You are on page 1of 5

Other Insurance Clause Respondent Insurance raised the following defenses

in its answer to wit: (a) lack of formal claim by insured over the
PACIFIC BANKING CORPORATION v. COURT OF APPEALS loss and (b) premature filing of the suit as neither plaintiff nor
and ORIENTAL ASSURANCE CORPORATION, G.R. No. L- insured had submitted any proof of loss on the basis of which
41014, November 28, 1988, J. PARAS defendant would determine its liability and the amount thereof,
either to the private respondent or its adjuster H.H. Bayne
As the insurance policy against fire expressly required that notice
Adjustment Co., both in violation of Policy Condition No.11
should be given by the insured of other insurance upon the same
property, the total absence of such notice nullifies the policy At the trial, petitioner presented in evidence Exhibit
"H", which is a communication dated December 22, 1965 of the
Undoubtedly, it is but fair and just that where the insured who is
insurance adjuster, H.H. Bayne Adjustment Co. to Asian Surety
primarily entitled to receive the proceeds of the policy has by its
Insurance Co., Inc., revealing undeclared co-insurances with
fraud and/or misrepresentation, forfeited said right, with more
the following: P30,000.00 with Wellington Insurance;
reason petitioner which is merely claiming as indorsee of said
P25,000. 00 with Empire Surety and P250,000.00 with
insured, cannot be entitled to such proceeds.
Asian Surety; undertaken by insured Paramount on the
FACTS: same property covered by its policy with private
respondent whereas the only co-insurances declared in the
On October 21,1963, Fire Policy, an open policy, was subject policy are those of P30,000.00 with Malayan
issued to the Paramount Shirt Manufacturing Co.(the Insured) P50,000.00 with South Sea and P25.000.00 with Victory
by which private respondent Oriental Assurance Corporation
bound itself to indemnify the insured for any loss or damage, not It will be noted that the defense of fraud and/or
exceeding P61,000.00, caused by fire to its property consisting violation of Condition No. 3 in the Policy, in the form of non-
of stocks, materials and supplies usual to a shirt factory, declaration of co-insurances which was not pleaded in the
including furniture, fixtures, machinery and equipment while answer was also not pleaded in the Motion to Dismiss.
contained in the ground, second and third floors of the building
TC: private respondent liable to the petitioner under the said
situated at San Nicolas, Manila, for a period of one year
contract of insurance
commencing from that date to October 21, 1964.
CA: reversed the decision of the trial court
The insured was at the time of the issuance of the
policy and is up to this time, a debtor of petitioner Pacific ISSUE/S:
Banking Corp. in the amount of not less than Eight Hundred
Thousand Pesos (P800,000.00) and the goods described in the 1. Whether the policy is void for non-disclosure of other
policy were held in trust by the insured for the petitioner under insurance which violated policy conditions No. 3?
thrust receipts.
2. If the policy is void, whether the mortgage is also bound by its
On January 4, 1964, while the aforesaid policy was in avoidance?
full force and effect, a fire broke out on the subject premises
destroying the goods contained in its ground and second floors. 3. Whether there is cause of action notwithstanding the
On January 24, 1964, counsel for the petitioner sent a letter of violation of policy condition No. 11?
demand to private respondent for indemnity due to the loss of
property by fire under the endorsement of said policy.
1. Yes. Policy Condition No. 3 explicitly provides:
On January 28, 1964, private respondent informed
counsel for the petitioner that it was not yet ready to accede to 3. The Insured shall give notice to the Company of any
the latter's demand as the former is awaiting the final report of insurance already effected, or which may subsequently be
the insurance adjuster, H.H. Bayne Adjustment Company. effected, covering any of the property hereby insured, and unless
such notice be given and the particulars of such insurance or
On March 25, 1964, the said insurance adjuster
insurances be stated in or endorsed on this Policy by or on behalf
notified counsel for the petitioner that the insured under the
of the Company before the occurrence of any loss or damage, all
policy had not filed any claim with it, nor submitted proof of loss
benefit under this policy shall be forfeited.
which is a clear violation of Policy Condition No.11, and for
which reason, determination of the liability of private It is not disputed that the insured failed to reveal
respondent could not be had. before the loss three other insurances. As found by the Court of
Appeals, by reason of said unrevealed insurances, the insured
On April 24, 1964, petitioner's counsel replied to
had been guilty of a false declaration; a clear misrepresentation
aforesaid letter asking the insurance adjuster to verify from the
and a vital one because where the insured had been asked to
records of the Bureau of Customs the entries of merchandise
reveal but did not, that was deception. Otherwise stated, had the
taken into the customs bonded warehouse razed by fire as a
insurer known that there were many co-insurances, it could
reliable proof of loss. For failure of the insurance company to
have hesitated or plainly desisted from entering into such
pay the loss as demanded, petitioner Pacific Banking on April
contract. Hence, the insured was guilty of clear fraud.
28, 1 964, filed in the court a quo an action for a sum of money
against the private respondent, Oriental Assurance Corporation, Petitioner's contention that the allegation of fraud is
in the principal sum of P61,000.00 issued in favor of Paramount but a mere inference or suspicion is untenable. In fact, concrete
Shirt Manufacturing Co. evidence of fraud or false declaration by the insured was

Petitioner points out that Condition No. as if it had never been entered into. procure and give required that notice should be given by the insured of other to the company all such further particulars. proofs and information with respect to the claim". namely: fraud. vouchers. but to show provides that the insured shall on the happening of any loss or that no contract has ever existed (Tolentino. provided. 11 is a requirement sine qua non to the right to maintain an action as prior thereto no violation of Mortgage Clause petitioner's right can be attributable to private respondent. forfeited said . The argument that notice of co-insurances may be The evidence adduced shows that twenty-four (24) made orally is preposterous and negates policy condition No. the cause of of the contract and if the foundation does not exist.furnished by the petitioner itself when the facts alleged in the right. if any. thereafter. petitioner 2. ordinary and popular sense. papers. petitioner that insured had not yet filed a written claim nor petitioner argues that considering the purpose for which the submitted the supporting documents in compliance with the endorsement or assignment was made. 8th Ed. While it is a cardinal principle of insurance law The paragraph clearly states the exceptions to the that a policy or contract of insurance is to be construed liberally general rule that insurance as to the interest of the mortgagee. noteworthy that private respondent and its adjuster notified Particularly referring to the mortgage clause of the policy. yet. with more reason petitioner which is merely claiming as policy under clauses "Co-Insurances Declared" and "Other indorsee of said insured. No. on demand pay the 56889 and dismissal thereof was warranted under the same. could not be deemed to have finally rejected petitioner's claim and therefore the latter's cause of action had not yet arisen. premium. contracts of insurance. as before such final rejection. plans. shall not be invalidated by any act or neglect— amount of loss and after compliance await the final rejection of except fraud or misrepresentation. If such terms are clear least. the total absence of such books. the mortgagee/ trustor shall. the mortgagor or owner/ trustee neglects or refuses to pay any Verily. "the whole foundation of the contract fails. the mortgagee/assignee against any untoward act or omission of latter remained unheedful. But when the policy provides that no risk does not attach and the policy never becomes a contract action shall be brought unless the claim is first presented between the parties. It is petitioner to recover the insurance as mortgagee/assignee. it would be absurd to hold that petitioner is barred together with the preliminary submittal of relevant documents from recovering the insurance on account of the alleged had not been complied with. petitioner merely wrote letters to private which requires every notice and other communications to the respondent to serve as a notice of loss. Representations of facts are the foundation extrajudicially in the manner provided in the policy. petitioner prematurely filed Civil Case No. are to arson. it is but fair and just that where the insured who is primarily entitled to receive the proceeds of the policy has by its fraud and/or misrepresentation. or misrepresentation or company. in favor of the insured and strictly as against the insurer cannot be invalidated. like other contracts. the cause of action on the policy accrues Consequently. invoices. Instead. and unambiguous. inventory that this insurance as to the interest of the mortgagee/trustor needed by private respondent or its adjuster to ascertain the only herein. or arson—of the mortgagor its claim. or In the case at bar. cannot certainly defeat the right of the articles destroyed by fire as well as the amount of loss. Likewise. not furnish the latter whatever pertinent documents were necessary to prove and estimate its loss. Indeed. Since the required claim by insured. if any. specifications. This Loss. shall be payable to the PACIFIC is so. concealment be construed according to the sense and meaning of the terms of the aforecited co-insurances can easily be fraud. Commercial Laws damage give notice to the company and shall within fifteen (15) of the Philippines. the former did insurer to be written or printed. the mortgage clause is clear in saying: Compliance with condition No. under this policy. notice nullifies the policy. II. representations is not shown to vary or add to the contract. Vol. However. they must be taken and understood in their plain. circumstances. or in the very which the parties themselves have used. cannot be entitled to such proceeds. the when the loss occurs. 11 specifically to terminate a contract which has once been made. and which cannot or goods destroyed and the amount of the loss or damage and be validated either by time or by ratification. Yes. Falsehood in such claim for payment. insured As the insurance policy against fire expressly was required "at his own expense to produce. the insured. Undoubtedly. the action will accrue from the time the insurer finally rejects the superstructure does not arise. 3 in the shifted upon private respondent the burden of fishing out the policy in relation to the "other insurance clause" supposedly to necessary information to ascertain the particular account of the have been violated. it being hereby understood and agreed formal claim and procure all the documents. 3. to protect the requirements set forth in the policy. there was no real necessity BANKING CORPORATION Manila mortgagee/trustor as its for bringing suit. 991. misrepresentation. 20 days after the fire. (b) particulars of all other insurances. Despite the notice. Petitioner should have endeavored to file the interest may appear. it follows that private respondent violation committed by the insured. p. the law does not encourage unnecessary or owner/trustee of the property insured. documents. Generally. As correctly found by the Court of Appeals.) A void or inexistent days after such loss or damage deliver to the private respondent contract is one which has no force and effect from the very (a) a claim in writing giving particular account as to the articles beginning. that is. Insurance Clause" are materially different from the actual number of co-insurances taken over the subject property. insurance upon the same property. policy condition No. duplicates or copies thereof. that in case litigation.

The key approved and Policy No.1973 and the dated September 11. respondent company rescinded the contract of insurance and refunded the Alleging that respondent company's refusal to pay premiums paid on September 11. right must be exercised previous to the commencement of an June 29. respondent company denied insured died on April 26. As noted by the Court of Appeals.Two-year contestability period EMILIO TAN. ALBERTO TAN least two years during the insured's lifetime.1973.000. G. would be prevent the insurance company from exercising a right to allowed to collect on the policy even if the insured fraudulently rescind after the death of the insured. applied for life insurance in the amount of P the lifetime" found in Section 48 simply means that the policy is 80.1975. The phrase "during and ARTURO TAN. within such period. concealed material facts. The petitioners contend that the respondent company no longer had the right to rescind the contract of The insurer has two years from the date of issuance insurance as rescission must allegedly be done during the of the insurance contract or of its last reinstatement within lifetime of the insured within two years and prior to the which to contest the policy. would be allowed to collect on the policy even if the RULING: insured fraudulently concealed material facts. JR. 1975. such AMERICAN LIFE INSURANCE COMPANY. The pertinent section in the Insurance Code provides: Additional Ratio: . in a letter The policy was issued on November 6. JUANITO TAN. unreasonable. no matter how patent or well founded.R. He was Insurance Commissioner: dismissed petitioners' complaint only pressured by insistent salesmen to do so. to wit: Petitioners then filed with respondent company their claim for the proceeds of the life insurance policy. concealment or misrepresentation.1973. tactics employed by insurance companies to avoid liability. the insurer cannot prove that the policy is misrepresentation. the insured still lives commencement of action. whether or not. respondent made by the deceased Tan Lee Siong in his application for company is not. However. 1975. Tan Lee Siong. The policy was thus in force for petitioners' claim and rescinded the policy by reason of the a period of only one year and five months. petitioners is the "incontestability clause" added by the second paragraph of Section 48." On April 26. CA: dismissed ' the petitioners' appeal from the Insurance The legislative answer to the arguments posed by the Commissioner's decision for lack of merit. Moreover. the defenses of concealment or misrepresentation. Said application was no longer considered in force after the insured has died. the defenses of concealment or its last reinstatement. barred from proving that the policy insurance. no ISSUE: longer lie.1975. ALBERTO TAN and ARTURO Section 48. 1082467 was issued effective phrase in the second paragraph of Section 48 is "for a period of November 6. THE COURT OF APPEALS and THE PHILIPPINE is given to the insurer by any provision of this chapter.00 with respondent company. 48049. Tan Lee Siong died of hepatoma. Whenever a right to rescind a contract of insurance TAN v. J. 1975. no matter how patent or well founded. the Insurance Law was situation where the beneficiaries of an insured who dies right amended and the second paragraph of Section 48 added to after taking out and paying for a life insurance policy. the insured still lives within insured for a period of two years from the date of its issue or of such period. no concealment or misrepresentation by their late father because Tan Lee Siong did not have to buy insurance. Congress felt this was a sufficient answer to the various concealment or misrepresentation of the insured or his agent. two years. The petitioners' interpretation would give rise to the incongruous According to the petitioners. father of diseases are concerned if the insurance has been in force for at herein petitioners EMILIO TAN. Considering that the alleged misrepresentation and concealment of material facts insured died before the two-year period had lapsed. therefore. The premiums paid on the policy were thereupon is void ab initio by reason of the insured's fraudulent refunded. no void ab initio or is rescindable by reason of the fraudulent longer lie. The insurer has two years from the date of issuance of the After a policy of life insurance made payable on the death of the insurance contract or of its last reinstatement within which to insured shall have been in force during the lifetime of the contest the policy. whether or not. After two years. JUANITO TAN. Congress felt this was a sufficient answer to the various tactics employed by insurance companies to avoid Whether the insurance company can still rescind the contract liability. 1989.1975. GUTIERREZ. action on the contract. The petitioners' interpretation would give rise to the on the ground of concealment and misrepresentation incongruous situation where the beneficiaries of an insured notwithstanding the fact that rescission was done when the who dies right after taking out and paying for a life insurance insured was already dead? policy. previous to the them the proceeds of the policy was unjustified and commencement of this action on November 27. petitioners filed on November 27. The so-called "incontestability clause" precludes the insurer FACTS: from raising the defenses of false representations or concealment of material facts insofar as health and previous On September 23. with petitioners the beneficiaries thereof. After two years. Yes. No. a complaint against the former with the Office of the Insurance The petitioners contend that there could have been Commissioner.

beneficiary was his mother. a businessman. 105135. ultra-sonography and examination. 3-903-766-X valued at P100. specific performance against petitioner with the Regional Trial Court. rule that petitioner properly exercised its right to the decedent of his health condition. importance. respondent Bernarda Bacani. the deceased was complaining of progressive weight loss affirmative but limited his answer to a consultation with a and abdominal pain and was diagnosed to be suffering from certain Dr. Because of the concealment made by the deceased of his Petitioner discovered that two weeks prior to his consultations and treatments for hypertension. 1973 for other questions were answered in the negative. insured were irrelevant since petitioner waived the medical In its letter. He was and under a belief that they need not be disclosed. FACTS: TC: In ruling for private respondents. For as long as no adverse medical history is hematology tests. ruled that petitioner cannot avoid its obligation by claiming Respondent Bernarda Bacani filed a claim with petitioner. it issued Policy No.R. private respondents filed a BERNARDA BACANI. For. affirmed the correctness of all the entries and answers b) submitted to: appearing therein.1972. No. consolation and claimed to have been diabetic for five years. SUNLIFE ASSURANCE COMPANY OF CANADA v. petitioner informed respondent examination prior to the approval and issuance of the insurance Bernarda Bacani. by affixing his signature on the application form. 1990. the presumption is that a person intends the ordinary c) attended or been admitted to any hospital or other consequence of his voluntary act and takes ordinary care of his medical facility? concerns. respondent company was thus misled into confined at the Lung Center of the Philippines. 1986. where he was accepting the risk and approving his application as medically diagnosed for renal failure. an applicant for insurance is presumed to be healthy and physically fit and no further medical On November 17. the insured died in a plane crash. COURT OF APPEALS and Spouses ROLANDO and On January 14. therefore. Victoriano Lim and b) urine. X-rays?. CA: affirmed the decision of the trial court. filed an action for company. Moreover. or reply thereto. It is but to be expected that he. that the insured did not disclose material facts policy. thereby rendering an admission of the matters alleged. The designated the insurance policy was "non-medical". Another physician. If a warning in bold red letters or a boxed warning similar to that required for cigarette advertisements by the Petitioner claimed that the insured gave false statements in his Surgeon General of the United States is necessary. that is for application when he answered the following questions: Congress or the Insurance Commission to provide as protection 5. Reinaldo D. It must be emphasized that rescission several documents as well as allegations regarding the health of was exercised within the two-year contestability period as the insured. 1988. the trial court concluded On April 15.There is no showing that the questions in the application form relevant to the issuance of the policy. Private respondents failed to oppose said request recognized in Section 48 of The Insurance Code. facts concealed by the insured. Wenceslao Vitug. the standard and dispensing with further medical investigation and deceased was subjected to urinalysis. It also sustained the finding of Petitioner conducted an investigation and its findings prompted the trial court that matters relating to the health history of the it to reject the claim. blood tests? other tests? application form unless he clearly understood its significance. "Proposed Stipulation with Prayer for Summary Judgment" QUIASON where they manifested that they "have no evidence to refute the documentary evidence of concealment/misrepresentation by We.00 was attached to designed in such a way as to conceal from the applicant their said letter. G. for cough and flu complications. would not have affixed his signature on the EGG?. Within the past 5 years have you: against high pressure insurance salesmanship. respondent Rolando Bacani. Robert John B.000. Have you ever had or sought advice for: The evidence for respondent company shows that on September 19. The appellate court On June 26. the insured was examined and liver disorders. The Hon. the deceased was examined by Dr. Petitioner filed its Request rescind the contract of insurance by reason of the concealment for Admissions relative to the authenticity and due execution of employed by the insured. During his confinement. that by January. 1995. 1987. with held that the health history of the insured was immaterial since double indemnity in case of accidental death. revealed in the application form. testified Hospital on February 1986. Raymundo of the Chinese General hepatoma. concealment because the cause of death was unrelated to the seeking the benefits of the insurance policy taken by her son. June 22. kidney or bladder disorder? was found to be diabetic and hypertensive. Bacani procured a that the facts concealed by the insured were made in good faith life insurance contract for himself from petitioner. Dr. diabetes and application for insurance.00. J. A check representing the total smaller print than the rest of the printed form or that they are premiums paid in the amount of P10. The deceased answered question No. . 5(a) in the 1973. respondent Bernarda Bacani investigation or examination is conducted by respondent and her husband. a) consulted any doctor or other health practitioner? The deceased. The that the deceased came to see him on December 14. thus rendering the for insurance regarding the insured's medical history are in contract of insurance voidable. 6.172.

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. . The terms of the contract are clear. "Moreover. however. therefore. Anent the finding that the facts concealed had no bearing to the cause of death of the insured. either by approving it with the corresponding adjustment for a higher premium or rejecting the same. for such information necessarily constitutes an important factor which the insurer takes into consideration in deciding whether to issue the policy or not . Thus. such argument of private respondents would make Section 27 of the Insurance Code. but solely by the probable and reasonable influence of the facts upon the party to whom communication is due. rule that petitioner properly exercised its right to rescind the contract of insurance by reason of the concealment employed by the insured. which allows the injured party to rescind a contract of insurance where there is concealment. the same was made in "good faith" and the facts concealed or misrepresented were irrelevant since the policy was "non-medical". . Sec. In weighing the evidence presented. the trial court concluded that indeed there was concealment and misrepresentation. that petitioner's waiver of the medical examination of the insured debunks the materiality of the facts concealed. Philippine American Life Insurance Company. 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. . The matters concealed would have definitely affected petitioner's action on his application.ISSUE: Whether the policy may be rescinded on the ground of concealment? RULING: Yes. in forming his estimate of the disadvantages of the proposed contract or in making his inquiries (The Insurance Code. 31). The argument. It appears that such concealment was deliberate on his part. . it is well settled that the insured need not die of the disease he had failed to disclose to the insurer. The information which the insured failed to disclose were material and relevant to the approval and issuance of the insurance policy. "goad faith" is no defense in concealment. . that " . We reiterate our ruling in Saturnino v. The insured is specifically required to disclose to the insurer matters relating to his health. Materiality is to be determined not by the event. Moreover. 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. ineffective. is untenable. 7 SCRA 316 (1963). The insured's failure to disclose the fact that he was hospitalized for two weeks prior to filing his application for insurance. We. raises grave doubts about his bonafides. It must be emphasized that rescission was exercised within the two-year contestability period as recognized in Section 48 of The Insurance Code. We disagree.