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NHY NOTES: INSURANCE (DE LEON) 1

TITLE 4: CONCEALMENT

Sec 26. A neglect to communicate that which a party
knows an ought to communicate, is called a
concealment

Four Primary Concerns of the Parties to an insurance
contract:
1. The correct estimation of the risk which enables
the insurer to decide whether he is willing to assume
it, and if so at what rate of premium
2. The precise delimitation of risk which determines
the extent of the contingent duty to pay undertaken
by the insurer
3. Such control of the risk after it is assumed as will
enable the insurer to guard against the increase of
risk because of change in condition
4. Determining whether a loss occurred and if so,
the amount of such loss

Devices for ascertaining and controlling risk and loss
1. Concealment
2. Representation
3. Warranties
4. Exception
5. Executory Warranties
6. Condition Precedent

Concealment and Representation:
- PURPOSE: to enable the insurer to secure the same
information with respect to the risk that was
possessed by the applicant

Warranties:
- Affirmative- dealing with the conditions existing at
the inception of the contract

Exceptions:
- Making more definite the coverage indicated by the
general description of the risk by excluding certain
specified risks
- Used in order to control risk

Executory Warranties:
- Undertakings that certain conditions should or should
not exist in the future

Condition Precedent
- As a protection against fraudulent claims of loss
- Examples:
o Requiring immediate notice
o Detailed proof of loss
o Amount of any loss

CONCEALMENT:
- As a neglect to communicate that which a party
KNOWS and OUGHT to communicate

Requisites:
1. A party knows the fact which he neglects to
communicate or disclose to the other
2. Such party concealing is duty bound to disclose such
fact to the other
3. Such party concealing makes no warranty of the fact
concealed
4. The other party has no means of ascertaining the
facts concealed

WITH WARRANTY- NON DISCLOSURE IS NOT CONCEALMENT
- Constitutes as a violation of warranty

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

- Ordinary concealment

Effect of Concealment:
1. By the insured- makes the contract voidable at the
insurer’s option
a. Reason: Uberrimae Fidae
b. Not limited to material facts which the
applicant knows, but extends to those which
he ought to know
c. Those necessary for the insurer to evaluate
the risk (charger a higher premium or
refusing to issue the policy)
d. No defense of plead mistake or forgetfulness
2. By the Insurer- duty to disclose is more stringent
since his dominant bargaining position carries with it
strict responsibility

Proof of fraud in concealment:
1. Existence of Fraud not required
a. Duty of communication is independent from
intention (even with no design to deceive)
b. Legal effect whether intentional or
unintentional are the SAME
2. Reason:
a. Without which, there is no incentive of the
applicant to tell the truth
3. Basis and criterion for provision:
a. It misleads or deceives the insurer into
accepting the risk

Rules as to marine insurance (read):
1. US:
2. Philippines

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

Matters that must be communicated even in the
absence of inquiry:
1. They are material to the contract
2. The other has no means of ascertaining the said facts
3. As to which the party with the duty to communicate
makes no warranty

- Must disclose such facts even if not inquired into
where such facts are material to the risk assumed by
the insurer
- THE TEST: if the applicant is aware of the existence
of some circumstances which he knows would
influence the insurer in acting upon his application,
good faith requires him to disclose even if unasked

Effect of Failure of Insurer to verify:
- There is no such obligation to verify
- The effect of material concealment cannot be avoided
by the allegation that the insurer could have known
and discovered the illness or disease, which the
insured had concealed.

Sec 29. An intentional or fraudulent omission, on the
part of one insured, to communicate information of
matters proving or tending to prove the falsity of a
warranty, entitled the insured to rescind

When fraudulent intent necessary
- The omission is on the party of the insured
- Party entitled to rescind is the insurer

Sec 30. Neither party to a contract of insurance is bound
to communicate information of the matters following,
except in answer to inquiries of the other:
1. Those which the other knows;
2. Those which, in the exercise of ordinary care,
the other ought to know, and of which the
former has no reason to suppose him ignorant;
3. Those of which the other waives
communication;
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4. Those which prove or tend to prove the
existence of a risk excluded by warranty, and
which are not otherwise material; and
5. Those which relate to a risk excepted from the
policy and which are not otherwise material

Matters made the subject of special inquiries material

GENERAL PROPOSITION: matters made the subject of
inquiry must be deemed material, even though otherwise they
might not be so regarded.

Failure of an apparently complete answer to make full
disclosure will avoid the policy.

Answer incomplete on its face will not defeat the policy in
the absence of bad faith

Where there is no duty to make disclosure:
1. Matters known to, or right to be known by insurer, or
of which he waives disclosure
a. No deception in this case
2. Risks expected from the policy
a. Must be NOT MATERIAL, otherwise rule will
not apply
3. Nature or amount of insured’s interest

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 disadvantage of the
proposed contract, or in making his inquiries.

Test of Materiality:
1. Knowledge of the fact in question would have on the
making of the contract
2. Fact need not increase the risk or contribute to any
loss or damage suffered
3. Mere influence is enough

From the standpoint of the insurer:
- Probable and reasonable influence upon the insurer in
assessing the risk involved
- In non-medical insurance (which do away with
medical examination):
o Renders the information required more
material concerning the previous condition of
health and disease suffered
o Important factor which the insurer takes into
consideration in deciding whether to issue
the policy or not
- Insurer may rescind the contract of insurance and
delay payment on the ground of concealment and/or
misrepresentation
- Insurer was ordered to refund the premiums paid
by the deceased insured with legal interest from
the time payment was made.

When concealment regarded as intentional:
- Nature of the fact as basis
- May be such that the failure of the insured to
communicate must be intentional rather than
inadvertent
- EXAMPLES:
o Operated for cancer involving complete
removal of the right breast- even though the
doctor never told her that it was for cancer
o Case involving non disclosure of the father
insuring his mongoloid child
o Intentional on the party of the insured who
could not have been unaware that his heart
beat would at times risk to high and
alarming level; this case the insured visited
a doctor 2 months before applying for non-
medical insurance and the last medical
consultation was a day prior to filing of the
application

When fact concealed not material:
- Not guilty of concealment
- EXAMPLE:
o Insured underwent ECG and results showed
a normal condition

Time when information acquired:
1. After contract has become effective – not duty to
disclose even if the policy is yet to issue
a. The duty of disclosure ends with the
completion and effectivity of the contract
2. Before contract becomes effective- under a duty to
disclose
a. Between the date of submitting his
application after satisfactory medical
examination and the date the policy is
delivered

Sec 32. Each party to a contract of insurance is bound to
know all the general causes which are open to his
inquiry, equally with that of the other, and which may
affect the political or material perils contemplated; and
all general usage of trade.

Matters each party bound to know:
1. Public events
2. Nation is at war
3. The laws and political conditions in other countries
4. Allegiance of particular countries
5. General trade usages
6. Rules of navigation
7. Kind of seasons
8. Risk connected with navigation

- Need not communicate

Sec 33. The right to information of material facts may
be waived, either by the terms of insurance or by
neglect to make inquiries as o such facts where they are
distinctly implied in other facts of which information is
communicated.

Right to information may be waived
1. Expressly- terms of insurance
2. Impliedly- neglect to make inquiry as to the facts
already communication

- Life insurance companies ordinarily require
completion of a detailed application form and
frequently, a medical examination. Thus, the insured
would be justified in assuming that the insurer has
asked all the information deemed material to the
approval of the application

Insured had every means to ascertain truth of matters alleged
in the application:
- When it appears that the insured had faithfully
answers the questions in the application to the best of
her knowledge
- Indicated the addresses and names of persons,
laboratories and hospitals when and where she had
consultations

Insured lacked sufficient medical knowledge as to enable him
to distinguish between “peptic ulcer” and “tumor”
- Such statement must be presumed to have been
made by him without knowledge of its incorrectness
and without any deliberate intent on his party to
mislead the insurer
- Even if the information given was imperfect, the
insurer had the opportunity to make further inquiries

Sec 34. Information of the nature or amount of the
interest of one insured need not be communicated
unless in answer to an inquiry, excepted as prescribed
by Section fifty-one.

Disclosure of nature and extent of interest of insured.
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SEC 51 (e): it is required that a policy of insurance must
specify “the interest of the insured in property insured, if he is
not the absolute owner thereof.”

- Mortgagee must disclose even without inquiry –to
know insurable interest
- No need to disclose the interest in the property
insured if it is absolute

Sec 35. Neither party to a contract of insurance is bound
to communicate, even upon inquiry, information of his
own judgment upon the matters in question.

Disclosure of judgment upon the matters in question:
- No duty to disclose:
o Opinion
o Speculation
o Intention
o Expectation


TITLE 5: REPRESENTATION

Sec 36. A representation may be oral or written.

Representation:
- Is a statement made by the insured at the time of, or
prior to, the issuance of the policy
- May be made by both insured and insurer (but more
on insured)

Misrepresentation (is a statement):
1. As a fact of something which is untrue
2. Which the insured stated with knowledge that it is
untrue and with an intent to deceive, or which he
states positively as true without knowing it to be true
and which has a tendency to mislead
3. Where such fact in either case is material to the risk

- renders the insurance voidable at the option of the
insurer, even if MADE AND WITHOUT WRONGFUL
INTENT
- viewed as an active form of concealment

Form and nature of representation
1. Information given concerning risk
a. Duty of the person applying for insurance
b. May be given orally or written
2. Forms basis of contract
a. Information thus given forms the basis of
the contract as made
b. Describes, marks out, and defines the risk
assumed
3. Intended as collateral inducements
a. Representations may be made
communicated in any manner whatsoever
that is intelligible
b. But they do not form part of the contract
unless expressly made so

Sec 37. A representation may be made at the time of, or
before, issuance of the policy

Time when representation may be made
- The very nature of representation requires that it
precede the execution of the contract
- The insurer must be induced by the misrepresentation
of the insured to issue the policy at a specified
premium (thus a representation made after the policy
has been issued could not have influenced the party)
- PERFORMANCE of the representation may be made
AFTER the issuance of the policy

Sec. 38. The language of a representation is to be
interpreted by the same rules as the language of
contracts in general

Construction of representations
- Construed liberally in favor of the insured
- Required to be substantially true

Justification:
1. Representation is written in the policy- the language in
which it is expressed was chosen by the insurer
2. If it answers a inquiry- the agent of the insurer usually
phrases the answer to a question worded by the insurer

Illustrative Cases:
1. Question as to liquor- construed as referring to
habitual use and not to occasional use or even
occasional spree
2. Question as to having any illness- held that this
representation was substantially true even if insured
was discharged from the army for inflammation in the
eyes
3. Questions as to illness or disease- refer to serious
ailment and not ot minor indisposition

Sec 39. A representation as to the future is to be
deemed a promise, unless it appears that it was merely
a statement of belief or expectation

Kinds of representations:
1. Oral or written
2. Made at the time of issuing the policy or before
3. Affirmative or promissory

Affirmative Representation:
- Any allegation as to the existence or non existence of
a fact when the contract begins

Promissory Representation:
- Is any promise to be fulfilled after the contract has
come into existence or any statement concerning
what is to happen during the existence of the
insurance
- Substantially a condition or a warranty

Nature of promissory representation:
1. Used to indicate a parol or oral promise made in
connection with the insurance, but not incorporated in
the policy
a. Non-performance- cannot be shown by the
insurer in defense to an action on the policy
b. If promise was fraudulent- will serve to
defeat the insurance
2. Undertaking by the insured, inserted in the policy, but
not specifically made a warranty
a. Merely an executory term of the contract
b. Not properly a representation
EXAMPLE:
- applicant of fire insurance on a building makes a
promise contained in the policy that it shall be
occupied, induces the insurer to issue the policy at a
lower rate
o this is not representation
o performance of which may be made a
condition of the insurer’s liability
o promise is ORAL- not allowed to prove by
operation of the rule of evidence

Effect on policy of expressions of opinion or expectation
1. Good Faith/Bad Faith of the insured:
a. Although false will not avoid a policy of
insurance if there is
i. NO ACTUAL FRAUD in inducing the
acceptance of the risk
ii. No acceptance at a lower premium
b. If the statement is material to the risk
i. Insurer is not justified in relying
upon such a statement, but is
obligated to make further inquiry
2. Liability of the insurer:
a. Intention, opinion, belief- the insurer must
prove both materiality of the insured’s
opinion and the latter’s intent to deceive
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b. Fact- insurer needs to prove it its falsity and
materiality; intent to deceive is presumed

When representation deemed a mere expression of
opinion.
1. As to a future event or condition over which insured
has no control with reference to the property or life
insured

Sec 40. A representation cannot qualify an express
provision in a contract of insurance but it may qualify an
implied warranty.

- This is because an insurance is not a part of the
contract merely a collateral inducement
- but may qualify implied warranty

Implied Warranty Example:
- Insured makes a representation that the vessel
insured was deficient for the voyage because it was
not duly manned, such representation may qualify
the implied warranty that the vessel is seaworthy

Sec 41. A representation may be altered or withdrawn
before the insurance is effected, but not afterwards

- Because risk has already been contemplated

Sec 42. A representation mst be presumed to refer to
the date on which the contract goes in effect

Time to which representation refers:
1. No representation- statements promissory of
conditions to exist SUBSEQUENT to the completion of
the contract may be conditions or warranties
2. False Representation- if it s true at the time it was
made but false at the time the contract takes effect
3. No False Representation- it it is true at the time
the contract takes affect although false at the time it
was made and vice versa

Examples (check book; important!)

Sec 43. When a person insured has no personal
knowledge of a fact, he may nevertheless repeat
information which he has upon the subject, and which
he believes to be true, with the explanation that he does
so on the information of others; or he may submit the
information, in its whole extent, to the insurer; and in
neither case is he responsible for its truth, unless it
proceeds from an agent of the insured, whose duty it is
to give the information

Effect of information obtained from third persons
- he is not responsible therefore, PROVIDED he gives
explanation that he does so on the information of
others

Party orders insurance, and afterwards receives
information material to the risk or has knowledge of the
loss
- he ought to communicate such information to his
agent with due and reasonable diligence
- Purpose of countermaning the order; or laying the
circumstances before the insurer

When a person has no personal knowledge of a fact, he
may:
1. Repeat information upon the subject which he
believes to be true
2. Explanation that he does so on the information of
others
3. Submit the information in tis whole extent

Effect where information obtained form agent of
insured/insurer:
1. Agent of the insured- insured will be liable for the
truth if:
a. Information proceeds from the agent
b. Duty in the ordinary course of business to
communicate such information to its
principal
c. Possible for the agent under such
circumstances in the exercise of due
diligence to have made such communication
2. Agent of the insurer- same as the case of insured

Sec 44. A representation is to deemed false hen the
facts fail to correspond with is assertions or stipulations

- Representations are not required to be literally true;
they need only be substantially true
- IN ORDER THAT A POLICY SHALL BE AVOIDED- a
representation relied upon must be false in a
substantial and material respect

When representation is substantially true:
- when it is true in every particular material to the risk
- true that the conduct of the insurer would not have
been different
- if the exact truth has been alleged

Marine Insurance:
- Substantial truth of a representation is not sufficient

A statement that the applicant is in good health:
- Not to mean that he is in perfect health, but that he
is not aware of any disease of such a serious nature
as to impair his health permanently

Construction of representation as affirmative:
- A representation written in the policy even in such
form as to admit of its being construed as an
executory agreement or promissory representation
will rather be construed, when possible, as an
affirmative representation of a present fact in order to
save the policy from avoidance

Sec 45. If a representation is false in a material point,
whether affirmative or promissory, the injured party is
entitled to rescind the contract from the time when the
representation becomes false. The right to rescind
granted by this Code to the insurer is waived by the
acceptance of premium payments despite knowledge of
the ground for rescission.

Effect of falsity of representation:
- Fraud or intent to misinterpret facts is not essential to
entitle the injured party to rescind a contract of
insurance on the ground of false representation
- Representation of fact are the foundation of the
contract, and if the foundation does not exist, the
superstructure does not arise

Effect of collusion or fraud of agent of insurer
1. Collusion with insured- will vitiate the policy even
though the agent is acting within the apparent scope
of his authority
a. The agent ceases to represent his principal,
so the insurer is not estopped
2. Principal of agent-
a. Insured merely signed the application form
and made the agent fill it up= the insured
made the agent of the insurer his own agent
b. Insurer required its medical examiner to
answer – the writer of the application is not
the agent of the insured; insurer is liable
when its agent writes a false answer into the
application without the knowledge of the
insured

Sec 46. The materiality of a representation is
determined by the same rules as the materiality of a
concealment.

Materiality of representation:
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1. Test of Materiality- determined not by the event, but
solely by the probable and reasonable influence of the
facts upon the party to whom the representation is
made (in forming his estimates)
2. Materiality, a judicial question- the court would
reasonably affect the insurer’s judgments

Concealment and misrepresentation compared

CONCEALMENT MISINTERPRETATION
Insured withholds information
of material facts from the
insurer
Insured makes erroneous
statements of facts with the
intent of inducing the insurer
to enter into the insurance
contracts
Same rules on materiality same rules
Gives the insurer the right to
rescind the contract
-same-
Whether international or not,
the injured party is entitled to
rescind a contract of
insurance
- same -
Rules also applies to insurer - same -

Sec 47. The provisions of his chapter apply as well to a
modification of a contract of insurance as to its original
formation

- not only apply to the original formation of the
contract but also to a modification of the same during
the time it is in force

Sec 48. Whenever a right to rescind a contract of
insurance is given to the insurer by any provision of this
chapter, such right must be exercised previous to the
commencement of an action on the contract

After a policy of life insurance made payable on the
death of the insured shall have been in force during the
lifetime of the insured for a period of two years from the
date of its issue or of its last reinstatement, the insurer
cannot prove that the policy is void ab initio or is
rescindible by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.

When an insurer must exercise his right to rescind

GENERAL RULE:
- a contract of insurance may be rescinded on the
ground of concealment, or false representation, or
breach of warranty
- First paragraph: existence of a contract to be
rescinded
o hence a defense to an action to recover
(nature of an action to rescind) and is,
therefore, not barred by the provision
o there is no time limit imposed for interposing
this defense

In non life policy- (first paragraph)
- right must be exercised prior to the commencement
of action on the contract
- right not longer available after the insured has filed
an action to collect the amount of the insurance.
- MATERIAL REPRESENTATION is FALSE- the insurer’s
tender of the premiums and notice that the policy is
cancelled before commencement of the suit thereon
operates to rescind a contract of insurance

In life policy- (second paragraph)
- the defenses mentioned are available only during first
two years of a life insurance policy

Incontestability of life policies:
- stating that they shall be incontestable after a stated
period
- creates a contractual statute of limitations on certain
defenses that may be raised by the insurer
- MEANS:
o That after the requisites are shown to exist,
the insurer shall be estopped from
contesting the policy or setting up any
defense, except as is allowed, on the ground
of public policy

Theory and object of the incontestable clause:
1. As to the insurer- an insurer should have a
reasonable opportunity to investigate the statement,
which the applicant makes in procuring his policy.
After which insurer is not allowed to question
2. As to the insured- the clause has as its object to
give the greatest possible assurance to a policyholder
that his beneficiaries would receive payments without
question

Requisites for incontestability:
1. The policy is a life insurance policy
2. It is payable on the death of the insured
3. It has been in force during the lifetime of the insured
for at least 2 years from its date of issuance or of its
last reinstatement

2 years- may be shortened but it cannot be lengthened by
stipulation

during the lifetime- means that the policy is no longer
considered in force after the insured has died

Effect when policy becomes incontestable:
- The insurer may not refuse to pay the same by
claiming that:
o the policy is void ab initio; or
 should be understood in the sense
of “voidable” and the fraud
contemplated should refer to fraud
in the inducement
o it is rescissible by reason of the fraudulent
concealment of the insured or his agent, no
matter how patent or well-founded; or
o it is rescissible by reason of the fraudulent
misrepresentations of the insured or his
agent
- In case of reinstated policy:
o The period of contestability should be
counted from the date of reinstatement and
not from the date of the insurance of policy

Defenses not barred by incontestable clause:
- incontestability is not absolute. It only deprives the
insurer of those defenses which arise in connection
with the FORMATION AND OPERATION OF THE
POLICY PRIOR TO LOSS

1. That the person taking the insurance lacked insurable
interest as required by law
2. That the cause of the death of the insured is an
excepted risk
3. That the premiums have not been paid
4. That he conditions of the policy relating to military or
naval services have been violated
5. That the fraud is of a particularly vicious type
a. Policy was taken out in furtherance of a
scheme to murder the insured
b. Where the insured substitutes another
person for the medical examination
c. Where the beneficiary feloniously kills the
insured
6. That the beneficiary failed to furnish proof of death or
to comply with any condition imposed by the policy
after the loss has happened
7. That the action was not brought within the time
specified




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