1|P age NOTES IN INSURANCE
CONCEALMENT
Section 26 – A neglect to communicate that which a
party knows and ought to communicate is called a
concealment.
REQUISITES OF CONCEALMENT
There can be no concealment unless:
1. A party knows the fact which he neglects to
communicate or disclose to the other;
2. Such party concealing duty bound to disclose such
fact to the other
3. Such party concealing makes no warranty of the fact
concealed; and
4. The other party has no means of ascertaining the fact
concealed
Section 27 – A concealment whether intentional or
unintentional entitles the injured party to rescind a
contract of insurance.
EFFECT OF CONCEALMENT
- Makes the contract voidable at the insured’s option
- Rationale: Insurance policies are traditionally
contracts uberrime fidae, that is, contracts of the
outmost good faith.
REASON BEHIND SECTION 27
- In cases of concealment, the insurer is misled or
deceived into accepting the risk or accepting it at the
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
circumstance withheld does NOT exist, and he is
thereby induced to estimate the risk upon a false
basis.
Must the insurer prove fraud in order to rescind the
contract on the ground of concealment?
- No. Under Sec. 27, the insurer need not prove fraud
in order to rescind a contract on the ground of
concealment. The duty of communication is
independent of the intention and is violated by the
fact of concealment, even when there is no intention
to deceive.
Nota bene: No concealment if the fact concealed is not
material to the contract.
Grepalife vs. CA
- Ruling: Ngo Hing had deliberately concealed the
state of health and physical condition of his daughter
Helen. When he supplied the required essential data
for the insurance form, he was fully aware that Helen
was a mongoloid.
- Had he divulged said significant fact in the insurance
form, Grepalife would have verified the same and
would have had no obvious choice but to disapprove
the application outright.
Reference: Ateneo Notes
Bem Jamison
Henson vs. Philamlife
- Facts: In the application for reinstatement, Henson
did not disclose the fact that he had been previously
diagnosed for pyelonephritis, enlarged liver and
hernia. He also did not disclose that he had been
examined by a physician. Henson died, and his
beneficiaries’ claim was rejected by Philamlife on the
ground of concealment.
- Issue: WON there is need to prove intent to conceal
to warrant rescission.
- Ruling: Sec. 26 provides that “a concealment whether
intentional or unintentional entitles the injured party
to rescind the contract of insurance”. And aside from
this, intent, being a state of the mind is hard to prove.
Henson vs. Philamlife
- Ruling: Patricio claims that the answers to the
questions in the health certificates were made by US
Life’s agent. The spouses, in allowing the agent to
answer some of the blanks in the certificates and
afterwards stamping their signature thereon, are
presumed to have at least acquiesced in and
approved all that had been stated therein in their
behalf.
Bautista vs. Capital Insurance
- Facts: The policy described the building as “occupied
as dwelling only”. However, a portion of the building
was subleased to a shoe manufacturer. The building
was subsequently destroyed by fire but the claim for
insurance was denied on the ground of breach of
warranty. Bautista said that the statement “occupied
as dwelling only” was not hers, but of the insurance
agent, and that the policy was in English (which she
did not understand) and was never read to her.
- Ruling: Bautista was bound to know the contents of
the policy in accepting it. In the absence of fraud, she
is presumed to know the contents of the contract and
to have assented to them. Failure to read the policy
is negligence, and the insured is regarded as having
assumed the risk of the falsity or misstatements of its
content.
General Insurance and Surety Corp. vs. Ng Hua
- Ruling: Violation of the statement which is to be
considered a warranty entitles the insurer to rescind
the contract of insurance. Such misrepresentation is
fatal.
Vda. De Canilang vs. CA
- Facts: Mr. Canilang, on his insurance application,
failed to disclose that he has twice consulted a
physician who had found him to be suffering from
"sinus tachycardia" and "acute bronchitis. He later
died of "congestive heart failure," "anemia," and
"chronic anemia." His wife’s claim for indemnity was
denied on the ground of concealment.
- Ruling: 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
 2|P age NOTES IN 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.
Sun Life vs. CA
- Facts: Bacani failed to disclose in his insurance
application that he was previously examined and
confined in the Lung Center of the PH where he was
diagnosed of renal failure. He later died in a plane
crash. RTC ruled for Bernarda holding that the facts
concealed by the insured were made in good faith
and under the 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." CA affirmed.
- Ruling: 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 the issuance of the insurance
policy. Thus, "good 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.
Section 28 – Each party to a contract of insurance must
communicate to the other, in good faith, all facts within
his knowledge which are material to the contract and as
to which he makes no warranty, and which the other
has not the means of ascertaining.
MATTERS THAT MUST BE COMMUNICATED BY THE
PARTY TO THE OTHER
1. The party with the duty to communicate makes no
warranty; and
2. The other party has no means of ascertaining the
facts
Exceptions: Section 30
TEST TO DETERMINE WHETHER OR NOT ONE MUST
COMMUNICATE THE FACTS TO THE OTHER PARTY
- If the applicant is aware of the existence of some
circumstance which he knows would influence the
insurer in acting upon his application, GOOD FAITH
requires him to disclose that circumstance, though
unasked.
Nota bene: The effect of the material concealment cannot
be avoided by the allegation that the insurer could have
known and discovered a fact which the insured had
concealed. An allegation like this implies that there is an
Reference: Ateneo Notes
Bem Jamison
obligation on the part of the insurance company to verify
all the statements made by the insured in his application.
No such obligation exists on the part of the insurer. The
insurer has the right to rely upon the statements of the
insured for he knows the facts and the insurer does not.
Section 29 – An intentional and fraudulent omission,
on the part of one insured, to communicate
information of matters proving or tending to prove the
falsity of a warranty, entitles the insurer to rescind.
- The type of concealment referred to relates to the
“falsity of a warranty”. Unlike the ordinary
concealment provided for in Sec. 27, the non-
disclosure under this section must be intentional and
fraudulent in order that the contract may be
rescinded.
Example: In every contract of marine insurance, there is an
implied warranty of seaworthiness of the vessel. The
intentional and fraudulent omission on the part of the
insured to communicate the fact that his ship is in distress
or in special peril entitles the insurer to rescind because the
concealment refers to matters proving or tending to prove
the falsity of the warranty that the ship is seaworthy.
Section 30 – Neither party to a contract of insurance is
bound to communicate information of the matters
following, except in answer to the inquiries of the
other:
a. Those which the other knows;
b. Those which, in the exercise of ordinary care, the
other ought to know, and of which the former
has no reason to suppose him ignorant;
c. Those of which the other waives communication;
d. Those which prove or tend to prove the existence
of a risk excluded by a warranty, and which are
not otherwise material; and
e. Those which relate to a risk excepted from the
policy and which are not otherwise material.
Insular Life vs. Feliciano
- Facts: Upon application, Evaristo was already
suffering from tuberculosis. Such fact appeared
during the medical exam, but the examiner and the
company’s agent ignored it. He was made to sign an
application form and the blank spaces were filled by
the medical examiner and the agent making it appear
that Evaristo was a fit subject of insurance. When
Evaristo died, Insular life refused to pay the proceeds
because of concealment.
- Issue: WON Insular Life was bound by their agent’s
acts.
- CA Ruling: Yes. The true state of health of the insured
was concealed by the agents of the insurer. The
insurer’s medical examiner approved the application
knowing fully well that the applicant was sick. The
situation is one in which of two innocent parties must
bear a loss for his reliance upon a third person. In
this case, it is the one who drafted and accepted the
policy and consummated the contract. It seems
 3|P age NOTES IN INSURANCE
reasonable that as between the two of them, the one
who employed and gave character to the third person
as its agent should be the one to bear the loss.
Hence, Insular is liable to the beneficiaries.
- SC Ruling: There was collusion between Evaristo and
the agent and the medical examiner. When Evaristo
authorized them to write the answers for him, he
made them his own agents for that purpose and he
was responsible for their acts in that connection. If
they falsified the answers for him, he could not evade
liability for the falsification. He was not supposed to
sign the application in blank. He knew that his
answers would be the basis for the policy, and was
required with his signature to vouch for their truth.
The judgment rendered therefore in the preceding
case is thus reversed, and Insular Life is absolved from
liability.
Aranilla vs. Insular Life
- Ruling: If an answer given by the insured to a specific
question asked by the insurer in an application for life
insurance turns out to be false, it is a concealment of
a material fact which entitles the insurer to rescind,
even if the insured died of an ailment which has NO
connection with the specific questions falsely
answered by him. This is because materiality is to be
determined NOT by the event but ONLY 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.
Section 31 – Materiality is to be determined not by the
event, but solely by the probable and reasonable
influence of the facts upon the party to whom the
communication is due, in forming his estimate of the
disadvantages of the proposed contract, or in making
his inquiries.
TEST OF MATERIALITY
- If the knowledge of a fact would cause the insurer to
reject the risk, or to accept it only at a higher
premium rate, that fact is material, though it may not
even remotely contribute to the contingency upon
which the insurer would become liable, or in any wise
affect the risk.
Saturnino vs. Philamlife
- Facts: Saturnino did not make a disclosure of her
breast removal operation for breast cancer in her
application for insurance. The application recited that
the declarations of Saturnino constituted a further
basis for the issuance of the policy.
- Issue: Whether the insured made such false
representation of material facts as to avoid the policy.
- Ruling: Yes. Appellants 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
Reference: Ateneo Notes
Bem Jamison
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.
Section 32 – Each party to a contract of insurance is
bound to know all the general causes which are open
to his inquiry, equally with that of the other, and
which may affect the political or material perils
contemplated; and all general usages of trade.
Note: The insured need not communicate public events
such as that the nation is at war, or what the law is, or
political conditions in other countries, the sources of this
information being equally open to the insurer who is also
presumed to know such events. Likewise, the insurer is
charged with the knowledge or general trade usages and
rules of navigation, kinds of seasons and all the risks
connected with navigation.
TWO MATTERS THAT EACH PARTY TO A CONTRACT OF
INSURANCE IS BOUND TO KNOW
1. General clauses
2. General usages of trade
Section 33 – The right to information of material facts
may be waived, either by the terms of the insurance or
by neglect to make inquiry as to such facts, where they
are distinctly implied in other facts of which
information is communicated.
HOW TO WAIVE RIGHT TO INFORMATION
1. Expressly, by the terms of the insurance; or
2. Impliedly, by neglect to make inquiry as to the facts
already communicated.
Nota bene:
- If the applicant has answered the questioned asked in
the application, he is justified in assuming that no
further information is desired.
- The insurer asks the insured if he was ever confined in
a hospital for more than a month and the insured says
“YES”. If the insurer does not inquire for the cause of
the long confinement, then he is deemed to have
waived the information.
Ng Gan Zee vs. Asian Crusader Life
- Facts: Husband of the petitioner applied for an
insurance. He stated in his application that he was
operated on for tumor of the stomach associated
with ulcer. He later died of cancer of the liver with
metastasis. Asian refused to pay on the ground of
false information. It was found that prior to his
application, he was diagnosed to have peptic ulcers,
and that during the operation what was removed
from his body was actually a portion of the stomach
and not tumor.
- Issue: WON the contract may be rescinded on the
ground of the imperfection in the application form.
- Ruling: Kwong did not have sufficient knowledge as
to distinguish between a tumor and a peptic ulcer.
His statement therefore was made in good faith.
 4|P age NOTES IN INSURANCE
Asian should have made an inquiry as to the illness
and operation of Kwong when it appeared on the face
of the application that a question appeared to be
imperfectly answered. Asian’s failure to inquire
constituted a waiver of the imperfection in the
answer.
Section 34 – Information of the nature or amount of
the interest of one insured need not be communicated
unless in answer to an inquiry, except as prescribed by
section fifty-one.
- Under Sec. 51(e), it is required that a policy of an
insurance must specify the interest of the insured in
the property insured, if he is not the absolute owner
thereof. So a mortgagee must disclose his particular
interest even if no inquiry is made by the insurer in
relation thereto. Such requirement is made so that
the insurer may determine the extent of the insured’s
insurable interest.
- This section therefore says, that there is NO NEED to
disclose the interest in the property insured if the
interest is absolute. The exception of course is the
insurer asks.
Section 35 – Neither party to a contract of insurance is
bound to communicate, even upon inquiry,
information of his own judgment upon the matters in
question.
DUTY TO DISCLOSE
- The duty to disclose is confined to facts. There is no
duty to disclose mere opinion, speculation, intention
or expectation. This is true even if the insured is
asked.
CR to Section 108: “In marine insurance, information of
the belief or expectation of a third person, in reference to
a material fact, is material.”
REPRESENTATION
Section 36 – A representation may be oral or written.
REPRESENTATION
- Is a factual statement made by the insured at the
time of, or prior to, the issuance of the policy to give,
information to the insurer and otherwise induce him
to enter into the insurance contract.
REPRESENTATION VS. CONCEALMENT
Representation Concealment
A positive act as the A negative act, meaning it is
insured volunteers such the failure to do something
facts which is required
May be made at the time of Usually occurs prior to
the issuance of the contract making of the insurance
contract
MISREPRESENTATION
Reference: Ateneo Notes
Bem Jamison
- Is a statement:
1. As a fact of something which is untrue
2. Which the insured stated with knowledge that it is
untrue and with an intent to deceive or which he
states as true without knowing it to be true and
which has the tendency to mislead; and
3. Where such fact in either case is material to the risk.
EFFECT OF MISREPRESENTATION
- A misrepresentation by the insured renders the
insurance contract voidable at the option of the
insurer, although the policy is not thereby rendered
void ab initio.
*Misrepresentation is not synonymous with concealment,
it is only an active form of the latter.
DUTY OF THE PERSON APPLYING FOR INSURANCE
- To give the insurer all such information concerning
the risk as will be of use to the latter in estimating its
character and in determining whether or not to
assume it. This information may be given orally or
written in papers not connected with the contract
such as in the application or examiner’s report.
Sometimes, it may appear on the policy itself.
- Ratio: The information forms the basis of the contract
as made. It describes, marks out and defines the risk
assumed. Hence the untruthfulness of any
representation will necessarily avoid the contract.
Section 37 – A representation may be made at the
time of, or before, issuance of the policy.
Section 38 – The language of a representation is to be
interpreted by the same rules as the language of
contracts in general.
HOW MISREPRESENTATION IS CONSTRUED
- Construed liberally in favor of the insured
Note:
- Representations need not be literally true; it is
enough that it is only substantially true.
- Examples:
o If one is asked if he drinks, the question will be
construed as referring to habitual use. So if you
drink only when there is an occasion, they you
can say NO.
o If you are asked if you had any illnesses, local
disease or injury in any organ, you can still say
NO even if three weeks before you were suffering
from LBM.
Section 39 – A representation as to the future is to be
deemed a promise, unless it appears that it was
merely a statement of belief or expectation.
 5|P age NOTES IN INSURANCE
DIFFERENT KINDS OF REPRESENTATIONS
1. Oral or written;
2. Made at the time of the issuance of the policy or
before;
3. Affirmative or promissory
AFFIRMATIVE REPRESENTATION
- It is any allegation as to the existence or non-
existence of a fact when the contract begins.
- Example: When the insured states that the house
subject of the insurance is used only for residential
purposes.
PROMISSORY REPRESENTATION
- It is any promise to be fulfilled after the contract has
come into existence or any statement concerning
what is to happen during the existence of the
insurance.
- Example:
o An applicant for fire insurance on a building
orally promised that the building will be
occupied.
o An applicant for fire insurance on a building
orally promised to install two fire extinguishers
within the bldg.
NATURE OF A PROMISSORY REPRESENTATION
1. It is used to indicate a parol or oral promise made in
connection with the insurance, but not incorporated
in the policy.
- Non-performance of such a promise CANNOT be
shown by the insurer in defense to an action on the
policy, but proof that the promise was made with
fraudulent intent and will serve to defeat the
insurance.
2. It is an undertaking by the insured, inserted in the
policy, but not specifically made a warranty.
- Merely an executory term of the contract, and not
property a representation; it is deemed substantially a
condition or warranty.
EFFECT OF FALSE REPRESENTATION BASED ON OPINION
OR EXPECTATION
- A representation of an expectation, intention, belief
opinion or judgment of the insured, although false,
will NOT avoid the policy of insurance if there is NO
actual fraud in inducing the acceptance of the risk or
its acceptance at a lower rate of premium.
DEFENSE OF THE INSURER
- The insurer must prove both the materiality of the
insured’s opinion and the latter’s intent to deceive.
- If the representation is one of fact, all the insurer
needs to prove is its falsity and materiality. The
intent to deceive is already presumed.
WHEN IS REPRESENTATION DEEMED A MERE
EXPRESSION OF OPINION
- An oral representation as to a future event, or
condition over which the insured has no control, with
reference to property or life insured will be deemed a
Reference: Ateneo Notes
Bem Jamison
mere expression of opinion, which will avoid a
contract ONLY when made in bad faith.
Section 40 – A representation cannot qualify an
express provision in a contract of insurance, but it may
qualify an implied warranty.
Ratio: A representation cannot qualify an express provision
or an express warranty in a contract of insurance because
a representation is not a part of the contract but only a
collateral inducement to it.
Section 41 – A representation may be altered or
withdrawn before the insurance is effected, but not
afterwards.
Section 42 – A representation must be presumed to
refer to the date on which the contract goes into
effect.
WHEN THERE IS FALSE REPRESENTATION
- No false representation: If the representation was
true at the time the contract takes effect, although it
became false at the time it was made.
- With false representation: If although the
representation was true at the time it was made, it
subsequently became false at the time the contract
took effect.
Section 43 – When a person insured has no personal
knowledge of a fact, he may nevertheless repeat
information which he has upon the subject, and which
he believes to be true, with the explanation that he
does so on the information of others; or he may
submit the information, in its whole extent, to the
insurer; and in neither case is he responsible for its
truth, unless it proceeds from an agent of the insured,
whose duty it is to give the information.
Example:
- If the insured has no personal knowledge of the
causes of the death of his parents because they died
when the injured was still an infant, he may report
information obtained from friends and relatives if he
likes. In which case, he is not responsible for the
truth of the information.
- If the information proceeds from an agent of the
insured, whose duty it is in the ordinary course of
business to communicate such information to his
principal, and it is possible for the agent under such
circumstances in the exercise of due diligence to have
made such communication before the making of the
contract, the insured will be liable for the truth.
Section 44 – A representation is to be deemed false
when the facts fail to correspond with its assertions or
stipulations.
 6|P age NOTES IN INSURANCE
*This section defines misrepresentation.
MUST REPRESENTATION BE LITERALLY TRUE
- No. See Section 38. Representations are not required
to be literally true unlike warranties which must be
literally true. It is sufficient that representations are
substantially true.
- In case of marine insurance , the substantial truth of
a representation is NOT sufficient. According to Sec.
107, the insured is required to state the exact and
whole truth in relation to all matters that he
represents, or upon inquiry, discloses or assumes to
disclose.
WHEN REPRESENTATION AVOID A POLICY
- In order that a representation shall avoid a policy, it
must be relied upon and be false in a substantial and
material respect.
Section 45 – If a representation is false in a material
point, whether affirmative or promissory, the injured
party is entitled to rescind the contract from the time
when the representation becomes false. The right to
rescind granted by this Code to the insurer is waived
by the acceptance of premium payments despite
knowledge of the ground for rescission. (As amended
by Batasang Pambansa Blg. 874)
- It provides that the falsity of a representation entitles
the injured party to rescind the contract from the time
when the representation becomes false. And
ordinarily, under this section, fraudulent intent is
IMMATERIAL. In other words, the injured party can
rescind the contract of insurance where there is a
misrepresentation even without fraud. And not that
the false representation MUST be material.
Edillon vs. Manila Bankers Life Insurance Corp
- Facts: Lapuz applied for insurance with respondent.
She indicated in the application her date of birth as
July 11, 1904 (64 years old). She subsequently died.
Sister claimed for proceeds but insurance company
refused because the certificate of insurance
contained a provision excluding it’s liability to pay
claims to persons under 16 or over 60.
- Issue: WON the policy is void considering that the
insured was over 60 when she applied.
- Ruling: The age of Carmen was not concealed to the
insurance company. Her application form indicated
her true age. Despite such information, Manila
Bankers accepted the premium and issued the policy.
It had all the time to process the application and
notice the applicant’s age. If it failed to act, it was
because Manila Bankers was willing to waive such
disqualifications or it simply overlooked such fact. It
is therefore estopped from disclaiming any liability.
Gonzalez Lao v. Yek Tong Lin Fire & Marine Insurance
- Ruling: The action by the insurance company of
taking the premiums of the insured notwithstanding
knowledge of violations of the provisions of the
Reference: Ateneo Notes
Bem Jamison
policies amounted to waiver of the right to annul the
contract of insurance.
Qua Chee Gan v. Law Union & Rock Insurance
- Ruling: Law Union is barred by waiver (or rather
estoppel) to claim violation of the so- called fire
hydrants warranty, for the reason that knowing fully
all that the number of hydrants demanded therein
never existed from the very beginning, the Law Union
nevertheless issued the policies in question subject to
such warranty, and received the corresponding
premiums.
Section 46 – The materiality of a representation is
determined by the same rules as the materiality of a
concealment.
WHO DETERMINES MATERIALITY
- It is a judicial question. It is not left to the insurance
company to say after the loss has occurred that it
would or would not have issued the policy had an
answer been truly given. The matter misrepresented
must be of that character which the court can say
would reasonably affect the insurer’s judgment.
SIMILARITIES/DIFFERENCS BETWEEN CONCEALMENT AND
MISREPRESENTATION
CONCEALMENT MISREPRESENTATION
Insured withholds Insured makes erroneous
information of material statements of facts with
facts from the insurer the intent of inducing the
insurer to enter into the
insurance contract.
Materiality is determined by the same rules applied in
cases of misrepresentation.
Concealment on the part of the insured has the same
effect as a misrepresentation and gives the insurer the
right to rescind the contract.
Whether intentional or not intentional, the injured
party is entitled to rescind the contract of insurance on
ground of concealment or false representation.
Rules on concealment and representation apply
likewise to the insurer since the contracts of insurance
is said to be one of utmost good faith on part of both
parties to the agreement.
Section 47 – The provisions of this chapter apply as
well to a modification of a contract of insurance as to
its original formation.
 7|P age NOTES IN INSURANCE
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.
WHEN MUST INSURER EXERCISE RIGHT TO RESCIND
a. Non-life insurance policy – prior to the
commencement of an action on the contract.
b. Life insurance policy – during the first two years
when the policy was in force during the lifetime of
the insured from the date of its issue or of its last
reinstatement.
INCONTESTABILITY CLAUSE
- Those clauses in life insurance policies stipulating that
the policy shall be incontestable after a stated period.
- Sec. 48 par. 2 now requires that the incontestability
of a life insurance policy starts after the lapse of the 2
years that the insurance was in force during the life
time of the insured.
- Rationale:
a. As to the insurer – The insurer is given a
reasonable opportunity to investigate the
statements which the applicant makes in
procuring his policy and that after the definite
period, the insurer should not be permitted to
question the validity of the policy, either by
affirmative action, or by defense to a suit
brought on the life policy by the beneficiary.
b. As to the insured – Such clauses give assurance
to the policy holder that his beneficiaries would
receive payment without question as to the
validity of the policy or the existence of the
coverage once the period of contestability
passes. It is designed to protect the policyholder
or beneficiary from a lawsuit contesting the
validity of the policy after a considerable time
has passed and evidence of the facts
surrounding the purchase may be unavailable.
REQUISITES FOR INCONTESTABILITY
1. The policy is a life insurance policy
2. It is payable on the death of the insured; and
3. It has been in force during the lifetime of the insured
for at least 2 years from its date of issue or of its last
reinstatement
Note: The period of 2 years may be shortened by
agreement between the insurer and the insured but it
cannot be extended by stipulation.
Reference: Ateneo Notes
Bem Jamison
EFFECT WHEN THE LIFE INSURANCE POLICY BECOMES
INCONTESTABLE
The insurer may not refuse to pay the same by claiming
that:
1. The policy is void ab initio; or
2. It is rescissible by reason of the fraudulent
misrepresentations of the insured or his agent, no
matter how patent or well-founded; or
3. It is rescissible by reason of the fraudulent
misrepresentations of the insured agent.
DEFENSES THAT THE INSURER MAY RAISE TO AVOID
LIABILITY EVEN AFTER THE LAPSE OF THE 2 YEARS
1. That the person taking the insurance lacked insurable
interest as required by law;
2. Cause of death of the insured is an expected risk;
3. That the premiums have not been paid;
4. That the conditions of the policy relating to military or
naval service have been violated;
5. That the fraud is of a particularly vicious type, as
where the policy was taken out in furtherance of a
scheme to murder the insured, or where the insured
substitutes another person for the medical
examination, or where the beneficiary feloniously kills
the insured;
6. That the beneficiary failed to furnish proof of death
or to comply with any condition imposed by the
policy after the loss has happened;
7. That the action was not brought within the time
specified.
Problem:
- Q: A procured insurance on his life through
fraudulent concealment or misrepresentation. What
is the effect if A dies within two year from the
issuance of the policy, and the insurer learned of the
concealment or misrepresentation?
- A: His beneficiary cannot recover on the policy
because the law says that the policy must have been
in force during the lifetime of the insured for a period
of two years. The death of the insured makes the
policy no longer “in force” and the insurer can still
rescind the contract.
Section 49 – The written instrument, in which a
contract of insurance is set forth, is called a policy of
insurance.
 8|P age NOTES IN INSURANCE
Section 50 – The policy shall be in printed form which
may contain blank spaces; and any word, phrase,
clause, mark, sign, symbol, signature, number, or word
necessary to complete the contract of insurance shall
be written on the blank spaces provided therein.
Any rider, clause, warranty or endorsement purporting
to be part of the contract of insurance and which is
pasted or attached to said policy is not binding on the
insured, unless the descriptive title or name of the
rider, clause, warranty or endorsement is also
mentioned and written on the blank spaces provided
in the policy.
Unless applied for by the insured or owner, any rider,
clause, warranty or endorsement issued after the
original policy shall be countersigned by the insured or
owner, which countersignature shall be taken as his
agreement to the contents of such rider, clause,
warranty or endorsement.
Group insurance and group annuity policies, however,
may be typewritten and need not be in printed form.
WHO SIGNS THE POLICY OF INSURANCE
- Only the insurer or his duly authorized agent signs the
policy. It need not be signed by the insured EXCEPT
where the express warranties are contained in a
separate instrument forming part of the policy, in
which case, Sec. 70 requires that the instrument be so
signed.
WHY ARE THE TERMS OF THE POLICY IMPORTANT
- They are important because they measure the liability
of the insurer on one hand, and the other hand, strict
compliance with the terms are required for the
recovery on the part of the insured.
IS THE POLICY AND THE CONTRACT ONE AND THE SAME
THING
- A contract is a meeting of the minds of the insured
and the insurer.
- The policy is ONLY the formal written instrument
evidencing the contract.
Best evidence that a contract has been entered into
between the insurer and the insured: Delivery of the
policy by the insurer to the insured.
EFFECTS OF DELIVERY
- If the delivery is conditional, non-fulfilment of the
condition bars the contract from taking effect.
- If the deliver is unconditional, the insurance becomes
effective at the time of delivery.
RIDER
- It is a printed or typed stipulation contained on a slip
of paper attached to the policy and forming an
integral part of the policy. Riders are usually attached
to the policy because they constitute additional
stipulations between the parties.
Reference: Ateneo Notes
Bem Jamison
EFFECT OF INCONSISTENCY BETWEEN THE POLICY AND
THE RIDER
- RIDER prevails, as being a more deliberate expression
of the agreement of the contracting parties.
REQUIREMENTS IN ORDER THAT A RIDER BE BINDING
UPON THE INSURED
- Descriptive title or name of the rider which is pasted
or attached to a policy MUST be mentioned and
written on the blank spaces provided for in the policy;
and
- Unless applied for by the insured or owner, said
insured or owner MUST countersign the rider.
**Also applies to warranties, clauses and endorsements.
WARRANTIES
- Warranties are inserted or attached to a policy to
eliminate specific potential increases of hazard during
the policy term owing to actions of the insured, or
conditions of property.
CLAUSES
- Clauses are agreements between the insurer and the
insured on certain matters relating to the laibiity of
the insurer in case of loss.
- Example:
a. ¾ Clause – where the insurer is liable for only ¾
of the loss or damage to the insured
b. Loss Payable clause – where the loss if any is
payable to the party or parties named, as their
interests may appear.
c. Change of Ownership clause where the
insurance will insure to the benefit of
whosoever, during the continuance of the risk,
may become the owner of the interest insured.
ENDORSEMENT
- An endorsement is any provision added to an
insurance contract altering its scope or application.
Examples would be those additions to the contract
changing the amount, the rate or the term of the
same.
Enriquez vs. Sun Life
- Facts: Herrer made an application to SunLife through
its office in Manila for life annuity. the Manila office
prepared a letter notifying Herrer that his application
has been accepted and this was placed in the
ordinary channels of transmission, but as far as
known was never actually mailed and never received
by Herrer. Herrer died afterwards.
- Issue: WON the insurance was perfected.
- Ruling: The contract for life annuity was NOT
perfected because it had NOT been proved
satisfactorily that the acceptance of the application
ever came to the knowledge of the applicant. An
acceptance of an offer of insurance NOT actually or
constructively communicated to the proposer does
NOT make a contract of insurance, as the locus
 9|P age NOTES IN INSURANCE
poenitentiae is ended when an acceptance has
passed beyond the control of the party.
LIFE ANNUITY vs. LIFE INSURANCE
- Life annuity is the opposite of a life insurance. In life
annuity, a big amount is given to the insurance
company, and if after a certain period of time the
insured is stil living, he is entitled to regular smaller
amounts for the rest of his life. (Example: pensions)
- Life Insurance, on the other hand, the insured during
the period of the coverage makes small regular
payments and upon his death, the insurer pays a big
amount to his beneficiaries.
Perez vs. CA
- Facts: Perez accomplished an application form for the
additional insurance coverage. The receipt issued by
Lalog indicated the amount received was a "deposit."
Lalog forwarded the application for additional
insurance of Perez, together with all its supporting
papers, to the office of BF Lifeman Insurance
Corporation in Quezon which office was supposed to
forward the papers to the Manila office.
Subsequently, Perez died while he was riding a banca
which capsized during a storm. At the time of his
death, his application papers for the additional
insurance were still with the Quezon office. Without
knowing that Perez died, BF Lifeman Insurance
Corporation approved the application and issued the
corresponding policy.
- Issue: WON there was a perfected additional
insurance contract.
- Ruling: No. Consent must be manifested by the
meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the
contract. The offer must be certain and the
acceptance absolute. There was absolutely no way
the acceptance of the application could have been
communicated to the applicant for the latter to
accept inasmuch as the applicant at the time was
already dead.
Section 51 – A policy of insurance must specify:
a. The parties between whom the contract is made;
b. The amount to be insured except in the cases of
open or running policies;
c. The premium, or if the insurance is of a character
where the exact premium is only determinable
upon the termination of the contract, a
statement of the basis and rates upon which the
final premium is to be determined;
d. The property or life insured;
e. The interest of the insured in property insured, if
he is not the absolute owner thereof;
f. The risks insured against; and
g. The period during which the insurance is to
continue.
Reference: Ateneo Notes
Bem Jamison
KINDS OF INSURABLE RISKS
1. Personal risks – life or health risks
2. Property risks – loss or damage to property
3. Liability risks – involve liability of the insured for an
injury caused to the person or property of another
REQUIREMENTS IN ORDER THAT A RISK BE INSURABLE
1. The loss to be insured against must be important
enough to warrant the existence of an insurance
contract
2. Risk must permit a reasonable statistical estimate of
the chance of loss in order to determine the amount
of premium to be paid
3. The loss should be definite as to cause, time, place
and amount
4. The loss is not catastrophic
5. Risk is accidental in nature
Section 52 – Cover notes may be issued to bind
insurance temporarily pending the issuance of the
policy. Within sixty days after the issue of the cover
note, a policy shall be issued in lieu thereof, including
within its terms the identical insurance bound under
the cover note and the premium therefor.
Cover notes may be extended or renewed beyond
such sixty days with the written approval of the
Commissioner if he determines that such extension is
not contrary to and is not for the purpose of violating
any provisions of this Code. The Commissioner may
promulgate rules and regulations governing such
extensions for the purpose of preventing such
violations and may by such rules and regulations
dispense with the requirement of written approval by
him in the case of extension in compliance with such
rules and regulations.
TWO TYPES OF PRELIMINARY CONTRACTS OF INSURANCE
1. The preliminary contract of present insurance
- The insurer insures the subject matter usually by
what is known as a “binding slip” or “binder” or
“cover note” which is the contract to be effective
until the formal policy is issued or the risk is rejected.
2. The preliminary executory contract of insurance
- The insurer makes a contract to insure the subject
matter at some subsequent time which may be
definite or indefinite. Under such an executory
contract, the right acquired by the insured is merely
to demand the delivery of the policy in accordance
with the terms agreed upon and the obligation
assumed by the insurer is to deliver the said policy.
COVER NOTE
- Merely a written memorandum of the most
important terms of the preliminary contract of
insurane, intended to give temporary protection
pending the investigation of the risk by the insurer, or
until the issuance of a formal policy, provided that it
is later determined that the applicant was insurable
at the time it was given.
 10 | P a g e NOTES IN INSURANCE
RULES GOVERNING COVER NOTES
a. Insurance companies doing business in the
Philippines may issue cover notes to bind insurance
temporarily pending the issuance of the policy
b. A cover not shall e deemed to be a contract of
insurance within the meaning of Sec. 1(1) of IC.
c. No cover note shall be issued or renewed unless in
the form previously approved by the Insurance
Commission.
d. A cover not shall be valid and binding for a period
NOT exceeding 60 days from the date of its issuance,
whether or not the premium therefore has been paid
or not, BUT such cover note may be canceled by
either party upon at least 7 days notice to the other
party.
e. If a cover not is not so canceled, a policy of insurance
shall, within 60 days after the issuance of the cover
not be issued in lieu thereof. Such policy shall include
within its terms the identical insurance bound under
the cover note and the premiums therefore.
f. A cover note may be extended or renewed beyond
the aforementioned period of 60 days with the
written approval of the Insurance Commissioner,
provided that such written approval may be
dispensed with upon the certification of the Pres, VP
or General Mgr of the Insurance company concerned,
that the risks involved, the values of such risks, and
the premiums therefore have not as yet been
determined or established and that such extension or
renewal is NOT contrary to and is not for the purpose
of violating any provision of the IC.
g. The insurance companies may impose on cover notes
a deposit premium equivalent to at least 25% of the
estimated premium of the intended insurance
coverage but in no case less than P500.
Lim vs. Sun Life
- Ruling: The contract of insurance was not
consummated by the parties. The agreement clearly
stated that the agreement should NOT go into effect
until the home office of the Company shall confirm it
by issuing a policy. It was nothing but an
acknowledgment by the Company that it has received
a sum of money agreed upon as the first year’s
premium upon a policy to be issued upon the
application if it is accepted by the Company. Such
acceptance is merely conditional and is subordinated
to the company’s act in approving or rejecting; so in
life insurance a “binding slip or receipt” does not
insure itself.
BINDING RECEIPT OR SLIP
- Is ordinarily a document, slip or memorandum given
to the insured, which binds the insurance company to
pay insurance should a loss occur pending action
upon the application and actual issuance of a policy.
- Purpose: to provide temporary insurance pending an
inquiry by the insurer as to the character of the risk
and to take the place of the policy until the latter can
be issued. The issuance of a binder evidences, a
complete, temporary or preliminary contract of
insurance effective from that time until the issuance
Reference: Ateneo Notes
Bem Jamison
of the formal policy or until rejection of the risk.
Under a life policy, it would establish liability upon
the insurer if death occurred prior to the issuance of
the policy.
Section 53 – The insurance proceeds shall be applied
exclusively to the proper interest of the person in
whose name or for whose benefit it is made unless
otherwise specified in the policy.
Problem:
- Q: A had taken out a policy on his car with the
stipulation: “loss if any payable to Z, the mortgagee of
the car”. The car got lost and X, the owner of the
auto repair shop where the car was fixed filed a claim
with the insurance company. Is X entitled to collect
the cost of repair?
- A: No. As far as the insurance company is concerned,
X is not privy to the insurance contract. Even if there
was a provision in the contract authorizing either A or
Z to contract for repairs, this does not mean that X
became entitled to claim the proceeds. In this case,
the proceeds must be paid to Z, and in case Z was the
one who contracted for the repairs, Z must pay X.
Bonifacio Bros. v. Mora
- Ruling: A policy of insurance is a distinct and
independent contract between the insured and
insurer, and third persons have no right either in a
court of equity, or in a court of law, to the proceeds
of it, unless there be some contract of trust,
expressed or implied, by the insured and third
person. In this case, no contract of trust, express or
implied. In this case, no contract of trust, expressed
or implied exists. We, therefore, agree with the trial
court that no cause of action exists in favor of the
appellants in so far as the proceeds of insurance are
concerned. The appellant's claim, if at all, is merely
equitable in nature and must be made effective
through Enrique Mora who entered into a contract
with the Bonifacio Bros Inc. This conclusion is
deducible not only from the principle governing the
operation and effect of insurance contracts in
general, but is clearly covered by the express
provisions of section 50 of the Insurance Act (now
Sec. 53).
Guingon v. Del Monte
- Ruling: The right of a person injured to sue the
insurer of the party at fault depends on whether the
contract of insurance was intended to benefit third
persons. The test applied here is: Where the contract
provides for indemnity against liability to third
persons, then third persons to whom the insured is
liable, can sue the insurer. On the other hand, where
the contract is for indemnity against actual loss or
payment, then third persons cannot proceed against
the insurer, the contract being solely to reimburse
the insured for liability actually discharged by him
through payment to third persons, said third persons'
recourse being thus limited to the insured alone.
 11 | P a g e NOTES IN INSURANCE
Insular Life. Ebrado
- Ruling: The civil code prohibitions on donations made
between persons guilty of adulterous concubinage
applies to insurance contracts. On matters not
specifically provided for by the Insurance Law, the
general rules on Civil law shall apply. A life insurance
policy is no different from a civil donation as far as
the beneficiary is concerned, since both are founded
on liberality.
Section 54 – When an insurance contract is executed
with an agent or trustee as the insured, the fact that
his principal or beneficiary is the real party in interest
may be indicated by describing the insured as agent or
trustee, or by other general words in the policy.
WHO MAY TAKE INSURANCE
- An insurance may be taken by a person, personally or
through his agent or trustee
IF THE INSURANCE IS TAKEN BY AN AGENT OR TRUSTEE,
WHAT MUST THE AGENT OR TRUSTEE DO
- Since the insurance is to be applied exclusively to the
interest of the person in whose name and for whose
benefit it is made, the agent or trustee when making
an insurance contract for or on behalf of his principal
should, indicate that he is merely acting in a
representative capacity by signing as such agent or
trustee, or by other general terms in the policy.
Bem Jamison
Section 57 – A policy may be so framed that it will
inure to the benefit of whomsoever, during the
continuance of the risk, may become the owner of the
interest insured.
Section 58 – The mere transfer of a thing insured does
not transfer the policy, but suspends it until the same
person becomes the owner of both the policy and the
thing insured.
Problem
- Q: A borrowed 5,000 from B, and to secure payment
of his obligation, he mortgaged his house to B. B then
insured the house for 5T. Subsequently, B assigned
his mortgage credit to X, but did not make the co
rresponding transfer of his right over the
insurance policy. IF the house burns down, is Paul
entitled to collect the insurance money as assignee-
mortgagee?
- A: No, since B did not assign his right over the
insurance policy to X. A purchaser of insured
property who does Not take the precaution to obtain
a transfer of the policy on the insurance, cannot in
case of loss, recover upon the contract, as the
transfer of the property has the effect of suspending
the insurance until the purchaser becomes the owner
of the policy as well as the property insured.

Section 55 – To render an insurance effected by one

partner or part-owner, applicable to the interest of his
co-partners or other part-owners, it is necessary that
the terms of the policy should be such as are
applicable to the joint or common interest.

INSURANCE EFFECTED BY A PARTNER OR A PART-OWNER

- A partner or part-owner who insures partnership
property in his own name limits the contract to his
individual share UNLESS the terms of the policy
clearly show that the insurance was meant to cover
also the shares of the other partners.

Section 56 – When the description of the insured in a

policy is so general that it may comprehend any
person or any class of persons, only he who can show
that it was intended to include him can claim the
benefit of the policy.

WHAT HAPPENS WHEN THE DESCRIPTION OF THE

INSURED IS GENERAL
- In order that the insurance may be applied to the
interest of the person claiming the benefit of the
policy, he must show that he is the person named or
described or that he belongs to the class of persons
comprehended in the policy.

Reference: Ateneo Notes