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ASSIGNMENT NO. 1-INSURANCE

COMMERCIAL LAW REVIEW
Atty. Myra-Diwata A. Rivera-Caroy
18 January 2021

INSTRUCTIONS: This assignment consists of ten (10) questions calling for the
application of the uberrima fides principle in insurance contracts. Cite the legal basis for
your answers, and a mere “YES” or “NO” answer shall not be given any credit. Submit
your assignment on or before 21 January 2021 at 5:00 p.m. Late assignment
outputs shall not be considered.

I.
(10%)

Melanie insured the life of her 10-year old child Bernice with ABC Insurance
Company. In the application for insurance, Melanie - upon the advice of the
underwritten – did not disclose to the insurer that Bernice was suffering from Down’s
Syndrome. Bernice died of pneumonia. Melanie sought to recover on the life insurance
but ABC denied the claim on the ground of concealment. Is ABC correct? Explain.

ANSWER: Yes, the insurance company is correct. In life insurance, matters

relating to the health of the insured are material and relevant. It affects the
insurer either by approving it with the corresponding adjustment for a higher
premium or to reject it. Under Sec. 27 of the Insurance Code, concealment
vitiates the contract and entitles the insurer to rescind, even if the death or
loss is due to a cause not related to the concealed matter. Thus, ABC is
correct in denying the claim on the ground of concealment even if the child
died due to pneumonia and not because of her Down’s Syndrome.

II.
(10%)

Bogart 25 years old insured his life naming his another Ciriaca as the beneficiary
with ABC Insurance Co. In the application for non-medical insurance, Bogart was asked
the questions: Have you been treated for (a) diabetes (b) heart ailment (c) high blood
pressure – to which he answered “NO”. Bogart did not disclose that he is taking
maintenance medication for hypertension and high cholesterol levels as well as diabetes.
Bogart died of a heart attack while making love to his girlfriend. Ciriaca sought to
recover upon the life insurance, but ABC Insurance denied the claim. Is ABC correct?
Explain.

ANSWER: Yes, ABC is correct. Bogart was guilty of material concealment. Sec.
28 of the Insurance Code states that 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 no means of ascertaining. Matters relating to the
health of the insured are material and relevant. Hence, the waiver of a
medical examination in a non-medical insurance contract renders even more
material the information required of the applicant concerning previous
conditions of health and diseases suffered.

III.
(10%)

Jograd obtained a life insurance policy upon his life naming his wife Girlie as the
beneficiary. The insurance policy contained a rider specifically excluding the following
from coverage (1) suicide ; (2) self inflicted injuries, This, after Jograd was subjected to
a medical examination by insurance and was diagnosed with bi-polar disorder. Jograd
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died after he jumped off a 3 storey building. The insurance company denied the claim,
for which Girlie sued on the policy. Is the answer liable? Explain.
ANSWER: It depends. A Rider is binding on the insured if the following
requirements are complied with: a.) the descriptive title or name thereof is
mentioned and written on the blank spaces provided in the policy; and, b.) it
is countersigned by the insured unless he was the one who applied for the
rider. When these requirements are complied with, the rider is considered
part of the policy. Thus, if this is the case, the contents of the rider which
excluded suicide and self-inflicted injuries is in the nature of a conditional
obligation which must be fulfilled in order to claim against the insurance
company.

IV.
(10%)

Sandra obtained a life insurance policy over her life naming her child Zeus as the
beneficiary. During the application for insurance coverage, the insurer waived the
conduct of a medical an account of the fact that Sandra is 25 years old. During the
interview process, Sandra did not disclose that she was subjected to hysterectomy.
Sandra died when she got run over by a speeding bus. The insurer denied the claim.
Zeus sued the insurer for payment on the ground that Sandra’s death was not caused
by the matter concealed. Is Zeus correct? Explain.

ANSWER: Zeus is wrong. In life insurance, matters relating to the health of

the insured are material and relevant. The waiver of the insurer of the
conduct of medical examination renders even more material the information
required of the applicant concerning previous conditions of health and
diseases suffered. Thus, Zandra was guilty of material concealment.
Furthermore, Sec. 27 of the Insurance Code provides that concealment
vitiates the contract and entitles the insurer to rescind, even if the death or
loss is due to a cause not related to the concealed matter. The fact that the
matter concealed has no bearing to the cause of death of the insured is not
important because it is well-settled that the insured need not die of the
disease he had failed to disclose to the insurer. It is sufficient that his non-
disclosure misled the insurer in forming his estimates of the risks of the
proposed insurance policy or in making inquiries.

V.
(10%)

Johnny applied for, and was issued a life insurance policy with MABUHAY
Insurance Corporation sometime on January 31, 2015. He named his wife Malindy as
primary beneficiary and his only son Juanito as secondary beneficiary. Due to missed
periodic premium payments, the policy lapsed after six months. Johnny was able to
reinstate the life insurance policy on March 15, 2016. Johnny subsequently died when
the plane where he was a passenger crashed somewhere in the Indian Ocean.
MABUHAY denied payment on the life insurance policy on the ground that Johnny did
not disclose that he was previously operated on for hernia. Malindy now comes to you
seeking legal advice on whether she should nevertheless insist on claiming the proceeds
of the life insurance policy. Can Malindy claim under Johnny’s life insurance policy?
Explain.

ANSWER: No, Malindy cannot claim under Johnny’s life insurance. Under Sec.
48 of the Insurance Code, 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. In this
case, the two-year period shall be reckoned from the reinstatement of the
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insurance contract, that is, March 15, 2016. Thus, if Johnny died within 2
years from the said date, the insurance company can still contest the validity
of the insurance contract. If indeed Johnny was guilty of material
concealment, the insurance company can rescind the insurance contract.

VI.
(10%)

LAKAMBINI Imports Corporation is a Philippine corporation and the owner of a

vessel named MV MARIA CLARA, which is insured with XYZ Insurance Corporation under
an all risk marine insurance policy. IN the application for the marine insurance policy,
Lakambini expressly warranted the nationality of MV MARIA CLARA. However, in the
course of one of its voyages, the captain of MV MARIA CLARA did not bring with it the
requisite documents while en route to Shanghai, China, as a result of which it was
seized and impounded en route to Shanghai. The seizure cost Lakambini Php 100Million
as a result. Can Lakambini enforce claim for the damages sustained with XYZ
Insurance? Explain.

ANSWER: No. Under Sec. 122 of the Insurance Code, where the nationality or
neutrality of a ship or cargo is expressly warranted, it is implied that the ship
will carry the requisite documents to show such nationality or neutrality and
that it will not carry any documents which cast reasonable suspicion thereon.
Thus, it is an implied warranty that the ship will carry the requisite
documents. Failure to do so will give the insurer the right to rescind the
insurance contract. Therefore, Lakambini cannot claim for damages against
XYZ Insurance.

VII.
(10%)

KAHLUIT Seafood Corporation owns a vessel named MV HIPON which is insured

under a marine protection indemnity insurance with KOKORO Insurance Company. IN
one of its voyages en route to Hokkaido, Japan, the vessel sank. Upon investigation of
the loss, it was discovered that the sinking of the vessel was due to a major hole along
the hull which was left unrepaired and undetected for a period of three years. KAHLUIT
sought to recover on the marine insurance policy, which, however was denied by
KOKORO. In suing KOKORO for the enforcement of its claims under the marine
insurance policy, KAHLUIT claims that (a) it was not, under the circumstances, made to
warrant for the seaworthiness of the vessel; and (b) the loss was caused by a peril of
the sea for which the insurer must be held liable. Is KAHLUIT correct? Explain.

ANSWER: NO, KAHLUIT is wrong.

a.) Sec. 115 of the Insurance Code provides that in every marine insurance
upon a ship or freight, or freightage, or upon any thing which is the
subject of marine insurance, a warranty is implied that the ship is
seaworthy. Further, under Sec. 16, a ship is seaworthy when
reasonably fit to perform the service and to encounter the ordinary
perils of the voyage contemplated by the parties to the policy. Thus,
although the insured was not made to warrant for the seaworthiness of
its vessel, it is already implied in the marine insurance that the vessel
is seaworthy.
b.) Sec. 120 of the Insurance Code provides that, “When the ship becomes
unseaworthy during the voyage to which an insurance relates, an
unreasonable delay in repairing the defect exonerates the insurer from
the liability from any loss arising therefrom”. Here, the hole along the
hull of the vessel was unrepaired and undetected for 3 years without
any valid reason. Thus, the insurer is exonerated from the liability.
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VIII.
(10%)

Paulina is the owner of a two storey residential building which she insured under
a fire insurance policy with ABC Insurance Company. In the course of the application for
the fire insurance policy, Paulina failed to declare that the building was used for
commercial purposes, there being a restaurance operated within the premises, and that
the basement of the building was used as a storage area for LPG tanks. The fire
insurance policy was eventually issued covering losses against fire and other allied risks.
The building was subsequently razed by fire caused by an explosion of one of the LPG
tanks stored inside the basement. Paulina sought to recover upon the policy which was
denied by ABC. Is ABC correct in denying the claim under the fire insurance policy?
Explain.

ANSWER: Yes, ABC is correct. Paulina was guilty of concealment or a neglect

to communicate that which a party knows and ought to communicate. She
should have declared that the building was also used as a restaurant because
it increases the risks of fire. Sec 170 of the Insurance Code provides that an
alteration in the use or condition of a thing insured from that to which it is
limited by the policy made without the consent of the insurer, by means
within the control of the insured, and increasing risks, entitles the insurer to
rescind the contract of fire insurance. Thus, the insurer is entitled to deny the
claim of Paulina.

IX.
(10%)

Hilario is covered under a life insurance policy with ABC Insurance Company
which specifically exempts from coverage suicide but nevertheless includes indemnity for
accidental death. During one of the drinking sprees of which he is the host, Hilario
brought out his caliber .45 Glock pistol to show to his drinking buddies. He was in the
process of playing roulette with the pistol when it suddenly went off, hitting Hilario in
the groin and killing him instantly. HIlario’s wife Martha sought to recover upon the life
insurance policy but ABC denied the claim stating that Hilario’s acts constituted suicide
which is an excepted risk in the policy. Is ABC correct? Explain.

ANSWER: No, ABC is wrong. Hilario has no intent to commit suicide. From the
stated facts, he was only showing his.45 caliber pistol to his friends when he
accidentally hit his groin which resulted to his death. Where a provision of the
policy excludes intentional injury, it is the intention of the person inflicting
the injury which is controlling. The term “accident’ has not acquired any
technical meaning. It is construed by the courts in the ordinary and common
acceptation. Thus, the terms have been taken to mean that which happen
fortuitously, without intention or design, which is unexpected, unsual and
unforeseen. Therefor, what happened was an accident which is included in
the life insurance.

X.
(10%)

Rommel is covered by a life insurance policy with ABC Insurance Company which
covers suicide and accidental death. The insurance specify states that in the event of
death, the originals of the following documents must be submitted with the insurance
adjuster of ABC, as follows: (1) death certificate from the Philippine Statistics Authority;
(2) Deed of EXtrajudicial Settlement of Estate of the heirs of the insured; and (3)
certification and sworn statement of the attending physician as to the cause of death.
Rommel subsequently died in his sleep. ABC denied the claim on the ground that the
heirs of Rommel failed to submit the Deed of Extrajudicial Settlement of Estate and the
Certification/Sworn Statement of the attending physician. The heirs filed an action
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against ABC seeking payment under the life insurance policy, claiming that they are only
obliged to establish the fact of death of Rommel. Is ABC correct in denying the claim?
Explain.

ANSWER: Yes, ABC is correct. A contract of insurance, like any other

contracts, is binding between the parties. Contracts which are subject to
conditional obligations must be fulfilled to make the consideration of the
contract due and demandable. Here, since the insured consented to the terms
of the policy including the conditional obligations imposed in the contract, the
same must be fulfilled in good faith.

-Nothing Follows-