INSURANCE CASE DIGEST:

Insurance Case Digest: Great Pacific Life Assurance Corp. V. CA (1999)

FACTS:

A contract of group life insurance was executed between Great Pacific Life Assurance Corporation
Grepalife) and Development Bank of the Philippines (DBP)

Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP

November 11, 1983: Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for
membership in the group life insurance plan

Dr. Leuterio answered questions concerning his health condition as follows:

“7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer,
diabetes, lung, kidney or stomach disorder or any other physical impairment?

Answer: No. If so give details ___________.

8. Are you now, to the best of your knowledge, in good health?

Answer: [ x ] Yes [ ] No.”[4]

November 15, 1983: Grepalife issued Certificate No. B-18558, as insurance coverage of Dr. Leuterio, to
the extent of his DBP mortgage indebtedness amounting to P86,200

August 6, 1984: Dr. Leuterio died due to “massive cerebral hemorrhage.”

DBP submitted a death claim to Grepalife

Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied

RTC: Favored Medarda V. Leuterio (widow) and held Grepalife (insurer) liable to pay DBP (creditor of the
insured Dr. Wilfredo Leuterio)

CA sustained

ISSUE:

W/N DBP has insurable interest as creditor - YES

W/N Grepalife should be held liable - YES

HELD:

1. YES

In this type of policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-
payable clause does not make the mortgagee a party to the contract

Section 8 of the Insurance Code provides:

“Unless the policy provides, where a mortgagor of property effects insurance in his own name providing
that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the
insurance is deemed to be upon the interest of the mortgagor, who does not cease to be a party to the
original contract, and any act of his, prior to the loss, which would otherwise avoid the insurance, will
have the same effect, although the property is in the hands of the mortgagee, but any act which, under
the contract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee
therein named, with the same effect as if it had been performed by the mortgagor.”

The insured Dr. Wilfredo Leuterio did not cede to the mortgagee all his rights or interests in the
insurance. When Grepalife denied payment, DBP collected the debt from the mortgagor and took the
necessary action of foreclosure on the residential lot of Dr. Wilfredo Leuterio

Insured may be regarded as the real party in interest, although he has assigned the policy for the
purpose of collection, or has assigned as collateral security any judgment he may obtain

2. YES

medical findings were not conclusive because Dr. Mejia did not conduct an autopsy

widow who was not even sure if the medicines taken by Dr. Leuterio were for hypertension

Grepalife failed to establish that there was concealment made by the insured, hence, it cannot refuse
payment of the claim

fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and
the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer

The policy states that upon receipt of due proof of the Debtor’s death during the terms of this
insurance, a death benefit in the amount of P86,200.00 shall be paid. In the event of the debtor’s death
before his indebtedness with the creditor shall have been fully paid, an amount to pay the outstanding
indebtedness shall first be paid to the Creditor and the balance of the Sum Assured, if there is any shall
then be paid to the beneficiary/ies designated by the debtor.

DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor’s outstanding loan insurance
proceeds shall inure to the benefit of the heirs of the deceased person or his beneficiaries
Equity dictates that DBP should not unjustly enrich itself at the expense of another (Nemo cum alterius
detrimenio protest). Hence, it cannot collect the insurance proceeds, after it already foreclosed on the
mortgage.

Insular Life Assurance Co., Ltd. vs Serafin Feliciano (1941)

Evaristo Feliciano was issued an insurance policy by Insular Life. In September 1935, he died. His heirs
(Serafin Feliciano et al) filed an insurance claim but Insular Life denied the application as it averred that
Feliciano’s application was attended by fraud. It was later found in court that the insurance agent and
the medical examiner of Insular Life who assisted Feliciano in signing the application knew that Feliciano
was already suffering from tuberculosis; that they were aware of the true medical condition of Feliciano
yet they still made it appear that he was healthy in the insurance application form; that Feliciano signed
the application in blank and the agent filled the information for him.

ISSUE: Whether or not Insular Life can avoid the insurance policy by reason of the fact that its agent
knowingly and intentionally wrote down the answers in the application differing from those made by
Feliciano hence instead of serving the interests of his principal, acts in his own or another’s interest and
adversely to that of his principal.

HELD: No. Insular Life must pay the insurance policy. The weight of authority is that if an agent of the
insurer, after obtaining from an applicant for insurance a correct and truthful answer to interrogatories
contained in the application for insurance, without knowledge of the applicant fills in false answers,
either fraudulently or otherwise, the insurer cannot assert the falsity of such answers as a defense to
liability on the policy, and this is true generally without regard to the subject matter of the answers or
the nature of the agent’s duties or limitations on his authority, at least if not brought to the attention of
the applicant.

The fact that the insured did not read the application which he signed, is not indicative of bad faith. It
has been held that it is not negligence for the insured to sign an application without first reading it if the
insurer by its conduct in appointing the agent influenced the insured to place trust and confidence in the
agent.

Ng v Asian Crusader G.R. No. L-30685 May 30, 1983

J. Escolin:

Facts:

Kwong Nam applied for a 20-year endowment insurance on his life for the sum of P20,000.00, with his
wife, appellee Ng Gan Zee as beneficiary. On the same date, Asian Crusader, upon receipt of the
required premium from the insured, approved the application and issued the corresponding policy.
Kwong Nam died of cancer of the liver with metastasis. All premiums had been paid at the time of his
death.
Ng Gan Zee presented a claim for payment of the face value of the policy. On the same date, she
submitted the required proof of death of the insured. Appellant denied the claim on the ground that the
answers given by the insured to the questions in his application for life insurance were untrue.

Appellee brought the matter to the attention of the Insurance Commissioner. The latter, after
conducting an investigation, wrote the appellant that he had found no material concealment on the part
of the insured and that, therefore, appellee should be paid the full face value of the policy. The company
refused to settle its obligation.

Appellant alleged that the insured was guilty of misrepresentation when he answered "No" to the
following question appearing in the application for life insurance-

Has any life insurance company ever refused your application for insurance or for reinstatement of a
lapsed policy or offered you a policy different from that applied for? If, so, name company and date.

The lower court ruled against the company on lack of evidence.

Appellant further maintains that when the insured was examined in connection with his application for
life insurance, he gave the appellant's medical examiner false and misleading information as to his
ailment and previous operation. The company contended that he was operated on for peptic ulcer 2
years before the policy was applied for and that he never disclosed such an operation.

Issue: WON Asian Crusader was deceived into entering the contract or in accepting the risk at the rate of
premium agreed upon because of insured's representation?

Held: No. Petition dismissed.

Ratio:

Section 27 of the Insurance Law:

Sec. 27. Such party 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.

"Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good
faith, and fair dealing requires that he should communicate it to the assurer, but he designedly and
intentionally withholds the same."

It has also been held "that the concealment must, in the absence of inquiries, be not only material, but
fraudulent, or the fact must have been intentionally withheld."

Fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract. And as correctly observed by the lower court, "misrepresentation as a defense of the insurer
to avoid liability is an 'affirmative' defense. The duty to establish such a defense by satisfactory and
convincing evidence rests upon the defendant. The evidence before the Court does not clearly and
satisfactorily establish that defense."

It bears emphasis that Kwong Nam had informed the appellant's medical examiner of the tumor. His
statement that said tumor was "associated with ulcer of the stomach" should be construed as an
expression made in good faith of his belief as to the nature of his ailment and operation.

While the information communicated was imperfect, the same was sufficient to have induced appellant
to make further inquiries about the ailment and operation of the insured.

Section 32 of Insurance Law:

Section 32. The right to information of material facts maybe waived either by the terms of insurance or
by neglect to make inquiries as to such facts where they are distinctly implied in other facts of which
information is communicated.

Where a question appears to be not answered at all or to be imperfectly answered, and the insurers
issue a policy without any further inquiry, they waive the imperfection of the answer and render the
omission to answer more fully immaterial.

The company or its medical examiner did not make any further inquiries on such matters from the
hospital before acting on the application for insurance. The fact of the matter is that the defendant was
too eager to accept the application and receive the insured's premium. It would be inequitable now to
allow the defendant to avoid liability under the circumstances."

Saturnino v. Philamlife - False Representation

7 SCRA 316

Facts:

> 2 months prior to the insurance of the policy, Saturnino was operated on for cancer, involving
complete removal of the right breast, including the pectoral muscles and the glands, found in the right
armpit.

> Notwithstanding the fact of her operation, Saturnino did not make a disclosure thereof in her
application for insurance.

> She stated therein that she did not have, nor had she ever had, among others listed in the application,
cancer or other tumors; that she had not consulted any physician, undergone any operation or suffered
any injury within the preceding 5 years.

> She also stated that she had never been treated for, nor did she ever have any illness or disease
peculiar to her sex, particularly of the breast, ovaries, uterus and menstrual disorders.

> The application also recited that the declarations of Saturnino constituted a further basis for the
issuance of the policy.
Issue:

Whether or not the insured made such false representation of material facts as to avoid the policy.

Held:

YES.

There can be no dispute that the information given by her in the application for insurance was false,
namely, that she never had cancer or tumors or consulted any physician or undergone any operation
within the preceding period of 5 years.

The question to determine is: Are the facts then falsely represented material? The Insurance Law
provides that “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 proposed contract, or making his inquiries.

The contention of appellants is that the facts subject of the representation were not material in view of
the non-medical nature of the insurance applied for, which does away with the usual requirement of
medical examination before the policy is issued. The contention is without merit. If anything, the
waiver of medical examination 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.

Appellants also contend that there was no fraudulent concealment of the truth inasmuch as the insured
herself did not know, since her doctor never told her, that the disease for which she had been operated
on was cancer. In the first place, concealment of the fact of the operation itself was fraudulent, as there
could not have been any mistake about it, no matter what the ailment.

Secondly, in order to avoid a policy, it is not necessary to show actual fraud on the part of the insured. In
this jurisdiction, concealment, whether intentional or unintentional entitled the insurer to rescind the
contract of insurance, concealment being defined as “negligence to communicate that which a party
knows and ought to communicate.” The basis of the rule vitiating the contract in cases of concealment
is that it misleads or deceives the insurer into accepting the risk, or accepting it at a rate of premium
agreed upon. The insurer, relying upon the belief that the insured will disclose every material fact
within his actual or presumed knowledge, is misled into a belief that the circumstances withheld does
not exist, and he is thereby induced to estimate the risk upon a false basis that it does not exist.
Vda. De Canilang v. CA - Concealment

223 SCRA 443 (1993)

Facts:

> Canilang consulted Dr. Claudio and was diagnosed as suffering from "sinus tachycardia." Mr. Canilang
consulted the same doctor again on 3 August 1982 and this time was found to have "acute bronchitis."

> On the next day, 4 August 1982, Canilang applied for a "non-medical" insurance policy with Grepalife
naming his wife, as his beneficiary. Canilang was issued ordinary life insurance with the face value of
P19,700.

> On 5 August 1983, Canilang died of "congestive heart failure," "anemia," and "chronic anemia." The
wife as beneficiary, filed a claim with Grepalife which the insurer denied on the ground that the insured
had concealed material information from it.

> Vda Canilang filed a complaint with the Insurance Commissioner against Grepalife contending that as
far as she knows her husband was not suffering from any disorder and that he died of kidney disorder.

> Grepalife was ordered to pay the widow by the Insurance Commissioner holding that there was no
intentional concealment on the Part of Canilang and that Grepalife 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. CA reversed.

Issue:

Whether or not Grepalife is liable.

Held:

SC took note of the fact that Canilang failed to disclose that hat he had twice consulted Dr. Wilfredo B.
Claudio who had found him to be suffering from "sinus tachycardia" and "acute bronchitis. Under the
relevant provisions of the Insurance Code, 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 information which Canilang failed to disclose was material to the ability of Grepalife 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 the medicines prescribed by such doctor, in the insurance application, it may be
reasonably assumed that Grepalife 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.

The materiality of the information withheld by Canilang from Grepalife 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.

SC found it difficult to take seriously the argument that Grepalife 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.

SUNLIFE ASSURANCE COMPANY OF CANADA vs. COURT OF APPEALS G.R. No. 105135, 22 June 1995

FACTS:

Robert John Bacani procured a life insurance contract for himself from petitioner-company, designating
his mother Bernarda Bacani, herein private respondent, as the beneficiary. He was issued a policy valued
at P100,000.00 with double indemnity in case of accidental death. Sometime after, the insured died in a
plane crash. Bernarda filed a claim with petitioner, seeking the benefits of the insurance policy taken by
her son. However, said insurance company rejected the claim on the ground that the insured did not
disclose material facts relevant to the issuance of the policy, thus rendering the contract of insurance
voidable. 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.
The RTC, as affirmed by the CA, this fact was concealed, as alleged by the petitioner. But the fact that
was concealed was not the cause of death of the insured and that matters relating to the medical
history of the insured is deemed to be irrelevant since petitioner waived the medical examination prior
to the approval and issuance of the insurance policy.

ISSUE: Whether or not the concealment of such material fact, despite it not being the cause of death of
the insured, is sufficient to render the insurance contract voidable

HELD:

YES. 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.
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. The SC, therefore, ruled 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.

Philamcare v CA G.R. No. 125678. March 18, 2002

J. Ynares-Santiago

Facts:

Ernani Trinos applied for a health care coverage with Philam. He answered no to a question asking if he
or his family members were treated to heart trouble, asthma, diabetes, etc.

The application was approved for 1 year. He was also given hospitalization benefits and out-patient
benefits. After the period expired, he was given an expanded coverage for Php 75,000. During the
period, he suffered from heart attack and was confined at MMC. The wife tried to claim the benefits but
the petitioner denied it saying that he concealed his medical history by answering no to the
aforementioned question. She had to pay for the hospital bills amounting to 76,000. Her husband
subsequently passed away. She filed a case in the trial court for the collection of the amount plus
damages. She was awarded 76,000 for the bills and 40,000 for damages. The CA affirmed but deleted
awards for damages. Hence, this appeal.

Issue: WON a health care agreement is not an insurance contract; hence the “incontestability clause”
under the Insurance Code does not apply.

Held: No. Petition dismissed.

Ratio:

Petitioner claimed that it granted benefits only when the insured is alive during the one-year duration.
It contended that there was no indemnification unlike in insurance contracts. It supported this claim by
saying that it is a health maintenance organization covered by the DOH and not the Insurance
Commission. Lastly, it claimed that the Incontestability clause didn’t apply because two-year and not
one-year effectivity periods were required.

Section 2 (1) of the Insurance Code defines a contract of insurance as “an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event.”

Section 3 states: every person has an insurable interest in the life and health:

(1) of himself, of his spouse and of his children.

In this case, the husband’s health was the insurable interest. The health care agreement was in the
nature of non-life insurance, which is primarily a contract of indemnity. The provider must pay for the
medical expenses resulting from sickness or injury.
While petitioner contended that the husband concealed materialfact of his sickness, the contract stated
that:

“that any physician is, by these presents, expressly authorized to disclose or give testimony at anytime
relative to any information acquired by him in his professional capacity upon any question affecting the
eligibility for health care coverage of the Proposed Members.”

This meant that the petitioners required him to sign authorization to furnish reports about his medical
condition. The contract also authorized Philam to inquire directly to his medical history.

Hence, the contention of concealment isn’t valid.

They can’t also invoke the “Invalidation of agreement” clause where failure of the insured to disclose
information was a grounds for revocation simply because the answer assailed by the company was the
heart condition question based on the insured’s opinion. He wasn’t a medical doctor, so he can’t
accurately gauge his condition.

Henrick v Fire- “in such case the insurer is not justified in relying upon such statement, but is obligated
to make further inquiry.”

Fraudulent intent must be proven to rescind the contract. This was incumbent upon the provider.

“Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the
extent agreed upon. In the end, the liability of the health care provider attaches once the member is
hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered
benefits which he has prepaid.”

Section 27 of the Insurance Code- “a concealment entitles the injured party to rescind a contract of
insurance.”

As to cancellation procedure- Cancellation requires certain conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or more of the
grounds mentioned;

3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon
request of insured, to furnish facts on which cancellation is based

None were fulfilled by the provider.

As to incontestability- The trial court said that “under the title Claim procedures of expenses, the
defendant Philamcare Health Systems Inc. had twelve months from the date of issuance of the
Agreement within which to contest the membership of the patient if he had previous ailment of asthma,
and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension.
The periods having expired, the defense of concealment or misrepresentation no longer lie.”

Regina Edillon vs Manila Banker Life Assurance Corporation

In April 1969, Carmen Lapuz filled out an application form for insurance under Manila Banker Life
Assurance Corporation. She stated that her date of birth was July 11, 1904. Upon payment of the Php
20.00 premium, she was issued the insurance policy in April 1969. In May 1969, Carmen Lapuz died in a
vehicular accident. Regina Edillon, who was named a beneficiary in the insurance policy sought to collect
the insurance proceeds but Manila Banker denied the claim. Apparently, it is a rule of the insurance
company that they were not to issue insurance policies to “persons who are under the age of sixteen
(16) years of age or over the age of sixty (60) years …” Note, that Lapuz was already 65 years old when
she was applying for the insurance policy.

ISSUE: Whether or not Edillon is entitled to the insurance claim as a beneficiary.

HELD: Yes. Carmen Lapuz did not conceal her true age. Despite this, the insurance company still received
premium from Lapuz and issued the corresponding insurance policy to her. When the accident
happened, the insurance policy has been in force for 45 days already and such time was already
sufficient for Manila Banker to notice the fact that Lapuz is already over 60 years old and thereby cancel
the insurance policy. If Manila Banker failed to act, it is either because it was willing to waive such
disqualification; or, through the negligence or incompetence of its employees for which it has only itself
to blame, it simply overlooked such fact. Under the circumstances, Manila Banker is already deemed in
estoppel.

JAMES STOKES vs. MALAYAN INSURANCE CO., INC. G.R. No. L-34768, 24 February 1984 127 SCRA 766

FACTS:

Daniel Adolfson had a subsisting Malayan car insurance policy with coverage against own damage as
well as 3rd party liability when his car figured in a vehicular accident with another car, resulting to
damage to both vehicles. At the time of the accident, Adolfson’s car was being driven by James Stokes,
who was authorized to do so by Adolfson. Stokes, an Irish tourist who had been in the Philippines for
only 90 days, had a valid and subsisting Irish driver’s license but without a Philippine driver’s license.
Adolfson filed a claim with Malayan but the latter refused to pay contending that Stokes was not an
authorized driver under the “Authorized Driver” clause of the insurance policy in relation to Section 21
of the Land Transportation Office.

ISSUE: Whether or not Malayan is liable to pay the insurance claim of Adolfson

HELD:

NO. A contract of insurance is a contract of indemnity upon the terms and conditions specified therein.
When the insurer is called upon to pay in case of loss or damage, he has the right to insist upon
compliance with the terms of the contract. If the insured cannot bring himself within the terms and
conditions of the contract, he is not entitled as a rule to recover for the loss or damage suffered. For the
terms of the contract constitute the measure of the insurer’s liability, and compliance therewith is a
condition precedent to the right of recovery. At the time of the accident, Stokes had been in the
Philippines for more than 90 days. Hence, under the law, he could not drive a motor vehicle without a
Philippine driver’s license. He was therefore not an “authorized driver” under the terms of the insurance
policy in question, and Malayan was right in denying the claim of the insured. Acceptance of premium
within the stipulated period for payment thereof, including the agreed period of grace, merely assures
continued effectivity of the insurance policy in accordance with its terms. Such acceptance does not
estop the insurer from interposing any valid defense under the terms of the insurance policy. The
principle of estoppel is an equitable principle rooted upon natural justice which prevents a person from
going back on his own acts and representations to the prejudice of another whom he has led to rely
upon them. The principle does not apply to the instant case. In accepting the premium payment of the
insured, Malayan was not guilty of any inequitable act or representation. There is nothing inconsistent
between acceptance of premium due under an insurance policy and the enforcement of its terms.
WHEREFORE, the appealed judgment is reversed. The complaint is dismissed. Costs against appellees.

Tan v CA G.R. No. 48049 June 29, 1989

J. Gutierrez Jr.

Facts:

Tan Lee Siong, father of the petitioners, applied for life insurance in the amount of P 80,000.00 with
Philamlife. It was approved. Tan Lee Siong died of hepatoma. Petitioners then filed a claim for the
proceeds. The company denied petitioners' claim and rescinded the policy by reason of the alleged
misrepresentation and concealment of material facts. The premiums paid on the policy were refunded.
The petitioners filed a complaint in the Insurance Commission. The latter dismissed the complaint.

The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner's decision for
lack of merit. Hence, this petition.

Issue:

WON Philam didn’t have the right to rescind the contract of insurance as rescission must allegedly be
done during the lifetime of the insured within two years and prior to the commencement of action.

Held: No. Petition dismissed.

Ratio:

The Insurance Code states in Section 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 rescindable by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.”

The so-called "incontestability clause" in the second paragraph prevents the insurer from raising the
defenses of false representations insofar as health and previous diseases are concerned if the insurance
has been in force for at least two years during the insured's lifetime.

The policy was in force for a period of only one year and five months. Considering that the insured died
before the two-year period had lapsed, respondent company is not, therefore, barred from proving that
the policy is void ab initio by reason of the insured's fraudulent concealment or misrepresentation.

The "incontestability clause" added by the second paragraph of Section 48 is in force for two years. After
this, the defenses of concealment or misrepresentation no longer lie.

The petitioners argue that no evidence was presented to show that the medical terms were explained in
a layman's language to the insured. They also argue that no evidence was presented by respondent
company to show that the questions appearing in Part II of the application for insurance were asked,
explained to and understood by the deceased so as to prove concealment on his part. This couldn’t be
accepted because the insured signed the form. He affirmed the correctness of all the entries.

The company records show that the deceased was examined by Dr. Victoriano Lim and was found to be
diabetic and hypertensive. He was also found to have suffered from hepatoma. Because of the
concealment made by the deceased, the company was thus misled into accepting the risk and approving
his application as medically fit.