Republic of the Philippines which she was issued the corresponding receipt signed by an authorized
SUPREME COURT agent of the respondent insurance corporation. (Rollo, p. 27.) Upon the
Manila
FIRST DIVISION
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
INSURANCE
filing of said application and the payment of the premium on the policy
applied for, the respondent insurance corporation issued to Carmen O.
Lapuz its Certificate of Insurance No. 128866. (Rollo, p. 28.) The policy
was to be effective for a period of 90 days.
On May 31, 1969 or during the effectivity of Certificate of Insurance
No. 12886, Carmen O. Lapuz died in a vehicular accident in the North
Diversion Road.
On June 7, 1969, petitioner Regina L. Edillon, a sister of the insured and
who was the named beneficiary in the policy, filed her claim for the
proceeds of the insurance, submitting all the necessary papers and other
requisites with the private respondent. Her claim having been denied,
Regina L. Edillon instituted this action in the Court of First Instance of
Rizal on August 27, 1969.
In resisting the claim of the petitioner, the respondent insurance
corporation relies on a provision contained in the Certificate of
Insurance, excluding its liability to pay claims under the policy in behalf
of "persons who are under the age of sixteen (16) years of age or over
the age of sixty (60) years ..." It is pointed out that the insured being
over sixty (60) years of age when she applied for the insurance
coverage, the policy was null and void, and no risk on the part of the
respondent insurance corporation had arisen therefrom.
The trial court sustained the contention of the private respondent and
dismissed the complaint; ordered the petitioner to pay attorney's fees in
the sum of ONE THOUSAND (P1,000.00) PESOS in favor of the
private respondent; and ordered the private respondent to return the sum
of TWENTY (P20.00) PESOS received by way of premium on the
insurancy policy. It was reasoned out that a policy of insurance being a
contract of adhesion, it was the duty of the insured to know the terms of
the contract he or she is entering into; the insured in this case, upon
learning from its terms that she could not have been qualified under the
1
conditions stated in said contract, what she should have done is simply
to ask for a refund of the premium that she paid. It was further argued
by the trial court that the ruling calling for a liberal interpretation of an
insurance contract in favor of the insured and strictly against the insurer
may not be applied in the present case in view of the peculiar facts and
circumstances obtaining therein.
We REVERSE the judgment of the trial court. The age of the insured
Carmen 0. Lapuz was not concealed to the insurance company. Her
application for insurance coverage which was on a printed form
furnished by private respondent and which contained very few items of
information clearly indicated her age of the time of filing the same to be
almost 65 years of age. Despite such information which could hardly be
overlooked in the application form, considering its prominence thereon
and its materiality to the coverage applied for, the respondent insurance
corporation received her payment of premium and issued the
corresponding certificate of insurance without question. The accident
which resulted in the death of the insured, a risk covered by the policy,
occurred on May 31, 1969 or FORTY-FIVE (45) DAYS after the
insurance coverage was applied for. There was sufficient time for the
private respondent to process the application and to notice that the
applicant was over 60 years of age and thereby cancel the policy on that
ground if it was minded to do so. If the private respondent failed to act,
it is either because it was willing to waive such disqualification; or,
through the negligence or incompetence of its employees for which it
has only itself to blame, it simply overlooked such fact. Under the
circumstances, the insurance corporation is already deemed in estoppel.
It inaction to revoke the policy despite a departure from the
exclusionary condition contained in the said policy constituted a waiver
of such condition, as was held in the case of "Que Chee Gan vs. Law
Union Insurance Co., Ltd.,", 98 Phil. 85. 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 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 policy was resisted on that ground. In
INSURANCE
ruling that the said deviation from the terms of the policy did not
prevent the claim under the same, this Court stated the following:
We are in agreement with the trial Court that the appellant is barred by
waiver (or rather estoppel) to claim violation of the so-called fire
hydrants warranty, for the reason that knowing fully an that the number
of hydrants demanded therein never 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 claim now as void ab initio the policies that it had issued to
the plaintiff without warning of their fatal defect, of which it was
informed, and after it had misled the defendant into believing that the
policies were effective.
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 of the warranty in
question. Such fact appears from positive testimony for the insured that
appellant's agents inspected the premises; and the simple denials of
appellant's representative (Jamiczon) can not overcome that proof. That
such inspection was made it moreover rendered probable by its being a
prerequisite for the fixing of the discount on the premium to which the
insured was entitled, since the discount depended on the number of
hydrants, and the fire fighting equipment available (See"'Scale of
Allowances" to which the policies were expressly made subject). The
law, supported by a long line of cases, is expressed by American
Jurisprudence (Vol. 29, pp. 611-612) to be as follows:
It is usually held that where the insurer, at the time of the issuance of a
policy of insurance, has knowledge of existing facts which, if insisted
on, would invalidate the contract from its very inception, such
knowledge constitutes a waiver of conditions in the contract
inconsistent with the known facts, and the insurer is stopped thereafter
from asserting the breach of such conditions. The law is charitable
enough to assume, in the absence of any showing to the contrary, that an
2
insurance company intends to execute a valid contract in return for the
premium received; and when the policy contains a condition which
renders it voidable at its inception, and this result is known to the
insurer, it will be presumed to have intended to waive the conditions and
to execute a binding contract, rather than to have deceived the insured
into thinking he is insured when in fact he is not, and to have taken is
money without consideration.' (29 Am. Jur., Insurance, section 807, at
pp. 611-612.)
The reason for the rule is not difficult to find.
The plain, human justice of this doctrine is perfectly apparent. To allow
a company to accept one's money for a policy of insurance which it then
knows to be void and of no effect, though it knows as it must, that the
assured believes it to be valid and binding, is so contrary to the dictates
of honesty and fair dealing, and so closely related to positive fraud, as to
be abhorent to fairminded men. It would be to allow the company to
treat the policy as valid long enough to get the premium on it, and leave
it at liberty to repudiate it the next moment. This cannot be deemed to
be the real intention of the parties. To hold that a literal construction of
the policy expressed the true intention of the company would be to
indict it, for fraudulent purposes and designs which we cannot believe it
to be guilty of (Wilson vs. Commercial Union Assurance Co., 96 Atl.
540, 543544).
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.
INSURANCE
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.
Teehankee (Chairman), Makasiar, Plana, Relova and Gutierrez, Jr., JJ.,
concur.
Melencio-Herrera, J., took no part.
3

Edillon v. Manila Bankers
Life Insurance Corp. -
Concealment
117 SCRA 187
Facts:
> In Apr. 1969, Carmen Lapuz applied for insurance with Manila
Bankers. In the application she stated the date of her birth as July 11,
1904 (around 64 yrs old). The policy was thereafter issued.
> Subsequently, in May 1969, Carmen died of a car accident. Her
sister, as beneficiary claimed the proceeds of the insurance.
> Manila Bankers refused to pay because the certificate of insurance
contained a provision excluding its liability to pay claims to persons
under 16 or over 60.
Issue:
Whether or not the policy is void considering that the insured was over
60 when she applied.
Held:
NO.
The age of Carmen was not concealed to the insurance company. Her
application form indicated her true age. Despite such information,
Manila Bankers accepted the premium and issued the policy. It had all
the time to process the application and notice the applicants age. If it
INSURANCE
failed to act, it was because Manila Bankers was willing to waive such
disqualifications or it simply overlooked such fact. It is therefore
estopped from disclaiming any liability.
Regina Edillon vs Manila
Banker Life Assurance
Corporation
117 SCRA 187 Mercantile Law Insurance Law Representation
Collection of Premium Even Though Insured is Disqualified (Age)
In April 1969, Carmen Lapuz filled out an application form for
insurance under Manila Banker Life Assurance Corporation. She stated
that her date of birth was July 11, 1904. Upon payment of the Php 20.00
premium, she was issued the insurance policy in April 1969. In May
1969, Carmen Lapuz died in a vehicular accident. Regina Edillon, who
was named a beneficiary in the insurance policy sought to collect the
insurance proceeds but Manila Banker denied the claim. Apparently, it
is a rule of the insurance company that they were not to issue insurance
policies to persons who are under the age of sixteen (16) years of age
or over the age of sixty (60) years Note, that Lapuz was already 65
years old when she was applying for the insurance policy.
4
ISSUE: Whether or not Edillon is entitled to the insurance claim as a
beneficiary.
HELD: Yes. Carmen Lapuz did not conceal her true age. Despite this,
the insurance company still received premium from Lapuz and issued
the corresponding insurance policy to her. When the accident happened,
the insurance policy has been in force for 45 days already and such time
was already sufficient for Manila Banker to notice the fact that Lapuz is
already over 60 years old and thereby cancel the insurance policy. If
Manila Banker failed to act, it is either because it was willing to waive
such disqualification; or, through the negligence or incompetence of its
employees for which it has only itself to blame, it simply overlooked
such fact. Under the circumstances, Manila Banker is already deemed in
estoppel.
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:
INSURANCE
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, respondents 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 Ernanis medical history. Doctors at the MMC allegedly
discovered at the time of Ernanis 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.
5
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 attorneys 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 attorneys 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 Petitioners 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.1wphi1.nt
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
INSURANCE
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 insurers 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:
6
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 respondents 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 respondents husband concealed a material fact
in his application. It appears that in the application for health coverage,
petitioners required respondents 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
respondents 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
INSURANCE
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 applicants 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
7
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 respondents 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
INSURANCE
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 respondents husband,
we quote with approval the following findings of the trial court:
8
(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 hospital and medical
expenses. She is therefore entitled to reimbursement. The records
adequately prove the expenses incurred by respondent for the
deceaseds hospitalization, medication and the professional fees of the
attending physicians.24
WHEREFORE, in view of the foregoing, the petition is DENIED. The
assailed decision of the Court of Appeals dated December 14, 1995
is AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., Puno, and Kapunan, JJ., concur.
Philamcare v CA G.R. No. 125678. March 18, 2002
J. Ynares-Santiago
Facts:
Ernani Trinos applied for a health care coverage with Philam. He
answered no to a question asking if he or his family members were
treated to heart trouble, asthma, diabetes, etc.
INSURANCE
The application was approved for 1 year. He was also
given hospitalization benefits and out-patient benefits. After the
period expired, he was given an expanded coverage for Php 75,000.
During the period, he suffered from heart attack and was confined at
MMC. The wife tried to claim the benefits but the petitioner denied it
saying that he concealed his medical history by answering no to the
aforementioned question. She had to pay for the
hospital bills amounting to 76,000. Her husband subsequently
passed away. She filed a case in the trial court for the collection of
the amount plus damages. She was awarded 76,000 for the bills and
40,000 for damages. The CA affirmed but deleted awards for
damages. Hence, this appeal.
Issue: WON a health care agreement is not an insurance contract;
hence the incontestability clause under the Insurance Code does
not apply.
Held: No. Petition dismissed.
Ratio:
Petitioner claimed that it granted benefits only when the insured is
alive during the one-year duration. It contended that there was no
indemnification unlike in insurance contracts. It supported this claim
by saying that it is a health maintenance organization covered by
the DOH and not the Insurance Commission. Lastly, it claimed that
the Incontestability clause didnt apply because two-year and not
one-year effectivity periods were required.
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.
Section 3 states: every person has an insurable interest in the life
and health:
(1) of himself, of his spouse and of his children.
In this case, the husbands health was the insurable interest. The
health care agreement was in the nature of non-life insurance, which
9
is primarily a contract of indemnity. The provider must pay for the As to cancellation procedure- Cancellation requires certain
medical expenses resulting from sickness or injury. conditions:

While petitioner contended that the husband concealed materialfact 1. Prior notice of cancellation to insured;
of his sickness, the contract stated that:
2. Notice must be based on the occurrence after effective date of
that any physician is, by these presents, expressly authorized to the policy of one or more of the grounds mentioned;
disclose or give testimony at anytime relative to any information
acquired by him in his professional capacity upon any question 3. Must be in writing, mailed or delivered to the insured at the
affecting the eligibility for health care coverageof the Proposed address shown in the policy;
Members.
4. Must state the grounds relied upon provided in Section 64 of
This meant that the petitioners required him to sign authorization the Insurance Code and upon request of insured, tofurnish facts on
to furnish reports about his medical condition. The contract also which cancellation is based
authorized Philam to inquire directly to his medical history.
None were fulfilled by the provider.
Hence, the contention of concealment isnt valid.
As to incontestability- The trial court said that under the title Claim
They cant also invoke the Invalidation of agreement clause procedures of expenses, the defendant PhilamcareHealth
where failure of the insured to disclose information was agrounds for Systems Inc. had twelve months from the date of issuance of the
revocation simply because the answer assailed by the company was Agreement within which to contest the
the heart condition question based on the insureds opinion. He
wasnt a medical doctor, so he cant accurately gauge his
condition.

Henrick v Fire- in such case the insurer is not justified in relying

upon such statement, but is obligated to make further inquiry.

Fraudulent intent must be proven to rescind the contract. This

was incumbent upon the provider.

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.
PHILAMCARE HEALTH SYSTEMS, INC. vs.
Section 27 of the Insurance Code- a concealment entitles the
injured party to rescind a contract of insurance. COURT OF APPEALS

INSURANCE 10
G.R. No. 125678, March 18, 2002
(YNARES-SANTIAGO, J.)
FACTS:
Ernani Trinos applied for a health care coverage with Philamcare Health
Systems, Inc. To the 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?,
Ernani answered No. Under the agreement, Ernani is entitled to
avail of hospitalization benefits and out-patient benefits. The coverage
was approved for a period of one year from March 1, 1988 to March 1,
1989. The agreement was however extended yearly until June 1, 1990
which increased the amount of coverage to a maximum sum of P75,000
per disability.
During the period of said coverage, Ernani suffered a heart attack and
was confined at the Manila Medical Center (MMC) for one month.
While in the hospital, his wife Julita tried to claim the benefits under the
health care agreement. However, the Philamcare denied her claim
alleging that the agreement was void because Ernani concealed his
medical history. Doctors at the MMC allegedly discovered at the time of
Ernanis confinement that he was hypertensive, diabetic and
asthmatic, contrary to his answer in the application form. Thus, Julita
paid for all the hospitalization expenses.
After Ernani 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.
INSURANCE
Julita filed an action for damages and reimbursement of her expenses
plus moral damages attorneys fees against Philamcare and its
president, Dr. Benito Reverente. The Regional Trial court or Manila
rendered judgment in favor of Julita. On appeal, the decision of the trial
court was affirmed but deleted all awards for damages and absolved
petitioner Reverente. Hence, this petition for review raising the primary
argument that a health care agreement is not an insurance contract;
hence the incontestability clause under the Insurance Code does
not apply.
ISSUES:
(1) Whether or not the health care agreement is not an insurance
contract
(2) Whether or not there is concealment of material fact made by Ernani
HELD:
(1)YES. Section2 (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.
Section 3 of the Insurance Code states that any contingent or unknown
event, whether past or future, which my damnify a person having an
insurable against him, may be insured against. Every person has an
insurable interest in the life and health of himself.
Section 10 provides that every person has an insurable interest in the life
and health (1) of himself, of his spouse and of his children.
The insurable interest of respondents 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. Once the member incurs hospital, medical or any other
11
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.
(2) NO. 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
respondents husband who was not a medical doctor. Where matters of
opinion or judgment are called for answers made I good faith and
without intent to deceive will not avoid a policy even though they are
untrue.
The fraudulent intent on the part of the insured must be established to
warrant rescission of the insurance contract. 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 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 wherever he avails of the covered benefits which he has
prepaid.
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. 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. This is equally applicable to
Health Care Agreements.
Philamcare Health Systems,
Inc. V. CA (2002)
INSURANCE
G.R. No. 125678 March 18, 2002
Lessons Applicable:
Elements (Insurance)
Blood Relationship (Insurance)
FACTS:
Ernani Trinos, deceased husband of Julita Trinos, applied for a health
care coverage with Philamcare Health Systems, Inc.
He answered the standard application form: 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). - NO
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, respondents 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.
During the period of his coverage, Ernani suffered a heart attack and
was confined at the Manila Medical Center (MMC) for 1 month
beginning March 9, 1990.
While her husband was in the hospital, Julina Trinos tried to claim the
benefits under the health care agreement.
Philamcare denied her claim saying that the Health Care Agreement
was void for concealing Ernanis medical history so she paid the
hospitalization expenses of P76,000.00 herself.
12
Doctors at the MMC allegedly discovered at the time of Ernanis
confinement that he was hypertensive, diabetic and asthmatic,
contrary to his answer in the application form.
After being 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, he was brought home again.
April 13, 1990 morning: Ernani had fever and was feeling very weak
He was brought to Chinese General Hospital where he died
July 24, 1990: She brought action for damages against Philamcare
Health Systems Inc. and its president, Dr. Benito Reverente
RTC: Philamcare and Dr. Benito Reverent to pay and reimburse P76k
plus interest, moral damages, exemplary damages, attorney's fees
and cost of suit
CA: affirmed the decision of RTC but deleted all awards for damages
and absolved Philamcare
Philamcare brought an instant petition for review arguing that:
health care agreement is not an insurance contract; hence the
"incontestability clause" under the Insurance Code does not
apply.
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
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
INSURANCE
since Health Care Agreements are only for a period of one year,
as compared to insurance contracts which last
longer; incontestability clause does not apply, as the same requires
an effectivity period of at least two years
insurance company is governed by the Insurance Commission,
but a Health Maintenance Organization under the authority of the
Department of Health
ISSUE:
1. W/N the health care agreement is a contract of insurance. - YES
2. W/N the spouse being "not" legal wife can claim - YES
HELD: Petition is DENIED. CA AFFIRMED.
1. YES.
P.D. 612 Insurance Code
Sec. 2 (1)
(1) A "contract of insurance" is an agreement whereby one
undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event.
Sec. 3
Sec. 3. Any contingent or unknown event, whether past or
future, which may damnify a person having an insurable interest,
or create a liability against him, may be insured against, subject
to the provisions of this chapter.
The consent of the husband is not necessary for the validity of
an insurance policy taken out by a married woman on her life or
that of her children.
Any minor of the age of eighteen years or more, may,
notwithstanding such minority, contract for life, health and
accident insurance, with any insurance company duly authorized
to do business in the Philippines, provided the insurance is taken
on his own life and the beneficiary appointed is the minor's
13
estate or the minor's father, mother, husband, wife, child,
brother or sister. P.D. 612 Insurance Code
The married woman or the minor herein allowed to take out an
insurance policy may exercise all the rights and privileges of an
owner under a policy. Sec. 27

All rights, title and interest in the policy of insurance taken out
by an original owner on the life or health of a minor shall
automatically vest in the minor upon the death of the original Sec. 27. A concealment whether intentional or unintentional
owner, unless otherwise provided for in the policy. entitles the injured party to rescind a contract of insurance.

In the case at bar, the insurable interest of respondent's husband in

obtaining the health care agreement was his own health.
cancellation of health care agreements as in insurance policies
in the nature of non-life insurance, which is primarily a contract of require the concurrence of the following conditions: - none of these
indemnity was made

Once the member incurs hospital, medical or any other expense 1. Prior notice of cancellation to insured;
arising from sickness, injury or other stipulated contingent, the
health care provider must pay for the same to the extent agreed
2. Notice must be based on the occurrence after effective date of the
upon under the contract.
policy of one or more of the grounds mentioned;

The answer in response to the question relating to the medical

3. Must be in writing, mailed or delivered to the insured at the
history of the applicant largely depends on opinion rather than fact,
address shown in the policy;
especially coming from respondent's husband who was not a
medical doctor.
4. Must state the grounds relied upon provided in Section 64 of the
Insurance Code and upon request of insured, to furnish facts on
Where matters of opinion or judgment are called for, answers made
which cancellation is based.
in good faith and without intent to deceive will not avoid a policy
even though they are untrue.
When the terms of insurance contract contain limitations on liability,
courts should construe them in such a way as to preclude the insurer
The fraudulent intent on the part of the insured must be established
from non-compliance with his obligation.
to warrant rescission of the insurance contract.

Being a contract of adhesion, the terms of an insurance contract are

Concealment as a defense for the health care provider or insurer to
to be construed strictly against the party which prepared the
avoid liability is an affirmative defense and the duty to establish
contract - the insurer.
such defense by satisfactory and convincing evidence rests upon the
provider or insurer.

INSURANCE 14
(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.
2. YES.
P.D. 612 Insurance Code
Sec. 10
Sec. 10. 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.
not the legal wife (deceased was previously married to another
woman who was still alive)
health care agreement is in the nature of a contract of indemnity.
payment should be made to the party who incurred the expenses
Philamcare Health Systems,
Inc. vs Court of Appeals
INSURANCE
379 SCRA 356 Mercantile Law Insurance Law Representation
Concealment Rescission of an Insurance Contract Health
Care Agreement is an Insurance Contract
In 1988, Ernani Trinos applied for a health care insurance under the
Philamcare Health Systems, Inc. He was asked if he was ever treated for
high blood, heart trouble, diabetes, cancer, liver disease, asthma, or
peptic ulcer; he answered no. His application was approved and it was
effective for one year. His coverage was subsequently renewed twice for
one year each. While the coverage was still in force in 1990, Ernani
suffered a heart attack for which he was hospitalized. The cost of the
hospitalization amounted to P76,000.00. Julita Trinos, wife of Ernani,
filed a claim before Philamcare for the latter to pay the hospitalization
cost. Philamcare refused to pay as it alleged that Ernani failed to
disclose the fact that he was diabetic, hypertensive, and asthmatic. Julita
ended up paying the hospital expenses. Ernani eventually died. In July
1990, Julita sued Philamcare for damages. Philamcare alleged that the
health coverage is not an insurance contract; that the concealment made
by Ernani voided the agreement.
ISSUE: Whether or not Philamcare can avoid the health coverage
agreement.
HELD: No. The health coverage agreement (health care agreement)
entered upon by Ernani with Philamcare is a non-life insurance contract
and is covered by the Insurance Law. It is primarily a contract of
indemnity. 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. There is no concealment on the part of Ernani. He
answered the question with good faith. He was not a medical doctor
hence his statement in answering the question asked of him when he
was applying is an opinion rather than a fact. Answers made in good
faith will not void the policy.
15
Further, Philamcare, in believing there was concealment, should have
taken the necessary steps to void the health coverage agreement prior to
the filing of the suit by Julita. Philamcare never gave notice to Julita of G.R. No. L-41014 November 28, 1988
the fact that they are voiding the agreement. Therefore, Philamcare
should pay the expenses paid by Julita. PACIFIC BANKING CORPORATION, petitioner,
vs.
COURT OF APPEALS and ORIENTAL ASSURANCE
CORPORATION, respondents.

PARAS, J.:

This is a petition for review on certiorari of the decision of respondent

Court of Appeals * in CA-G.R. No. 41735-R, entitled "Pacific Banking
Corporation vs. Oriental Assurance Corporation", which set aside the
decision of the Court of First Instance (CFI) of Manila, ** which had in
turn granted the complaint for a sum of money in Civil Case No. 56889.

As gathered from the records, the undisputed facts of this case are as
follows:

On October 21,1963, Fire Policy No. F-3770 (Exhibit "A"), an open

policy, was issued to the Paramount Shirt Manufacturing Co.
(hereinafter referred to as the insured, for brevity), by which private
respondent Oriental Assurance Corporation bound itself to indemnify
the insured for any loss or damage, not exceeding P61,000.00, caused
by fire to its property consisting of stocks, materials and supplies usual
to a shirt factory, including furniture, fixtures, machinery and equipment
while contained in the ground, second and third floors of the building
situated at number 256 Jaboneros St., San Nicolas, Manila, for a period
of one year commencing from that date to October 21, 1964.

The insured was at the time of the issuance of the policy and is up to
this time, a debtor of petitioner in the amount of not less than Eight
Hundred Thousand Pesos (P800,000.00) and the goods described in the
policy were held in trust by the insured for the petitioner under thrust
receipts (Record on Appeal, p. 4).
INSURANCE 16
Said policy was duly endorsed to petitioner as mortgagee/ trustor of the
properties insured, with the knowledge and consent of private
respondent to the effect that "loss if any under this policy is payable to
the Pacific Banking Corporation".
On January 4, 1964, while the aforesaid policy was in full force and
effect, a fire broke out on the subject premises destroying the goods
contained in its ground and second floors (Record on Appeal, p.5)
On January 24, 1964, counsel for the petitioner sent a letter of demand
to private respondent for indemnity due to the loss of property by fire
under the endorsement of said policy (Brief for Plaintiff-Appellee, pp.
16-17).
On January 28, 1964, private respondent informed counsel for the
petitioner that it was not yet ready to accede to the latter's demand as the
former is awaiting the final report of the insurance adjuster, H.H. Bayne
Adjustment Company (Brief for Plaintiff-Appellee, pp. 17-18).
On March 25, 1964, the said insurance adjuster notified counsel for the
petitioner that the insured under the policy had not filed any claim with
it, nor submitted proof of loss which is a clear violation of Policy
Condition No.11, and for which reason, determination of the liability of
private respondent could not be had (Supra, pp. 19-20).
On April 24, 1964, petitioner's counsel replied to aforesaid letter asking
the insurance adjuster to verify from the records of the Bureau of
Customs the entries of merchandise taken into the customs bonded
warehouse razed by fire as a reliable proof of loss (Supra, pp. 21-22).
For failure of the insurance company to pay the loss as demanded,
petitioner (plaintiff therein) on April 28, 1 964, filed in the court a
quo an action for a sum of money against the private respondent,
Oriental Assurance Corporation, in the principal sum of P61,000.00
issued in favor of Paramount Shirt Manufacturing Co. (Record on
Appeal, pp. 1-36).
INSURANCE
On May 25, 1964, private respondent raised the following defenses in
its answer to wit: (a) lack of formal claim by insured over the loss and
(b) premature filing of the suit as neither plaintiff nor insured had
submitted any proof of loss on the basis of which defendant would
determine its liability and the amount thereof, either to the private
respondent or its ad . adjuster H.H. Bayne Adjustment Co., both in
violation of Policy Condition No.11 (Record on Appeal, pp. 37-38).
At the trial, petitioner presented in evidence Exhibit "H", which is a
communication dated December 22, 1965 of the insurance adjuster,
H.H. Bayne Adjustment Co. to Asian Surety Insurance Co., Inc.,
revealing undeclared co-insurances with the following: P30,000.00 with
Wellington Insurance; P25,000. 00 with Empire Surety and
P250,000.00 with Asian Surety; undertaken by insured Paramount on
the same property covered by its policy with private respondent whereas
the only co-insurances declared in the subject policy are those
of P30,000.00 with Malayan P50,000.00 with South
Sea and P25.000.00 with Victory (Brief for the Defendant pp. 13-14).
It will be noted that the defense of fraud and/or violation of Condition
No. 3 in the Policy, in the form of non-declaration of co-insurances
which was not pleaded in the answer was also not pleaded in the Motion
to Dismiss.
At any rate, on June 30, 1967, the trial court denied private respondent's
motion on the ground that the defense of lack of proof of loss or defects
therein was raised for the first time after the commencement of the suit
and that it must be deemed to have waived the requirement of proof of
loss (Sections 83 and 84, Insurance Act; Record on Appeal, p. 61).
On September 9, 1967, the case was considered submitted for decision
from which order private respondent filed a motion for reconsideration
to set the case or further reception of private respondent's additional
evidence, "in order to prove that 'insured has committed a violation of
condition No. 3 of the policy in relation to the other Insurance Clause.' "
(Record on Appeal, pp. 61-69).
17
On September 30,1967, the case was set for the continuation of the
hearing for the reception merely of the testimony of Alejandro Tan
Gatue, Manager of the Adjustment Co., over the vehement opposition of
the petitioner (Record on Appeal, p. 129).
On April 18, 1 968, the trial court rendered a decision adjudging private
respondent liable to the petitioner under the said contract of insurance,
the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering the defendant to
pay the plaintiff P61,000.00, with interest at the rate of 8% per annum
from January 4, 1964, to April 28, 1964, and 12% from April 29, 1964,
until the amount is fully paid, P6,100.00, as attorney's fees, and the
costs.
SO ORDERED. (Record on Appeal, pp. 140-141)
On appeal, the Court of Appeals reversed the decision of the trial court
(Decision promulgated on April 23, 1975, Rollo, pp. 21-33).
Petitioner filed a motion for reconsideration of the said decision of the
respondent Court of Appeals, but this was denied on July 3,1975 for
lack of merit (Rollo, pp. 54-67), resulting in this petition with the
following assigned errors;
I PREMATURELY BROUGHT BECAUSE THE REQUIRED CLAIM
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE
ERROR OF LAW IN CONCLUDING FRAUD FROM THE BARE
FACT THAT THE INSURED PARAMOUNT PROCURED
ADDITIONAL INSURANCES OTHER THAN THOSE STATED IN
THE POLICY IN SPITE OF THE EXISTENCE OF CONTRARY
PRESUMPTIONS AND ADMITTED FACT AND CIRCUMSTANCES
WHICH NEGATE THE CORRECTNESS OF SAID CONCLUSION.
INSURANCE
(a) The respondent Court did not consider the legal presumption against
the existence of fraud, which should be established with such quantum
of proof as is required for any crime.
(b) The record of the case is bereft of proof of such fraud.
(c) The private respondent insurer did not even plead or in anywise raise
fraud as a defense in its answer or motion to dismiss and, therefore, it
should have been considered waived.
(d) The total amount of insurance procured by the insured from the
different companies amounted to hardly onehalf () of the value of the
goods insured.
II
RESPONDENT COURT ERRED IN NOT HOLDING THAT
CONSIDERING THE VOTING ON THE PARTICULAR QUESTION
OF FRAUD, THE FINDING OF THE TRIAL COURT THEREON
SHOULD BE CONSIDERED AFFIRMED.
III
THE CONCURRING OPINION OF MR. JUSTICE CHANCO IS
LEGALLY ERRONEOUS IN HOLDING THAT THE ACTION WAS
UNDER THE INSURANCE LAW HAS NOT BEEN FILED,
NOTWITHSTANDING THE LETTER, (EXHIBIT "C") OF
PETITIONER-APPELLANT'S LAWYER WHICH IS A
SUBSTANTIAL COMPLIANCE OF THE LEGAL REQUIREMENTS
AND NOT HOLDING THAT PRIVATE RESPONDENT INSURER
HAD ALREADY WAIVED THE SUPPOSED DEFECTS IN THE
CLAIM FILED BY PETITIONER-APPELLANT FOR ITS FAILURE
TO CALL THE ATTENTION OF THE LAYER TO SUCH ALLEGED
DEFECTS AND FOR ENDORSING THE CLAIM TO ITS ADJUSTER
FOR PROCESSING.
18
 IV
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE
ERROR OF LAW IN NOT INTERPRETING THE PROVISIONS OF
THE POLICY LIBERALLY IN FAVOR OF THE HEREIN
PETITIONER-APPELLANT, WHO IS NOT THE INSURED BUT
ONLY THE ASSIGNEE/MORTGAGEE OF THE PROPERTY
INSURED.
V Consequently, "the whole foundation of the contract fails, the risk does
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE
ERROR OF LAW IN DISMISSING THE CASE AND IN NOT
AFFIRMING THE APPEALED DECISION OF THE TRIAL COURT.
(Brief for Petitioners, pp. 1-3)
The crux of the controversy centers on two points: (a) unrevealed co-
insurances which violated policy conditions No. 3 and (b) failure of the
insured to file the required proof of loss prior to court action. Policy
Condition No. 3 explicitly provides:
3. The Insured shall give notice to the Company of any insurance
already effected, or which may subsequently be effected, covering any
of the property hereby insured, and unless such notice be given and the
particulars of such insurance or insurances be stated in or endorsed on
this Policy by or on behalf of the Company before the occurrence of any
loss or damage, all benefit under this policy shall be forfeited. (Record
on Appeal, p. 12)
It is not disputed that the insured failed to reveal before the loss three
other insurances. As found by the Court of Appeals, by reason of said
unrevealed insurances, the insured had been guilty of a false
declaration; a clear misrepresentation and a vital one because where the
insured had been asked to reveal but did not, that was deception.
Otherwise stated, had the insurer known that there were many co-
insurances, it could have hesitated or plainly desisted from entering into
INSURANCE
such contract. Hence, the insured was guilty of clear fraud (Rollo, p.
25).
Petitioner's contention that the allegation of fraud is but a mere
inference or suspicion is untenable. In fact, concrete evidence of fraud
or false declaration by the insured was furnished by the petitioner itself
when the facts alleged in the policy under clauses "Co-Insurances
Declared" and "Other Insurance Clause" are materially different from
the actual number of co-insurances taken over the subject property.
not attach and the policy never becomes a contract between the parties.
Representations of facts are the foundation of the contract and if the
foundation does not exist, the superstructure does not arise. Falsehood
in such representations is not shown to vary or add to the contract, or to
terminate a contract which has once been made, but to show that no
contract has ever existed (Tolentino, Commercial Laws of the
Philippines, p. 991, Vol. II, 8th Ed.) A void or inexistent contract is one
which has no force and effect from the very beginning, as if it had never
been entered into, and which cannot be validated either by time or by
ratification Tongoy v. C.A., 123 SCRA 99 [1983]; Avila v. C.A. 145
SCRA [1986]).
As the insurance policy against fire expressly required that notice
should be given by the insured of other insurance upon the same
property, the total absence of such notice nullifies the policy (Sta. Ana v.
Commercial Union Assurance Co., 55 Phil. 333 [1930]; Union
Manufacturing Co., Inc. vs. Philippine Guaranty Co., Inc., 47 SCRA
276 [1972]; Pioneer Ins. & Surety Corp., v. Yap, 61 SCRA 432 [1974]).
The argument that notice of co-insurances may be made orally is
preposterous and negates policy condition No. 20 which requires every
notice and other communications to the insurer to be written or printed.
Petitioner points out that Condition No. 3 in the policy in relation to the
"other insurance clause" supposedly to have been violated, cannot
certainly defeat the right of the petitioner to recover the insurance as
19
mortgagee/assignee. Particularly referring to the mortgage clause of the
policy, petitioner argues that considering the purpose for which the
endorsement or assignment was made, that is, to protect the
mortgagee/assignee against any untoward act or omission of the insured,
it would be absurd to hold that petitioner is barred from recovering the
insurance on account of the alleged violation committed by the insured
(Rollo, Brief for the petitioner, pp, 33-35).
It is obvious that petitioner has missed all together the import of subject
mortgage clause which specifically provides:
Mortgage Clause
Loss, if any, under this policy, shall be payable to the PACIFIC
BANKING CORPORATION Manila mortgagee/trustor as its interest
may appear, it being hereby understood and agreed that this insurance as
to the interest of the mortgagee/trustor only herein, shall not be
invalidated by any act or neglectexcept fraud or misrepresentation, or
arsonof the mortgagor or owner/trustee of the property insured;
provided, that in case the mortgagor or owner/ trustee neglects or
refuses to pay any premium, the mortgagee/ trustor shall, on demand
pay the same. (Rollo, p. 26)
The paragraph clearly states the exceptions to the general rule that
insurance as to the interest of the mortgagee, cannot be invalidated;
namely: fraud, or misrepresentation or arson. As correctly found by the
Court of Appeals, concealment of the aforecited
co-insurances can easily be fraud, or in the very least, misrepresentation
(Rollo, p. 27).
Undoubtedly, it is but fair and just that where the insured who is
primarily entitled to receive the proceeds of the policy has by its fraud
and/or misrepresentation, forfeited said right, with more reason
petitioner which is merely claiming as indorsee of said insured, cannot
be entitled to such proceeds.
INSURANCE
Petitioner further stressed that fraud which was not pleaded as a defense
in private respondent's answer or motion to dismiss, should be deemed
to have been waived.
It will be noted that the fact of fraud was tried by express or at least
implied consent of the parties. Petitioner did not only object to the
introduction of evidence but on the contrary, presented the very
evidence that proved its existence.
Be that as it may, it is established that the Supreme Court has ample
authority to give beyond the pleadings where in the interest of justice
and the promotion of public policy, there is a need to make its own
finding to support its conclusion. Otherwise stated, the Court can
consider a fact which surfaced only after trial proper (Maharlika
Publishing Corp. v. Tagle, 142 SCRA 561 [1986]).
Generally, the cause of action on the policy accrues when the loss
occurs, But when the policy provides that no action shall be brought
unless the claim is first presented extrajudicially in the manner provided
in the policy, the cause of action will accrue from the time the insurer
finally rejects the claim for payment (Eagle Star Insurance v. Chia Yu,
55 Phil 701 [1955]).
In the case at bar, policy condition No. 11 specifically provides that the
insured shall on the happening of any loss or damage give notice to the
company and shall within fifteen (15) days after such loss or damage
deliver to the private respondent (a) a claim in writing giving particular
account as to the articles or goods destroyed and the amount of the loss
or damage and (b) particulars of all other insurances, if any. Likewise,
insured was required "at his own expense to produce, procure and give
to the company all such further particulars, plans, specifications, books,
vouchers, invoices, duplicates or copies thereof, documents, proofs and
information with respect to the claim". (Record on Appeal, pp. 18-20).
The evidence adduced shows that twenty-four (24) days after the fire,
petitioner merely wrote letters to private respondent to serve as a notice
20
of loss, thereafter, the former did not furnish the latter whatever
pertinent documents were necessary to prove and estimate its loss.
Instead, petitioner shifted upon private respondent the burden of fishing
out the necessary information to ascertain the particular account of the
articles destroyed by fire as well as the amount of loss. It is noteworthy
that private respondent and its adjuster notified petitioner that insured
had not yet filed a written claim nor submitted the supporting
documents in compliance with the requirements set forth in the policy.
Despite the notice, the latter remained unheedful. Since the required
claim by insured, together with the preliminary submittal of relevant
documents had not been complied with, it follows that private
respondent could not be deemed to have finally rejected petitioner's
claim and therefore the latter's cause of action had not yet arisen.
Compliance with condition No. 11 is a requirement sine qua non to the
right to maintain an action as prior thereto no violation of petitioner's
right can be attributable to private respondent. This is so, as before such
final rejection, there was no real necessity for bringing suit. Petitioner
should have endeavored to file the formal claim and procure all the
documents, papers, inventory needed by private respondent or its
adjuster to ascertain the amount of loss and after compliance await the
final rejection of its claim. Indeed, the law does not encourage
unnecessary litigation (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu,
p. 701, supra).
Verily, petitioner prematurely filed Civil Case No. 56889 and dismissal
thereof was warranted under the circumstances. While it is a cardinal
principle of insurance law that a policy or contract of insurance is to be
construed liberally in favor of the insured and strictly as against the
insurer company (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p.
702, supra; Taurus Taxi Co., Inc. v. The Capital Ins. & Surety Co., Inc.,
24 SCRA 458 [1968]; National Power Corp. v. CA, 145 SCRA 533
[1986]), yet, contracts of insurance, like other contracts, are to be
construed according to the sense and meaning of the terms which the
parties themselves have used. If such terms are clear and unambiguous,
they must be taken and understood in their plain, ordinary and popular
sense (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1919]; Union
Manufacturing Co., Inc. v. Phil. Guaranty Co., Inc., p. 277 supra; Pichel
INSURANCE
v. Alonzo, III SCRA 341 [1982]; Gonzales v. CA, 124 SCRA 630
[1983]; GSIS v. CA, 145 SCRA 311 [1986]; Herrera v. Petrophil Corp.,
146 SCRA 385 [1986]).
Contracts of insurance are contracts of indemnity upon the terms and
conditions specified in the policy. The parties have a right to impose
such reasonable conditions at the time of the making of the contract as
they may deem wise and necessary. The agreement has the force of law
between the parties. The terms of the policy constitute the measure of
the insurer's liability, and in order to recover, the insured must show
himself within those terms. The compliance of the insured with the
terms of the policy is a condition precedent to the light of recovery
(Stokes v. Malayan Insurance Co., Inc., 127 SCRA 766 [1984]).
It appearing that insured has violated or failed to perform the conditions
under No. 3 and 11 of the contract, and such violation or want of
performance has not been waived by the insurer, the insured cannot
recover, much less the herein petitioner. Courts are not permitted to
make contracts for the parties; the function and duty of the courts is
simply to enforce and carry out the contracts actually made (Young v.
Midland Textile Ins. Co., 30 Phil. 617 [1915]; Union Manufacturing Co.
Inc. v. Phil. Guaranty Co. Inc., p. 276 supra).
Finally, the established rule in this jurisdiction that findings of fact of
the Court of Appeals when supported by substantial evidence, are not
reviewable on appeal by certiorari, deserves reiteration. Said findings of
the appellate court are final and cannot be disturbed by the Supreme
Court except in certain cases Lereos v. CA, 117 SCRA 395 [1985];
Dalida v. CA, 117 SCRA 480 [1982] Director of Lands v. CA, 117
SCRA 346 [1982]; Montesa v. CA, 117 SCRA 770 [1982]; Sacay v.
Sandiganbayan, 142 SCRA 609 [1986]; Guita v. CA, 139 SCRA 576
[1985]; Manlapaz v. CA, 147 SCRA 238-239 [1987]).
PREMISES CONSIDERED, the petition is DISMISSED for lack of
merit, and the decision appealed from is AFFIRMED. No costs.
21
SO ORDERED. respondent to the effect that "loss if any under this policy
is payable to the Pacific Banking Corporation".
Melencio-Herrera, (Chairman), Padilla, Sarmiento and Regalado, JJ.,
A fire broke out on the premises destroying the goods contained in
concur. the building.

The bank sent a letter of demand to Oriental for indemnity.

The company wasnt ready to give since it was awaiting the

adjusters report.

The company then made an excuse that the insured had not filed
any claim with it, nor submitted proof of loss which is a clear
violation of Policy Condition No.11, as a result, determination of the
liability of private respondent could not be made.

Pacific Banking filed in the trial court an action for a sum of money
for P61,000.00 against Oriental Assurance.

At the trial, petitioner presented communications of the

insurance adjuster to Asian Surety revealing undeclared co-
insurances with the following: P30,000 with Wellington Insurance;
P25,000 with Empire Surety and P250,000 with Asian Surety
Pacific v CA G.R. No. L-41014 November 28, 1988 undertaken by insured Paramount on the same property covered by
J. Paras its policy with Oriental whereas the only co-insurances declared in
the subject policy are those of P30,000.00 with Malayan P50,000.00
with South Sea and P25.000.00 with Victory.
Facts:

The defense of fraud, in the form of non-declaration of co-insurances

An open fire insurance policy, was issued to Paramount Shirt
which was not pleaded in the answer, was also not pleaded in the
Manufacturing by Oriental Assurance Corporation to indemnify
Motion to Dismiss.
P61,000.00, caused by fire to the factorys stocks, materials and
supplies.
The trial court denied the respondents motion. Oriental filed
another motion to include additional evidence of the co-insurance
The insured was a debtor of Pacific Banking in the amount of
which could amount to fraud.
(P800,000.00) and the goods described in the policy were held in
trust by the insured for Pacific Banking under trust receipts.
The trial court still made Oriental liable for P 61,000. The CA
reversed the trial court decision. Pacific Banking filed a motion for
The policy was endorsed to Pacific Banking as mortgagee/ trustor of
reconsideration of the said decision of the respondent Court
the properties insured, with the knowledge and consent of private
of Appeals, but this was denied for lack of merit.

INSURANCE 22
Issues:
1. WON unrevealed co-insurances Violated policy conditions No. 3
2. WON the insured failed to file the required proof of loss prior to
court action.
Held: Yes. Petition dismissed.
Ratio:
1. Policy Condition No. 3 explicitly provides:
3. The Insured shall give notice to the Company of any insurance
already effected, or which may subsequently be effected, covering
any of the property hereby insured, and unless such notice be given
and the particulars of such insurance or insurances be stated in or
endorsed on this Policy by or on behalf of the Company before the
occurrence of any loss or damage, all benefit under this policy shall
be forfeited.
The insured failed to reveal before the loss three other insurances.
Had the insurer known that there were many co-insurances, it could
have hesitated or plainly desisted from entering into such contract.
Hence, the insured was guilty of clear fraud.
Concrete evidence of fraud or false declaration by the insured was
furnished by the petitioner itself when the facts alleged in the policy
under clauses "Co-Insurances Declared" and "Other Insurance
Clause" are materially different from the actual number of co-
insurances taken over the subject property.
As the insurance policy against fire expressly required that notice
should be given by the insured of other insurance upon the same
property, the total absence of such notice nullifies the policy.
Petitioner points out that Condition No. 3 in the policy in relation to
the "other insurance clause" supposedly to have been violated,
cannot certainly defeat the right of the petitioner to recover the
insurance as mortgagee/assignee. Hence, they claimed that the
INSURANCE
purpose for which the endorsement or assignment was made was to
protect the mortgagee/assignee against any untoward act or
omission of the insured. It would be absurd to hold that petitioner is
barred from recovering the insurance on account of the alleged
violation committed by the insured.
It is obvious that petitioner has missed all together the import
of subject mortgage clause which specifically provides:
Loss, if any, under this policy, shall be payable to the
PACIFIC BANKING CORPORATION Manila mortgagee/trustor as its
interest may appear, it being hereby understood and agreed that
this insurance as to the interest of the mortgagee/trustor only
herein, shall not be invalidated by any act or neglectexcept fraud
or misrepresentation, or arsonof the mortgagor or owner/trustee of
the property insured; provided, that in case the mortgagor or owner/
trustee neglects or refuses to pay any premium, the mortgagee/
trustor shall, on demand pay the same.
The paragraph clearly states the exceptions to the general rule that
insurance as to the interest of the mortgagee, cannot be invalidated;
namely: fraud, or misrepresentation or arson. Concealment of the
aforecited co-insurances can easily be fraud, or in the very least,
misrepresentation.
Undoubtedly, it is but fair and just that where the insured who is
primarily entitled to receive the proceeds of the policy has by its
fraud and/or misrepresentation, forfeited said right.
Petitioner further stressed that fraud which was not pleaded as a
defense in private respondent's answer or motion to dismiss, should
be deemed to have been waived. It will be noted that the fact of
fraud was tried by express or at least implied consent of the parties.
Petitioner did not only object to the introduction of evidence but on
the contrary, presented the very evidence that proved its existence.
2. Generally, the cause of action on the policy accrues when the loss
occurs, But when the policy provides that no action shall be brought
unless the claim is first presented extrajudicially in the manner
provided in the policy, the cause of action will accrue from the time
the insurer finally rejects the claim for payment
23
In the case at bar, policy condition No. 11 specifically provides that
the insured shall on the happening of any loss or damage give notice
to the company and shall within fifteen (15) days after such loss or
damage deliver to the private respondent (a) a claim in writing
giving particular account as to the articles or goods destroyed and
the amount of the loss or damage and (b) particulars of all other
insurances, if any.
Twenty-four days after the fire did petitioner merely wrote letters to
private respondent to serve as a notice of loss. It didnt even
furnish other documents. Instead, petitioner shifted upon private
respondent the burden of fishing out the necessary information to
ascertain the particular account of the articles destroyed by fire as
well as the amount of loss. Since the required claim by insured,
together with the preliminary submittal of relevant documents had
not been complied with, it follows that private respondent could not
be deemed to have finally rejected petitioner's claim and therefore
there was no cause of action.
It appearing that insured has violated or failed to perform the
conditions under No. 3 and 11 of the contract, and such violation or
want of performance has not been waived by the insurer, the insured
cannot recover, much less the herein petitioner.
G.R. No. 48049 June 29, 1989
EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO
TAN, petitioners,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN
LIFE INSURANCE COMPANY, respondents.
O.F. Santos & P.C. Nolasco for petitioners.
Ferry, De la Rosa and Associates for private respondent.
INSURANCE
GUTIERREZ, JR., J.:
This is a petition for review on certiorari of the Court of Appeals'
decision affirming the decision of the Insurance Commissioner which
dismissed the petitioners' complaint against respondent Philippine
American Life Insurance Company for the recovery of the proceeds
from their late father's policy. The facts of the case as found by the
Court of Appeals are:
Petitioners appeal from the Decision of the Insurance Commissioner
dismissing herein petitioners' complaint against respondent Philippine
American Life Insurance Company for the recovery of the proceeds of
Policy No. 1082467 in the amount of P 80,000.00.
On September 23,1973, Tan Lee Siong, father of herein petitioners,
applied for life insurance in the amount of P 80,000.00 with respondent
company. Said application was approved and Policy No. 1082467 was
issued effective November 6,1973, with petitioners the beneficiaries
thereof (Exhibit A).
On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit B).
Petitioners then filed with respondent company their claim for the
proceeds of the life insurance policy. However, in a letter dated
September 11, 1975, respondent company denied petitioners' claim and
rescinded the policy by reason of the alleged misrepresentation and
concealment of material facts made by the deceased Tan Lee Siong in
his application for insurance (Exhibit 3). The premiums paid on the
policy were thereupon refunded .
Alleging that respondent company's refusal to pay them the proceeds of
the policy was unjustified and unreasonable, petitioners filed on
November 27, 1975, a complaint against the former with the Office of
the Insurance Commissioner, docketed as I.C. Case No. 218.
24
After hearing the evidence of both parties, the Insurance Commissioner
rendered judgment on August 9, 1977, dismissing petitioners' complaint.
(Rollo, pp. 91-92)
The Court of Appeals dismissed ' the petitioners' appeal from the
Insurance Commissioner's decision for lack of merit
Hence, this petition.
The petitioners raise the following issues in their assignment of errors,
to wit:
A. The conclusion in law of respondent Court that respondent insurer
has the right to rescind the policy contract when insured is already dead
is not in accordance with existing law and applicable jurisprudence.
B. The conclusion in law of respondent Court that respondent insurer
may be allowed to avoid the policy on grounds of concealment by the
deceased assured, is contrary to the provisions of the policy contract
itself, as well as, of applicable legal provisions and established
jurisprudence.
C. The inference of respondent Court that respondent insurer was misled
in issuing the policy are manifestly mistaken and contrary to admitted
evidence. (Rollo, p. 7)
The petitioners contend that the respondent company no longer had the
right to rescind the contract of insurance as rescission must allegedly be
done during the lifetime of the insured within two years and prior to the
commencement of action.
The contention is without merit.
The pertinent section in the Insurance Code provides:
INSURANCE
Section 48. Whenever a right to rescind a contract of insurance is given
to the insurer by any provision of this chapter, such right must be
exercised previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured
shall have been in force during the lifetime of the insured for a period of
two years from the date of its issue or of its last reinstatement, the
insurer cannot prove that the policy is void ab initio or is rescindable by
reason of the fraudulent concealment or misrepresentation of the insured
or his agent.
According to the petitioners, the Insurance Law was amended and the
second paragraph of Section 48 added to prevent the insurance company
from exercising a right to rescind after the death of the insured.
The so-called "incontestability clause" precludes the insurer from
raising the defenses of false representations or concealment of material
facts insofar as health and previous diseases are concerned if the
insurance has been in force for at least two years during the insured's
lifetime. The phrase "during the lifetime" found in Section 48 simply
means that the policy is no longer considered in force after the insured
has died. The key phrase in the second paragraph of Section 48 is "for a
period of two years."
As noted by the Court of Appeals, to wit:
The policy was issued on November 6,1973 and the insured died on
April 26,1975. The policy was thus in force for a period of only one
year and five months. Considering that the insured died before the two-
year period had lapsed, respondent company is not, therefore, barred
from proving that the policy is void ab initio by reason of the insured's
fraudulent concealment or misrepresentation. Moreover, respondent
company rescinded the contract of insurance and refunded the
premiums paid on September 11, 1975, previous to the commencement
of this action on November 27,1975. (Rollo, pp. 99-100)
25
xxx xxx xxx
The petitioners contend that there could have been no concealment or
misrepresentation by their late father because Tan Lee Siong did not
have to buy insurance. He was only pressured by insistent salesmen to
do so. The petitioners state:
Here then is a case of an assured whose application was submitted
because of repeated visits and solicitations by the insurer's agent.
Assured did not knock at the door of the insurer to buy insurance. He
was the object of solicitations and visits.
Assured was a man of means. He could have obtained a bigger
insurance, not just P 80,000.00. If his purpose were to misrepresent and
to conceal his ailments in anticipation of death during the two-year
period, he certainly could have gotten a bigger insurance. He did not.
Insurer Philamlife could have presented as witness its Medical
Examiner Dr. Urbano Guinto. It was he who accomplished the
application, Part II, medical. Philamlife did not.
Philamlife could have put to the witness stand its Agent Bienvenido S.
Guinto, a relative to Dr. Guinto, Again Philamlife did not. (pp. 138139,
Rollo)
xxx xxx xxx
This Honorable Supreme Court has had occasion to denounce the
pressure and practice indulged in by agents in selling insurance. At one
time or another most of us have been subjected to that pressure, that
practice. This court took judicial cognizance of the whirlwind pressure
of insurance selling-especially of the agent's practice of 'supplying the
information, preparing and answering the application, submitting the
application to their companies, concluding the transactions and
otherwisesmoothing out all difficulties.
INSURANCE
We call attention to what this Honorable Court said in Insular Life v.
Feliciano, et al., 73 Phil. 201; at page 205:
It is of common knowledge that the selling of insurance today is
subjected to the whirlwind pressureof modern salesmanship.
Insurance companies send detailed instructions to their agents to solicit
and procure applications.
These agents are to be found all over the length and breadth of the land.
They are stimulated to more active efforts by contests and by the keen
competition offered by the other rival insurance companies.
They supply all the information, prepare and answer the applications,
submit the applications to their companies, conclude the transactions,
and otherwise smooth out all difficulties.
The agents in short do what the company set them out to do.
The Insular Life case was decided some forty years ago when the
pressure of insurance salesmanship was not overwhelming as it is now;
when the population of this country was less than one-fourth of what it
is now; when the insurance companies competing with one another
could be counted by the fingers. (pp. 140-142, Rollo)
xxx xxx xxx
In the face of all the above, it would be unjust if, having been subjected
to the whirlwind pressure of insurance salesmanship this Court itself has
long denounced, the assured who dies within the two-year period,
should stand charged of fraudulent concealment and misrepresentation."
(p. 142, Rollo)
The legislative answer to the arguments posed by the petitioners is the
"incontestability clause" added by the second paragraph of Section 48.
26
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. Congress felt this was a sufficient
answer to the various tactics employed by insurance companies to avoid
liability. The petitioners' interpretation would give rise to the
incongruous situation where the beneficiaries of an insured who dies
right after taking out and paying for a life insurance policy, would be
allowed to collect on the policy even if the insured fraudulently
concealed material facts.
The petitioners argue that no evidence was presented to show that the
medical terms were explained in a layman's language to the insured.
They state that the insurer should have presented its two medical field
examiners as witnesses. Moreover, the petitioners allege that the policy
intends that the medical examination must be conducted before its
issuance otherwise the insurer "waives whatever imperfection by
ratification."
We agree with the Court of Appeals which ruled:
On the other hand, petitioners argue that no evidence was presented by
respondent company to show that the questions appearing in Part II of
the application for insurance were asked, explained to and understood
by the deceased so as to prove concealment on his part. The same is not
well taken. The deceased, by affixing his signature on the application
form, affirmed the correctness of all the entries and answers appearing
therein. It is but to be expected that he, a businessman, would not have
affixed his signature on the application form unless he clearly
understood its significance. For, the presumption is that a person intends
the ordinary consequence of his voluntary act and takes ordinary care of
his concerns. [Sec. 5(c) and (d), Rule 131, Rules of Court].
The evidence for respondent company shows that on September
19,1972, the deceased was examined by Dr. Victoriano Lim and was
INSURANCE
found to be diabetic and hypertensive; that by January, 1973, the
deceased was complaining of progressive weight loss and abdominal
pain and was diagnosed to be suffering from hepatoma, (t.s.n. August
23, 1976, pp. 8-10; Exhibit 2). Another physician, Dr. Wenceslao Vitug,
testified that the deceased came to see him on December 14, 1973 for
consolation and claimed to have been diabetic for five years. (t.s.n.,
Aug. 23,1976, p. 5; Exhibit 6) Because of the concealment made by the
deceased of his consultations and treatments for hypertension, diabetes
and liver disorders, respondent company was thus misled into accepting
the risk and approving his application as medically standard (Exhibit 5-
C) and dispensing with further medical investigation and examination
(Exhibit 5-A). For as long as no adverse medical history is revealed in
the application form, an applicant for insurance is presumed to be
healthy and physically fit and no further medical investigation or
examination is conducted by respondent company. (t.s.n., April 8,1976,
pp. 6-8). (Rollo, pp. 96-98)
There is no strong showing that we should apply the "fine print" or
"contract of adhesion" rule in this case. (Sweet Lines, Inc. v. Teves, 83
SCRA 361 [1978]). The petitioners cite:
It is a matter of common knowledge that large amounts of money are
collected from ignorant persons by companies and associations which
adopt high sounding titles and print the amount of benefits they agree to
pay in large black-faced type, following such undertakings by fine print
conditions which destroy the substance of the promise. All provisions,
conditions, or exceptions which in any way tend to work a forfeiture of
the policy should be construed most strongly against those for whose
benefit they are inserted, and most favorably toward those against
whom they are meant to operate. (Trinidad v. Orient Protective
Assurance Assn., 67 Phil. 184)
There is no showing that the questions in the application form for
insurance regarding the insured's medical history are in smaller print
than the rest of the printed form or that they are designed in such a way
as to conceal from the applicant their importance. If a warning in bold
red letters or a boxed warning similar to that required for cigarette
27
advertisements by the Surgeon General of the United States is
necessary, that is for Congress or the Insurance Commission to provide
as protection against high pressure insurance salesmanship. We are
limited in this petition to ascertaining whether or not the respondent
Court of Appeals committed reversible error. It is the petitioners' burden
to show that the factual findings of the respondent court are not based
on substantial evidence or that its conclusions are contrary to applicable
law and jurisprudence. They have failed to discharge that burden.
WHEREFORE, the petition is hereby DENIED for lack of merit. The
questioned decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Fernan, (C.J., Chairman), Bidin and Cortes, JJ., concur.
Feliciano, took no part.
Tan v. CA - Rescission of
the contract of insurance
174 SCRA 403
Facts:
INSURANCE
> Tan Lee Siong was issued a policy by Philamlife on Nov. 6, 1973.
> On Aprl 26, 1975, Tan died of hepatoma. His beneficiaries then filed
a claim with Philamlife for the proceeds of the insurance.
> Philamlife wrote the beneficiaries in Sep. 1975 denying their claim
and rescinding the contract on the ground of misrepresentation. The
beneficiaries contend that Philamlife can no longer rescind the contract
on the ground of misrepresentation as rescission must allegedly be done
during the lifetime of the insured within two years and prior to the
commencement of the action following the wording of Sec. 48, par. 2.
Issue:
Whether or not Philamlife can rescind the contract.
Held:
YES.
The phrase during the lifetime found in Sec. 48 simply means that
the policy is no longer in force after the insured has died. The key
phrase in the second paragraph is for a period of two years.
What is a simpler illustration of the ruling in Tan v. CA?
The period to consider in a life insurance poiicy is two years from
the date of issue or of the last reinstatement. So if for example the
policy was issued/reinstated on Jan 1, 2000, the insurer can still exercise
his right to rescind up to Jan. 1, 2003 or two years from the date of
issue/reinstatement, REGARDLESS of whether the insured died before
or after Jan. 1, 2003.
28
Emilio Tan vs Court of
Appeals
174 SCRA 403 Mercantile Law Insurance Law Representation
Concealment Rescission of an Insurance Contract
In September 1973, Tan Lee Siong applied for a life insurance under the
Philippine American Life Insurance Company (PHILAMLIFE). He
stated in the application form that he has no health issues whatsoever
and so in November 1973 he was issued a life insurance policy in the
amount of P80,000.00. He listed his sons as beneficiaries (Emilio Tan et
al). In April 1975, Tan Lee Siong died due to hepatoma. His sons filed
an insurance claim but PHILAMLIFE denied the same as it alleged that
Tan Lee Siong concealed the fact that he was hypertensive, diabetic, and
was suffering from hepatoma at the time of his application for the
insurance.
The beneficiaries averred that PHILAMLIFE can no longer rescind the
insurance contract because the insured is already dead. They invoke
Section 48 of the Insurance Code which they interpreted to mean that an
insurer can only rescind an insurance contract during the lifetime of the
insured; and that such rescission should be done within two years prior
to the filing of a suit involving the insurance.
ISSUE: Whether or not the interpretation of the Tan brothers is correct.
HELD: No. The pertinent section in the Insurance Code provides:
Section 48. Whenever a right to rescind a contract of
insurance is given to the insurer by any provision of this
chapter, such right must be exercised previous to the
commencement of an action on the contract.
INSURANCE
After a policy of life insurance made payable on the
death of the insured shall have been in force during the
lifetime of the insured for a period of two years from the
date of its issue or of its last reinstatement, the insurer
cannot prove that the policy is void ab initio or is
rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.
The so-called incontestability clause precludes the insurer from
raising the defenses of false representations or concealment of material
facts insofar as health and previous diseases are concerned if the
insurance has been in force for at least two years during the insureds
lifetime. The phrase during the lifetime found in Section 48 simply
means that the policy is no longer considered in force after the insured
has died. The key phrase in the second paragraph of Section 48 is for
a period of two years.
Note that the policy was in force for only one year and 5 months when
Tan Lee Siong died. This means that PHILAMLIFE can still contest and
rescind the policy issued by reason of the misrepresentation made by
Tan Lee Siong.
Further, because of Tan Lee Siongs statement that he does not have
any health issues, the insurance company was misled into believing that
he was healthy and so it did not deem a medical checkup to be
necessary and that ultimately led to the issuance of the life insurance
policy.
29

Tan v CA G.R. No. 48049 June 29, 1989
J. Gutierrez Jr.
Facts:
Tan Lee Siong, father of the petitioners, applied for life insurance in
the amount of P 80,000.00 with Philamlife. It was approved. Tan Lee
Siong died of hepatoma. Petitioners then filed a claim for the
proceeds. The company denied petitioners' claim and rescinded the
policy by reason of the alleged misrepresentation and concealment
of material facts. The premiums paid on the policy were refunded.
The petitioners filed a complaint in the Insurance Commission. The
latter dismissed the complaint.
The Court of Appeals dismissed ' the petitioners' appeal from the
Insurance Commissioner's decision for lack of merit. Hence, this
petition.
Issue:
WON Philam didnt have the right to rescind the contract of
insurance as rescission must allegedly be done during the lifetime of
the insured within two years and prior to the commencement of
action.
Held: No. Petition dismissed.
INSURANCE
Ratio:
The Insurance Code states in Section 48:
Whenever a right to rescind a contract of insurance is given to
the insurer by any provision of this chapter, such right must be
exercised previous to the commencement of an action on the
contract.
After a policy of life insurance made payable on the death of the
insured shall have been in force during the lifetime of the insured for
a period of two years from the date of its issue or of its last
reinstatement, the insurer cannot prove that the policy is void ab
initio or is rescindable by reason of the fraudulent concealment
or misrepresentation of the insured or his agent.
The so-called "incontestability clause" in the second paragraph
prevents the insurer from raising the defenses of false
representations insofar as health and previous diseases are
concerned if the insurance has been in force for at least two years
during the insured's lifetime.
The policy was in force for a period of only one year and five months.
Considering that the insured died before the two-year period had
lapsed, respondent company is not, therefore, barred from proving
that the policy is void ab initio by reason of the insured's fraudulent
concealment or misrepresentation.
The "incontestability clause" added by the second paragraph of
Section 48 is in force for two years. After this, the defenses of
concealment or misrepresentation no longer lie.
The petitioners argue that no evidence was presented to show that
the medical terms were explained in a layman's language to the
insured. They also argue that no evidence was presented by
respondent company to show that the questions appearing in Part II
of the application for insurance were asked, explained to and
understood by the deceased so as to prove concealment on his part.
This couldnt be accepted because the insured signed the form. He
affirmed the correctness of all the entries.
30
The company records show that the deceased was examined by Dr.
Victoriano Lim and was found to be diabetic and hypertensive. He
was also found to have suffered from hepatoma. Because of the
concealment made by the deceased, the company was thus misled
into accepting the risk and approving his application as medically
fit.
G.R. No. L-15774 November 29, 1920
PILAR C. DE LIM, plaintiff-appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-
appellee.
Sanz and Luzuriaga for appellant.
Cohn and Fisher for appellee.
MALCOLM, J.:
This is an appeal by plaintiff from an order of the Court of First Instance
of Zamboanga sustaining a demurrer to plaintiff's complaint upon the
ground that it fails to state a cause of action.
As the demurrer had the effect of admitting the material facts set forth in
the complaint, the facts are those alleged by the plaintiff. On July 6,
INSURANCE
1917, Luis Lim y Garcia of Zamboanga made application to the Sun
Life Assurance Company of Canada for a policy of insurance on his life
in the sum of P5,000. In his application Lim designated his wife, Pilar
C. de Lim, the plaintiff herein, as the beneficiary. The first premium of
P433 was paid by Lim, and upon such payment the company issued
what was called a "provisional policy." Luis Lim y Garcia died on
August 23, 1917, after the issuance of the provisional policy but before
approval of the application by the home office of the insurance
company. The instant action is brought by the beneficiary, Pilar C. de
Lim, to recover from the Sun Life Assurance Company of Canada the
sum of P5,000, the amount named in the provisional policy.
The "provisional policy" upon which this action rests reads as follows:
Received (subject to the following stipulations and
agreements) the sum of four hundred and thirty-three
pesos, being the amount of the first year's premium for a
Life Assurance Policy on the life of Mr. Luis D. Lim y
Garcia of Zamboanga for P5,000, for which an
application dated the 6th day of July, 1917, has been
made to the Sun Life Assurance Company of Canada.
The above-mentioned life is to be assured in accordance
with the terms and conditions contained or inserted by
the Company in the policy which may be granted by it in
this particular case for four months only from the date of
the application, provided that the Company shall confirm
this agreement by issuing a policy on said application
when the same shall be submitted to the Head Office in
Montreal. Should the Company not issue such a policy,
then this agreement shall be null and void ab initio, and
the Company shall be held not to have been on the risk at
all, but in such case the amount herein acknowledged
shall be returned.
31
 [SEAL.] (Sgd.) T. B. MACAULAY, President.
(Sgd.) A. F. Peters, Agent.
Our duty in this case is to ascertain the correct meaning of the document
above quoted. A perusal of the same many times by the writer and by
other members of the court leaves a decided impression of vagueness in
the mind. Apparently it is to be a provisional policy "for four months
only from the date of this application." We use the term "apparently"
advisedly, because immediately following the words fixing the four
months period comes the word "provided" which has the meaning of
"if." Otherwise stated, the policy for four months is expressly made
subjected to the affirmative condition that "the company shall confirm
this agreement by issuing a policy on said application when the same
shall be submitted to the head office in Montreal." To reenforce the
same there follows the negative condition
Should the company not issue such a policy, then this agreement shall
be null and void ab initio, and the company shall be held not to have
been on the risk." Certainly, language could hardly be used which would
more clearly stipulate that the agreement should not go into effect until
the home office of the company should confirm it by issuing a policy.
As we read and understand the so-called provisional policy it amounts
to nothing but an acknowledgment on behalf of the company, that it has
received from the person named therein the sum of money agreed upon
as the first year's premium upon a policy to be issued upon the
application, if the application is accepted by the company.
It is of course a primary rule that a contract of insurance, like other
contracts, must be assented to by both parties either in person or by their
agents. So long as an application for insurance has not been either
accepted or rejected, it is merely an offer or proposal to make a contract.
The contract, to be binding from the date of the application, must have
been a completed contract, one that leaves nothing to be done, nothing
to be completed, nothing to be passed upon, or determined, before it
shall take effect. There can be no contract of insurance unless the minds
of the parties have met in agreement. Our view is, that a contract of
insurance was not here consummated by the parties.lawph!l.net
INSURANCE
Appellant relies on Joyce on Insurance. Beginning at page 253, of
Volume I, Joyce states the general rule concerning the agent's receipt
pending approval or issuance of policy. The first rule which Joyce lays
down is this: If the act of acceptance of the risk by the agent and the
giving by him of a receipt, is within the scope of the agent's authority,
and nothing remains but to issue a policy, then the receipt will bind the
company. This rule does not apply, for while here nothing remained but
to issue the policy, this was made an express condition to the contract.
The second rule laid down by Joyce is this: Where an agreement is
made between the applicant and the agent whether by signing an
application containing such condition, or otherwise, that no liability
shall attach until the principal approves the risk and a receipt is given
buy the agent, such acceptance is merely conditional, and it
subordinated to the act of the company in approving or rejecting; so in
life insurance a "binding slip" or "binding receipt" does not insure of
itself. This is the rule which we believe applies to the instant case. The
third rule announced by Joyce is this: Where the acceptance by the
agent is within the scope of his authority a receipt containing a contract
for insurance for a specific time which is not absolute but conditional,
upon acceptance or rejection by the principal, covers the specified
period unless the risk is declined within that period. The case cited by
Joyce to substantiate the last principle is that a Goodfellow vs. Times &
Beacon Assurance Com. (17 U. C. Q. B., 411), not available.
The two cases most nearly in point come from the federal courts and the
Supreme Court of Arkansas.
In the case of Steinle vs. New York Life Insurance Co. ([1897], 81 Fed.,
489} the facts were that the amount of the first premium had been paid
to an insurance agent and a receipt given therefor. The receipt, however,
expressly declared that if the application was accepted by the company,
the insurance shall take effect from the date of the application but that if
the application was not accepted, the money shall be returned. The trite
decision of the circuit court of appeal was, "On the conceded facts of
this case, there was no contract to life insurance perfected and the
judgment of the circuit court must be affirmed."
32
In the case of Cooksey vs. Mutual Life Insurance Co. ([1904], 73 Ark.,
117) the person applying for the life insurance paid and amount equal to
the first premium, but the application and the receipt for the money
paid, stipulated that the insurance was to become effective only when
the application was approved and the policy issued. The court held that
the transaction did not amount to an agreement for preliminary or
temporary insurance. It was said:
It is not an unfamiliar custom among life insurance companies in the
operation of the business, upon receipt of an application for insurance,
to enter into a contract with the applicant in the shape of a so-called
"binding receipt" for temporary insurance pending the consideration of
the application, to last until the policy be issued or the application
rejected, and such contracts are upheld and enforced when the applicant
dies before the issuance of a policy or final rejection of the application.
It is held, too, that such contracts may rest in parol. Counsel for
appellant insists that such a preliminary contract for temporary
insurance was entered into in this instance, but we do not think so. On
the contrary, the clause in the application and the receipt given by the
solicitor, which are to be read together, stipulate expressly that the
insurance shall become effective only when the "application shall be
approved and the policy duly signed by the secretary at the head office
of the company and issued." It constituted no agreement at all for
preliminary or temporary insurance; Mohrstadt vs. Mutual Life Ins. Co.,
115 Fed., 81, 52 C. C. A., 675; Steinle vs. New York Life Ins. Co., 81
Fed., 489, 26 C. C. A., 491." (See further Weinfeld vs. Mutual Reserve
Fund Life Ass'n. [1892], 53 Fed, 208' Mohrstadt vs. Mutual Life
Insurance Co. [1902], 115 Fed., 81; Insurance co. vs. Young's
Administrator [1875], 90 U. S., 85; Chamberlain vs. Prudential
Insurance Company of America [1901], 109 Wis., 4; Shawnee Mut. Fire
Ins. Co. vs. McClure [1913], 39 Okla., 509; Dorman vs. Connecticut
Fire Ins. Co. [1914], 51 contra, Starr vs. Mutual Life Ins. Co. [1905], 41
Wash., 228.)
We are of the opinion that the trial court committed no error in
sustaining the demurrer and dismissing the case. It is to be noted,
however, that counsel for appellee admits the liability of the company
INSURANCE
for the return of the first premium to the estate of the deceased. It is not
to be doubted but that the Sun Life Assurance Company of Canada will
immediately, on the promulgation of this decision, pay to the estate of
the late Luis Lim y Garcia the of P433.
The order appealed from, in the nature of a final judgment is affirmed,
without special finding as to costs in this instance. So ordered.
Mapa, C.J., Johnson, Araullo, Avancea and Villamor, JJ., concur.
Lim v. Sun Life
41 PHIL 263
Facts:
> On July 6, 1917, Luis Lim Y Garcia of Zamboanga applied for a
policy of life insurance with Sunlife in the amount of 5T.
> He designated his wife Pilar Lim as the beneficiary. The first
premium of P433 was paid by Lim and company issued a provisional
policy
> Such policy contained the following provisions xx the
abovementioned life is to be assured in accordance with the terms and
conditions contained or inserted by the Company in the policy which
may be granted by it in this particular case for 4 months only from the
date of the application, PROVIDED that the company shall confirm this
agreement by issuing a policy on said application xxx. Should the
company NOT issue such a policy, then this agreement shall be null and
void ab initio and the Company shall be held not to have been on the
risk at all, but in such case, the amount herein shall be returned.
33
> Lim died on Aug. 23, 1917 after the issuance of the provisional
policy but before the approval of the application by the home office of
the insurance company.

> The instant action is brought by the beneficiary to recover from Sun
Life the sum of 5T.

Issue:

Whether or not the beneficiary can collect the 5T.

Held: G.R. No. L-31845 April 30, 1979

NO. GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,

vs.
The contract of insurance was not consummated by the parties. The HONORABLE COURT OF APPEALS, respondents.
above quoted agreement clearly stated that the agreement should NOT
go into effect until the home office of the Company shall confirm it by G.R. No. L-31878 April 30, 1979
issuing a policy. It was nothing but an acknowledgment by the
Company that it has received a sum of money agreed upon as the first LAPULAPU D. MONDRAGON, petitioner,
years premium upon a policy to be issued upon the application if it is vs.
accepted by the Company. HON. COURT OF APPEALS and NGO HING, respondents.

When an agreement is made between the applicant and the agent Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna &
whether by signing an application containing such condition or Manalo for petitioner Company.
otherwise, that no liability shall attach until the principal approves the
risk and a receipt is given by the agent, such acceptance is merely Voltaire Garcia for petitioner Mondragon.
conditional and is subordinated to the companys act in approving or
rejecting; so in life insurance a binding slip or receipt does not
Pelaez, Pelaez & Pelaez for respondent Ngo Hing.
insure itself.
DE CASTRO, J.:

INSURANCE 34
The two above-entitled cases were ordered consolidated by the
Resolution of this Court dated April 29, 1970, (Rollo, No. L-31878, p.
58), because the petitioners in both cases seek similar relief, through
these petitions for certiorari by way of appeal, from the amended
decision of respondent Court of Appeals which affirmed in toto the
decision of the Court of First Instance of Cebu, ordering "the defendants
(herein petitioners Great Pacific Ligfe Assurance Company and
Mondragon) jointly and severally to pay plaintiff (herein private
respondent Ngo Hing) the amount of P50,000.00 with interest at 6%
from the date of the filing of the complaint, and the sum of P1,077.75,
without interest.
It appears that on March 14, 1957, private respondent Ngo Hing filed an
application with the Great Pacific Life Assurance Company (hereinafter
referred to as Pacific Life) for a twenty-year endownment policy in the
amount of P50,000.00 on the life of his one-year old daughter Helen
Go. Said respondent supplied the essential data which petitioner
Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu
City wrote on the corresponding form in his own handwriting (Exhibit
I-M). Mondragon finally type-wrote the data on the application form
which was signed by private respondent Ngo Hing. The latter paid the
annual premuim the sum of P1,077.75 going over to the Company, but
he reatined the amount of P1,317.00 as his commission for being a duly
authorized agebt of Pacific Life. Upon the payment of the insurance
premuim, the binding deposit receipt (Exhibit E) was issued to private
respondent Ngo Hing. Likewise, petitioner Mondragon handwrote at the
bottom of the back page of the application form his strong
recommendation for the approval of the insurance application. Then on
April 30, 1957, Mondragon received a letter from Pacific Life
disapproving the insurance application (Exhibit 3-M). The letter stated
that the said life insurance application for 20-year endowment plan is
not available for minors below seven years old, but Pacific Life can
consider the same under the Juvenile Triple Action Plan, and advised
that if the offer is acceptable, the Juvenile Non-Medical Declaration be
sent to the company.
INSURANCE
The non-acceptance of the insurance plan by Pacific Life was allegedly
not communicated by petitioner Mondragon to private respondent Ngo
Hing. Instead, on May 6, 1957, Mondragon wrote back Pacific Life
again strongly recommending the approval of the 20-year endowment
insurance plan to children, pointing out that since 1954 the customers,
especially the Chinese, were asking for such coverage (Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen Go
died of influenza with complication of bronchopneumonia. Thereupon,
private respondent sought the payment of the proceeds of the insurance,
but having failed in his effort, he filed the action for the recovery of the
same before the Court of First Instance of Cebu, which rendered the
adverse decision as earlier refered to against both petitioners.
The decisive issues in these cases are: (1) whether the binding deposit
receipt (Exhibit E) constituted a temporary contract of the life insurance
in question; and (2) whether private respondent Ngo Hing concealed the
state of health and physical condition of Helen Go, which rendered void
the aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents required before a
deposit is considered a BINDING RECEIPT. These conditions state
that:
A. If the Company or its agent, shan have received the premium
deposit ... and the insurance application, ON or PRIOR to the date of
medical examination ... said insurance shan be in force and in
effect from the date of such medical examination, for such period as is
covered by the deposit ...,PROVIDED the company shall be satisfied
that on said date the applicant was insurable on standard rates under
its rule for the amount of insurance and the kind of policy requested in
the application.
D. If the Company does not accept the application on standard rate for
the amount of insurance and/or the kind of policy requested in the
application but issue, or offers to issue a policy for a different plan
35
and/or amount ..., the insurance shall not be in force and in effect until
the applicant shall have accepted the policy as issued or offered by the
Company and shall have paid the full premium thereof. If the applicant
does not accept the policy, the deposit shall be refunded.
E. If the applicant shall not have been insurable under Condition A
above, and the Company declines to approve the application the
insurance applied for shall not have been in force at any time and the
sum paid be returned to the applicant upon the surrender of this
receipt. (Emphasis Ours).
The aforequoted provisions printed on Exhibit E show that the binding
deposit receipt is intended to be merely a provisional or temporary
insurance contract and only upon compliance of the following
conditions: (1) that the company shall be satisfied that the applicant was
insurable on standard rates; (2) that if the company does not accept the
application and offers to issue a policy for a different plan, the insurance
contract shall not be binding until the applicant accepts the policy
offered; otherwise, the deposit shall be reftmded; and (3) that if the
applicant is not ble according to the standard rates, and the company
disapproves the application, the insurance applied for shall not be in
force at any time, and the premium paid shall be returned to the
applicant.
Clearly implied from the aforesaid conditions is that the binding deposit
receipt in question is merely an acknowledgment, on behalf of the
company, that the latter's branch office had received from the applicant
the insurance premium and had accepted the application subject for
processing by the insurance company; and that the latter will either
approve or reject the same on the basis of whether or not the applicant is
"insurable on standard rates." Since petitioner Pacific Life disapproved
the insurance application of respondent Ngo Hing, the binding deposit
receipt in question had never become in force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly,
merely conditional and does not insure outright. As held by this Court,
INSURANCE
where an agreement is made between the applicant and the agent, no
liability shall attach until the principal approves the risk and a receipt is
given by the agent. The acceptance is merely conditional and is
subordinated to the act of the company in approving or rejecting the
application. Thus, in life insurance, a "binding slip" or "binding receipt"
does not insure by itself (De Lim vs. Sun Life Assurance Company of
Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication of
April 30, 1957 (Exhibit 3-M), Pacific Life disapproved the insurance
application in question on the ground that it is not offering the twenty-
year endowment insurance policy to children less than seven years of
age. What it offered instead is another plan known as the Juvenile Triple
Action, which private respondent failed to accept. In the absence of a
meeting of the minds between petitioner Pacific Life and private
respondent Ngo Hing over the 20-year endowment life insurance in the
amount of P50,000.00 in favor of the latter's one-year old daughter, and
with the non-compliance of the abovequoted conditions stated in the
disputed binding deposit receipt, there could have been no insurance
contract duly perfected between thenl Accordingly, the deposit paid by
private respondent shall have to be refunded by Pacific Life.
As held in De Lim vs. Sun Life Assurance Company of Canada, supra,
"a contract of insurance, like other contracts, must be assented to by
both parties either in person or by their agents ... The contract, to be
binding from the date of the application, must have been a completed
contract, one that leaves nothing to be dione, nothing to be completed,
nothing to be passed upon, or determined, before it shall take effect.
There can be no contract of insurance unless the minds of the parties
have met in agreement."
We are not impressed with private respondent's contention that failure of
petitioner Mondragon to communicate to him the rejection of the
insurance application would not have any adverse effect on the
allegedly perfected temporary contract (Respondent's Brief, pp. 13-14).
In this first place, there was no contract perfected between the parties
who had no meeting of their minds. Private respondet, being an
36
authorized insurance agent of Pacific Life at Cebu branch office, is
indubitably aware that said company does not offer the life insurance
applied for. When he filed the insurance application in dispute, private
respondent was, therefore, only taking the chance that Pacific Life will
approve the recommendation of Mondragon for the acceptance and
approval of the application in question along with his proposal that the
insurance company starts to offer the 20-year endowment insurance plan
for children less than seven years. Nonetheless, the record discloses that
Pacific Life had rejected the proposal and recommendation. Secondly,
having an insurable interest on the life of his one-year old daughter,
aside from being an insurance agent and an offense associate of
petitioner Mondragon, private respondent Ngo Hing must have known
and followed the progress on the processing of such application and
could not pretend ignorance of the Company's rejection of the 20-year
endowment life insurance application.
At this juncture, We find it fit to quote with approval, the very apt
observation of then Appellate Associate Justice Ruperto G. Martin who
later came up to this Court, from his dissenting opinion to the amended
decision of the respondent court which completely reversed the original
decision, the following:
Of course, there is the insinuation that neither the memorandum of
rejection (Exhibit 3-M) nor the reply thereto of appellant Mondragon
reiterating the desire for applicant's father to have the application
considered as one for a 20-year endowment plan was ever duly
communicated to Ngo; Hing, father of the minor applicant. I am not
quite conninced that this was so. Ngo Hing, as father of the applicant
herself, was precisely the "underwriter who wrote this case" (Exhibit H-
1). The unchallenged statement of appellant Mondragon in his letter of
May 6, 1957) (Exhibit 4-M), specifically admits that said Ngo Hing was
"our associate" and that it was the latter who "insisted that the plan be
placed on the 20-year endowment plan." Under these circumstances, it
is inconceivable that the progress in the processing of the application
was not brought home to his knowledge. He must have been duly
apprised of the rejection of the application for a 20-year endowment
plan otherwise Mondragon would not have asserted that it was Ngo
INSURANCE
Hing himself who insisted on the application as originally filed, thereby
implictly declining the offer to consider the application under the
Juvenile Triple Action Plan. Besides, the associate of Mondragon that he
was, Ngo Hing should only be presumed to know what kind of policies
are available in the company for minors below 7 years old. What he and
Mondragon were apparently trying to do in the premises was merely to
prod the company into going into the business of issuing endowment
policies for minors just as other insurance companies allegedly do. Until
such a definite policy is however, adopted by the company, it can hardly
be said that it could have been bound at all under the binding slip for a
plan of insurance that it could not have, by then issued at all. (Amended
Decision, Rollo, pp- 52-53).
2. Relative to the second issue of alleged concealment. this Court is of
the firm belief that private respondent had deliberately concealed the
state of health and piysical condition of his daughter Helen Go. Wher
private regpondeit supplied the required essential data for the insurance
application form, he was fully aware that his one-year old daughter is
typically a mongoloid child. Such a congenital physical defect could
never be ensconced nor disguished. Nonetheless, private respondent, in
apparent bad faith, withheld the fact materal to the risk to be assumed
by the insurance compary. As an insurance agent of Pacific Life, he
ought to know, as he surely must have known. his duty and
responsibility to such a material fact. Had he diamond said significant
fact in the insurance application fom Pacific Life would have verified
the same and would have had no choice but to disapprove the
application outright.
The contract of insurance is one of perfect good faith uberrima fides
meaning good faith, absolute and perfect candor or openness and
honesty; the absence of any concealment or demotion, however slight
[Black's Law Dictionary, 2nd Edition], not for the alone but equally so
for the insurer (Field man's Insurance Co., Inc. vs. Vda de Songco, 25
SCRA 70). Concealment is a neglect to communicate that which a partY
knows aDd Ought to communicate (Section 25, Act No. 2427). Whether
intentional or unintentional the concealment entitles the insurer to
rescind the contract of insurance (Section 26, Id.: Yu Pang Cheng vs.
37
Court of Appeals, et al, 105 Phil 930; Satumino vs. Philippine American
Life Insurance Company, 7 SCRA 316). Private respondent appears
guilty thereof.
We are thus constrained to hold that no insurance contract was perfected
between the parties with the noncompliance of the conditions provided
in the binding receipt, and concealment, as legally defined, having been
comraitted by herein private respondent.
WHEREFORE, the decision appealed from is hereby set aside, and in
lieu thereof, one is hereby entered absolving petitioners Lapulapu D.
Mondragon and Great Pacific Life Assurance Company from their civil
liabilities as found by respondent Court and ordering the aforesaid
insurance company to reimburse the amount of P1,077.75, without
interest, to private respondent, Ngo Hing. Costs against private
respondent.
SO ORDERED.
Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera, JJ.,
concur.
Fernandez, J., took no part.
Great Pacific Life
Assurance Company vs
Court of Appeals (1979)
89 SCRA 543 Mercantile Law Insurance Law Concealment
Insurance Contract as an Uberrima Fides Contract
INSURANCE
In March 1957, Ngo Hing filed an application for a 20-year endowment
policy for the life of his one-year old daughter with the Great Pacific
Life Assurance Company (Grepalife). Lapulapu Mondragon was the
insurance agent who assisted Ngo Hing. The insurance policy was for
P50,000.00. The proper form was filled out and Ngo Hing paid the
insurance premium. He received a binding deposit receipt in return. Said
receipt however was subject to certain conditions, among which is the
acceptance of Grepalife.
Grepalife eventually denied the insurance application because the
endowment plan by Grepalife is not offered for minors below seven
years old. Grepalife, instead made a counter-offer which Ngo Hing
failed to accept because Mondragon, instead of communicating the said
denial to Ngo Hing, wrote a letter to Grepalife trying to convince
Grepalife to allow one-year olds to be covered by endowment plans.
In May 1957, Ngo Hings one-year old daughter died. Ngo Hing tried
to collect the insurance claim but Grepalife refused as it claimed that the
insurance contract was never perfected sans their acceptance.
ISSUE: Whether or not Grepalife should pay the insurance claim.
HELD: No. As properly ruled by the lower court as well as the Court of
Appeals, the insurance contract was never completed because Grepalife
never accepted the insurance offer. The binding deposit receipt issued to
Ngo Hing is only acknowledgement of his application and receipt of his
payment for the insurance premium.
The Supreme Court also noted that Ngo Hing failed to disclose the fact
that his one-year old daughter was a mongoloid. Such congenital defect
was withheld by Ngo Hing with bad faith and such risk to be assumed
by the insurance company.
The contract of insurance is one of perfect good faith uberrima fides
meaning good faith, absolute and perfect candor or openness and
honesty; the absence of any concealment or demotion, however slight
38
not for the insured alone but equally so for the insurer. Concealment is a
neglect to communicate that which a party knows and ought to
communicate. Whether intentional or unintentional the concealment
entitles the insurer to rescind the contract of insurance.
G.R. No. L-38613 February 25, 1982
PACIFIC TIMBER EXPORT CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and WORKMEN'S
INSURANCE COMPANY, INC., respondents.
DE CASTRO, ** J.:
This petition seeks the review of the decision of the Court of Appeals
reversing the decision of the Court of First Instance of Manila in favor
of petitioner and against private respondent which ordered the latter to
pay the sum of Pll,042.04 with interest at the rate of 12% interest from
receipt of notice of loss on April 15, 1963 up to the complete payment,
INSURANCE
the sum of P3,000.00 as attorney's fees and the costs 1 thereby
dismissing petitioner s complaint with costs. 2
The findings of the of fact of the Court of Appeals, which are generally
binding upon this Court, Except as shall be indicated in the discussion
of the opinion of this Court the substantial correctness of still particular
finding having been disputed, thereby raising a question of law
reviewable by this Court 3 are as follows:
March 19, l963, the plaintiff secured temporary insurance from the
defendant for its exportation of 1,250,000 board feet of Philippine
Lauan and Apitong logs to be shipped from the Diapitan. Bay, Quezon
Province to Okinawa and Tokyo, Japan. The defendant issued on said
date Cover Note No. 1010, insuring the said cargo of the plaintiff
"Subject to the Terms and Conditions of the WORKMEN'S
INSURANCE COMPANY, INC. printed Marine Policy form as filed
with and approved by the Office of the Insurance Commissioner
(Exhibit A).
The regular marine cargo policies were issued by the defendant in favor
of the plaintiff on April 2, 1963. The two marine policies bore the
numbers 53 HO 1032 and 53 HO 1033 (Exhibits B and C, respectively).
Policy No. 53 H0 1033 (Exhibit B) was for 542 pieces of logs
equivalent to 499,950 board feet. Policy No. 53 H0 1033 was for 853
pieces of logs equivalent to 695,548 board feet (Exhibit C). The total
cargo insured under the two marine policies accordingly consisted of
1,395 logs, or the equivalent of 1,195.498 bd. ft.
After the issuance of Cover Note No. 1010 (Exhibit A), but before the
issuance of the two marine policies Nos. 53 HO 1032 and 53 HO 1033,
some of the logs intended to be exported were lost during loading
operations in the Diapitan Bay. The logs were to be loaded on the 'SS
Woodlock' which docked about 500 meters from the shoreline of the
Diapitan Bay. The logs were taken from the log pond of the plaintiff and
from which they were towed in rafts to the vessel. At about 10:00
o'clock a. m. on March 29, 1963, while the logs were alongside the
39
vessel, bad weather developed resulting in 75 pieces of logs which were
rafted together co break loose from each other. 45 pieces of logs were
salvaged, but 30 pieces were verified to have been lost or washed away
as a result of the accident.
In a letter dated April 4, 1963, the plaintiff informed the defendant about
the loss of 'appropriately 32 pieces of log's during loading of the 'SS
Woodlock'. The said letter (Exhibit F) reads as follows:
April 4, 1963
Workmen's Insurance Company, Inc. Manila, Philippines
Gentlemen:
This has reference to Insurance Cover Note No. 1010 for shipment of
1,250,000 bd. ft. Philippine Lauan and Apitong Logs. We would like to
inform you that we have received advance preliminary report from our
Office in Diapitan, Quezon that we have lost approximately 32 pieces of
logs during loading of the SS Woodlock.
We will send you an accurate report all the details including values as
soon as same will be reported to us.
Thank you for your attention, we wish to remain.
Very respectfully yours,
PACIFIC TIMBER EXPORT CORPORATION
(Sgd.) EMMANUEL S. ATILANO Asst. General Manager.
Although dated April 4, 1963, the letter was received in the office of the
defendant only on April 15, 1963, as shown by the stamp impression
appearing on the left bottom corner of said letter. The plaintiff
subsequently submitted a 'Claim Statement demanding payment of the
INSURANCE
loss under Policies Nos. 53 HO 1032 and 53 HO 1033, in the total
amount of P19,286.79 (Exhibit G).
On July 17, 1963, the defendant requested the First Philippine
Adjustment Corporation to inspect the loss and assess the damage. The
adjustment company submitted its 'Report on August 23, 1963 (Exhibit
H). In said report, the adjuster found that 'the loss of 30 pieces of logs is
not covered by Policies Nos. 53 HO 1032 and 1033 inasmuch as said
policies covered the actual number of logs loaded on board the 'SS
Woodlock' However, the loss of 30 pieces of logs is within the
1,250,000 bd. ft. covered by Cover Note 1010 insured for $70,000.00.
On September 14, 1963, the adjustment company submitted a
computation of the defendant's probable liability on the loss sustained
by the shipment, in the total amount of Pl1,042.04 (Exhibit 4).
On January 13, 1964, the defendant wrote the plaintiff denying the
latter's claim, on the ground they defendant's investigation revealed that
the entire shipment of logs covered by the two marines policies No. 53
110 1032 and 713 HO 1033 were received in good order at their point of
destination. It was further stated that the said loss may be considered as
covered under Cover Note No. 1010 because the said Note had become
'null and void by virtue of the issuance of Marine Policy Nos. 53 HO
1032 and 1033'(Exhibit J-1). The denial of the claim by the defendant
was brought by the plaintiff to the attention of the Insurance
Commissioner by means of a letter dated March 21, 1964 (Exhibit K).
In a reply letter dated March 30, 1964, Insurance Commissioner
Francisco Y. Mandanas observed that 'it is only fair and equitable to
indemnify the insured under Cover Note No. 1010', and advised early
settlement of the said marine loss and salvage claim (Exhibit L).
On June 26, 1964, the defendant informed the Insurance Commissioner
that, on advice of their attorneys, the claim of the plaintiff is being
denied on the ground that the cover note is null and void for lack of
valuable consideration (Exhibit M). 4
40
Petitioner assigned as errors of the Court of Appeals, the following:
I the computation of the premiums. As a logical consequence, no separate
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
COVER NOTE WAS NULL AND VOID FOR LACK OF VALUABLE
CONSIDERATION BECAUSE THE COURT DISREGARDED THE
PROVEN FACTS THAT PREMIUMS FOR THE COMPREHENSIVE
INSURANCE COVERAGE THAT INCLUDED THE COVER NOTE
WAS PAID BY PETITIONER AND THAT INCLUDED THE COVER
NOTE WAS PAID BY PETITIONER AND THAT NO SEPARATE
PREMIUMS ARE COLLECTED BY PRIVATE RESPONDENT ON
ALL ITS COVER NOTES.
II
THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE
RESPONDENT WAS RELEASED FROM LIABILITY UNDER THE
COVER NOTE DUE TO UNREASONABLE DELAY IN GIVING
NOTICE OF LOSS BECAUSE THE COURT DISREGARDED THE
PROVEN FACT THAT PRIVATE RESPONDENT DID NOT
PROMPTLY AND SPECIFICALLY OBJECT TO THE CLAIM ON
THE GROUND OF DELAY IN GIVING NOTICE OF LOSS AND,
CONSEQUENTLY, OBJECTIONS ON THAT GROUND ARE
WAIVED UNDER SECTION 84 OF THE INSURANCE ACT. 5
1. Petitioner contends that the Cover Note was issued with a
consideration when, by express stipulation, the cover note is made
subject to the terms and conditions of the marine policies, and the
payment of premiums is one of the terms of the policies. From this
undisputed fact, We uphold petitioner's submission that the Cover Note
was not without consideration for which the respondent court held the
Cover Note as null and void, and denied recovery therefrom. The fact
that no separate premium was paid on the Cover Note before the loss
insured against occurred, does not militate against the validity of
petitioner's contention, for no such premium could have been paid, since
INSURANCE
by the nature of the Cover Note, it did not contain, as all Cover Notes
do not contain particulars of the shipment that would serve as basis for
premiums are intended or required to be paid on a Cover Note. This is a
fact admitted by an official of respondent company, Juan Jose Camacho,
in charge of issuing cover notes of the respondent company (p. 33, tsn,
September 24, 1965).
At any rate, it is not disputed that petitioner paid in full all the premiums
as called for by the statement issued by private respondent after the
issuance of the two regular marine insurance policies, thereby leaving
no account unpaid by petitioner due on the insurance coverage, which
must be deemed to include the Cover Note. If the Note is to be treated
as a separate policy instead of integrating it to the regular policies
subsequently issued, the purpose and function of the Cover Note would
be set at naught or rendered meaningless, for it is in a real sense a
contract, not a mere application for insurance which is a mere offer. 6
It may be true that the marine insurance policies issued were for logs no
longer including those which had been lost during loading operations.
This had to be so because the risk insured against is not for loss during
operations anymore, but for loss during transit, the logs having already
been safely placed aboard. This would make no difference, however,
insofar as the liability on the cover note is concerned, for the number or
volume of logs lost can be determined independently as in fact it had
been so ascertained at the instance of private respondent itself when it
sent its own adjuster to investigate and assess the loss, after the issuance
of the marine insurance policies.
The adjuster went as far as submitting his report to respondent, as well
as its computation of respondent's liability on the insurance coverage.
This coverage could not have been no other than what was stipulated in
the Cover Note, for no loss or damage had to be assessed on the
coverage arising from the marine insurance policies. For obvious
reasons, it was not necessary to ask petitioner to pay premium on the
Cover Note, for the loss insured against having already occurred, the
more practical procedure is simply to deduct the premium from the
41
amount due the petitioner on the Cover Note. The non-payment of
premium on the Cover Note is, therefore, no cause for the petitioner to
lose what is due it as if there had been payment of premium, for non-
payment by it was not chargeable against its fault. Had all the logs been
lost during the loading operations, but after the issuance of the Cover
Note, liability on the note would have already arisen even before
payment of premium. This is how the cover note as a "binder" should
legally operate otherwise, it would serve no practical purpose in the
realm of commerce, and is supported by the doctrine that where a policy
is delivered without requiring payment of the premium, the presumption
is that a credit was intended and policy is valid. 7
the assumption that there was delay, this Court is satisfied and
convinced that as expressly provided by law, waiver can successfully be
raised against private respondent. Thus Section 84 of the Insurance Act
provides:
Section 84.Delay in the presentation to an insurer of notice or proof
of loss is waived if caused by any act of his or if he omits to take
objection promptly and specifically upon that ground.
From what has been said, We find duly substantiated petitioner's
assignments of error.

2. The defense of delay as raised by private respondent in resisting the ACCORDINGLY, the appealed decision is set aside and the decision of
claim cannot be sustained. The law requires this ground of delay to be the Court of First Instance is reinstated in toto with the affirmance of
promptly and specifically asserted when a claim on the insurance this Court. No special pronouncement as to costs.
agreement is made. The undisputed facts show that instead of invoking
the ground of delay in objecting to petitioner's claim of recovery on the SO ORDERED.
cover note, it took steps clearly indicative that this particular ground for
objection to the claim was never in its mind. The nature of this specific
Teehankee (Chairman), Makasiar, Fernandez Guerrero, Melencio-
ground for resisting a claim places the insurer on duty to inquire when
Herrera and Plana, JJ., concur.
the loss took place, so that it could determine whether delay would be a
valid ground upon which to object to a claim against it.

As already stated earlier, private respondent's reaction upon receipt of

the notice of loss, which was on April 15, 1963, was to set in motion
from July 1963 what would be necessary to determine the cause and
extent of the loss, with a view to the payment thereof on the insurance
agreement. Thus it sent its adjuster to investigate and assess the loss in
July, 1963. The adjuster submitted his report on August 23, 1963 and its
computation of respondent's liability on September 14, 1963. From
April 1963 to July, 1963, enough time was available for private
respondent to determine if petitioner was guilty of delay in
communicating the loss to respondent company. In the proceedings that
took place later in the Office of the Insurance Commissioner, private
respondent should then have raised this ground of delay to avoid
liability. It did not do so. It must be because it did not find any delay, as
this Court fails to find a real and substantial sign thereof. But even on
INSURANCE 42
Pacific Timber v CA G.R. No. L-38613 February
25, 1982
J. De Castro
Facts:
The plaintiff secured temporary insurance from the defendant for its
exportation of 1,250,000 board feet of Philippine Lauan and Apitong
logs to be shipped from Quezon Province to Okinawa and
Tokyo, Japan.
Workmens Insurance issued a cover note insuring the cargo of the
plaintiff subject to its terms and conditions.
The two marine policies bore the numbers 53 HO 1032 and 53 HO
1033. Policy No. 53 H0 1033 was for 542 pieces of logs equivalent to
499,950 board feet. Policy No. 53 H0 1033 was for 853 pieces of logs
equivalent to 695,548 board feet. The total cargo insured under the
two marine policies consisted of 1,395 logs, or the equivalent of
1,195.498 bd. ft.
After the issuance of the cover note, but before the issuance of the
two marine policies Nos. 53 HO 1032 and 53 HO 1033, some of the
logs intended to be exported were lost during loading operations in
the Diapitan Bay.
While the logs were alongside the vessel, bad weather developed
resulting in 75 pieces of logs which were rafted together co break
loose from each other. 45 pieces of logs were salvaged, but 30
pieces were verified to have been lost or washed away as a result of
the accident.
Pacific Timber informed Workmens about the loss of 32 pieces of
logs during loading of SS woodlock.
Although dated April 4, 1963, the letter was received in the office of
the defendant only on April 15, 1963. The plaintiff claimed for
insurance to the value of P19,286.79.
INSURANCE
Woodmens requested an adjustment company to assess the
damage. It submitted its report, where it found that the loss of 30
pieces of logs is not covered by Policies Nos. 53 HO 1032 and 1033
but within the 1,250,000 bd. ft. covered by Cover Note 1010 insured
for $70,000.00.
The adjustment company submitted a computation of the
defendant's probable liability on the loss sustained by the shipment,
in the total amount of P11,042.04.
Woodmens wrote the plaintiff denying the latter's claim on the
ground they defendant's investigation revealed that the entire
shipment of logs covered by the two marine policies were received in
good order at their point of destination. It was further stated that the
said loss may be considered as covered under Cover Note No. 1010
because the said Note had become null and void by virtue of the
issuance of Marine Policy Nos. 53 HO 1032 and 1033.
The denial of the claim by the defendant was brought by the plaintiff
to the attention of the Insurance Commissioner. The Insurance
Commissioner ruled in favor of indemnifying Pacific Timber. The
company added that the cover note is null and void for lack of
valuable consideration. The trial court ruled in petitioners favor
while the CA dismissed the case. Hence this appeal.
Issues:
WON the cover note was null and void for lack of valuable
consideration
WON the Insurance company was absolved from responsibility due to
unreasonable delay in giving notice of loss.
Held: No. No. Judgment reversed.
Ratio:
1. The fact that no separate premium was paid on the Cover Note
before the loss occurred does not militate against the validity of
the contention even if no such premium was paid. All Cover Notes do
not contain particulars of the shipment that would serve as basis for
43
the computation of the premiums. Also, no separate premiums are
required to be paid on a Cover Note.
The petitioner paid in full all the premiums, hence there was no
account unpaid on the insurance coverage and the cover note. If the
note is to be treated as a separate policy instead of integrating it to
the regular policies, the purpose of the note would be meaningless.
It is a contract, not a mere application for insurance.
It may be true that the marine insurance policies issued were for
logs no longer including those which had been lost during loading
operations. This had to be so because the risk insured against is for
loss during transit, because the logs were safely placed aboard.
The non-payment of premium on the Cover Note is, therefore, no
cause for the petitioner to lose what is due it as if there had been
payment of premium, for non-payment by it was
not chargeable against its fault. Had all the logs been lost during the
loading operations, but after the issuance of the Cover Note, liability
on the note would have already arisen even before payment of
premium. Otherwise, the note would serve no practical purpose in
the realm of commerce, and is supported by the doctrine that where
a policy is delivered without requiring payment of the premium, the
presumption is that a credit was intended and policy is valid.
2. The defense of delay cant be sustained. The facts show that
instead of invoking the ground of delay in objecting to petitioner's
claim of recovery on the cover note, the insurer never had this in its
mind. It has a duty to inquire when the loss took place, so that it
could determine whether delay would be a valid ground of objection.
There was enough time for insurer to determine if petitioner was
guilty of delay in communicating the loss to respondent company. It
never did in the Insurance Commission. Waiver can be raised against
it under Section 84 of the Insurance Act.
Pacific Timber v. CA
112 SCRA 199
INSURANCE
Facts:
> On March 13, 1963, Pacific secured temporary insurance from the
Workemens Insurance Co. for its exportation of logs to Japan.
Workmen issued on said date Cover Note 1010 insuring said cargo.
> The regular marine policies were issued by the company in favor of
Pacific on Apr 2, 1963. The 2 marine policies bore the number
53H01032 and 53H01033.
> After the issuance of the cover note but BEFORE the issuance of the
2 policies, some of the logs intended to be exported were lost due to a
typhoon.
> Pacific filed its claim with the company, but the latter refused,
contending that said loss may not be considered as covered under the
cover note because such became null and void by virtue of the issuance
of the marine policies.
Issue:
Whether or not the cover not was without consideration, thus null and
void.
Held:
It was with consideration.
SC upheld Pacifics contention that said cover not was with
consideration. The fact that no separate premium was paid on the cover
note before the loss was insured against occurred does not militate
against the validity of Pacifics contention, for no such premium could
have been paid, since by the nature of the cover note, it did not contain,
as all cover notes do not contain, particulars of the shipment that would
serve as basis for the computation of the premiums. As a logical
44
consequence, no separate premiums are required to be paid on a cover
note.
If the note is to be treated as a separate policy instead of integrating it to
the regular policies subsequently issued, its purpose would be
meaningless for it is in a real sense a contract, not a mere application.
Pacific Timber Export
Corporation vs Court of
Appeals
112 SCRA 199 Mercantile Law Insurance Law The Policy
Separate Premiums Not Required for Cover Notes
In 1963, Pacific Timber Export Corporation (PTEC) applied for a
temporary marine insurance from Workmens Insurance Company
(WIC) in order for the latter to insure 1,250,000 board feet of logs to be
exported to Japan. In March 1963, WIC issued a cover note to PTEC for
the said logs. On April 2, 1963, WIC issued two policies for the logs.
However, the total board feet covered this time is only 1,195,498. On
April 4, 1963, while the logs were in transit to Japan, bad weather
prevailed and this caused the loss of 32 pieces of logs.
INSURANCE
WIC then asked an adjuster to investigate the loss. The adjuster
submitted that the logs lost were not covered by the two policies issued
on April 2, 1963 but said logs were included in the cover note earlier
issued.
WIC however denied the insurance claim of PTEC as it averred that the
cover note became null and void when the two policies were
subsequently issued. The Court of Appeals ruled that the cover note is
void for lack of valuable consideration as it appeared that no premium
payment therefor was made by PTEC.
ISSUE: Whether or not a separate premium is needed for cover notes.
HELD: No. The Cover Note was not without consideration for which
the Court of Appeals held the Cover Note as null and void, and denied
recovery therefrom. The fact that no separate premium was paid on the
Cover Note before the loss insured against occurred, does not militate
against the validity of PTECs contention, for no such premium could
have been paid, since by the nature of the Cover Note, it did not contain,
as all Cover Notes do not contain particulars of the shipment that would
serve as basis for the computation of the premiums. As a logical
consequence, no separate premiums are intended or required to be paid
on a Cover Note.
At any rate, it is not disputed that PTEC paid in full all the premiums as
called for by the statement issued by WIC after the issuance of the two
regular marine insurance policies, thereby leaving no account unpaid by
PTEC due on the insurance coverage, which must be deemed to include
the Cover Note. If the Note is to be treated as a separate policy instead
of integrating it to the regular policies subsequently issued, the purpose
and function of the Cover Note would be set at naught or rendered
meaningless, for it is in a real sense a contract, not a mere application
for insurance which is a mere offer.
45