Devices for Ascertaining and Controlling Risk and Loss A contract of group life insurance was executed between
s executed between petitioner
Jurisprudence
G.R. No. 113899 October 13, 1999
GREAT PACIFIC LIFE ASSURANCE CORP., petitioner,
vs.
COURT OF APPEALS AND MEDARDA V.
LEUTERIO, respondents.
QUISUMBING, J.:
This petition for review, under Rule 45 of the Rules of Court, assails
the Decision 1 dated May 17, 1993, of the Court of Appeals and its
Resolution 2 dated January 4, 1994 in CA-G.R. CV No. 18341. The
appellate court affirmed in toto the judgment of the Misamis Oriental
Regional Trial Court, Branch 18, in an insurance claim filed by
private respondent against Great Pacific Life Assurance Co. The
dispositive portion of the trial court's decision reads:
WHEREFORE, judgment is rendered adjudging the
defendant GREAT PACIFIC LIFE ASSURANCE
CORPORATION as insurer under its Group policy
No. G-1907, in relation to Certification B-18558
liable and ordered to pay to the DEVELOPMENT
BANK OF THE PHILIPPINES as creditor of the
insured Dr. Wilfredo Leuterio, the amount of EIGHTY
SIX THOUSAND TWO HUNDRED PESOS
(P86,200.00); dismissing the claims for damages,
attorney's fees and litigation expenses in the
complaint and counterclaim, with costs against the
defendant and dismissing the complaint in respect to
the plaintiffs, other than the widow-beneficiary, for
lack of cause of action. 3
The facts, as found by the Court of Appeals, are as follows:
Great Pacific Life Assurance Corporation (hereinafter Grepalife) and
Development Bank of the Philippines (hereinafter DBP). Grepalife
agreed to insure the lives of eligible housing loan mortgagors of
DBP.
On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a
housing debtor of DBP applied for membership in the group life
insurance plan. In an application form, 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
On 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 eighty-six thousand, two
hundred (P86,200.00) pesos.1âwphi1.nêt
On August 6, 1984, Dr. Leuterio died due to "massive cerebral
hemorrhage." Consequently, DBP submitted a death claim to
Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was
not physically healthy when he applied for an insurance coverage on
November 15, 1983. Grepalife insisted that Dr. Leuterio did not
disclose he had been suffering from hypertension, which caused his
death. Allegedly, such non-disclosure constituted concealment that
justified the denial of the claim.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent
Medarda V. Leuterio, filed a complaint with the Regional Trial Court
of Misamis Oriental, Branch 18, against Grepalife for "Specific
Performance with Damages." 5 During the trial, Dr. Hernando Mejia,
who issued the death certificate, was called to testify. Dr. Mejia's
findings, based partly from the information given by the respondent
widow, stated that Dr. Leuterio complained of headaches
presumably due to high blood pressure. The inference was not
conclusive because Dr. Leuterio was not autopsied, hence, other
causes were not ruled out.
On February 22, 1988, the trial court rendered a decision in favor of
respondent widow and against Grepalife. On May 17, 1993, the
Court of Appeals sustained the trial court's decision. Hence, the
present petition. Petitioners interposed the following assigned errors:
1. THE LOWER COURT ERRED IN
HOLDING DEFENDANT-
APPELLANT LIABLE TO THE
DEVELOPMENT BANK OF THE
PHILIPPINES (DBP) WHICH IS
NOT A PARTY TO THE CASE FOR
PAYMENT OF THE PROCEEDS
OF A MORTGAGE REDEMPTION
INSURANCE ON THE LIFE OF
PLAINTIFF'S HUSBAND
WILFREDO LEUTERIO ONE OF
ITS LOAN BORROWERS,
INSTEAD OF DISMISSING THE
CASE AGAINST DEFENDANT-
APPELLANT [Petitioner Grepalife]
FOR LACK OF CAUSE OF
ACTION.
2. THE LOWER COURT ERRED IN
NOT DISMISSING THE CASE FOR
WANT OF JURISDICTION OVER
THE SUBJECT OR NATURE OF
THE ACTION AND OVER THE
PERSON OF THE DEFENDANT.
3. THE LOWER COURT ERRED IN
ORDERING DEFENDANT-
APPELLANT TO PAY TO DBP THE
AMOUNT OF P86,200.00 IN THE
ABSENCE OF ANY EVIDENCE TO
SHOW HOW MUCH WAS THE
ACTUAL AMOUNT PAYABLE TO
DBP IN ACCORDANCE WITH ITS
GROUP INSURANCE CONTRACT
WITH DEFENDANT-APPELLANT.
4. THE LOWER COURT ERRED IN
HOLDING THAT THERE WAS NO
CONCEALMENT OF MATERIAL
INFORMATION ON THE PART OF
WILFREDO LEUTERIO IN HIS
APPLICATION FOR MEMBERSHIP
IN THE GROUP LIFE INSURANCE
PLAN BETWEEN DEFENDANT-
APPELLANT OF THE INSURANCE
CLAIM ARISING FROM THE
DEATH OF WILFREDO
LEUTERIO. 6
Synthesized below are the assigned errors for our resolution:
1. Whether the Court of Appeals
erred in holding petitioner liable to
DBP as beneficiary in a group life
insurance contract from a complaint
filed by the widow of the
decedent/mortgagor?
2. Whether the Court of Appeals
erred in not finding that Dr. Leuterio
concealed that he had hypertension,
which would vitiate the insurance
contract?
 3. Whether the Court of Appeals
erred in holding Grepalife liable in
the amount of eighty six thousand,
two hundred (P86,200.00) pesos
without proof of the actual
outstanding mortgage payable by
the mortgagor to DBP.
Petitioner alleges that the complaint was instituted by the widow of
Dr. Leuterio, not the real party in interest, hence the trial court
acquired no jurisdiction over the case. It argues that when the Court
of Appeals affirmed the trial court's judgment, Grepalife was held
liable to pay the proceeds of insurance contract in favor of DBP, the
indispensable party who was not joined in the suit.
To resolve the issue, we must consider the insurable interest in
mortgaged properties and the parties to this type of contract. The
rationale of a group insurance policy of mortgagors, otherwise known
as the "mortgage redemption insurance," is a device for the
protection of both the mortgagee and the mortgagor. On the part of
the mortgagee, it has to enter into such form of contract so that in the
event of the unexpected demise of the mortgagor during the
subsistence of the mortgage contract, the proceeds from such
insurance will be applied to the payment of the mortgage debt,
thereby relieving the heirs of the mortgagor from paying the
obligation. 7 In a similar vein, ample protection is given to the
mortgagor under such a concept so that in the event of death; the
mortgage obligation will be extinguished by the application of the
insurance proceeds to the mortgage indebtedness. 8 Consequently,
where the mortgagor pays the insurance premium under the group
insurance policy, making the loss payable to the mortgagee, the
insurance is on the mortgagor's interest, and the mortgagor
continues to be a party to the contract. 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. 9
Sec. 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 private respondent did not cede to the mortgagee all his
rights or interests in the insurance, the policy stating that: "In the
event of the debtor's death before his indebtedness with the Creditor
[DBP] shall have been fully paid, an amount to pay the outstanding
indebtedness shall first be paid to the creditor and the balance of
sum assured, if there is any, shall then be paid to the beneficiary/ies
designated by the debtor." 10 When DBP submitted the insurance
claim against petitioner, the latter denied payment thereof,
interposing the defense of concealment committed by the insured.
Thereafter, DBP collected the debt from the mortgagor and took the
necessary action of foreclosure on the residential lot of private
respondent. 11 In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins.
Co. 12 we held:
Insured, being the person with whom the contract
was made, is primarily the proper person to bring
suit thereon. * * * Subject to some exceptions,
insured may thus sue, although the policy is taken
wholly or in part for the benefit of another person
named or unnamed, and although it is expressly
made payable to another as his interest may appear
or otherwise. * * * Although a policy issued to a
mortgagor is taken out for the benefit of the
mortgagee and is made payable to him, yet the
mortgagor may sue thereon in his own name,
 especially where the mortgagee's interest is less
than the full amount recoverable under the policy, * *
*.
And in volume 33, page 82, of the same work, we
read the following:
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. 13
And since a policy of insurance upon life or health may pass by
transfer, will or succession to any person, whether he has an
insurable interest or not, and such person may recover it whatever
the insured might have recovered, 14 the widow of the decedent Dr.
Leuterio may file the suit against the insurer, Grepalife.
The second assigned error refers to an alleged concealment that the
petitioner interposed as its defense to annul the insurance contract.
Petitioner contends that Dr. Leuterio failed to disclose that he had
hypertension, which might have caused his death. 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 assured, but he designedly and intentionally
withholds the same. 15
Petitioner merely relied on the testimony of the attending physician,
Dr. Hernando Mejia, as supported by the information given by the
widow of the decedent. Grepalife asserts that Dr. Mejia's technical
diagnosis of the cause of death of Dr. Leuterio was a duly
documented hospital record, and that the widow's declaration that
her husband had "possible hypertension several years ago" should
not be considered as hearsay, but as part of res gestae.
On the contrary the medical findings were not conclusive because
Dr. Mejia did not conduct an autopsy on the body of the decedent.
As the attending physician, Dr. Mejia stated that he had no
knowledge of Dr. Leuterio's any previous hospital confinement. 16 Dr.
Leuterio's death certificate stated that hypertension was only "the
possible cause of death." The private respondent's statement, as to
the medical history of her husband, was due to her unreliable
recollection of events. Hence, the statement of the physician was
properly considered by the trial court as hearsay.
The question of whether there was concealment was aptly answered
by the appellate court, thus:
The insured, Dr. Leuterio, had answered in his
insurance application that he was in good health and
that he had not consulted a doctor or any of the
enumerated ailments, including hypertension; when
he died the attending physician had certified in the
death certificate that the former died of cerebral
hemorrhage, probably secondary to hypertension.
From this report, the appellant insurance company
refused to pay the insurance claim. Appellant
alleged that the insured had concealed the fact that
he had hypertension.
Contrary to appellant's allegations, there was no
sufficient proof that the insured had suffered from
hypertension. Aside from the statement of the
insured's widow who was not even sure if the
medicines taken by Dr. Leuterio were for
hypertension, the appellant had not proven nor
produced any witness who could attest to Dr.
Leuterio's medical history . . .
xxx xxx xxx
Appellant insurance company had failed to establish
that there was concealment made by the insured,
hence, it cannot refuse payment of the claim. 17
The fraudulent intent on the part of the insured must be established
to entitle the insurer to rescind the contract.18 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. 19 In the case at bar, the petitioner
failed to clearly and satisfactorily establish its defense, and is
therefore liable to pay the proceeds of the insurance.1âwphi1.nêt
And that brings us to the last point in the review of the case at bar.
Petitioner claims that there was no evidence as to the amount of Dr.
Leuterio's outstanding indebtedness to DBP at the time of the
mortgagor's death. Hence, for private respondent's failure to
establish the same, the action for specific performance should be
dismissed. Petitioner's claim is without merit. A life insurance policy
is a valued policy. 20 Unless the interest of a person insured is
susceptible of exact pecuniary measurement, the measure of
indemnity under a policy of insurance upon life or health is the sum
fixed in the policy. 21 The mortgagor paid the premium according to
the coverage of his insurance, which states that:
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." 22 (Emphasis omitted)
However, we noted that the Court of Appeals' decision was
promulgated on May 17, 1993. In private respondent's
memorandum, she states that DBP foreclosed in 1995 their
residential lot, in satisfaction of mortgagor's outstanding loan.
Considering this supervening event, the 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. The proceeds now rightly
belong to Dr. Leuterio's heirs represented by his widow, herein
private respondent Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The Decision and
Resolution of the Court of Appeals in CA-G.R. CV 18341 is
AFFIRMED with MODIFICATION that the petitioner is ORDERED to
pay the insurance proceeds amounting to Eighty-six thousand, two
hundred (P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo
Leuterio (deceased), upon presentation of proof of prior settlement of
mortgagor's indebtedness to Development Bank of the Philippines.
Costs against petitioner.1âwphi1.nêt
SO ORDERED.
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.
I
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.
G.R. No. 125678 March 18, 2002
PHILAMCARE HEALTH SYSTEMS, INC., petitioner,
vs.
COURT OF APPEALS and JULITA TRINOS, respondents.
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos,
applied for a health care coverage with petitioner Philamcare Health
Systems, Inc. In the standard application form, he answered no to
the following question:
Have you or any of your family members ever consulted or
been treated for high blood pressure, heart trouble, diabetes,
cancer, liver disease, asthma or peptic ulcer? (If Yes, give
details).1
The application was approved for a period of one year from March 1,
1988 to March 1, 1989. Accordingly, he was issued Health Care
Agreement No. P010194. Under the agreement, respondent’s
husband was entitled to avail of hospitalization benefits, whether
ordinary or emergency, listed therein. He was also entitled to avail of
"out-patient benefits" such as annual physical examinations,
preventive health care and other out-patient services.
Upon the termination of the agreement, the same was extended for
another year from March 1, 1989 to March 1, 1990, then from March
1, 1990 to June 1, 1990. The amount of coverage was increased to a
maximum sum of P75,000.00 per disability.2
During the period of his coverage, Ernani suffered a heart attack and
was confined at the Manila Medical Center (MMC) for one month
beginning March 9, 1990. While her husband was in the hospital,
respondent tried to claim the benefits under the health care
agreement. However, petitioner denied her claim saying that the
Health Care Agreement was void. According to petitioner, there was
a concealment regarding Ernani’s medical history. Doctors at the
MMC allegedly discovered at the time of Ernani’s confinement that
he was hypertensive, diabetic and asthmatic, contrary to his answer
in the application form. Thus, respondent paid the hospitalization
expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended
by a physical therapist at home. Later, he was admitted at the
Chinese General Hospital. Due to financial difficulties, however,
respondent brought her husband home again. In the morning of April
13, 1990, Ernani had fever and was feeling very weak. Respondent
was constrained to bring him back to the Chinese General Hospital
where he died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court
of Manila, Branch 44, an action for damages against petitioner and
its president, Dr. Benito Reverente, which was docketed as Civil
Case No. 90-53795. She asked for reimbursement of her expenses
plus moral damages and attorney’s fees. After trial, the lower court
ruled against petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders
judgment in favor of the plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital
coverage of the late Ernani Trinos in the amount of
P76,000.00 plus interest, until the amount is fully paid to
plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral damages
of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as
exemplary damages to plaintiff;
4. Defendants to pay attorney’s fees of P20,000.00, plus
costs of suit.
SO ORDERED.3
On appeal, the Court of Appeals affirmed the decision of the trial
court but deleted all awards for damages and absolved petitioner
Reverente.4 Petitioner’s motion for reconsideration was
denied.5 Hence, petitioner brought the instant petition for review,
raising the primary argument that a health care agreement is not an
insurance contract; hence the "incontestability clause" under the
Insurance Code6 does not apply.1âwphi1.nêt
Petitioner argues that the agreement grants "living benefits," such as
medical check-ups and hospitalization which a member may
immediately enjoy so long as he is alive upon effectivity of the
agreement until its expiration one-year thereafter. Petitioner also
points out that only medical and hospitalization benefits are given
under the agreement without any indemnification, unlike in an
insurance contract where the insured is indemnified for his loss.
Moreover, since Health Care Agreements are only for a period of
one year, as compared to insurance contracts which last
longer,7 petitioner argues that the incontestability clause does not
apply, as the same requires an effectivity period of at least two
years. Petitioner further argues that it is not an insurance company,
which is governed by the Insurance Commission, but a Health
Maintenance Organization under the authority of the Department of
Health.
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. An insurance contract exists where the
following elements concur:
1. The insured has an insurable interest;
 2. The insured is subject to a risk of loss by the happening of
the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons
bearing a similar risk; and
5. In consideration of the insurer’s promise, the insured pays
a premium.8
Section 3 of the Insurance Code states that any contingent or
unknown event, whether past or future, which may damnify a person
having an insurable interest against him, may be insured against.
Every person has an insurable interest in the life and health of
himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary
interest;
(3) of any person under a legal obligation to him for the
payment of money, respecting property or service, of which
death or illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest
vested in him depends.
In the case at bar, the insurable interest of respondent’s husband in
obtaining the health care agreement was his own health. The health
care agreement was in the nature of non-life insurance, which is
primarily a contract of indemnity.9 Once the member incurs hospital,
medical or any other expense arising from sickness, injury or other
stipulated contingent, the health care provider must pay for the same
to the extent agreed upon under the contract.
Petitioner argues that respondent’s husband concealed a material
fact in his application. It appears that in the application for health
coverage, petitioners required respondent’s husband to sign an
express authorization for any person, organization or entity that has
any record or knowledge of his health to furnish any and all
information relative to any hospitalization, consultation, treatment or
any other medical advice or examination.10 Specifically, the Health
Care Agreement signed by respondent’s husband states:
We hereby declare and agree that all statement and
answers contained herein and in any addendum annexed to
this application are full, complete and true and bind all
parties in interest under the Agreement herein applied for,
that there shall be no contract of health care coverage
unless and until an Agreement is issued on this application
and the full Membership Fee according to the mode of
payment applied for is actually paid during the lifetime and
good health of proposed Members; that no information
acquired by any Representative of PhilamCare shall be
binding upon PhilamCare unless set out in writing in the
application; 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 and that the acceptance of any Agreement issued
on this application shall be a ratification of any correction in
or addition to this application as stated in the space for
Home Office Endorsement.11 (Underscoring ours)
In addition to the above condition, petitioner additionally required the
applicant for authorization to inquire about the applicant’s medical
history, thus:
I hereby authorize any person, organization, or entity that
has any record or knowledge of my health and/or that of
 __________ to give to the PhilamCare Health Systems,
Inc. any and all information relative to any hospitalization,
consultation, treatment or any other medical advice or
examination. This authorization is in connection with the
application for health care coverage only. A photographic
copy of this authorization shall be as valid as the
original.12 (Underscoring ours)
Petitioner cannot rely on the stipulation regarding "Invalidation of
agreement" which reads:
Failure to disclose or misrepresentation of any material
information by the member in the application or medical
examination, whether intentional or unintentional, shall
automatically invalidate the Agreement from the very
beginning and liability of Philamcare shall be limited to return
of all Membership Fees paid. An undisclosed or
misrepresented information is deemed material if its
revelation would have resulted in the declination of the
applicant by Philamcare or the assessment of a higher
Membership Fee for the benefit or benefits applied for.13
The answer assailed by petitioner was in response to the question
relating to the medical history of the applicant. This largely depends
on opinion rather than fact, especially coming from respondent’s
husband who was not a medical doctor. Where matters of opinion or
judgment are called for, answers made in good faith and without
intent to deceive will not avoid a policy even though they are
untrue.14 Thus,
(A)lthough false, a representation of the expectation,
intention, belief, opinion, or judgment of the insured will not
avoid the policy if there is no actual fraud in inducing the
acceptance of the risk, or its acceptance at a lower rate of
premium, and this is likewise the rule although the statement
is material to the risk, if the statement is obviously of the
foregoing character, since in such case the insurer is not
justified in relying upon such statement, but is obligated to
make further inquiry. There is a clear distinction between
such a case and one in which the insured is fraudulently and
intentionally states to be true, as a matter of expectation or
belief, that which he then knows, to be actually untrue, or the
impossibility of which is shown by the facts within his
knowledge, since in such case the intent to deceive the
insurer is obvious and amounts to actual
fraud.15 (Underscoring ours)
The fraudulent intent on the part of the insured must be established
to warrant rescission of the insurance contract.16 Concealment as a
defense for the health care provider or insurer to avoid liability is an
affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the provider or
insurer. In any case, with or without the authority to investigate,
petitioner is liable for claims made under the contract. 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.
Under Section 27 of the Insurance Code, "a concealment entitles the
injured party to rescind a contract of insurance." The right to rescind
should be exercised previous to the commencement of an action on
the contract.17 In this case, no rescission was made. Besides, the
cancellation of health care agreements as in insurance policies
require the concurrence of the following 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.18
None of the above pre-conditions was fulfilled in this case. When the
terms of insurance contract contain limitations on liability, courts
should construe them in such a way as to preclude the insurer from
non-compliance with his obligation.19 Being a contract of adhesion,
the terms of an insurance contract are to be construed strictly
against the party which prepared the contract – the insurer.20 By
reason of the exclusive control of the insurance company over the
terms and phraseology of the insurance contract, ambiguity must be
strictly interpreted against the insurer and liberally in favor of the
insured, especially to avoid forfeiture.21 This is equally applicable to
Health Care Agreements. The phraseology used in medical or
hospital service contracts, such as the one at bar, must be liberally
construed in favor of the subscriber, and if doubtful or reasonably
susceptible of two interpretations the construction conferring
coverage is to be adopted, and exclusionary clauses of doubtful
import should be strictly construed against the provider. 22
Anent the incontestability of the membership of respondent’s
husband, we quote with approval the following findings of the trial
court:
(U)nder 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.23
Finally, petitioner alleges that respondent was not the legal wife of
the deceased member considering that at the time of their marriage,
the deceased was previously married to another woman who was
still alive. The health care agreement is in the nature of a contract of
indemnity. Hence, payment should be made to the party who
incurred the expenses. It is not controverted that respondent paid all
the hospital and medical expenses. She is therefore entitled to
reimbursement. The records adequately prove the expenses
incurred by respondent for the deceased’s hospitalization,
medication and the professional fees of the attending physicians.24
WHEREFORE, in view of the foregoing, the petition is DENIED. The
assailed decision of the Court of Appeals dated December 14, 1995
is AFFIRMED.
SO ORDERED.
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.
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.
G.R. No. 186983 February 22, 2012
MA. LOURDES S. FLORENDO, Petitioner,
vs.
PHILAM PLANS, INC., PERLA ABCEDE MA. CELESTE
ABCEDE, Respondents.
DECISION
ABAD, J.:
This case is about an insured’s 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 ₱997,050.00, payable in 10 years,
and had a maturity value of ₱2,890,000.00 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, Perla’s 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
PP430055848 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 husband’s 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 plan13 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 husband’s pension plan, namely: ₱997,050.00, the
proceeds of his term insurance, and ₱2,890,000.00 lump sum
pension benefit upon maturity of his plan; ₱100,000.00 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 more than five years preceding his submission of that application.
know.18 But he kept those crucial facts from Philam Plans.

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;
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:

2. Whether or not the CA erred in holding that Manuel was xxxx

bound by the failure of respondents Perla and Ma. Celeste to
declare the condition of Manuel’s health in the pension plan (c) I have never been treated for heart condition, high blood
application; and pressure, cancer, diabetes, lung, kidney or stomach disorder
or any other physical impairment in the last five years.
3. Whether or not the CA erred in finding that Philam Plans’
approval of Manuel’s pension plan application and (d) I am in good health and physical condition.
acceptance of his premium payments precluded it from
denying Lourdes’ claim. If your answer to any of the statements above reveal otherwise,
please give details in the space provided for:
Rulings of the Court
Date of confinement : ____________________________
One. Lourdes points out that, seeing the unfilled spaces in Manuel’s
pension plan application relating to his medical history, Philam Plans Name of Hospital or Clinic :
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 Manuel’s part. Further, Lourdes adds that Philam
Name of Attending Physician :
Plans never queried Manuel directly regarding the state of his health.
____________________________
Consequently, it could not blame him for not mentioning it.19
Findings : ____________________________
But Lourdes is shifting to Philam Plans the burden of putting on the
pension plan application the true state of Manuel’s health. She
forgets that since Philam Plans waived medical examination for Others: (Please specify) :
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 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 Perla’s knowledge of Manuel’s 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 2727 of the Insurance Code,
Manuel’s 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,
Perla’s 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 VIII. INCONTESTABILITY

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.
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 1âwphi1
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 husband’s 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.

Three. In a final attempt to defend her claim for benefits under

Manuel’s 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: