ASCERTAINING AND

CONTROLLING RISKS
CHAPTER SIX

Prepared by: Dy, Angelica Joyce (LAW 3B)

What Are The Four Primary Concerns Of Parties To An Insurance Contract?

 The correct estimation of the risk which enables the insurer to decide whether he is
willing to assume it, and if so, at what rate of premium;
 The precise delimitation of the risk which determines the extent of the contingent duty to
pay undertaken by the insurer;
 Such control of the risk after it is assumed as will enable the insurer to guard against the
increase of the risk because of change in conditions; and
 Determining whether a loss occurred, and if so, the amount of such loss.
DEVICES FOR ASCERTAINING AND CONTROLLING RISK AND LOSS

Concealment

Representations

Warranties

Conditions

Exceptions
 CONCEALMENT
• Section 26.
 A neglect to communicate that which a party knows and ought to communicate, is called a
concealment.

As to insured
Failure on the party of the insured to disclose
conditions affecting the risk, of which he is aware,
makes the contract voidable at the insurer's option.
As to insurer
Duty of disclosure imposed by utmost good faith is more
upon the insurer, since his dominant bargaining position
carries with it stricter responsibility.
 CONCEALMENT

• Section 28.
 Each party to a contract of insurance must 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 not the means of ascertaining.

Only Material Facts are required to be disclosed

 MATERIAL FACTS

In relation to insured In relation to insurer

Matters concealed are considered material Matters concealed are considered material
if such matter will affect the insurer’s if they will affect the decision of insured
action on his application, either by to enter into the insurance contract.
approving it with the corresponding
adjustment for higher premium or
rejecting the same or in fixing the terms
and conditions of the policy.
 EXAMPLE OF MATERIAL FACTS

MALAYAN INSURANCE COMPANY, INC. vs. PAP CO., LTD. 

Malayan issued Fire Insurance Policy to PAP Co. for the latter's machineries and equipment located at Sanyo Precision Phils. Bldg., Phase III, Lot
4, Block 15, PEZA, Rosario, Cavite. The insurance, which was for P15,000,000.00 and effective for aperiod of (1) year, was procured by PAP Co.
for RCBC, the mortgagee of the insured machineries and equipment. After the passage of almost a year but prior to the expiration of the insurance
coverage, PAP Co. renewed the policy on an "asis" basis. Pursuant thereto, a renewal policy was issued by Malayan to PAP Co. for the period May
13, 1997 to May 13, 1998 and during the subsistence of the renewal policy, the insured machineries and equipment were totally lost by fire.
Hence, PAP Co. filed a fire insurance claim with Malayan in the amount insured. Malayan denied the claim on the ground that, at the time of the
loss, the insured machineries and equipment were transferred by PAP Co. in September 1996 from the Sanyo Building to the Pace Pacific Bldg.,
Lot 14, Block 14, Phase III, PEZA,Rosario, Cavite.
 MALAYAN INSURANCE COMPANY, INC. VS. PAP CO., LTD. 

Malayan claims that PAP concealed a material fact in violation of Section 27

of the Insurance Code when it did not inform Malayan of the actual and
new location of the machineries. Disclosure of such fact is necessary in the
renewal of the fire insurance policy.
 EXAMPLE OF MATERIAL FACTS

FLORENDO V. PHILAM PLANS, INC.

Manuel signed the application and left to Perla the task of supplying the information needed in
the application. Manuel died of blood poisoning. Subsequently, Lourdes filed a claim with
Philam Plans for the payment of the benefits under her husband’s plan. Philam Life found that
Manuel was on maintenance medicine for his heart and had an implanted pacemaker. Further, he
suffered from diabetes mellitus and was taking insulin. Lourdes renewed her demand for
payment but Philam Plans rejected it, prompting her to file the present action.
 FLORENDO V. PHILAM PLANS, INC.

The assumption is that he has never been treated for the said illnesses in the last five years
preceding his application. Lourdes insists that Perla, the soliciting agent, knew that Manuel had a
pacemaker before he signed up for the pension 23 plan. But by its tenor, the responsibility for
preparing the application belonged to Manuel. Nothing in it implies that someone else may provide
the information that Philam Plans needed. Manuel cannot sign the application and disown the
responsibility for having it filled up. If he furnished Perla the needed information and delegated to
her the filling up of the application, then she acted on his instruction, not on Philam Plans’
instruction. Manuel still had his pacemaker when he applied for a pension plan and it is an admission
that he remained under treatment for irregular heartbeat within five years preceding that
application. Manuel had been taking medicine when he submitted his pension plan application.
Pursuant to Section 27 of IC, Manuel’s concealment entitles Philam Plans to rescind its contract of
insurance.
 EXAMPLE OF MATERIAL FACTS
• Other examples of material concealment:

• Concealment of the insured in life insurance of fainting spells and/or drug overdose illness is a
material concealment;
• The insured’s failure to disclose in an application for an automobile insurance that he does not
have a driver’s license or that his license was revoked or suspended.
 TEST OF MATERIALITY

Section 31. 
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 disadvantages of the proposed contract, or in making his
inquiries.
 SUNLIFE ASSURANCE COMPANY OF CANADA VS. COURT OF APPEALS

• Robert John Bacani procured a life insurance contract for himself from petitioner-company,
designating his mother Bernarda Bacani, herein private respondent, as the beneficiary. He was
issued a policy valued at P100,000.00 with double indemnity in case of accidental death.
Sometime after, the insured died in a plane crash. Bernarda filed a claim with petitioner, seeking
the benefits of the insurance policy taken by her son. However, said insurance company rejected
the claim on the ground that the insured did not disclose material facts relevant to the issuance of
the policy, thus rendering the contract of insurance voidable. 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.
SUNLIFE ASSURANCE COMPANY OF CANADA VS.
COURT OF APPEALS
• ISSUE:
• Whether or not the concealment of such material fact, despite it not being the
cause of death of the insured, is sufficient to render the insurance contract
voidable
SUNLIFE ASSURANCE COMPANY OF CANADA VS.
COURT OF APPEALS

• 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.
 MATERIALITY

• There need not be a causal connection between the material fact

concealed and the cause of the loss, death, or injury.
 MA. LOURDES S. FLORENDO VS.
PHILAM PLANS, INC., PERLA ABCEDE MA. CELESTE ABCEDE

• Manuel Florendo filed an application for comprehensive pension plan with respondent
Philam Plans, Inc. (Philam Plans) Manuel signed the application and left to Perla the task
of supplying the information needed in the application. Manuel then died of blood
poisoning. Subsequently, Lourdes filed a claim with Philam Plans for the payment of the
benefits under her husband’s plan but Philam Plans declined her claim due to
concealment of the continuing treatment of the insured for heart condition and diabetes.
 EXCEPTION TO SECTION 31

Incontestability Clause
 The insurer has two years from the date of issuance of the insurance contract or
of its last reinstatement within which to contest the policy, whether or not, the insured still
lives within such period. After two years, the defenses of concealment or
misrepresentation, no matter how patent or well founded, no longer lie.
 REQUISITES OF INCONTESTABILITY CLAUSE

 It must be a Life insurance policy

 It must be Payable on the death of the insured; and
 It must be in force during the life time of the insured for at least 2 years from its date of
issue or of its last reinstatement. The period of two years may be shortened but it cannot
be extended by stipulation.
 REQUISITES OF CONCEALMENT

 A party knows the fact which he neglects to communicate or disclose to the other;
 Such party concealing is duty bound to disclose such fact to the other
 Such party concealing makes no warranty of the fact concealed; and
 The other party has no means of ascertaining the fact concealed
 KNOWLEDGE OF THE AGENT OF INSURED

Knowledge on the part of the agent of the insured can be imputed to the insured himself if
the following circumstances are present:

 It was the duty of the agent to acquire and communicate information of the facts in question,
and
 It was possible for the agent, in the exercise of reasonable diligence, to gave made such
communication before making the insurance contract
 WHEN THERE IS NO CONCEALMENT
 When matters are known to the other party (Sec. 30);
 When, in the exercise of ordinary care, one party ought to know, and of which the other
party has no reason to suppose him ignorant (Sec. 30);
 When there is waiver of communication (Sec. 30);
 When matters are those which prove or tend to prove the existence of a risk excluded by a
warranty, and which are not otherwise material (Sec. 30);
 When matters are those which relate to a risk excepted from the policy and which are not
otherwise material (Sec. 30);
 WHEN THERE IS NO CONCEALMENT

 When the matter involves general causes that are open to inquiry of each party and which
may affect the political or material perils contemplated (Sec. 32);
 When the matter is included in the general usage of trade;
 Information of the nature or amount of the insure property, is not disclosed unless in
answer to an inquiry (Sec. 34); and
 When what is involved is information of the party’s own judgement upon the matters in
question (Sec. 35).