Saturnino v. Philamlife - False Representation requirement of medical examination before the policy is issued.

  The contention is without

7 SCRA 316
Facts:
>  2 months prior to the insurance of the policy, Saturnino was operated on for cancer,
involving complete removal of the right breast, including the pectoral muscles and the glands,
found in the right armpit.
>  Notwithstanding the fact of her operation, Saturnino did not make a disclosure thereof in
her application for insurance.
>  She stated therein that she did not have, nor had she ever had, among others listed in the
application, cancer or other tumors; that she had not consulted any physician, undergone any
operation or suffered any injury within the preceding 5 years.
>  She also stated that she had never been treated for, nor did she ever have any illness or
disease peculiar to her sex, particularly of the breast, ovaries, uterus and menstrual disorders.
>  The application also recited that the declarations of Saturnino constituted a further basis for
the issuance of the policy.
Issue:
merit.  If anything, the waiver of medical examination renders even more material the
information required of the applicant concerning previous condition of health and diseases
suffered, for such information necessarily constitutes an important factor which the insurer
takes into consideration in deciding whether to issue the policy or not.
Appellants also contend that there was no fraudulent concealment of the truth inasmuch as the
insured herself did not know, since her doctor never told her, that the disease for which she
had been operated on was cancer.  In the first place, concealment of the fact of the operation
itself was fraudulent, as there could not have been any mistake about it, no matter what the
ailment.
Secondly, in order to avoid a policy, it is not necessary to show actual fraud on the part of the
insured. In this jurisdiction, concealment, whether intentional or unintentional entitled the
insurer to rescind the contract of insurance, concealment being defined as “negligence to
communicate that which a party knows and ought to communicate.”  The basis of the rule
vitiating the contract in cases of concealment is that it misleads or deceives the insurer into
accepting the risk, or accepting it at a rate of premium agreed upon.  The insurer, relying upon
the belief that the insured will disclose every material fact within his actual or presumed
knowledge, is misled into a belief that the circumstances withheld does not exist, and he is
thereby induced to estimate the risk upon a false basis that it does not exist.

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

Held:

YES.

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

The question to determine is: Are the facts then falsely represented material?  The Insurance
Law provides that “materiality is to be determined not by the event, but solely by the probable
and reasonable influence of the facts upon the party to whom the communication is due, in
forming his estimate of the proposed contract, or making his inquiries.

The contention of appellants is that the facts subject of the representation were not material in
view of the non-medical nature of the insurance applied for, which does away with the usual
Florendo v Philam Plans
Facts:
Manuel Florendo filed an application for comprehensive pension plan. Philam Plans, Inc. after
some convincing by respondent Perla Abcede. Manuel signed the application and left to Perla
the task of supplying the information needed in the application. Ma. Celeste Abcede, Perla's
daughter, signed the application as sales counselor. Pension life insurance coverage
Group Master Policy that Philippine American Life Insurance Company (Philam Life)
including accidental death. 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. Philam Plans wrote Lourdes a letter, [12] declining her
claim. Found that Manuel was on maintenance medicine for his heart and had an implanted
pacemaker. Lourdes points out that, seeing the unfilled spaces in Manuel's pension plan
application relating to his medical history, Philam Plans 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 Plans never queried Manuel
directly regarding the state of his health. Consequently, it could not blame him for not
mentioning it. 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. 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. 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. 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.
Issues:
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;
2. Whether or not the CA erred in holding that Manuel was bound by the failure of
respondents Perla and Ma. Celeste to declare the condition of Manuel's health in the
pension plan application;
Ruling:
Lourdes is shifting to Philam Plans the burden of putting on the pension plan application the
true state of Manuel's health. Since Philam Plans waived medical examination for Manuel, it
had to rely largely on his stating the truth regarding his health in his... application. He knew
more than anyone that he had been under treatment for heart condition and diabetes for more
than five years preceding his submission of that application. But he kept those crucial facts
from Philam Plans.
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.
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.
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.
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.
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 27[27] of the Insurance Code, Manuel's
concealment entitles Philam Plans... to rescind its contract of insurance with him.
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.
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.
The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a
one-year incontestability period.
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.
Sun Life v. CA - Concealment in Insurance 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
245 SCRA 268 (1995) material and relevant to the approval and the issuance of the insurance policy. The matters
concealed would have definitely affected petitioner's action on his application, either by
Facts:
approving it with the corresponding adjustment for a higher premium or rejecting the same.
>  On April 15, 1986, Bacani procured a life insurance contract for himself from Sun Life. He Moreover, a disclosure may have warranted a medical examination of the insured by petitioner
was issued a life insurance policy with double indemnity in case of accidental death. The in order for it to reasonably assess the risk involved in accepting the application.
designated beneficiary was his mother, Bernarda.

>  On June 26, 1987, the insured died in a plane crash. Bernarda Bacani filed a claim with Sun
Thus, "good faith" is no defense in concealment. The insured's failure to disclose the fact that
Life, seeking the benefits of the insurance. Sun Life conducted an investigation and its
he was hospitalized for two weeks prior to filing his application for insurance, raises grave
findings prompted it to reject the claim.
doubts about his bonafides. It appears that such concealment was deliberate on his part.
>  Sun Life discovered that 2 weeks prior to his application, Bacani 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.  He did not reveal such fact in his application.

>  In its letter, Sun Life informed Berarda, that the insured did not disclosed 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.

>  Bernarda and her husband, filed an action for specific performance against Sun Life.  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.

Issue:

Whether or not the beneficiary can claim despite the concealment.

Held:

NOPE.

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.

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)
THELMA VDA. DE CANILANG vs. COURT OF APPEALS G.R. No. 92492, 17 June
1993
FACTS:
 
Jaime Canilang applied for a “non-medical” insurance policy with respondent Great Pacific
Life Assurance Company naming his wife, Thelma Canilang as his beneficiary. But he did not
disclose the fact that he was diagnosed as suffering from sinus tachycardia and that he has
consulted a doctor twice. Jaime was issued an ordinary life insurance policy with the face
value of P19,700.00. Jaime died of “congestive heart failure”, “anemia”, and “chronic
anemia”. Petitioner widow and beneficiary of the insured, filed a claim with Great Pacific
which the insurer denied upon the ground that the insured had concealed material information
from it. Hence, Thelma filed a complaint against Great Pacific with the Insurance Commission
for recovery of the insurance proceeds.
ISSUE: Whether or not the non-disclosure of certain facts about the insured’s previous health
conditions is material to warrant the denial of the claims of Thelma Canilang
 
HELD: YES. The SC agreed 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. 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
ensure. 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. 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.
Manila Bankers Life Insurance Corporation vs Aban
G.R. No. 175666 July 29, 2013
Facts: On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Manila
Bankers Life Insurance Corporation (Bankers Life), designating respondent Cresencia P. Aban
(Aban), her niece, as her beneficiary. Petitioner issued Insurance Policy No. 747411 (the
policy), with a face value of P 100,000.00, in Sotero’s favor on August 30, 1993, after the
requisite medical examination and payment of the insurance premium. On April 10, 1996,
when the insurance policy had been in force for more than two years and seven months, Sotero
died. Respondent filed a claim for the insurance proceeds on July 9, 1996. Petitioner
conducted an investigation into the claim, and came out with the following findings: 1. Sotero
did not personally apply for insurance coverage, as she was illiterate; 2. Sotero was sickly
since 1990; 3. Sotero did not have the financial capability to pay the insurance premiums on
Insurance Policy No. 747411; 4. Sotero did not sign the July 3, 1993 application for insurance;
and 5. Respondent was the one who filed the insurance application, and x x x designated
herself as the beneficiary. For the above reasons, petitioner denied respondent’s claim on April
16, 1997 and refunded the premiums paid on the policy.
Issue: Whether or not Manila Bankers is barred from denying the insurance claims based on
fraud or concealment.
Held: Yes. The “incontestability clause” is a provision in law that 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 (2) years from the date of its issue or of its last reinstatement,
the insurer cannot prove that the policy is void ab initio or is rescindible by reason of
fraudulent concealment or misrepresentation of the insured or his agent.
The purpose of the law is to give protection to the insured or his beneficiary by limiting the
rescinding of the contract of insurance on the ground of fraudulent concealment or
misrepresentation to a period of only two (2) years from the issuance of the policy or its last
reinstatement.
The insurer is deemed to have the necessary facilities to discover such fraudulent concealment
or misrepresentation within a period of two (2) years. It is not fair for the insurer to collect the
premiums as long as the insured is still alive, only to raise the issue of fraudulent concealment
or misrepresentation when the insured dies in order to defeat the right of the beneficiary to
recover under the policy.
Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the
insured. Under the provision, an insurer is given two years – from the effectivity of a life
insurance contract and while the insured is alive – to discover or prove that the policy is void
ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the
insured or his agent. After the two-year period lapses, or when the insured dies within the
period, the insurer must make good on the policy, even though the policy was obtained by
fraud, concealment, or misrepresentation. This is not to say that insurance fraud must be
rewarded, but that insurers who recklessly and indiscriminately solicit and obtain business
must be penalized, for such recklessness and lack of discrimination ultimately work to the
detriment of bona fide takers of insurance and the public in general.
Insular life Assurance Company v Paz Khu Principles:

Facts:
On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular
Life under the latter's Diamond Jubilee Insurance Plan. Felipe accomplished the required
medical questionnaire wherein he did not declare any illness or adverse medical condition.
Insular Life thereafter issued him Policy Number A000015683 with a face value of PI million.
This took effect on June 22, 1997.
that given the obscurity/ambiguity in the language of these two documents, the
construction/interpretation that favors the insured's right to recover should be adopted; a... that
the CA erred in declaring that resort to the principles of statutory construction is still necessary
to resolve that question given that the Application for Reinstatement,... The court below is
correct. Given the obscurity of the language, the construction favorable to the insured will be
adopted by the courts.

On June 23, 1999, Felipe's policy lapsed due to non-payment of the premium covering the
period from June 22, 1999 to June 23, 2000

On September 7, 1999, Felipe applied for the reinstatement of his policy and paid P25,020.00
as premium

On October 12, 1999, Insular Life advised Felipe that his application for reinstatement may
only be considered if he agreed to certain conditions such as payment of additional premium
and the cancellation of the riders pertaining to premium waiver and accidental death benefits.
Felipe agreed to these conditions[8] and on December 27, 1999 paid the agreed additional
premium of P3,054.50

On September 22, 2001, Felipe died

On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. .and Frederick Y. Khu (collectively,
Felipe's beneficiaries or respondents) filed with Insular Life a claim for benefit under the
reinstated policy. This claim was denied.

Issues:

Insular Life countered that Felipe did not disclose the ailments (viz., Type 2 Diabetes Mellitus,
Diabetes Nephropathy and Alcoholic Liver Cirrhosis with Ascites) that he already had prior to
his application for reinstatement of his insurance policy; and that it would not have reinstated
the insurance policy had Felipe disclosed the material information on his adverse health
condition. It contended that when Felipe died, the policy was still contestable... whether
Felipe's reinstated life insurance policy is already incontestable at the time of his death.

Ruling:

this Court adopts the interpretation favorable to the insured in determining the date when the
reinstatement was approved.

We deny the Petition.

Based on the foregoing, we find that the CA did not commit any error in holding that the
subject insurance policy be considered as reinstated on June 22, 1999. This finding must be
upheld not only because it accords with the evidence, but also because this is favorable to the
insured who was not responsible for causing the ambiguity or obscurity in the insurance
contract.

WHEREFORE, the Petition is DENIED. The assailed June 24, 2010 Decision and December
13, 2010 Resolution of the Court of Appeals in CA-GR. CV No. 81730 are AFFIRMED.
G.R. No. 138941, 8 Oct. 2001
o INSURANCE LAW: Liberality is the rule of construction in insurance contracts.
FACTS:
Tantuco Enterprises, Inc. is a coconut oil milling and refining company. It owned two mills
(the first oil mill and a new one), both located at its factory compound at Iyam, Lucena City.
The two oil mills are separately covered by fire insurance policies issued by American Home
Assurance Co.
On Sept. 30, 1991, a fire broke out and gutted and consumed the new oil mill. American Home
rejected the claim for the insurance proceeds on the ground that no policy was issued by it
covering the burned oil mill. It stated that the new oil mill was under Building No. 15 while
the insurance coverage extended only to the oil mill under Building No. 5.
ISSUE:
o Whether or not the new oil mill is covered by the fire insurance policy
HELD:
In construing the words used descriptive of a building insured, the greatest liberality is shown
by the courts in giving effect to the insurance. In view of the custom of insurance agents to
examine buildings before writing policies upon them, and since a mistake as to the identity
and character of the building is extremely unlikely, the courts are inclined to consider the
policy of insurance covers any building which the parties manifestly intended to insure,
however inaccurate the description may be.
Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind,
that what the parties manifestly intended to insure was the new oil mill.
If the parties really intended to protect the first oil mill, then there is no need to specify it as
new. Indeed, it would be absurd to assume that the respondent would protect its first oil mill
for different amounts and leave uncovered its second one.
Pioneer Insurance & Surety Corp. v. Olivia Yap
G.R. No. L-36232, 19 December 1974, 61 SCRA 426
FACTS:
Respondent Oliva Yap was the owner of a store in a two-storey building where she sold
shopping bags and footwear.
On April 19, 1962, respondent Yap took out Fire Insurance Policy No. 4216 from petitioner
Pioneer Insurance & Surety Corporation with a face value of P25,000.00 covering her stocks,
office furniture, fixtures and fittings of every kind and description. Among the conditions in
the policy executed by the parties are the following:
The Insured shall give notice to the Company of any insurance or insurances already effected,
or which may subsequently be effected, covering any of the property hereby insured,
and unless such notice be given and the particulars of such insurance or insurances be stated
in, or endorsed on this Policy by or on behalf of the Company before the occurrence of any
loss or damage, all benefits under this Policy shall be forfeited. (emphasis supplied)
It is understood that, except as may be stated on the face of this policy there is no other
insurance on the property hereby covered and no other insurance is allowed except by the
consent of the Company endorsed hereon. Any false declaration or breach or this condition
will render this policy null and void.
At the time of the insurance on April 19, 1962 of Policy No. 4219 in favor of respondent Yap,
an insurance policy for P20,000.00 issued by the Great American Insurance Company
covering the same properties was noted on said policy as co-insurance (Annex “1-E”). Later,
on August 29, 1962, the parties executed Exhibit “1-K”, as an endorsement on Policy No.
4219, stating:
It is hereby declared and agreed that the co-insurance existing at present under this policy is as
follows: P20,000.00 — Northwest Ins., and not as originally stated. (emphasis supplied)
Except as varied by this endorsement, all other terms and conditions remain unchanged.
On September 26, 1962, respondent Yap took out another fire insurance policy for P20,000.00
covering the same properties, this time from the Federal Insurance Company, Inc., which new
policy was, however, procured without notice to and the written consent of petitioner Pioneer
Insurance & Surety Corporation and, therefore, was not noted as a co-insurance in Policy No.
4219.
At dawn on December 19, 1962, a fire broke out in the building housing respondent Yap’s
above-mentioned store, and the said store was burned. Respondent Yap filed an insurance
claim, but the same was denied in petitioner’s letter of May 17, 1963 (Exhibit “G”), on the
ground of “breach and/or violation of any and/or all terms and conditions” of Policy No. 4219.
Yap filed with the Court of First Instance of Manila a complaint, asking, among others, for
payment of the face value of her fire insurance policy. In its answer, petitioner alleged that no
property belonging to plaintiff Yap and covered by the insurance policy was destroyed by the
fire; that Yap’s claim was filed out of time; and that Yap took out an insurance policy from
another insurance company without petitioner’s knowledge and/or endorsement, in violation
of the express stipulations in Policy No. 4219, hence, all benefits accruing from the policy
were deemed forfeited.
The trial court decided for plaintiff Oliva Yap; and its judgment was affirmed in full by the
Court of Appeals.
ISSUE: Furthermore, even if the annotations were overlooked the defendant insurer would still be free
from liability because there is no question that the policy issued by General Indemnity has
Whether or not petitioner should be absolved from liability on Fire Insurance Policy No. 4219 not been stated in nor endorsed on Policy No. 471 of defendant. And as stipulated in the
on account of any violation by respondent Yap of the co-insurance clause therein above-quoted provisions of such policy “all benefit under this policy shall be forfeited.
(Emphasis supplied)
RULING:
The obvious purpose of the aforesaid requirement in the policy is to prevent over-insurance
Yes. Petitioner insurance company is absolved from liability. and thus avert the perpetration of fraud.
By the plain terms of the policy, other insurance without the consent of petitioner would ipso
facto avoid the contract. It required no affirmative act of election on the part of the company to
make operative the clause avoiding the contract, wherever the specified conditions should
occur. Its obligations ceased, unless, being informed of the fact, it consented to the additional
insurance.
The validity of a clause in a fire insurance policy to the effect that the procurement of
additional insurance without the consent of the insurer renders ipso facto the policy void is
well-settled:
In Milwaukee Mechanids’ Lumber Co., vs. Gibson, 199 Ark. 542, 134 S. W. 2d 521, 522, a
substantially identical clause was sustained and enforced, the court saying: “The rule in this
state and practically all of the states is to the effect that a clause in a policy to the effect that
the procurement of additional insurance without the consent of the insurer renders the policy
void is a valid provision. The earlier cases of Planters Mutual Insurance Co., vs. Green, 72
Ark. 305, 80 S.W. 92, are to the same effect.” And see Vance, Insurance, 2nd Ed., 725. (Reach
vs. Arkansas Farmers Mut. Fire Ins. Co., [Ark. Nov. 14, 1949] 224 S. W. 2d 48, 49.)
2. Where a policy contains a clause providing that the policy shall be void if insured has or
shall procure any other insurance on the property, the procurement of additional insurance
without the consent of the insurer avoids the policy.” (Planters’ Mut. Ins. Ass’n vs. Green
[Supreme Court of Arkansas, March 19, 1904] 80 S.W. 151.)
3. The policy provided that it should be void in case of other insurance “without notice and
consent of this company. …” It also authorized the company to terminate the contract at any
time, at its option, by giving notice and refunding a ratable proportion of the
premium. Held, that additional insurance, unless consented to, or unless a waiver was shown,
ipso facto avoided the contract, and the fact that the company had not, after notice of such
insurance, cancelled the policy, did not justify the legal conclusion that it had elected to allow
it to continue in force.” (Johnson vs. American Fire Ins., Co., [Supreme Court of Minnesota,
Aug. 12, 1889] 43 N.W., 59)
The aforecited principles have been applied in this jurisdiction in General Insurance & Surety
Corporation vs. Ng Hua . There, the policy issued by the General Insurance & Surety
Corporation in favor of respondent Ng Hua contained a provision identical with the provisions
in Policy No. 4219 quoted above. This Court, speaking thru Justice Cesar P. Bengson, in
reversing the judgment of the Court of Appeals and absolving the insurer from liability under
the policy, held:
… And considering the terms of the policy which required the insured to declare other
insurances, the statement in question must be deemed to be a statement (warranty) binding on
both insurer and insured, that there were no other insurance on the property. …
The annotation then, must be deemed to be a warranty that the property was not insured by
any other policy. Violation thereof entitled the insurer to rescind. (Sec. 69, Insurance Act.)
Such misrepresentation is fatal in the light of our views in Santa Ana vs. Commercial Union
Assurance Company, Ltd., 55 Phil. 329. The materiality of non-disclosure of other insurance
policies is not open to doubt.
Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines, Inc. HELD:

G.R. No. 151890, 20 June 2006, 491 SCRA 411 1. Prudential failed to establish that Trans Asia had violated and breached the policy condition
provided in the insurance contract. The latter was able to establish proof of loss and coverage
FACTS: of the loss. Prudential also made a categorical admission at the time of the procurement of the
insurance contract that the vessel was properly classified by the Bureau Veritas.
Trans Asia is the owner of the vessel M/V Asia Korea. Prudential Guarantee and Assurance
Assuming that there was a breach in the policy, the renewal of the insurance policy for two
Inc. insured said vessel for loss/damage of the hull and machinery arising from perils of fire
consecutive years after the loss is deemed as a waiver on the part of Prudential. Breach of a
and explosion beginning from the period of July 1, 1993 until July 1, 1994. While the policy
warranty or of a condition renders the contract defeasible at the option of the insurer; but if he
was in force, a fire broke out. Trans Asia file its notice of claim for damages sustained by the
so elects, he may waive his privilege and power to rescind by the mere expression of an
vessel. It also reserved its right to subsequently notify Prudential as to the full amount of the
intention so to do.
claim upon final survey and determination by the average adjuster Richard Hogg International
2. The amount granted by Prudential to Trans Asia, evidenced by a document denominated as
of the damage sustained by the reason of fire. Trans Asia executed a document denominated
a “Loan and Trust Receipt”, constituted partial payment on the policy. Under said agreement,
“Loan and Trust Receipt” amounting to Php 3,000,000. Prudential Guarantee and Assurance
Prudential is obligated to hand over to Trans Asia “whatever recovery the latter may make”
Inc. denied the former’s claim and requested for the return of the said amount. The insurance
and the latter to deliver to the former “all document necessary to prove its interest in the said
company contends that there was a breach in the policy conditions, specifically, “Warranted
property.” Prudential was given the right of subrogation to whatever net recovery Trans Asia
Vessel Classed and Class Maintained”.
may obtain from third parties resulting from the fire.
Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In consideration of
payment of premiums, defendant [PRUDENTIAL] insured M/V Asia Korea for loss/damage
of the hull and machinery arising from perils, inter alia, of fire and explosion for the sum of
P40 Million, beginning [from] the period [of] July 1, 1993 up to July 1, 1994. This is
evidenced by Marine Policy No. MH93/1363 (Exhibits A to A-11). On October 25, 1993,
while the policy was in force, a fire broke out while [M/V Asia Korea was] undergoing repairs
at the port of Cebu. Trans Asia file its notice of claim for damages sustained by the vessel. It
also reserved its right to subsequently notify Prudential as to the full amount of the claim upon
final survey and determination by the average adjuster Richard Hogg International of the
damage sustained by the reason of fire. Trans Asia executed a document denominated “Loan
and Trust Receipt” amounting to Php 3,000,000. Prudential Guarantee and Assurance Inc.
denied the former’s claim and requested for the return of the said amount. The insurance
company contends that there was a breach in the policy conditions, specifically, “Warranted
Vessel Classed and Class Maintained”.
The trial court held that Trans Asia failed to prove its compliance with the terms of the
warranty. It further explained that the concealment made by Trans Asia is sufficient to avoid
the policy. Prudential, as the injured party, is entitled to rescind to rescind the contract. The
trial court dismissed the complaint and directed Trans Asia to return the “loan” extended by
Prudential.
The Court of Appeals reversed the decision of the trial court. It contends that Prudential had
the burden to show that there was a breach in the warranty and which it failed to do so. The
Court considered Prudential’s admission that, at the time the insurance contract was entered
into, the vessel was properly classed by the Bureau Veritas, a classification recognized by the
industry. It further contends that then subject warranty was in a form of a rider, hence, such
contract should be construed against Prudential. Finally, it interpreted the transaction between
the parties as one of subrogation, instead of a loan. Thus, the amount given to Trans Asia was
considered to be a partial payment to its claim under the policy.

ISSUE:

1. WON there was a breach in the warranty of the contract.

2. WON such contract partakes the nature of a loan.
Qua Chee Gan v Law Union against the insurer and liberraly in favor of the insured, specially to avoid
a forfeiture

FACTS:
 Qua Chee Gan, a merchant of Albay, owned four bodegas which he insured
with Law Union & Rock Insurance Co., Ltd (Law Union) since 1937 and the lose
made payable to the Philippine National Bank (PNB) as mortgage of the hemp and
crops, to the extent of its interest
 July 21, 1940 morning: fire broke out in bodegas 1,2 and 4 which lasted for almost a
week. 
 3. trial Court found that the discrepancies were a result of the insured's erroneous
interpretation of the provisions of the insurance policies and claim forms, caused by
his imperfect knowledge of English, and that the misstatements were innocently
made and without intent to defraud.
 4. Similarly, the 20 per cent overclaim on 70 per cent of the hemo stock, was
explained by the insured as caused by his belief that he was entitled to include in the
claim his expected profit on the 70 per cent of the hemp, because the same was
already contracted for and sold to other parties before the fire occurred

 Qua Chee Gan informed Law Union by telegram

 Law Union rejected alleging that it was a fraudulent claim that the fire had been
deliberately caused by the insured or by other persons in connivance with him

 Que Chee Gan, with his brother, Qua Chee Pao, and some employees of his, were
indicted and tried in 1940 for the crime of arson but was  subsequently acquitted

 During the pendency of the suit, Que Chee Gan paid PNB

 Law Union states that ff. assignment of errors:

 1. memo of warranty requires 11 hydrants instead of 2 

 2. violation of hemp warranty against storage of gasoline since it prohibits

oils

 3. fire was due to fraud

 4. burned bodegas could not possibly have contained the quantities of

copra and hemp stated in the fire claims

ISSUE: W/N Qua Chee Gan should be allowed to claim.

HELD: YES. Affirmed.

 1. It is a well settled rule of law that an insurer which with knowledge of facts
entitling it to treat a policy as no longer in force, receives and accepts a preium on
the policy, estopped to take advantage of the forfeiture

 2. oils (animal and/or vegetable and/or mineral and/or their liquid products having a
flash point below 300o Fahrenheit", and is decidedly ambiguous and uncertain; for
in ordinary parlance, "Oils" mean "lubricants" and not gasoline or kerosene

 by reason of the exclusive control of the insurance company over the

terms and phraseology of the contract, the ambiguity must be held strictly