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Other Insurance Clause Respondent Insurance raised the following defenses

in its answer to wit: (a) lack of formal claim by insured over the
PACIFIC BANKING CORPORATION v. COURT OF APPEALS loss and (b) premature filing of the suit as neither plaintiff nor
and ORIENTAL ASSURANCE CORPORATION, G.R. No. L- insured had submitted any proof of loss on the basis of which
41014, November 28, 1988, J. PARAS defendant would determine its liability and the amount thereof,
either to the private respondent or its adjuster H.H. Bayne
As the insurance policy against fire expressly required that notice
Adjustment Co., both in violation of Policy Condition No.11
should be given by the insured of other insurance upon the same
property, the total absence of such notice nullifies the policy At the trial, petitioner presented in evidence Exhibit
"H", which is a communication dated December 22, 1965 of the
Undoubtedly, it is but fair and just that where the insured who is
insurance adjuster, H.H. Bayne Adjustment Co. to Asian Surety
primarily entitled to receive the proceeds of the policy has by its
Insurance Co., Inc., revealing undeclared co-insurances with
fraud and/or misrepresentation, forfeited said right, with more
the following: P30,000.00 with Wellington Insurance;
reason petitioner which is merely claiming as indorsee of said
P25,000. 00 with Empire Surety and P250,000.00 with
insured, cannot be entitled to such proceeds.
Asian Surety; undertaken by insured Paramount on the
FACTS: same property covered by its policy with private
respondent whereas the only co-insurances declared in the
On October 21,1963, Fire Policy, an open policy, was subject policy are those of P30,000.00 with Malayan
issued to the Paramount Shirt Manufacturing Co.(the Insured) P50,000.00 with South Sea and P25.000.00 with Victory
by which private respondent Oriental Assurance Corporation
bound itself to indemnify the insured for any loss or damage, not It will be noted that the defense of fraud and/or
exceeding P61,000.00, caused by fire to its property consisting violation of Condition No. 3 in the Policy, in the form of non-
of stocks, materials and supplies usual to a shirt factory, declaration of co-insurances which was not pleaded in the
including furniture, fixtures, machinery and equipment while answer was also not pleaded in the Motion to Dismiss.
contained in the ground, second and third floors of the building
TC: private respondent liable to the petitioner under the said
situated at San Nicolas, Manila, for a period of one year
contract of insurance
commencing from that date to October 21, 1964.
CA: reversed the decision of the trial court
The insured was at the time of the issuance of the
policy and is up to this time, a debtor of petitioner Pacific ISSUE/S:
Banking Corp. in the amount of not less than Eight Hundred
Thousand Pesos (P800,000.00) and the goods described in the 1. Whether the policy is void for non-disclosure of other
policy were held in trust by the insured for the petitioner under insurance which violated policy conditions No. 3?
thrust receipts.
2. If the policy is void, whether the mortgage is also bound by its
On January 4, 1964, while the aforesaid policy was in avoidance?
full force and effect, a fire broke out on the subject premises
destroying the goods contained in its ground and second floors. 3. Whether there is cause of action notwithstanding the
On January 24, 1964, counsel for the petitioner sent a letter of violation of policy condition No. 11?
demand to private respondent for indemnity due to the loss of
RULING:
property by fire under the endorsement of said policy.
1. Yes. Policy Condition No. 3 explicitly provides:
On January 28, 1964, private respondent informed
counsel for the petitioner that it was not yet ready to accede to 3. The Insured shall give notice to the Company of any
the latter's demand as the former is awaiting the final report of insurance already effected, or which may subsequently be
the insurance adjuster, H.H. Bayne Adjustment Company. effected, covering any of the property hereby insured, and unless
such notice be given and the particulars of such insurance or
On March 25, 1964, the said insurance adjuster
insurances be stated in or endorsed on this Policy by or on behalf
notified counsel for the petitioner that the insured under the
of the Company before the occurrence of any loss or damage, all
policy had not filed any claim with it, nor submitted proof of loss
benefit under this policy shall be forfeited.
which is a clear violation of Policy Condition No.11, and for
which reason, determination of the liability of private It is not disputed that the insured failed to reveal
respondent could not be had. before the loss three other insurances. As found by the Court of
Appeals, by reason of said unrevealed insurances, the insured
On April 24, 1964, petitioner's counsel replied to
had been guilty of a false declaration; a clear misrepresentation
aforesaid letter asking the insurance adjuster to verify from the
and a vital one because where the insured had been asked to
records of the Bureau of Customs the entries of merchandise
reveal but did not, that was deception. Otherwise stated, had the
taken into the customs bonded warehouse razed by fire as a
insurer known that there were many co-insurances, it could
reliable proof of loss. For failure of the insurance company to
have hesitated or plainly desisted from entering into such
pay the loss as demanded, petitioner Pacific Banking on April
contract. Hence, the insured was guilty of clear fraud.
28, 1 964, filed in the court a quo an action for a sum of money
against the private respondent, Oriental Assurance Corporation, Petitioner's contention that the allegation of fraud is
in the principal sum of P61,000.00 issued in favor of Paramount but a mere inference or suspicion is untenable. In fact, concrete
Shirt Manufacturing Co. evidence of fraud or false declaration by the insured was
furnished by the petitioner itself when the facts alleged in the right, with more reason petitioner which is merely claiming as
policy under clauses "Co-Insurances Declared" and "Other indorsee of said insured, cannot be entitled to such proceeds.
Insurance Clause" are materially different from the actual
number of co-insurances taken over the subject property. 3. No. Generally, the cause of action on the policy accrues
Consequently, "the whole foundation of the contract fails, the when the loss occurs, But when the policy provides that no
risk does not attach and the policy never becomes a contract action shall be brought unless the claim is first presented
between the parties. Representations of facts are the foundation extrajudicially in the manner provided in the policy, the cause of
of the contract and if the foundation does not exist, the action will accrue from the time the insurer finally rejects the
superstructure does not arise. Falsehood in such claim for payment.
representations is not shown to vary or add to the contract, or
In the case at bar, policy condition No. 11 specifically
to terminate a contract which has once been made, but to show
provides that the insured shall on the happening of any loss or
that no contract has ever existed (Tolentino, Commercial Laws
damage give notice to the company and shall within fifteen (15)
of the Philippines, p. 991, Vol. II, 8th Ed.) A void or inexistent
days after such loss or damage deliver to the private respondent
contract is one which has no force and effect from the very
(a) a claim in writing giving particular account as to the articles
beginning, as if it had never been entered into, and which cannot
or goods destroyed and the amount of the loss or damage and
be validated either by time or by ratification.
(b) particulars of all other insurances, if any. Likewise, insured
As the insurance policy against fire expressly was required "at his own expense to produce, procure and give
required that notice should be given by the insured of other to the company all such further particulars, plans, specifications,
insurance upon the same property, the total absence of such books, vouchers, invoices, duplicates or copies thereof,
notice nullifies the policy. documents, proofs and information with respect to the claim".

The argument that notice of co-insurances may be The evidence adduced shows that twenty-four (24)
made orally is preposterous and negates policy condition No. 20 days after the fire, petitioner merely wrote letters to private
which requires every notice and other communications to the respondent to serve as a notice of loss, thereafter, the former did
insurer to be written or printed. not furnish the latter whatever pertinent documents were
necessary to prove and estimate its loss. Instead, petitioner
2. Yes. Petitioner points out that Condition No. 3 in the shifted upon private respondent the burden of fishing out the
policy in relation to the "other insurance clause" supposedly to necessary information to ascertain the particular account of the
have been violated, cannot certainly defeat the right of the articles destroyed by fire as well as the amount of loss. It is
petitioner to recover the insurance as mortgagee/assignee. noteworthy that private respondent and its adjuster notified
Particularly referring to the mortgage clause of the policy, petitioner that insured had not yet filed a written claim nor
petitioner argues that considering the purpose for which the submitted the supporting documents in compliance with the
endorsement or assignment was made, that is, to protect the requirements set forth in the policy. Despite the notice, the
mortgagee/assignee against any untoward act or omission of latter remained unheedful. Since the required claim by insured,
the insured, it would be absurd to hold that petitioner is barred together with the preliminary submittal of relevant documents
from recovering the insurance on account of the alleged had not been complied with, it follows that private respondent
violation committed by the insured. could not be deemed to have finally rejected petitioner's claim
and therefore the latter's cause of action had not yet arisen.
However, the mortgage clause is clear in saying: Compliance with condition No. 11 is a requirement sine qua non
to the right to maintain an action as prior thereto no violation of
Mortgage Clause
petitioner's right can be attributable to private respondent. This
Loss, if any, under this policy, shall be payable to the PACIFIC is so, as before such final rejection, there was no real necessity
BANKING CORPORATION Manila mortgagee/trustor as its for bringing suit. Petitioner should have endeavored to file the
interest may appear, it being hereby understood and agreed formal claim and procure all the documents, papers, inventory
that this insurance as to the interest of the mortgagee/trustor needed by private respondent or its adjuster to ascertain the
only herein, shall not be invalidated by any act or neglect amount of loss and after compliance await the final rejection of
except fraud or misrepresentation, or arsonof the mortgagor its claim. Indeed, the law does not encourage unnecessary
or owner/trustee of the property insured; provided, that in case litigation.
the mortgagor or owner/ trustee neglects or refuses to pay any
Verily, petitioner prematurely filed Civil Case No.
premium, the mortgagee/ trustor shall, on demand pay the
56889 and dismissal thereof was warranted under the
same.
circumstances. While it is a cardinal principle of insurance law
The paragraph clearly states the exceptions to the that a policy or contract of insurance is to be construed liberally
general rule that insurance as to the interest of the mortgagee, in favor of the insured and strictly as against the insurer
cannot be invalidated; namely: fraud, or misrepresentation or company, yet, contracts of insurance, like other contracts, are to
arson. As correctly found by the Court of Appeals, concealment be construed according to the sense and meaning of the terms
of the aforecited co-insurances can easily be fraud, or in the very which the parties themselves have used. If such terms are clear
least, misrepresentation. and unambiguous, they must be taken and understood in their
plain, ordinary and popular sense.
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
Two-year contestability period

EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO Section 48. Whenever a right to rescind a contract of insurance
TAN v. THE COURT OF APPEALS and THE PHILIPPINE is given to the insurer by any provision of this chapter, such
AMERICAN LIFE INSURANCE COMPANY, G.R. No. 48049, right must be exercised previous to the commencement of an
June 29, 1989. J. GUTIERREZ, JR. action on the contract.

The insurer has two years from the date of issuance of the After a policy of life insurance made payable on the death of the
insurance contract or of its last reinstatement within which to insured shall have been in force during the lifetime of the
contest the policy, whether or not, the insured still lives within insured for a period of two years from the date of its issue or of
such period. After two years, the defenses of concealment or its last reinstatement, the insurer cannot prove that the policy is
misrepresentation, no matter how patent or well founded, no void ab initio or is rescindable by reason of the fraudulent
longer lie. Congress felt this was a sufficient answer to the various concealment or misrepresentation of the insured or his agent.
tactics employed by insurance companies to avoid liability. The
petitioners' interpretation would give rise to the incongruous According to the petitioners, the Insurance Law was
situation where the beneficiaries of an insured who dies right amended and the second paragraph of Section 48 added to
after taking out and paying for a life insurance policy, would be prevent the insurance company from exercising a right to
allowed to collect on the policy even if the insured fraudulently rescind after the death of the insured.
concealed material facts.
The so-called "incontestability clause" precludes the insurer
FACTS: from raising the defenses of false representations or
concealment of material facts insofar as health and previous
On September 23,1973, Tan Lee Siong, father of diseases are concerned if the insurance has been in force for at
herein petitioners EMILIO TAN, JUANITO TAN, ALBERTO TAN least two years during the insured's lifetime. The phrase "during
and ARTURO TAN, applied for life insurance in the amount of P the lifetime" found in Section 48 simply means that the policy is
80,000.00 with respondent company. Said application was no longer considered in force after the insured has died. The key
approved and Policy No. 1082467 was issued effective phrase in the second paragraph of Section 48 is "for a period of
November 6,1973, with petitioners the beneficiaries thereof. two years."

On April 26,1975, Tan Lee Siong died of hepatoma. As noted by the Court of Appeals, to wit:
Petitioners then filed with respondent company their claim for
the proceeds of the life insurance policy. However, in a letter The policy was issued on November 6,1973 and the
dated September 11, 1975, respondent company denied insured died on April 26,1975. The policy was thus in force for
petitioners' claim and rescinded the policy by reason of the a period of only one year and five months. Considering that the
alleged misrepresentation and concealment of material facts insured died before the two-year period had lapsed, respondent
made by the deceased Tan Lee Siong in his application for company is not, therefore, barred from proving that the policy
insurance. The premiums paid on the policy were thereupon is void ab initio by reason of the insured's fraudulent
refunded. concealment or misrepresentation. Moreover, respondent
company rescinded the contract of insurance and refunded the
Alleging that respondent company's refusal to pay premiums paid on September 11, 1975, previous to the
them the proceeds of the policy was unjustified and commencement of this action on November 27,1975.
unreasonable, petitioners filed on November 27, 1975, a
complaint against the former with the Office of the Insurance The petitioners contend that there could have been
Commissioner. no concealment or misrepresentation by their late father
because Tan Lee Siong did not have to buy insurance. He was
Insurance Commissioner: dismissed petitioners' complaint only pressured by insistent salesmen to do so.

CA: dismissed ' the petitioners' appeal from the Insurance The legislative answer to the arguments posed by the
Commissioner's decision for lack of merit. petitioners is the "incontestability clause" added by the second
paragraph of Section 48.
The petitioners contend that the respondent
company no longer had the right to rescind the contract of The insurer has two years from the date of issuance
insurance as rescission must allegedly be done during the of the insurance contract or of its last reinstatement within
lifetime of the insured within two years and prior to the which to contest the policy, whether or not, the insured still lives
commencement of action. within such period. After two years, the defenses of concealment
or misrepresentation, no matter how patent or well founded, no
ISSUE: longer lie. Congress felt this was a sufficient answer to the
various tactics employed by insurance companies to avoid
Whether the insurance company can still rescind the contract
liability. The petitioners' interpretation would give rise to the
on the ground of concealment and misrepresentation
incongruous situation where the beneficiaries of an insured
notwithstanding the fact that rescission was done when the
who dies right after taking out and paying for a life insurance
insured was already dead?
policy, would be allowed to collect on the policy even if the
RULING: insured fraudulently concealed material facts.

Yes. The pertinent section in the Insurance Code provides: Additional Ratio:
There is no showing that the questions in the application form relevant to the issuance of the policy, thus rendering the
for insurance regarding the insured's medical history are in contract of insurance voidable. A check representing the total
smaller print than the rest of the printed form or that they are premiums paid in the amount of P10,172.00 was attached to
designed in such a way as to conceal from the applicant their said letter.
importance. If a warning in bold red letters or a boxed warning
similar to that required for cigarette advertisements by the Petitioner claimed that the insured gave false statements in his
Surgeon General of the United States is necessary, that is for application when he answered the following questions:
Congress or the Insurance Commission to provide as protection
5. Within the past 5 years have you:
against high pressure insurance salesmanship.
a) consulted any doctor or other health practitioner?
The deceased, by affixing his signature on the application form,
affirmed the correctness of all the entries and answers b) submitted to:
appearing therein. It is but to be expected that he, a
businessman, would not have affixed his signature on the EGG?; X-rays?; blood tests? other tests?
application form unless he clearly understood its significance.
For, the presumption is that a person intends the ordinary c) attended or been admitted to any hospital or other
consequence of his voluntary act and takes ordinary care of his medical facility?
concerns.
6. Have you ever had or sought advice for:
The evidence for respondent company shows that on September
19,1972, the deceased was examined by Dr. Victoriano Lim and b) urine, kidney or bladder disorder?
was found to be diabetic and hypertensive; that by January,
The deceased answered question No. 5(a) in the
1973, the deceased was complaining of progressive weight loss
affirmative but limited his answer to a consultation with a
and abdominal pain and was diagnosed to be suffering from
certain Dr. Reinaldo D. Raymundo of the Chinese General
hepatoma, Another physician, Dr. Wenceslao Vitug, testified
Hospital on February 1986, for cough and flu complications. The
that the deceased came to see him on December 14, 1973 for
other questions were answered in the negative.
consolation and claimed to have been diabetic for five years.
Because of the concealment made by the deceased of his Petitioner discovered that two weeks prior to his
consultations and treatments for hypertension, diabetes and application for insurance, the insured was examined and
liver disorders, respondent company was thus misled into confined at the Lung Center of the Philippines, where he was
accepting the risk and approving his application as medically diagnosed for renal failure. During his confinement, the
standard and dispensing with further medical investigation and deceased was subjected to urinalysis, ultra-sonography and
examination. For as long as no adverse medical history is hematology tests.
revealed in the application form, an applicant for insurance is
presumed to be healthy and physically fit and no further medical On November 17, 1988, respondent Bernarda Bacani
investigation or examination is conducted by respondent and her husband, respondent Rolando Bacani, filed an action for
company. specific performance against petitioner with the Regional Trial
Court.
SUNLIFE ASSURANCE COMPANY OF CANADA v. The Hon.
COURT OF APPEALS and Spouses ROLANDO and On January 14, 1990, private respondents filed a
BERNARDA BACANI, G.R. No. 105135, June 22, 1995, J. "Proposed Stipulation with Prayer for Summary Judgment"
QUIASON where they manifested that they "have no evidence to refute the
documentary evidence of concealment/misrepresentation by
We, therefore, rule that petitioner properly exercised its right to the decedent of his health condition. Petitioner filed its Request
rescind the contract of insurance by reason of the concealment for Admissions relative to the authenticity and due execution of
employed by the insured. It must be emphasized that rescission several documents as well as allegations regarding the health of
was exercised within the two-year contestability period as the insured. Private respondents failed to oppose said request
recognized in Section 48 of The Insurance Code. or reply thereto, thereby rendering an admission of the matters
alleged.
FACTS:
TC: In ruling for private respondents, the trial court concluded
On April 15, 1986, Robert John B. Bacani procured a
that the facts concealed by the insured were made in good faith
life insurance contract for himself from petitioner. He was
and under a belief that they need not be disclosed. Moreover, it
issued Policy No. 3-903-766-X valued at P100,000.00, with
held that the health history of the insured was immaterial since
double indemnity in case of accidental death. The designated
the insurance policy was "non-medical".
beneficiary was his mother, respondent Bernarda Bacani.
CA: affirmed the decision of the trial court. The appellate court
On June 26, 1987, the insured died in a plane crash.
ruled that petitioner cannot avoid its obligation by claiming
Respondent Bernarda Bacani filed a claim with petitioner,
concealment because the cause of death was unrelated to the
seeking the benefits of the insurance policy taken by her son.
facts concealed by the insured. It also sustained the finding of
Petitioner conducted an investigation and its findings prompted
the trial court that matters relating to the health history of the
it to reject the claim.
insured were irrelevant since petitioner waived the medical
In its letter, petitioner informed respondent examination prior to the approval and issuance of the insurance
Bernarda Bacani, that the insured did not disclose material facts policy.
ISSUE:

Whether the policy may be rescinded on the ground of


concealment?

RULING:

Yes. In weighing the evidence presented, the trial court


concluded that indeed there was concealment and
misrepresentation, however, the same was made in "good faith"
and the facts concealed or misrepresented were irrelevant since
the policy was "non-medical". We disagree. Materiality is to be
determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom
communication is due, in forming his estimate of the
disadvantages of the proposed contract or in making his
inquiries (The Insurance Code, Sec. 31).

The terms of the contract are clear. The insured is


specifically required to disclose to the insurer matters relating
to his health. The information which the insured failed to
disclose were material and relevant to the approval and
issuance of the insurance policy. The matters concealed would
have definitely affected petitioner's action on his application,
either by approving it with the corresponding adjustment for a
higher premium or rejecting the same. Moreover, a disclosure
may have warranted a medical examination of the insured by
petitioner in order for it to reasonably assess the risk involved
in accepting the application.

Thus, "goad faith" is no defense in concealment. The


insured's failure to disclose the fact that he was hospitalized for
two weeks prior to filing his application for insurance, raises
grave doubts about his bonafides. It appears that such
concealment was deliberate on his part.

The argument, that petitioner's waiver of the medical


examination of the insured debunks the materiality of the facts
concealed, is untenable. We reiterate our ruling in Saturnino v.
Philippine American Life Insurance Company, 7 SCRA 316
(1963), that " . . . the waiver of a medical examination [in a non-
medical insurance contract] renders even more material the
information required of the applicant concerning previous
condition of health and diseases suffered, for such information
necessarily constitutes an important factor which the insurer
takes into consideration in deciding whether to issue the policy
or not . . . "Moreover, such argument of private respondents
would make Section 27 of the Insurance Code, which allows the
injured party to rescind a contract of insurance where there is
concealment, ineffective.

Anent the finding that the facts concealed had no


bearing to the cause of death of the insured, it is well settled that
the insured need not die of the disease he had failed to disclose
to the insurer. It is sufficient that his non-disclosure misled the
insurer in forming his estimates of the risks of the proposed
insurance policy or in making inquiries.

We, therefore, rule that petitioner properly


exercised its right to rescind the contract of insurance by
reason of the concealment employed by the insured. It must
be emphasized that rescission was exercised within the
two-year contestability period as recognized in Section 48
of The Insurance Code.