claim from CBIC. On 25
by the courts in their ordinary and common acceptation; February 1997, UMC received CBIC’s letter, dated 10
“happen by chance or fortuitously, without intention and January 1997, rejecting UMC’s claim due to breach of
design, and which is unexpected, unusual, and unforeseen Condition No. 15 of the Insurance Policy. Condition No. 15
event that takes place without one's foresight or expectation states:
event that proceeds from an unknown cause, or is an If the claim be in any respect fraudulent, or if any false
unusual effect of a known cause and, therefore, not expected declaration be made or used in support thereof, or if
where the death or injury is not the natural or probable any fraudulent means or devices are used by the
result of the insured's voluntary act, or if something Insured or anyone acting in his behalf to obtain any
unforeseen occurs in the doing of the act which produces the benefit under this Policy; or if the loss or damage be
injury, the resulting death is within the protection of policies occasioned by the willful act, or with the connivance of
insuring against death or injury from accident.” the Insured, all the benefits under this Policy shall be
forfeited.
While the participation of the insured in the boxing contest
is voluntary, the injury was sustained when he slid, giving UMC filed a Complaint7 against CBIC with the RTC of
occasion to the infliction by his opponent of the blow that Manila. UMC anchored its insurance claim on the Insurance
threw him to the ropes of the ring is not the fact that boxing Policy, the Sworn Statement of Formal Claim earlier
is attended with some risks of external injuries does not submitted, and the Certification dated 24 July 1996 made
make any injuries received in the course of the game not by Deputy Fire Chief/Senior Superintendent Bonifacio J.
accidental. In boxing as in other equally physically rigorous Garcia of the Bureau of Fire Protection which declares the
sports, such as basketball or baseball, death is not fire as a mere accident. CBIC admitted the issuance of the
ordinarily anticipated to result. If, therefore, it ever does, Insurance Policy to UMC but raised the following defenses:
the injury or death can only be accidental or produced by (1) that the Complaint states no cause of action; (2) that
some unforeseen happening or event as what occurred in UMC’s claim has already prescribed; and (3) that UMC’s fire
this case. Furthermore, the policy involved herein claim is tainted with fraud. CBIC alleged that UMC’s claim
specifically excluded from its coverage — was fraudulent because UMC’s Statement of Inventory
showed that it had no stocks in trade as of 31 December
(e) Death or disablement consequent upon the Insured 1995, and that UMC’s suspicious purchases for the year
engaging in football, hunting, pigsticking, 1996 did not even amount to P25,000,000.00. UMC’s GIS
steeplechasing, polo-playing, racing of any kind, and Financial Reports further revealed that it had
mountaineering, or motorcycling. insufficient capital, which meant UMC could not afford the
alleged P50,000,000.00 worth of stocks in trade.
Death or disablement resulting from engagement in boxing
contests was not declared outside of the protection of the RTC rendered a decision in favor of UMC. On appeal, the
insurance contract. CA ruled in favor of CBIC. They ratiocinated that the claim
of UMC is void for the fire was intentional in origin.
United Merchants Corp. vs. Country Bankers Ins.
Corp. G.R. No. 198588. July 11, 2012 Issue: Whether or not UMC is entitled to claim for CBIC
the full coverage of its fire insurance policy?
Facts:
Petitioner United Merchants Corporation (UMC) is engaged Held:
in the business of buying, selling, and manufacturing Yes, on the ground of fraud. While it is a cardinal principle
Christmas lights. UMC leased a warehouse at 19-B Dagot of insurance law that a contract of insurance is to be
Street, San Jose Subdivision, Barrio Manresa, Quezon City, construed liberally in favor of the insured and strictly
where UMC assembled and stored its products. against the insurer company, contracts of insurance, like
other contracts, are to be construed according to the sense
On 6 September 1995, UMC’s General Manager Alfredo Tan and meaning of the terms which the parties themselves
insured UMC’s stocks in trade of Christmas lights against have used. If such terms are clear and unambiguous, they
Page 6 of 33
must be taken and understood in their plain, ordinary and The Insular Life Ass. Co., Ltd. v. Paz Y. Khu, et, al.,
popular sense. Courts are not permitted to make contracts G.R. No. 195176, Apr. 18, 2016
for the parties; the function and duty of the courts is simply
to enforce and carry out the contracts actually made. Case Doctrine: an insurance contract is a contract of
adhesion which must be construed liberally in favor of the
An insurer who seeks to defeat a claim because of an insured and strictly against the insurer in order to
exception or limitation in the policy has the burden of safeguard the latter’s interest. Limitations of liability
establishing that the loss comes within the purview of the should be regarded with extreme jealousy and must be
exception or limitation. If loss is proved apparently within a construed in such a way as to preclude the insurer from
contract of insurance, the burden is upon the insurer to noncompliance with its obligations.
establish that the loss arose from a cause of loss which is
excepted or for which it is not liable, or from a cause which Fallo: WHEREFORE, the Petition is DENIED
limits its liability. In the present case, CBIC failed to
discharge its primordial burden of establishing that the Facts:
damage or loss was caused by arson, a limitation in the March 1997 – Felipe Khu, Sr. (Felipe) applied for a life
policy. insurance policy with Insular Life under the latter’s
Diamond Jubilee Insurance Plan. Felipe accomplished the
In prosecutions for arson, proof of the crime charged is required medical questionnaire wherein he did not declare
complete where the evidence establishes: (1) the corpus any illness or adverse medical condition. This took effect on
delicti, that is, a fire caused by a criminal act; and (2) the June 22, 1997.
identity of the defendants as the one responsible for the
crime. Corpus delicti means the substance of the crime, the June 1999 - Felipe’s policy lapsed due to non-payment of the
fact that a crime has actually been committed. This is premium covering the period from June 22, 1999 to June 23,
satisfied by proof of the bare occurrence of the fire and of its 2000.
having been intentionally caused.
September 1999 - Felipe applied for the reinstatement of his
In the present case, CBIC’s evidence did not prove that the policy and paid P25,020.00 as premium. Except for the
fire was intentionally caused by the insured. First, the change in his occupation of being self-employed to being the
findings of CBIC’s witnesses, Cabrera and Lazaro, were Municipal Mayor of Binuangan, Misamis Oriental, all the
based on an investigation conducted more than four months other information submitted by Felipe in his application for
after the fire. The testimonies of Cabrera and Lazaro, as to reinstatement was virtually identical to those mentioned in
the boxes doused with kerosene as told to them by barangay his original policy.
officials, are hearsay because the barangay officials were not
presented in court. Cabrera and Lazaro even admitted that Oct 1999 – Insular Life advised Felipe that his application
they did not conduct a forensic investigation of the for reinstatement may only be considered if he agreed to
warehouse nor did they file a case for arson.28 Second, the certain conditions such as payment of additional premium
Sworn Statement of Formal Claim submitted by UMC, and the cancellation of the riders pertaining to premium
through CRM, states that the cause of the fire was "faulty waiver and accidental death benefits. Felipe agreed to these
electrical wiring/accidental in nature." CBIC is bound by conditions and paid the agreed additional premium.
this evidence because in its Answer, it admitted that it
designated CRM to evaluate UMC’s loss. Third, the Jan 2000 – Insular Life reinstated Felipe’s policy and issued
Certification by the Bureau of Fire Protection states that an Endorsement stating:
the fire was accidental in origin. This Certification enjoys This certifies that as agreed by the Insured, the
the presumption of regularity, which CBIC failed to rebut. reinstatement of this policy has been approved by the
Company on the understanding that the following changes
Contrary to UMC’s allegation, CBIC’s failure to prove arson are made on the policy effective June 22, 1999…
does not mean that it also failed to prove fraud. The
invoices, however, cannot be taken as genuine. The invoices Sept 2001 – Felipe died.
reveal that the stocks in trade purchased for 1996 amounts Paz Y. Khu, Felipe Y. Khu, Jr. and Frederick Y. Khu
to P20,000,000.00 which were purchased in one month. (Felipe’s beneficiaries or respondents) filed with Insular Life
Thus, UMC needs to prove purchases amounting to a claim for benefit under the reinstated policy.
P30,000,000.00 worth of stocks in trade for 1995 and prior Insular Life denied the claim. It rescinded the reinstated
years. However, in the Statement of Inventory it submitted policy on the grounds of concealment and misrepresentation
to the BIR, which is considered an entry in official by Felipe since he did not disclose the ailments (Type 2
records,34 UMC stated that it had no stocks in trade as of Diabetes Mellitus, Diabetes Nephropathy and Alcoholic
31 December 1995. In its defense, UMC alleged that it did Liver Cirrhosis with Ascites) that he already had prior to
not include as stocks in trade the raw materials to be his application for reinstatement of his insurance policy;
assembled as Christmas lights, which it had on 31 and that it would not have reinstated the insurance policy
December 1995. However, as proof of its loss, UMC had Felipe disclosed the material information on his adverse
submitted invoices for raw materials, knowing that the health condition. It contended that when Felipe died, the
insurance covers only stocks in trade. policy was still contestable.
Respondents instituted a complaint for specific performance

with damages.
Page 7 of 33
RTC and CA: ruled in favor of respondents ● One must be designated as such in the policy before
one can claim the proceeds
Issue: Whether Felipe’s reinstated life insurance policy is ● Only the beneficiary can recover the proceeds
already incontestable at the time of his death – YES. unless otherwise specified in the policy (Sec. 53)
Ratio: Sec 48 of the Insurance Code provides: General Rule: The only persons entitled to claim the
…After a policy of life insurance made payable on the death proceeds are either:
of the insured shall have been in force during the lifetime of 1. Insured, if still alive OR
the insured for a period of two years from the date of its issue 2. Beneficiary, if insured is already deceased upon
or of its last reinstatement, the insurer cannot prove that the maturity of the policy
policy is void ab initio or is rescindible by reason of the
fraudulent concealment or misrepresentation of the insured Exception: Where insurance contract was intended to
or his agent. benefit 3rd persons who are not parties to the same in the
form of favorable stipulations or indemnity
The insurer is deemed to have the necessary facilities to • 3rd person may directly sue and claim from insurer
discover such fraudulent concealment or misrepresentation
within a period of two (2) years. It is not fair for the insurer BENEFICIARY NOT A PARTY
to collect the premiums as long as the insured is still alive, • Unless he is the insured himself, beneficiary is not
only to raise the issue of fraudulent concealment or one of the contracting parties.
misrepresentation when the insured dies in order to defeat • However, 3rd party beneficiary may file an action
the right of the beneficiary to recover under the policy. against insurer in case of loss
At least two (2) years from the issuance of the policy or its BENEFICIARY IS DESIGNATED
last reinstatement, the beneficiary is given the stability to • If the designation is valid, heirs of the insured is
recover under the policy when the insured dies. The not entitled to receive the proceeds
provision also makes clear when the two-year period should • Proceeds are separate and individual property of
commence in case the policy should lapse and is reinstated, the beneficiary, and not part of the estate of the
that is, from the date of the last reinstatement’.
LAW OF SUCCESSION (proceeds shall form part of the
In the Letter of Acceptance, Khu declared that he was estate of deceased insured) will only apply if:
accepting "the imposition of an extra/additional premium of 1. No designated beneficiary or
P5.00 a year per thousand of insurance; effective June 22, 2. Designation is void
1999". It is true that the phrase as used in this particular
paragraph does not refer explicitly to the effectivity of the EFFECT OF DEATH OF OWNER-BENEFICIARY
reinstatement. But the Court notes that the reinstatement • Rules on survivorship applies
was conditioned upon the payment of additional premium o Rule 131, Sec. 3(jj) of ROC if not heirs
not only prospectively, that is, to cover the remainder of the o Art. 43 of NCC if heirs
annual period of coverage, but also retroactively, that is for
the period starting June 22, 1999. Hence, by paying the EFFECT OF USE OF CONJUGAL FUNDS
amount of P3,054.50 on December 27, 1999 in addition to • Form part of community property
the P25,020.00 he had earlier paid on September 7, 1999, • If policy made payable to deceased’s estate: ½ to the
Khu had paid for the insurance coverage starting June 22, estate, ½ to the surviving spouse
1999. At the very least, this circumstance has engendered a • If with designated beneficiary: beneficiary entitled
true lacuna. to proceeds regardless of the source of the premium
In the Endorsement, the obscurity is patent. In the first VESTED INTEREST OF BENEFICIARY in LIFE
sentence of the Endorsement, it is not entirely clear whether INSURANCE
the phrase "effective June 22, 1999" refers to the subject of • Measured on its FULL FACE VALUE and not on
the sentence, namely "the reinstatement of this policy," or to cash surrender value
the subsequent phrase "changes are made on the policy." • Beneficiaries are paid on the basis of the face value
Given the obscurity of the language, the construction In case insured discontinued payment of premiums,
favorable to the insured will be adopted by the courts. beneficiaries may continue paying it and are entitled to
automatic extended term or paid-up insurance options and
Accordingly, the subject policy is deemed reinstated as of that said vested right under the policy cannot be divisible at
June 22, 1999. Thus, the period of contestability has lapsed. any given time.
BENEFICIARIES TYPES of BENEFICIARY

A. Revocable
Who is a beneficiary? B. Irrevocable
● A person or entity designated in the contract of
insurance to receive the proceeds
● May be a party to the contract of insurance or a
third person
Page 8 of 33
Revocable Irrevocable a. The estate will go through the settlement
Designation Can be revoked by Permanent and can’t stage- claimants such as the creditors and
insured anytime; be revoked unless all the heirs.
not permanent with beneficiary’s 4. Disqualification of one beneficiary does not mean
consent disqualification of all other designated
Vested Right No vested right on Beneficiary already beneficiaries.
the beneficiary has vested right 5. Anyone can be designated as beneficiary. Insurable
during lifetime of interest is not required in designating one as
insured beneficiary.
Right to Insured retains Insured already
change right to change waived right to ● If X buys life insurance of Y designating X as
beneficiary beneficiary change beneficiary beneficiary, this is NOT ALLOWED because X has
Taxation Estate Tax Donor’s Tax no insurable interest.
(insured still ● If Y purchase life insurance designating X as the
retains discretion) beneficiary, this is ALLOWED.
Mortis Causa Inter Vivos FORFEITURE OF RIGHTS OF BENEFICIARY

Effect if Proceeds go to the Proceeds go to the (Sec. 12 of Insurance Code)
beneficiary estate of insured estate of the • Beneficiary does not suffer any disqualification
predeceased beneficiary at the inception of contract but becomes
the insured disqualified after the perfection.
• Beneficiary should not profit from his misdeed.
If there is nothing in the insurance contract as to the
designation of beneficiary, what is the default? If beneficiary is disqualified, proceeds of insurance shall be
RECOVERABLE under Sec. 11 which provides: paid based on the ff. rules:
Sec. 11. The insured shall have the right to 1. Forfeited share of disqualified beneficiary shall pass
change the beneficiary he designated in the on to the other beneficiaries
policy, unless he has expressly waived this 2. If no other beneficiaries, proceeds shall be paid in
right in said policy. Notwithstanding the accordance with policy contract
foregoing, in the event the insured does not 3. No other beneficiaries and no provision in the policy
change the beneficiary during his lifetime, contract, proceeds shall be paid to estate of insured
the designation shall be deemed irrevocable.
DISQUALIFICATION OF BENEFICIARY
EFFECT IF IRREVOCABLE DESIGNATION (Art. 2012, NCC)
• Irrevocable beneficiary cannot be replaced Any person forbidden from receiving any donation under
• Has vested rights over the policy Art. 739 cannot be named beneficiary of a life insurance
• Rights of irrevocable beneficiary cannot be affected policy.
by subsequent assignment of insurance policy
Grounds for disqualification (Art. 739, NCC):
Exception: 1. Those made between persons who were guilty of
1. Art. 64, 43, 50 of the Family Code adultery or concubinage at the time of donation
• After finality of decree of legal separation, 2. Those made between persons found guilty of the
innocent spouse may revoke the designation as same criminal offense, in consideration thereof
a beneficiary in any insurance policy, even if 3. Those made to public officer or his wife, descendants
stipulation is irrevocable designation. and ascendants, by reason of his office
• Revocation of or change in the designation of
insurance beneficiary shall take effect upon Is conviction necessary to be disqualified under 1 and 2?
written notification thereof to the insured. NO. Guilt may be proved only by preponderance of
2. Sec. 11, RA 10607 evidence.
• In the event insured does not change
beneficiary during lifetime, designation NOTE:
becomes irrevocable • Proceeds of insurance not considered as donation or
gift.
Rules in designation of beneficiaries? • While concubine is disqualified, the illegitimate
1. Only the person/ entity designated can claim the children of insured are not. No legal proscription
proceeds exists in naming the latter as beneficiaries.
2. If the designated beneficiary/ies are disqualified, Accordingly, share of the disqualified concubine in
the proceeds do not automatically go to the the insurance proceeds must be awarded to the
legitimate family illegitimate children, if designated as beneficiaries
a. Disqualification will only put the portion of also.
the disqualified beneficiary to the
remaining qualified beneficiary, if an
3. Only when there is no other qualified beneficiary
will the share of the disqualified beneficiary go to
the estate.
Page 9 of 33
Heirs of Loreto C. Maramag vs. Eva Verna De proceeds to petitioners. The revocation of Eva as a
Guzman, et.al. G.R. No. 181132, June 5, 2009 beneficiary in one policy and her disqualification as such in
another are of no moment considering that the designation
FACTS: of the illegitimate children as beneficiaries in Loretos
Loreto Maramag designated as beneficiary his concubine insurance policies remains valid. Because no legal
Eva de Guzman Maramag in an insurance policy. proscription exists in naming as beneficiaries the children of
illicit relationships by the insured, the shares of Eva in the
Vicenta Maramag (the legal wife); and Odessa, Karl Brian, insurance proceeds, whether forfeited by the court in view of
and Trisha Angelie (illegitimate heirs of Loreto Maramag) the prohibition on donations under Article 739 of the Civil
and his concubine Eva de Guzman Maramag, also suspected Code or by the insurers themselves for reasons based on the
in the killing of Loreto are claiming for his insurance. insurance contracts, must be awarded to the said
illegitimate children, the designated beneficiaries, to the
Vicenta alleges that Eva is disqualified from claiming exclusion of petitioners. It is only in cases where the insured
has not designated any beneficiary, or when the designated
RTC: Granted - civil code does NOT apply beneficiary is disqualified by law to receive the proceeds,
CA: dismissed the case for lack of jurisdiction for filing that the insurance policy proceeds shall redound to the
beyond reglementary period benefit of the estate of the insured.
ISSUE: W/N Eva can claim even though prohibited under MARAMAG CASE:
the civil code against donation 1. WON illegitimate spouse can be designated as
beneficiary?
RULING ● NO. Art. 2012 of the NCC, persons
In this case, it is clear from the petition filed before the trial forbidden to receive donation under Art.
court that, although petitioners are the legitimate heirs of 739 are not allowed to be named
Loreto, they were not named as beneficiaries in the beneficiary in life insurance policy.
insurance policies issued by Insular and Grepalife. The ● Art. 739: persons guilty of concubinage or
basis of petitioners claim is that Eva, being a concubine of adultery.
Loreto and a suspect in his murder, is disqualified from ● Should there be conviction? NO. It is
being designated as beneficiary of the insurance policies, enough that there is preponderance of
and that Evas children with Loreto, being illegitimate evidence.
children, are entitled to a lesser share of the proceeds of the
policies. They also argued that pursuant to Section 12 of the 2. Are the designated illegitimate children entitled to
Insurance Code, Evas share in the proceeds should be the proceeds of the life insurance?
forfeited in their favor, the former having brought about the ● There is no proscription in the law.
death of Loreto. Thus, they prayed that the share of Eva
and portions of the shares of Loretos illegitimate children 3. WON the other heirs have a rightful claim to
should be awarded to them, being the legitimate heirs of receive proceeds for the disqualified beneficiary?
Loreto entitled to their respective legitimes. ● NO. Other heirs can’t claim. If there are
still qualified beneficiaries named in the
It is evident from the face of the complaint that petitioners policy, they will get the share, otherwise it
are not entitled to a favorable judgment in light of Article will go to the estate of the insured.
2011 of the Civil Code which expressly provides that
insurance contracts shall be governed by special laws, i.e.,
the Insurance Code. Section 53 of the Insurance Code Southern Luzon Employees’ Ass. v. Golpeo, et al.,
states: 96 Phil. 83
SECTION 53. The insurance proceeds shall be applied Facts

exclusively to the proper interest of the person in whose The plaintiff, Southern Luzon Employees' Association is
name or for whose benefit it is made unless otherwise composed of laborers and employees of Laguna tayabas Bus
specified in the policy. Co., and Batangas Transportation Company, and one of its
purposes is mutual aid of its members and their defendants
Pursuant thereto, it is obvious that the only persons entitled in case of death.
to claim the insurance proceeds are either the insured, if
still alive; or the beneficiary, if the insured is already Roman A. Concepcion was a member until his death on
deceased, upon the maturation of the policy. The exception December 13, 1950. The association adopted a resolution
to this rule is a situation where the insurance contract was stating that, that a member may, if he chooses, put down his
intended to benefit third persons who are not parties to the common-law wife as his beneficiary and/or children had
same in the form of favorable stipulations or indemnity. In with her as the case may be, and That such person so
such a case, third parties may directly sue and claim from named by the member will be sole persons to be recognized
the insurer. by the Association regarding claims for condolence
contributions.
Petitioners are third parties to the insurance contracts with
Insular and Grepalife and, thus, are not entitled to the Roman A. Concepcion listed as his beneficiaries Aquilina
proceeds thereof. Accordingly, respondents Insular and Maloles, Roman M. Concepcion, Jr., Estela M. Concepcion,
Grepalife have no legal obligation to turn over the insurance Rolando M. Concepcion and Robin M. Concepcion.
Page 10 of 33
beneficiary with respect to his retirement insurance
Three sets of claimants presented themselves, namely, (1) benefits. Petitioner Basilia Berdin and her children,
Juanita Golpeo, legal wife of Roman A. Concepcion, and her likewise, filed a similar claim with the GSIS, asserting that
children, named beneficiaries by the deceased; and (3) Elsie being the beneficiaries named in the life insurance policy of
Hicban, another common law wife of Roman A. Concepcion, Consuegra, they are the only ones entitled to receive the
and her child. retirement insurance benefits due the deceased Consuegra.
Resolving the conflicting claims, the GSIS ruled that the
The plaintiff association was accordingly constrained to legal heirs of the late Jose Consuegra were Rosario Diaz, his
institute in the Court of First Instance of Laguna the widow by his first marriage who is entitled to one-half, or
present action for interpleading against the three conflicting 8/16, of the retirement insurance benefits, on the one hand;
claimants as defendants. and Basilia Berdin, his widow by the second marriage and
their seven children, on the other hand, who are entitled to
Issue: WON the common law spouses may claim the the remaining one-half, or 8/16, each of them to receive an
proceeds of the insurance policy as beneficiaries equal share of 1/16.
Ruling Dissatisfied with the foregoing ruling and apportionment

The contract of life insurance is a special contract and the made by the GSIS, Basilia Berdin and her children filed a
destination of the proceeds thereof is determined by special petition for mandamus with preliminary injunction in the
laws which deal exclusively with that subject. The Civil Court of First Instance of Surigao. The latter affirmed the
Code has no provisions which relate directly and specifically decision of the GSIS.
to life-insurance contract or to the destination of life-
insurance proceeds. That subject is regulate exclusively by ISSUE: To whom should the retirement insurance benefits
the Code of Commerce which provides for the terms of the of Jose Consuegra be paid?
contract, the relations of the parties and the destination of
the proceeds of the policy. HELD:
Section 11(b) of Commonwealth Act 186, as amended by
The contract here involved was perfected before the new Rep. Act 660, clearly indicate that there is need for the
Civil Code took effect, and hence its provisions cannot be employee to file an application for retirement insurance
made to apply retroactively. benefits when he becomes a member of the GSIS, and he
should state in his application the beneficiary of his
retirement insurance. Hence, the beneficiary named in the
BASILIA BERDIN VDA. DE CONSUEGRA; JULIANA, life insurance does not automatically become the beneficiary
PACITA, MARIA LOURDES, JOSE, JR., RODRIGO, in the retirement insurance unless the same beneficiary in
LINEDA and LUIS, all surnamed the life insurance is so designated in the application for
CONSUEGRA, petitioners-appellants retirement insurance.
vs. GOVERNMENT SERVICE INSURANCE SYSTEM,
COMMISSIONER OF PUBLIC HIGHWAYS, HIGHWAY The GSIS offers two separate and distinct systems of
DISTRICT ENGINEER OF SURIGAO DEL NORTE, benefits to its members — one is the life insurance and the
COMMISSIONER OF CIVIL SERVICE, and ROSARIO other is the retirement insurance. These two distinct
DIAZ, respondents-appellees. systems of benefits are paid out from two distinct and
separate funds that are maintained by the GSIS. In
FACTS: retirement insurance, if the employee failed or overlooked to
Jose Consuegra, at the time of his death, was employed as a state the beneficiary, the retirement benefits will accrue to
shop foreman of the office of the District Engineer in the his estate and will be given to his legal heirs in accordance
province of Surigao del Norte. In his lifetime, Consuegra with law, as in the case of a life insurance if no beneficiary
contracted two marriages, the first with herein respondent is named in the insurance policy. Therefore, the respondent
Rosario Diaz. Out of which marriage were born two GSIS had correctly acted when it ruled that the proceeds of
children, namely, Jose Consuegra, Jr. and Pedro Consuegra, the retirement insurance of the late Jose Consuegra should
but both predeceased their father; and the second, which be divided equally between his first living wife Rosario Diaz,
was contracted in good faith while the first marriage was on the one hand, and his second wife Basilia Berdin and his
subsisting, with herein petitioner Basilia Berdin. Out of children by her, on the other; and the lower court did not
which marriage were born seven children, namely, Juliana, commit error when it confirmed the action of the GSIS, it
Pacita, Maria Lourdes, Jose, Rodrigo, Lenida and Luz, all being accepted as a fact that the second marriage of Jose
surnamed Consuegra. Consuegra to Basilia Berdin was contracted in good faith.
Being a member of the GSIS when Consuegra died, the In the recent case of Gomez vs. Lipana, L-23214, June 30,
proceeds of his life insurance were paid by the GSIS to 1970, this Court, in construing the rights of two women who
petitioner Basilia Berdin and her children who were the were married to the same man — a situation more or less
beneficiaries named in the policy.However, Consuegra did similar to the case of appellant Basilia Berdin and appellee
not designate any beneficiary who would receive the Rosario Diaz — held "that since the defendant's first
retirement insurance benefits due to him. Respondent marriage has not been dissolved or declared void the
Rosario Diaz, the widow by the first marriage, filed a claim conjugal partnership established by that marriage has not
with the GSIS asking that the retirement insurance benefits ceased. Nor has the first wife lost or relinquished her status
be paid to her as the only legal heir of Consuegra, as putative heir of her husband under the new Civil Code,
considering that the deceased did not designate any entitled to share in his estate upon his death should she
survive him. Consequently, whether as conjugal partner in
Page 11 of 33
a still subsisting marriage or as such putative heir she has Code, any person who is forbidden from receiving any
an interest in the husband's share in the property here in donation under Article 739 cannot be named beneficiary of a
dispute.... " And with respect to the right of the second wife, fife insurance policy by the person who cannot make a
this Court observed that although the second marriage can donation to him. Common-law spouses are barred from
be presumed to be void ab initio as it was celebrated while receiving donations from each other.
the first marriage was still subsisting, still there is need for
judicial declaration of such nullity. And inasmuch as the Article 739 provides that void donations are those made
conjugal partnership formed by the second marriage was between persons who were guilty of adultery or concubinage
dissolved before judicial declaration of its nullity, "[t]he only at the time of donation.
lust and equitable solution in this case would be to recognize
the right of the second wife to her share of one-half in the There is every reason to hold that the bar in donations
property acquired by her and her husband and consider the between legitimate spouses and those between illegitimate
other half as pertaining to the conjugal partnership of the ones should be enforced in life insurance policies since the
first marriage." same are based on similar consideration. So long as
marriage remains the threshold of family laws, reason and
morality dictate that the impediments imposed upon
THE INSULAR LIFE ASSURANCE COMPANY, LTD married couple should likewise be imposed upon extra-
vs. CARPONIA T. EBRADO and PASCUALA VDA. DE marital relationship.
EBRADO A conviction for adultery or concubinage isn’t required
exacted before the disabilities mentioned in Article 739 may
Facts: effectuate. The article says that in the case referred to in
This is a novel question in insurance law: Can a common- No. 1, the action for declaration of nullity may be brought by
law wife named as beneficiary in the life insurance policy of the spouse of the donor or donee; and the guilty of the donee
a legally married man claim the proceeds thereof in case of may be proved by preponderance of evidence in the same
death of the latter? action.
Buenaventura Cristor Ebrado was issued by the petitioner a The underscored clause neatly conveys that no criminal
policy on a whole life with a rider for accidental death for conviction for the offense is a condition precedent. The law
the amount of 5,882.00 Php same as the amount of the plainly states that the guilt of the party may be proved “in
policy. Buenaventura designated Carponia Ebrado as the same acting for declaration of nullity of donation.” And,
revocable beneficiary in his policy. Buenaventura died. As it would be sufficient if evidence preponderates.
the policy was in force, Insular Life Assurance is liable to
pay 11,745.73 Php. Carpiona filed with the insurer a claim The insured was married to Pascuala Ebrado with whom
for the proceed as designated beneficiary, she admits that she has six legitimate children. He was also living in with
she and Buenaventura merely living as husband and wife his common-law wife with whom he has two children.
without benefit of marriage. Pascuala Vda. De Ebrado filed
also her claim as widow of the deceased as she is the one
entitled to the insurance proceeds, not the common-law wife INSURABLE INTEREST (SEC. 10, 14, 19, 25)
Carponia. Insular Life Assurance commenced an action for
Interpleader before the court of first instance of Rizal. The Insured’s interest that will cause him to suffer pecuniary
Trial court declared Carponia disqualified from being loss/ damage due to loss, destruction or termination.
beneficiary and pay the proceeds to the estate of the
deceased. CA affirmed the judgment of lower court. The existence of insurable interest gives a person the legal
right to insure the subject matter of the policy insurance.
Issue:
WON a common-law wife named as beneficiary in the Purposes of presence of insurable interest:
life insurance policy of a legally married man can claim the 1. Reduce moral hazard dishonesty or character defects in
proceeds in case of death of the latter? the individual that increase chance of loss
2. Helps in measuring the loss of the insured
Held: No.
Section 50 of the Insurance Act which provides that If insured has no insurable interest over life or property he
"the insurance shall be applied exclusively to the proper insures, the contract is UNENFORCEABLE.
interest of the person in whose name it is made"
WHO HAS INSURABLE INTEREST?
The word "interest" highly suggests that the provision refers
only to the "insured" and not to the beneficiary, since a
LIFE INSURANCE (sec. 10) NON-LIFE
contract of insurance is personal in character. Otherwise,
the prohibitory laws against illicit relationships especially INSURANCE (sec. 14)
on property and descent will be rendered nugatory, as the
same could easily be circumvented by modes of insurance. Section 10. Every person has an Section 13. Every
insurable interest in the life and interest in property,
When not otherwise specifically provided for by health: whether real or
the Insurance Law, the contract of life insurance is (a) Of himself, of his spouse and personal, or any relation
governed by the general rules of the civil law of his children; thereto, or liability in
regulating contracts. And under Article 2012 of the same respect thereof, of such
Page 12 of 33
EDUCATION OR SUPPORT
(b) Of any person on whom he nature that a
Art. 195 of FC (EO 209): The following are obliged to
depends wholly or in part for contemplated peril
support each other:
education or support, or in might directly damnify
1. Spouses
whom he has a pecuniary the insured, is an
2. Legitimate ascendants and descendants
interest; insurable interest.
3. Parents and their legitimate children and the
legitimate and illegitimate children of the latter
(c) Of any person under a legal Section 14. An insurable
4. Parents and their illegitimate children and
obligation to him for the interest in property may
legitimate and illegitimate children of the latter
payment of money, or respecting consist in:
5. Legitimate brothers and sisters, whether of full or
property or services, of which (a) An existing interest;
half-blood
death or illness might delay or (b) An inchoate interest
prevent the performance; and founded on an existing
OTHER PECUNIARY INTEREST
(d) Of any person upon whose interest; or
It is enough that there is reasonable certainty that
life any estate or interest vested (c) An expectancy,
continuation of life will be of direct, material advantage to
in him depends. coupled with an existing
the insured, but if such benefit would only be indirect or
interest in that out of
uncertain, the requirement as to insurable interest is not
which the expectancy
satisfied.
arises.
Insurable interest is based on reasonable expectation of
Can the husband procure What can be insured is
financial benefit from continuation of life of insured or
insurance for the benefit of only the MONETARY
reasonable expectation of expenses upon death of insured.
his wife? VALUE of the actual
YES. See Sec. 10 (a). loss suffered
• Mortgage Redemption Insurance- protection of both
a. morgagee: in the event of unexpected demise,
Does it cover common law CONTRACT OF
proceeds of insurance will be applied to the
spouses? INDEMNITY since
payment of the debt
NO, if with legal impediment indemnity is only up to
b. mortgagor: in the event of death, mortgage
(Art. 2012 in relation to 739, the ACTUAL LOSS
obligation will be extinguished through the
NCC). suffered.
proceeds
Can one insure his in-laws?
Does the consent of the beneficiary is necessary to secure
No if under Sec. 10(a). The law
life insurance?
is specific.
According to Aquino, NO.
Yes, if under Sec. 10(b)- if
dependent for education/support
PROPERTY INSURANCE
WON the insured has interest in property or any relation
Example of Sec. 10(c): Great
thereto, or liability in respect thereof, of such nature that a
Pacific vs. CA, Leuterio
contemplated peril might be directly damnify the insured?
Example of Sec. 10(d):
Any title to or interest in property, legal or equitable will
Usufructuary
support a contract of property insurance. The title or
interest may not be existing at the moment.
e.g. A owns an agricultural land.
B wants to cultivate such land
EXISTING INTEREST
with the agreement that B will
• Must be existing at the time insurance is procured
cultivate and all produce shall
• Right over property (attributes of ownership)
go to B. However, if A dies, B
• Interest of owner
will return the land to A’s
• Title or ownership not essential
estate.
• Ff. have insurable interest even if not owner
o Lessee
B can insure the life of A,
o Depositary
because upon latter’s death,
o Usufructuary
B will pecuniarily be
o Borrower in commodatum
affected.
Insurable Interest in property exists in the following:
ON LIFE INSURANCE 1. Possesses legal title to property insured whether
Classes of Insurable Interest in Life Insurance vested or contingent, defeasible or indefeasible
a. Insurable interest in the insured’s own life 2. Has equitable title of whatever character and in
b. Insurable interest in the life of another person based on: whatever manner acquired
a. Relationship by blood 3. Possesses a qualified property or possessory right
b. Business relationship in the subject of the insurance
c. Other pecuniary interest 4. Has mere possession or right of possession
5. Has neither possession of property nor any other
legal interest in it but may suffer from destruction,
Page 13 of 33
loss of legal right dependent upon continued
studies. He paid for her GR: Contract of insurance
existence
tuition fee, accommodation between insurance company
etc. and insured.
INCHOATE INTEREST
XPN: In disposition/ transfer of
• Must be founded on existing interest
Can Vanessa procure property, the insurance
• Not yet available but current situation entitles the
insurance policy on the company must consent to the
party to claim right over the property
life of Jerome and transfer before the policy can be
• Incomplete right
designate herself as the transferred.
beneficiary?
Example:
YES. See Sec. 10(b). Chris owned a car in Nov. 1,
Shareholder has inchoate interest in properties of
2017. The next day, Karol
corporation
Vanessa graduated and purchased the same car. Their
Interest of purchaser of property in judicial sale
was able to earn. This agreement is that they can
subject of redemption
time, Jerome became rescind contract if their are
dependent on Vanessa for breach of warranties. If there
EXPECTANCY
his daily expenses. are internal defects, Karol can
§ Must be coupled with existing interest although the
Can Vanessa claim rescind and return the car to
property does not exist yet provided that there is
based on the life Chris. When Karol used the car
possibility that property may come into existence in
insurance? the next day, the vehicle
the future
YES. Because insurable exhaust was installed inside the
interest is only required to car. Thus, Karol returned the
Example:
be present at the time the car to Chris. It was carnapped
Interest of an heir over properties of successor who
policy exists. and met an accident.
is still alive
Planted trees in one’s land with expectancy in 5
Can Karol claim?
years to be able to sell it.
NO. Karol has no insurable
interest either at the time policy
WHEN SHOULD INSURABLE INTEREST EXIST?
takes effect AND at the time of
Section 19. An interest in property insured must exist when
loss.
the insurance takes effect, and when the loss occurs, but
need not exist in the meantime; and interest in the life or
Can Chris claim?
health of a person insured must exist when the insurance
YES. Sec. 19: “in the meantime”
takes effect, but need not exist thereafter or when the loss
was when the property was
occurs.
transferred to the buyer. But
ownership was restored by the
LIFE INSURANCE NON-LIFE/ seller, and the loss/ accident
PROPERTY INSURANCE occurred in the possession of the
seller.
Insurable interest must Insurable interest must exist
exist a the time the policy both at the time the policy takes Mere expression of intent to
takes effect and may seize effect AND at the time of loss, return does not go into the
to exist thereafter. but need not exist in the definition of “in the meantime”.
meantime. There must be actual return of
the property, or at the least, be
Examples: Examples: proven by evidence that the
1. Husband procured life Chris owned a car in Nov. 1, buyer communicated the intent
insurance policy 2017. The next day, Karol to return and the seller agreed.
designating his wife as the purchased the same car. On
beneficiary. Thereafter, Nov. 3, the car was carnapped.
Can the parties stipulate to waive the requirement of
their marriage got
insurable interest?
annulled. Can Chris collect from the
NO. Insurance policies with such stipulation are VOID
insurance company?
based on Sec. 25 in relation to CAPUI. An insurance policy is
Is the life insurance NO. Because she already lost
an aleatory contract (based on happening of an event) and a
policy valid? Can the insurable interest at the time of
contract of indemnity (can only be indemnified to the extent
wife still claim for the loss. (Sec. 19). Insurable
that you can be damnified- Sec. 18). To remove the
benefits? interest already with Karol at
requirement of insurable interest, then there can be payment
YES. The insurable the time of the loss.
to the beneficiary even if there is no loss.
interest exists at the time
of the marriage. The Can Karol collect from the
Section 25. Every stipulation in a policy of insurance for the
annulment does not affect insurance company?
payment of loss whether the person insured has or has not
the validy of the insurance NO. Because at the time the
any interest in the property insured, or that the policy shall
policy. insurance policy takes effect,
be received as proof of such interest, and every policy
Karol has no insurable interest.
executed by way of gaming or wagering, is void.
2. Jerome helped Vanessa Insurable interest is with Chris.
financially with latter’s
Page 14 of 33
(COMPARE with UCPB vs. Masagana on PREMIUM: insurance interest or not, the transferee may recover
Parties may stipulate. Take note that both are elements of whatever the insured may have recovered under the policy.
insurance contract. )
ASSIGNEE IN PROPERTY INSURANCE
PROPERTY LIFE INSURANCE It is necessary that the transferee has insurable interest
INSURANCE over the thing insured. This is consistent with Section 18.
As to extent Limited up to the Unlimited except if
value of the property secured by creditor Mere transfer of a thing insured does not transfer the policy,
Time when At the time of At time of perfection but suspends it until the same person becomes the owner of
it must exist perfection of of contract both the policy and the thing insured.
contract and at the
time of loss A clause in an agreement providing for an automatic
Need for Expectation of Expectation of assignment of the policy is void, if the assignee does not
legal basis benefit must have benefit need not have have any insurable interest over the insured property.
legal basis legal basis or need
not be based on If the transfer is made after the loss, insurable interest on
legally enforceable the part of the beneficiary is no longer necessary.
obligation
Beneficiary’s Must have insurable Insurable interest Policy cannot prohibit the transfer of the policy after the
interest interest not necessary if loss has occurred.
insured took out
policy on his own life
and designated Spouses NILO CHA and STELLA UY CHA, and
another as UNITED INSURANCE CO., INC. vs. COURT OF
beneficiary. APPEALS and CKS DEV. CORP. G.R. No.
124520. August 18, 1997
*Beneficiary must
have insurable Facts:
interest if one took Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees,
out an insurance on entered into a one yr-lease contract with private respondent
another’s life. CKS Development Corp. (hereinafter CKS), as lessor. The
lease contract states that the “LESSEE shall not insure
against fire the chattels, merchandise, textiles, goods and
INSURABLE INTEREST OF BENEFICIARY IN effects placed at any stall or store or space in the leased
PROPERTY INSURANCE premises without first obtaining the written consent and
Beneficiary must have insurable interest in the property approval of the LESSOR. If the LESSEE obtain(s) the
that is the object of the insurance. insurance thereof without the consent of the LESSOR then
the policy is deemed assigned and transferred to the
The contract will be considered a wagering contract if the LESSOR for its own benefit.”
beneficiary will be allowed to recover even if he has no Despite the above stipulation in the lease contract, the Cha
insurable interest on the subject property. spouses insured against loss by fire their merchandise
inside the leased premises with the United Insurance Co.,
INSURABLE INTEREST OF BENEFICIARY IN LIFE Inc. (hereinafter United) without the written consent of
INSURANCE CKS.
If the insured takes out an insurance on his own life, he can
designate anybody whether or not the beneficiary has On the day that the lease contract was to expire, fire broke
insurable interest over his (insured) life. out inside the leased premises. When CKS learned of the
insurance earlier procured by the Cha spouses (without its
However, if the insured takes out an insurance on the life of consent), it wrote the insurer (United) a demand letter
another designating himself as beneficiary, insurable asking that the proceeds of the insurance contract (between
interest of the part of the insured is necessary. the Cha spouses and United) be paid directly to CKS.
Insurable interest on the part of the beneficiary is likewise United refused to pay CKS. Hence, the latter filed a
necessary if one takes out an insurance on the life of complaint against the Cha spouses and United.
another and designates a third person as the beneficiary.
RTC ordered United to pay CKS the amount of P335,063.11
ASSIGNEE IN LIFE INSURANCE and defendant Cha spouses to pay P50,000.00 as exemplary
A life insurance policy can be transferred even without the damages, P20,000.00 as attorneys fees and costs of suit. On
consent of or notice to the insurer. By express provision of appeal, respondent CA affirmed the trial court decision,
Section 184 of the Insurance Code, it is not necessary that deleting however the awards for exemplary damages and
the transferee has insurable interest. attorneys fees. A motion for reconsideration by United was
denied.
Since a policy of insurance upon life or healthy may pass by
transfer, will, or succession to any person whether he has Issue: WON the CKS has insurable interest because the
spouses Cha violated the stipulation.
Page 15 of 33
Wilfredo Leuterio, a physician and a housing debtor of DBP
Ruling: No. CA Ruling is set aside. Awarding the proceeds applied for membership in the group life insurance plan.
to Spouses Cha.
Grepalife issued Certificate No. B-18558, as insurance
Sec. 18 of the Insurance Code provides: No contract or coverage of Dr. Leuterio, to the extent of his DBP mortgage
policy of insurance on property shall be enforceable except indebtedness amounting to eighty-six thousand, two
for the benefit of some person having an insurable interest hundred (P86,200.00) pesos.
in the property insured.
Dr. Leuterio died due to massive cerebral hemorrhage.
A non-life insurance policy such as the fire insurance policy Consequently, DBP submitted a death claim to
taken by petitioner-spouses over their merchandise is Grepalife. Grepalife denied the claim alleging that Dr.
primarily a contract of indemnity. Insurable interest in the Leuterio was not physically healthy when he applied for an
property insured must exist at the time the insurance takes insurance coverage on November 15, 1983. Grepalife
effect and at the time the loss occurs. The basis of such insisted that Dr. Leuterio did not disclose he had been
requirement of insurable interest in property insured is suffering from hypertension, which caused his
based on sound public policy: to prevent a person from death. Allegedly, such non-disclosure constituted
taking out an insurance policy on property upon which he concealment that justified the denial of the claim.
has no insurable interest and collecting the proceeds of said
policy in case of loss of the property. In such a case, the The widow of the late Dr. Leuterio, respondent Medarda V.
contract of insurance is a mere wager which is void under Leuterio, filed a complaint with the RTC against Grepalife
Section 25 of the Insurance Code, which provides: for Specific Performance with Damages.
SECTION 25. Every stipulation in a policy of Petitioner alleges that the complaint was instituted by the
Insurance for the payment of loss, whether the person widow of Dr. Leuterio, not the real party in interest, hence
insured has or has not any interest in the property the trial court acquired no jurisdiction over the case.
insured, or that the policy shall be received as proof of
such interest, and every policy executed by way of ISSUE:
gaming or wagering, is void. Whether or not Grepalife can be held liable to DBP as
beneficiary in a group life insurance contract from a
In the present case, it cannot be denied that CKS has no complaint filed by the widow of the decedent/mortgagor.
insurable interest in the goods and merchandise inside the YES
leased premises under the provisions of Section 17 of the
Insurance Code which provide. RULING:
Section 17. The measure of an insurable interest in To resolve the issue, we must consider the insurable interest
property is the extent to which the insured might be in mortgaged properties and the parties to this type of
damnified by loss of injury thereof." contract. The rationale of a group insurance policy of
mortgagors, otherwise known as the mortgage redemption
Therefore, respondent CKS cannot, under the Insurance insurance, is a device for the protection of both the
Code a special law be validly a beneficiary of the fire mortgagee and the mortgagor. On the part of the mortgagee,
insurance policy taken by the petitioner-spouses over their it has to enter into such form of contract so that in the event
merchandise. This insurable interest over said merchandise of the unexpected demise of the mortgagor during the
remains with the insured, the Cha spouses. The automatic subsistence of the mortgage contract, the proceeds from
assignment of the policy to CKS under the provision of the such insurance will be applied to the payment of the
lease contract previously quoted is void for being contrary to mortgage debt, thereby relieving the heirs of the mortgagor
law and/or public policy. The proceeds of the fire insurance from paying the obligation. In a similar vein, ample
policy thus rightfully belong to the spouses Cha. The insurer protection is given to the mortgagor under such a concept so
(United) cannot be compelled to pay the proceeds of the fire that in the event of death; the mortgage obligation will be
insurance policy to CKS who has no insurable interest in extinguished by the application of the insurance proceeds to
the property insured. the mortgage indebtedness. Consequently, where the
mortgagor pays the insurance premium under the group
The liability of the Cha spouses to CKS for violating their insurance policy, making the loss payable to the mortgagee,
lease contract in that Cha spouses obtained a fire insurance the insurance is on the mortgagors interest, and the
policy over their own merchandise, without the consent of mortgagor continues to be a party to the contract. In this
CKS, is a separate and distinct issue which we do not type of policy insurance, the mortgagee is simply an
resolve in this case. appointee of the insurance fund, such loss-payable clause
does not make the mortgagee a party to the contract.
Great Pacific Life Ass. Corp. vs. CA and Leuterio
G.R. No. 113899. Oct. 13, 1999 INSURED MAY BE REGARDED AS REAL PARTY IN
INTEREST, ALTHOUGH HE HAS ASSIGNED THE
FACTS: POLICY FOR PURPOSE OF COLLECTION, OR HAS
A contract of group life insurance was executed between ASSIGNED AS COLLATERAL SECURITY ANY
petitioner Great Pacific Life Assurance Corporation JUDGMENT HE MAY OBTAIN. - The insured private
(hereinafter Grepalife) and Development Bank of the respondent did not cede to the mortgagee all his rights or
Philippines (hereinafter DBP). Grepalife agreed to insure interests in the insurance, the policy stating that: In the
the lives of eligible housing loan mortgagors of DBP. Dr. event of the debtors death before his indebtedness with the
Creditor [DBP] shall have been fully paid, an amount to pay
Page 16 of 33
the outstanding indebtedness shall first be paid to the contradictory terms found in the lease agreement. The trial
creditor and the balance of sum assured, if there is any, court stated, among others, that if JVL and Lim (then
shall then be paid to the beneficiary/ies designated by the defendants) were to be regarded as only a lessee, logically
debtor. When DBP submitted the insurance claim against the lessor who asserts ownership will be the one directly
petitioner, the latter denied payment thereof, interposing benefited or injured and therefore the lessee is not supposed
the defense of concealment committed by the insured. to be the assured as he has no insurable interest.
Thereafter, DBP collected the debt from the mortgagor and
took the necessary action of foreclosure on the residential lot On December 27, 2002, FEB filed its Notice of Appeal.
of private respondent. In Gonzales La O vs. Yek Tong Lin Accordingly, on January 17, 2003, the court issued an Order
Fire & Marine Ins. Co. we held: Insured, being the person elevating the entire records of the case to the Court of
with whom the contract was made, is primarily the proper Appeals. On March 15, 2005, the Court of Appeals issued its
person to bring suit thereon. *** Subject to some exceptions, Decision declaring the transaction between the parties as a
insured may thus sue, although the policy is taken wholly or financial lease agreement. The said decision reversed and
in part for the benefit of another person named or unnamed, set aside the trial court’s decision dated November 22, 2002.
and although it is expressly made payable to another as his Hence, Lim filed the present Petition for Review on
interest may appear or otherwise. *** Although a policy Certiorari.
issued to a mortgagor is taken out for the benefit of the
mortgagee and is made payable to him, yet the mortgagor ISSUE:
may sue thereon in his own name, especially where the Whether or not petitioner has an insurable interest in the
mortgagees interest is less than the full amount recoverable equipment and motor vehicles leased.
under the policy, *** And in volume 33, page 82, of the same
work, we read the following: Insured may be regarded as the RULING: Yes.
real party in interest, although he has assigned the policy The stipulation in Section 14 of the leased contract, that the
for the purpose of collection, or has assigned as collateral equipment shall be insured at the cost and expense of the
security any judgment he may obtain. And since a policy of lessee against loss, damage, or destruction from fire, theft,
insurance upon life or health may pass by transfer, will or accident, or other insurable risk for the full term of the
succession to any person, whether he has an insurable lease, is a binding and valid stipulation. Petitioner, as a
interest or not, and such person may recover it whatever the lessee, has an insurable interest in the equipment and
insured might have recovered, the widow of the decedent motor vehicles leased. Section 17 of the Insurance Code
Dr. Leuterio may file the suit against the insurer, Grepalife. provides that the measure of an insurable interest in
property is the extent to which the insured might be
Vicente Ong Lim Sing, Jr. vs. FEB Leasing & Finance damnified by loss or injury thereof. It cannot be denied that
Corp. G.R. No. 168115 JVL will be directly damnified in case of loss, damage, or
destruction of any of the properties leased.
FACTS:
On March 9, 1995, FEB Leasing and Finance Corporation CONCEALMENT (Paglilihim)
entered into a lease of equipment and motor vehicles with
JVL Food Products. On the same date, Vicente Ong Lim 3 MAJOR GROUNDS OF DENIAL TO AVOID LIABILITY:
Sing, Jr. executed an Individual Guaranty Agreement with 3. Material concealment
FEB to guarantee the prompt and faithful performance of 4. Material misrepresentation
the terms and conditions of the aforesaid lease agreement. 5. Material warranty
Corresponding Lease Schedules with Delivery and
Acceptance Certificates over the equipment and motor Others:
vehicles formed part of the agreement. Under the contract, 1. Non-payment of premium
JVL was obliged to pay FEB an aggregate gross monthly
rental of One Hundred Seventy Thousand Four Hundred Concealment and Representation (177-213)
Ninety-Four Pesos (P170,494.00).
In making a contract aleatory, the parties have four primary
JVL defaulted in the payment of the monthly rentals. As of concerns:
July 31, 2000, the amount in arrears, including the penalty 1. The correct estimation of the risk which enables the
charges and insurance premiums, amounted to Three insurer to decide whether he is willing to assume it,
Million Four Hundred Fourteen Thousand Four Hundred and if so at what rate of premium.
Sixty-Eight and 75/100 Pesos (P3,414,468.75). On August • Correct estimation may be made if all
23, 2000, FEB sent a letter to JVL demanding payment of material information are disclosed and if
the said amount. However, JVL failed to pay. the parties are certain that disclosed
information can be relied upon.
On December 6, 2000, FEB filed a Complaint with the 2. The precise delimitation of the risk which
Regional Trial Court of Manila for sum of money, damages, determines the extent of the contingent duty to pay
and replevin against JVL, Lim, and John Doe. undertaken by the insurer.
• Delimitation may be made by specific
In an Amended Answer, JVL and Lim admitted the description of the risk consisting of the
existence of the lease agreement but asserted that it is in designation of the specific person or
reality a sale of equipment on instalment basis, with FEB property interest to be covered and the
acting as the financier. On November 22, 2002, the trial specification of the perils.
court ruled in favor of JVL and Lim and stressed the
Page 17 of 33
• Use exceptions that are inserted in the If there is nothing in the policy that makes it an obligation
policy or stated in the rider. of the party to make sure disclosure during the life of the
3. Such control of the risk after it is assumed as will contract, then there is no duty to make such disclosure for
enable the underwriter to guard against the facts occurring after the insurance takes effect. Such
increase of the risk because of change in conditions. information could not affect the making of the contract.
• Control can be done by resorting to
promissory warranties and conditions that The basis of the rule vitiating the contract in case of
will prevent the occurrence of risks or concealment is that it misleads or deceives the insurer into
hazards that may happen after the policy accepting the risk, or accepting it at the rate of premium
has been issued. agreed upon.
4. Determining whether the loss has occurred, and if
so, the amount of loss. The insurer, relaying upon the belief that the assured will
disclose every material within his actual or presumed
Different devices were developed to ascertain and control knowledge, is misled into a belief that the circumstance
risks. These devices include concealment, representation, withheld does not exist, and he is thereby induced to
warranty, condition, and exceptions. estimate the risk upon a false basis that it does not exist.
Definition: Section 26 & 28 of the Insurance Code However, material information obtained AFTER the filing of
the application but BEFORE the insurance takes effect
The obligation of each party not to conceal material facts is should also be disclosed.
under Section 28.
The obligation to communication is the obligation of each Hence, the applicant for a life insurance policy is under a
party, both the insurer and the insured. Even the insurer is duty to disclose to the insurer changes in his health
bound to observe utmost good faith in dealing with the occurring or coming to his knowledge between the date of
insured. submission of the policy and the time it takes effect.
The duty to disclose is required because insurance contracts The facts are material and should therefore be disclosed if it
are described as contracts UBERRIMAE FIDAE, of utmost relates to PHYSICAL HAZARD or MORAL HAZARD.
good faith.
Examples of material concealment:
The rule on concealment is a requirement of honesty, good 1. Concealment of fainting spells and/or drug overdose
faith, and fair dealing. The assured undertakes to state all illness in a life insurance
the circumstances affecting the risk, a full and fair 2. Failure to disclose the lack of a driver’s license or
statement of all is required. revoked/suspended license in an automobile
insurance.
MATERIALITY
CAUSATION IS NOT NECESSARY
Only material facts are required to be disclosed. (See The matter concealed need not be the cause of the loss. The
Section 31.) insured need not die of the disease if he had failed to
disclose to the insurer the existence of such disease. It is
The matters are considered material if such matters will sufficient that his non-disclosure misled the insurer in
affect the insurer’s action on his application, either by forming the estimates of the risks of the proposed insurance
approving it with the corresponding adjustment for a higher policy or in making inquiries.
premium or rejecting the same or in fixing the terms and
conditions of the policy. REQUISITES
1. The party involved must know the fact concealed or
In relation to the insurer, the matters concealed are at leas he ought to know the same.
material if they will affect the decision of the insured to 2. The fact concealed must be material.
enter into the insurance contract. 3. No warranty is extended by the party regarding the
fact concealed.
The matter concealed by the insured is considered material 4. The other party does not have the means of
if it relates to physical hazard or moral hazard. Hazards ascertaining.
affect the estimate of the disadvantages of the proposed
contract. If the insurer knows about the circumstances KNOWLEDGE OF AGENT OF INSURED
relation to physical or moral hazard, it will give a chance to Principal-insured is bound with the knowledge of his agent
the insurer to make further inquiries and to decide on the “whose duty it is to give information.”
basis of such inquiry. Knowledge on the part of the agent of the insured can be
imputed to the insured himself only if the following
The test of materiality is the effect which the knowledge of circumstances are present:
the fact in question would have on the making of the 1. It was the duty of the agent to acquire and
contract. To be material, a fact need not increase the risk or communicate information of the facts in question
contribute to any loss or damage suffered. It is sufficient if 2. It was possible for the agent, in the exercise of
the knowledge of it would influence the parties in making reasonable diligence, to have made such
the contract. communication before the making of the insurance
contract.
Page 18 of 33
WHEN THERE IS NO MATERIAL CONCEALMENT Absence of knowledge of the fact concealed will not deprive
1. When the matters are known to the other party the insurer of the right to invoke concealment because
2. When, in the exercise of ordinary care, one party unintentional concealment is still concealment.
ought to know, and of which the other party has no
reason to suppose him ignorant Mistake, good faith, and negligence will not excuse the
3. When there is waiver of communication insured from material concealment because unintentional
4. When matters are those which prove or tend to non-disclosure still avoids the policy.
prove the existence of a risk excluded by a
warranty, and which are not otherwise material EXCEPTIONS:
5. When matters are those which relate to a risk 1. The matter allegedly concealed is a matter of
excepted from the policy and which are not opinion
otherwise material 2. When the insurer waived his right to the
6. When the matter involves general causes that are information as in the case where the insured gave
open to inquiry of each party and which may affect an imperfect answer
the political or material perils contemplated.
7. When the matter is included in general usages of WAIVER OF INSURER
trade Upon the face of the application, a question appears to not
8. Information of the nature or amount of the insured be answered at all or to be imperfectly answered, and the
property, is not disclosed unless in answer to an insurers issue a policy without any further inquiry, they
inquiry waive the imperfection of the answer and render the
9. When what is involved is information of the party’s omission to answer more fully immaterial.
own judgment upon the matters in question.
REMEDY
JUDGMENT OR OPINION Presence of concealment entitles the insurer to rescind the
Neither party to a contract of insurance is bound to insurance contract. The right to rescind should be exercised
communicate, even upon inquiry, information of his own previous to the commencement of an action on the contract.
judgment upon the matters in question. It is also subject to the incontestable clause.
The duty of disclosure, and the duty not to misrepresent REPRESENTATION

requires that the statement relates to facts and not to Statements made to give information to the insurer to
opinion. induce him to enter into the insurance contract.
There must be good faith and no intent to deceive. A representation is a collateral communication made to the
other party in writing or by word of mouth.
KNOWLEDGE OF THE INSURER
Where the insurer, at the time of the issuance of a policy of One that induces the party to agree to modify the contract.
insurance, has knowledge of existing facts which, if insisted
on, would invalidate the contract from its very inception, Construed liberally in favor of the insured and are required
such knowledge constitutes a waiver of conditions in the to be only substantially true.
contract inconsistent with the facts, and the insurer is
estopped thereafter from asserting the breach of such Must be presumed to refer to the date on which the contract
conditions. goes into effect.
INTENTIONAL AND UNINTENTIONAL A representation cannot qualify an express provision but it

CONCEALMENT may qualify an implied warranty.
Concealment, whether intentional or unintentional entitles Representation as to Age in Life Insurance

the insurer to rescind the contract of insurance. (Section 27) Misstatement of the age does not avoid the policy, but must
be done in good faith. The result is that any amount payable
Every concealment, whether arising from accident, or benefit accruing under the policy shall be such as the
negligence, inadvertence, or mistake, if material, will be premium paid would have purchased at the correct age.
equally fatal to the contract as if it were intentional or
fraudulent. There is ground to rescind for misrepresentation if there is
fraud or intent to deceive.
Materiality of the information withheld does not depend on
the state of mind of the insured. Neither does it depend on TEST OF MATERIALITY
the actual or physical events which ensue. Thus, GOOD If it relates to health, freedom of disease, habits and medical
FAITH IS NO DEFENSE in concealment. attendance, family relationship, and family history.
KNOWLEDGE OF THE FACT CONCEALED TIME OF REPRESENTATION: made at the time or before
Actual knowledge of the insured is not necessary to give the the issuance/renewal of the policy
insurance company the right to avoid the policy on the
ground of concealment. KINDS:
1. Oral
2. Written
Page 19 of 33
Nature of Statements: Not all forms of concealment can be a basis for denial. Only
1. Affirmative – facts existing at the time the contract MATERIAL CONCEALMENTS can be considered as basis
is made for the denial.
2. Promissory – what is to happen at the time the
insurance is already effective Examples: Ngo Hing, Saturnino, Florendo - All of these
cases have very serious medical condition that granted the
insurance company the right to rescind.
REMEDY: Entitles the aggrieved party the right to rescind
the contract. If the concealment is non-material, then that concealment,
even if it is a concealment, cannot be a basis for the denial
When rescission is unavailable: of the claim.
1. When there is waiver
2. When an action has already been commenced on Example: Suppose the insurance suffered from cough and
the contract flu in the last 3 months before the application of insurance,
3. When the incontestable clause applies and after one week of home medication, he became well. He
did not disclose the said illness in the policy. He died after
10 months the insurance contract was effected. Was there
DISTINCTIONS AND SIMILARITIES material concealment/misrepresentation? YES there was
CONCEALMENT REPRESENTATION concealment, but it is NOT MATERIAL.
omission- NON- Positive assertion or
DISCLOSURE affirmation If only material concealment can be a basis for denial of the
Cannot refer to future acts Can pertain to the future claim or rescission of the contract, when is it considered
because it can be material? Refer to Section 31.
promissory
Test of Materiality Example: If the insured was shot on the foot, then it
A party can rescind. eventually healed, but left a scar, is that something that
should be disclosed? NO. It is not material. Why? It is
Incontestable clause - Section 48 something that will not influence the decision of the insurer
whether to accept or impose higher premium. The
Rationale happening was not material, and it already healed.
The incontestable clause is upheld in law not for the
purpose of upholding fraud but for the purpose of shutting If the condition is fatal, if it will lead to a more serious
off harassing defenses. medical consequence, like hypertension, which could lead to
heart attack, then it is MATERIAL.
The clause is designed to induce the insurer to investigate
and act with reasonable promptness if it wishes to avoid the On the basis of the evaluation of the insurer, his judgment
policy. is already affected by such information. That information
makes a particular information MATERIAL.
The facts can be best ascertained and established if
investigated within the soonest possible time. It is unfair for In concealment, Sections 26, 27, & 31 are the important
the insurer to wait for the death of the insured who provisions.
obviously can no longer defend his claim.
RESCISSION IS THE ULTIMATE CONSEQUENCE,
DISCUSSION NOTES: wherein the parties are restored to their situation prior to
the execution of the contract. The insurer has no liability,
Concealment, Misrepresentation, Warranty – these three while the insured gets back the premium.
are the most common grounds used by the insurer in order
to deny liability in an insurance policy that they issue. If you go to the hospital for a checkup/ or medical testing,
and the purpose is not for medical treatment, there is no
Concealment under Section 26 vs Misrepresentation need to disclose. Non-disclosure is immaterial.
• They have the same effect
• Will authorize the other party the right to rescind In representation, there is a positive and there is a negative.
the contract of insurance If it is negative, it is MISREPRESENTATION which is the
• Concealment need not be proven to be intentional ground for denial.
Why is it not required to be proven that concealment was Representation per se is not a ground for denial, it is
intentionally done? Because intention is a product of state of misrepresentation.
mind. It will be difficult to establish what is going through
the mind of the insured at the time he was applying for the When should this information be disclosed? Representation
insurance policy. can be before the issuance of the policy, or at the time the
policy issued.
The law itself says there need not be any proof that it was
intentional on the part of the insured in particular to the A representation can no longer be withdrawn if the policy
fraud. has been issued already, unless authorized.
Page 20 of 33
Section 45: recourse of the offended party if there exists a had knowledge of a fact material to the risk, and honesty,
material misrepresentation entitles the injured party to good faith, and fair dealing requires that he should
rescind. In relation to Section 48, it should be exercised communicate it to the assurer, but he designedly and
within the contestability period. intentionally withholds the same." It has also been held
"that the concealment must, in the absence of inquiries, be
NG GAN ZEE VS. ASIAN CRUSADER LIFE not only material, but fraudulent, or the fact must have
ASSURANCE CORPORATION G.R. NO. L-30685 MAY been intentionally withheld."
30, 1983
It bears emphasis that Kwong Nam had informed the
Facts: appellant's medical examiner that the tumor for which he
On May 12, 1962, Kwong Nam applied for a 20-year was operated on was "associated with ulcer of the stomach."
endowment insurance on his life for the sum of P20,000.00, In the absence of evidence that the insured had sufficient
with his wife, appellee Ng Gan Zee as beneficiary. On the medical knowledge as to enable him to distinguish between
same date, appellant, upon receipt of the required premium "peptic ulcer" and "a tumor", his statement that said tumor
from the insured, approved the application and issued the was "associated with ulcer of the stomach, " should be
corresponding policy. On December 6, 1963, Kwong Nam construed as an expression made in good faith of his belief
died of cancer of the liver with metastasis. All premiums as to the nature of his ailment and operation. Indeed, such
had been religiously paid at the time of his death. His statement must be presumed to have been made by him
widow Ng Gan Zee presented a claim in due form to without knowledge of its incorrectness and without any
appellant for payment of the face value of the policy. deliberate intent on his part to mislead the appellant.
Appellant denied the claim on the ground that the answers
given by the insured to the questions appealing in his Section 32 of Insurance Law provides as follows: “The right
application for life insurance were untrue. to information of material facts may be waived either by the
terms of insurance or by neglect to make inquiries as to such
Appellee brought the matter to the attention of the facts where they are distinctly implied in other facts of which
Insurance Commissioner, and the latter, after conducting an information is communicated.” It has been held that where,
investigation, wrote the appellant that he had found no upon the face of the application, a question appears to be
material concealment on the part of the insured and that, not answered at all or to be imperfectly answered, and the
therefore, appellee should be paid the full face value of the insurers issue a policy without any further inquiry, they
policy. Still, appellant refused to settle its obligation. waive the imperfection of the answer and render the
Appellant alleged that the insured was guilty of omission to answer more fully immaterial.
misrepresentation when he answered "No" to the question
appearing in the application for life insurance- “Has any life As aptly noted by the lower court, "if the ailment and
insurance company ever refused your application for operation of Kwong Nam had such an important bearing on
insurance or for reinstatement of a lapsed policy or offered the question of whether the defendant would undertake the
you a policy different from that applied for? If, so, name insurance or not, the court cannot understand why the
company and date.” The appellant alleged that the insured defendant or its medical examiner did not make any further
had in January, 1962, applied for reinstatement of his inquiries on such matters from the Chinese General
lapsed life insurance policy with the Insular Life Insurance Hospital or require copies of the hospital records from the
Co., Ltd, but this was declined by the insurance company, appellant before acting on the application for insurance.
although later on approved for reinstatement with a very
high premium as a result of his medical examination. Sun Life of Canada, Inc. vs. CA, 245 SCRA 268 (1995)
Appellant further maintains that when the insured was DOCTRINE: A party to an insurance contract is required to
examined in connection with his application for life communicate to the other, in good faith, all facts within his
insurance, he gave the appellant's medical examiner false knowledge which are material to the contract and as to
and misleading information as to his ailment and previous which he makes no warranty, and which the other has no
operation. Kwong Nam allegedly claimed that the tumor, means of ascertaining.
the size of a hen’s egg was taken out of his stomach due to
peptic ulcer, and that at the time of the insurance FALLO: WHEREFORE, the petition is GRANTED and the
application, he is completely recovered. Appellant argues Decision of the Court of Appeals is REVERSED and SET
that such constituted material concealment. ASIDE.
Issue: FACTS:
Was appellant, because of insured's aforesaid Robert Bacani procured a life insurance contract for himself
representation, misled or deceived into entering the contract from Petitioner Sun Life. The insurance policy was valued
or in accepting the risk at the rate of premium agreed upon? at P100K, with double indemnity in case of accidental
death. Respondent Bernarda Bacani, the mother of Robert,
Ruling: was the designated beneficiary.
No. Section 27 of the Insurance Law provides: “Sec. 27.
Such party to a contract of insurance must communicate to Robert died in a plane crash, thus Bernarda filed a claim
the other, in good faith, all facts within his knowledge which with Sun Life seeking the benefits of the insurance policy.
are material to the contract, and which the other has not However, upon investigation and review of its findings, Sun
the means of ascertaining, and as to which he makes no Life rejected Bernarda’s claim of said benefits due to
warranty.” Thus, "concealment exists where the assured Robert’s concealment of material facts relevant to the
Page 21 of 33
issuance of the policy, thus rendering the insurance contract Leuterio answered questions concerning his health
voidable. condition as follows:
Sun Life discovered that two weeks prior Robert’s 7. Have you ever had, or consulted, a physician for a
application for insurance, he was confined at the Lung heart condition, high blood pressure, cancer,
Center of the Philippines where he was diagnosed for renal diabetes, lung, kidney or stomach disorder or any
failure and subjected to urinalysis, ultra-sonography and other physical impairment?
hematology tests, all of which were concealed in his
application. Answer: No. If so give details ___________.
Sps Bacani filed an action for specific performance against 8. Are you now, to the best of your knowledge, in good
Sun Life and moved for summary judgment with the RTC. health?
RTC ruled in favor of Sps. Bacani ruling that Robert’s Answer: [ x ] Yes [ ] No
concealment of facts was made in good faith and under a
belief that it does not need to be disclosed. It was also held Dr. Leuterio died due to massive cerebral hemorrhage.
that Robert’s health history was immaterial since the Consequently, DBP submitted a death claim to
insurance policy was "non-medical”. Grepalife. Grepalife denied the claim alleging that Dr.
Leuterio was not physically healthy when he applied for an
CA affirmed RTC stating that petitioner cannot avoid its insurance. Grepalife insisted that Dr. Leuterio did not
obligation by claiming concealment because the cause of disclose he had been suffering from hypertension, which
death was unrelated to the facts concealed Robert. caused his death based from the findings of attending
physician, Dr. Mejia. Allegedly, such non-disclosure
ISSUE: Whether or not the concealment of the facts made constituted concealment that justified the denial of the
by Robert warranted Sun Life’s rejection of the insurance claim.
policy - (YES)
Issue: Whether or not that Dr. Leuterio concealed that he
had hypertension, thus vitiating the insurance contract.
RATIO:
Section 26 of The Insurance Code provides that “A neglect to Held:
communicate that which a party knows and ought to No. Petitioner contends that Dr. Leuterio failed to disclose
communicate, is called concealment”. Clearly, insured is that he had hypertension, which might have caused his
specifically required to disclose to the insurer material and death. Concealment exists where the assured had
relevant matters including those relating to his health. The knowledge of a fact material to the risk, and honesty, good
insured need not die of the disease he had failed to disclose faith, and fair dealing requires that he should communicate
to the insurer. It is sufficient that his non-disclosure misled it to the assured, but he designedly and intentionally
the insurer in forming his estimates of the risks of the withholds the same. Petitioner merely relied on the
proposed insurance policy or in making inquiries. testimony of the attending physician, Dr. Hernando Mejia,
as supported by the information given by the widow of the
In this case, the facts which Robert failed to disclose were decedent. Grepalife asserts that Dr. Mejias technical
material and relevant to the approval and issuance of the diagnosis of the cause of death of Dr. Leuterio was a duly
insurance policy. The matters concealed would have documented hospital record, and that the widows
definitely affected petitioner's action on his application, declaration that her husband had possible hypertension
either by approving it with the corresponding adjustment several years ago should not be considered as hearsay, but
for a higher premium or rejecting the same. Robert’s failure as part of res gestae. On the contrary the medical findings
to disclose the fact that he was hospitalized raises grave were not conclusive because Dr. Mejia did not conduct an
doubts about his bonafides. It appears that such autopsy on the body of the decedent. As the attending
concealment was deliberate on his part. physician, Dr. Mejia stated that he had no knowledge of Dr.
Leuterios any previous hospital confinement, Dr. Leuterios
Anent the findings, Sun Life properly exercised its right to death certificate stated that hypertension was only the
rescind the insurance contract by reason of the concealment possible cause of death. The private respondents statement,
of Robert, as recognized in Section 48 of The Insurance as to the medical history of her husband, was due to her
Code. unreliable recollection of events. Hence, the statement of the
physician was properly considered by the trial court as
Great Pacific Life Ass. Corp. vs. CA and Medarda V. hearsay.
Leuterio G.R. No. 113899. Oct. 13, 1999
New Life Enterprises and Julian Sy, vs.
Facts: Hon. Court of Appeals, Equitable Insurance
A contract of group life insurance was executed between Corporation, Reliance Surety And Insurance Co., Inc.
Great Pacific Life Assurance Corporation (Grepalife) and and Western Guaranty Corporation
Development Bank of the Philippines (DBP). Grepalife G.R. No. 94071 March 31, 1992
agreed to insure the lives of eligible housing loan
mortgagors of DBP. Dr. Wilfredo Leuterio, a physician and Facts:
a housing debtor of DBP applied for membership in the Julian Sy and Jose Sy Bang formed a partnership under the
group life insurance plan. In an application form, Dr. business name New Life Enterprises which is primarily
engaged in the sale of construction materials. Julian Sy
Page 22 of 33
insured the stocks in trade of New Life Enterprises with insurer’s liability and compliance therewith is a condition
Western Guaranty Corp. (Western), Reliance Surety and precedent to the insured’s right of recovery from the insurer.
Insurance Co., Inc. (Reliance) and Equitable Insurance
Corp. (Equitable). Subsequently, Fire Insurance Policies While it is a cardinal principle of insurance law that a policy
were issued respectively. Under said policies, particularly or contract of insurance is to be construed liberally in favor
Condition No. 3, otherwise known as “Other Insurance of the insured and strictly against the insurer company, yet
Clause”, it uniformly contained in all the aforestated contracts or insurance, like other contracts, are to be
insurance contracts of herein petitioners, as follows: construed according to the sense and meaning of the terms
which the parties themselves have used. If such terms are
3. The insured shall give notice to the Company clear and unambiguous,
of any insurance or insurances already effected, or they must be taken and understood in their
which may subsequently be effected, covering plain, ordinary and popular sense. Moreover,
any of the property or properties consisting of stocks obligations arising from contracts have the force of law
in trade, goods in process between the contracting parties and should be complied
and/or inventories only hereby insured, and unless with in good faith.
such notice be given and the particulars of such
insurance or insurances be stated therein or endorsed on 2. YES. Insofar as the liability of respondent Reliance is
this policy pursuant to Section 50 of the Insurance Code, concerned, it is not denied that the complaint for
by or on behalf of the Company before the occurrence recovery was filed in court by petitioners only on
of any loss or damage, all benefits under this January 31, 1984, or after more than one (1) year had
policy shall be deemed forfeited, provided however, that elapsed from petitioners’ receipt of the insurers’ letter of
this condition shall not apply when the total denial on November 29, 1982.
insurance or insurances in force at the time of loss or
damage not more than P200,000.00. Assuming arguendo that petitioners felt the legitimate need
to be clarified as to the policy condition violated, there was a
In 1982, the building occupied by New Life was gutted by considerable lapse of time from their receipt of the insurer’s
fire including the stocks in trade insured by Julian Sy to the clarificatory letter dated March 30, 1983, up to the time the
3 insurance companies. A Certification was issued by the complaint was filed in court on January 31, 1984. The one-
Headquarters, Phil. Constabulary to the effect that the year prescriptive period was yet to expire on November 29,
cause of fire was electrical in nature. Thus, Julian Sy went 1983, or about eight (8) months from the
to the agent of Reliance to accompany him to the office to receipt of the clarificatory letter, but petitioners let the
file his claim. When he was following-up his claim, the period lapse without bringing their action in court. We
Claims Manager told him to go first to the other insurance accordingly find no "peculiar circumstances" sufficient to
company, and if it agrees to pay, they will also pay. relax the enforcement of the one-year prescriptive period
Ultimately, in November 1982 (Reliance), February 1983 and we, therefore, hold that petitioners' claim was definitely
(Equitable) and March 1983 (Western), the 3 insurance filed out of time.
companies denied his claim for payment “for breach of
policy conditions”, specifically Condition No. 3 which MA. LOURDES S. FLORENDO, vs. PHILAM PLANS,
requires the insured to give notice of any insurance or INC., PERLA ABCEDE MA. CELESTE ABCEDE.
insurances already effected covering the stocks in trade. Gr. No. 186983 Feb. 22, 2012
In January 1984, separate civil actions were filed by New Compare with Manila Bankers vs. Aban and Sun Life vs.
Life and Julian Sy, which was later on consolidated. The Sibya
trial court ruled in favor of the petitioners. On appeal to
Court of Appeals, it reversed said judgment, thus, the filing FACTS:
of the instant petition. On October 23, 1997 Manuel Florendo filed an application
for comprehensive pension plan with respondent Philam
Issues: Plans, Inc. (Philam Plans) after some convincing by
1. Whether or not Condition No. 3 of the insurance respondent Perla Abcede. The plan had a pre-need price
contracts were violated of P997,050.00, payable in 10 years, and had a maturity
2. Whether or not the liability of Reliance was already value of P2,890,000.00 after 20 years. Manuel signed the
prescribed application and left to Perla the task of supplying the
information needed in the application. Respondent Ma.
Ruling: Celeste Abcede, Perla’s daughter, signed the application as
1. YES. The terms of the contract are clear and sales counselor.
unambiguous.
The comprehensive pension plan also provided life
When the words and language of documents are clear and insurance coverage to Florendo. This was covered by a
plain or readily understandable by an ordinary reader Group Master Policy that Philam Life issued to Philam
thereof, there is absolutely no room for interpretation or Plans. Under the master policy, Philam Life was to
construction anymore. Courts are not allowed to make automatically provide life insurance coverage, including
contracts for the parties; rather, they will intervene only accidental death, to all who signed up for Philam Plans’
when the terms of the policy are ambiguous, equivocal, or comprehensive pension plan. If the plan holder died before
uncertain. The parties must abide by the terms of the the maturity of the plan, his beneficiary was to instead
contract because such terms constitute the measure of the receive the proceeds of the life insurance, equivalent to the
Page 23 of 33
pre-need price. Further, the life insurance was to take care his application. But he kept those crucial facts from Philam
of any unpaid premium until the pension plan matured, Plans.
entitling the beneficiary to the maturity value of the
pension plan. When Manuel signed the application, he adopted as his own
the written representations and declarations embodied in it.
On October 30, 1997 Philam Plans issued Pension Plan It is clear from these representations that he concealed his
Agreement to Manuel, with petitioner Ma. Lourdes S. chronic heart ailment and diabetes from Philam Plans. The
Florendo, his wife, as beneficiary. In time, Manuel paid his pertinent portion of his representations and declarations
quarterly premiums. read as follows:
Eleven months later or on September 15, 1998, Manuel died (c) I have never been treated for heart condition, high
of blood poisoning. Subsequently, Lourdes filed a claim with blood pressure, cancer, diabetes, lung, kidney or
Philam Plans for the payment of the benefits under her stomach disorder or any other physical impairment
husband’s plan. Because Manuel died before his pension in the last five years.
plan matured and his wife was to get only the benefits of his (d) I am in good health and physical condition.
life insurance, Philam Plans forwarded her claim to Philam
Life. Manuel signed the application without filling in the details
regarding his continuing treatments for heart condition and
On May 3, 1999 Philam Plans wrote Lourdes declining her diabetes. The assumption is that he has never been treated
claim. Philam Life found that Manuel was on maintenance for the said illnesses in the last five years preceding his
medicine for his heart and had an implanted pacemaker. application.
Further, he suffered from diabetes mellitus and was taking
insulin. Lourdes renewed her demand for payment under Lourdes insists that Perla, the soliciting agent, knew that
the plan but Philam Plans rejected it, prompting her to file Manuel had a pacemaker before he signed up for the
the present action against the pension plan company before pension plan. But by its tenor, the responsibility for
the RTC of QC. preparing the application belonged to Manuel. Nothing in it
implies that someone else may provide the information that
On March 30, 2006 the RTC ruled that Manuel was not Philam Plans needed. Manuel cannot sign the application
guilty of concealing the state of his health from his pension and disown the responsibility for having it filled up. If he
plan application; ordered Philam Plans, Perla and Ma. furnished Perla the needed information and delegated to her
Celeste, solidarily, to pay Lourdes all the benefits from her the filling up of the application, then she acted on his
husband’s pension plan, namely: P997,050.00, the proceeds instruction, not on Philam Plans’ instruction. Manuel still
of his term insurance, and P2,890,000.00 lump sum pension had his pacemaker when he applied for a pension plan and
benefit upon maturity of his plan; P100,000.00 as moral it is an admission that he remained under treatment for
damages; and to pay the costs of the suit. irregular heartbeat within five years preceding that
application.
On December 18, 2007, CA reversed the RTC
decision,holding that insurance policies are traditionally Manuel had been taking medicine when he submitted his
contracts uberrimae fidae or contracts of utmost good faith. pension plan application. These clearly fell within the five-
It required Manuel to disclose conditions affecting the risk year period. It is not claimed that Perla was aware of his
of which he was aware or material facts that he knew or two other afflictions that needed medical treatments.
ought to know. Pursuant to Section 27 of IC, Manuel’s concealment entitles
Philam Plans to rescind its contract of insurance with him.
ISSUES:
1) Whether Manuel is guilty of concealing his illness when 2) Lourdes contends that the mere fact that Manuel
he kept blank and did not answer questions in his signed the application in blank and let Perla fill in the
pension plan application. details did not make her his agent and bind him to her
2) Whether Manuel was bound by the failure of Perla and concealment of his true state of health. There is no
Ma. Celeste to declare the condition of Manuel’s health. evidence of collusion between them.
3) Whether Philam Plans’ approval of Manuel’s pension
plan application and acceptance of his premium Manuel, in signing the pension plan application, he certified
payments precluded it from denying Lourdes’ claim. that he wrote all the information stated in it or had someone
do it under his direction. Assuming that it was Perla who
HELD: filled up the application form, Manuel is still bound by what
1) YES. Lourdes contends that Philam Plans should have it contains since he certified that he authorized her action.
returned the application to him for completion. Since it Philam Plans had every right to act on the faith of that
approved the application just as it was, it cannot cry certification. Manuel was made aware when he signed the
concealment on Manuel’s part, that Philam Plans never pension plan application that, in granting the same, Philam
queried Manuel directly regarding the state of his Plans and Philam Life were acting on the truth of the
health. representations contained in that application.
Since Philam Plans waived medical examination for Manuel, a civil engineer and manager of a construction
Manuel, it had to rely largely on his stating the truth company, could be expected to know that one must read
regarding his health in his application. He knew more than every document, especially if it creates rights and
anyone that he had been under treatment for heart obligations affecting him, before signing the same. It could
condition and diabetes for more than five years preceding reasonably be expected that he would not trifle with
Page 24 of 33
something that would provide additional financial security • The non-acceptance was allegedly not
to him and to his wife in his twilight years. communicated by Mondragon to Ngo Hing.
• Helen Go died of influenza with complication of
3) Lourdes contends that any defect or insufficiency in the bronchopneumonia.
information provided by his pension plan application • Ngo Hing failed in his effort in seeking payment of
should be deemed waived after the same has been the proceeds of the insurance, hence, he filed an
approved, the policy has been issued, and the premiums action for recovery before CFI which granted his
have been collected. claim.
Issue #1: WON The binding deposit receipt constituted a
The Court cannot agree. The comprehensive pension plan temporary contract of the life insurance in question
that Philam Plans issued contains a one-year Held: No.
incontestability period. The binding deposit receipt in question is merely an
acknowledgment on behalf of the company, that the latter’s
The incontestability clause precludes the insurer from branch office had received from the applicant the insurance
disowning liability under the policy it issued on the ground premium and had accepted the application subject for
of concealment or misrepresentation regarding the health of processing by the insurance company; and that the latter
the insured after a year of its issuance. will either approve or reject the same on the basis of
whether or not the applicant is “insurable on standard
Since Manuel died on the eleventh month following the rates”.
issuance of his plan, the one year incontestability period has
not yet set in. A contract of insurance, like other contracts, must be
assented to by both parties either in person or by their
CA decision AFFIRMED. agents. The contract, to be binding from the date of
application, must have been a completed contract, one that
Great Pacific Life Ass. Co. vs. CA and Ngo Hing leaves nothing to be done, nothing to be completed, nothing
G.R. No. L-31845 . April 30, 1979 to be passed upon, or determined, before it shall take effect.
There can be no contract of insurance unless the minds of
Doctrine: The contract of insurance is one of perfect good the parties have met in agreement.
faith uberrimae fides meaning good faith, absolute and
perfect candor or openness and honesty; the absence of any Issue #2: WON Ngo Hing concealed the state of health and
concealment or demotion, however slight. physical condition of Helen Go
Concealment is a neglect to communicate that which a party Held: Yes.

knows he ought to communicate. Whether intentional or When Ngo Hing supplied the required essential data for the
unintentional, the concealment entitles the insurer to insurance application form, he was fully aware that his one
rescind the contract of insurance. year old daughter is typically a mongoloid child. Such a
congenital physical defect could never be ensconced nor
Fallo: WHEREFORE, the decision appealed from is hereby disguised.
set aside, and in lieu thereof, one is hereby entered
absolving petitioners Lapulapu D. Mondragon and Great The contract of insurance is one of perfect good faith
Pacific Life Assurance Company from their civil liabilities uberrima fides meaning good faith, absolute and perfect
as found by respondent Court and ordering the aforesaid candor or openness and honesty; the absence of any
insurance company to reimburse the amount of P1,077.75 concealment or demotion, however slight.
without interest, to private respondent Ngo Hing. Costs
against private respondent. Concealment is a neglect to communicate that which a party
knows he ought to communicate. Whether intentional or
Facts: unintentional, the concealment entitles the insurer to
• Ngo Hing filed an application with Great Pacific rescind the contract of insurance.
Life Assurance for a twenty-year endowment policy
in the amount of P50,000 on the life of his one-year Saturnino vs. Phil. American Life 7 SCRA 316, 319
old daughter Helen Go.
• Ngo Hing supplied the essential data to Lapulapu Facts:
Mondragon, Branch Manager of Pacific Life. Ngo 2 months prior to the issuance of the policy, Saturnino was
Hing paid the annual premium of P1,077 to the operated on for cancer, involving complete removal of the
company. Upon payment, a binding deposit receipt right breast, including the pectoral muscles and the glands,
was issued to Ngo Hing. found in the right armpit.
• Mondragon received a letter from Pacific Life Notwithstanding the fact of her operation, Saturnino did not
disapproving the insurance application because the make a disclosure thereof in her application for insurance.
said life insurance for 20-year endowment plan is
not available for minors below seven years old, but She stated therein that she did not have, nor had she ever
Pacific Life can consider the same under the had, among others listed in the application, cancer or other
Juvenile Triple Action Plan, and advised that if the tumors; that she had not consulted any physician,
offer is acceptable, the Juvenile Non-Medical undergone any operation or suffered any injury within the
Declaration can be sent to the company. preceding 5 years.
Page 25 of 33
She also stated that she had never been treated for, nor did DOCTRINE: The insurer has two years from the date of
she ever have any illness or disease peculiar to her sex, issuance of the insurance contract or of its last
particularly of the breast, ovaries, uterus and menstrual reinstatement within which to contest the policy, whether,
disorders. the insured still lives within such period. After two years,
the defenses of concealment or misrepresentation, no matter
The application also recited that the declarations of how patent or well founded, no longer lie.
Saturnino constituted a further basis for the issuance of the FALLO: WHEREFORE, the Petition is DENIED. The
policy. assailed September 28, 2005 Decision and the November 9,
2006 Resolution of the Court of Appeals in CA-G.R. CV No.
Issue: 62286 are AFFIRMED.
Whether or not the insured made such false representation FACTS:
of material facts as to avoid the policy. • Delia Sotero took out a life insurance policy from
Manila Bankers Life Insurance Corporation,
Held: designating respondent Cresencia P. Aban, her niece, as
YES. There can be no dispute that the information given by her beneficiary.
her in the application for insurance was false, namely, that • Manila Bankers issued Insurance Policy with a face
she never had cancer or tumors or consulted any physician value of P 100,000.00, in Sotero’s favor after the
or undergone any operation within the preceding period of 5 requisite medical examination and payment of the
years. insurance premium.
• On April 10, 1996, when the insurance policy had been
The question to determine is: Are the facts then falsely in force for more than two years and seven months,
represented material? The Insurance Law provides that Sotero died. Aban filed a claim for the insurance
“materiality is to be determined not by the event, but solely proceeds on July 9, 1996.
by the probable and reasonable influence of the facts upon • Manila Bankers conducted an investigation into the
the party to whom the communication is due, in forming his claim, and came out with the following findings:
estimate of the proposed contract, or making his inquiries. o Sotero did not personally apply for insurance
coverage, as she was illiterate and Sotero was sickly
The contention of appellants is that the facts subject of the since 1990;
representation were not material in view of the non-medical o Sotero did not have the financial capability to pay
nature of the insurance applied for, which does away with the insurance premiums on Insurance Policy No.
the usual requirement of medical examination before the 747411;
policy is issued. The contention is without merit. If o Sotero did not sign the July 3, 1993 application for
anything, the waiver of medical examination renders even insurance; and
more material the information required of the applicant o Aban was the one who filed the insurance
concerning previous condition of health and diseases application and designated herself as the
suffered, for such information necessarily constitutes an beneficiary.
important factor which the insurer takes into consideration • Manila Bankers denied respondent’s claim on April 16,
in deciding whether to issue the policy or not. 1997 and refunded the premiums paid on the policy.
Manila Bankers filed a civil case for Rescission/
Appellants also contend that there was no fraudulent Annulment of the Policy alleging that the policy was
concealment of the truth inasmuch as the insured herself obtained through Fraud, Concealment and/or
did not know, since her doctor never told her, that the Misrepresentation under the Insurance Code, which
disease for which she had been operated on was cancer. In renders it voidable under Art. 1390 of the NCC.
the first place, concealment of the fact of the operation itself • Aban filed a Motion to Dismiss claiming that the cause
was fraudulent, as there could not have been any mistake of action was barred by prescription pursuant to Sec. 48
about it, no matter what the ailment. of the Insurance Code.
• During the proceedings on the Motion to Dismiss,
Secondly, in order to avoid a policy, it is not necessary to Manila Banker’s investigator testified in court that the
show actual fraud on the part of the insured. In this insurance underwriter who solicited the insurance is a
jurisdiction, concealment, whether intentional or cousin of respondent's husband, Dind Aban, and that it
unintentional entitled the insurer to rescind the contract of was the respondent who paid the annual premiums on
insurance, concealment being defined as “negligence to the policy.
communicate that which a party knows and ought to • RTC granted the Motion to Dismiss concluding that
communicate.” The basis of the rule vitiating the contract in Sotero, and not Aban, was the one who procured the
cases of concealment is that it misleads or deceives the insurance; thus, Sotero could legally take out insurance
insurer into accepting the risk, or accepting it at a rate of on her own life and validly designate — as she did —
premium agreed upon. The insurer, relying upon the belief Aban as the beneficiary. It held further that under
that the insured will disclose every material fact within his Section 48, petitioner had only two years from the
actual or presumed knowledge, is misled into a belief that effectivity of the policy to question the same; since the
the circumstances withheld does not exist, and he is thereby policy had been in force for more than two years,
induced to estimate the risk upon a false basis that it does petitioner is now barred from contesting the same or
not exist. seeking a rescission or annulment thereof.
Manila Bankers Life Insurance Corp. vs. Cresencia P. ISSUE: Whether or not Manila Bankers is barred from
Aban, G.R. No. 175666, July 29, 2013 denying the insurance claims based on fraud or
concealment? - YES.
Page 26 of 33
RATIO: Policy. The Policy indicated the respondents as
• Yes. While Manila Bankers insists that its independent beneficiaries and entitles them to a death benefit
investigation on the claim reveals that it was Aban, of Pl,000,000.00 should Atty. Jesus Jr. dies on or
posing as Sotero, who obtained the insurance, this claim before February 5, 2021, or a sum of money if
is no longer feasible in the wake of the courts' finding
Atty. Jesus Jr. is still living on the endowment
that it was Sotero who obtained the insurance for
herself. The finding of fact binds the court. The purpose
date.
of the law is to give protection to the insured or his • On May 11, 2001, Atty. Jesus Jr. died as a result
beneficiary by limiting the rescinding of the contract of of a gunshot wound in San Joaquin, Iloilo. Thus,
insurance on the ground of fraudulent concealment or Ma. Daisy filed a Claimant's Statement with Sun
misrepresentation to a period of only two (2) years from Life to seek the death benefits indicated in his
the issuance of the policy or its last reinstatement. insurance policy.
• The insurer is deemed to have the necessary facilities to • Sun Life denied the claim on the ground that the
discover such fraudulent concealment or
details on Atty. Jesus Jr. 's medical history were
misrepresentation within a period of two (2) years. It is
not fair for the insurer to collect the premiums as long not disclosed in his application. Simultaneously,
as the insured is still alive, only to raise the issue of Sun Life tendered a check representing the
fraudulent concealment or misrepresentation when the refund of the premiums paid by Atty. Jesus Jr.
insured dies in order to defeat the right of the • Despite demands of Ma. Daisy, Sun Life refused
beneficiary to recover under the policy. to heed the requests and instead filed a
• Section 48 serves a noble purpose, as it regulates the Complaint for Rescission of Atty. Jesus Jr. 's
actions of both the insurer and the insured. Under the insurance policy
provision, an insurer is given two years – from the
Sun Life alleges in the complaint that:
effectivity of a life insurance contract and while the
insured is alive – to discover or prove that the policy • Atty. Jesus Jr. did not disclose in his insurance
is void ab initio or is rescindible by reason of the application his previous medical treatment at
fraudulent concealment or misrepresentation of the the National Kidney Transplant Institute in May
insured or his agent. After the two-year period lapses, and August of 1994.
or when the insured dies within the period, the insurer • The undisclosed fact suggested that the insured
must make good on the policy, even though the policy was in "renal failure" and at a high-risk medical
was obtained by fraud, concealment, or
condition. Consequently, had it known such
misrepresentation. This is not to say that insurance
fact, it would not have issued the insurance
fraud must be rewarded, but that insurers who
recklessly and indiscriminately solicit and obtain policy in favor of Atty. Jesus Jr.
business must be penalized, for such recklessness and Respondent’s defense:
lack of discrimination ultimately work to the detriment • Atty. Jesus Jr. did not commit misrepresentation
of bona fide takers of insurance and the public in in his application for insurance. They averred
general. that Atty. Jesus Jr. was in good faith when he
signed the insurance application and even
Sun Life of Canada (Phils), Inc. vs. Ma. Daisy's. Sibya, authorized Sun Life to inquire further into his
et. al., G.R. No. 211212, June 08, 2016
medical history for verification purposes.
According to them, the complaint is just a ploy
DOCTRINE: The intent to defraud on the part of the
insured must be ascertained to merit rescission of the to avoid the payment of insurance claims.
insurance contract. Concealment as a defense for the
insurer to avoid liability is an affirmative defense and
the duty to establish such defense by satisfactory and RTC:
convincing evidence rests upon the provider or insurer. • Sun Life violated Sections 241, paragraph l (b),
(d), and (e) and 242 of the Insurance Code when
FALLO: it refused to pay the rightful claim of the
WHEREFORE, the petition for review is DENIED. The respondents.
Decision dated November 18, 2013 and Resolution dated • Ordered Sun Life to pay death benefits and
February 13, 2014 of the Court of Appeals in CA-G.R. damages.
CV. No. 93269 are hereby AFFIRMED. • Atty. Jesus Jr. did not commit material
concealment and misrepresentation when he
FACTS: applied for life insurance with Sun Life. Given
• On January 10, 2001, Atty. Jesus Sibya, Jr. (Atty. the disclosures and the waiver and
Jesus Jr.) applied for life insurance with Sun Life authorization to investigate executed by Atty.
Canada (Philippines), Inc. In his Application for Jesus Jr. to Sun Life, the latter had all the means
Insurance, he indicated that he had sought of ascertaining the facts allegedly concealed by
advice for kidney problems. the applicant.
• On February 5, 2001, Sun Life approved Atty. CA:
Jesus Jr.'s application and issued Insurance
Page 27 of 33
• Ordered Sun Life to pay death benefits and denying misrepresentation
damages.
• Modified the RTC decision by absolving Sun Incontestability has set in
Life from the charges of violation of Sections 241 because death occurred
and 242 of the Insurance Code. within 2 year period
• Evidence on records show that there was no
fraudulent intent on the part of Atty. Jesus Jr. in WARRANTIES
submitting his insurance application. Instead,
Atty. Jesus Jr. admitted in his application that he WARRANTY – affirmation of fact or a promise that forms
had sought medical treatment for kidney part of the terms and conditions of the policy. It is a
ailment. statement or promise set forth in the policy, or by reference
incorporated therein, the untruth or non-fulfillment,
renders the policy voidable by the insurer.
ISSUE: Whether or not there was concealment or
misrepresentation when Atty. Jesus Jr. submitted his
KINDS:
insurance application with Sun Life –No. 1. Express – stated in the policy or any of its
attachments
RATIO: 2. Implied – natural element of the contract imposed
As correctly observed by the CA, Atty. Jesus Jr. admitted by law and is a part of the policy without the need
in his application his medical treatment for kidney that it be stated in the policy
ailment. Moreover, he executed an authorization in
favor of Sun Life to conduct investigation in reference A warranty may also be:
1. Affirmative – affirmation of fact that exists at the
with his medical history.
time that they are made. It is an undertaking that
some positive allegation of the fact is true.
It also appears that Atty. Jesus Jr. also signed the 2. Promissory – stipulates that certain things shall be
Authorization, which gave Sun Life the opportunity to done or a specified condition shall exist during the
obtain information on the facts disclosed by Atty. Jesus currency of life of the insurance contract. May
Jr. in his insurance application. Given the express either be a positive act or an omission.
language of the Authorization, it cannot be said that
Atty. Jesus Jr. concealed his medical history since Sun WARRANTY REPRESENTATION
Life had the means of ascertaining Atty. Jesus Jr.'s It is part of the contract. It is not part of the contract
medical record. but a collateral inducement.
It is written on a policy or its It can be oral or in writing.
rider.
As to allegations of misrepresentation It is presumed to be It must be established to be
Atty. Jesus Jr. was not a medical doctor, and his answer material. material.
"no recurrence" may be construed as an honest opinion. There must be strict It must be substantially
Where matters of opinion or judgment are called for, compliance. true.
answers made in good faith and without intent to
deceive will not avoid a policy even though they are NOTES FROM DISCUSSION:
untrue.
A contract of insurance is CONDITIONAL. It is laid with
Indeed, the intent to defraud on the part of the insured conditions. Warranty is an application of that principle. If
the condition is material to the validity of the policy, and
must be ascertained to merit rescission of the insurance
there is non-compliance thereto, the injured party has the
contract. Concealment as a defense for the insurer to right to rescind the contract of insurance.
avoid liability is an affirmative defense and the duty to
establish such defense by satisfactory and convincing Warranty is not premised on good faith or bad faith, but on
evidence rests upon the provider or insurer. In the BREACH OF CONTRACT. The inability or the failure to
present case, Sun Life failed to clearly and satisfactorily comply with the contractual terms.
establish its allegations, and is therefore liable to pay the
proceeds of the insurance. Warranty requires strict compliance because this
determines the validity of the contract of insurance.
DISCUSSION ON CONCEALMENT:
There are two kinds of warranty:
FLORENDO ABAN DAISY SIBYA 1. Express – written in the policy
2. Implied – not necessarily written, but can depend
11 months 2 years 3 months on the nature of the contract (Example: warranty of
seaworthiness in a marine insurance contract)
Insurance not Insurance Insurance liable, barred
liable liable; from denying Affirmative Warranty – affirms the existence of the
barred condition or a fact at the time the policy was issued
from No concealment/
Page 28 of 33
Promissory Warranty – you undertake to do something after it had misled the defendant into believing that the
within a given term. If the term ends and you were unable policies were effective.
to comply with the undertaking, then there is breach.
Exceptions: The insurance company was aware, even before the policies
1. When the thing insured perished before expiration were issued, that in the premises insured there were only
of the promissory warranty two fire hydrants installed by Qua Chee Gan and two others
2. Impossibility of the performance nearby, owned by the municipality of Tabaco, contrary to
3. Performance becomes unlawful the requirements of the warranty in question.
BASIS OF RESCISSION: It is usually held that where the insurer, at the time of the
Concealment & Misrepresentation –fraud issuance of a policy of insurance, has knowledge of existing
Warranty –breach of contract 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 facts, and
QUA CHEE GAN vs. LAW UNION AND ROCK the insurer is stopped thereafter from asserting the breach
INSURANCE CO., LTD of such conditions.
Facts Moreover, in insurance contracts, taking into account the

Qua Chee Gan, a merchant of Albay, instituted this action well-known rule that ambiguities or obscurities must be
seeking to recover the proceeds of certain fire insurance strictly interpreted against the party that caused them.
policies issued by the Law Union & Rock Insurance Co.,
Ltd., upon certain bodegas and merchandise of the insured Under the second assignment of error, appellant insurance
that were burned. company avers, that the insured violated the "Hemp
Warranty" against the storage of gasoline, since appellee
The record shows that before the last war, plaintiff-appellee admitted that there were 36 cans (latas) of gasoline that
owned four warehouses or bodegas used for the storage of was in a separate structure not affected by the fire. It is well
stocks of copra and of hemp, baled and loose, in which the to note that gasoline is not specifically mentioned among the
appellee dealt extensively. prohibited articles listed in the so-called "hemp warranty."
Fire of undetermined origin that broke out and lasted The cause relied upon by the insurer speaks of "oils (animal
almost one week, gutted and completely destroyed and/or vegetable and/or mineral and/or their liquid products
petitioner’s bodegas with the merchandise stored theren. having a flash point below 300o Fahrenheit", and is
Plaintiff-appellee informed the insurer by telegram. decidedly ambiguous and uncertain; for in ordinary
parlance, "Oils" mean "lubricants" and not gasoline or
The Insurance Company resisted payment, claiming kerosene. And how many insured, it may well be wondered,
violation of warranties and conditions, filing of fraudulent are in a position to understand or determine "flash point
claims, and that the fire had been deliberately caused by the below 003o Fahrenheit.
insured or by other persons in connivance with him.
In its first assignment of error, the insurance company Here, again, by reason of the exclusive control of the
alleges that the trial Court should have held that the insurance company over the terms and phraseology of the
policies were avoided for breach of warranty, specifically the contract, the ambiguity must be held strictly against the
one appearing on a rider pasted on the face of the policies. It insurer and liberally in favor of the insured, especially to
is argued that since the bodegas insured had an external avoid a forfeiture.
wall perimeter of 500 meters or 1,640 feet, the appellee
should have eleven (11) fire hydrants in the compound, and Insurance is, in its nature, complex and difficult for the
that he actually had only two (2), with a further pair layman to understand. Policies are prepared by experts who
nearby, belonging to the municipality of Tabaco. know and can anticipate the hearing and possible
complications of every contingency. So long as insurance
Issue: companies insist upon the use of ambiguous, intricate and
WON the petitioner may claim the proceeds of the insurance technical provisions, which conceal rather than frankly
policy disclose, their own intentions, the courts must, in fairness to
those who purchase insurance, construe every ambiguity in
Ruling favor of the insured.
We are in agreement with the trial Court that the appellant
is barred by waiver (or rather estoppel) to claim violation of The contract of insurance is one of perfect good faith
the so-called fire hydrants warranty, for the reason that (uferrimal fidei) not for the insured alone, but equally so for
knowing fully all that the number of hydrants demanded the insurer; in fact, it is mere so for the latter, since its
therein never existed from the very beginning, the appellant dominant bargaining position carries with it stricter
nevertheless issued the policies in question subject to such responsibility.
warranty, and received the corresponding premiums.
Palermo vs. Pyramid Ins., 161 SCRA 677 (1988)
It would be perilously close to conniving at fraud upon the
insured to allow appellant to claims now as void ab initio DOCTRINE: The main purpose of the "authorized driver"
the policies that it had issued to the plaintiff without clause, is that a person other than the insured owner, who
warning of their fatal defect, of which it was informed, and drives the car on the insured's order, such as his regular
driver, or with his permission, such as a friend or member of
Page 29 of 33
the family or the employees of a car service or repair shop, Any person driving on the Insured's order or with
must be duly licensed drivers and have no disqualification to his permission. Provided that the person driving is
drive a motor vehicle. permitted in accordance with the licensing or other
laws or regulations to drive the Motor Vehicle and is
FALLO: WHEREFORE, the appealed decision is not disqualified from driving such motor vehicle by
affirmed with costs against the defendant-appellant. order of a Court of law or by reason of any enactment
SO ORDERED. or regulation in that behalf.
FACTS: ISSUE: Whether or not Palermo is an "authorized

• Palermo bought a brand new Nissan Cedric de Luxe driver"
Sedan car from Ng Sam Bok Motors Co
• Palermo insured the car with Pyramid against any RATIO: YES.
loss or damage for P 20,000 and against third party • The driver at the time of the accident was, the
liability for P 10,000. insured himself, hence an "authorized driver" under
o paid Pyramid P 361.34 premium for 1year the policy.
o was issued Private Car Comprehensive • The Motor Vehicle Law prohibits a person from
Policy MV-1251 operating cars on the highway without a license or
• The automobile was mortgaged by Palermo with, with an expired license.
Ng Sam Bok to secure the payment of the balance of • But an infraction of the Motor Vehicle Law is not a
the purchase price bar to recovery under the insurance contract.
o Thus, registration certificate in the name of o However, it renders Panelo subject to the
Palermo remains in the hands of the penal sanctions of the Motor Vehicle Law.
mortgagee, Ng Sam Bok • The requirement of a driver’s license applies only
• While driving the car, Palermo had an accident. when the driver" is driving on the insured's order or
o The La Carlota City fire engine crashed head with his permission."
on o It does not apply when the person driving is
o Palermo sustained physical injuries the insured himself.
o his father, Cesar Palermo, died
o car was totally wrecked. American Home Ass. Vs. Tantuco Ent., 366 SCRA 740
• Pyramid was immediately notified, and upon its (2001)
orders, the car was towed from the scene of the
accident to Ng Sam Bok Compound where it DOCTRINE: The Court Stresses the object of the court
remains deposited up to the present time. in construing a contract to ascertain the intent of the
parties to the contract, and to enforce the agreement
• Insurance policy grants an option unto Pyramid
which the parties have entered into. The courts will
either to
read and construe the policy as a whole and if possible
o indemnify Palermo for loss or damage to the
give effect to all the parts of the contract.
car in cash
o or to replace the damaged car.
FALLO: “IN VIEW WHEREOF, finding no reversible
• Pyramid refused to take either because Palermo
error in the impugned Decision, the instant petition is
violated the policy when Palermo drove the car with an
hereby DISMISSED.”
expired driver's license.
• Palermo, filed a complaint w/CFI against Pyramid FACTS
for his claim Respondent Tantuco Enterprises engage in Coconut
o Pyramid’s Answer: refused Palermo’s claim oil Milling and refining, owns two oil mills, both
because the insured was driving his car with located at one factory compound, and both being
an expired license, and thus, was not an covered under two separate fire insurance plans, the
“authorized driver.” first being insured for php3,000,000 under Policy No.
• CFI: Pyramid to pay Palermo P20,000, value of the 306-7432324-3 and the second one insured for
insurance of the motor vehicle in question and to php6,000,000 under Policy No. 306-7432321-9.
pay the costs.
• Palermo filed a "Motion for Immediate Execution A fire broke out in the morning of September 30 1991,
Pending Appeal." wherein the fire gutted and consumed the second oil
o CFI: granted. mill, often recognized as “The new oil mill”, wherein
• Pyramid alleges CFI erred in interpreting this policy right after, Respondents immediately informed the
provision: Petitioners. The latter rejected the former’s claim
AUTHORIZED DRIVER: insisting that no policy covered the second or “the
Any of the following: new oil mill” as it was commonly called.
The Insured.
Page 30 of 33
Respondent immediately filed a complaint for specific construe the policy as a whole and if possible give
performance, wherein the RTC ruled in favor of effect to all the parts of the contract.
Tantuco Enterprises, awarding actual damages
representing the insured amount, so on and so forth. Such instance is the exception to the Parole Evidence
American Home Assurance immediately assailed Rule where the rules permit the presenting of
judgement before the CA, and the same court evidence to modify or add to the terms of the
dismissed the complaint and affirmed the decision of agreement.
the RTC. Petitioner moved for reconsideration from
the Appellate Court, however the same was dismissed. Malayan Insurance Co., Inc. vs. PAP Co., Ltd. (Phil.
Thus, Petitioner brought the current action to the High Branch) , G.R. No. 200784, Aug. 07, 2013
Court.
DOCTRINE
The primary reason the petitioner harps on its (1) The SC said that with the transfer of the location of
resistance to the claim of the respondent is that it the articles, without notice and consent, after the
isn’t covered by any insurance policy. renewal of the policy – PAP committed concealment
According to the Petitioner’s, the Oil Mill that burned misrepresentation and a breach of a material warranty
wasn’t covered by any insurance policy. allowing the other party to rescind the contract.
(2) Based on Sec 168 of the Insurance Code, the insurer is
The Oil Mill in the policy is specifically described entitled to rescind the insurance contract in case of an
through “technical description” pertains to the other Oil alteration in the use or condition of the thing insured.
Mill, and that the respondent should be barred by the An insurer can exercise its right to rescind an insurance
Parole Evidence Rule presenting other evidence, that it contract when the following conditions are present, to
really intended to insure the “New Oil Mill”, and that wit: (1) the policy limits the use or condition of the thing
respondent is Barred by Estoppel because it retained insured; (2) there is an alteration in said use or condition;
the policy without questioning it. (3) the alteration is without the consent of the insurer; (4)
the alteration is made by means within the insured’s
ISSUE: Whether or not the respondent barred by the control; and, (5) the alteration increases the risk of loss.20
Parole Evidence Rule. (NO)
FALLO
RATIO WHEREFORE, the October 27, 2011 Decision of the
The Respondents cannot be bound by the Parole Court of Appeals is hereby REVERSED and SET ASIDE.
Evidence Rule Petitioner Malayan Insurance Company, Inc. is hereby
declared NOT liable for the loss of the insured
The Argument harps on the contention that the machineries and equipment suffered by PAP Co., Ltd.
“Technical Description” in the policy does not cover
the burned Oil Mill. The court explained here that in FACTS
construing the “technical description” of a building, 1. May 1996 – Malayan issued a fire insurance to
greatest liberality is shown by the courts in giving the PAP for the latter’s machineries and equipment
effect of the insurance. The MIDDESCRIPTION of in PEZA, Rosario, Cavite. The coverage was for
the policy specifically makes mention of “xxx corpa P15M and effective for 1 year.
cake, copra mills whilst contained in the NEW OIL a. It was procured by PAP for RCBC, the
MILL BUILDING, xxx” wherein evidently, if the mortgagee of the insured machineries
parties intended to insure the old oil mill, they should and equipment.
not have specified it as the NEW OIL MILL. 2. Prior to the expiration of the insurance coverage,
PAP renewed the policy for the period of May
The discrepancy happened during the preparation of 1997 – May 1998.
the written contract. It was also found that 3. Oct 1997 – the insured machineries and
Respondent’s operating manager Mr. Tantuco equipment were totally lost by fire. This
notified Mr. Borja (petitioner’s agent) of the prompted PAP to file an insurance claim with
discrepancy, however the latter assured the former Malayan. However, Malayan denied claim on
that “The new oil mill” will distinguish the insured the ground that at the time of the loss, the
property, wherein the assurance convinced the machineries and equipment were transferred by
former. PAP to a different location from what was
indicated in the policy.
The Court Stresses the object of the court in construing a. Sep 1996 – the machineries and
a contract to ascertain the intent of the parties to the equipment were transferred from Sanyo
contract, and to enforce the agreement which the Bldg to Pace Pacific Bldg.
parties have entered into. The courts will read and b. PAP argued that Malayan cannot avoid
liability because it was informed by
Page 31 of 33
RCBC of the transfer, the party duty a. It was established that he instructed his
bound to relay the information. Secretary Dory Ramos to inform RCBC
4. Malayan was firm in its denial and filed a of the transfer and much later on
complaint against Malayan. Malayan. According to him, Dory
5. RTC: ordered Malayan to pay PAP an Ramos said that she already notified
indemnity for the loss under the fire insurance. Malayan of the new location of the
a. Although there was a change in the insured properties and that based on a
condition of the insured, Malayan failed report given to him by her someone
to prove that such transfer resulted in form Malayan came to their office.
the increase of risk. Absence of sch proof i. The SC held that the testimony
the contract of fire insurance is not consisted of hearsay matters
affected (Art 169). and that he had no personal
b. RCBC complied with the notice knowledge of the notice to
requirement under the policy since it either RCBC and Malayan. PAP
was RCBC which procured the should have presented the
insurance. PAP was in good faith in Secretaries at the witness stand.
notifying RCBC about the transfer. b. He also admitted that the insured
RCBC even conducted an inspection of properties were transferred to a
the machinery in its new location. different location only after the renewal
6. CA: Affirmed. There was neither prohibition on of the fire insurance policy.
the transfer of the insured properties during the
efficacy of the insurance policy nor a need to 3. TRANSFER INCREASED THE RISK
procure its consent before carrying out a a. The SC agreed with Malayan that the
transfer. According to the CA, since the article transfer to the Pace Factory exposed the
were transferred on Sep 1996 and the policy was properties to a hazardous environment
renewed on May 1997, Malayan was aware or and negatively affected the fire rating
should have been aware of the transfer when it stated in the renewal policy. The
issued the new policy. Since an insurance policy increase in tariff rate from 0.449% to
was a contract of adhesion, any ambiguity must 0.657% put the subject properties at a
be resolved against the party that prepared it. greater risk of loss – increase in risk
would necessarily entail an increase in
ISSUE the premium payment on the fire policy.
WON Malayan can be held liable under the insurance – PAP failed to refute this argument.
contract. 4. The original policy was renewed on an “as is
basis”, it follows that the renewal policy carried
HELD: Malayan is not liable. with it the same stipulations and limitations.
1. Based on the condition No 9 (c), the removal of Based on the terms and conditions, the location
the insured property to any building or place of policy was at the Sanyo Factory in PEZA. The
required the consent of Malayan – any transfer properties were in the Pace Factory when it
effected by the insured, without the insurer’s burned, which was not in the policy. There
consent, would free Malayan from any liability. being an unconsented removal, the transfer
a. PAP failed to notify and to obtain the was at PAP’s own risk. Consequently, it must
consent of Malayan. The records are suffer the consequences of the fire.
bereft of any convincing and concrete 5. The SC said that with the transfer of the location
evidence that Malayan was notified of of the articles, without notice and consent, after
the transfer of the insured properties the the renewal of the policy – PAP committed
Sanyo factory to the Pace factory. concealment1 (which allows the injured party to
b. PAP was able to prove that Malayan rescind contract) misrepresentation and a breach
was notified when it relayed the transfer of a material warranty based on Sec 262. Based
to RCBC. Even though, Malayan and on Sec 168 of the Insurance Code, the insurer is
RCBC are sister companies such fact did entitled to rescind the insurance contract in case
not make one an agent of the other. The of an alteration in the use or condition of the
fact that RCBC referred PAP to Malayan thing insured.3
did not clothe it with authority to
represent and bind the said insurance 1 Section 27. A concealment entitles the injured party to rescind a
company. contract of insurance.
2 Section 26. A neglect to communicate that which a party knows and
2. TESTIMONY OF YONEDA (branch manager of ought to communicate, is called a concealment.

3
Section 68. An alteration in the use or condition of a thing insured
PAP):
from that to which it is limited by the policy made without the consent
Page 32 of 33
6. An insurer can exercise its right to rescind an
insurance contract when the following
conditions are present, to wit:
a. the policy limits the use or condition of
the thing insured;
b. there is an alteration in said use or
condition;
c. the alteration is without the consent of
the insurer;
d. the alteration is made by means within
the insured’s control; and
e. the alteration increases the risk of loss.20
**IN THE CASE AT BAR, all the requisites are
present. It was clearly established that the
renewal policy stipulated that the insured
properties were located at the Sanyo factory;
that PAP removed the properties without the
consent of Malayan; and that the alteration of
the location increased the risk of loss.
of the insurer, by means within the control of the insured, and

increasing the risks, entitles an insurer to rescind a contract of fire
insurance.
Page 33 of 33

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INSURANCE LAW MIDTERMS REVIEWER

Sunny & Chinita Notes

2. No, the risk of loss is on petitioner. Under the Civil Issues:

Respondents instituted a complaint for specific performance

BENEFICIARIES TYPES of BENEFICIARY

Mortis Causa Inter Vivos FORFEITURE OF RIGHTS OF BENEFICIARY

SECTION 53. The insurance proceeds shall be applied Facts

Ruling Dissatisfied with the foregoing ruling and apportionment

The duty of disclosure, and the duty not to misrepresent REPRESENTATION

INTENTIONAL AND UNINTENTIONAL A representation cannot qualify an express provision but it

Concealment, whether intentional or unintentional entitles Representation as to Age in Life Insurance

Concealment is a neglect to communicate that which a party Held: Yes.

Facts Moreover, in insurance contracts, taking into account the

FACTS: ISSUE: Whether or not Palermo is an "authorized

2. TESTIMONY OF YONEDA (branch manager of ought to communicate, is called a concealment.

of the insurer, by means within the control of the insured, and

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