1
G.R. No. L-7667 Nov 28, 1955
CHERIE PALILEO, plaintiff-appellee,
v. BEATRIZ COSIO, defendant-appellant.
FACTS: Cherie Palileo (debtor-mortgagor) filed a complaint against
Beatriz Cosio (creditor-mortgagee) praying that their transaction be
one of a loan with an equitable mortgage to secure the payment of the
loan. The original counsel of Cosio Atty. Guerrero being appointed
Undersecretary of Foreign Affairs so she forgot the date of the trial
and she was substituted.
it is a loan of P12,000 secured by a "Conditional Sale of Residential
Building" with right to repurchase.
After the execution of the contract, Cosio insured in her name the
building with Associated Insurance & Surety Co. against fire.
The building was partly destroyed by fire so she claimed an
indemnity
of P13,107
Palileo demanded that the amount of insurance proceeds
be credited to her loan
RTC: it is a loan with equitable mortgage so the insurance proceeds
should be credited to the loan and refund the overpayment.
ISSUE: W/N Cosio as mortgagee is entitled to the insurance proceeds
for her own benefit
RULING: YES. Modify. collection of insurance proceeds shall not be
deemed to have compensated the obligation of the Palileo to Cosio,
but bars Cosio from claiming payment from Palileo; and Cosio shall
pay to Palileo P810 representing the overpayment made by Palileo by
way of interest on the loan.
When the the mortgagee may insure his interest in the property
independently of the mortgagor , upon the destruction of the
property
the insurance money paid to the mortgagee will not inure to the
benefit
of the mortgagor, and the amount due under the mortgage debt
remains unchanged.
The mortgagee, however, is not allowed to retain
his claim against the mortgagor, but it passes by subrogation to the
insurer, to the extent of the insurance money paid
It is true that there are authorities which hold that "If a mortgagee
procures insurance on his separate interest at his own expense and
for his own benefit, without any agreement with the mortgagor with
respect thereto, the mortgagor has no interest in the policy, and is not
entitled to have the insurance proceeds applied in reduction of the
mortgage debt" But these authorities merely represent the minority
view
GEAGONIA VS CA
[G.R. No. 114427. February 6, 1995]
Facts: Armando Geagonia is the owner of Norman's Mart located in
the public market of San Francisco, Agusan del Sur.
On Dec 22, 1989, he obtained from Country Bankers Insurance
Corporation fire insurance policy No. F-14622 2 for P100,000.00.
The period of the policy was from Dec 22, 1989 to Dec 22, 1990 and
covered the following: "Stock-in-trade consisting principally of dry
goods such as RTW's for men and women wear and other usual to
assured's business."
Geagonia declared in the policy under the subheading entitled CO-
INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer
for P50,000.00.
From 1989 to 1990, Geagonia had in his inventory stocks amounting
to P392,130.50, itemized as follows: Zenco Sales, Inc., P55,698.00;
F. Legaspi Gen. Merchandise, 86,432.50; and Cebu Tesing Textiles,
250,000.00 (on credit); totalling P392,130.50.

The policy contained the following condition, that "the insured shall
give notice to the Company of any insurance or insurances already
effected, or which may subsequently be effected, covering any of the
property or properties consisting of stocks in trade, goods in process
and/or inventories only hereby insured, and unless notice be given
and the particulars of such insurance or insurances be stated therein
or endorsed in this policy pursuant to Sec 50 of the Insurance Code,
by or on behalf of the Co. before the occurrence of any loss or
damage, all benefits under this policy shall be deemed forfeited,
provided however, that this condition shall not apply when the total
insurance or insurances in force at the time of the loss or damage is
not more than P200,000.00."
On May 27, 1990, fire of accidental origin broke out at around 7:30
p.m. at the public market of San Francisco, Agusan del Sur.
Geagonia's insured stocks-in-trade were completely destroyed
prompting him to file with Country Bankers a claim under the policy.
On Dec 28, 1990, Country Bankers denied the claim because it found
that at the time of the loss.
Geagonia's stocks-in-trade were likewise covered by fire insurance
policies GA-28146 and GA-28144, for P100,000.00 each, issued by
the Cebu Branch of the Phil First Insurance Co., Inc. (PFIC).
These policies indicate that the insured was "Messrs. Discount Mart
(Mr. Armando Geagonia, Prop.)" with a mortgage clause reading
""MORTGAGEE: Loss, if any, shall be payable to Messrs. Cebu
Tesing Textiles, Cebu City as their interest may appear subject to the
terms of this policy. CO-INSURANCE DECLARED: P100,000.
Phils.
First CEB/F-24758" The basis of Country Bankers' denial was
Geagonia's alleged violation of Condition 3 of the policy.
Geagonia then filed a complaint against Country Bankers with the
Insurance Commission (Case 3340) for the recovery of P100,000.00
under fire insurance policy F-14622. He attached his letter of Jan 18,
1991 which asked for the reconsideration of the denial. He admitted in
2
the said letter that at the time he obtained Country Bankers's fire
insurance policy he knew that the two policies issued by the PFIC were
already in existence; however, he had no knowledge of the provision
in Country Bankers' policy requiring him to inform it of the prior
policies; this requirement was not mentioned to him by Country
Bankers' agent; and had it been so mentioned, he would not have
withheld such information. He further asserted that the total of the
amounts claimed under the three policies was below the actual value
of his stocks at the time of loss, which was P1,000,000.00.
In its decision of June 21, 1993, the Insurance Commission found that
Geagonia did not violate Condition 3 as he had no knowledge of the
existence of the two fire insurance policies obtained from the PFIC;
that it was Cebu Tesing Textiles which procured the PFIC policies
without informing him or securing his consent; and that Cebu Tesing
Textile, as his creditor, had insurable interest on the stocks.
These findings were based on Geagonia's testimony that he came to
know of the PFIC policies only when he filed his claim with Country
Bankers and that Cebu Tesing Textile obtained them and paid for their
premiums without informing him thereof.
The Insurance Commission ordered Country Bankers to pay
Geagonia the sum of P100,000.00 with legal interest from the time the
complaint was filed until fully satisfied plus the amount of P10,000.00
as attorney's fees. With costs. Its motion for the reconsideration of the
decision having been denied by the Insurance Commission in its
resolution of August 20, 1993, Country Bankers appealed to the Court
of Appeals by way of a petition for review (CA-GR SP 31916).
In its decision of December 29, 1993, the Court of Appeals reversed
the decision of the Insurance Commission because it found that
Geagonia knew of the existence of the two other policies issued by the
PFIC. His motion to reconsider the adverse decision having been
denied, Geagonia filed the petition for review on certiorari.
Issue: WON there is double insurance in the case at bar so as to deny
Geagonia from recovering on the insurance policy
Ruling: NO.

Condition 3 of the private respondent's Policy No. F-14622 is a
condition which is not proscribed by law. Its incorporation in the policy
is allowed by Section 75 of the Insurance Code 15 which provides that
"[a] policy may declare that a violation of specified provisions thereof
shall avoid it, otherwise the breach of an immaterial provision does not
avoid the policy." Such a condition is a provision which invariably
appears in fire insurance policies and is intended to prevent an
increase in the moral hazard. It is commonly known as the additional
or "other insurance" clause and has been upheld as valid and as a
warranty that no other insurance exists. Its violation would thus avoid
the policy. 16 However, in order to constitute a violation, the other
insurance must be upon same subject matter, the same interest
therein, and the same risk. 17
As to a mortgaged property, the mortgagor and the mortgagee have
each an independent insurable interest therein and both interests may
be one policy, or each may take out a separate policy covering his
interest, either at the same or at separate times. 18 The mortgagor's
insurable interest covers the full value of the mortgaged property, even
though the mortgage debt is equivalent to the full value of the property.
19
The mortgagee's insurable interest is to the extent of the debt, since
the property is relied upon as security thereof, and in insuring he is not
insuring the property but his interest or lien thereon. His insurable
interest is prima facie the value mortgaged and extends only to the
amount of the debt, not exceeding the value of the mortgaged
property. 20 Thus, separate insurances covering different insurable
interests may be obtained by the mortgagor and the mortgagee.
A mortgagor may, however, take out insurance for the benefit of the
mortgagee, which is the usual practice. The mortgagee may be made
the beneficial payee in several ways. He may become the assignee of
the policy with the consent of the insurer; or the mere pledgee without
such consent; or the original policy may contain a mortgage clause; or
a rider making the policy payable to the mortgagee "as his interest
may appear" may be attached; or a "standard mortgage clause,"
containing a collateral independent contract between the mortgagee
and insurer, may be attached; or the policy, though by its terms
payable absolutely to the mortgagor, may have been procured by a
mortgagor under a contract duty to insure for the mortgagee's benefit,
3
in which case the mortgagee acquires an equitable lien upon the
proceeds. 21
In the policy obtained by the mortgagor with loss payable clause in
favor of the mortgagee as his interest may appear, the mortgagee is
only a beneficiary under the contract, and recognized as such by the
insurer but not made a party to the contract himself. Hence, any act of
the mortgagor which defeats his right will also defeat the right of the
mortgagee. 22 This kind of policy covers only such interest as the
mortgagee has at the issuing of the policy. 23
On the other hand, a mortgagee may also procure a policy as a
contracting party in accordance with the terms of an agreement by
which the mortgagor is to pay the premiums upon such insurance. 24
It has been noted, however, that although the mortgagee is himself
the insured, as where he applies for a policy, fully informs the
authorized agent of his interest, pays the premiums, and obtains on
the assurance that it insures him, the policy is in fact in the form used
to insure a mortgagor with loss payable clause. 25
XXX With these principles in mind, we are of the opinion that Condition
3 of the subject policy is not totally free from ambiguity and must,
perforce, be meticulously analyzed. Such analysis leads us to
conclude that (a) the prohibition applies only to double insurance, and
(b) the nullity of the policy shall only be to the extent exceeding
P200,000.00 of the total policies obtained.
The first conclusion is supported by the portion of the condition
referring to other insurance "covering any of the property or properties
consisting of stocks in trade, goods in process and/or inventories only
hereby insured," and the portion regarding the insured's declaration
on the subheading CO-INSURANCE that the co-insurer is Mercantile
Insurance Co., Inc. in the sum of P50,000.00. A double insurance
exists where the same person is insured by several insurers
separately in respect of the same subject and interest. As earlier
stated, the insurable interests of a mortgagor and a mortgagee
on the mortgaged property are distinct and separate. Since the
two policies of the PFIC do not cover the same interest as that
covered by the policy of the private respondent, no double

insurance exists. The non-disclosure then of the former policies was
not fatal to the petitioner's right to recover on the private respondent's
policy.
Spouses Nilo Cha v. CA
FACTS:
Spouses Nilo Cha and Stella Uy-Cha and CKS
Development Corporation entered a 1 year lease contract with
a stipulation not to insure against fire the chattels,
merchandise, textiles, goods and effects placed at any stall or
store or space in the leased premises without first obtaining
the written consent and approval of the lessor.
But it insured against loss by fire their merchandise inside the
leased premises for P500,000 with the United Insurance Co.,
Inc. without the written consent of CKS
On the day the lease contract was to expire, fire broke
out inside the leased premises and CKS learning that the
spouses procured an insurance wrote to United to have the
proceeds be paid directly to them. But United refused so CKS
filed against Spouses Cha and United.
RTC: United to pay CKS the amount of P335,063.11 and
Spouses Cha to pay P50,000 as exemplary damages,
P20,000 as attorneys fees and costs of suit
CA: deleted exemplary damages and attorneys fees
ISSUE: W/N the CKS has insurable interest because the spouses Cha
violated the stipulation
HELD: NO. CA set aside. Awarding the proceeds to spouses Cha.
Sec. 18. No contract or policy of insurance on
property shall be enforceable except for the benefit of some
person having an insurable interest in the property insured.
4
A non-life insurance policy such as the fire insurance
policy taken by petitioner-spouses over their merchandise is
primarily a contract of indemnity. Insurable interest in the
property insured must exist a t the time the insurance takes
effect and at the time the loss occurs. The basis of such
requirement of insurable interest in property insured is based
on sound public policy: to prevent a person from taking out an
insurance policy on property upon which he has no insurable
interest and collecting the proceeds of said policy in case of
loss of the property. In such a case, the contract of insurance
is a mere wager which is void under Section 25 of the
Insurance Code.
SECTION 25. Every stipulation in a policy of
Insurance for the payment of loss, whether the person insured
has or has not any interest in the property insured, or that the
policy shall be received as proof of such interest, and every
policy executed by way of gaming or wagering, is void
Section 17. The measure of an insurable interest in
property is the extent to which the insured might be damnified
by loss of injury thereof
The automatic assignment of the policy to CKS under the
provision of the lease contract previously quoted is void for
being contrary to law and/or public policy. The proceeds of
the fire insurance policy thus rightfully belong to the
spouses. The liability of the Cha spouses to CKS for violating
their lease contract in that Cha spouses obtained a fire
insurance policy over their own merchandise, without the
consent of CKS, is a separate and distinct issue which we do
not resolve in this case.
Philamcare v CA G.R. No. 125678. March 18, 2002
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.
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.
RULING: 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
is primarily a contract of indemnity.
5
The provider must pay for the medical expenses resulting from
sickness or injury.
While petitioner contended that the husband concealed material fact
of his sickness, the contract stated that:
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.
This meant that the petitioners required him to sign authorization to
furnish reports about his medical condition.
The contract also authorized Philam to inquire directly to his medical
history.
Hence, the contention of concealment isnt valid.
They cant also invoke the Invalidation of agreement clause where
failure of the insured to disclose information was a grounds for
revocation simply because the answer assailed by the company was
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.
Section 27 of the Insurance Code- a concealment entitles the injured
party to rescind a contract of insurance.
 6

checkup. In September 1958, Estefania died of pneumonia secondary

to influenza. Her heirs now seek to enforce the insurance claim.

ISSUE: Whether or not Saturnino is entitled to the insurance claim.

As to cancellation procedure- Cancellation requires certain 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
None were fulfilled by the provider.
As to incontestability- The trial court said that under 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.
HELD: No. The concealment of the fact of the operation is fraudulent.
Even if, as argued by the heirs, Estefania never knew she was
operated for cancer, there is still fraud in the concealment no matter
what the ailment she was operated for. Note also that in order to avoid
a policy, it is not necessary that actual fraud be established otherwise
insurance companies will be at the mercy of any one seeking
insurance.
In this jurisdiction a concealment, whether intentional or unintentional,
entitles the insurer to rescind the contract of insurance, concealment
being defined as negligence to communicate that which a party
knows and ought to communicate.
Also, the fact that Philamlife waived its right to have Estefania undergo
a medical examination is not negligence. Because of Estefanias
concealment, Philamlife considered medical checkup to be no longer
necessary. Had Philamlife been informed of her operation, she would
have been made to undergo medical checkup to determine her
insurability.

Estefania Saturnino vs The Philippine American Life Insurance

Company
7 SCRA 316 Mercantile Law Insurance Law Representation
Concealment Misrepresentation Fraud

In September 1957, Estefania Saturnino was operated for cancer in

which her right breast was removed. She was advised by her surgeon
that shes not totally cured because her cancer was malignant. In
November 1957, she applied for an insurance policy under Philamlife
(Philippine American Life Insurance Company). She did not disclose
the fact that she was operated nor did she disclose any medical
histories. Philamlife, upon seeing the clean bill of health from
Estefania waived its right to have Estefania undergo a medical
 7

thirty days from notice of the decision of the Insurance Commission.

The petitioner filed its motion for reconsideration on April 25, 1981,
or
15 days such notice, and the reglementary period began to run
Insurance Case Digest: Malayan Insurance Co., Inc. V. Arnaldo again
(1987) after June 13, 1981, date of its receipt of notice of the denial of the
said motion for reconsideration. As the herein petition was filed on
G.R. No. L-67835 October 12, 1987 July
2, 1981, or 19 days later, there is no question that it is tardy by
Lessons Applicable: Authority to Receive Payment/Effect of Payment 4 days.
(Insurance) Insurance Commission: favored Pinca MICO appealed

Laws Applicable: Article 64, Article 65, Section 77, Section 306 of the ISSUE: W/N MICO should be liable because its agent Adora was
Insurance Code authorized to receive it

FACTS: HELD: YES. petition is DENIED

June 7, 1981: Malayan insurance co., inc. (MICO) issued
to Coronacion Pinca, Fire Insurance Policy for
property effective
July 22, 1981, until July 22, 1982
October 15,1981: MICO allegedly cancelled the policy for non-
payment, of the premium and sent the corresponding notice to Pinca
December 24, 1981: payment of the premium for Pinca was
received
by Domingo Adora, agent of MICO
January 15, 1982: Adora remitted this payment to MICO,together
with
other payments
January 18, 1982: Pinca's property was completely burned
February 5, 1982: Pinca's payment was returned by MICO to Adora
on the ground that her policy had been cancelled earlier but Adora
refused to accept it and instead demanded for payment
Under Section 416 of the Insurance Code, the period for appeal is
her SEC. 77. An insurer is entitled to payment of the premium as soon
as the thing is exposed to the peril insured against. Notwithstanding
any agreement to the contrary, no policy or contract of insurance
issued by an insurance company is valid and binding unless and
until
the premium thereof has been paid, except in the case of a life or
an
industrial life policy whenever the grace period provision applies.
SEC. 306. xxx xxx xxx
Any insurance company which delivers to an insurance agant or
insurance broker a policy or contract of insurance shall be demmed to
have authorized such agent or broker to receive on its behalf payment
of any premium which is due on such policy or contract of insurance
at the time of its issuance or delivery or which becomes due thereon.
Payment to an agent having authority to receive or collect payment
is
equivalent to payment to the principal himself; such payment is
complete when the money delivered is into the agent's hands and
is a
discharge of the indebtedness owing to the principal.

SEC. 64. No policy of insurance other than life shall be cancelled
by
the insurer except upon prior notice thereof to the insured, and
no notice of cancellation shall be effective unless it is based on the
occurrence, after the effective date of the policy, of one or more of
the
following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the hazard
insured against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful, or reckless acts or commissions
increasing the hazard insured against;
(e) physical changes in the property insured which result in the
property becoming uninsurable;
(f) a determination by the Commissioner that the continuation
of the policy would violate or would place the insurer in
violation of this Code.
As for the method of cancellation, Section 65 provides as follows:
SEC. 65. All notices of cancellation mentioned in
the preceding section shall be in writing, mailed or delivered
to the named insured at the address shown in the policy, and
shall state (a) which of the grounds set forth in section sixty-
four is relied upon and (b) that, upon written request of the
named insured, the insurer will furnish the facts on which the
cancellation is based.
A valid cancellation must, therefore, require
concurrence of the following conditions:
8
(1) There must be prior notice of cancellation to the insured;
(2) The notice must be based on the occurrence, after the
effective date of the policy, of one or more of the grounds
mentioned;
(3) The notice must be (a) in writing, (b) mailed, or delivered to
the named insured, (c) at the address shown in the policy;
(4) It must state (a) which of the grounds mentioned in Section
64 is relied upon and (b) that upon written request of the
insured, the insurer will furnish the facts on which the
cancellation is based.
All MICO's offers to show that the cancellation was
communicated to the insured is its employee's testimony that
the said cancellation was sent "by mail through our mailing
section." without more
It stands to reason that if Pinca had really received the said notice,
she would not have made payment on the original policy on
December
24, 1981. Instead, she would have asked for a new insurance,
effective on that date and until one year later, and so taken
advantage
of the extended period.
Incidentally, Adora had not been informed of the cancellation either
and saw no reason not to accept the said payment
Although Pinca's payment was remitted to MICO's by its agent on
January 15, 1982, MICO sought to return it to Adora only on February
5, 1982, after it presumably had learned of the occurrence of the loss
insured against on January 18, 1982 make the motives of MICO highly
suspicious

Vda Canilang v CA G.R. No. 92492 June 17, 1993
J. Feliciano
Facts:
Canilang was found to have suffered from sinus tachycardia then
bronchitis after a check-up from his doctor. The next day, he applied
for a "non-medical" insurance policy with respondent Grepalife naming
his wife, Thelma Canilang, as his beneficiary. This was to the value of
P19,700.
He died of "congestive heart failure," "anemia," and "chronic
anemia." The widow filed a claim with Great Pacific which the insurer
denied on the ground that the insured had concealed material
information from it.
Petitioner then filed a complaint against Great Pacific for recovery of
the insurance proceeds. Petitioner testified that she was not aware of
any serious illness suffered by her late husband and her husband had
died because of a kidney disorder. The doctor who gave the check up
stated that he treated the deceased for sinus tachycardia and "acute
bronchitis."
Great Pacific presented a physician who testified that the deceased's
insurance application had been approved on the basis of his medical
declaration. She explained that as a rule, medical examinations are
required only in cases where the applicant has indicated in his
application for insurance coverage that he has previously undergone
medical consultation and hospitalization.
The Insurance Commissioner ordered Great Pacific to pay P19,700
plus legal interest and P2,000.00 as attorney's fees. On appeal by
Great Pacific, the Court of Appeals reversed. It found that the failure
of Jaime Canilang to disclose previous medical consultation and
treatment constituted material information which should have been
communicated to Great Pacific to enable the latter to make proper
inquiries.
Hence this petition by the widow.
9
Issue: Won Canilang was guilty of misrepresentation
Held: Yes. Petition denied.
Ratio:
There was a right of the insurance company to rescind the contract if
it was proven that the insured committed fraud in not affirming that he
was treated for heart condition and other ailments stipulated.
Apart from certifying that he didnt suffer from such a condition,
Canilang also failed to disclose in the that he had twice consulted a
doctor who had found him to be suffering from "sinus tachycardia" and
"acute bronchitis."
Under the Insurance Code:
Sec. 26. A neglect to communicate that which a party knows and ought
to communicate, is called a concealment.
Sec. 28. Each party to a contract of insurance must communicate to
the other, in good faith, all factors within his knowledge which are
material to the contract and as to which he makes no warranty, and
which the other has not the means of ascertaining.
The information concealed must be information which the concealing
party knew and should have communicated. The test of materiality of
such information is contained in Section 31:
Sec. 31. Materiality is to be determined not by the event, but solely by
the probable and reasonable influence of the facts upon the party to
whom the communication is due, in forming his estimate of the
disadvantages of the proposed contract, or in making his inquiries.
The information which Jaime Canilang failed to disclose was material
to the ability of Great Pacific to estimate the probable risk he presented
as a subject of life insurance. Had he disclosed his visits to his doctor,
the diagnosis made and medicines prescribed by such doctor, in the
insurance application, it may be reasonably assumed that Great
Pacific would have made further inquiries and would have probably
refused to issue a non-medical insurance policy.
Materiality relates rather to the "probable and reasonable influence of
the facts" upon the party to whom the communication should have
been made, in assessing the risk involved in making or omitting to
make further inquiries and in accepting the application for insurance;
that "probable and reasonable influence of the facts" concealed must,
of course, be determined objectively, by the judge ultimately.
The Insurance Commissioner had also ruled that the failure of Great
 10

Pacific to convey certain information to the insurer was not

"intentional" in nature, for the reason that Canilang believed that he
was suffering from minor ailment like a common cold. Section 27
stated that:
Sec. 27. A concealment whether intentional or unintentional entitles
the injured party to rescind a contract of insurance.
The failure to communicate must have been intentional rather than
inadvertent. Canilang could not have been unaware that his heart beat
would at times rise to high and alarming levels and that he had
consulted a doctor twice in the two (2) months before applying for non-
medical insurance. Indeed, the last medical consultation took place
just the day before the insurance application was filed. In all
probability, Jaime Canilang went to visit his doctor precisely because
of the ailment.
Canilang's failure to set out answers to some of the questions in the
insurance application constituted concealment.