IV.

Devices for ascertaining and controlling risk and loss

A. Concealment

1. Concept (Sec. 26, RA 10607)

Section 26. A neglect to communicate that which a party knows and ought to communicate, is
called a concealment.

2. Duty to communicate (Sec. 28)

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.

3. Test of materiality (Sec. 31)

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.

4. Effect of concealment (Sec. 27 & 29)

Section 27. A concealment whether intentional or unintentional entitles the injured party to
rescind a contract of insurance.

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.

5. Matters which need not be communicated (Sec. 30, 32, 34, & 35)

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.

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.
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 51.

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.

6. Waiver of information (Sec. 33)

Section 33. The right to information of material facts may be waived, either by the terms of
insurance or by neglect to make inquiry as to such facts, where they are distinctly implied in
other facts of which information is communicated.

B. Representation

1. Concept (Sec. 36, RA 10607)

Section 36. A representation may be oral or written.

2. Kinds of representation (Sec. 36, 37, 39, 42)

Section 36. A representation may be oral or written.

Section 37. A representation may be made at the time of, or before, issuance of the policy.

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.

Section 42. A representation must be presumed to refer to the date on which the contract goes
into effect.

3. Test of materiality (Sec. 46)

Section 46. The materiality of a representation is determined by the same rules as the
materiality of a concealment.

4. Effect of alteration or withdrawal (Sec. 41)

Section 41. A representation may be altered or withdrawn before the insurance is effected, but
not afterwards.

5. Time to which representation refers (Sec. 42)

Section 42. A representation must be presumed to refer to the date on which the contract goes
into effect.

6. Effect when representation is obtained from third persons (Sec. 43)

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.
7. When presumed false; effect of falsity (Sec. 44 & 45)

When is representation false?

Section 44. A representation is to be deemed false when the facts fail to correspond with its
assertions or stipulations.

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.

8. Effect of misrepresentation as to age (Sec. 233)

Section 233. In the case of individual life or endowment insurance, the policy shall contain in
substance the following conditions:

(a) A provision that the policyholder is entitled to a grace period either of thirty (30) days or of
one (1) month within which the payment of any premium after the first may be made, subject at
the option of the insurer to an interest charge not in excess of six percent (6%) per annum for
the number of days of grace elapsing before the payment of the premium, during which period
of grace the policy shall continue in full force, but in case the policy becomes a claim during the
said period of grace before the overdue premium is paid, the amount of such premium with
interest may be deducted from the amount payable under the policy in settlement;

(b) A provision that the policy shall be incontestable after it shall have been in force
during the lifetime of the insured for a period of two (2) years from its date of issue as
shown in the policy, or date of approval of last reinstatement, except for nonpayment of
premium and except for violation of the conditions of the policy relating to military or
naval service in time of war;

(c) A provision that the policy shall constitute the entire contract between the parties, but if the
company desires to make the application a part of the contract it may do so provided a copy of
such application shall be indorsed upon or attached to the policy when issued, and in such case
the policy shall contain a provision that the policy and the application therefor shall constitute
the entire contract between the parties;

(d) A provision that if the age of the insured is considered in determining the premium
and the benefits accruing under the policy, and the age of the insured has been
misstated, the amount payable under the policy shall be such as the premium would
have purchased at the correct age;

(e) If the policy is participating, a provision that the company shall periodically ascertain and
apportion any divisible surplus accruing on the policy under conditions specified therein;
(f) A provision specifying the options to which the policyholder is entitled to in the event of
default in a premium payment after three (3) full annual premiums shall have been paid. Such
option shall consist of:

(1) A cash surrender value payable upon surrender of the policy which shall not be less than the
reserve on the policy, the basis of which shall be indicated, for the then current policy year and
any dividend additions thereto, reduced by a surrender charge which shall not be more than
one-fifth (1/5) of the entire reserve or two and one-half percent (2½%) of the amount insured
and any dividend additions thereto; and

(2) One or more paid-up benefits on a plan or plans specified in the policy of such value as may
be purchased by the cash surrender value.

(g) A provision that at any time after a cash surrender value is available under the policy and
while the policy is in force, the company will advance, on proper assignment or pledge of the
policy and on sole security thereof, a sum equal to, or at the option of the owner of the policy,
less than the cash surrender value on the policy, at a specified rate of interest, not more than
the maximum allowed by law, to be determined by the company from time to time, but not more
often than once a year, subject to the approval of the Commissioner; and that the company will
deduct from such loan value any existing indebtedness on the policy and any unpaid balance of
the premium for the current policy year, and may collect interest in advance on the loan to the
end of the current policy year, which provision may further provide that such loan may be
deferred for not exceeding six (6) months after the application therefor is made;

(h) A table showing in figures cash surrender values and paid-up options available under the
policy each year upon default in premium payments, during at least twenty (20) years of the
policy beginning with the year in which the values and options first become available, together
with a provision that in the event of the failure of the policyholder to elect one of the said options
within the time specified in the policy, one of said options shall automatically take effect and no
policyholder shall ever forfeit his right to same by reason of his failure to so elect;

(i) In case the proceeds of a policy are payable in installments or as an annuity, a table showing
the minimum amounts of the installments or annuity payments;

(j) A provision that the policyholder shall be entitled to have the policy reinstated at any time
within three (3) years from the date of default of premium payment unless the cash surrender
value has been duly paid, or the extension period has expired, upon production of evidence of
insurability satisfactory to the company and upon payment of all overdue premiums and any
indebtedness to the company upon said policy, with interest rate not exceeding that which
would have been applicable to said premiums and indebtedness in the policy years prior to
reinstatement.

Any of the foregoing provisions or portions thereof not applicable to single premium or term
policies shall to that extent not be incorporated therein; and any such policy may be issued and
delivered in the Philippines which in the opinion of the Commissioner contains provisions on any
one or more of the foregoing requirements more favorable to the policyholder than hereinbefore
required.
This section shall not apply to policies of group life or industrial life insurance.

C. Remedies available in case of concealment or false representation

1. When rescission by the insurer may be exercised (Sec. 48)

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 (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
rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his
agent.

2. When life insurance policy becomes incontestable (Sec. 48)

a. requisites for incontestability

b. theory and object of incontestability

 Purpose of shutting off harassing defenses

c. defenses not barred by incontestability

 Non-payment of premium
 Violation of the conditions of the policy relating to military or naval service in times of war
 Property insurance

D. Warranties

1. Concept; distinguished from representation

2. Kinds of warranties (express, implied, affirmative, promissory)

3. Time to which warranty refers (Sec. 68, RA 10607)

Section 68. A warranty may relate to the past, the present, the future, or to any or all of these.

4. Effect of breach (Sec. 74, 75, & 76)

Section 74. The violation of a material warranty, or other material provision of a policy, on the
part of either party thereto, entitles the other to rescind.

Section 75. A policy may declare that a violation of specified provisions thereof shall avoid it,
otherwise the breach of an immaterial provision does not avoid the policy.
Section 76. A r from the time that it occurs, or where it is broken in its inception, prevents the
policy from attaching to the risk.

Cases:

Great Pacific Life Assurance vs. CA (316 SCRA 678)

Same; Concealment; Words and Phrases; 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. — 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
havecaused 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.

Sun Life Assurance Co. of Canada vs. CA (G.R. No. 105135, June 22, 1995)

Insurance Law; Concealment; Words and Phrases; A neglect to communicate that which
a party knows and ought to communicate is called concealment. — 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 toa 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.”

Same; Same; Materiality; Matters relating to the health of the insured are material and
relevant to the approval and issuance of the life insurance policy as these definitely
affect the insurer’s action on the application. — 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.

Same; Same; Good faith is no defense in concealment. — 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 bona fides. It appears
that such concealment was deliberate on his part.
Philamcare Health Systems Inc. vs. CA (379 SCRA 356)

Same; Same; Misrepresentation; Where matters of opinion are called for, answers made
in good faith and without intent to deceive will not avoid a policy even though they are
untrue. — 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. 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 rely in 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 if 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. (Italicsours)

Same; Same; Concealment; Concealment as a defense for the healthcare 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; 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. — The fraudulent intent on the part of the insured must be established to warrant
rescission of the insurance contract. 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.

Same; Same; Same; Rescission; The right to rescind should be exercised previous to the
commencement of an action on the contract. — 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. 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.

Vda de Canilang vs. CA (G.R. No. 92492, June 17, 1993)

Insurance Law; Concealment; 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. — 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 the 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 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.

Tan vs. CA (June 29, 1989)

Commercial Law; Insurance; Essence of the phrase “Incontestability clause.” — The so-
called “incontestability clause” precludes the insurer from raising the defenses of false
representations or concealment of material facts insofar as health and previous diseases are
concerned if the insurance has been in force for at least two years during the insured’s lifetime.
The phrase “during the lifetime” found in Section 48 simply means that the policy is no longer
considered in force after the insured has died. The key phrase in the second paragraph of
Section 48 is “for a period of two years.”

Same; Same; Same; Respondent company not barred from proving that the policy is void
ab initio by reason of the insured’s fraudulent conceal mentor misrepresentation. — As
noted by the Court of Appeals, to wit: “The policy was issued on November 6, 1973 and the
insured died on April 26,1975. The policy was thus in force for a period of only one year and five
months. Considering that the insured died before the two-year period had lapsed, respondent
company is not, therefore, barred from proving that the policy is void ab initio

by reason of the insured’s fraudulent concealment or misrepresentation. Moreover, respondent

company rescinded the contract of insurance and refunded the premiums paid on September
11, 1975, previous to the commencement of this action on November 27, 1975.”

Same; Same; Same; Incontestability clause is a sufficient answer to the various tactics
employed by insurance companies to avoid liability. — The insurer has two years from the
date of issuance of the insurance contract or of its last reinstatement within which to contest the
policy, whether or not, the insured still lives within such period. After two years, the defenses of
concealment or misrepresentation, no matter how patent or well founded, no longer lie.
Congress felt this was a sufficient answer to the various tactics employed by insurance
companies to avoid liability. The petitioners ’interpretation would give rise to the incongruous
situation where the beneficiaries of an insured who dies right after taking out and paying for a
life insurance policy, would be allowed to collect on the policy even if the insured fraudulently
concealed material facts.

Prudential Guarantee vs. Trans-Asia Shipping Lines, Inc. G.R. No. 151890, 20 June 2006

Same; Same; Warranties; It is generally accepted that a warranty is a statement or

promise set forth in the policy, or by reference incorporated therein, the untruth or non-
fulfillment of which in any respect, and without reference to whether the insurer was in
fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the
insurer; For the breach of warranty to avoid a policy, the same must be duly shown by
the party alleging the same. — We are not unmindful of the clear language of Sec. 74 of the
Insurance Code which provides that, “the violation of a material warranty, or other material
provision of a policy on the part of either party thereto, entitles the other to rescind.” It is
generally accepted that “[a]warranty is a statement or promise set forth in the policy, or by
reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without
reference to whether the insurer was in fact prejudiced by such untruth or non-fulfillment,
renders the policy voidable by the insurer.” However, it is similarly indubitable that for the breach
of a warranty to avoid a policy, the same must be duly shown by the party alleging the same.
We cannot sustain an allegation that is unfounded. Consequently, PRUDENTIAL, not having
shown that TRANS-ASIA breached the warranty condition, CLASSED AND CLASS
MAINTAINED, it remains that TRANSASIA must be allowed to recover its rightful claims on the
policy.

Same; Same; Same; Waivers; Breach of warranty or of a condition renders the contract
defeasible at the option of the insurer, but if he so elects, he may waive his privilege and
power to rescind by the mere expression of an intention to do so in which event his
liability under the policy continues as before. — We do not find that the Court of Appeals
was in error when it held that PRUDENTIAL, in renewing TRANS-ASIA’s insurance policy for
two consecutive years after the

covered by Policy No. MH93/1363, was considered to have waived TRANS-ASIA’s breach of
the subject warranty, if any. Breach of a warranty or of a condition renders the contract
defeasible at the option of the insurer; but if he so elects, he may waive his privilege and power
to rescind by the mere expression of an intention so to do. In that event his liability under the
policy continues as before. There can be no clearer intention of the waiver of the alleged breach
than the renewal of the policy insurance granted by PRUDENTIAL to TRANS-ASIA in
MH94/1595 and MH95/1788, issued in the years 1994and 1995, respectively. To our mind, the
argument is made even more credulous by PRUDENTIAL’s lack of proof to support its
allegation that the renewals of the policies were taken only after are quest was made to TRANS-
ASIA to furnish them a copy of the certificate attesting that “M/V Asia Korea” was CLASSED
AND CLASSMAINTAINED. Notwithstanding PRUDENTIAL’s claim that no certification was
issued to that effect, it renewed the policy, thereby, evidencing an intention to waive TRANS-
ASIA’s alleged breach. Clearly, by granting the renewal policies twice and successively after the
loss, the intent was to benefit the insured, TRANSASIA, as well as to waive compliance of the
warranty.

Manulife vs Ybanez, Nov. 28, 2016

Same; Insurance Law; Misrepresentation as a defense of the insurer to avoid liability is

an affirmative defense and the duty to establish such defense by satisfactory and
convincing evidence rests upon the insurer. — “The fraudulent intent on the part of the
insured must be established to entitle the insurer to rescind the contract. Misrepresentation as a
defense of the insurer to avoid liability is an affirmative defense and the duty to establish such
defense by satisfactory and convincing evidence rests upon the insurer.” For failure of Manulife
to prove intent to defraud on the part of the insured, it cannot validly sue for rescission of
insurance contracts.

Malayan Insurance vs PAP, Aug. 7, 2013

Insurance Law; Alterations; Rescission; Under Section 168 of the Insurance Code, the
insurer is entitled to rescind the insurance contract in case of an alteration in the use or
condition of the thing insured. — Under Section 168 of the Insurance Code, the insurer is
entitled to rescind the insurance contract in case of an alteration in the use or condition of the
thing insured. Section 168 of the Insurance Code provides, as follows: Section 68. An alteration
in the use or condition of a thing insured from that to which itis limited by the policy made
without the consent of the insurer, by means within the control of the insured, and increasing the
risks, entitles an insurer to rescind a contract of fire insurance. Accordingly, an insurer can
exercise its right to rescind an insurance contract when the following conditions are present, to
wit: 1) the policy limits the use or condition of the thing insured;2) there is an alteration in said
use or condition; 3) the alteration is without the consent of the insurer; 4) the alteration is made
by means within the insured’s control; and 5) the alteration increases the risk of loss?

Manila Bankers vs Aban, GR 175666, July 29, 2013

Insurance Law; Fraud; Fraudulent intent on the part of the insured must be established
to entitle the insurer to rescind the contract. ― Allegations of fraud, which are predicated on
respondent’s alleged posing as Sotero and forgery of her signature in the insurance application,
are at once belied by the trial and appellate courts’ finding that Sotero herself took out the
insurance for herself. “[F]raudulent intent on thepart of the insured must be established to entitle
the insurer to rescind the contract.” In the absence of proof of suchfraudulent intent, no right to
rescind arises.

Same; Incontestability Clause; 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. ― 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.

Florendo vs Philam Plans, GR 186983, Feb. 22, 2012

Insurance Law; Concealment; Manuel had been taking medicine for his heart condition
and diabetes when he submitted his pension plan application; Pursuant to Section 27 of
the Insurance Code, Manuel’s concealment entitles Philam Plans to rescind its contract
of insurance with him. — 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, it is not claimed that Perla was aware
ofhis two other afflictions that needed medical treatments. Pursuant to Section27 of the
Insurance Code, Manuel’s concealment entitles Philam Plans to rescind its contract of
insurance with him.

Same; Same; Insured persons may accept policies without reading them, and that this is
not negligence per se. But, this is not without any exception. —As the Court said in New
Life Enterprises v. Court of Appeals, 207 SCRA 669 (1992): 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. The same may be said of Manuel, a
civil engineer and manager of a construction company. 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.

Same; Same; Incontestability Clause; An incontestability clause precludes the insurer

from disowning liability under the policy it issued on the ground of concealment or
misrepresentation. — 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. The Court cannot agree. The
comprehensive pension plan that Philam Plans issued contains a one-year incontestability
period. It states: VIII. INCONTESTABILITY 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. 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, 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 of Canada vs Sibya, June 8, 2016

Insurance Law; Concealment; Misrepresentation; Contestability Period; In Manila

Bankers Life Insurance Corporation v. Aban, 702 SCRA 417 (2013), the Supreme Court
(SC) held that if the insured dies within the two (2)-year contestability period, the insurer
is bound to make good its obligation under the policy, regardless of the presence or lack
of concealment or misrepresentation. — In Manila Bankers Life Insurance Corporation v.
Aban, 702 SCRA 417 (2013), the Court held that if the insured dies within the two-year
contestability period, the insurer is bound to make good its obligation under the policy,
regardless of the presence or lack of concealment or misrepresentation. The Court held:
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.

Same; Same; Burden of Proof; Concealment as a defense for the 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. — Indeed, the intent to defraud on
the part of the insured must be ascertained to merit rescission of the insurance contract.
Concealment as a defense for the 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 the present case, Sun Life failed to clearly and satisfactorily establish its allegations,
and is therefore liable to pay the proceeds of the insurance.