Cases in Insurance medical examinations are required only in cases where the applicant has indicated in his application
nations are required only in cases where the applicant has indicated in his application for
SEVENTH MEETING
I. Concealment
G.R. No. 92492 June 17, 1993
THELMA VDA. DE CANILANG, petitioner,
vs.
HON. COURT OF APPEALS and GREAT PACIFIC LIFE ASSURANCE CORPORATION, respondents.
Simeon C. Sato for petitioner.
FELICIANO, J.:
On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as suffering
from "sinus tachycardia." The doctor prescribed the following fro him: Trazepam, a tranquilizer;
and Aptin, a beta-blocker drug. Mr. Canilang consulted the same doctor again on 3 August 1982 and
this time was found to have "acute bronchitis."
On next day, 4 August 1982, Jaime Canilang applied for a "non-medical" insurance policy with
respondent Great Pacific Life Assurance Company ("Great Pacific") naming his wife, Thelma Canilang,
as his beneficiary.1 Jaime Canilang was issued ordinary life insurance Policy No. 345163, with the face
value of P19,700, effective as of 9 August 1982.
On 5 August 1983, Jaime Canilang died of "congestive heart failure," "anemia," and "chronic
anemia."2 Petitioner, widow and beneficiary of the insured, filed a claim with Great Pacific which the
insurer denied on 5 December 1983 upon the ground that the insured had concealed material
information from it.
Petitioner then filed a complaint against Great Pacific with the Insurance Commission for recovery of
the insurance proceeds. During the hearing called by the Insurance Commissioner, petitioner testified
that she was not aware of any serious illness suffered by her late husband3 and that, as far as she
knew, her husband had died because of a kidney disorder.4 A deposition given by Dr. Wilfredo Claudio
was presented by petitioner. There Dr. Claudio stated that he was the family physician of the deceased
Jaime Canilang5 and that he had previously treated him for "sinus tachycardia" and "acute
bronchitis."6 Great Pacific for its part presented Dr. Esperanza Quismorio, a physician
and a medical underwriter working for Great Pacific.7 She testified that the deceased's insurance
application had been approved on the basis of his medical declaration.8 She explained that as a rule,
insurance coverage that he has previously undergone medical consultation and hospitalization.9
In a decision dated 5 November 1985, Insurance Commissioner Armando Ansaldo ordered Great Pacific
to pay P19,700 plus legal interest and P2,000.00 as attorney's fees after holding that:
1. the ailment of Jaime Canilang was not so serious that, even if it had been disclosed,
it would not have affected Great Pacific's decision to insure him;
2. Great Pacific had waived its right to inquire into the health condition of the applicant
by the issuance of the policy despite the lack of answers to "some of the pertinent
questions" in the insurance application;
3. there was no intentional concealment on the part of the insured Jaime Canilang as
he had thought that he was merely suffering from a minor ailment and simple
cold; 10 and
4. Batas Pambansa Blg. 847 which voids an insurance contract, whether or not
concealment was intentionally made, was not applicable to Canilang's case as that
law became effective only on 1 June 1985.
On appeal by Great Pacific, the Court of Appeals reversed and set aside the decision of the Insurance
Commissioner and dismissed Thelma Canilang's complaint and Great Pacific's counterclaim. The Court
of Appealed found that the use of the word "intentionally" by the Insurance Commissioner in defining
and resolving the issue agreed upon by the parties at pre-trial before the Insurance Commissioner was
not supported by the evidence; that the issue agreed upon by the parties had been whether the
deceased insured, Jaime Canilang, made a material concealment as the state of his health at the time
of the filing of insurance application, justifying respondent's denial of the claim. The Court of Appeals
also found that the failure of Jaime Canilang to disclose previous medical consultation and treatment
constituted material information which should have been communicated to Great Pacific to enable the
latter to make proper inquiries. The Court of Appeals finally held that the Ng Gan Zee case which had
involved misrepresentation was not applicable in respect of the case at bar which involves concealment.
Petitioner Thelma Canilang is now before this Court on a Petition for Review on Certiorari alleging that:
1. . . . the Honorable Court of Appeals, speaking with due respect, erred in not holding
that the issue in the case agreed upon between the parties before the Insurance
Commission is whether or not Jaime Canilang "intentionally" made material
concealment in stating his state of health;
2. . . . at any rate, the non-disclosure of certain facts about his previous health
conditions does not amount to fraud and private respondent is deemed to have waived
inquiry thereto. 11
The medical declaration which was set out in the application for insurance executed by Jaime Canilang
read as follows:

MEDICAL DECLARATION

I hereby declare that:

(1) I have not been confined in any hospital, sanitarium or infirmary, nor receive any
medical or surgical advice/attention within the last five (5) years.

(2) I have never been treated nor consulted a physician for a heart condition, high
blood pressure, cancer, diabetes, lung, kidney, stomach disorder, or any other
physical impairment.

(3) I am, to the best of my knowledge, in good health.

EXCEPTIONS:

___________________________________________________________________
_____________

GENERAL DECLARATION

I hereby declare that all the foregoing answers and statements are complete, true
and correct. I hereby agree that if there be any fraud or misrepresentation in the
above statements material to the risk, the INSURANCE COMPANY upon discovery
within two (2) years from the effective date of insurance shall have the right to declare
such insurance null and void. That the liabilities of the Company under the said
Policy/TA/Certificate shall accrue and begin only from the date of commencement of
risk stated in the Policy/TA/Certificate, provided that the first premium is paid and the
Policy/TA/Certificate is delivered to, and accepted by me in person, when I am in
actual good health.
We note that in addition to the negative statements made by Mr. Canilang in paragraph 1 and 2 of the
Signed at Manila his 4th day of August, 1992. medical declaration, he failed to disclose in the appropriate space, under the caption "Exceptions," that
he had twice consulted Dr. Wilfredo B. Claudio who had found him to be suffering from "sinus
tachycardia" and
I "acute bronchitis."
l
l
The relevant statutory provisions as they stood at the time Great Pacific issued the contract of insurance
e Jaime Canilang died, are set out in P.D. No. 1460, also known as the Insurance Code
and at the time
g went into effect on 11 June 1978. These provisions read as follows:
of 1978, which
i
b
l
 Sec. 26. A neglect to communicate that which a party knows and ought to
communicate, is called a concealment.
xxx xxx xxx
Sec. 28. Each party to a contract of insurance must communicate to the other, in
good faith, all factors within his knowledge which are material to the contract and as
to which he makes no warranty, and which the other has not the means of
ascertaining. (Emphasis supplied)
state of mind or subjective belief is not capable of proof in our judicial process, except through proof of
external acts or failure to act from which inferences as to his subjective belief may be reasonably drawn.
Neither does materiality depend upon the actual or physical events which ensue. Materiality relates
rather to the "probable and reasonable influence of the facts" upon the party to whom the
communication should have been made, in assessing the risk involved in making or omitting to make
further inquiries and in accepting the application for insurance; that "probable and reasonable influence
of the facts" concealed must, of course, be determined objectively, by the judge ultimately.
The insurance Great Pacific applied for was a "non-medical" insurance policy. In Saturnino v. Philippine-
American Life Insurance Company, 16 this Court held that:

Under the foregoing provisions, the information concealed must be information which the concealing
. . . if anything, the waiver of medical examination [in a non-medical insurance
party knew and "ought to [have] communicate[d]," that is to say, information which was "material to
contract] renders even more material the information required of the applicant
the contract." The test of materiality is contained in Section 31 of the Insurance Code of 1978 which
concerning previous condition of health and diseases suffered, for such information
reads:
necessarily constitutes an important factor which the insurer takes into consideration
in deciding whether to issue the policy or not . . . . 17 (Emphasis supplied)
Sec. 31. Materially is to be determined not by the event, but solely by the probable
and reasonable influence of the facts upon the party to whom the communication is
The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain information
due, in forming his estimate of the disadvantages of the proposed contract, or in
to the insurer was not "intentional" in nature, for the reason that Jaime Canilang believed that he was
making his inquiries. (Emphasis supplied)
suffering from minor ailment like a common cold. Section 27 of the Insurance Code of 1978 as it existed
from 1974 up to 1985, that is, throughout the time range material for present purposes, provided that:
"Sinus tachycardia" is considered present "when the heart rate exceeds 100 beats per minute." 13 The
symptoms of this condition include pounding in the chest and sometimes faintness and weakness of the
Sec. 27. A concealment entitles the injured party to rescind a contract of insurance.
person affected. The following elaboration was offered by Great Pacific and set out by the Court of
Appeals in its Decision:
The preceding statute, Act No. 2427, as it stood from 1914 up to 1974, had provided:
Sinus tachycardia is defined as sinus-initiated; heart rate faster than 100 beats per
minute. (Harrison' s Principles of Internal Medicine, 8th ed. [1978], p. 1193.) It is, Sec. 26. A concealment, whether intentional or unintentional, entitles the injured
among others, a common reaction to heart disease, including myocardial party to rescind a contract of insurance. (Emphasis supplied)
infarction, and heart failure per se. (Henry J.L. Marriot, M.D., Electrocardiography,
6th ed., [1977], p. 127.) The medication prescribed by Dr. Claudio for treatment of
Upon the other hand, in 1985, the Insurance Code of 1978 was amended by
Canilang's ailment on June 18, 1982, indicates the condition that said physician was
B.P. Blg. 874. This subsequent statute modified Section 27 of the Insurance Code of 1978 so as to read
trying to manage. Thus, he prescribed Trazepam, (Philippine Index of Medical
as follows:
Specialties (PIMS), Vol. 14, No. 3, Dec. 1985, p. 112) which is anti-anxiety, anti-
convulsant, muscle-relaxant; and Aptin, (Idem, p. 36) a cardiac drug, for palpitations
and nervous heart. Such treatment could have been a very material information to Sec. 27. A concealment whether intentional or unintentional entitles the injured party
the insurer in determining the action to be take on Canilang's application for life to rescind a contract of insurance. (Emphasis supplied)
insurance coverage. 14
The unspoken theory of the Insurance Commissioner appears to have been that by deleting the phrase
We agree with the Court of Appeals that the information which Jaime Canilang failed to disclose was "intentional or unintentional," the Insurance Code of 1978 (prior to its amendment by B.P. Blg. 874)
material to the ability of Great Pacific to estimate the probable risk he presented as a subject of life intended to limit the kinds of concealment which generate a right to rescind on the part of the injured
insurance. Had Canilang disclosed his visits to his doctor, the diagnosis made and medicines prescribed party to "intentional concealments." This argument is not persuasive. As a simple matter of grammar,
by such doctor, in the insurance application, it may be reasonably assumed that Great Pacific would it may be noted that "intentional" and "unintentional" cancel each other out. The net result therefore of
have made further inquiries and would have probably refused to issue a non-medical insurance policy the phrase "whether intentional or unitentional" is precisely to leave unqualified the term
or, at the very least, required a higher premium for the same coverage. 15 The materiality of the "concealment." Thus, Section 27 of the Insurance Code of 1978 is properly read as referring to
information withheld by Great Pacific did not depend upon the state of mind of Jaime Canilang. A man's "any concealment" without regard to whether such concealment is intentional or unintentional. The
phrase "whether intentional or unintentional" was in fact superfluous. The deletion of the phrase
"whether intentional or unintentional" could not have had the effect of imposing an affirmative
requirement that a concealment must be intentional if it is to entitle the injured party to rescind a
contract of insurance. The restoration in 1985 by B.P. Blg. 874 of the phrase "whether intentional or
unintentional" merely underscored the fact that all throughout (from 1914 to 1985), the statute
did not require proof that concealment must be "intentional" in order to authorize rescission by the
injured party.
In any case, in the case at bar, the nature of the facts not conveyed to the insurer was such that the
failure to communicate must have been intentional rather than merely inadvertent. For Jaime Canilang
could not have been unaware that his heart beat would at times rise to high and alarming levels and
that he had consulted a doctor twice in the two (2) months before applying for non-medical insurance.
Indeed, the last medical consultation took place just the day before the insurance application was filed.
In all probability, Jaime Canilang went to visit his doctor precisely because of the discomfort and concern
brought about by his experiencing "sinus tachycardia."
We find it difficult to take seriously the argument that Great Pacific had waived inquiry into the
concealment by issuing the insurance policy notwithstanding Canilang's failure to set out answers to
some of the questions in the insurance application. Such failure precisely constituted concealment on
the part of Canilang. Petitioner's argument, if accepted, would obviously erase Section 27 from the
Insurance Code of 1978.
It remains only to note that the Court of Appeals finding that the parties had not agreed in the pretrial
before the Insurance Commission that the relevant issue was whether or not Jaime Canilang
had intentionally concealed material information from the insurer, was supported by the evidence of
record, i.e., the Pre-trial Order itself dated 17 October 1984 and the Minutes of the Pre-trial Conference
dated 15 October 1984, which "readily shows that the word "intentional" does not appear in the
statement or definition of the issue in the said Order and Minutes." 18
WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the Court of Appeals
dated 16 October 1989 in C.A.-G.R. SP No. 08696 is hereby AFFIRMED. No pronouncement as to the
costs.
SO ORDERED.
G.R. No. 105135 June 22, 1995
SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner,
vs.
The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA BACANI, respondents.
QUIASON, J.:
This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court to reverse and set
aside the Decision dated February 21, 1992 of the Court of Appeals in CA-G.R. CV No. 29068, and its
Resolution dated April 22, 1992, denying reconsideration thereof.
We grant the petition.
I
On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from petitioner.
He was issued Policy No. 3-903-766-X valued at P100,000.00, with double indemnity in case of
accidental death. The designated beneficiary was his mother, respondent Bernarda Bacani.
On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim with
petitioner, seeking the benefits of the insurance policy taken by her son. Petitioner conducted an
investigation and its findings prompted it to reject the claim.
In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not disclose material
facts relevant to the issuance of the policy, thus rendering the contract of insurance voidable. A check
representing the total premiums paid in the amount of P10,172.00 was attached to said letter.
Petitioner claimed that the insured gave false statements in his application when he answered the
following questions:
5. Within the past 5 years have you:
a) consulted any doctor or other health practitioner?
b) submitted to:
EGG?
X-rays?
blood tests?
other tests?
c) attended or been admitted to any hospital or other medical
facility?
6. Have you ever had or sought advice for:
 xxx xxx xxx
b) urine, kidney or bladder disorder? (Rollo, p. 53)
The deceased answered question No. 5(a) in the affirmative but limited his answer to a consultation
with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on February 1986, for cough
and flu complications. The other questions were answered in the negative (Rollo, p. 53).
Petitioner discovered that two weeks prior to his application for insurance, the insured was examined
and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure. During his
confinement, the deceased was subjected to urinalysis, ultra-sonography and hematology tests.
On November 17, 1988, respondent Bernarda Bacani and her husband, respondent Rolando Bacani,
filed an action for specific performance against petitioner with the Regional Trial Court, Branch 191,
Valenzuela, Metro Manila. Petitioner filed its answer with counterclaim and a list of exhibits consisting
of medical records furnished by the Lung Center of the Philippines.
On January 14, 1990, private respondents filed a "Proposed Stipulation with Prayer for Summary
Judgment" where they manifested that they "have no evidence to refute the documentary evidence of
concealment/misrepresentation by the decedent of his health condition (Rollo, p. 62).
Petitioner filed its Request for Admissions relative to the authenticity and due execution of several
documents as well as allegations regarding the health of the insured. Private respondents failed to
oppose said request or reply thereto, thereby rendering an admission of the matters alleged.
Petitioner then moved for a summary judgment and the trial court decided in favor of private
respondents. The dispositive portion of the decision is reproduced as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendant, condemning the latter to pay the former the amount of One Hundred
Thousand Pesos (P100,000.00) the face value of insured's Insurance Policy No.
3903766, and the Accidental Death Benefit in the amount of One Hundred Thousand
Pesos (P100,000.00) and further sum of P5,000.00 in the concept of reasonable
attorney's fees and costs of suit.
Defendant's counterclaim is hereby Dismissed (Rollo, pp. 43-44).
In ruling for private respondents, the trial court concluded that the facts concealed by the insured were
made in good faith and under a belief that they need not be disclosed. Moreover, it held that the health
history of the insured was immaterial since the insurance policy was "non-medical".
Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. The appellate
court ruled that petitioner cannot avoid its obligation by claiming concealment because the cause of
death was unrelated to the facts concealed by the insured. It also sustained the finding of the trial court
that matters relating to the health history of the insured were irrelevant since petitioner waived the
medical examination prior to the approval and issuance of the insurance policy. Moreover, the appellate
court agreed with the trial court that the policy was "non-medical" (Rollo, pp. 4-5).
Petitioner's motion for reconsideration was denied; hence, this petition.
II
We reverse the decision of the Court of Appeals.
The rule that factual findings of the lower court and the appellate court are binding on this Court is not
absolute and admits of exceptions, such as when the judgment is based on a misappreciation of the
facts (Geronimo v. Court of Appeals, 224 SCRA 494 [1993]).
In weighing the evidence presented, the trial court concluded that indeed there was concealment and
misrepresentation, however, the same was made in "good faith" and the facts concealed or
misrepresented were irrelevant since the policy was "non-medical". We disagree.
Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to
communicate to the other, in good faith, all facts within his knowledge which are material to the contract
and as to which he makes no warranty, and which the other has no means of ascertaining. Said Section
provides:
A neglect to communicate that which a party knows and ought to communicate, is
called concealment.
Materiality is to be determined not by the event, but solely by the probable and reasonable influence of
the facts upon the party to whom communication is due, in forming his estimate of the disadvantages
of the proposed contract or in making his inquiries (The Insurance Code, Sec. 31).
The terms of the contract are clear. The insured is specifically required to disclose to the insurer matters
relating to his health.
The information which the insured failed to disclose were material and relevant to the approval and
issuance of the insurance policy. The matters concealed would have definitely affected petitioner's action
on his application, either by approving it with the corresponding adjustment for a higher premium or
rejecting the same. Moreover, a disclosure may have warranted a medical examination of the insured
by petitioner in order for it to reasonably assess the risk involved in accepting the application.
In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of the
information withheld does not depend on the state of mind of the insured. Neither does it depend on
the actual or physical events which ensue.
Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact that he was
hospitalized for two weeks prior to filing his application for insurance, raises grave doubts about
his bonafides. It appears that such concealment was deliberate on his part.
The argument, that petitioner's waiver of the medical examination of the insured debunks the
materiality of the facts concealed, is untenable. We reiterate our ruling in Saturnino v. Philippine
American Life Insurance Company, 7 SCRA 316 (1963), that " . . . the waiver of a medical examination
[in a non-medical insurance contract] renders even more material the information required of the
applicant concerning previous condition of health and diseases suffered, for such information necessarily
constitutes an important factor which the insurer takes into consideration in deciding whether to issue
the policy or not . . . "
Moreover, such argument of private respondents would make Section 27 of the Insurance Code, which
allows the injured party to rescind a contract of insurance where there is concealment, ineffective
(See Vda. de Canilang v. Court of Appeals, supra).
Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is well
settled that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient
that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance
policy or in making inquiries (Henson v. The Philippine American Life Insurance Co., 56 O.G. No. 48
[1960]).
We, therefore, rule that petitioner properly exercised its right to rescind the contract of insurance by
reason of the concealment employed by the insured. It must be emphasized that rescission was
exercised within the two-year contestability period as recognized in Section 48 of The Insurance Code.
WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED and SET
ASIDE.
SO ORDERED.
G.R. No. L-30685 May 30, 1983
NG GAN ZEE, plaintiff-appellee,
vs.
ASIAN CRUSADER LIFE ASSURANCE CORPORATION, defendant-appellant.
Alberto Q. Ubay for plaintiff-appellee.
Santiago F. A lidio for defendant-appellant.
ESCOLIN, J.:
This is an appeal from the judgment of the Court of First Instance of Manila, ordering the appellant
Asian-Crusader Life Assurance Corporation to pay the face value of an insurance policy issued on the
life of Kwong Nam the deceased husband of appellee Ng Gan Zee. Misrepresentation and concealment
of material facts in obtaining the policy were pleaded to avoid the policy. The lower court rejected the
appellant's theory and ordered the latter to pay appellee "the amount of P 20,000.00, with interest at
the legal rate from July 24, 1964, the date of the filing of the complaint, until paid, and the costs. "
The Court of Appeals certified this appeal to Us, as the same involves solely a question of law.
On May 12, 1962, Kwong Nam applied for a 20-year endowment insurance on his life for the sum of
P20,000.00, with his wife, appellee Ng Gan Zee as beneficiary. On the same date, appellant, upon
receipt of the required premium from the insured, approved the application and issued the
corresponding policy. On December 6, 1963, Kwong Nam died of cancer of the liver with metastasis.
All premiums had been religiously paid at the time of his death.
On January 10, 1964, his widow Ng Gan Zee presented a claim in due form to appellant for payment of
the face value of the policy. On the same date, she submitted the required proof of death of the insured.
Appellant denied the claim on the ground that the answers given by the insured to the questions
appealing in his application for life insurance were untrue.
Appellee brought the matter to the attention of the Insurance Commissioner, the Hon. Francisco Y.
Mandamus, and the latter, after conducting an investigation, wrote the appellant that he had found no
material concealment on the part of the insured and that, therefore, appellee should be paid the full
face value of the policy. This opinion of the Insurance Commissioner notwithstanding, appellant refused
to settle its obligation.
Appellant alleged that the insured was guilty of misrepresentation when he answered "No" to the
following question appearing in the application for life insurance-
Has any life insurance company ever refused your application for insurance or for
reinstatement of a lapsed policy or offered you a policy different from that applied
for? If, so, name company and date.
In its brief, appellant rationalized its thesis thus:
... As pointed out in the foregoing summary of the essential facts in this case, the
insured had in January, 1962, applied for reinstatement of his lapsed life insurance
policy with the Insular Life Insurance Co., Ltd, but this was declined by the insurance
company, although later on approved for reinstatement with a very high premium as
a result of his medical examination. Thus notwithstanding the said insured answered
'No' to the [above] question propounded to him. ... 1
The lower court found the argument bereft of factual basis; and We quote with approval its disquisition
on the matter-
On the first question there is no evidence that the Insular Life Assurance Co., Ltd.
ever refused any application of Kwong Nam for insurance. Neither is there any
evidence that any other insurance company has refused any application of Kwong
Nam for insurance.
... The evidence shows that the Insular Life Assurance Co., Ltd. approved Kwong
Nam's request for reinstatement and amendment of his lapsed insurance policy on
April 24, 1962 [Exh. L-2 Stipulation of Facts, Sept. 22, 1965). The Court notes from
said application for reinstatement and amendment, Exh. 'L', that the amount applied
for was P20,000.00 only and not for P50,000.00 as it was in the lapsed policy. The
amount of the reinstated and amended policy was also for P20,000.00. It results,
therefore, that when on May 12, 1962 Kwong Nam answered 'No' to the question
whether any life insurance company ever refused his application for reinstatement of
a lapsed policy he did not misrepresent any fact.
... the evidence shows that the application of Kwong Nam with the Insular Life
Assurance Co., Ltd. was for the reinstatement and amendment of his lapsed insurance
policy-Policy No. 369531 -not an application for a 'new insurance policy. The Insular
Life Assurance Co., Ltd. approved the said application on April 24, 1962. Policy No.
369531 was reinstated for the amount of P20,000.00 as applied for by Kwong Nam
[Exhs. 'L', 'L-l' and 'L-2']. No new policy was issued by the Insular Life Assurance Co.,
Ltd. to Kwong Nam in connection with said application for reinstatement and
amendment. Such being the case, the Court finds that there is no misrepresentation
on this matter. 2
Appellant further maintains that when the insured was examined in connection with his application for
life insurance, he gave the appellant's medical examiner false and misleading information as to his
ailment and previous operation. The alleged false statements given by Kwong Nam are as follows:
Operated on for a Tumor [mayoma] of the stomach. Claims that Tumor has been
associated with ulcer of stomach. Tumor taken out was hard and of a hen's egg size.
Operation was two [2] years ago in Chinese General Hospital by Dr. Yap. Now, claims
he is completely recovered.
To demonstrate the insured's misrepresentation, appellant directs Our attention to:
[1] The report of Dr. Fu Sun Yuan the physician who treated Kwong Nam at the Chinese General Hospital
on May 22, 1960, i.e., about 2 years before he applied for an insurance policy on May 12, 1962.
According to said report, Dr. Fu Sun Yuan had diagnosed the patient's ailment as 'peptic ulcer' for which,
an operation, known as a 'sub-total gastric resection was performed on the patient by Dr. Pacifico Yap;
and
[2] The Surgical Pathology Report of Dr. Elias Pantangco showing that the specimen removed from the
patient's body was 'a portion of the stomach measuring 12 cm. and 19 cm. along the lesser curvature
with a diameter of 15 cm. along the greatest dimension.
On the bases of the above undisputed medical data showing that the insured was operated on for peptic
ulcer", involving the excision of a portion of the stomach, appellant argues that the insured's statement
in his application that a tumor, "hard and of a hen's egg size," was removed during said operation,
constituted material concealment.
The question to be resolved may be propounded thus: Was appellant, because of insured's aforesaid
representation, misled or deceived into entering the contract or in accepting the risk at the rate of
premium agreed upon?
The lower court answered this question in the negative, and We agree.
Section 27 of the Insurance Law [Act 2427] provides:
Sec. 27. Such party a contract of insurance must communicate to the other, in good
faith, all facts within his knowledge which are material to the contract, and which the
other has not the means of ascertaining, and as to which he makes no warranty. 3
Thus, "concealment exists where the assured had knowledge of a fact material to the risk, and honesty,
good faith, and fair dealing requires that he should communicate it to the assurer, but he designedly
and intentionally withholds the same." 4
It has also been held "that the concealment must, in the absence of inquiries, be not only material, but
fraudulent, or the fact must have been intentionally withheld." 5
Assuming that the aforesaid answer given by the insured is false, as claimed by the appellant. Sec. 27
of the Insurance Law, above-quoted, nevertheless requires that fraudulent intent on the part of the
insured be established to entitle the insurer to rescind the contract. And as correctly observed by the
lower court, "misrepresentation as a defense of the insurer to avoid liability is an 'affirmative' defense.
The duty to establish such a defense by satisfactory and convincing evidence rests upon the defendant.
The evidence before the Court does not clearly and satisfactorily establish that defense."
It bears emphasis that Kwong Nam had informed the appellant's medical examiner that the tumor for
which he was operated on was "associated with ulcer of the stomach." In the absence of evidence that
the insured had sufficient medical knowledge as to enable him to distinguish between "peptic ulcer" and
"a tumor", his statement that said tumor was "associated with ulcer of the stomach, " should be
construed as an expression made in good faith of his belief as to the nature of his ailment and operation.
Indeed, such statement must be presumed to have been made by him without knowledge of its
incorrectness and without any deliberate intent on his part to mislead the appellant.
While it may be conceded that, from the viewpoint of a medical expert, the information communicated
was imperfect, the same was nevertheless sufficient to have induced appellant to make further inquiries
about the ailment and operation of the insured.
Section 32 of Insurance Law [Act No. 24271 provides as follows:
Section 32. The right to information of material facts maybe waived either by the
terms of insurance or by neglect to make inquiries as to such facts where they are
distinctly implied in other facts of which information is communicated.
It has been held that where, upon the face of the application, a question appears to be not answered
at all or to be imperfectly answered, and the insurers issue a policy without any further inquiry, they
waive the imperfection of the answer and render the omission to answer more fully immaterial. 6
As aptly noted by the lower court, "if the ailment and operation of Kwong Nam had such an important
bearing on the question of whether the defendant would undertake the insurance or not, the court
cannot understand why the defendant or its medical examiner did not make any further inquiries on
such matters from the Chinese General Hospital or require copies of the hospital records from the
appellant before acting on the application for insurance. The fact of the matter is that the defendant
was too eager to accept the application and receive the insured's premium. It would be inequitable now
to allow the defendant to avoid liability under the circumstances."
Finding no reversible error committed by the trial court, the judgment appealed from is hereby affirmed,
with costs against appellant Asian-Crusader life Assurance Corporation.
SO ORDERED.
G.R. No. L-16163 February 28, 1963
IGNACIO SATURNINO, in his own behalf and as the JUDICIAL GUARDIAN OF CARLOS
SATURNINO, minor, plaintiffs-appellants,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, defendant-appellee.
Eleazaro A. Samson for plaintiffs-appellants.
Abello & Macias for defendant-appellee.
MAKALINTAL, J.:
Plaintiffs, now appellants, filed this action in the Court of First Instance of Manila to recover the sum of
P5,000.00, corresponding to the face value of an insurance policy issued by defendant on the life of
Estefania A. Saturnino, and the sum of P1,500.00 as attorney's fees. Defendant, now appellee, set up
special defenses in its answer, with a counterclaim for damages allegedly sustained as a result of the
unwarranted presentation of this case. Both the complaint and the counterclaim were dismissed by the
trial court; but appellants were declared entitled to the return of the premium already paid; plus interest
at 6% up to January 8, 1959, when a check for the corresponding amount — P359.65 — was sent to
them by appellee.
The policy sued upon is one for 20-year endowment non-medical insurance. This kind of policy dispenses
with the medical examination of the applicant usually required in ordinary life policies. However, detailed
information is called for in the application concerning the applicant's health and medical history. The
written application in this case was submitted by Saturnino to appellee on November 16, 1957,
witnessed by appellee's agent Edward A. Santos. The policy was issued on the same day, upon payment
of the first year's premium of P339.25. On September 19, 1958 Saturnino died of pneumonia, secondary
to influenza. Appellants here, who are her surviving husband and minor child, respectively, demanded
payment of the face value of the policy. The claim was rejected and this suit was subsequently instituted.
It appears that two months prior to the issuance of the policy or on September 9, 1957, Saturnino was
operated on for cancer, involving complete removal of the right breast, including the pectoral muscles
and the glands found in the right armpit. She stayed in the hospital for a period of eight days, after
which she was discharged, although according to the surgeon who operated on her she could not be
considered definitely cured, her ailment being of the malignant type.
Notwithstanding the fact of her operation Estefania A. Saturnino did not make a disclosure thereof in
her application for insurance. On the contrary, she stated therein that she did not have, nor had she
ever had, among other ailments listed in the application, cancer or other tumors; that she had not
consulted any physician, undergone any operation or suffered any injury within the preceding five years;
and that she had never been treated for nor did she ever have any illness or disease peculiar to her
sex, particularly of the breast, ovaries, uterus, and menstrual disorders. The application also recites
that the foregoing declarations constituted "a further basis for the issuance of the policy."
The question at issue is whether or not the insured made such false representations of material facts
as to avoid the policy. There can be no dispute that the information given by her in her application for
insurance was false, namely, that she had never had cancer or tumors, or consulted any physician or
undergone any operation within the preceding period of five years. Are the facts then falsely represented
material? The Insurance Law (Section 30) provides that "materiality is to be determined not by the
event, but solely by the probable and reasonable influence of the facts upon the party to whom the
communication is due, in forming his estimate of the proposed contract, or in making his inquiries." It
seems to be the contention of appellants that the facts subject of the representation were not material
in view of the "non-medical" nature of the insurance applied for, which does away with the usual
requirement of medical examination before the policy is issued. The contention is without merit. If
anything, the waiver of medical examination renders even more material the information required of
the applicant concerning previous condition of health and diseases suffered, for such information
necessarily constitutes an important factor which the insurer takes into consideration in deciding
whether to issue the policy or not. It is logical to assume that if appellee had been properly apprised of
the insured's medical history she would at least have been made to undergo medical examination in
order to determine her insurability.
Appellants argue that due information concerning the insured's previous illness and operation had been
given to appellees agent Edward A. Santos, who filled the application form after it was signed in blank
by Estefania A. Saturnino. This was denied by Santos in his testimony, and the trial court found such
testimony to be true. This is a finding of fact which is binding upon us, this appeal having been taken
upon questions of law alone. We do not deem it necessary, therefore, to consider appellee's additional
argument, which was upheld by the trial court, that in signing the application form in blank and leaving
it to Edward A. Santos to fill (assuming that to be the truth) the insured in effect made Santos her
agent for that purpose and consequently was responsible for the errors in the entries made by him in
that capacity.
In the application for insurance signed by the insured in this case, she agreed to submit to a medical
examination by a duly appointed examiner of appellee if in the latter's opinion such examination was
necessary as further evidence of insurability. In not asking her to submit to a medical examination,
appellants maintain, appellee was guilty of negligence, which precluded it from finding about her actual
state of health. No such negligence can be imputed to appellee. It was precisely because the insured
had given herself a clean bill of health that appellee no longer considered an actual medical checkup
necessary.
Appellants also contend there was no fraudulent concealment of the truth inasmuch as the insured
herself did not know, since her doctor never told her, that the disease for which she had been operated
on was cancer. In the first place the concealment of the fact of the operation itself was fraudulent, as
there could not have been any mistake about it, no matter what the ailment. Secondly, in order to avoid
a policy it is not necessary to show actual fraud on the part of the insured. In the case of Kasprzyk v.
Metropolitan Insurance Co., 140 N.Y.S. 211, 214, it was held:
Moreover, if it were the law that an insurance company could not depend a policy on the ground
of misrepresentation, unless it could show actual knowledge on the part of the applicant that
the statements were false, then it is plain that it would be impossible for it to protect itself and
its honest policyholders against fraudulent and improper claims. It would be wholly at the
mercy of any one who wished to apply for insurance, as it would be impossible to show actual
fraud except in the extremest cases. It could not rely on an application as containing
information on which it could act. There would be no incentive to an applicant to tell the truth.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to
prove their case not covered by this stipulation of facts. 1äwphï1.ñët
In this jurisdiction a concealment, whether intentional or unintentional, entitles the insurer to rescind
the contract of insurance, concealment being defined as "negligence to communicate that which a party
knows and ought to communicate" (Sections 24 & 26, Act No. 2427). In the case of Argente v. West
Coast Life Insurance Co., 51 Phil. 725, 732, this Court said, quoting from Joyce, The Law of Insurance,
2nd ed., Vol. 3:
"The basis of the rule vitiating the contract in cases of concealment is that it misleads or
deceives the insurer into accepting the risk, or accepting it at the rate of premium agreed
upon. The insurer, relying upon the belief that the assured will disclose every material fact
within his actual or presumed knowledge, is misled into a belief that the circumstance withheld
does not exist, and he is thereby induced to estimate the risk upon a false basis that it does
not exist."
The judgment appealed from, dismissing the complaint and awarding the return to appellants of the
premium already paid, with interest at 6% up to January 29, 1959, affirmed, with costs against
appellants.
G.R. No. L-34200 September 30, 1982
REGINA L. EDILLON, as assisted by her husband, MARCIAL EDILLON, petitioners-appellants,
vs.
MANILA BANKERS LIFE INSURANCE CORPORATION and the COURT OF FIRST INSTANCE OF
RIZAL, BRANCH V, QUEZON CITY, respondents-appellees.
K.V. Faylona for petitioners-appellants.
L. L. Reyes for respondents-appellees.
VASQUEZ, J.:
The question of law raised in this case that justified a direct appeal from a decision of the Court of First
Instance Rizal, Branch V, Quezon City, to be taken directly to the Supreme Court is whether or not the
acceptance by the private respondent insurance corporation of the premium and the issuance of the
corresponding certificate of insurance should be deemed a waiver of the exclusionary condition of
overage stated in the said certificate of insurance.
The material facts are not in dispute. Sometime in April 1969, Carmen O, Lapuz applied with respondent
insurance corporation for insurance coverage against accident and injuries. She filled up the blank
application form given to her and filed the same with the respondent insurance corporation. In the said
application form which was dated April 15, 1969, she gave the date of her birth as July 11, 1904. On
the same date, she paid the sum of P20.00 representing the premium for which she was issued the
corresponding receipt signed by an authorized agent of the respondent insurance corporation. (Rollo,
p. 27.) Upon the filing of said application and the payment of the premium on the policy applied for,
the respondent insurance corporation issued to Carmen O. Lapuz its Certificate of Insurance No.
128866. (Rollo, p. 28.) The policy was to be effective for a period of 90 days.
On May 31, 1969 or during the effectivity of Certificate of Insurance No. 12886, Carmen O. Lapuz died
in a vehicular accident in the North Diversion Road.
On June 7, 1969, petitioner Regina L. Edillon, a sister of the insured and who was the named beneficiary We are in agreement with the trial Court that the appellant is barred by waiver (or
in the policy, filed her claim for the proceeds of the insurance, submitting all the necessary papers and rather estoppel) to claim violation of the so-called fire hydrants warranty, for the
other requisites with the private respondent. Her claim having been denied, Regina L. Edillon instituted reason that knowing fully an that the number of hydrants demanded therein never
this action in the Court of First Instance of Rizal on August 27, 1969. existed from the very beginning, the appellant nevertheless issued the policies in
question subject to such warranty, and received the corresponding premiums. It
would be perilously close to conniving at fraud upon the insured to allow appellant to
In resisting the claim of the petitioner, the respondent insurance corporation relies on a provision
claim now as void ab initio the policies that it had issued to the plaintiff without
contained in the Certificate of Insurance, excluding its liability to pay claims under the policy in behalf
warning of their fatal defect, of which it was informed, and after it had misled the
of "persons who are under the age of sixteen (16) years of age or over the age of sixty (60) years ..."
defendant into believing that the policies were effective.
It is pointed out that the insured being over sixty (60) years of age when she applied for the insurance
coverage, the policy was null and void, and no risk on the part of the respondent insurance corporation
had arisen therefrom. The insurance company was aware, even before the policies were issued, that in the
premises insured there were only two fire hydrants installed by Que Chee Gan and
two others nearby, owned by the municipality of Tabaco, contrary to the requirements
The trial court sustained the contention of the private respondent and dismissed the complaint; ordered
of the warranty in question. Such fact appears from positive testimony for the insured
the petitioner to pay attorney's fees in the sum of ONE THOUSAND (P1,000.00) PESOS in favor of the
that appellant's agents inspected the premises; and the simple denials of appellant's
private respondent; and ordered the private respondent to return the sum of TWENTY (P20.00) PESOS
representative (Jamiczon) can not overcome that proof. That such inspection was
received by way of premium on the insurancy policy. It was reasoned out that a policy of insurance
made it moreover rendered probable by its being a prerequisite for the fixing of the
being a contract of adhesion, it was the duty of the insured to know the terms of the contract he or she
discount on the premium to which the insured was entitled, since the discount
is entering into; the insured in this case, upon learning from its terms that she could not have been
depended on the number of hydrants, and the fire fighting equipment available
qualified under the conditions stated in said contract, what she should have done is simply to ask for a
(See"'Scale of Allowances" to which the policies were expressly made subject). The
refund of the premium that she paid. It was further argued by the trial court that the ruling calling for
law, supported by a long line of cases, is expressed by American Jurisprudence (Vol.
a liberal interpretation of an insurance contract in favor of the insured and strictly against the insurer
29, pp. 611-612) to be as follows:
may not be applied in the present case in view of the peculiar facts and circumstances obtaining therein.

It is usually held that where the insurer, at the time of the issuance
We REVERSE the judgment of the trial court. The age of the insured Carmen 0. Lapuz was not concealed
of a policy of insurance, has knowledge of existing facts which, if
to the insurance company. Her application for insurance coverage which was on a printed form furnished
insisted on, would invalidate the contract from its very inception,
by private respondent and which contained very few items of information clearly indicated her age of
such knowledge constitutes a waiver of conditions in the contract
the time of filing the same to be almost 65 years of age. Despite such information which could hardly
inconsistent with the known facts, and the insurer is stopped
be overlooked in the application form, considering its prominence thereon and its materiality to the
thereafter from asserting the breach of such conditions. The law is
coverage applied for, the respondent insurance corporation received her payment of premium and
charitable enough to assume, in the absence of any showing to the
issued the corresponding certificate of insurance without question. The accident which resulted in the
contrary, that an insurance company intends to execute a valid
death of the insured, a risk covered by the policy, occurred on May 31, 1969 or FORTY-FIVE (45) DAYS
contract in return for the premium received; and when the policy
after the insurance coverage was applied for. There was sufficient time for the private respondent to
contains a condition which renders it voidable at its inception, and
process the application and to notice that the applicant was over 60 years of age and thereby cancel
this result is known to the insurer, it will be presumed to have
the policy on that ground if it was minded to do so. If the private respondent failed to act, it is either
intended to waive the conditions and to execute a binding contract,
because it was willing to waive such disqualification; or, through the negligence or incompetence of its
rather than to have deceived the insured into thinking he is insured
employees for which it has only itself to blame, it simply overlooked such fact. Under the circumstances,
when in fact he is not, and to have taken is money without
the insurance corporation is already deemed in estoppel. It inaction to revoke the policy despite a
consideration.' (29 Am. Jur., Insurance, section 807, at pp. 611-
departure from the exclusionary condition contained in the said policy constituted a waiver of such
612.)
condition, as was held in the case of "Que Chee Gan vs. Law Union Insurance Co., Ltd.,", 98 Phil. 85.
This case involved a claim on an insurance policy which contained a provision as to the installation of
fire hydrants the number of which depended on the height of the external wan perimeter of the bodega The reason for the rule is not difficult to find.
that was insured. When it was determined that the bodega should have eleven (11) fire hydrants in the
compound as required by the terms of the policy, instead of only two (2) that it had, the claim under
The plain, human justice of this doctrine is perfectly apparent. To
the policy was resisted on that ground. In ruling that the said deviation from the terms of the policy did
allow a company to accept one's money for a policy of insurance
not prevent the claim under the same, this Court stated the following:
which it then knows to be void and of no effect, though it knows as
it must, that the assured believes it to be valid and binding, is so
 contrary to the dictates of honesty and fair dealing, and so closely
related to positive fraud, as to be abhorent to fairminded men. It
would be to allow the company to treat the policy as valid long
enough to get the premium on it, and leave it at liberty to repudiate
it the next moment. This cannot be deemed to be the real intention
of the parties. To hold that a literal construction of the policy
expressed the true intention of the company would be to indict it,
for fraudulent purposes and designs which we cannot believe it to
be guilty of (Wilson vs. Commercial Union Assurance Co., 96 Atl.
540, 543544).
A similar view was upheld in the case of Capital Insurance & Surety Co., Inc. vs. Plastic Era Co., Inc.,
65 SCRA 134, which involved a violation of the provision of the policy requiring the payment of
premiums before the insurance shall become effective. The company issued the policy upon the
execution of a promissory note for the payment of the premium. A check given subsequent by the
insured as partial payment of the premium was dishonored for lack of funds. Despite such deviation
from the terms of the policy, the insurer was held liable.
Significantly, in the case before Us the Capital Insurance accepted the promise of
Plastic Era to pay the insurance premium within thirty (30) days from the effective
date of policy. By so doing, it has impliedly agreed to modify the tenor of the insurance
policy and in effect, waived the provision therein that it would only pay for the loss or
damage in case the same occurs after the payment of the premium. Considering that
the insurance policy is silent as to the mode of payment, Capital Insurance is deemed
to have accepted the promissory note in payment of the premium. This rendered the
policy immediately operative on the date it was delivered. The view taken in most
cases in the United States:
... is that although one of conditions of an insurance policy is that
"it shall not be valid or binding until the first premium is paid", if it
is silent as to the mode of payment, promissory notes received by
the company must be deemed to have been accepted in payment
of the premium. In other words, a requirement for the payment of
the first or initial premium in advance or actual cash may be waived
by acceptance of a promissory note...
WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE. In lieu thereof, the
private respondent insurance corporation is hereby ordered to pay to the petitioner the sum of TEN
THOUSAND (P10,000.00) PESOS as proceeds of Insurance Certificate No. 128866 with interest at the
legal rate from May 31, 1969 until fully paid, the further sum of TWO THOUSAND (P2,000.00) PESOS
as and for attorney's fees, and the costs of suit.
SO ORDERED.
G.R. No. 125678 March 18, 2002
PHILAMCARE HEALTH SYSTEMS, INC., petitioner,
vs.
COURT OF APPEALS and JULITA TRINOS, respondents.
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with
petitioner Philamcare Health Systems, Inc. In the standard application form, he answered no to the
following question:
Have you or any of your family members ever consulted or been treated for high blood
pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give
details).1
The application was approved for a period of one year from March 1, 1988 to March 1, 1989.
Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement, respondent’s
husband was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein.
He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive
health care and other out-patient services.
Upon the termination of the agreement, the same was extended for another year from March 1, 1989
to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to
a maximum sum of P75,000.00 per disability.2
During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical
Center (MMC) for one month beginning March 9, 1990. While her husband was in the hospital,
respondent tried to claim the benefits under the health care agreement. However, petitioner denied her
claim saying that the Health Care Agreement was void. According to petitioner, there was a concealment
regarding Ernani’s medical history. Doctors at the MMC allegedly discovered at the time of Ernani’s
confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application
form. Thus, respondent paid the hospitalization expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical therapist at home.
Later, he was admitted at the Chinese General Hospital. Due to financial difficulties, however,
respondent brought her husband home again. In the morning of April 13, 1990, Ernani had fever and
was feeling very weak. Respondent was constrained to bring him back to the Chinese General Hospital
where he died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action
for damages against petitioner and its president, Dr. Benito Reverente, which was docketed as Civil
Case No. 90-53795. She asked for reimbursement of her expenses plus moral damages and attorney’s
fees. After trial, the lower court ruled against petitioners, viz:
 WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita
Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos
in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid
the same;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;
4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.
SO ORDERED.3
On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for
damages and absolved petitioner Reverente.4 Petitioner’s motion for reconsideration was
denied.5 Hence, petitioner brought the instant petition for review, raising the primary argument that a
health care agreement is not an insurance contract; hence the "incontestability clause" under the
Insurance Code6 does not apply.1âwphi1.nêt
Petitioner argues that the agreement grants "living benefits," such as medical check-ups and
hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of the
agreement until its expiration one-year thereafter. Petitioner also points out that only medical and
hospitalization benefits are given under the agreement without any indemnification, unlike in an
insurance contract where the insured is indemnified for his loss. Moreover, since Health Care
Agreements are only for a period of one year, as compared to insurance contracts which last
longer,7 petitioner argues that the incontestability clause does not apply, as the same requires an
effectivity period of at least two years. Petitioner further argues that it is not an insurance company,
which is governed by the Insurance Commission, but a Health Maintenance Organization under the
authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a
large group of persons bearing a similar risk; and
5. In consideration of the insurer’s promise, the insured pays a premium.8
Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future,
which may damnify a person having an insurable interest against him, may be insured against. Every
person has an insurable interest in the life and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in whom
he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money, respecting property
or service, of which death or illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of respondent’s husband in obtaining the health care agreement
was his own health. The health care agreement was in the nature of non-life insurance, which is
primarily a contract of indemnity.9 Once the member incurs hospital, medical or any other expense
arising from sickness, injury or other stipulated contingent, the health care provider must pay for the
same to the extent agreed upon under the contract.
Petitioner argues that respondent’s husband concealed a material fact in his application. It appears that
in the application for health coverage, petitioners required respondent’s husband to sign an express
authorization for any person, organization or entity that has any record or knowledge of his health to
furnish any and all information relative to any hospitalization, consultation, treatment or any other
medical advice or examination.10 Specifically, the Health Care Agreement signed by respondent’s
husband states:
We hereby declare and agree that all statement and answers contained herein and in any
addendum annexed to this application are full, complete and true and bind all parties in interest
under the Agreement herein applied for, that there shall be no contract of health care coverage
unless and until an Agreement is issued on this application and the full Membership Fee
according to the mode of payment applied for is actually paid during the lifetime and good
health of proposed Members; that no information acquired by any Representative of
PhilamCare shall be binding upon PhilamCare unless set out in writing in the application; that
any physician is, by these presents, expressly authorized to disclose or give testimony at
anytime relative to any information acquired by him in his professional capacity upon any
 question affecting the eligibility for health care coverage of the Proposed Members and that
the acceptance of any Agreement issued on this application shall be a ratification of any
correction in or addition to this application as stated in the space for Home Office
Endorsement.11 (Underscoring ours)
In addition to the above condition, petitioner additionally required the applicant for authorization to
inquire about the applicant’s medical history, thus:
I hereby authorize any person, organization, or entity that has any record or knowledge of my
health and/or that of __________ to give to the PhilamCare Health Systems, Inc. any and all
information relative to any hospitalization, consultation, treatment or any other medical advice
or examination. This authorization is in connection with the application for health care coverage
only. A photographic copy of this authorization shall be as valid as the original.12 (Underscoring
ours)
Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads:
Failure to disclose or misrepresentation of any material information by the member in the
application or medical examination, whether intentional or unintentional, shall automatically
invalidate the Agreement from the very beginning and liability of Philamcare shall be limited
to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed
material if its revelation would have resulted in the declination of the applicant by Philamcare
or the assessment of a higher Membership Fee for the benefit or benefits applied for.13
The answer assailed by petitioner was in response to the question relating to the medical history of the
applicant. This largely depends on opinion rather than fact, especially coming from respondent’s
husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers
made in good faith and without intent to deceive will not avoid a policy even though they are
untrue.14 Thus,
(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of
the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of
the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although
the statement is material to the risk, if the statement is obviously of the foregoing character,
since in such case the insurer is not justified in relying upon such statement, but is obligated
to make further inquiry. There is a clear distinction between such a case and one in which the
insured is fraudulently and intentionally states to be true, as a matter of expectation or belief,
that which he then knows, to be actually untrue, or the impossibility of which is shown by the
facts within his knowledge, since in such case the intent to deceive the insurer is obvious and
amounts to actual fraud.15 (Underscoring ours)
The fraudulent intent on the part of the insured must be established to warrant rescission of the
insurance contract.16 Concealment as a defense for the health care provider or insurer to avoid liability
is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence
rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner
is liable for claims made under the contract. Having assumed a responsibility under the agreement,
petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health
care provider attaches once the member is hospitalized for the disease or injury covered by the
agreement or whenever he avails of the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract
of insurance." The right to rescind should be exercised previous to the commencement of an action on
the contract.17 In this case, no rescission was made. Besides, the cancellation of health care agreements
as in insurance policies require the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or more of the
grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request
of insured, to furnish facts on which cancellation is based.18
None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain
limitations on liability, courts should construe them in such a way as to preclude the insurer from non-
compliance with his obligation.19 Being a contract of adhesion, the terms of an insurance contract are
to be construed strictly against the party which prepared the contract – the insurer.20 By reason of the
exclusive control of the insurance company over the terms and phraseology of the insurance contract,
ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially
to avoid forfeiture.21 This is equally applicable to Health Care Agreements. The phraseology used in
medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the
subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring
coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed
against the provider.22
Anent the incontestability of the membership of respondent’s husband, we quote with approval the
following findings of the trial court:
(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc.
had twelve months from the date of issuance of the Agreement within which to contest the
membership of the patient if he had previous ailment of asthma, and six months from the
issuance of the agreement if the patient was sick of diabetes or hypertension. The periods
having expired, the defense of concealment or misrepresentation no longer lie.23
Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering
that at the time of their marriage, the deceased was previously married to another woman who was
still alive. The health care agreement is in the nature of a contract of indemnity. Hence, payment should
be made to the party who incurred the expenses. It is not controverted that respondent paid all the On October 30, 1997 Philam Plans issued Pension Plan Agreement PP430055848 to Manuel, with
hospital and medical expenses. She is therefore entitled to reimbursement. The records adequately petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his quarterly
prove the expenses incurred by respondent for the deceased’s hospitalization, medication and the premiums.9
professional fees of the attending physicians.24
Eleven months later or on September 15, 1998, Manuel died of blood poisoning. Subsequently, Lourdes
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of filed a claim with Philam Plans for the payment of the benefits under her husband’s plan.10 Because
Appeals dated December 14, 1995 is AFFIRMED. Manuel died before his pension plan matured and his wife was to get only the benefits of his life
insurance, Philam Plans forwarded her claim to Philam Life.11
SO ORDERED.
On May 3, 1999 Philam Plans wrote Lourdes a letter,12 declining her claim. Philam Life found that Manuel
was on maintenance medicine for his heart and had an implanted pacemaker. Further, he suffered from
G.R. No. 186983 February 22, 2012 diabetes mellitus and was taking insulin. Lourdes renewed her demand for payment under the plan13 but
Philam Plans rejected it,14 prompting her to file the present action against the pension plan company
MA. LOURDES S. FLORENDO, Petitioner, before the Regional Trial Court (RTC) of Quezon City.15
vs.
PHILAM PLANS, INC., PERLA ABCEDE MA. CELESTE ABCEDE, Respondents. On March 30, 2006 the RTC rendered judgment,16 ordering Philam Plans, Perla and Ma. Celeste,
solidarily, to pay Lourdes all the benefits from her husband’s pension plan, namely: ₱997,050.00, the
DECISION proceeds of his term insurance, and ₱2,890,000.00 lump sum pension benefit upon maturity of his plan;
₱100,000.00 as moral damages; and to pay the costs of the suit. The RTC ruled that Manuel was not
guilty of concealing the state of his health from his pension plan application.
ABAD, J.:

On December 18, 2007 the Court of Appeals (CA) reversed the RTC decision,17 holding that insurance
This case is about an insured’s alleged concealment in his pension plan application of his true state of
policies are traditionally contracts uberrimae fidae or contracts of utmost good faith. As such, it required
health and its effect on the life insurance portion of that plan in case of death.
Manuel to disclose to Philam Plans conditions affecting the risk of which he was aware or material facts
that he knew or ought to know.18
The Facts and the Case
Issues Presented
On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan with
respondent Philam Plans, Inc. (Philam Plans) after some convincing by respondent Perla Abcede. The
The issues presented in this case are:
plan had a pre-need price of ₱997,050.00, payable in 10 years, and had a maturity value of
₱2,890,000.00 after 20 years.1 Manuel signed the application and left to Perla the task of supplying the
information needed in the application.2 Respondent Ma. Celeste Abcede, Perla’s daughter, signed the 1. Whether or not the CA erred in finding Manuel guilty of concealing his illness when he kept
application as sales counselor.3 blank and did not answer questions in his pension plan application regarding the ailments he
suffered from;
Aside from pension benefits, the comprehensive pension plan also provided life insurance coverage to
Florendo.4 This was covered by a Group Master Policy that Philippine American Life Insurance Company 2. Whether or not the CA erred in holding that Manuel was bound by the failure of respondents
(Philam Life) issued to Philam Plans.5 Under the master policy, Philam Life was to automatically provide Perla and Ma. Celeste to declare the condition of Manuel’s health in the pension plan
life insurance coverage, including accidental death, to all who signed up for Philam Plans’ comprehensive application; and
pension plan.6 If the plan holder died before the maturity of the plan, his beneficiary was to instead
receive the proceeds of the life insurance, equivalent to the pre-need price. Further, the life insurance 3. Whether or not the CA erred in finding that Philam Plans’ approval of Manuel’s pension plan
was to take care of any unpaid premium until the pension plan matured, entitling the beneficiary to the application and acceptance of his premium payments precluded it from denying Lourdes’ claim.
maturity value of the pension plan.7

Rulings of the Court

One. Lourdes points out that, seeing the unfilled spaces in Manuel’s pension plan application relating to
his medical history, Philam Plans should have returned it to him for completion. Since Philam Plans
chose to approve the application just as it was, it cannot cry concealment on Manuel’s part. Further,
Lourdes adds that Philam Plans never queried Manuel directly regarding the state of his health.
Consequently, it could not blame him for not mentioning it.19
But Lourdes is shifting to Philam Plans the burden of putting on the pension plan application the true
state of Manuel’s health. She forgets that since Philam Plans waived medical examination for Manuel, it
had to rely largely on his stating the truth regarding his health in his application. For, after all, he knew
more than anyone that he had been under treatment for heart condition and diabetes for more than
five years preceding his submission of that application. But he kept those crucial facts from Philam
Plans.
Besides, when Manuel signed the pension plan application, he adopted as his own the written
representations and declarations embodied in it. It is clear from these representations that he concealed
his chronic heart ailment and diabetes from Philam Plans. The pertinent portion of his representations
and declarations read as follows:
I hereby represent and declare to the best of my knowledge that:
xxxx
(c) I have never been treated for heart condition, high blood pressure, cancer, diabetes, lung,
kidney or stomach disorder or any other physical impairment in the last five years.
(d) I am in good health and physical condition.
If your answer to any of the statements above reveal otherwise, please give details in the space
provided for:
Date of confinement : ____________________________
Name of Hospital or Clinic : ____________________________
Name of Attending Physician : ____________________________
Findings : ____________________________
Others: (Please specify) : ____________________________
x x x x.20 (Emphasis supplied)
Since Manuel signed the application without filling in the details regarding his continuing treatments for
heart condition and diabetes, the assumption is that he has never been treated for the said illnesses in
the last five years preceding his application. This is implicit from the phrase "If your answer to any of
the statements above (specifically, the statement: I have never been treated for heart condition or
diabetes) reveal otherwise, please give details in the space provided for." But this is untrue since he
had been on "Coumadin," a treatment for venous thrombosis,21 and insulin, a drug used in the treatment
of diabetes mellitus, at that time.22
Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent, knew that Manuel
had a pacemaker implanted on his chest in the 70s or about 20 years before he signed up for the
pension plan.23 But by its tenor, the responsibility for preparing the application belonged to Manuel.
Nothing in it implies that someone else may provide the information that Philam Plans needed. Manuel
cannot sign the application and disown the responsibility for having it filled up. If he furnished Perla the
needed information and delegated to her the filling up of the application, then she acted on his
instruction, not on Philam Plans’ instruction.
Lourdes next points out that it made no difference if Manuel failed to reveal the fact that he had a
pacemaker implant in the early 70s since this did not fall within the five-year timeframe that the
disclosure contemplated.24 But a pacemaker is an electronic device implanted into the body and
connected to the wall of the heart, designed to provide regular, mild, electric shock that stimulates the
contraction of the heart muscles and restores normalcy to the heartbeat.25 That Manuel still had his
pacemaker when he applied for a pension plan in October 1997 is an admission that he remained under
treatment for irregular heartbeat within five years preceding that application.
Besides, as already stated, Manuel had been taking medicine for his heart condition and diabetes when
he submitted his pension plan application. These clearly fell within the five-year period. More, even if
Perla’s knowledge of Manuel’s pacemaker may be applied to Philam Plans under the theory of imputed
knowledge,26 it is not claimed that Perla was aware of his two other afflictions that needed medical
treatments. Pursuant to Section 2727 of the Insurance Code, Manuel’s concealment entitles Philam Plans
to rescind its contract of insurance with him.
Two. Lourdes contends that the mere fact that Manuel signed the application in blank and let Perla fill
in the required details did not make her his agent and bind him to her concealment of his true state of
health. Since there is no evidence of collusion between them, Perla’s fault must be considered solely
her own and cannot prejudice Manuel.28
But Manuel forgot that in signing the pension plan application, he certified that he wrote all the
information stated in it or had someone do it under his direction. Thus:
APPLICATION FOR PENSION PLAN
(Comprehensive)
I hereby apply to purchase from PHILAM PLANS, INC. a Pension Plan Program described herein in
accordance with the General Provisions set forth in this application and hereby certify that the date and
other information stated herein are written by me or under my direction. x x x.29 (Emphasis supplied)
Assuming that it was Perla who filled up the application form, Manuel is still bound by what it contains
since he certified that he authorized her action. Philam Plans had every right to act on the faith of that
certification.
Lourdes could not seek comfort from her claim that Perla had assured Manuel that the state of his health
would not hinder the approval of his application and that what is written on his application made no
difference to the insurance company. But, indubitably, Manuel was made aware when he signed the
pension plan application that, in granting the same, Philam Plans and Philam Life were acting on the
truth of the representations contained in that application. Thus:
After this Agreement has remained in force for one (1) year, we can no longer contest for health reasons
any claim for insurance under this Agreement, except for the reason that installment has not been paid
(lapsed), or that you are not insurable at the time you bought this pension program by reason of age.
If this Agreement lapses but is reinstated afterwards, the one (1) year contestability period shall start
again on the date of approval of your request for reinstatement.35 1âwphi1
The above incontestability clause precludes the insurer from disowning liability under the policy it issued
on the ground of concealment or misrepresentation regarding the health of the insured after a year of
its issuance.

DECLARATIONS AND REPRESENTATIONS Since Manuel died on the eleventh month following the issuance of his plan,36 the one year
incontestability period has not yet set in. Consequently, Philam Plans was not barred from questioning
Lourdes’ entitlement to the benefits of her husband’s pension plan.
xxxx

WHEREFORE, the Court AFFIRMS in its entirety the decision of the Court of Appeals in CA-G.R. CV 87085
I agree that the insurance coverage of this application is based on the truth of the foregoing
dated December 18, 2007.
representations and is subject to the provisions of the Group Life Insurance Policy issued by THE
PHILIPPINE AMERICAN LIFE INSURANCE CO. to PHILAM PLANS, INC.30 (Emphasis supplied)
SO ORDERED.
As the Court said in New Life Enterprises v. Court of Appeals: 31

It may be true that x x x insured persons may accept policies without reading them, and that this is not
negligence per se. But, this is not without any exception. It is and was incumbent upon petitioner Sy to
read the insurance contracts, and this can be reasonably expected of him considering that he has been
a businessman since 1965 and the contract concerns indemnity in case of loss in his money-making
trade of which important consideration he could not have been unaware as it was precisely the reason
for his procuring the same.32

The same may be said of Manuel, a civil engineer and manager of a construction company.33 He could
be expected to know that one must read every document, especially if it creates rights and obligations
affecting him, before signing the same. Manuel is not unschooled that the Court must come to his
succor. It could reasonably be expected that he would not trifle with something that would provide
additional financial security to him and to his wife in his twilight years.

Three. In a final attempt to defend her claim for benefits under Manuel’s pension plan, Lourdes points
out that any defect or insufficiency in the information provided by his pension plan application should
be deemed waived after the same has been approved, the policy has been issued, and the premiums
have been collected. 34

The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a one-year
incontestability period. It states:

VIII. INCONTESTABILITY