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THIRD DIVISION

MA. LOURDES S. FLORENDO, G.R. No. 186983


Petitioner,
Present:
VELASCO, JR., J., Chairperson,
- versus - PERALTA,
ABAD,
MENDOZA, and
PERLAS-BERNABE, JJ.
PHILAM PLANS, INC.,
PERLA ABCEDE and Promulgated:
MA. CELESTE ABCEDE,
Respondents. February 22, 2012

x --------------------------------------------------------------------------------------- x

DECISION

ABAD, J.:

This case is about an insureds alleged concealment in his pension plan application
of his true state of health and its effect on the life insurance portion of that plan in case
of death.

The Facts and the Case

On October 23, 1997 Manuel Florendo filed an application for comprehensive


pension plan with respondent Philam Plans, Inc. (Philam Plans) after some convincing by
respondent Perla Abcede. The plan had a pre-need price of P997,050.00, payable in 10
years, and had a maturity value of P2,890,000.00 after 20 years.[1] Manuel signed the
application and left to Perla the task of supplying the information needed in the
application.[2] Respondent Ma. Celeste Abcede, Perlas daughter, signed the application
as sales counselor.[3]

Aside from pension benefits, the comprehensive pension plan also provided life
insurance coverage to Florendo.[4] This was covered by a Group Master Policy that
Philippine American Life Insurance Company (Philam Life) issued to Philam Plans.[5] Under
the master policy, Philam Life was to automatically provide life insurance coverage,
including accidental death, to all who signed up for Philam Plans comprehensive pension
plan.[6] If the plan holder died before the maturity of the plan, his beneficiary was to
instead receive the proceeds of the life insurance, equivalent to the pre-need
price. Further, the life insurance was to take care of any unpaid premium until the pension
plan matured, entitling the beneficiary to the maturity value of the pension plan.[7]

On October 30, 1997 Philam Plans issued Pension Plan Agreement PP43005584[8] to
Manuel, with petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel
paid his quarterly premiums.[9]
Eleven months later or on September 15, 1998, Manuel died of blood
poisoning. Subsequently, Lourdes filed a claim with Philam Plans for the payment of the
benefits under her husbands plan.[10] Because Manuel died before his pension plan
matured and his wife was to get only the benefits of his life insurance, Philam Plans
forwarded her claim to Philam Life.[11]

On May 3, 1999 Philam Plans wrote Lourdes a letter,[12] declining her claim. Philam
Life found that Manuel was on maintenance medicine for his heart and had an
implanted pacemaker. Further, he suffered from diabetes mellitus and was taking
insulin. Lourdes renewed her demand for payment under the plan[13] but Philam Plans
rejected it,[14] prompting her to file the present action against the pension plan company
before the Regional Trial Court (RTC) of Quezon City.[15]

On March 30, 2006 the RTC rendered judgment,[16] ordering Philam Plans, Perla
and Ma. Celeste, solidarily, to pay Lourdes all the benefits from her husbands pension
plan, namely: P997,050.00, the proceeds of his term insurance, and P2,890,000.00 lump
sum pension benefit upon maturity of his plan; P100,000.00 as moral damages; and to
pay the costs of the suit. The RTC ruled that Manuel was not guilty of concealing the state
of his health from his pension plan application.

On December 18, 2007 the Court of Appeals (CA) reversed the RTC
decision,[17] holding that insurance policies are traditionally contracts uberrimae fidae or
contracts of utmost good faith. As such, it required Manuel to disclose to Philam Plans
conditions affecting the risk of which he was aware or material facts that he knew or
ought to know.[18]
Issues Presented

The issues presented in this case are:

1. Whether or not the CA erred in finding Manuel guilty of concealing his illness
when he kept blank and did not answer questions in his pension plan application
regarding the ailments he suffered from;

2. Whether or not the CA erred in holding that Manuel was bound by the failure of
respondents Perla and Ma. Celeste to declare the condition of Manuels health in the
pension plan application; and

3. Whether or not the CA erred in finding that Philam Plans approval of Manuels
pension plan application and acceptance of his premium payments precluded it from
denying Lourdes claim.

Rulings of the Court

One. Lourdes points out that, seeing the unfilled spaces in Manuels pension plan
application relating to his medical history, Philam Plans should have returned it to him for
completion. Since Philam Plans chose to approve the application just as it was, it cannot
cry concealment on Manuels part. Further, Lourdes adds that Philam Plans never queried
Manuel directly regarding the state of his health. Consequently, it could not blame him
for not mentioning it.[19]

But Lourdes is shifting to Philam Plans the burden of putting on the pension plan
application the true state of Manuels health. She forgets that since Philam Plans waived
medical examination for Manuel, it had to rely largely on his stating the truth regarding
his health in his application. For, after all, he knew more than anyone that he had been
under treatment for heart condition and diabetes for more than five years preceding his
submission of that application. But he kept those crucial facts from Philam Plans.

Besides, when Manuel signed the pension plan application, he adopted as his own the
written representations and declarations embodied in it. It is clear from these
representations that he concealed his chronic heart ailment and diabetes from Philam
Plans. The pertinent portion of his representations and declarations read as follows:
I hereby represent and declare to the best of my knowledge that:

xxxx
(c) I have never been treated for heart condition, high blood pressure,
cancer, diabetes, lung, kidney or stomach disorder or any other
physical impairment in the last five years.

(d) I am in good health and physical condition.

If your answer to any of the statements above reveal otherwise, please give
details in the space provided for:

Date of confinement : ____________________________


Name of Hospital or Clinic : ____________________________
Name of Attending Physician : ____________________________
Findings : ____________________________
Others: (Please specify) : ____________________________
x x x x.[20] (Emphasis supplied)
Since Manuel signed the application without filling in the details regarding his
continuing treatments for heart condition and diabetes, the assumption is that he has
never been treated for the said illnesses in the last five years preceding his
application. This is implicit from the phrase If your answer to any of the statements above
(specifically, the statement: I have never been treated for heart condition or diabetes)
reveal otherwise, please give details in the space provided for. But this is untrue since he
had been on Coumadin, a treatment for venous thrombosis,[21] and insulin, a drug used
in the treatment of diabetes mellitus, at that time.[22]

Lourdes insists that Manuel had concealed nothing since Perla, the soliciting
agent, knew that Manuel had a pacemaker implanted on his chest in the 70s or about
20 years before he signed up for the pension plan.[23] But by its tenor, the responsibility for
preparing the application belonged to Manuel. Nothing in it implies that someone else
may provide the information that Philam Plans needed. Manuel cannot sign the
application and disown the responsibility for having it filled up. If he furnished Perla the
needed information and delegated to her the filling up of the application, then she
acted on his instruction, not on Philam Plans instruction.

Lourdes next points out that it made no difference if Manuel failed to reveal the
fact that he had a pacemaker implant in the early 70s since this did not fall within the
five-year timeframe that the disclosure contemplated.[24] But a pacemaker is an
electronic device implanted into the body and connected to the wall of the heart,
designed to provide regular, mild, electric shock that stimulates the contraction of the
heart muscles and restores normalcy to the heartbeat.[25] That Manuel still had his
pacemaker when he applied for a pension plan in October 1997 is an admission that he
remained under treatment for irregular heartbeat within five years preceding that
application.

Besides, as already stated, Manuel had been taking medicine for his heart
condition and diabetes when he submitted his pension plan application. These clearly
fell within the five-year period. More, even if Perlas knowledge of Manuels pacemaker
may be applied to Philam Plans under the theory of imputed knowledge,[26] it is not
claimed that Perla was aware of his two other afflictions that needed medical
treatments. Pursuant to Section 27[27] of the Insurance Code, Manuels concealment
entitles Philam Plans to rescind its contract of insurance with him.
Two. Lourdes contends that the mere fact that Manuel signed the application in blank
and let Perla fill in the required details did not make her his agent and bind him to her
concealment of his true state of health. Since there is no evidence of collusion between
them, Perlas fault must be considered solely her own and cannot prejudice Manuel.[28]

But Manuel forgot that in signing the pension plan application, he certified that he wrote
all the information stated in it or had someone do it under his direction. Thus:

APPLICATION FOR PENSION PLAN


(Comprehensive)

I hereby apply to purchase from PHILAM PLANS, INC. a Pension Plan


Program described herein in accordance with the General Provisions set
forth in this application and hereby certify that the date and other
information stated herein are written by me or under my direction. x x
x.[29] (Emphasis supplied)

Assuming that it was Perla who filled up the application form, Manuel is still bound
by what it contains since he certified that he authorized her action. Philam Plans had
every right to act on the faith of that certification.

Lourdes could not seek comfort from her claim that Perla had assured Manuel that
the state of his health would not hinder the approval of his application and that what is
written on his application made no difference to the insurance company. But,
indubitably, Manuel was made aware when he signed the pension plan application that,
in granting the same, Philam Plans and Philam Life were acting on the truth of the
representations contained in that application. Thus:
DECLARATIONS AND REPRESENTATIONS

xxxx

I agree that the insurance coverage of this application is based on


the truth of the foregoing representations and is subject to the provisions of
the Group Life Insurance Policy issued by THE PHILIPPINE AMERICAN LIFE
INSURANCE CO. to PHILAM PLANS, INC.[30] (Emphasis supplied)

As the Court said in New Life Enterprises v. Court of Appeals:[31]

It may be true that x x x insured persons may accept policies without


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

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

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

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

VIII. INCONTESTABILITY

After this Agreement has remained in force for one (1) year, we can
no longer contest for health reasons any claim for insurance under this
Agreement, except for the reason that installment has not been paid
(lapsed), or that you are not insurable at the time you bought this pension
program by reason of age. If this Agreement lapses but is reinstated
afterwards, the one (1) year contestability period shall start again on the
date of approval of your request for reinstatement.[35]

The above incontestability clause precludes the insurer from disowning liability
under the policy it issued on the ground of concealment or misrepresentation regarding
the health of the insured after a year of its issuance.

Since Manuel died on the eleventh month following the issuance of his plan,[36] the
one year incontestability period has not yet set in. Consequently, Philam Plans was not
barred from questioning Lourdes entitlement to the benefits of her husbands pension
plan.

WHEREFORE, the Court AFFIRMS in its entirety the decision of the Court of Appeals in CA-
G.R. CV 87085 dated December 18, 2007.

SO ORDERED.

ROBERTO A. ABAD
Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.


Associate Justice
Chairperson
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 105135 June 22, 1995

SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner,


vs.
The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA
BACANI, respondents.

QUIASON, J.:

This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court to
reverse and set aside the Decision dated February 21, 1992 of the Court of Appeals in
CA-G.R. CV No. 29068, and its Resolution dated April 22, 1992, denying reconsideration
thereof.

We grant the petition.

On April 15, 1986, Robert John B. Bacani procured a life insurance contract for
himself from petitioner. He was issued Policy No. 3-903-766-X valued at P100,000.00, with
double indemnity in case of accidental death. The designated beneficiary was his
mother, respondent Bernarda Bacani.

On June 26, 1987, the insured died in a plane crash. Respondent Bernarda
Bacani filed a claim with petitioner, seeking the benefits of the insurance policy taken
by her son. Petitioner conducted an investigation and its findings prompted it to reject
the claim.

In its letter, petitioner informed respondent Bernarda Bacani, that the insured did
not disclose material facts relevant to the issuance of the policy, thus rendering the
contract of insurance voidable. A check representing the total premiums paid in the
amount of P10,172.00 was attached to said letter.

Petitioner claimed that the insured gave false statements in his application when
he answered the following questions:

5. Within the past 5 years have you:

a) consulted any doctor or other health practitioner?

b) submitted to:
EGG?
X-rays?
blood tests?
other tests?

c) attended or been admitted to any hospital or other medical facility?

6. Have you ever had or sought advice for:

xxx xxx xxx

b) urine, kidney or bladder disorder? (Rollo, p. 53)

The deceased answered question No. 5(a) in the affirmative but limited his
answer to a consultation with a certain Dr. Reinaldo D. Raymundo of the Chinese
General Hospital on February 1986, for cough and flu complications. The other
questions were answered in the negative (Rollo, p. 53).

Petitioner discovered that two weeks prior to his application for insurance, the
insured was examined and confined at the Lung Center of the Philippines, where he
was diagnosed for renal failure. During his confinement, the deceased was subjected
to urinalysis, ultra-sonography and hematology tests.

On November 17, 1988, respondent Bernarda Bacani and her husband,


respondent Rolando Bacani, filed an action for specific performance against petitioner
with the Regional Trial Court, Branch 191, Valenzuela, Metro Manila. Petitioner filed its
answer with counterclaim and a list of exhibits consisting of medical records furnished
by the Lung Center of the Philippines.

On January 14, 1990, private respondents filed a "Proposed Stipulation with


Prayer for Summary Judgment" where they manifested that they "have no evidence to
refute the documentary evidence of concealment/misrepresentation by the decedent
of his health condition (Rollo, p. 62).

Petitioner filed its Request for Admissions relative to the authenticity and due
execution of several documents as well as allegations regarding the health of the
insured. Private respondents failed to oppose said request or reply thereto, thereby
rendering an admission of the matters alleged.

Petitioner then moved for a summary judgment and the trial court decided in
favor of private respondents. The dispositive portion of the decision is reproduced as
follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendant, condemning the latter to pay the former the amount of One Hundred
Thousand Pesos (P100,000.00) the face value of insured's Insurance Policy No. 3903766,
and the Accidental Death Benefit in the amount of One Hundred Thousand Pesos
(P100,000.00) and further sum of P5,000.00 in the concept of reasonable attorney's fees
and costs of suit.
Defendant's counterclaim is hereby Dismissed (Rollo, pp. 43-44).

In ruling for private respondents, the trial court concluded that the facts
concealed by the insured were made in good faith and under a belief that they need
not be disclosed. Moreover, it held that the health history of the insured was immaterial
since the insurance policy was "non-medical".

Petitioner appealed to the Court of Appeals, which affirmed the decision of the
trial court. The appellate court ruled that petitioner cannot avoid its obligation by
claiming concealment because the cause of death was unrelated to the facts
concealed by the insured. It also sustained the finding of the trial court that matters
relating to the health history of the insured were irrelevant since petitioner waived the
medical examination prior to the approval and issuance of the insurance policy.
Moreover, the appellate court agreed with the trial court that the policy was "non-
medical" (Rollo, pp. 4-5).

Petitioner's motion for reconsideration was denied; hence, this petition.

II

We reverse the decision of the Court of Appeals.

The rule that factual findings of the lower court and the appellate court are
binding on this Court is not absolute and admits of exceptions, such as when the
judgment is based on a misappreciation of the facts (Geronimo v. Court of Appeals,
224 SCRA 494 [1993]).

In weighing the evidence presented, the trial court concluded that indeed there
was concealment and misrepresentation, however, the same was made in "good faith"
and the facts concealed or misrepresented were irrelevant since the policy was "non-
medical". We disagree.

Section 26 of The Insurance Code is explicit in requiring a party to a contract of


insurance to communicate to the other, in good faith, all facts within his knowledge
which are material to the contract and as to which he makes no warranty, and which
the other has no means of ascertaining. Said Section provides:

A neglect to communicate that which a party knows and ought to


communicate, is called concealment.

Materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom communication is due, in
forming his estimate of the disadvantages of the proposed contract or in making his
inquiries (The Insurance Code, Sec. 31).

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

In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality
of the information withheld does not depend on the state of mind of the insured.
Neither does it depend on the actual or physical events which ensue.

Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact
that he was hospitalized for two weeks prior to filing his application for insurance, raises
grave doubts about his bonafides. It appears that such concealment was deliberate on
his part.

The argument, that petitioner's waiver of the medical examination of the insured
debunks the materiality of the facts concealed, is untenable. We reiterate our ruling
in Saturnino v. Philippine American Life Insurance Company, 7 SCRA 316 (1963), that " . .
. the waiver of a medical examination [in a non-medical insurance contract] renders
even more material the information required of the applicant concerning previous
condition of health and diseases suffered, for such information necessarily constitutes
an important factor which the insurer takes into consideration in deciding whether to
issue the policy or not . . . "

Moreover, such argument of private respondents would make Section 27 of the


Insurance Code, which allows the injured party to rescind a contract of insurance
where there is concealment, ineffective (See Vda. de Canilang v. Court of
Appeals, supra).

Anent the finding that the facts concealed had no bearing to the cause of death of
the insured, it is well settled that the insured need not die of the disease he had failed to
disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in forming
his estimates of the risks of the proposed insurance policy or in making inquiries (Henson
v. The Philippine American Life Insurance Co., 56 O.G. No. 48 [1960]).

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

WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is
REVERSED and SET ASIDE.

SO ORDERED.

Padilla, Davide, Jr., Bellosillo and Kapunan, JJ., concur.


Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 92492 June 17, 1993

THELMA VDA. DE CANILANG, petitioner,


vs.
HON. COURT OF APPEALS and GREAT PACIFIC LIFE ASSURANCE
CORPORATION, respondents.

Simeon C. Sato for petitioner.

FELICIANO, J.:

On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed
as suffering from "sinus tachycardia." The doctor prescribed the following fro
him: Trazepam, a tranquilizer; and Aptin, a beta-blocker drug. Mr. Canilang consulted
the same doctor again on 3 August 1982 and this time was found to have "acute
bronchitis."

On next day, 4 August 1982, Jaime Canilang applied for a "non-medical" insurance
policy with respondent Great Pacific Life Assurance Company ("Great Pacific") naming
his wife, Thelma Canilang, as his beneficiary.1 Jaime Canilang was issued ordinary life
insurance Policy No. 345163, with the face value of P19,700, effective as of 9 August
1982.

On 5 August 1983, Jaime Canilang died of "congestive heart failure," "anemia," and
"chronic anemia."2 Petitioner, widow and beneficiary of the insured, filed a claim with
Great Pacific which the insurer denied on 5 December 1983 upon the ground that the
insured had concealed material information from it.

Petitioner then filed a complaint against Great Pacific with the Insurance Commission
for recovery of the insurance proceeds. During the hearing called by the Insurance
Commissioner, petitioner testified that she was not aware of any serious illness suffered
by her late husband3 and that, as far as she knew, her husband had died because of a
kidney disorder.4 A deposition given by Dr. Wilfredo Claudio was presented by
petitioner. There Dr. Claudio stated that he was the family physician of the deceased
Jaime Canilang5 and that he had previously treated him for "sinus tachycardia" and
"acute bronchitis."6 Great Pacific for its part presented Dr. Esperanza Quismorio, a
physician
and a medical underwriter working for Great Pacific.7 She testified that the deceased's
insurance application had been approved on the basis of his medical declaration.8 She
explained that as a rule, 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.9

In a decision dated 5 November 1985, Insurance Commissioner Armando Ansaldo


ordered Great Pacific to pay P19,700 plus legal interest and P2,000.00 as attorney's fees
after holding that:

1. the ailment of Jaime Canilang was not so serious that, even if it had been disclosed, it
would not have affected Great Pacific's decision to insure him;

2. Great Pacific had waived its right to inquire into the health condition of the applicant
by the issuance of the policy despite the lack of answers to "some of the pertinent
questions" in the insurance application;

3. there was no intentional concealment on the part of the insured Jaime Canilang as
he had thought that he was merely suffering from a minor ailment and simple
cold; 10 and

4. Batas Pambansa Blg. 847 which voids an insurance contract, whether or not
concealment was intentionally made, was not applicable to Canilang's case as that
law became effective only on 1 June 1985.

On appeal by Great Pacific, the Court of Appeals reversed and set aside the decision
of the Insurance Commissioner and dismissed Thelma Canilang's complaint and Great
Pacific's counterclaim. The Court of Appealed found that the use of the word
"intentionally" by the Insurance Commissioner in defining and resolving the issue agreed
upon by the parties at pre-trial before the Insurance Commissioner was not supported
by the evidence; that the issue agreed upon by the parties had been whether the
deceased insured, Jaime Canilang, made a material concealment as the state of his
health at the time of the filing of insurance application, justifying respondent's denial of
the claim. The Court of Appeals also found that the failure of Jaime Canilang to
disclose previous medical consultation and treatment constituted material information
which should have been communicated to Great Pacific to enable the latter to make
proper inquiries. The Court of Appeals finally held that the Ng Gan Zee case which had
involved misrepresentation was not applicable in respect of the case at bar which
involves concealment.

Petitioner Thelma Canilang is now before this Court on a Petition for Review
on Certiorari alleging that:

1. . . . the Honorable Court of Appeals, speaking with due respect, erred in not holding
that the issue in the case agreed upon between the parties before the Insurance
Commission is whether or not Jaime Canilang "intentionally" made material
concealment in stating his state of health;

2. . . . at any rate, the non-disclosure of certain facts about his previous health
conditions does not amount to fraud and private respondent is deemed to have
waived inquiry thereto. 11
The medical declaration which was set out in the application for insurance executed
by Jaime Canilang read as follows:

MEDICAL DECLARATION

I hereby declare that:

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

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

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

EXCEPTIONS:

________________________________________________________________________________

GENERAL DECLARATION

I hereby declare that all the foregoing answers and statements are complete, true and
correct. I hereby agree that if there be any fraud or misrepresentation in the above
statements material to the risk, the INSURANCE COMPANY upon discovery within two (2)
years from the effective date of insurance shall have the right to declare such
insurance null and void. That the liabilities of the Company under the said
Policy/TA/Certificate shall accrue and begin only from the date of commencement of
risk stated in the Policy/TA/Certificate, provided that the first premium is paid and the
Policy/TA/Certificate is delivered to, and accepted by me in person, when I am in
actual good health.

Signed at Manila his 4th day of August, 1992.

Illegible
——————————
Signature of Applicant. 12

We note that in addition to the negative statements made by Mr. Canilang in


paragraph 1 and 2 of the medical declaration, he failed to disclose in the appropriate
space, under the caption "Exceptions," that he had twice consulted Dr. Wilfredo B.
Claudio who had found him to be suffering from "sinus tachycardia" and "acute
bronchitis."

The relevant statutory provisions as they stood at the time Great Pacific issued the
contract of insurance and at the time Jaime Canilang died, are set out in P.D. No. 1460,
also known as the Insurance Code of 1978, which went into effect on 11 June 1978.
These provisions read as follows:
Sec. 26. A neglect to communicate that which a party knows and ought to
communicate, is called a concealment.

xxx xxx xxx

Sec. 28. Each party to a contract of insurance must communicate to the other, in good
faith, all factors within his knowledge which are material to the contract and as to
which he makes no warranty, and which the other has not the means of ascertaining.
(Emphasis supplied)

Under the foregoing provisions, the information concealed must be information which
the concealing party knew and "ought to [have] communicate[d]," that is to say,
information which was "material to the contract." The test of materiality is contained in
Section 31 of the Insurance Code of 1978 which reads:

Sec. 31. Materially is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in
forming his estimate of the disadvantages of the proposed contract, or in making his
inquiries. (Emphasis supplied)

"Sinus tachycardia" is considered present "when the heart rate exceeds 100 beats per
minute." 13 The symptoms of this condition include pounding in the chest and sometimes
faintness and weakness of the person affected. The following elaboration was offered
by Great Pacific and set out by the Court of Appeals in its Decision:

Sinus tachycardia is defined as sinus-initiated; heart rate faster than 100 beats per
minute. (Harrison' s Principles of Internal Medicine, 8th ed. [1978], p. 1193.) It is, among
others, a common reaction to heart disease, including myocardial infarction, and heart
failure per se. (Henry J.L. Marriot, M.D., Electrocardiography, 6th ed., [1977], p. 127.) The
medication prescribed by Dr. Claudio for treatment of Canilang's ailment on June 18,
1982, indicates the condition that said physician was trying to manage. Thus, he
prescribed Trazepam, (Philippine Index of Medical Specialties (PIMS), Vol. 14, No. 3,
Dec. 1985, p. 112) which is anti-anxiety, anti-convulsant, muscle-relaxant; and Aptin,
(Idem, p. 36) a cardiac drug, for palpitations and nervous heart. Such treatment could
have been a very material information to the insurer in determining the action to be
take on Canilang's application for life insurance coverage. 14

We agree with the Court of Appeals that 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 Canilang 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 or, at the very least, required a higher premium for the same coverage. 15 The
materiality of the information withheld by Great Pacific did not depend upon the state
of mind of Jaime Canilang. A man's state of mind or subjective belief is not capable of
proof in our judicial process, except through proof of external acts or failure to act from
which inferences as to his subjective belief may be reasonably drawn. Neither does
materiality depend upon the actual or physical events which ensue. Materiality relates
rather to the "probable and reasonable influence of the facts" upon the party to whom
the communication should have been made, in assessing the risk involved in making or
omitting to make further inquiries and in accepting the application for insurance; that
"probable and reasonable influence of the facts" concealed must, of course, be
determined objectively, by the judge ultimately.

The insurance Great Pacific applied for was a "non-medical" insurance policy.
In Saturnino v. Philippine-American Life Insurance Company, 16 this Court held that:

. . . if anything, the waiver of 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 . . . . 17 (Emphasis supplied)

The Insurance Commissioner had also ruled that the failure of Great Pacific to convey
certain information to the insurer was not "intentional" in nature, for the reason that
Jaime Canilang believed that he was suffering from minor ailment like a common cold.
Section 27 of the Insurance Code of 1978 as it existed from 1974 up to 1985, that is,
throughout the time range material for present purposes, provided that:

Sec. 27. A concealment entitles the injured party to rescind a contract of insurance.

The preceding statute, Act No. 2427, as it stood from 1914 up to 1974, had provided:

Sec. 26. A concealment, whether intentional or unintentional, entitles the injured party
to rescind a contract of insurance. (Emphasis supplied)

Upon the other hand, in 1985, the Insurance Code of 1978 was amended by
B.P. Blg. 874. This subsequent statute modified Section 27 of the Insurance Code of 1978
so as to read as follows:

Sec. 27. A concealment whether intentional or unintentional entitles the injured party to
rescind a contract of insurance. (Emphasis supplied)

The unspoken theory of the Insurance Commissioner appears to have been that by
deleting the phrase "intentional or unintentional," the Insurance Code of 1978 (prior to its
amendment by B.P. Blg. 874) intended to limit the kinds of concealment which
generate a right to rescind on the part of the injured party to "intentional
concealments." This argument is not persuasive. As a simple matter of grammar, it may
be noted that "intentional" and "unintentional" cancel each other out. The net result
therefore of the phrase "whether intentional or unitentional" is precisely to leave
unqualified the term "concealment." Thus, Section 27 of the Insurance Code of 1978 is
properly read as referring to "any concealment" without regard to whether such
concealment is intentional or unintentional. The phrase "whether intentional or
unintentional" was in fact superfluous. The deletion of the phrase "whether intentional or
unintentional" could not have had the effect of imposing an affirmative requirement
that a concealment must be intentional if it is to entitle the injured party to rescind a
contract of insurance. The restoration in 1985 by B.P. Blg. 874 of the phrase "whether
intentional or unintentional" merely underscored the fact that all throughout (from 1914
to 1985), the statute did not require proof that concealment must be "intentional" in
order to authorize rescission by the injured party.

In any case, in the case at bar, the nature of the facts not conveyed to the insurer was
such that the failure to communicate must have been intentional rather than merely
inadvertent. For Jaime Canilang could not have been unaware that his heart beat
would at times rise to high and alarming levels and that he had consulted a doctor
twice in the two (2) months before applying for non-medical insurance. Indeed, the last
medical consultation took place just the day before the insurance application was
filed. In all probability, Jaime Canilang went to visit his doctor precisely because of the
discomfort and concern brought about by his experiencing "sinus tachycardia."

We find it difficult to take seriously the argument that Great Pacific had waived inquiry
into the concealment by issuing the insurance policy notwithstanding Canilang's failure
to set out answers to some of the questions in the insurance application. Such failure
precisely constituted concealment on the part of Canilang. Petitioner's argument, if
accepted, would obviously erase Section 27 from the Insurance Code of 1978.

It remains only to note that the Court of Appeals finding that the parties
had not agreed in the pretrial before the Insurance Commission that the relevant issue
was whether or not Jaime Canilang had intentionally concealed material information
from the insurer, was supported by the evidence of record, i.e., the Pre-trial Order itself
dated 17 October 1984 and the Minutes of the Pre-trial Conference dated 15 October
1984, which "readily shows that the word "intentional" does not appear in the statement
or definition of the issue in the said Order and Minutes." 18

WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the
Court of Appeals dated 16 October 1989 in C.A.-G.R. SP No. 08696 is hereby AFFIRMED.
No pronouncement as to the costs.

SO ORDERED.

Bidin, Davide, Jr., Romero and Melo, JJ., concur.