Ascertaining and Controlling Risks

ASCERTAINING AND CONTROLLING RISKS
A. CONCEALMENT
BERNARDO ARGENTE vs. WEST COAST LIFE INSURANCE CO.
G.R. No. L-24899, March 19, 1928
FACTS:
• Bernardo Argente signed an application for joint insurance with his wife in the sum of P2,000.
The wife, Vicenta de Ocampo, signed a like application for the same policy. Both applications,
with the exception of the names and the signatures of the applicants, were written by Jose
Geronimo del Rosario, an agent for the West Coast Life Insurance Co. But all the information
contained in the applications was furnished the agent by Bernardo Argente.
• Argente and Vicenta were separately examined by Dr. Cesareo Sta. Ana, a medical examiner for
the West Coast. The result of such examination was recorded was in the hand-writing of Doctor
Sta. Ana.
• Argente and his wife submitted an amended application for insurance, increasing the amount
thereof to P15,000, and asked that the policy be dated May 15, 1925. The amended application
was accompanied by the documents entitled "Short Form Medical Report."
• A temporary policy for P15,000 was issued, but it was not delivered until July 2, 1925, when the
first quarterly premium on the policy was paid. In view of the fact that more than 30 days had
elapsed since the applicants were examined by the company's physician, each of them was
required to file a certificate of health before the policy was delivered to them.
• On November 18, 1925, Vicenta de Ocampo died of cerebral apoplexy. Argente presented a
claim in due form to the West Coast for the payment of the sum of P15,000 the amount of the
joint life Insurance policy. Following investigation conducted it was apparently disclosed that the
answers given by the insured in their medical examinations with regard to their health and
previous illness and medical attendance were untrue. For that reason, the West Coast
refused to pay the claim wrote him to the effect that the claim was rejected because the
insurance was obtained through fraud and misrepresentation.
• In response to the several questions, it was alleged that Argente answered that he never
consulted a physician or suffered from any ailment of the brain or the nervous system and that it
did not disclose that Argente was confined in the Philippine General Hospital where he was
treated for cerebral congestion and Bell’s Palsy.
• It was also not disclosed that Vicenta was diagnosed of psycho-neurosis.
• Argente, while readily conceding most of the facts herein narrated, yet alleges that both he and
his wife revealed to the company's physician. Doctor Sta. Ana, all the facts concerning the
previous illnesses and medical attendance, but that Doctor Sta. Ana, presumably acting in
collusion, with the insurance agent failed to record them in the medical reports.
• The court found from the evidence that the representations made were false with respect to
their state of health during the period of five years preceding the date of such applications,
and that they knew the representations made by them in their applications were false.
ISSUE: WON Argente is entitled to the insurance claim.
HELD: NO.
One ground for the rescission of a contract of insurance under the Insurance Act is "a concealment.
Appellant argues that the alleged concealment was immaterial and insufficient to avoid the policy. We
cannot agree. In an action on a life insurance policy where the evidence conclusively shows that the
answers to questions concerning diseases were untrue, the truth of falsity of the answers become the
determining factor. In the policy was procured by fraudulent representations, the contract of insurance
apparently set forth therein was never legally existent. It can fairly be assumed that had the true facts
been disclosed by the assured, the insurance would never have been granted.
INSURANCE | Sta. Barbara 1

In Joyce, The Law of Insurance, second edition, volume 3, Chapter LV, is found the following:
Concealment exists where the assured has 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 designated and
intentionally with holds the same. Another rule is that if the assured undertakes to state all the
circumstances affecting the risk, a full and fair statement of all is required. It is also held that the
concealment must, in the absence of inquiries, be not only material, but fraudulent, or the fact must have
been intentionally withheld; so it is held under English law that if no inquiries are made and no fraud or
design to conceal enters into the concealment the contract is not avoided. And it is determined that even
though silence may constitute misrepresentation or concealment it is not itself necessarily so as it is a
question of fact. Nor is there a concealment justifying a forfeiture where the fact of insanity is not disclosed
no questions being asked concerning the same.
NG GAN ZEE vs. ASIAN CRUSADER LIFE ASSURANCE CORP

G.R. No. L-30685 May 30, 1983
FACTS:
• On May 12, 1962, Kwong Nam applied for a 20-year endowment insurance on his life for the
sum of P20,000.00, with his wife, Ng Gan Zee as beneficiary. Upon receipt of the required
premium from the insured, approved the application and issued the policy.
• Kwong Nam died of cancer of the liver with metastasis. All premiums had been religiously
paid at the time of his death.
• Ng Gan Zee presented a claim in due form to appellant for payment of the face value of the policy.
Appellant denied the claim on the ground that the answers given by the insured to the
questions appealing in his application for life insurance were untrue.
• Appellee brought the matter the Insurance Commissioner, the Hon. Francisco Y. Mandamus, and
the latter, after conducting an investigation, wrote the appellant that he had found no material
concealment on the part of the insured and that, therefore, appellee should be paid the full face
value of the policy. However, the insurance company failed to settle the obligation.
• One of the allegations was that the insured was guilty of misrepresentation when he answered
that his application for insurance or reinstatement of lapsed policy was never refused, when in
fact, the insured applied with the Insular Life Insurance Co., Ltd, but this was declined by the
insurance company, although later on approved for reinstatement with a very high
premium as a result of his medical examination.
• CFI ordered the insurer to pay the face value of insurance policy in favor of Kwong Nam.
ISSUE: WON appellant because of insured's aforesaid representation, misled or deceived into entering
the contract or in accepting the risk at the rate of premium agreed upon.
HELD: NO.
Section 27 of the Insurance Law: Such party a contract of insurance must communicate to the other, in
good faith, all facts within his knowledge which are material to the contract, and which the other has not
the means of ascertaining, and as to which he makes no warranty.
Assuming that the aforesaid answer given by the insured is false, as claimed by the appellant. Sec. 27
nevertheless requires that fraudulent intent on the part of the insured be established to entitle the
insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an
'affirmative' defense. The duty to establish such a defense by satisfactory and convincing evidence rests
upon the defendant. The evidence before the Court does not clearly and satisfactorily establish that
defense."

It bears emphasis that Kwong Nam had informed the appellant's medical examiner that the tumor for
which he was operated on was "associated with ulcer of the stomach." In the absence of evidence that the
insured had sufficient medical knowledge as to enable him to distinguish between "peptic ulcer" and "a
tumor", his statement that said tumor was "associated with ulcer of the stomach" should be construed as
an expression made in good faith of his belief as to the nature of his ailment and operation. Indeed,
such statement must be presumed to have been made by him without knowledge of its
incorrectness and without any deliberate intent on his part to mislead the appellant.
While it may be conceded that, from the viewpoint of a medical expert, the information communicated was
imperfect, the same was nevertheless sufficient to have induced appellant to make further inquiries
about the ailment and operation of the insured.
Section 32: The right to information of material facts may be waived either by the terms of insurance or by
neglect to make inquiries as to such facts where they are distinctly implied in other facts of which
information is communicated.
It has been held that where, upon the face of the application, a question appears to be not answered at all
or to be imperfectly answered, and the insurers issue a policy without any further inquiry, they waive the
imperfection of the answer and render the omission to answer more fully immaterial.
As aptly noted by the lower court, "if the ailment and operation of Kwong Nam had such an important
bearing on the question of whether the defendant would undertake the insurance or not, the court cannot
understand why the defendant or its medical examiner did not make any further inquiries on such matters
from the Chinese General Hospital or require copies of the hospital records from the appellant before
acting on the application for insurance. The fact of the matter is that the defendant was too eager to
accept the application and receive the insured's premium. It would be inequitable now to allow the
defendant to avoid liability under the circumstances."
THELMA VDA. DE CANILANG vs. CA, GREAT PACIFIC LIFE ASSURANCE COPRORATION
G.R. No. 92492 June 17, 1993
FACTS:
• On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed with
"sinus tachycardia." Canilang consulted the same doctor again and this time was found to have
"acute bronchitis."
• August 4, 1982, Canilang applied for a "non-medical" insurance policy with Great Pacific
naming his wife, Thelma Canilang, as his beneficiary. He was issued ordinary life insurance with
the face value of P19,700
• On 5 August 1983, Canilang died of "congestive heart failure," "anemia," and "chronic
anemia. The 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.
• Petitioner then filed a complaint against Great Pacific with the Insurance Commission for recovery
of the insurance proceeds. Petitioner testified that she was not aware of any serious illness
suffered by her late husband and that, as far as she knew, her husband had died because of a
kidney disorder. A deposition given by Dr. Wilfredo Claudio was presented by petitioner. There Dr.
Claudio stated that he was the family physician of the deceased Jaime Canilang and that he had
previously treated him for "sinus tachycardia" and "acute bronchitis." Great Pacific for its part
presented its physician, Dr. Esperanza Quismorio who testified that the deceased's insurance
application had been approved on the basis of his medical declaration.
• Insurance Commissioner ordered Great Pacific to pay the petitioner holding that the ailment of
Jaime Canilang was not so serious that, even if it had been disclosed, it would not have affected

Great Pacific's decision to insure him and that Great Pacific had waived its right to inquire into the
health condition of the applicant by the issuance of the policy despite the lack of answers to
"some of the pertinent questions" in the insurance application.
• Court of Appeals reversed and set aside the decision of the Insurance Commissioner and
dismissed Thelma Canilang's complaint and Great Pacific's counterclaim.
ISSUE: WON Canilang intentionally made material concealment in stating his state of health.
HELD: Yes, he failed to disclose that he had twice consulted a doctor who had found him to be suffering
from "sinus tachycardia" and "acute bronchitis."
Sec. 26. A neglect to communicate that which a party knows and ought to
communicate, is called a concealment.
Sec. 28. Each party to a contract of insurance must communicate to the other, in good
faith, all factors within his knowledge which are material to the contract and as to
which he makes no warranty, and which the other has not the means of ascertaining.
Under the foregoing provisions, the information concealed must be information which the concealing
party knew and "ought to have communicated," that is to say, information which was "material to the
contract." The test of materiality is contained in Section 31 of the Insurance Code of 1978 which reads:
Sec. 31. Materially is to be determined not by the event, but solely by the probable
and reasonable influence of the facts upon the party to whom the communication is
due, in forming his estimate of the disadvantages of the proposed contract, or in
making his inquiries.
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 did not depend upon the state
of mind of Jaime Canilang. A man's state of mind or subjective belief is not capable of proof in our
judicial process, except through proof of external acts or failure to act from which inferences as to
his subjective belief may be reasonably drawn. Neither does materiality depend upon the actual or
physical events which ensue. Materiality relates rather to the "probable and reasonable influence of the
facts" upon the party to whom the communication should have been made, in assessing the risk involved
in making or omitting to make further inquiries and in accepting the application for insurance; that
"probable and reasonable influence of the facts" concealed must, of course, be determined objectively, by
the judge ultimately.
The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain information
to the insurer was not "intentional" in nature, for the reason that Canilang believed that he was suffering
from minor ailment like a common cold. Section 27 stated that:
Sec. 27. A concealment whether intentional or unintentional entitles the injured party
to rescind a contract of insurance.
The failure to communicate must have been intentional rather than inadvertent. Canilang could not
have been unaware that his heart beat would at times rise to high and alarming levels and that he had
consulted a doctor twice in the two (2) months before applying for non-medical insurance. Indeed, the last
medical consultation took place just the day before the insurance application was filed. In all probability,
Jaime Canilang went to visit his doctor precisely because of the ailment.
Also, Canilang's failure to set out answers to some of the questions in the insurance application
constituted concealment.
In any case, in the case at bar, the nature of the facts not conveyed to the insurer was such that the failure
to communicate must have been intentional rather than merely inadvertent. For Jaime Canilang could not

have been unaware that his heart beat would at times rise to high and alarming levels and that he had
consulted a doctor twice in the two (2) months before applying for non-medical insurance. Indeed, the last
medical consultation took place just the day before the insurance application was filed. In all probability,
Jaime Canilang went to visit his doctor precisely because of the discomfort and concern brought about by
his experiencing "sinus tachycardia."
SUNLIFE ASSURANCE COMPANY OF CANADA vs. CA, SPOUSES ROLANDO and BERNARDA
BACANI
G.R. No. 105135 June 22, 1995
FACTS:
• On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from
petitioner. He was issued a corresponding policy valued at P100,000.00, with double indemnity in
case of accidental death. The designated beneficiary was his mother, respondent Bernarda
Bacani.
• On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim
with petitioner, seeking the benefits of the insurance policy taken by her son. Petitioner
conducted an investigation and its findings prompted it to reject the claim because he did not
disclose material facts relevant to the issuance of the policy, thus rendering the contract of
insurance voidable. A check representing the total premiums paid in the amount of P10,172.00
was attached to said letter.
• In his application for insurance Robert was asked if within 5 years he (a) consulted any doctor or
other health practitioner (b) subjected to different test i.e. blood, x-rays etc. (c) attended or been
admitted to any hospital or other medical facility. Robert answered yes in letter a. but limited his
answer to a consultation with a certain Dr. Reinaldo D. Raymundo of the Chinese General
Hospital on February 1986, for cough and flu complications.
• Petitioner discovered that 2 weeks prior to his application for insurance, the insured was
examined and confined at the Lung Center of the Philippines, where he was diagnosed for renal
failure. During his confinement, the deceased was subjected to urinalysis, ultra-sonography and
hematology tests.
• On November 17, 1988, respondents filed an action for specific performance against
petitioner with the RTC. Petitioner filed its answer with counterclaim and a list of exhibits
consisting of medical records furnished by the Lung Center of the Philippines
• Petitioner then moved for a summary judgment and the trial court decided in favor of private
respondents.
• CA affirmed the decision of the trial court. Petitioner's motion for reconsideration was denied;
hence, this petition.
ISSUE: WON petitioner was guilty of misrepresentation which made the contract void.
HELD: YES.
In weighing the evidence presented, the trial court concluded that indeed there was concealment and
misrepresentation, however, the same was made in "good faith" and the facts concealed or
misrepresented were irrelevant since the policy was "non-medical". We disagree.
Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to communicate
to the other, in good faith, all facts within his knowledge which are material to the contract and as to which
he makes no warranty, and which the other has no means of ascertaining. Said Section provides: A
neglect to communicate that which a party knows and ought to communicate, is called concealment.

Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the
facts upon the party to whom communication is due, in forming his estimate of the disadvantages of the
proposed contract or in making his inquiries
The 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.
Materiality of the information withheld does not depend on the state of mind of the insured. Neither
does it depend on the actual or physical events which ensue. Thus, "goad faith" is no defense in
concealment. The insured's failure to disclose the fact that he was hospitalized for two weeks prior to filing
his application for insurance, raises grave doubts about his bonafides. It appears that such concealment
was deliberate on his part.
The argument, that petitioner's waiver of the medical examination of the insured debunks the materiality of
the facts concealed, is untenable. The waiver of a medical examination in a non-medical insurance
contract renders even more material the information required of the applicant concerning previous
condition of health and diseases suffered, for such information necessarily constitutes an important factor
which the insurer takes into consideration in deciding whether to issue the policy or not. Moreover, such
argument of private respondents would make Section 27 of the Insurance Code, which allows the injured
party to rescind a contract of insurance where there is concealment, ineffective
Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is well
settled that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient
that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed
insurance policy or in making inquiries
PHILAMCARE HEALTH SYSTEMS, INC. vs. CA, JULITA TRINOS

G.R. No. 125678 March 18, 2002
“Although false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not
avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate
of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously
of the foregoing character, since in such case the insurer is not justified in relying upon such statement, but is
obligated to make further inquiry.”
FACTS: Ernani Trinos, deceased husband of respondent Julita Trinos applied for a health care coverage
with petitioner. In the standard application form, he answered “No.” to the question:
“Have you or any of your family members ever consulted or been treated for high blood pressure, heart
trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details).”
The application was approved for a period of 1 year (March 1, 1988 – March 1, 1999). Thus, was issued
to him was Health Care Agreement No. P010194, entitling him to avail of hospitalization benefits, ordinary
or emergency, listed therein. Upon the termination of the agreement, the same was extended for another
year, then another March 1, 1990 – June 1, 1990.
During the period of his coverage, he suffered a heart attack and was confined at the Manila Medical
Center (MMC) for one month beginning March 9, 1990. While her husband was in the hospital,
respondent tried to claim the benefits under the health care agreement, but petitioner denied her claim
averring that the agreement was void for the reason that a concealment was made regarding Ernani’s
medical history. Doctors in MMC discovered that at the time of the confinement, he was hypertensive,
diabetic and asthmatic – contrary to his answer in the application form. Thus, respondent paid the
hospitalization herself amounting to PhP76,000.00. After Ernani was discharged from the MMC, he was

attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital. But
due to financial difficulties, respondent brought him home again. In the morning of April 13, 1990, Ernani
had a fever and was feeling very week. Respondent was constrained to bring him back to the Chinese
General Hospital where he died on the same day.
On July 24, 1990, respondent instituted with the RTC-Manila an action for damages against petitioner and
its president Dr. Reverente, asking for reimbursement of her expenses plus moral damages and attorney’s
fees.
• RTC: Ruled against petitioners.
• CA: Affirmed the decision but deleted all awards for damages and absolved petitioner Reverente.
ISSUE: WON the contention of petitioners as to the concealment was valid.
HELD: NO.
Petitioner argues that respondent’s husband concealed a material facts in his application. It appears that
in the application for health coverage, petitioners require respondent’s husband to sign an express
authorization for any person, organization or entity that has any record or knowledge of his health to
furnish any and all information relative to any hospitalization, consultation, treatment, or any other medical
advice or examination.
In addition, petitioner additionally required the applicant for authorization to inquire about the applicant’s
medical history, thus:
I hereby authorize any person, organization, or entity that has any record or knowledge
of my health and/or that of ________ to give to the PhilamCare Health Systems,
Inc. any and all information relative to any hospitalization, consultation, treatment or any
other medical advice or examination. This authorization is in connection with the
application for health care coverage only. A photographic copy of this authorization
shall be as valid as the original. (Emphasis ours)
The petitioner cannot rely on the “Invalidation Agreement” stipulating that the agreement shall be
automatically invalidated from the very beginning and petitioner’s liability shall be limited to return
of all membership fees paid upon failure to disclose or misrepresentation of any material fact by
Ernani, whether intentional or not.
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 relying upon such
statement, but is obligated to make further inquiry. There is a clear distinction between
such a case and one in which the insured is fraudulently and intentionally states to be
true, as a matter of expectation or belief, that which he then knows, to be actually
untrue, or the impossibility of which is shown by the facts within his knowledge, since in
such case the intent to deceive the insurer is obvious and amounts to actual
fraud. (Emphasis ours)
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.
B. REPRESENTATION
REGINA EDILLON, MARCIAL EDILLON vs. MANILA BANKERS LIFE INSURANCE CORPORATION, CFI-
RIZAL, QC
G.R. NO. L-34200 September 30, 1982
FACTS: Sometime in April 1969, Carmen Lapuz applied with respondent insurance corporation for
coverage against accident and injuries. On the application form, dated April 15, 1969, she gave the date
of birth as July 11, 1904. On the same date, she paid the sum of PhP20.00 representing the premium for
which she was issued a receipt and Certificate of Insurance No. 12866 – effective for a period of 90 days.
During the effectivity of said policy, she died in a vehicular accident in the North Diversion Road.
On June 7, 1969, Regina L. Edillon, a sister of the insured, who was named as beneficiary to the policy,
filed her claim for the proceeds of the insurance, submitting all necessary paper and other requisites with
the private respondent. The insurance company rejected her claims on the ground that the Certificate of
Insurance excludes its liability to pay claims under the policy in behalf of “persons who are under the age
of sixteen (16) years of age or over the age 60 years old.” It pointed out that the insured being over 60
when she applied for coverage, the policy was null and void, and no risk on the part of the respondent
insurance corporation had arisen therefrom.
The trial court sustained the contention of the Insurance Company and dismissed the complaint. It
reasoned out that a policy of insurance being a contract of adhesion, it was the duty of the insured to
know the terms of the contract he or she is entering into; the insured in this case, upon learning from its
terms that she could not have been qualified under the conditions stated in said contract, what she should
have done is simply to ask for a refund of the premium that she paid. It was further argued by the trial
court that the ruling calling for a liberal interpretation of an insurance contract in favor of the insured and
strictly against insurer may not be applied in the present case in view of the peculiar facts and
circumstance obtaining therein. The petitioner appealed the decision to the Supreme Court on a question
of law.
ISSUE: WON the acceptance by the private respondent corporation of the premium and its issuance of
the corresponding Certificate of Insurance should be deemed a waiver of exclusionary condition of
coverage.
HELD: YES.
The age of the insured Carmen O. Lapuz was not concealed to the insurance company. Her application
for insurance coverage which was on a printed form furnished by private respondent and which contained
very few items of information clearly indicated her age of the time of filing the same to be almost 65 years
of age. Despite such information which could hardly be overlooked in the application form, considering its
prominence thereon and its materiality to the coverage applied for, respondent insurance corporation
received her payment premium and issued the corresponding certificate of insurance without question.
The accident which resulted in the death the insured, a risk covered by the policy, occurred on May 31,
1969 or FORTY-FIVE (45) DAYS after the insurance coverage was applied for. There was sufficient time
for the private respondent to process the application and to notice that the applicant was over 60 years of
age and thereby cancel the policy on that ground if it was minded to do so. If the private respondent failed
to act, it is either because it was willing to waive such disqualification; or, through the negligence or
incompetence of its employees for which it has only itself to blame, it simply overlooked such fact. Under

the circumstances, the insurance corporation is already deemed in estoppel. Its inaction to revoke the
policy despite a departure from the exclusionary condition contained in the policy constituted a waiver of
such condition.
THE INSULAR LIFE ASSURANCE CO., LTD. v. SERAFIN D. FELICIANO, ET AL.

G.R. NO. 47593 September 13, 1941
If an agent of the insurer, after obtaining from an applicant for insurance a correct and truthful answer
to interrogatories contained in the application for insurance, without knowledge of the applicant fills in
false answers, either fraudulently or otherwise, the insurer cannot assert the falsity of such answers as
a defense to liability on the policy, and this is true generally without regard to the subject matter of the
answers or the nature of the agent's duties or limitations on his authority, at least if not brought to the
attention of the applicant.|||
FACTS: One Evaristo Feliciano filed an application for insurance with the herein petitioner upon the
solicitation of one of its agents. Two insurance policies to the aggregate amount of P25,000 were issued
to him. Feliciano died on September 29, 1935. The defendant company refused to pay on the ground that
the policies were fraudulently obtained, the insured having given false answers and statements in the
application as well as in the medical report.
The present action was brought to recover on said policies. The lower court rendered judgment in favor of
the plaintiffs. The lower court found that at the time Feliciano filed his application and at the time he was
subjected to physical examination by the medical examiner of the herein petitioner, he was already
suffering from tuberculosis. This fact appears in the negative both in the application and in the medical
report.
The lower court, after an exhaustive examination of the conflicting testimonies, also found that Feliciano
was made to sign the application and the examiner's report in blank, and that afterwards the blank spaces
therein were filled in by the agent and the medical examiner, who made it appear therein that Feliciano
was a fit subject for insurance. The lower court also held that neither the insured nor any member of his
family concealed the real state of health of the insured. That as a matter of fact the insured, as well as the
members of his family, told the agent and the medical examiner that the applicant had been sick and
coughing for sometime and that he had also gone three times to the Santol Sanatorium. On appeal, this
finding of facts of the lower court was sustained by the Court of Appeals. This concludes the controversy
over the facts in so far as this Court is concerned.
ISSUE: WON a misrepresentation made by the agent of insurer precludes the latter from avoiding the
policy.
HELD: YES. Agents of the insured, in fact and in theory, are the general representatives of the insurance
companies. They supply all the information, prepare and answer the applications, submit the applications
to their companies, conclude the transactions, and otherwise smooth out all difficulties. The agents, in
short, do what the company set them out to do.
In the present case, the agent knew all the time the true state of health of the insured. The insurer's
medical examiner approved the application knowing full well that the applicant was sick. The situation is
one in which one of two innocent parties must bear a loss for his reliance upon a third person. In this
case, it was the insurer who gave the agent authority to deal with the applicant. It was the one who
selected the agent, thus implying that the insured could put his trust on him. It was the one who drafted
and accepted the policy and consummated the contract. It seems 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.

The company received the money of the applicant as the price of the risk to be taken by it. If the policy
should be avoided, it must be because it was void from the very beginning, and the result would be that
the insurer, while it received the money, never assumed any risk. The result would be, in the language of
one of the cases, "to place every simple or uneducated person seeking insurance at the mercy of the
insurer who could, through its agent, insert in every application, unknown to the applicant and over his
signature, some false statements which would enable him to avoid all liability while retaining the price
paid for the supposed insurance." (State Insurance Company v. Taylor, 14 Colo. 499, 24 Pac. 333.) The
weight of authority is that if an agent of the insurer, after obtaining from an applicant for insurance a
correct and truthful answer to interrogatories contained in the application for insurance, without
knowledge of the applicant fills in false answers, either fraudulently or otherwise, the insurer cannot
assert the falsity of such answers as a defense to liability on the policy, and this is true generally without
regard to the subject matter of the answers or the nature of the agent's duties or limitations on his
authority, at least if not brought to the attention of the applicant.
|||
We have not been insensible to the appeal that the course we have followed may lead to fraud and work
hardship on insurance companies, for it would be easy for insurance agents and applicants to insert false
answers in their applications for insurance. This means that it is to the particular interest of these
companies to exercise greater care in the selection of their agents and examiners. Their protection is still
in their own hands and which may be achieved by other means. Withal, the attainment of a common good
may involve impairment and even sacrifice of beneficial interests of a particular group, but in life
compromise is inevitable until the hour of doom strikes.
||
THE INSULAR LIFE ASSURANCE CO., LTD. v. SERAFIN D. FELICIANO, ET AL.

G.R. NO. 47593 December 29, 1943
NOTE: This a motion for reconsideration of the decision of the CA in the previous case – which was
sustained. The SC herein holds that the insured is a co-participant and co-responsible with Agent David
and Medical Examiner Valdez, in the fraudulent procurement of the policies in question and that by reason
thereof said policies are void ab initio.
FACTS (More detailed than the one above): Evaristo Feliciano, who died on September 29, 1935, was
suffering with advanced pulmonary tuberculosis when he signed his application for insurance with the
petitioner on October 12, 1934. On that same date Doctor Trepp, who had taken X-ray pictures of his
lungs, informed the respondent Dr. Serafin D. Feliciano, brother of Evaristo, that the latter "was already in
a very serious and practically hopeless condition." Nevertheless the question contained in the application
— "Have you ever suffered from any ailment or disease of the lungs, pleurisy, pneumonia or asthma?" —
appears to have been answered, "No." And above the signature of the applicant, following the answers to
the various questions propounded to him, is the following printed statement:
"I declare on behalf of myself and of any person who shall have or claim any interest in
any policy issued hereunder, that each of the above answers is full, complete and true, and that
to the best of my knowledge and belief I am a proper subject for life insurance." (Exhibit K.)
The false answer above referred to, as well as the others, was written by the Company's soliciting agent
Romulo M. David, in collusion with the medical examiner Dr. Gregorio Valdez, for the purpose of securing
the Company's approval of the application so that the policy to be issued thereon might be credited to said
agent in connection with the inter-provincial contest which the Company was then holding among its
soliciting agents to boost the sales of its policies. Agent David bribed Medical Examiner Valdez with
money which the former borrowed from the applicant's mother by way of advanced payment on the
premium, according to the finding of the Court of Appeals. Said court also found that before the insured

signed the application he, as well as the members of his family, told the agent and the medical examiner
that he had been sick and coughing for some time and that he had gone three times to the Santol
Sanatorium and had X-ray pictures of his lungs taken; but that in spite of such information the agent and
the medical examiner told them that the applicant was a fit subject for insurance.
The Court of Appeals also found that before the insured signed the first application and medical
examiner's report, he and the members of his family told the agent and the medical examiner that he
had been sick and coughing for some time and that he had gone three times to the Santol Sanatorium
and had X-ray pictures of his lungs taken; but that in spite of such information the agent and the medical
examiner told them that the applicant was a fit subject for insurance.
HELD: The petitioner insists that upon the facts of the case the policies in question are null and void ab
initio and that all that the respondents are entitled to is the refund of the premiums paid thereon. After a
careful re-examination of the facts and the law, we are persuaded that petitioner's contention is correct.
To the reasons adduced in the dissenting opinion heretofore published, we only desire to add the
following considerations:
When Evaristo Feliciano, the applicant for insurance, signed the application in blank and authorized the
soliciting agent and/or the medical examiner of the Company 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 the responsibility for the falsification. He was not
supposed to sign the application in blank. He knew that the answers to the questions therein contained
would be "the basis of the policy," and for that very reason he was required with his signature to vouch
for the truth thereof.
Moreover, from the facts of the case we cannot escape the conclusion that the insured acted in
connivance with the soliciting agent and the medical examiner of the Company in accepting the policies
in question. Above the signature of the applicant is the printed statement or representation: ". . . I am a
proper subject for life insurance." In another sheet of the same application and above another signature
of the applicant was also printed this statement: "That the said policy shall not take effect until the first
premium has been paid and the policy has been delivered to and accepted by me, while I am in good
health." When the applicant signed the application he was "having difficulty in breathing, . . . with a very
high fever." He had gone three times to the Santol Sanatorium and had X-ray pictures taken of his
lungs. He therefore knew that he was not "a proper subject for life insurance." When he accepted the
policy, he knew that he was not in good health. Nevertheless, he not only accepted the first policy of
P20,000 but then and there applied for and later accepted another policy of P5,000.
We cannot bring ourselves to believe that the insured did not take the trouble to read the answers
contained in the photostatic copy of the application attached to and made a part of the policy before he
accepted it and paid the premium thereon. He must have noticed that the answers to the questions
therein asked concerning his clinical history were false, and yet he accepted the first policy and applied
for another. In any event, he obligated himself to read the policy when he subscribed to this statement:
"My acceptance of any policy issued on this application will constitute a ratification by me of any
corrections in or additions to this application made by the Company . . ." By accepting the policy he
became charged with knowledge of its contents, whether he actually read it or not. He could not ostrich-
like hide his head from it in order to avoid his part of the bargain and at the same time claim the benefit
thereof. He knew, or was chargeable with knowledge, from the very terms of the two policies sued upon
(one of which is printed in English and the other in Spanish) that the soliciting agent and the medical
examiner had no power to bind the Company by any verbal promise or oral representation. The insured,
therefore, had no right to rely — and we cannot believe he relied in good faith — upon the oral
representation of said agent and medical examiner that he (the applicant) was a fit subject for insurance
notwithstanding that he had been and was still suffering with advanced pulmonary tuberculosis.

QUA CHEE GAN vs. LAW UNION AND ROCK INSURANCE CO., LTD.
G.R. No. L-4611, December 17, 1955
(actually, case ‘to under representation but wala namang mention of representation kasi very rigid yung
discussion on warranties)
FACTS: Qua Chee Gan, a merchant, owns 4 warehouses in Albay. He was using these warehouses to
house crops like copra and hemp. All warehouses, including its merchandise were insured by Law Union
and Rock Insurance for the amount of Php 370,000, with a loss payable clause to PNB, the mortgagee of
the copra and hemp. Further, the insurance states that Qua Chee Gan should install 11 hydrants in the
warehouses’ premises. Qua Chee Gan installed only two, but Law Union nevertheless went on with the
insurance policy and collected premiums from Qua Chee Gan. The insurance contract also provides that
“oil” should not be stored within the premises of the warehouses.
A fire that lasted for a week on June 21, 1940 undermined the property, and Bodegas 1, 3 and 4 were
totally destroyed. The damage caused amounted to Php 398,000. Qua Chee Gan demanded insurance
pay from Law Union but the latter refused as it alleged that after investigation from their part, they found
out that Qua Chee Gan caused the fire. Law Union Qua Chee Gan, with his brother, Qua Chee Pao, and
some employees of his, were indicted and tried in 1940 for Arson but was subsequently acquitted for lack
of evidence. Qua Chee Gan then demanded that Law Union pay accordingly.
This time, Law Union averred that the insurance contract is void, assigning the following errors: (1) The
rider (memo of warranty) requires 11 hydrants to which a particular measurement was provided (1 hydrant
every 150 ft), while petitioner only possessed. 2; (2) violation of hemp warranty against storage of
gasoline since it prohibits “oils”; (3) fire was due to fraud; and, (4) burned bodegas could not possibly have
contained the quantities of copra and hemp stated in the fire claims.
ISSUE/S:
(1) Whether or not the policies should be avoided for the reason that there was a breach of warranty.
(2) Whether or not the insured violated the hemp warranty provision against the storage of gasoline since
insured admitted there were 36 cans of gasoline in Bodega 2, which was a separate structure and not
affected by the fire.
HELD:
(1) NO, under the Memorandum of Warranty, there should be no less than 1 hydrant for each 150 feet of
external wall measurements of the compound, and since bodegas insured had an external wall per meter
of 1640 feet, the insured should have 11 hydrants in the compound. But he only had 2.
Even so, the insurer is barred by estoppel to claim violation of the “fire hydrants warranty”, because
knowing that the number of hydrants it demanded never existed from the very beginning, appellant
nevertheless issued the policies subject to such warranty and received the corresponding premiums. The
insurance company was aware, even before the policies were issued, that in the premises there were only
2 hydrants and 2 others were owned by the Municipality of Tabaco, contrary to the requirements of the
warranties in question. Such fact appears from the positive testimony of the appellant’s representative
Jamiczon; and his denial cannot overcome that proof.
It should be close to conniving at fraud upon the insured to allow the insurer to claim now as void the
policies it issued to the insured, without warning him of the fatal defect, of which the insurer was informed,
and after it had misled the insured into believing that the policies were effective.
Am. Jur.: It is a well-settled rule that the insurer at the time of the issuance of a policy has the knowledge
of existing facts, which if insisted on, would invalidate the contract from its very inception, such knowledge
constitutes a waiver of conditions in the contract inconsistent with known facts, and the insurer is stopped
thereafter from asserting the breach of such conditions.

The reason for the rule is: To allow a company to accept one’s money for a policy of insurance which it
knows to be void and of no effect, though it knows as it must that the insured believes it to be valid and
binding is so contrary to the dictates of honesty and fair dealing, as so closely related to positive fraud, as
to be abhorrent to fair-minded men. It would be to allow the company to treat the policy as valid long
enough to get the premium on it, and leave it at liberty to repudiate it the next moment.
Moreover, taking into account the well-known rule that ambiguities or obscurities must strictly be
interpreted against the party that cause them, the memorandum of warranty invoked by the insurer bars
the latter from questioning the existence of the appliances called for, since its initial expression “the
undernoted appliances for the extinction of fire being kept on the premises insured hereby..” admits of the
interpretation as an admission of the existence of such appliances which insurer cannot now contradict,
should the parole evidence apply.
(2) NO, It is well to note that gasoline is not specifically mentioned among the prohibited articles listed in
the so-called hemp warranty. The clause relied upon by the insurer speaks of “oils”. Ordinarily, oils mean
lubricants (animal and/or vegetable and/or mineral and/or their liquid products having a falsh point below
300 degrees Fahrenheit) and not gasoline or kerosene. Here again, by reason of the exclusive control of
the insurance company over the terms of the contract, the ambiguity must be held strictly against the
insurer and liberally in favor of the insured, specially to avoid a forfeiture.
The court also sees no reason why the prohibition of keeping gasoline in the premises could not be
expressed clearly and unmistakably, in the language public can readily understand, without esoteric
expressions.
Furthermore, the gasoline kept was only incidental to the insured’s business. It is a well settled rule that
keeping of inflammable oils in the premises though prohibited by the policy does NOT void it if such
keeping is incidental to the business. Also, the “hemp warranty” forbade the storage only in the building to
which the insurance applies, and/or in any building communicating therewith; and it is undisputed that no
gasoline was stored in the burnt bodegas and that Bodega No. 2 which was where the gasoline was found
stood isolated from the other bodegas, and which, notably, did not burn.
C. WARRANTIES
E.M. BACHRACH v. BRITISH AMERICAN ASSURANCE COMPANY

G.R. No. L-5715 December 20, 1910
FACTS:
§ July 13, 1908 – E.M. Bachrach filed an action against British American Assurance Company to
recover the sum of Php 9,841.50, the amount due, deducting the salvage upon the fire
insurance policy issued by British American Assurance Company.
§ Fire Policy No. 3007499 can be summarized as follows:
o E.M. Bachrach (the insured) paid to the authorized agent of British American Assurance
Company the sum of 2,000 pesos for insuring against loss or damage by fire several
properties which include the following:
• Ten thousand pesos, on goods, belonging to a general furniture store, such
as
1. Iron and brass bedsteads, toilet tables, chairs, ice boxes, bureaus,
washstands, mirrors, and sea-grass furniture (in accordance with
warranty "D" of the tariff attached hereto)
• The property of the assured, in trust, on commission or for which he is

responsible, whilst stored in the ground floor and first story of house and
dwelling No. 16 Calle Martinez, district 3, block 70, Manila.
o Co-insurance allowed, particulars of which to be declared in the event of loss or claim.
o The company hereby agrees with the insured (but subject to the conditions on the back
hereof, which are to be taken as a part of this policy) that if the property above
described, or any part thereof, shall be destroyed or damaged by fire, at any time
between the 21st day of February, 1908, and 4 o'clock in the afternoon of the 21st day of
February, 1909, or (in case of the renewal of this policy) at any time afterwards, so long
as, and during the period in respect of which the insured shall have paid to the company,
and they shall have accepted, the sum required for the renewal of this policy, the
company will, out of their capital stock, and funds, pay or make good to the insured
the value of the property so destroyed, or the amount of such damage thereto, to
any amount not exceeding, in respect of each or any of the several matters above
specified, the sum set opposite thereto, respectively, and not exceeding in the whole the
sum of ten thousand pesos, and also not exceeding, in any case, the amount of the
insurable interest therein of the insured at the time of the happening of such fire.
o Indorsed on the back of the insurance policy is a Calalac automobile to the extent of
1,250 pesos.
§ British American Assurance Company answered the complaint, admitting some of the facts
alleged by the plaintiff and denying others. It also alleged certain facts under which it claimed that
it was released from all obligations under said policy.
§ SPECIAL FACTS (as alleged by British American Assurance Company):
o E.M. Bachrach maintained a paint and varnish shop in the building where the goods
insured were stored.
o E.M. Bachrach transferred his interest in and to the property covered by the policy to H.
W. Peabody & Co. to secure certain indebtedness due and owing to said company, and
also that the plaintiff had transferred his interest in certain of the goods covered by the
said policy to one Macke, to secure certain obligations assumed by the said Macke for
and on behalf of the insured. That the sanction of the said defendant had not been
obtained by the plaintiff, as required by the said policy.
o April 18, 1908 (and immediately preceding the alleged fire) – E.M. Bachrach placed a
gasoline can containing 10 gallons of gasoline in the upper story of said building in
close proximity to a portion of said goods, wares, and merchandise, which can was
so placed by the plaintiff as to permit the gasoline to run on the floor of said second story,
and after so placing said gasoline, he, the plaintiff, placed in close proximity to said
escaping gasoline a lighted lamp containing alcohol, thereby greatly increasing the risk
of fire.
o E.M. Bachrach made no proof of the loss within the time required by condition five of the
policy. He also did not file a statement with the municipal or any other judge or court
regarding the alleged goods in the building at the time of the alleged fire, and if the goods
were saved or suffered due to the fire.
§ E.M. Bachrach’s contentions:
(1) He had been acquitted in a criminal action against him.
(2) He made no proof of the loss set up in his complaint for the reason that immediately
after he had, on the 20th of April, 1908, given the defendant due notice in writing of
said loss, the defendant, on the 21st of April, 1908, and thereafter on other occasions,
had waived all right to require proof of said loss by denying all liability under the policy
and by declaring said policy to be null and void.
§ The lower court found that British American Assurance Company was liable to plaintiff for the
sum of 9.841.50 pesos with interest for a period of one year at 6% for a total of
10,431.99, with costs.
ISSUES:
(1) Whether or not the court erred in failing to hold that the use of the building, No. 16 Calle Martinez,

as a paint and varnish shop annulled the policy of insurance?
(2) Whether or not the court erred in holding that the policy of insurance was in force at the time of
said fire and that the acts or omissions on the part of the insured which caused or tended to cause
a forfeiture of the policy were waived by the defendant?
(3) Whether or not defendant is entitled to a reduction of his liability because of the Bachrach
automobile which was saved without damage.
HELD:
1. NO. The court did not err in failing to hold that the use of the building, No. 16 Calle
Martinez, as a paint and varnish shop annulled the policy of insurance.
The Supreme Court cited the trial court’s decision which states that:
o It is claimed that either gasoline or alcohol was kept in violation of the policy in the bodega
containing the insured property. The testimony on this point is somewhat conflicting, but
conceding all of the defendant's claims, the construction given to this claim by
American courts would not justify the forfeiture of the policy on that ground.
o The property insured consisted mainly of household furniture kept for the purpose of sale.
The preservation of the furniture in a salable condition by retouching or otherwise was
incidental to the business. The evidence offered by the plaintiff is to the effect that alcohol
was used in preparing varnish for the purpose of retouching, though he also says that the
alcohol was kept in store and not in the bodega where the furniture was.
o It is well settled that the keeping of inflammable oils on the premises, though
prohibited by the policy, does not void it if such keeping is incidental to the
business. Thus, where a furniture factory keeps benzine for the purposes of operation
(Davis vs. Pioneer Furniture Company, 78 N. W. Rep., 596; Faust vs. American Fire
Insurance Company, 91 Wis., 158), or where it is used for the cleaning machinery (Mears
vs. Humboldt Insurance Company, 92 Pa. St., 15; 37 Am. Rep., 647), the insurer can not
on that ground avoid payment of loss, though the keeping of the benzine on the premises
is expressly prohibited.
o These authorities also appear sufficient to answer the objection that the insured
automobile contained gasoline and that the plaintiff on one occasion was seen in the
bodega with a lighted lamp. The first was incidental to the use of the insured article and
the second being a single instance falls within the doctrine of the case last cited.
It may be added that there was no provision in the policy prohibiting the keeping of paints and
varnishes upon the premises where the insured property was stored. If the company intended to
rely upon a condition of that character, it ought to have been plainly expressed in the policy.
2. NO. The court did not err in holding that the policy of insurance was in force at the time of
said fire and that the acts or omissions on the part of the insured which caused or tended
to cause a forfeiture of the policy were waived by the defendant.
o Regardless of the question whether the plaintiff's letter of April 20 was a sufficient
compliance with the requirement that he furnish notice of loss, the fact remains that on the
following day the insurers replied by a letter declaring that the "policies were null and
void," and in effect denying liability. It is well settled by a preponderance of authorities that
such a denial is a waiver of notice of loss, because if the "policies are null and void," the
furnishing of such notice would be vain and useless. Besides, "immediate notice" is
construed to mean only within a reasonable time.
o Much the same may be said as to the objection that the insured failed to furnish to the
insurers his books and papers or to present a detailed statement to the "juez municipal,"
in accordance with article 404 of the Code of Commerce. The last-named provision is
similar to one appearing in many American policies requiring a certificate from a
magistrate nearest the loss regarding the circumstance thereof. A denial of liability on

other grounds waives this requirement, as well as that relating to the production of books
and papers. Besides, the insured might have had difficulty in attempting to comply with
this clause, for there is no longer an official here with the title of "juez municipal."
o Besides the foregoing reasons, it may be added that there was no requirement in the
policy in question that such notice be given.
3. NO. Defendant is not entitled to a reduction of his liability because of the Bachrach
automobile which was saved without damage. The Court believes that is now too late to
raise this question.
o It does not positively appear of record that the automobile in question was not included in
the other policies. It does appear that the automobile was saved and was considered as a
part of the salvaged. It is alleged that the salvage amounted to P4,000, including the
automobile. This amount (P4,000) was distributed among the different insurers and the
amount of their responsibility was proportionately reduced. The defendant and appellant
in the present case made no objection at any time in the lower court to that distribution of
the salvage. The claim is now made for the first time. No reason is given why the
objection was not made at the time of the distribution of the salvage, including the
automobile, among all of the insurers. The lower court had no opportunity to pass upon
the question now presented for the first time. The defendant stood by and allowed the
other insurers to share in the salvage, which he claims now wholly belonged to him. We
think it is now too late to raise the question.
 For all the foregoing reasons, we are of the opinion that the judgment of the lower court should
be affirmed, and it is hereby ordered that judgment be entered against the defendant and in favor
of the plaintiff for the sum of P9,841.50, with interest at the rate of 6 per cent from the 13th of July,
1908, with costs. So ordered.
AMERICAN HOME ASSURANCE COMPANY vs. TANTUCO ENTERPRISES, INC.

G.R. No. 138941, October 8, 2001
FACTS: Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refining industry, and owns
two mills located in Lucena City. Initially, the business started with one oil mill and it was only in 1988
when it began its operations in the new oil mill.
The new oil mills were separately covered by fire insurance policies issued by the petitioner. The first oil
mill was insured for Php 3,000,000 while the new oil mill was insured for Php 6,000,000, both from March
1991-1992.
On September 30, 1991, a fire broke and gutted the new oil mill. Respondent immediately notified the
petitioner of the incident. The latter sent its appraisers who inspected the area. In a letter that came
October 15, 1991, the petitioner rejected the claim on the ground that the description of the establishment
on the insurance referred to another building. Thus, prompting the respondent to file for specific
performance and damages in the RTC, that petitioner accordingly pay the ff: (a) Php 4,406,536.40 for the
loss; (b) Php 80,000 for litigation expenses; (c) Php 300,000 for attorney’s fees. CA also affirmed the
same.
ISSUE: Whether or not the Court of Appeals erred in its legal interpretation of 'Fire Extinguishing
Appliances Warranty' of the policy.
HELD: NO
Rationale:
Petitioner: the oil mill gutted by fire was not the one described by the specific boundaries in the contested
policy.

-‐ What exacerbates respondent's predicament is that it did not have the supposed wrong
description or mistake corrected.
-‐ that respondent is "barred by the parole evidence rule from presenting evidence
-‐ it is also "barred by estoppel from claiming that the description of the insured oil mill in the
policy was wrong, because it retained the policy without having the same corrected before the
fire by an endorsement in accordance with its Condition No. 28."
SC:
(1) 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 that the policy of insurance covers any
building which the parties manifestly intended to insure, however inaccurate the
description may be
(2) 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. This is obvious from the
categorical statement embodied in the policy, extending its protection:
-‐ "On machineries and equipment with complete accessories usual to a coconut oil mill
including stocks of copra, copra cake and copra mills whilst contained in the new oil mill
building, situate (sic) at UNNO. ALONG NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY
UNBLOCKED.''
-‐ If the parties really intended to protect the first oil mill, then there is no need to specify
it as new.
(3) Indeed, it would be absurd to assume that respondent would protect its first oil mill for different
amounts and leave uncovered its second one.
-‐ As mentioned earlier, the first oil mill is already covered under Policy No. 306-7432324-4
issued by the petitioner. It is unthinkable for respondent to obtain the other policy from the
very same company. The latter ought to know that a second agreement over that same realty
results in its over insurance.
(4) As to Parole evidence issue:

-‐ The imperfection in the description of the insured oil mill's boundaries can be attributed to a
misunderstanding between the petitioner's general agent, Mr. Alfredo Borja, and its policy
issuing clerk, who made the error of copying the boundaries of the first oil mill when typing the
policy to be issued for the new one.
-‐ the present case falls within one of the recognized exceptions to the parole evidence
rule. Under the Rules of Court, a party may present evidence to modify, explain or add to
the terms of the written agreement if he puts in issue in his pleading, among others, its
failure to express the true intent and agreement of the parties thereto
-‐ while the contract explicitly stipulated that it was for the insurance of the new oil mill, the
boundary description written on the policy concededly pertains to the first oil mill. This
irreconcilable difference can only be clarified by admitting evidence aliunde, which will explain
the imperfection and clarify the intent of the parties.
(5) As to estoppel issue:

-‐ Evidence on record reveals that respondent's operating manager, Mr. Edison Tantuco,
notified Mr. Borja (the petitioner's agent with whom respondent negotiated for the contract)
about the inaccurate description in the policy.

-‐ However, Mr. Borja assured Mr. Tantuco that the use of the adjective new will distinguish the
insured property. The assurance convinced respondent, despite the impreciseness in the
specification of the boundaries, the insurance will cover the new oil mill
(6) The object of the court in construing a contract is to ascertain the intent of the parties to
the contract and to enforce the agreement which the parties have entered into.
-‐ In determining what the parties intended, the courts will read and construe the policy
as a whole and if possible, give effect to all the parts of the contract, keeping in mind
always, however, the prime rule that in the event of doubt, this doubt is to be resolved
against the insurer.
-‐ In determining the intent of the parties to the contract, the courts will consider the
purpose and object of the contract
(7) Petitioner: claims that respondent forfeited the renewal policy for its failure to pay the full amount
of the premium and breach of the Fire Extinguishing Appliances Warranty.
-‐ The Court of Appeals refused to consider this contention of the petitioner.
-‐ It held that this issue was raised for the first time on appeal, hence, beyond its jurisdiction to
resolve, pursuant to Rule 46, Section 18 of the Rules of Court.
-‐ Petitioner, however, contests this finding of the appellate court. It insists that the issue was
raised in paragraph 24 of its Answer
-‐ SC: The argument fails to impress.
-‐ It is true that the asseverations petitioner made in paragraph 24 of its Answer ostensibly
spoke of the policy's condition for payment of the renewal premium on time and respondent's
non-compliance with it. Yet, it did not contain any specific and definite allegation that
respondent did not pay the premium, or that it did not pay the full amount, or that it did not pay
the amount on time.
-‐ Morever, the issue was never raised during the pre-trial
(8) Petitioner: respondent violated the express terms of the Fire Extinguishing Appliances Warranty.
-‐ The breach occurred when the respondent failed to install internal fire hydrants inside the
burned building as warranted.
-‐ SC: We agree with the appellate court's conclusion that the aforementioned warranty did not
require respondent to provide for all the fire extinguishing appliances enumerated therein.
-‐ Additionally, we find that neither did it require that the appliances are restricted to those
mentioned in the warranty.
-‐ In other words, what the warranty mandates is that respondent should maintain in efficient
working condition within the premises of the insured property, fire fighting equipments such
as, but not limited to, those identified in the list, which will serve as the oil mill's first line of
defense in case any part of it bursts into flame.
IN VIEW WHEREOF, finding no reversible error in the impugned Decision, the instant petition is hereby
DISMISSED.
PRUDENTIAL GUARANTEE AND ASSURANCE INC. VS. TRANS-ASIA SHIPPING LINES, INC
GR No. 151890, June 20, 2006
FACTS:
• This is a consolidated case by Prudential and Trans-Asia Shipping Lines Inc.

• 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.
• 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.
• On October 26, 1993 plaintiff [TRANS-ASIA] filed its notice of claim for damage sustained by the
vessel. This is evidenced by a letter/formal claim of even date. Plaintiff [TRANS-ASIA] reserved its
right to subsequently notify defendant [PRUDENTIAL] as to the full amount of the claim upon
final survey and determination by average adjuster Richard Hogg International (Phil.) of the
damage sustained by reason of fire. An adjuster's report on the fire in question was submitted by
Richard Hogg International together with the U-Marine Surveyor Report
• plaintiff [TRANS-ASIA] executed a document denominated "Loan and Trust receipt", a portion of
which read that Prudential Guarantee and Assurance Inc the sum of 3 Million pesos as loan without
interest repayable only in the event and to the extent that any net recovery is made by Trans-Asia
Shipping Corporation, from any person or persons, corporation or corporations, or other parties, on
account of loss by any casualty for which they may be liable occasioned by the 25 October 1993: Fire
on Board”
• Prudential denied the claim for breach of policy conditions among them, “WARRANTED VESSEL
CLASSED AND CLASS MAINTAINED".
• Trans-Asia filed a complaint for sum of money against Prudential with RTC Cebu seeking
P8,395,072.26 alleging that the same represents the balance of the indemnity due upon the
insurance policy in the total amount of P11,395,072.26. TRANS-ASIA similarly sought interest at 42%
per annum citing Section 243 6 of Presidential Decree No. 1460, otherwise known as the "Insurance
Code," as amended.
• TC: in favor of Prudential. It ruled that a determination of the parties' liabilities hinged on whether
TRANS-ASIA violated and breached the policy conditions on WARRANTED VESSEL CLASSED
AND CLASS MAINTAINED. It interpreted the provision to mean that TRANS-ASIA is required to
maintain the vessel at a certain class at all times pertinent during the life of the policy.
• Citing Section 107 of the Insurance Code, the court a quo ratiocinated that the concealment made by
TRANS-ASIA that the vessel was not adequately maintained to preserve its class was a material
concealment sufficient to avoid the policy and, thus entitled the injured party to rescind the contract
• CA: Reversed. PRUDENTIAL, as the party asserting the non-compensability of the loss had the
burden of proof to show that TRANS- ASIA breached the warranty, which burden it failed to
discharge. PRUDENTIAL cannot rely on the lack of certification to the effect that TRANS-ASIA was
CLASSED AND CLASS MAINTAINED as its sole basis for reaching the conclusion that the warranty
was breached. The Court of Appeals opined that the lack of a certification does not necessarily mean
that the warranty was breached by TRANS-ASIA.
• the Court of Appeals found the subject warranty allegedly breached by TRANS-ASIA to be a rider
which, while contained in the policy, was inserted by PRUDENTIAL without the intervention of
TRANS-ASIA. As such, it partakes of a nature of a contract d'adhesion which should be construed
against PRUDENTIAL, the party which drafted the contract. The renewal of the contract twice must
be deemed a waiver by PRUDENTIAL of any breach of warranty committed by Trans-Asia.
• interpreted the transaction between PRUDENTIAL and TRANS-ASIA as one of subrogation, instead
of a loan. The Court of Appeals concluded that TRANS-ASIA has no obligation to pay back the
amount of P3,000.000.00 to PRUDENTIAL based on its finding that the aforesaid amount was
PRUDENTIAL's partial payment to TRANS-ASIA's claim under the policy. Finally, the Court of
Appeals denied TRANS-ASIA's prayer for attorney's fees, but held TRANS-ASIA entitled to double
interest on the policy for the duration of the delay of payment of the unpaid balance, citing Section
244 of the Insurance Code.
• MR denied
ISSUE: WON erred in ruling that there was no violation of Trans-Asia of a material warranty.

HELD:
A. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the policy condition
on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, as contained in the subject
insurance contract.
In resisting the claim of TRANS-ASIA, PRUDENTIAL posits that TRANS-ASIA violated an express and
material warranty in the subject insurance contract, i.e., Marine Insurance Policy No. MH93/1363,
specifically Warranty Clause No. 5 thereof, which stipulates that the insured vessel, "M/V ASIA KOREA" is
required to be CLASSED AND CLASS MAINTAINED.
According to PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the fire, "M/V ASIA
KOREA" was in violation of the warranty as it was not CLASSED AND CLASS MAINTAINED.
PRUDENTIAL submits that Warranty Clause No. 5 was a condition precedent to the recovery of TRANS-
ASIA under the policy, the violation of which entitled PRUDENTIAL to rescind the contract under Sec. 74
21 of the Insurance Code.
The warranty condition CLASSED AND CLASS MAINTAINED was explained by PRUDENTIAL's Senior
Manager of the Marine and Aviation Division, Lucio Fernandez.
At the outset, it must be emphasized that the party which alleges a fact as a matter of defense has
the burden of proving it. PRUDENTIAL, as the party which asserted the claim that TRANS-ASIA
breached the warranty in the policy, has the burden of evidence to establish the same. Hence, on
the part of PRUDENTIAL lies the initiative to show proof in support of its defense; otherwise, failing to
establish the same, it remains self-serving. Clearly, if no evidence on the alleged breach of TRANS-ASIA
of the subject warranty is shown, a fortiori, TRANS-ASIA would be successful in claiming on the policy. It
follows that PRUDENTIAL bears the burden of evidence to establish the fact of breach.
We sustain the findings of the Court of Appeals that PRUDENTIAL was not successful in discharging the
burden of evidence that TRANS-ASIA breached the subject policy condition on CLASSED AND CLASS
MAINTAINED.
Foremost, PRUDENTIAL, through the Senior Manager of its Marine and Aviation Division, Lucio
Fernandez, made a categorical admission that at the time of the procurement of the insurance contract in
July 1993, TRANS-ASIA's vessel, "M/V Asia Korea" was properly classed by Bureau Veritas
As found by the Court of Appeals and as supported by the records, Bureau Veritas is a classification
society recognized in the marine industry. As it is undisputed that TRANS- ASIA was properly classed at
the time the contract of insurance was entered into, thus, it becomes incumbent upon PRUDENTIAL to
show evidence that the status of TRANS-ASIA as being properly CLASSED by Bureau Veritas had shifted
in violation of the warranty. Unfortunately, PRUDENTIAL failed to support the allegation.
We are in accord with the ruling of the Court of Appeals that the lack of a certification in PRUDENTIAL's
records to the effect that TRANS-ASIA's "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED at
the time of the occurrence of the fire cannot be tantamount to the conclusion that TRANS-ASIA in fact
breached the warranty contained in the policy. With more reason must we sustain the findings of the Court
of Appeals on the ground that as admitted by PRUDENTIAL, it was likewise the responsibility of the
average adjuster, Richards Hogg International (Phils.), Inc., to secure a copy of such certification, and the
alleged breach of TRANS-ASIA cannot be gleaned from the average adjuster's survey report, or
adjustment of particular average per "M/V Asia Korea" of the 25 October 1993 fire on board.
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 TRANS-
ASIA must be allowed to recover its rightful claims on the policy.
B. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL
CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the same.
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 1994 and 1995, respectively.
II. OTHER ISSUES:

A. The amount of P3,000,000.00 granted by PRUDENTIAL to TRANS-ASIA via a transaction
between the parties evidenced by a document denominated as "Loan and Trust Receipt," dated 29
May 1995 constituted partial payment on the policy.
Notwithstanding its designation, the tenor of the "Loan and Trust Receipt" evidences that the real nature of
the transaction between the parties was that the amount of P3,000,000.00 was not intended as a loan
whereby TRANS-ASIA is obligated to pay PRUDENTIAL, but rather, the same was a partial payment or
an advance on the policy of the claims due to TRANS-ASIA.
First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by PRUDENTIAL,

subrogating the former to the extent of "any net recovery made by TRANS ASIA SHIPPING CORP., from
any person or persons, corporation or corporations, or other parties, on account of loss by any casualty for
which they may be liable, occasioned by the 25 October 1993: Fire on Board."
Second, we find that per the "Loan and Trust Receipt," even as TRANS-ASIA agreed to "promptly
prosecute suit against such persons, corporation or corporations through whose negligence the aforesaid
loss was caused or who may otherwise be responsible therefore, with all due diligence" in its name, the
prosecution of the claims against such third persons are to be carried on "at the expense of and under the
exclusive direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE INC." The clear import
of the phrase "at the expense of and under the exclusive direction and control" as used in the "Loan and
Trust Receipt" grants solely to PRUDENTIAL the power to prosecute, even as the same is carried in
the name of TRANS-ASIA, thereby making TRANS-ASIA merely an agent of PRUDENTIAL, the
principal, in the prosecution of the suit against parties who may have occasioned the loss.
Third, per the subject "Loan and Trust Receipt," the obligation of TRANS-ASIA to repay PRUDENTIAL is
highly speculative and contingent.
A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of P8,395,072.26, representing the

balance of the loss suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363.
B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA, damages in the form of attorney's fees
equivalent to 10% of P8,395,072.26.
Sec. 244 of the Insurance Code grants damages consisting of attorney's fees and other expenses
incurred by the insured after a finding by the Insurance Commissioner or the Court, as the case may be,
of an unreasonable denial or withholding of the payment of the claims due. Moreover, the law imposes an
interest of twice the ceiling prescribed by the Monetary Board on the amount of the claim due the insured
from the date following the time prescribed in Section 242 35 or in Section 243, 36 as the case may be,
until the claim is fully satisfied. Finally, Section 244 considers the failure to pay the claims within the time

prescribed in Sections 242 or 243, when applicable, as prima facie evidence of unreasonable delay in
payment.
To the mind of this Court, Section 244 does not require a showing of bad faith in order that attorney's fees
be granted. As earlier stated, under Section 244, a prima facie evidence of unreasonable delay in
payment of the claim is created by failure of the insurer to pay the claim within the time fixed in both
Sections 242 and 243 of the Insurance Code. As established in Section 244, by reason of the delay and
the consequent filing of the suit by the insured, the insurers shall be adjudged to pay damages which shall
consist of attorney's fees and other expenses incurred by the insured. CA found unreasonable dealy.
Further, the aggregate amount (P8,395,072.26 plus 10% thereof as attorney's fees) shall be
imposed double interest in accordance with Section 244 of the Insurance Code. The term "double
interest" as used in the Decision of the Court of Appeals must be interpreted to mean 24% per
annum. The payment of double interest should be counted from September 13, 1996.
Section 243 mandates the payment of any loss or damage for which an insurer may be liable, under any
policy other than life insurance policy, within thirty days after proof of loss is received by the insurer and
ascertainment of the loss or damage is made either by agreement between the insured and the insurer or
by arbitration. It is clear that under Section 243, the insurer has until the 30th day after proof of loss and
ascertainment of the loss or damage to pay its liability under the insurance, and only after such time can
the insurer be held to be in delay, thereby necessitating the imposition of double interest.
In the case at bar, it was not disputed that the survey report on the ascertainment of the loss was
completed by the adjuster, Richard Hoggs International (Phils.), Inc. on 13 August 1996. PRUDENTIAL
had thirty days from 13 August 1996 within which to pay its liability to TRANS-ASIA under the insurance
policy, or until 13 September 1996. Therefore, the double interest can begin to run from 13 September
1996 only.
An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged in
section III herein, computed from the time of finality of judgment until the full satisfaction thereof
in conformity with this Court's ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.
QUA CHEE GAN V. LAW UNION AND ROCK INSURANCE CO. LTD. represented by its agent,
WARNER, BARNES AND CO LTD.
GR NO. L-4611, DEC. 17, 1955
NOTE: SAME FACTS as before. Refer to 12.
ISSUE: WON the Trial Court erred in not holding a breach of warranty specifically of the rider on the face
of the policies.
HELD:
1. VIOLATION OF THE FIRE HYDRANT WARRANTY
It argued that since the bodegas insured had an external wall perimeter of 500 meters or 1,640 feet, the
appellee should have eleven (11) fire hydrants in the compound, and that he actually had only two (2),
with a further pair nearby, belonging to the municipality of Tabaco.
We are in agreement with the trial Court that the appellant 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 appellant
nevertheless issued the policies in question subject to such warranty, and received the
corresponding premiums. It would be perilously close to conniving at fraud upon the insured to allow
appellant to claims now as void ab initio the policies that it had issued to the plaintiff without warning of
their fatal defect, of which it was informed, and after it had misled the defendant into believing that the
policies were effective.

The insurance company was aware, even before the policies were issued, that in the premises insured
there were only two re hydrants installed by Qua Chee Gan and two others nearby, owned by the
municipality of Tabaco, contrary to the requirements of the warranty in question. Such fact appears from
positive testimony for the insured that appellant's agents inspected the premises; and the simple denials
of appellant's representative (Jamiczon) can not overcome that proof. That such inspection was made is
moreover rendered probable by its being a prerequisite for the fixing of the discount on the premium to
which the insured was entitled, since the discount depended on the number of hydrants, and the fire
fighting equipment available.
BASIS OF THE RULING (from American Jurisprudence):

"It is usually held that where the insurer, at the time of the issuance of a policy of insurance, has
knowledge of existing facts which, if insisted on, would invalidate the contract from its very inception, each
knowledge constitutes a waiver of conditions in the contract inconsistent with the known facts, and the
insurer is stopped thereafter from asserting the breach of such conditions. The law is charitable enough to
assume, in the absence of any showing to the contrary, that an insurance company intends to execute a
valid contract in return for the premium received; and when the policy contains a condition which renders it
voidable at its inception, and this result is known to the insurer, it will be presumed to have intended to
waive the conditions and to execute a binding contract, rather than to have deceived the insured into
thinking he is insured when in fact he is not, and to have taken his money without consideration."
RATIONALE:
"The plain, human justice of this doctrine is perfectly apparent. To allow a company to accept one's money
for a policy of insurance which it then knows to be void and of no effect, though it knows as it must, that
the assured believes it to be valid and binding, is so contrary to the dictates of honesty and fair dealing,
and so closely related to positive fraud, as to be abhorrent to fair-minded men. It would be to allow the
company to treat the policy as valid long enough to get the premium on it, and leave it at liberty to
repudiate it the next moment. This cannot be deemed to be the real intention of the parties. To hold that a
literal construction of the policy expressed the true intention of the company would be to indict it, for
fraudulent purposes and designs which we cannot believe it to be guilty of" (Wilson vs. Commercial Union
Assurance Co., 96 Atl. 540, 543-544).
The inequitableness of the conduct observed by the insurance company in this case is heightened by the
fact that after the insured had incurred the expense of installing the two hydrants, the company collected
the premiums and issued him a policy so worded that it gave the insured a discount much smaller than
that he was normally entitled to.
2. VIOLATION OF THE HEMP WARRANTY

… against the storage of gasoline, since appellee admitted that there were 36 cans (latas) of gasoline in
the building designed as "Bodega No. 2" that was a separate structure not affected by the re. It is well to
note that gasoline is not specically mentioned among the prohibited articles listed in the so- called "hemp
warranty." The cause relied upon by the insurer speaks of "oils (animal and/or vegetable and/or mineral
and/or their liquid products having a flash point below 300° Fahrenheit", and is decidedly ambiguous and
uncertain; for in ordinary parlance, "Oils" mean "lubricants" and not gasoline or kerosene. And how many
insured, it may well be wondered, are in a position to understand or determine " ash point below 003°
Fahrenheit. Here, again, by reason of the exclusive control of the insurance company over the
terms and phraseology of the contract, the ambiguity must be held strictly against the insurer and
liberally in favor of the insured, specially to avoid a forfeiture
"If the company intended to rely upon a condition of that character, it ought to have been plainly
expressed in the policy."
This rigid application of the rule on ambiguities has become necessary in view of current business
practices. The courts cannot ignore that nowadays monopolies, cartels and concentrations of capital,
endowed with overwhelming economic power, manage to impose upon parties dealing with them

cunningly prepared "agreements" that the weaker party may not change one whit, his participation in the
"agreement" being reduced to the alternative to take it or leave it" labelled since Raymond Baloilles
"contracts by adherence" (con tracts d'adhesion), in contrast to these entered into by parties bargaining on
an equal footing, such contracts (of which policies of insurance and international bills of lading are prime
examples) obviously call for greater strictness and vigilance on the part of courts of justice with a view to
protecting the weaker party from abuses and imposition, and prevent their becoming traps for the unwarry
The contract of insurance is one of perfect good faith (ufferrimal dei) not for the insured alone, but
equally so for the insurer; in fact, it is mere so for the latter, since its dominant bargaining position
carries with it stricter responsibility.
Another point that is in favor of the insured is that the gasoline kept in Bodega No. 2 was only incidental to
his business, being no more than a customary 2 day's supply for the five or six motor vehicles used for
transporting of the stored merchandise. "It is well settled that the keeping of inflammable oils on the
premises, though prohibited by the policy, does not void it if such keeping is incidental to the business."
K. S. YOUNG vs. THE MIDLAND TEXTILE INSURANCE COMPANY

G.R. No. 9370. March 31, 1915
FACTS:
• K.S. Young conducted a candy and fruit store on the Escolta, in the city of Manila, and occupied a
building at '321 Calle Claveria, as a residence and bodega (storehouse).
• 29th of May, 1912, the defendant, in consideration of the payment of a premium of P60, entered into
a contract of insurance with the plaintiff (policy No. 509105) by the terms of which the defendant
company, upon certain conditions, promised to pay to the plaintiff the sum of P3,000, in case said
residence and bodega and contents should be destroyed by fire.
• One of the conditions of said contract of insurance is found in "warranty B" and is as follows:
"Warranty B. It is hereby declared and agreed that during the pendency of this policy no hazardous
goods be stored or kept for sale, and no hazardous trade or process be carried on, in the building to
which this insurance applies, or in any building connected therewith."
• On the 4th or 5th of February, 1913, the plaintiff placed in said residence and bodega three boxes, 18
by 18 by 20 inches measurement, which belonged to him and which were filled with fireworks.
• On the 18th day of March, 1913, said residence and bodega and the contents thereof were partially
destroyed
• Said reworks had been given to the plaintiff by the former owner of the Luneta Candy Store; that the
plaintiff intended to use the same in the celebration of the Chinese new year; that the authorities of
the city of Manila had prohibited the use of reworks on said occasion, and that the plaintiff then
placed the same in said bodega, where they remained from the 4th or 5th of February, 1913, until
after the re of the 18th of March, 1913.
• Both of the parties agree that said reworks come within the phrase "hazardous goods," mentioned in
said "warranty B" of the policy.
• That said reworks were found in a part of the building not destroyed by the fire; that they in no way
contributed to the fire, or to the loss occasioned thereby.
ISSUE: WON the placing of said reworks in the building insured, under the conditions above enumerated,
they being "hazardous goods," is a violation of the terms of the contract of insurance and especially of
"warranty B
HELD: This leads us to a consideration of the meaning of the word "stored" as used in said "warranty B."
The plaintiff says that he placed said fireworks in the bodega after he had been notified that he could not

use them on the Chinese new year, in order that he might later send them to a friend in the provinces.
Whether a particular article is "stored" or not must, in some degree depend upon the intention of the
parties. The interpretation of the word "stored" is quite di cult, in view of the many decisions upon the
various conditions presented. Nearly all of the cases cited by the lower court are cases where the article
was being put to some reasonable and actual use, which might easily have been permitted by the terms of
the policy, and within the intention of the parties and excepted from the operation of the warranty, like the
present. Said decisions are upon cases like:
1. Where merchants have had or kept the "hazardous" articles in small quantities, and for actual
daily use, for sale, .such as gasoline, gunpowder, etc.;
2. Where such articles have been brought on the premises for actual use thereon, and in small
quantities, such as oil, paints, etc; and
3. Where such articles or goods were used for lighting purposes, and in small quantities.
The author of the Century Dictionary defines the word "store" to be a deposit in a store or warehouse
for preservation or safe keeping; to put away for future use, especially for future consumption; to
place in a warehouse or other place of deposit for safe keeping.
Said definitions, of course, do not include a deposit in a store, in small quantities, for daily use.
"Daily use" precludes the idea of a deposit for preservation or safe keeping, as well as a deposit for future
consumption, or safe keeping.
In the present case no claim is made that the "hazardous goods" were placed in the bodega for present or
daily use. It is admitted that they were placed in the bodega "for future use," or for future consumption, or
for safe keeping. The plaintiff makes no claim that he deposited them there with any other idea than "for
future use" — for future consumption. It seems clear to us that the "hazardous goods" in question were
"stored" in the bodega, as that word is generally defined.
Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy.
The parties have a right to impose such reasonable conditions at the time of the making of the contract as
they may deem wise and necessary. The rate of premium is measured by the character of the risk
assumed. The insurance company, for a comparatively small consideration, undertakes to guarantee the
insured against loss or damage, upon the terms and conditions agreed upon, and upon no other, and
when called upon to pay, in case of loss, the insurer, therefore, may justly insist upon a fulfillment of these
terms. If the insured cannot bring himself within the conditions of the policy, he is not entitled to recover for
the loss. The terms of the policy constitute the measure of the insurer's liability, and in order to recover the
insured must show himself within those terms; and if it appears that the contract has been terminated by a
violation, on the part of the insured, of its conditions, then there can be no right of recovery.
The compliance of the insured with the terms of the contract is a condition precedent to the right of
recovery. If the insured has violated or failed to perform the conditions of the contract, and such a violation
or want of performance has not been waived by the insurer, then the insured cannot recover. Courts are
not permitted to make contracts for the parties. The function and duty of the courts consist simply in
enforcing and carrying out the contracts actually made. While it is true, as a general rule, that contracts of
insurance are construed most favorably to the insured, yet contracts of insurance, like other contracts, are
to be construed according to the sense and meaning of the terms which the parties themselves have
used. If such terms are clear and unambiguous they must be taken and understood in their plain, ordinary
and popular sense.
The conditions of contracts of insurance, when plainly expressed in a policy, are binding upon the parties
and should be enforced by the courts, if the evidence brings the case clearly within their meaning and
intent. It tends to bring the law itself into disrepute when, by astute and subtle distinctions, a plain case is
attempted to be taken without the operation of a clear, reasonable, and material obligation of the contract.

The appellant argues, however, that in view of the fact that the "storing" of the reworks on the premises of
the insured did not contribute in any way to the damage occasioned by the fire, he should be permitted to
recover — that the "storing" of the "hazardous goods" in no way caused injury to the defendant company.
That argument, however, is beside the question, if the "storing" was a violation of the terms of the
contract. The violation of the terms of the contract, by virtue of the provisions of the policy itself,
terminated, at the election of either party, the contractual relations. The plaintiff paid a premium based
upon the risk at the time the policy was issued. Certainly it cannot be denied that the placing of the
firecrackers in the building insured increased the risk. The plaintiff had not paid a premium based
upon the increased risk, neither had the defendant issued a policy upon the theory of a different risk. The
plaintiff was enjoying, if his contention may be allowed, the benefits of an insurance policy upon one risk,
whereas, as a matter of fact, it was issued upon an entirely different risk. The defendant had neither been
paid nor had issued a policy to cover the increased risk. An increase of risk which is substantial and
which is continued for a considerable period of time, is a direct and certain injury to the insurer,
and changes the basis upon which the contract of insurance rests.
Therefore and for the foregoing reasons, the judgment of the lower court is hereby revoked and the
defendant is hereby relieved from any responsibility under said complaint, and, without any finding as to
costs, it is so ordered.
D. OTHER DEVICES
MALAYAN INSURANCE COMPANY v. PAP CO. LTD.

G.R. No. 200784. August 7, 2013

FACTS:
• May 13, 1996 – Malayan issued Fire Insurance Policy No. F-00227-000073 to PAP Co. for the latter's
machineries and equipment located at Sanyo Precision Phils. Bldg., Phase III, Lot 4, Block 15, PEZA,
Rosario, Cavite (Sanyo Building). The insurance is worth P15,000,00 and effective for a period of 1
year, was procured by PAP Co. for Rizal Commercial Banking Corporation (RCBC), the mortgagee of
the insured machineries and equipment.
• Prior to the expiration of the insurance coverage, PAP Co. renewed the policy on an "as is" basis.
Thus a renewal policy, Fire Insurance Policy No. F-00227-000079, was issued by Malayan to PAP
Co. for the period May 13, 1997 to May 13, 1998.
• October 12, 1997 - during the subsistence of the renewal policy, the insured machineries and
equipment were totally lost by fire. Hence, PAP Co. filed a fire insurance claim with Malayan in the
amount insured.
• Malayan basically argues that it cannot be held liable under the insurance contract because PAP
committed concealment, misrepresentation and breach of an affirmative warranty under the renewal
policy when it transferred the location of the insured properties without informing it. Such transfer
affected the correct estimation of the risk which should have enabled Malayan to decide whether it
was willing to assume such risk and, if so, at what rate of premium.
• Contesting the denial, PAP Co. argued that Malayan cannot avoid liability as it was informed of the
transfer by RCBC, the party duty-bound to relay such information. There was also no evidence of any
misrepresentation, concealment or deception on its part and that its claim is not fraudulent.
• RTC - ordered Malayan to pay PAP Co. an indemnity for the loss under the fire insurance policy as
well as for attorney's fees.
o Malayan is liable to indemnify PAP for the loss under the subject fire insurance policy
because, although there was a change in the condition of the thing insured as a result of the
transfer of the subject machineries to another location, said insurance company failed to show
proof that such transfer resulted in the increase of the risk insured against.

o PAP's notice to RCBC sufficiently complied with the notice requirement under the policy
considering that it was RCBC which procured the insurance. PAP acted in good faith in
notifying RCBC about the transfer and the latter even conducted an inspection of the
machinery in its new location.
• CA – affirmed but deleted the award for attorney’s fees.
o Malayan failed to show proof that there was a prohibition on the transfer of the insured
properties during the efficacy of the insurance policy. Malayan also failed to show that its
contractual consent was needed before carrying out a transfer of the insured properties.
However, even if there was such a provision on transfer restrictions of the insured properties,
still Malayan could not escape liability because the transfer was made during the subsistence
of the original policy, not the renewal policy.
ISSUE: WON Malayan is liable for the loss of the insured properties under the fire insurance policy
HELD:
• No, Malayan cannot be held liable for the loss of the insured properties under the fire insurance policy.
• The policy expressly forbade the removal of the insured properties unless sanctioned by Malayan.
o Condition No. 9 (c) of the renewal policy provides:
9. Under any of the following circumstances the insurance ceases to attach as regards the
property affected unless the insured, before the occurrence of any loss or damage, obtains
the sanction of the company signified by endorsement upon the policy, by or on behalf of the
Company:
xxx xxx xxx
(c) If property insured be removed to any building or place other than in that which is herein
stated to be insured.
o Evidently, by the clear and express condition in the renewal policy, the removal of the insured
property to any building or place required the consent of Malayan. Any transfer effected by the
insured, without the insurer's consent, would free the latter from any liability.
• Other devices – Risks can also be limited or controlled using exceptions, exclusions and conditions.
• Conditions – are in the nature of collateral terms. They do not relate to risk covered or statement of
the facts but are in the nature of collateral promises or stipulations. They include:
o Promises or obligations regarding claims procedure that are not fundamental to the validity of
the contract, and
o Conditions referring to the insurer enlarging or repeating the minimum rights provided by law.
Other reasons why Malayan is not liable to pay:

• The respondent failed to notify, and to obtain the consent of, Malayan regarding the removal
• The transfer from the Sanyo Factory to the PACE Factory increased the risk. Under Pace Pacific Mfg.
Corporation this was occupied as factory that repacks silicone sealant to plastic cylinders with a rate
of 0.657% under 6.1.2 A. Hence, there was an increase in the hazard as indicated by the increase in
rate.
• Thus, Malayan is entitled to rescind the insurance contract. 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.

E. INCONTESTABILITY
MANILA BANKERS LIFE INSURANCE CORPORATION V. CRESENCIA ABAN

G.R. NO. 175666. JULY 29, 2013
FACTS:
• July 3, 1993 - Delia Sotero took out a life insurance policy from Bankers Life, designating
respondent Cresencia P. Aban her niece, as her beneficiary. Petitioner issued Insurance Policy No.
747411, with a face value of P100,000 in Sotero's favor on August 30, 1993, after the requisite
medical examination and payment of the insurance premium.
• April 10, 1996 - when the insurance policy had been in force for more than two years and seven
months, Sotero died. Aban filed a claim for the insurance proceeds on July 9, 1996. Bankers Life
conducted an investigation into the claim, and came out with the following findings:
o 1. Sotero did not personally apply for insurance coverage, as she was illiterate;
o 2. Sotero was sickly since 1990;
o 3. Sotero did not have the financial capability to pay the insurance premiums on Insurance
Policy No. 747411;
o 4. Sotero did not sign the July 3, 1993 application for insurance;
o 5. Respondent was the one who filed the insurance application, and designated herself as the
beneficiary.
• Thus, Bankers Life denied the claim and refunded the premiums paid on the policy. Later on, they
filed a civil case for rescission and/or annulment of the policy. They primarily contend that the policy
was obtained by fraud, concealment and/or misrepresentation, thus it is voidable.
• Aban filed a Motion to Dismiss claiming that petitioner's cause of action was barred by prescription
pursuant to Section 48 of the Insurance Code, which provides as follows: 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 rescindible by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.
• RTC – granted the motion to dismiss
• CA – sustained the ruling of RTC
• Bankers Life - Section 48 cannot apply to a case where the beneficiary under the insurance contract
posed as the insured and obtained the policy under fraudulent circumstances. It adds that respondent,
who was merely Sotero's niece, had no insurable interest in the life of her aunt.
ISSUE: WON Bankers Life should give the proceeds of the life insurance policy to Aban / WON the action
is barred by prescription
HELD:
• Yes.
• Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the
insured. 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.
• It gives insurers enough time to inquire whether the policy was obtained by fraud, concealment, or
misrepresentation; on the other hand, it forewarns scheming individuals that their attempts at
insurance fraud would be timely uncovered — thus deterring them from venturing into such nefarious
enterprise. At the same time, legitimate policy holders are absolutely protected from unwarranted

denial of their claims or delay in the collection of insurance proceeds occasioned by allegations of
fraud, concealment, or misrepresentation by insurers, claims which may no longer be set up after the
two-year period expires as ordained under the law.
• Section 48 or the "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."
• As borne by the records, the policy was issued on August 30, 1993, the insured died on April 10,
1996, and the claim was denied on April 16, 1997. The insurance policy was thus in force for a period
of 3 years, 7 months, and 24 days. Considering that the insured died after the two-year period, the
plaintiff-appellant is, therefore, barred from proving that the policy is void ab initio by reason of the
insured's fraudulent concealment or misrepresentation or want of insurable interest on the part of the
beneficiary, herein defendant-appellee.
• Also, petitioner’s 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. "Fraudulent intent on the part of
the insured must be established to entitle the insurer to rescind the contract." In the absence of proof
of such fraudulent intent, no right to rescind arises.
MA. LOURDES FLORENDO V. PHILAM PLANS INC.

G.R. NO. 186983. FEBRUARY 22, 2012
FACTS:
• October 23, 1997 - Manuel Florendo filed an application for comprehensive pension plan with
respondent Philam Plans after some convincing by respondent Perla Abcede. The plan had a pre-
need price of P997,050, payable in 10 years, and had a maturity value of P2,890,000 after 20
years. Manuel signed the application and left to Perla the task of supplying the information needed in
the application. Respondent Ma. Celeste Abcede, Perla's daughter, signed the application as sales
counselor.
• The comprehensive pension plan also provided life insurance coverage to Florendo. This was
covered by a Group Master Policy that Philippine American Life Insurance Company (Philam
Life) issued to Philam Plans. Under the master policy, Philam Life was to automatically provide life
insurance coverage, including accidental death, to all who signed up for Philam Plans' comprehensive
pension plan. If the plan holder died before the maturity of the plan, his beneficiary was to instead
receive the proceeds of the life insurance, equivalent to the pre-need price. Further, the life insurance
was to take care of any unpaid premium until the pension plan matured, entitling the beneficiary to the
maturity value of the pension plan.
• October 30, 1997 - Philam Plans issued Pension Plan Agreement PP43005584 to Manuel, with
petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his quarterly
premiums.
• September 15, 1998 - Manuel died of blood poisoning. Subsequently, Lourdes filed a claim with
Philam Plans Because, Manuel died before his pension plan matured and his wife was to get only the
benefits of his life insurance, Philam Plans forwarded her claim to Philam Life. However, Philam Life
denied the claim for findng out that that Manuel was on maintenance medicine for his heart and had
an implanted pacemaker. Further, he suffered from diabetes mellitus and was taking insulin.
• RTC – Philam Life should pay the proceeds of the insurance. Manuel was not guilty of concealing the
state of his health from his pension plan application.

• CA – reversed the ruling. The insurance policy, being contract of utmost good faith, required Manuel
to disclose to Philam Plans conditions affecting the risk of which he was aware or material facts that
he knew or ought to know.
ISSUE: WON Philam Plans is barred from questioning Florendo’s entitlement to the pension plan
HELD:
• No.
• 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
th
after a year of its issuance. Since Manuel died on the 11 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.
• Moreover, Manuel concealed material information pertinent to the insurance policy.
• Florendo forgets that since Philam Plans waived medical examination for Manuel, it had to rely
largely on his stating the truth regarding his health in his application. For, after all, he knew more
than anyone that he had been under treatment for heart condition and diabetes for more than five
years preceding his submission of that application. But he kept those crucial facts from Philam
Plans.
• Besides, when Manuel signed the pension plan application, he adopted as his own the written
representations and declarations embodied in it. It is clear from these representations that he
concealed his chronic heart ailment and diabetes from Philam Plans.
• 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 of his two other afflictions that needed medical
treatments. Pursuant to Section 27 of the Insurance Code, Manuel's concealment entitles
Philam Plans to rescind its contract of insurance with him.
TAN VS. CA
G.R. NO. 48049 JUNE 29, 1989
FACTS:
• Tan Lee Siong, father of the petitioners, applied for life insurance in the amount of P80k with
Philamlife which was subsequently approved.
• Tan Lee Siong died of hepatoma, where petitioners then filed a claim for the proceeds.
• The company denied petitioners' claim and rescinded the policy by reason of the alleged
misrepresentation and concealment of material facts in Tan’s application of material facts. The
premiums paid on the policy were refunded.
• The petitioners filed a complaint in the Insurance Commission. The latter dismissed the complaint.
• The Court of Appeals dismissed petitioners' appeal from the Insurance Commissioner's decision
for lack of merit. Hence, this petition.

ISSUE: WON Philam did not have the right to rescind the contract of insurance as rescission must
allegedly be done during the lifetime of the insured within two years and prior to the commencement of
action.
HELD: NO.
The Insurance Code states in 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.”
The so-called "incontestability clause" in the second paragraph prevents the insurer from raising the
defenses of false representations 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 2nd paragraph of Section 48 is "for a period of 2years."
The policy was issued on November 6, 1973 –– in force for a period of only 1year and 5months.
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.
The petitioners contend that there could have been no concealment or misrepresentation by their late
father because Tan Lee Siong did not have to buy insurance. He was only pressured by insistent
salesmen to do so.
The legislative answer to the arguments posed by the petitioners is the "incontestability clause" added by
the second paragraph of Section 48 which is in force for two years. 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 live within such period. After this, the defenses of concealment or
misrepresentation no longer lie.
The petitioners argue that no evidence was presented to show that the medical terms were explained in a
layman's language to the insured. They also argue that no evidence was presented by respondent
company to show that the questions appearing in Part II of the application for insurance were asked,
explained to and understood by the deceased so as to prove concealment on his part. This couldn’t be
accepted because the insured signed the form. He affirmed the correctness of all the entries.
The company records show that the deceased was examined by Dr. Victoriano Lim and was found to be
diabetic and hypertensive; the deceased was complaining of progressive weight loss and abdominal pain
and was diagnosed to be suffering from hepatoma. Another physician, Dr. Wenceslao Vitug, testified that
the deceased came to see him for consultation and claimed to have been diabetic for five years.
Because of the concealment made by the deceased of his consultations and treatments for
hypertension, diabetes and liver disorders, respondent company was thus misled into accepting
the risk and approving his application as medically standard and dispensing with further medical
investigation and examination. For as long as no adverse medical history is revealed in the
application form, and applicant for insurance is presumed to be healthy and physically fit and no
further medical investigation or examination is conducted by respondent company.

PHILAMCARE HEALTH SYSTEMS INC. VS. CA
G.R. NO. 125678. MARCH 18, 2002
FACTS:
• Ernani Trinos applied for a health care coverage with Philamcare. He answered no to a question
asking if he or his family members were treated for high blood pressure, heart trouble, diabetes,
cancer, liver disease, asthma or peptic ulcer
• The application was approved for 1 year from March 1, 1988 - March 1, 1989. He was also given
hospitalization benefits and out-patient benefits.
• After the period expired, he was given an expanded coverage for P75k. During the period, he
suffered from heart attack and was confined at Manila Medical Center for 1 month beginning
March 9, 1990.
• The wife tried to claim the benefits while he was confined but the petitioner denied it saying that
he concealed his medical history by answering no to the aforementioned question.
• She had to pay for the hospital bills amounting to P76k.
• Her husband subsequently passed away.
• She filed a case in the trial court for the collection of the amount plus damages. She was awarded
P76k for the bills and P40k for damages.
• The CA affirmed but deleted awards for damages.
• Petitioner brought the instant petition for review, raising the primary argument that a health care
agreement is not an insurance contract; hence the "incontestability clause" under the Insurance
Code does not apply.
• Petitioner argues that the agreement grants "living benefits," such as medical check-ups and
hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of
the agreement until its expiration one-year thereafter. Petitioner also points out that only medical
and hospitalization benefits are given under the agreement without any indemnification, unlike in
an insurance contract where the insured is indemnified for his loss. Moreover, since Health Care
Agreements are only for a period of one year, as compared to insurance contracts which last
longer, petitioner argues that the incontestability clause does not apply, as the same requires an
effectivity period of at least two years. Petitioner further argues that it is not an insurance
company, which is governed by the Insurance Commission, but a Health Maintenance
Organization under the authority of the Department of Health
Issue: WON a health care agreement is not an insurance contract; hence the “incontestability clause”
under the Insurance Code does not apply.
Held: No. Petition dismissed.
Section 2 (1) of the Insurance Code defines a contract of insurance as “an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event.”
Section 3 states: every person has an insurable interest in the life and health:
1) of himself, of his spouse and of his children…
In this case, the husband’s health was the insurable interest. The health care agreement was in the
nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs
hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the
health care provider must pay for the same to the extent agreed upon under the contract.

While petitioner contended that the husband concealed material fact of his sickness, the contract stated
that:
“…Any physician is, by these presents, expressly authorized to disclose or give
testimony at any time relative to any information acquired by him in his professional
capacity upon any question affecting the eligibility for health care coverage of the
Proposed Members.”
This meant that the petitioners required him to sign authorization to furnish reports about his medical
condition. The contract also authorized Philam to inquire directly to his medical history.
Hence, the contention of concealment is not valid.
They cannot also invoke the “Invalidation of agreement” clause where failure of the insured to disclose
information was a grounds for revocation simply because the answer assailed by the company was the
heart condition question based on the insured’s opinion, rather than fact; especially coming from
respondent’s husband who was not a medical doctor, so he cannot accurately gauge his condition ––
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.
“There is a clear distinction between such a case and one in which the insured is fraudulently and
intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually
untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the
intent to deceive the insurer is obvious and amounts to actual fraud –– in such case the insurer is not
justified in relying upon such statement, but is obligated to make further inquiry.”
Fraudulent intent must be proven to rescind the contract. This was incumbent upon the provider.
“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.”
Section 27 of the Insurance Code:
“A concealment entitles the injured party to rescind a contract of insurance.”
As to cancellation procedure, cancellation requires certain 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
None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract
contain limitations on liability, courts should construe them in such a way as to preclude the
insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an
insurance contract are to be construed strictly against the party which prepared the contract —
the insurer.
As to incontestability, the trial court said that “under the title Claim procedures of expenses, the defendant
Philamcare Health Systems Inc. had twelve months from the date of issuance of the Agreement within
which to contest the membership of the patient if he had previous ailment of asthma, and six months from
the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having
expired, the defense of concealment or misrepresentation no longer lie.”

SUN LIFE OF CANADA v. MA. DAISY'S. SIBYA
G.R. No. 211212 June 08, 2016
FACTS:
• Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life insurance with Sun Life where he indicated
that he had sought advice for kidney problems.
• In his application, he stated: "Last 1987, had undergone lithotripsy due to kidney stone under Dr.
Jesus Benjamin Mendoza at National Kidney Institute, discharged after 3 days, no recurrence as
claimed."
• Sun Life approved Atty. Jesus Jr.'s application which indicated that respondents as beneficiaries
and entitles them to a death benefit of P1M should Atty. Jesus Jr. die on or before February 5,
2021, or a sum of money if Atty. Jesus Jr. is still living on the endowment date.
• On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound. As such, Ma. Daisy filed a
Claimant's Statement with Sun Life to seek the death benefits
• Sun Life denied the claim on the ground that the details on Atty. Jesus Jr.'s medical history were
not disclosed in his application. Simultaneously, Sun Life tendered a check representing the
refund of the premiums paid by Atty. Jesus Jr.
• The respondents reiterated their claim against Sun Life. Latter, however, refused to heed the
respondents' requests and instead filed a Complaint for Rescission
• Sun Life alleged that Atty. Jesus Jr. did not disclose in his insurance application his previous
medical treatment at the National Kidney Transplant Institute in May and August of 1994;
accordingly, the undisclosed fact suggested that the insured was in "renal failure" and at a high
risk medical condition. Consequently, had it known such fact, it would not have issued the
insurance policy
• RTC dismissed the complaint and ordered Sun Life to pay the amounts for death benefits and
damages.
• CA affirmed this decision and ruled that the evidence on records show that there was no
fraudulent intent on the part of Atty. Jesus Jr. in submitting his insurance application. Instead, it
found that Atty. Jesus Jr. admitted in his application that he had sought medical treatment for
kidney ailment
ISSUE: WON the CA erred when it affirmed the RTC decision finding that there was no concealment or
misrepresentation when Atty. Jesus Jr. submitted his insurance application with Sun Life.
HELD: No. The petition has no merit.

In Manila Bankers Life Insurance Corporation v. Aban, 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 rescindable 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.
In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Thus, it has two
years from its issuance, to investigate and verify whether the policy was obtained by fraud,
concealment, or misrepresentation. Upon the death of Atty. Jesus Jr., however, on May 11, 2001,

or a mere three months from the issuance of the policy, Sun Life loses its right to rescind the
policy.
Assuming, however, for the sake of argument, that the incontestability period has not yet set in, the Court
agrees, nonetheless, with the CA when it held that Sun Life failed to show that Atty. Jesus Jr. committed
concealment and misrepresentation.
As correctly observed by the CA, Atty. Jesus Jr. admitted in his application his medical treatment for
kidney ailment. Moreover, he executed an authorization in favor of Sun Life to conduct investigation in
reference with his medical history. Records show that in the Application for Insurance, where he admitted
that he had sought medical treatment for kidney ailment. It appears that [Atty. Jesus Jr.] also signed the
Authorization which gave [Sun Life] the opportunity to obtain information on the facts disclosed by [Atty.
Jesus Jr.] in his insurance application.
Given the express language of the Authorization, it cannot be said that [Atty. Jesus Jr.] concealed his
medical history since [Sun Life] had the means of ascertaining [Atty. Jesus Jr.'s] medical record.
With regard to allegations of misrepresentation, we note that [Atty. Jesus Jr.] was not a medical doctor,
and his answer "no recurrence" may be construed as an honest opinion. 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.
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.
F. WAR CLAUSE
MALAYAN INSURANCE CORPORATION vs. THE HON. COURT OF APPEALS and TKC
MARKETING CORPORATION
G.R. No. 119599. March 20, 1997
FACTS:
● Private respondent TKC Marketing Corp. was the owner/consignee of some 3,189.171 metric
tons of soya bean meal which was loaded on board the ship MV Al Kaziemah from the port of Rio
del Grande, Brazil, to the port of Manila. Said cargo was insured against the risk of loss by
petitioner Malayan Insurance Corporation for which it issued two (2) Marine Cargo Policy
● While the vessel was docked in Durban, South Africa on September 11, 1989 enroute to Manila,
the civil authorities arrested and detained it because of a lawsuit on a question of ownership and
possession. As a result, private respondent notified petitioner on October 4, 1989 of the arrest of
the vessel and made a formal claim for the amount of US$916,886.66, for non-delivery of the
cargo. Private respondent likewise sought the assistance of petitioner on what to do with the
cargo.
● Petitioner replied that the arrest of the vessel by civil authority was not a peril covered by the
policies. Private respondent, accordingly, advised petitioner that it might tranship the cargo and
requested an extension of the insurance coverage until actual transhipment, which extension
was approved upon payment of additional premium. The insurance coverage was extended
under the same terms and conditions embodied in the original policies while in the process of
making arrangements for the transhipment of the cargo from Durban to Manila, covering the
period October 4-December 19, 1989.

● However, on December 11, 1989, the cargo was sold in Durban, South Africa, for US$154.40 per
metric ton or a total of P10,304,231.75 due to its perishable nature which could no longer stand a
voyage of twenty days to Manila and another twenty days for the discharge thereof.
● On January 5, 1990, private respondent forthwith reduced its claim to US$448,806.09
representing private respondent's loss after the proceeds of the sale were deducted from the
original claim of $916,886.66 or P20,184,159.55.
● Petitioner’s contention: maintained its position that the arrest of the vessel by civil authorities on
a question of ownership was an excepted risk under the marine insurance policies.
● This prompted private respondent to file a complaint for damages
● TC: The lower court decided in favor of private respondent and required petitioner to pay.
● CA: affirmed the decision of the lower court
○ with the deletion of Clause 12 of the policies issued to private respondent, the same
became automatically covered under subsection 1.1 of Section 1 of the Institute War
Clauses.
○ The arrests, restraints or detainments contemplated in the former clause were those
effected by political or executive acts. Losses occasioned by riot or ordinary judicial
processes were not covered therein.
○ In other words, arrest, restraint or detainment within the meaning of Clause 12 rules
out detention by ordinary legal processes.
○ Hence, arrests by civil authorities, such as what happened in the instant case, is an
excepted risk under Clause 12 of the Institute Cargo Clause or the F.C. & S. Clause.
However, with the deletion of Clause 12 of the Institute Cargo Clause and the consequent
adoption or institution of the Institute War Clauses (Cargo), the arrest and seizure by
judicial processes which were excluded under the former policy became one of the
covered risks.
○ the failure to deliver the consigned goods in the port of destination is a loss compensable,
not only under the Institute War Clause but also under the Theft, Pilferage, and Non-
delivery Clause (TNPD) of the insurance policies, as read in relation to Section 130 of the
Insurance Code
○ Furthermore, the appellate court contended that since the vessel was prevented at an
intermediate port from completing the voyage due to its seizure by civil authorities, a peril
insured against, the liability of petitioner continued until the goods could have been
transhipped. But due to the perishable nature of the goods, it had to be promptly sold to
minimize loss. Accordingly, the sale of the goods being reasonable and justified, it should
not operate to discharge petitioner from its contractual liability.
● Hence this petition
DEFENSES OF INSURED AGAINST REVOCATION; Guaranteed Insurability Clause
ISSUE: WON arrest of the vessel by civil authority was a peril covered by the policies
HELD: YES
● the resolution of this controversy hinges on the interpretation of the "Perils" clause of the subject
policies in relation to the excluded risks or warranty specifically stated therein.
● By way of a historical background, marine insurance developed as an all-risk coverage, using the
phrase "perils of the sea" to encompass the wide and varied range of risks that were covered.The
subject policies contain the "Perils" clause which is a standard form in any marine insurance
policy. Said clause reads:
"Touching the adventures which the said MALAYAN INSURANCE CO., are content to bear, and
to take upon them in this voyage; they are of the Seas; Men-of-War, Fire, Enemies, Pirates,
Rovers, Thieves, Jettisons, Letters of Mart and Counter Mart, Suprisals, Takings of the Sea,
Arrests, Restraints and Detainments of all Kings, Princess and Peoples, of what Nation, condition,
or quality soever, Barratry of the Master and Mariners, and of all other Perils, Losses, and
Misfortunes, that have come to hurt, detriment, or damage of the said goods and merchandise or
any part thereof . AND in case of any loss or misfortune it shall be lawful to the ASSURED, their
factors, servants and assigns, to sue, labour, and travel for, in and about the defence, safeguards,
and recovery of the said goods and merchandises, and ship, & c., or any part thereof, without
prejudice to this INSURANCE; to the charges whereof the said COMPANY, will contribute

according to the rate and quantity of the sum herein INSURED. AND it is expressly declared and
agreed that no acts of the Insurer or Insured in recovering, saving, or preserving the Property
insured shall be considered as a Waiver, or Acceptance of Abandonment. And it is agreed by the
said COMPANY, that this writing or Policy of INSURANCE shall be of as much Force and Effect
as the surest Writing or Policy of INSURANCE made in LONDON. And so the said MALAYAN
INSURANCE COMPANY, INC., are contented, and do hereby promise and bind themselves, their
Heirs, Executors, Goods and Chattel, to the ASSURED, his or their Executors, Administrators, or
Assigns, for the true Performance of the Premises; confessing themselves paid the Consideration
due unto them for this INSURANCE at and after the rate arranged." (Underscoring supplied)
The exception or limitation to the "Perils" clause and the "All other perils" clause in the subject
policies is specifically referred to as Clause 12 called the "Free from Capture & Seizure Clause" or
the F.C. & S. Clause which reads, thus:
"Warranted free of capture, seizure, arrest, restraint or detainment, and the consequences thereof
or of any attempt thereat; also from the consequences of hostilities and warlike operations,
whether there be a declaration of war or not; but this warranty shall not exclude collision, contact
with any fixed or floating object (other than a mine or torpedo), stranding, heavy weather or fire
unless caused directly (and independently of the nature of the voyage or service which the vessel
concerned or, in the case of a collision, any other vessel involved therein is performing) by a
hostile act by or against a belligerent power and for the purpose of this warranty 'power' includes
any authorities maintaining naval, military or air forces in association with power.
Further warranted free from the consequences of civil war, revolution, insurrection, or civil strike
arising therefrom or piracy.
Should Clause 12 be deleted, the relevant current institute war clauses shall be deemed to form
part of this insurance." (Underscoring supplied)
However, the F. C. & S. Clause was deleted from the policies. Consequently, the Institute War
Clauses (Cargo) was deemed incorporated which, in subsection 1.1 of Section 1, provides:
"1. This insurance covers:
1.1 The risks excluded from the standard form of English Marine Policy by the clause warranted
free of capture, seizure, arrest, restraint or detainment, and the consequences thereof of hostilities
or warlike operations, whether there be a declaration of war or not; but this warranty shall not
exclude collision, contact with any fixed or floating object (other than a mine or torpedo),
stranding, heavy weather or fire unless caused directly (and independently of the nature on
voyage or service which the vessel concerned or, in the case of a collision any other vessel
involved therein is performing) by a hostile act by or against a belligerent power; and for the
purpose of this warranty 'power' includes any authority maintaining naval, military or air forces in
association with a power. Further warranted free from the consequences of civil war, revolution,
rebellion, insurrection, or civil strike arising therefrom, or piracy."
● With the incorporation of subsection 1.1 of Section 1 of the Institute War Clauses, however, this
Court agrees with the Court of Appeals and the private respondent that "arrest" caused by
ordinary judicial process is deemed included among the covered risks.
○ This interpretation becomes inevitable when subsection 1.1 of Section 1 of the Institute
War Clauses provided that "this insurance covers the risks excluded from the Standard
Form of English Marine Policy by the clause 'Warranted free of capture, seizure, arrest,
etc. x x x'" or the F.C. & S. Clause.
○ Jurisprudentially, "arrests" caused by ordinary judicial process is also a risk excluded from
the Standard Form of English Marine Policy by the F.C. & S. Clause.
● Petitioner cannot adopt the argument that the "arrest" caused by ordinary judicial process is not
included in the covered risk simply because the F.C. & S. Clause under the Institute War Clauses
can only be operative in case of hostilities or warlike operations on account of its heading
"Institute War Clauses."
○ This Court agrees with the Court of Appeals when it held that ". . . Although the F.C. & S.
Clause may have originally been inserted in marine policies to protect against risks of
war, (see generally G. Gilmore & C. Black, The Law of Admiralty Section 2-9, at 71-73 [2d
Ed. 1975]), its interpretation in recent years to include seizure or detention by civil
authorities seems consistent with the general purposes of the clause, x x x"

○ In fact, petitioner itself averred that subsection 1.1 of Section 1 of the Institute War
Clauses included "arrest" even if it were not a result of hostilities or warlike
operations.
■ In this regard, since what was also excluded in the deleted F.C. & S. Clause was
"arrest" occasioned by ordinary judicial process, logically, such "arrest" would
now become a covered risk under subsection 1.1 of Section 1 of the Institute War
Clauses, regardless of whether or not said "arrest" by civil authorities occurred in
a state of war.
● It has been held that a strained interpretation which is unnatural and forced, as to lead to an
absurd conclusion or to render the policy nonsensical, should, by all means, be avoided.Likewise,
it must be borne in mind that such contracts are invariably prepared by the companies and must
be accepted by the insured in the form in which they are written. Any construction of a marine
policy rendering it void should be avoided.Such policies will, therefore, be construed strictly
against the company in order to avoid a forfeiture, unless no other result is possible from the
language used
● If a marine insurance company desires to limit or restrict the operation of the general
provisions of its contract by special proviso, exception, or exemption, it should express
such limitation in clear and unmistakable language.
○ Obviously, the deletion of the F.C. & S. Clause and the consequent incorporation of
subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) gave rise to ambiguity. If
the risk of arrest occasioned by ordinary judicial process was expressly indicated as an
exception in the subject policies, there would have been no controversy with respect to
the interpretation of the subject clauses.
● Be that as it may, exceptions to the general coverage are construed most strongly against the
company. Even an express exception in a policy is to be construed against the underwriters by
whom the policy is framed, and for whose benefit the exception is introduced.
● An insurance contract should be so interpreted as to carry out the purpose for which the parties
entered into the contract which is, to insure against risks of loss or damage to the goods. Where
restrictive provisions are open to two interpretations, that which is most favorable to the insured is
adopted.
G. DEFENSES AGAINST REVOCATION
REGINA EDILLON, MARCIAL EDILLON vs. MANILA BANKERS LIFE INSURANCE

CORPORATION, CFI-RIZAL, QC
G.R. NO. L-34200 September 30, 1982
FACTS: Sometime in April 1969, Carmen Lapuz applied with respondent insurance corporation for
coverage against accident and injuries. On the application form, dated April 15, 1969, she gave the date
of birth as July 11, 1904. On the same date, she paid the sum of PhP20.00 representing the premium for
which she was issued a receipt and Certificate of Insurance No. 12866 – effective for a period of 90 days.
During the effectivity of said policy, she died in a vehicular accident in the North Diversion Road.
On June 7, 1969, Regina L. Edillon, a sister of the insured, who was named as beneficiary to the policy,
filed her claim for the proceeds of the insurance, submitting all necessary paper and other requisites with
the private respondent.
The insurance company rejected her claims on the ground that the Certificate of Insurance excludes its
liability to pay claims under the policy in behalf of “persons who are under the age of sixteen (16) years of
age or over the age 60 years old.” It pointed out that the insured being over 60 when she applied for

coverage, the policy was null and void, and no risk on the part of the respondent insurance corporation
had arisen therefrom.
The trial court sustained the contention of the Insurance Company and dismissed the complaint. It
reasoned out that a policy of insurance being a contract of adhesion, it was the duty of the insured to
know the terms of the contract he or she is entering into; the insured in this case, upon learning from its
terms that she could not have been qualified under the conditions stated in said contract, what she should
have done is simply to ask for a refund of the premium that she paid. It was further argued by the trial
court that the ruling calling for a liberal interpretation of an insurance contract in favor of the insured and
strictly against insurer may not be applied in the present case in view of the peculiar facts and
circumstance obtaining therein. The petitioner appealed the decision to the Supreme Court on a question
of law.
ISSUE: WON the acceptance by the private respondent corporation of the premium and its issuance of
the corresponding Certificate of Insurance should be deemed a waiver of exclusionary condition of
coverage.
HELD: YES
➢ There was sufficient time for the private respondent to process the application and to notice that
the applicant was over 60 years of age and thereby cancel the policy on that ground if it was
minded to do so. If the private respondent failed to act, it is either because it was willing to waive
such disqualification; or, through the negligence or incompetence of its employees for which it has
only itself to blame, it simply overlooked such fact. Under the circumstances, the insurance
corporation is already deemed in estoppel. Its inaction to revoke the policy despite a
departure from the exclusionary condition contained in the policy constituted a waiver of such
condition.
➢ In "Que Chee Gan vs. Law Union Insurance Co., Ltd.,":
○ It is usually held that where the insurer, at the time of the issuance of a policy of
insurance, has knowledge of existing facts which, if insisted on, would invalidate the
contract from its very inception, such knowledge constitutes a waiver of conditions in the
contract inconsistent with the known facts, and the insurer is stopped thereafter from
asserting the breach of such conditions.
○ The law is charitable enough to assume, in the absence of any showing to the contrary,
that an insurance company intends to execute a valid contract in return for the premium
received; and when the policy contains a condition which renders it voidable at its
inception, and this result is known to the insurer, it will be presumed to have
intended to waive the conditions and to execute a binding contract, rather than to
have deceived the insured into thinking he is insured when in fact he is not, and to have
taken is money without consideration
➢ In Capital Insurance & Surety Co., Inc. vs. Plastic Era Co., Inc. which involved a violation of
the provision of the policy requiring the payment of premiums before the insurance shall become
effective. The company issued the policy upon the execution of a promissory note for the payment
of the premium. A check given subsequent by the insured as partial payment of the premium was
dishonored for lack of funds. Despite such deviation from the terms of the policy, the insurer was
held liable.
○ Reason: although one of conditions of an insurance policy is that "it shall not be valid or
binding until the first premium is paid", if it is silent as to the mode of payment, promissory
notes received by the company must be deemed to have been accepted in payment of
the premium. In other words, a requirement for the payment of the first or initial premium
in advance or actual cash may be waived by acceptance of a promissory note...

QUA CHEE GAN vs. LAW UNION AND ROCK INSURANCE CO., LTD.
G.R. No. L-4611, December 17, 1955
FACTS:
Qua Chee Gan, a merchant, owns 4 warehouses in Albay. He was using these warehouses to house
crops like copra and hemp. All warehouses, including its merchandise were insured by Law Union and
Rock Insurance for the amount of Php 370,000, with a loss payable clause to PNB, the mortgagee of the
copra and hemp. Further, the insurance states that Qua Chee Gan should install 11 hydrants in the
warehouses’ premises. Qua Chee Gan installed only two, but Law Union nevertheless went on with the
insurance policy and collected premiums from Qua Chee Gan. The insurance contract also provides that
“oil” should not be stored within the premises of the warehouses.
A fire that lasted for a week on June 21, 1940 undermined the property, and Bodegas 1, 3 and 4 were
totally destroyed. The damage caused amounted to Php 398,000. Qua Chee Gan demanded insurance
pay from Law Union but the latter refused as it alleged that after investigation from their part, they found
out that Qua Chee Gan caused the fire. Law Union Qua Chee Gan, with his brother, Qua Chee Pao, and
some employees of his, were indicted and tried in 1940 for Arson but was subsequently acquitted for lack
of evidence. Qua Chee Gan then demanded that Law Union pay accordingly.
This time, Law Union averred that the insurance contract is void, assigning the following errors: (1) The
rider (memo of warranty) requires 11 hydrants to which a particular measurement was provided (1 hydrant
every 150 ft), while petitioner only possessed. 2; (2) violation of hemp warranty against storage of
gasoline since it prohibits “oils”; (3) fire was due to fraud; and, (4) burned bodegas could not possibly have
contained the quantities of copra and hemp stated in the fire claims.
ISSUE: WON the policy should be avoided for violation of the ‘fire hydrants warranty’
HELD: NO
➢ We are in agreement with the trial Court that the appellant 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 appellant nevertheless issued the policies in question subject to such warranty, and
received the corresponding premiums.
➢ It would be perilously close to conniving at fraud upon the insured to allow appellant to claims now
as void ab initio the policies that it had issued to the plaintiff without warning of their fatal defect, of
which it was informed, and after it had misled the defendant into believing that the policies were
effective.
➢ The insurance company was aware, even before the policies were issued, that in the premises
insured there were only two fire hydrants installed by Qua Chee Gan and two others nearby,
owned by the municipality of TAbaco, contrary to the requirements of the warranty in question.
Such fact appears from positive testimony for the insured that appellant's agents inspected the
premises; and the simple denials of appellant's representative (Jamiczon) can not overcome that
proof.
➢ The law, supported by a long line of cases, is expressed by American Jurisprudence to be as
follows:
○ It is usually held that where the insurer, at the time of the issuance of a policy of
insurance, has knowledge of existing facts which, if insisted on, would invalidate the
contract from its very inception, such knowledge constitutes a waiver of conditions in the
contract inconsistent with the known facts, and the insurer is stopped thereafter from
asserting the breach of such conditions.

○ The law is charitable enough to assume, in the absence of any showing to the contrary,
that an insurance company intends to execute a valid contract in return for the premium
received; and when the policy contains a condition which renders it voidable at its
inception, and this result is known to the insurer, it will be presumed to have
intended to waive the conditions and to execute a binding contract, rather than to
have deceived the insured into thinking he is insured when in fact he is not, and to have
taken is money without consideration
➢ The inequitableness of the conduct observed by the insurance company in this case is heightened
by the fact that after the insured had incurred the expense of installing the two hydrants, the
company collected the premiums and issued him a policy so worded that it gave the insured a
discount much smaller than that he was normally entitled to.
➢ These considerations lead us to regard the parol evidence rule, invoked by the appellant as not
applicable to the present case. It is not a question here whether or not the parties may vary a
written contract by oral evidence; but whether testimony is receivable so that a party may be,
by reason of inequitable conduct shown, estopped from enforcing forfeitures in its favor,
in order to forestall fraud or imposition on the insure.

Ascertaining and Controlling Risks

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ASCERTAINING AND CONTROLLING RISKS

ISSUE: WON Argente is entitled to the insurance claim.

INSURANCE | Sta. Barbara 1

NG GAN ZEE vs. ASIAN CRUSADER LIFE ASSURANCE CORP

INSURANCE | Sta. Barbara 2

INSURANCE | Sta. Barbara 3

INSURANCE | Sta. Barbara 4

INSURANCE | Sta. Barbara 5

PHILAMCARE HEALTH SYSTEMS, INC. vs. CA, JULITA TRINOS

INSURANCE | Sta. Barbara 6

ISSUE: WON the contention of petitioners as to the concealment was valid.

INSURANCE | Sta. Barbara 7

INSURANCE | Sta. Barbara 8

THE INSULAR LIFE ASSURANCE CO., LTD. v. SERAFIN D. FELICIANO, ET AL.

INSURANCE | Sta. Barbara 9

THE INSULAR LIFE ASSURANCE CO., LTD. v. SERAFIN D. FELICIANO, ET AL.

INSURANCE | Sta. Barbara 10

INSURANCE | Sta. Barbara 11

INSURANCE | Sta. Barbara 12

E.M. BACHRACH v. BRITISH AMERICAN ASSURANCE COMPANY

INSURANCE | Sta. Barbara 13

INSURANCE | Sta. Barbara 14

INSURANCE | Sta. Barbara 15

AMERICAN HOME ASSURANCE COMPANY vs. TANTUCO ENTERPRISES, INC.

INSURANCE | Sta. Barbara 16

(4) As to Parole evidence issue:

(5) As to estoppel issue:

INSURANCE | Sta. Barbara 17

• This is a consolidated case by Prudential and Trans-Asia Shipping Lines Inc.

INSURANCE | Sta. Barbara 18

INSURANCE | Sta. Barbara 19

INSURANCE | Sta. Barbara 20

II. OTHER ISSUES:

First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by PRUDENTIAL,

A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of P8,395,072.26, representing the

INSURANCE | Sta. Barbara 21

NOTE: SAME FACTS as before. Refer to 12.

INSURANCE | Sta. Barbara 22

BASIS OF THE RULING (from American Jurisprudence):

2. VIOLATION OF THE HEMP WARRANTY

INSURANCE | Sta. Barbara 23

K. S. YOUNG vs. THE MIDLAND TEXTILE INSURANCE COMPANY

INSURANCE | Sta. Barbara 24

INSURANCE | Sta. Barbara 25

MALAYAN INSURANCE COMPANY v. PAP CO. LTD.

INSURANCE | Sta. Barbara 26

Other reasons why Malayan is not liable to pay:

INSURANCE | Sta. Barbara 27

MANILA BANKERS LIFE INSURANCE CORPORATION V. CRESENCIA ABAN

INSURANCE | Sta. Barbara 28

MA. LOURDES FLORENDO V. PHILAM PLANS INC.

INSURANCE | Sta. Barbara 29

INSURANCE | Sta. Barbara 30

INSURANCE | Sta. Barbara 31

Held: No. Petition dismissed.

1) of himself, of his spouse and of his children…

INSURANCE | Sta. Barbara 32

Section 27 of the Insurance Code:

“A concealment entitles the injured party to rescind a contract of insurance.”

As to cancellation procedure, cancellation requires certain conditions:

1) Prior notice of cancellation to insured;

INSURANCE | Sta. Barbara 33

HELD: No. The petition has no merit.

INSURANCE | Sta. Barbara 34