Insurance Law Reviewer ‘20
Based on the Book of De Leon.
PART G
IV. Other Grounds for Rescission in Non-Life
Insurance
SECTION 64. No policy of insurance other than life
shall be cancelled by the insurer except upon prior
notice thereof to the insured, and no notice of
cancellation shall be effective unless it is based on
the occurrence, after the effective date of the policy,
of one or more of the following:
(a) Nonpayment of premium;
(b) Conviction of a crime arising out of acts
increasing the hazard insured against;
(c) Discovery of fraud or material
misrepresentation;
(d) Discovery of willful or reckless acts or
omissions increasing the hazard insured
against;
(e) Physical changes in the property insured which
result in the property becoming uninsurable;
(f) Discovery of other insurance coverage that
makes the total insurance in excess of the value
of the property insured; or
(g) A determination by the Commissioner that the
continuation of the policy would violate or would
place the insurer in violation of this Code.
SECTION 65. All notices of cancellation mentioned
in the preceding section shall be in writing, mailed
or delivered to the named insured at the address
shown in the policy, or to his broker provided the
broker is authorized in writing by the policy owner
to receive the notice of cancellation on his behalf,
and shall state:
(a) Which of the grounds set forth in Section 64 is
relied upon; and
(b) That, upon written request of the named
insured, the insurer will furnish the facts on
which the cancellation is based.
Cancellation is regarded as the right to rescind,
abandon, or cancel a contract of insurance. It is the
termination by either the insurer or the insured of a
policy of insurance before its expiration.
The insured can cancel an insurance contract at his
election by surrendering the policy. Such surrender,
however, entitles him to the return of the premiums
on the customary short-rate basis.
The right of the insurer to cancellation of a policy of
insurance other than life is covered by Sections 64
and 65.
Form and sufficiency of notice or cancellation by
the insurer
1. There must be prior notice of cancellation to the
insured;
2. The notice must be based on the occurrence,
after the effective date of the policy, of one or
more of the grounds mentioned in Section 64;
3. It must be in writing, mailed or delivered to the
named insured at the address shown in the
policy, or to his authorized broker; and
4. It must state which of the grounds set forth is
relied upon.
It is the duty of the insurer upon written request of
the name insured to furnish the facts on which the
cancellation is based. The premium referred to in
Section 64(a) must be a premium subsequent to the
first.
Prior notice of cancellation to insured
The purpose of provisions in insurance policies for
notice to the insured, is to allow the insured ample
opportunity to negotiate for other insurance in its
stead for his own protection.
The notice should be personal to the insured and
not to and/or through any unauthorized person by
the policy.
The notice need not be delivered personally to the
insured. It may be mailed.
SAURA IMPORT & EXPORT CO., INC.
vs. PHILIPPINE INTERNATIONAL SURETY
CO., INC., and PHILIPPINE NATIONAL BANK.
[G.R. No. L-15184. May 31, 1963.]
Facts: Saura Import & Export Co., Inc., mortgaged to
the Phil. National Bank, a parcel of land to secure
the payment of a promissory note.
Erected on the land mortgaged, was a building of
strong materials owned by the mortgagor Saura
Import & Export Co., Inc., which had always been
covered by insurance, many years prior to the
mortgage contract. Pursuant to the requirement,
Saura insured the building and its contents with the
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Philippines International Surety, against fire for the
period of one year from October 2, 1954. As required
therefor, the insurance policy was endorsed to the
mortgagee PNB, in a Memo which states —
"Loss if any, payable to the Philippine National Bank as
their interest may appear, subject to the terms,
conditions and warranties of this policy".
The policy was delivered to the mortgagee Bank by
Saura. Barely 13 days after the issuance of the fire
insurance policy, the insurer cancelled the same,
effective as of the date of issue. Notice of the
cancellation was given to appellee Bank in writing,
personally addressed to the Branch Manager of the
appellee Bank's Davao Branch and was received by
the Bank on November 8, 1954.
On April 6, 1955, the building and its contents, worth
P40,685.69 were burned. Saura filed a claim with
the Insurer and mortgagee Bank. Upon the
presentation of notice of loss with the PNB, Saura
learned for the first time that the policy had
previously been cancelled on October 2, 1954, by
the Insurer, when Saura's folder in the Bank's file
was opened and the notice of cancellation (original
and duplicate) sent by the Insurer to the Bank, was
found. Upon refusal of the Insurer Philippines
International Surety to pay the amount of the
Insurance, a Civil Case was filed with the Manila CFI
against the Insurer.
Issue: WON there was proper cancellation of the
policy. NO.
Ruling: The policy in question does not provide for
the notice, its form or period.
The insurance Law, Act No. 2427, does not likewise
provide for such notice. This being the case, it
devolves upon the Court to apply the generally
accepted principles of insurance, regarding
cancellation of the insurance policy by the insurer.
From what has been heretofore stated, actual notice
of cancellation in a clear and unequivocal manner,
preferably in writing, in view of the importance of an
insurance contract, should be given by the insurer
to the insured, so that the latter might be given an
opportunity to obtain other insurance for his own
protection. The notice should be personal to the
insured and not to and/or through any unauthorized
person by the policy. In the case at bar, the
defendant insurance company, must have realized
the paramount importance of sending a notice of
cancellation, when it sent the notice of cancellation
of the policy to the defendant bank (as mortgagee),
but not to the insured with which it (insurance
company) had direct dealing. It was the primary
duty of the defendant-appellee insurance company
to notify the insured, but it did not. It should be
stated that the house and its contents were burned
on April 6, 1955, at the time when the policy was
enforced (October 2, 1954 to October 2, 1955); and
that under the facts, as found by the trial court, to
which We are bound, it is evident that both the
insurance company and the appellee bank failed,
wittingly or unwittingly, to notify the insured
appellant Saura of the cancellation made.
The purpose of provisions or stipulations in
insurance policies for notice to the insured, is to
prevent the cancellation of the policy, without
allowing the insured ample opportunity to negotiate
for other insurance in its stead.
The form and sufficiency of a notice of cancellation
is determined by policy provisions. In order to form
the basis of the cancellation of a policy, notice to
the insured need not be in any particular form, in the
absence of a statute or policy provision prescribing
such form, and it is sufficient, so long as it positively
and unequivocally indicates to the insured, that it is
the intention of the company that the policy shall
cease to be binding. Where the policy contains no
provisions that a certain number of days notice
shall be given, a reasonable notice and opportunity
to obtain other insurance must be given. Actual
personal notice to the insured is essential to a
cancellation under a provision for cancellation by
notice. The actual receipt by the insured of a notice
of cancellation is universally recognized as a
condition precedent to a cancellation of the policy
by the insurer, and consequently a letter containing
notice of cancellation which is mailed by the insurer
but not received by the insured, is ineffective as
cancellation (29 Am. Jur. pp. 732-741).
Of course, the defendant insurance company
contends that it gave notice to the defendant-
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appellee bank as mortgagee of the property, and
that was already a substantial compliance with its
duty to notify the insured of the cancellation of the
policy. But notice to the bank, as far as appellant
herein is concerned, is not effective notice.
MALAYAN INSURANCE CO., INC.
(MICO), vs. GREGORIA CRUZ ARNALDO, in her
capacity as the INSURANCE COMMISSIONER, and
CORONACION PINCA.
[G.R. No. L-67835. October 12, 1987.]
Facts: The petitioner MICO issued to the private
respondent, Coronacion Pinca, Fire Insurance
Policy on her property effective July 22, 1981, until
July 22, 1982.
On October 15, 1981, MICO allegedly cancelled the
policy for non-payment, of the premium and sent
the corresponding notice to Pinca.
On December 24, 1981, payment of the premium for
Pinca was received by Domingo Adora, agent of
MICO. Adora remitted this payment to MICO,
together with other payments.
On January 18, 1982, Pinca's property was
completely burned.
On February 5, 1982, Pinca's payment was returned
by MICO to Adora on the ground that her policy had
been cancelled earlier. But Adora refused to accept
it.
In due time, Pinca made the requisite demands for
payment, which MICO rejected. She then went to the
Insurance Commission. It is because she was
ultimately sustained by the public respondent that
the petitioner has come to us for relief.
Issue: WON the insurance has been cancelled. NO.
Ruling: MICO's arguments that there was no
payment of premium and that the policy had been
cancelled before the occurrence of the loss are not
acceptable. Its contention that the claim was
allowed without proof of loss is also untenable.
As for the method of cancellation, Section 65
provides as follows:
SEC. 65. All notices of cancellation mentioned in the
preceding section shall be in writing, mailed or
delivered to the named insured at the address
shown in the policy, and shall state (a) which of the
grounds set forth in section sixty-four is relied upon
and (b) that, upon written request of the named
insured, the insurer will furnish the facts on which
the cancellation is based."
A valid cancellation must, therefore, require
concurrence of the following conditions:
(1) There must be prior notice of cancellation to the
insured;
(2) The notice must be based on the occurrence, after
the effective date of the policy, of one or more of the
grounds mentioned.
(3) The notice must be (a) in writing, (b) mailed, or
delivered to the named insured, (c) at the address
shown in the policy;
(4) It must state (a) which of the grounds mentioned in
Section 64 is relied upon and (b) that upon written
request of the insured, the insurer will furnish the
facts on which the cancellation is based.
All MICO's offers to show that the cancellation was
communicated to the insured is its employee's
testimony that the said cancellation was sent "by
mail through our mailing section." without more
It stands to reason that if Pinca had really received
the said notice, she would not have made payment
on the original policy on December 24, 1981.
Instead, she would have asked for a new insurance,
effective on that date and until one year later, and
so taken advantage of the extended period.
Incidentally, Adora had not been informed of the
cancellation either and saw no reason not to accept
the said payment
Although Pinca's payment was remitted to MICO's
by its agent on January 15, 1982, MICO sought to
return it to Adora only on February 5, 1982, after it
presumably had learned of the occurrence of the
loss insured against on January 18, 1982 make the
motives of MICO highly suspicious.
LEONA PAULINO, as owner of the JUNIOR CAFE,
BAKERY & GROCERY STORE vs. THE CAPITAL
INSURANCE & SURETY COMPANY, INC.
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Based on the Book of De Leon.
[GR No. L-11728. May 15, 1959.]
Facts: On February 8, 1952, the plaintiff accepted a
fire insurance policy issued by the defendant; that
on April 30, 1952, the plaintiff wrote the defendant
requesting cancellation of the policy, which the
latter received on May 10, 1952; that the plaintiff did
not return the policy or demanded for the return of
the proportionate premium; that neither did the
defendant offer to return the premium; that the
property covered by the policy was destroyed by fire
on August 16, 1952.
The defendant refused to make payment on
plaintiff's claim, on the ground that the policy was
cancelled as of May 10, 1952.
Plaintiff contends in this appeal that her letter,
dated April 30, 1952, was a mere request or offer to
cancel the policy and did not terminate the same
since it was not accompanied by the surrender of
the policy for cancellation.
Issue: WON the contract of insurance can be
terminated. YES.
Ruling: This case hinges on the interpretation of
paragraph 10 of the policy, reading:
"This insurance may be terminated at any time at the
request of the Insured, in which case the Company will
retain the customary short period rate for the time the
policy has been in force. This insurance may also at any
time be terminated at the option of the Company, on
notice to that effect being given to the Insured, in which
case the Company shall be liable to repay on demand a
ratable proportion of the premium for the expired term
from the date of cancelment."
Pursuant to this stipulation, the contract in question
could be terminated, "at any time", upon the
unilateral act of either party. Whichever party
exercised the "option", did not need the approval,
consent or concurrence of the other thereto. That
consent was given at the time of the making of the
contract. Moreover, pursuant to her letter, plaintiff
considered the contract terminated upon receipt of
said letter by the defendant ("desde el recibo de la
presente).
Furthermore, the case of Buckley vs. Citizens
Insurance Co. (81 N.E. 165) relied upon by the
plaintiff is not in point. Although the insurance
policy involved in that case contained a clause
analogous to the one involved here, the option was
exercised therein, not by the insured, but by the
insurance company, which likewise, requested the
return of the policy. Upon receipt of the
communication of the company to this effect, the
insured returned the policy. Subsequently, but
before the corresponding portion of the premium
had been refunded to the insured, the property was
destroyed by fire. Upon these facts, the insured was
not entitled to collect the amount of the policy,
because the unconditional return thereof upon
request of the company implied "a waiver of his
right to treat the policy as in full force and effect
until the company paid or tendered to him the
unearned premium."
V. When Right to Rescission must be exercise
SECTION 48. Whenever a right to rescind a contract
of insurance is given to the insurer by any provision
of this chapter, such right must be exercised
previous to the commencement of an action on the
contract.
After a policy of life insurance made payable on the
death of the insured shall have been in force during
the lifetime of the insured for a period of two (2)
years from the date of its issue or of its last
reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindable by reason of
the fraudulent concealment or misrepresentation of
the insured or his agent.
Grounds to rescind a contract of insurance
1. Concealment;
2. False representation; and
3. Breach of warranty.
An action to rescind a contract, under the first
paragraph of Section 48, is founded upon and
presupposes the existence of the contract, which is
rescinded.
In non-life policy, in order that the insurer may
rescind a contract of insurance, such right must be
exercised prior to the commencement of an action
on the contract. In other words, the insurer is no
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longer entitled to rescind a contract of insurance
after the insured has filed an action to collect the
amount of the insurance.
In life policy, the defenses mentioned are available
only during the first two years of a life insurance
policy.
Incontestability of life policies
Incontestable clauses, in life insurance policies,
stipulating that the policy shall be incontestable
after a stated period are in general use. They create
a kind of contractual statute of limitations on
certain defenses that may be raised by the insurer.
Incontestability means that after the requisites are
shown to exist, the insurer shall be estopped from
contesting the policy or setting up any defense,
except as is allowed, on the ground of public policy.
In order that the insurance shall be incontestable,
the following requisites must be present:
1. The policy is a life insurance policy;
2. It is payable on the death of the insured; and
3. It has been in force during the lifetime of the
insured for at least two years from its date of
issue or of its last reinstatement.
The period of two years for contesting a life
insurance policy by the insurer may be shortened
but it cannot be extended by stipulation.
Effect when policy becomes incontestable
When a policy of life insurance becomes
incontestable, the insurer may not refuse to pay the
same by claiming that:
1. The policy is void ab initio; or
2. It is rescissible by reason of the fraudulent
concealment of the insured or his agent, no
matter how patent or well-founded; or
3. It is rescissible by reason of the fraudulent
misrepresentations of the insured or his
agent.
Defenses not barred by incontestable clause
The incontestability of a policy under the law is not
absolute. Otherwise, a beneficiary of any person
who had procured a life policy more than two years
before his death would automatically be entitled to
the proceeds upon that person’s death.
The insurer may still contest the policy by way of
defense to a suit brought upon the policy or by
action to rescind the same, on any of the following
grounds:
1. That the person taking the insurance lacked
insurable interest as required by law;
2. That the cause of the death of the insured is an
excepted risk;
3. That the premiums have not been paid;
4. That the conditions of the policy relating to
military or naval service have been violated;
5. That the fraud is of a particularly vicious type;
6. That the beneficiary failed to furnish proof of
death or to comply with any condition imposed
by the policy after the loss has happened; or
7. That the action was not brought within the time
specified.
SECTION 393. No cancellation of the policy shall be
valid unless written notice thereof is given to the
land transportation operator or owner of the vehicle
and to the Land Transportation Office at least
fifteen (15) days prior to the intended effective date
thereof. Upon receipt of such notice, the Land
Transportation Office, unless it receives evidence of
a new valid insurance or guaranty in cash or surety
bond as prescribed in this chapter, or an
endorsement of revival of the cancelled one, shall
order the immediate confiscation of the plates of
the motor vehicle covered by such cancelled policy.
The same may be reissued only upon presentation
of a new insurance policy or that a guaranty in cash
or surety bond has been made or posted with the
Commissioner and which meets the requirements
of this chapter, or an endorsement or revival of the
cancelled one.
Duty of MVO or LTO contemplating cancellation of
his cover
1. Give to the insurance or surety company
concerned a written notice of his intention to
cancel;
2. Secure, before the insurance policy or surety
bond ceases to be effective, another similar
policy or bond to replace that one cancelled; or
3. Without making any such replacement, make a
cash deposit in sufficient amount with the
Insurance Commission and secure a certification
from the Insurance Commissioner regarding the
deposit made for presentation to and filing with
the Land Transportation Office.
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"Whenever a right to rescind a contract of insurance is

Effect of cancellation of cover given to the insurer by any provision of this chapter, such
Upon receipt of such notice and cancel from the right must be exercised previous to the commencement
insurance company, the Office shall order the of an action on the contract."
confiscation of the plates of the motor vehicle
concerned, unless it receives any of the following: The defendant contended in the lower court and
(1) An evidence or proof of a new and valid CMVLI now contends in this court, that section 47 does not
cover which may be either an insurance policy apply to the new matters alleged in the special
or guaranty in cash or surety bond; defense. If in legal effect defendant's special
(2) A signed duplicate of an endorsement or defense is in the nature of an act to rescind "a
addendum issued by the insurance company contract of insurance," then such right must be
concerned showing revival or continuance of exercised prior to an action to enforce the contract.
the CMVLI cover; or
(3) A certification issued by the Insurance That is the real question involved in this appeal.
Commissioner to the effect that a cash deposit
in the amount required as limit of indemnity has In its amended answer the defendant again makes
been made with him by the MVO or LTO. a general and specific denial, and alleges the
reasons, the specific facts, and the reasons why it
never made or entered into the contract alleged in
TAN CHAY HENG, vs. THE WEST COAST LIFE
the complaint, and based upon those alleged facts,
INSURANCE COMPANY.
[G.R. No. 27541. November 21, 1927.] defendant contends that it never did enter into any
.
contract of insurance on the life of Tan Caeng.
Facts: In the month of April, 1925, on his application
the defendant accepted and approved a life
Issue: WON the contract of insurance should be
insurance policy on Tan Caeng in which the plaintiff
rescinded. NO.
was the sole beneficiary; that the policy was issued
upon the payment by the said Tan Caeng of the first
Ruling: The word "rescind" it presupposes the
year's premium; that in and by its terms, the
existence of a contract to rescind.
defendant agreed to pay the plaintiff as beneficiary
the amount of the policy upon the receipt of the
Words & Phrases, volume 7, page 6139, says:
proofs of the death of the insured while the policy
was in force; that without any premium being due or
"To rescind is to abrogate, annul, avoid, or cancel a
unpaid, Tan Caeng died on May 10, 1925; that in
contract.
June, 1925, plaintiff submitted the proof of the
death of Tan Caeng with a claim for the payment of
"The word 'rescind,' as used in a statement by a
the policy which the defendant refused to pay, for
party to a contract as follows, 'I hereby terminate
which he prays for a corresponding judgment, with
and rescind my said written contract,' is
legal interest from the date of the policy, and costs.
synonymous with the word 'terminate,' and the
Defendant alleges that the insurance policy on the
rescission therefore relates only to the unfulfilled
life of Tan Caeng, upon which plaintiff's action is
part, and not to the entire agreement, making the
based, was obtained thru fraud and deceit
party rescinding liable on notes executed pursuant
perpetrated against this defendant.
to the contract which matured before the
rescission.
As a result of the trial under the general issues, the
lower court rendered judgment for the plaintiff.
"The rescission is the unmaking of a contract,
requiring the same concurrence of wills as that
Plaintiff contends that section 47 of the Insurance
which made it, and nothing short of this will suffice.
Act should be applied, and that when so applied,
There is a wide difference between the rescission of
defendant is barred and estopped to plead and set
a contract and its mere termination or cancellation.
forth the matters alleged in its special defense. That
section is as follows:

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 Insurance Law Reviewer ‘20
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"After a contract has been broken, whether by an
inability to perform it, or by a rescinding against
right or otherwise, the party not in fault may sue the
other for the damages suffered, or, if the parties can
be placed in status quo, he may, should he prefer,
return what he has received, and recover in a suit
the value of what he has paid or done. The latter
remedy is termed 'rescission.' "
In the instant case, it will be noted that even in its
prayer, the defendant does not seek to have the
alleged insurance contract rescinded. It denies that
it ever made any contract of insurance on the life of
Tan Caeng, or that any such a contract ever existed,
and that is the question which it seeks to have
litigated by its special defense. In the very nature of
things, if the defendant never made or entered into
the contract in question, there is no contract to
rescind, and, hence, section 47 upon which the
lower court based its decision in sustaining the
demurrer does not apply. As stated, an action to
rescind a contract is founded upon and
presupposes the existence of the contract which is
sought to be rescinded. If all of the material matters
set forth and alleged in the defendant's special plea
are true, there was no valid contract of insurance,
for the simple reason that the minds of the parties
never met and never agreed upon the terms and
conditions of the contract. We are clearly of the
opinion that, if such matters are known to exist by a
preponderance of the evidence, they would
constitute a valid defense to plaintiff's cause of
action. Upon the question as to whether or not they
are or are not true, we do not at this time have or
express any opinion, but we are clear that section
47 does not apply to the allegations made in the
answer, and that the trial court erred in sustaining
the demurrer.
BERNARDO ARGENTE, vs. WEST COAST LIFE
INSURANCE CO.
[G.R. No. 28499. March 19, 1928.]
Facts: Bernardo Argente and his wife Vicenta de
Ocampo signed an application for life insurance
with the sum of P2,000, later amended to P15,000.
Both applications, with the exception of the names
and the signatures of the applicants, were written
by the agent of West Coast Life Insurance Co. But
all the information contained in the applications
were furnished by Bernardo Argente to the agent.
Pursuant to their applications, Bernardo and
Vicenta were examined separately by Dr. Sta. Ana,
a medical examiner for the West Coast Life
Insurance Co.,. Except for the name and signature,
the report was handwritten by Dr. Sta. Ana. The
information and answers to the questions were
furnished by the applicants (Bernardo and Vicenta).
Later, Vicenta died of cerebral apoplexy. Bernardo
presented a claim in due form to the West Coast Life
Insurance Co. for the payment of the sum of
P15,000 the amount of the joint life Insurance
policy.
Following investigation conducted, it was
apparently disclosed that the answers given by the
insured in their medical examinations with regard to
their health and previous illness and medical
attendance were untrue. For that reason, the West
Coast Life Insurance Co. refused to pay the claim of
Bernardo Argente and wrote him to the effect that
the claim was rejected because the insurance was
obtained through fraud and misrepresentation.
The court found from the evidence that the
representations made by Bernardo Argente and his
wife in their applications to the defendant for life
insurance were false with respect to their estate of
health during the period of five years preceding the
date of such applications, and that they knew the
representations made by them in their applications
were false. The court further found from the
evidence that the answers given by Bernardo
Argente and his wife at the time of the medical
examination by Doctor Sta. Ana were false with
respect to the condition of their health at that time
and for a period of several years prior thereto.
Issue: WON West Coast Life Insurance can rescind
the insurance contract. YES.
Ruling: Appellant argues that the alleged
concealment was immaterial and insufficient to
avoid the policy. We cannot agree.
One ground for the rescission of a contract of
insurance under the Insurance Act is "a
concealment," which in Section 25 is defined as "A
neglect to communicate that which a party knows
and ought to communicate.".
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In an action on a life insurance policy where the

evidence conclusively shows that the answers to
questions concerning diseases were untrue, the
truth of falsity of the answers become the
determining factor. In the policy was procured by
fraudulent representations, the contract of
insurance apparently set forth therein was never
legally existent. It can fairly be assumed that had
the true facts been disclosed by the assured, the
insurance would never have been granted.

In Joyce, The Law of Insurance, second edition,

volume 3, Chapter LV, is found the following:

Concealment exists where the assured has

knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he
should communicate it to the assured, but he
designated and intentionally with holds the same.

Another rule is that if the assured undertakes to

state all the circumstances affecting the risk, a full
and fair statement of all is required.

It is also held that the concealment must, in the

absence of inquiries, be not only material, but
fraudulent, or the fact must have been intentionally
withheld; so it is held under English law that if no
inquiries are made and no fraud or design to
conceal enters into the concealment the contract is
not avoided. And it is determined that even though
silence may constitute misrepresentation or
concealment it is not itself necessarily so as it is a
question of fact. Nor is there a concealment
justifying a forfeiture where the fact of insanity is
not disclosed no questions being asked concerning
the same.