TITLE 4 (CONCEALMENT neglect to communicate that which a party Lee jicate, is called a concealment, knows and ought fo commun! Four primary concerns of the parties to an insurance contract. In making a contract, so highly aleatory as that of insurance, the parties have four primary concerns, fo (1) The correct estimation of the risk which enables the villing to assume it, and if so, at (2) The precise delimitation ofthe risk which determines the ‘extent ofthe contingent duty to pay undertaken by the insurer; (3) Such control of the risk after itis assumed as will enable the insurer to guard against the increase of the risk because of change in conditions; and (4) Determining whether a loss occurred and if s amount of such loss. (Vance, op. cit., pp. 364-365.) Devices for ascertainin, risk and loss, In order to effect the Prove to be very difficult, so veral dev’ a concealment, representations, warrant exceptions, have beer z insurance business "SPS by persons 1g and controlling above ends which at times may con: engaged in the ass See. 26 nc to the risk that ® ‘was possessed by the applicant for insurance, so. might be equally capable of forming a just estimate ofits Warranties (see ‘Secs. 67, 68. .) and conditio are affirmative, that dealing cae aes ey inception of the contract, and exceptions are used for the purpose of making more definite and certain the general words used to describe the risk the insurer undertook to bear. I description of the isk concerned has two parts: he had not been subject to the peril of a major operation, or a condition in the form of a stipulation may be inserted in the policy that the policy shall be void should the insured be guilty ant or misrepresentation. Warranties and conditions icts the existence of which shows the risk to be greater than that intended to be assumed and operates to create in the insurer the power to extinguish, if he 50 desires, the legal relations already created. (3) Exceptions perform a similar functior definite the coverage indicated by the gener: risk by excluding certain specified risks that otherwise would have been included under the general language describing the ied. The exception may be of certain property or of within the general coverage, For example: “This icy shall not cover accounts, bills, currency, deeds, eviden« o debt, ‘money of securities; nor unless specifically named hereon in writing, bullion or manuscripts. ; Ina fire insurance policy, burning caused by lightning may be excepted from the risks assumed. eee warranties (Sec. 68.) and conditions, that is, Takings that certain conditions should or a ae ve future, are used to enable the insurer to rescin ESINESANNOTATED See. ag 1p oF THE PHILIP uo THEINSURANCECOD! creased the risk to such an extent in case subsequent events ins The insured may that he is no Tonge remises du ‘will be kept upon the Pr ring warrant that wat ot pe ditions may be inserted to the the caret ike policy shall Become void if any repaits are made upon the building, or the hazard otherwise increased without the written consent of the insurer. oe way, exceptions are also used for Jn a somenhat ditto Forexaple If in any particular inst e rs the consequences of the vacancy of Sapopery jroured, he may, instead of inserting the condition that the entire policy shall be void if the property becomes and remains vacant or unoccupied for a period of 30 days the consent of the insurer, provide that he assumes for loss while such vacancy or unoccupancy remains. the occurrence of the excepted vacancy does 1 any power to rescind the contract which remains in full force and effect. The insurer must also protect himself a claims of loss; nd thishe attempts to do various conditions which take the form For instance, there are conditions req loss or injury and detailed proofs ofl (Gee Secs. 88, 89.); and in a great many policies, there is found a condition requiring that any action thereon shall be brought within a limited time. (see Sec. 63) Tes necessary for the insurer to ascertain not only the of loss, but also the amount of any loss that may inf a have occurred. To secure such protection, the insurer inserts the various conditions providing for the appointment of appraisers, and for arbitration in case no agreement amount of loss. (see Vance, op. cit, pp. sera) me Concealment defined. LL w=” aan saeeeeggumaee e Requisites of concealment, unless: with Section 28, there can be no concealment ) a party knows the fact which case neces fhe neglects to communicate to ee ‘Party concealing is duty bound to disclose such fact (3) such party concealing makes no warranty of the fact concealed; and (4) the other party has not the means of ascertaining the fact concealed J ‘There is a distinction as well as a close relation between concealment and mistepresentation. (see Sec. 46.) Where a warranty is made of the fact concealed, the non-disclosure of such, ig not concealment but constitutes a violation of warranty. le7.) SEC. 27. A concealment whether intentional or unin- tentional entitles the injured party to rescind a contract of insurance. Effect of concealment. (1) By the insured. — As a rule, failure on the party of the insured to disclose conditions affecting the risk, of which he is ‘aware, makes the contract voidable at the insurer’s option. (45 CJS. 153.) The reason is that insurance policies are traditionally contracts uberrimae fidae (Stipeith v. Metropolitan Life Ins. Co. 277 US. 311,), that is, contracts of the utmost good faith, This doctrine i essential on acount of the fact that the fan circu ‘of the subject matter of insurance are, a8 a rul Pease fe esured ony, and the insurer, in deciding whether cor not to accept a risk, must rely primarily upon the inforation supplied to him by the applicant. Itis strictly interpreted Py Oe courts and is not vo material facts which the applica Knows, but extends to those which he ought to know (Dindisdale & McMurdie, op. cit, pp. 85-86.) they being necessary forsce coptor HEFHTUPPINES ANNOTATED S27 12 THEINSURAN sther to charge a higher premium or ete ota pay ce Terfore itisno defense tg torefuse to issue a plead mistake or forgetfulness + de te insurer. — The contractual duty of disclosure aby utmost good faith 8 not required of the insured in sth equal stringency upon the insurer; imposed with egal stinger upon the see (Qua Chee Gan is breached by concealment or misrepresentation. (Secs. 44, tion 27 “entitles” the injured party to rescind a contrat ince by reason of concealment, implying that it is optional on his part whether or not to exercise his right of rescission. ‘The duty of utmost goo Proof of fraud in concealment. this jurisdiction, the legal effect of a con: intentional or unintentional,' is the same, insurer to rescind the contract of insurance, concealment being L 500.27 ‘THE CONTRACT OF INSURANCE ‘ke ¢—~ Concealment 1 defined as “negligence to communicate that which a party knows and ought to communicate.” (Saturnino vs. Phil-American Life Insurance Co,, supra; Great Pacific Life Assurance Co. vs. Court of Appeals, 89 SCRA 543 [1979],) (Q) Reason for the rule. — Moreover, the insurance company to show actu were necessary for to show actual fraud except in the ext rely on an application as containing informat ‘could act. There would be no incentive to an applicant to tell the truth.” (Kasprzyk v. Metropolitan Ins. Co,, 140 N.Y. 211, cited in Saturnino case, supra.) But Section 27 must be read in relation to Section 29. (3) Basis and criterion for provision. — The basis of the rule vitiating the contract in cases of concealment is th: or deceives the insurer into accepting the risk, circumstance withheld does thereby induced to estimate the risk upon a false basis that it does not exist? (see Sec. 31.) ‘The principal question, therefore, must be: “Was the insurer misled or deceived into entering a contract obligation or in premium of insurance by a withholding of material ‘or facts within the assured’s knowledge or presumed ge?” (Argente vs. West Coast Life Ins. Co, 51 Phil. 725 sed upon mumpln dati suntan afecting thet ae ly tte sed tae ean ate ore oualy vr ld Sate alte acs. Fae op SASL)cove INESANNOTATED —g, oF THE PHILIP > 144 THEINSURANCE! EXAMPLE: sant eva Tn is application for life insurance, P did not reveal the {act that he was suffering from an aware ofthe ailment, there is no (1) Whether ornotD wast ment was not material to ‘concealment (Sec. 26.) where the contract. (See. 31) «the alent, then ‘or not D was aware of the ailment, there is con ht nent was material tthe contact {'D was aware of the ailment but honestly believed that twas not material, the concealment is not fraudulent or intentional (©) 1¢D was aware of the ailment, there is fraudulent ‘concealment where the ailment was material to the contract, and D knew or believed that it was material. Rules as to marine insurance. (1) In the United States. — The rule as stated in Section 27 applies only to we insurance. The reason for the contrary ruleis th. surance, “the subject of insurance i general beyor 1 and not open to the inspection of ‘underwriters, often in distant ports or upon the high seas and the underwriter fom the very necesiie undertaking is obliged to rely upon the assured and has, therefore, the right focxact a full disclosure of all the facts known to him which may in any way affect the risk to be assumed.” On the other hand, in fre and other kinds of insurance, may be, seen and inspected before the risk is situation and ordinary hazards (2) In the Philippines, — our jurisdiction, applic fraud is not es ee. 28 ‘THE CONTRACT OF INSURANCE Tile —Conceaiment us ‘Act was taken from Section 330 of the California and it has been held that under this = raion epee absence of an intent to deceive is immaterial. (Gates v. General Casualty Co. of America, 120 F. 2d, 925; N'Y. Life Ins. Co. ¥. Fleck, 12 N.W. 24. 530; Telford v. N.Y. Life Ins. Co, 69 P. 2d. 835; Saturnino vs. Phil. Am. Life Ins. Co, supra.) SEC. 28. Each party to a contract of insurance must ‘communicate to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining, Matters that must be communicated even in the absence of inquiry. (1) Duty of eack party. — This section makes it the duty of ‘each party to a contract of insurance to communicate in good faith all facts within his knowledge only when: ) they are material to the contract (Secs. 31, 34,35.) 1¢ means of ascertaining the said facts (see Secs. 30, 32, 33.);and (©) as to which the party with the duty to communicate makes no warranty. (se Secs. 67-76.) Examples of matters material to contract. —So, an applicant insurance suffering from or who had been treated or i pulmonary tuberculosis (Musngi vs. West Coast . Co,, 61 Phil. 864 [1939]; or peptic ulcer (Yu Pang Cheng vs. Court of Appeals, 105 Phil. 930 [1959]); ot cerebral congestion and Bells Palsy or that his case had been diagnosed as alcoholism or psychoneurosis (Argente vs. West Coast Life Ins. Co,,51 Phil. 725 [1928],);0r cardiovascular disease (St. Ferdinand Memorial Park, Inc. vs. Great Pacific Life Assurance Corp., .C. Case Nov. 20, Jan. 7, 1977.) or sinus tachycardia (sinus initiated; heart rate faster than 100 beats per minute, a common reaction to heart disease) and acute bronchitis (Canilang vs. Court of« PHILIPPINES ANNOTATED sap NSURANCE CODEOF THE PHILP Seay M6 3), or that he was host db i Sunlife Ags” xr to his ay tion for insurance Assan Canada Court ‘of Appeals, 245 SCRA 268 [1995}.), must oath facts even i not inquired into where Such facts aye material tothe risk assumed by the insurer. . (3 — The tests: f the applicant is aware of the exist of Oe icamstanees which he knows would influence the insurer in acting upon his application, good faith requires him to disclose that circumstance, though unasked. (Vance, op. cit, p.372) “Appeals, 223 SCRA 443 [ Effect of failure of insurer to verify. ‘The effect of material concealment cannot be avoided by the allegation that the insurer could have known and discovered the illness or disease which the insured had concealed. This argument postulates an obligation of the insurance ‘company before issuing the policy to verify the statements made by the insured in his application. But there is no such obligation. ‘The insurance company has the right to rely on the statements of the insured as to material facts such as to his previous sick: he ae fats and the matter isnot one isclosure is excu law? (De Leon vs. Crown Life Ins. Co,, [C.A. L-44842, June 20, 1999.) anime SEC. 29. An intentional and fraudul on the part of one insured, to communicé of matters proving or tending to prove ti warranty, entitles the insurer to rescind, a " Cros by hi te the see. 30 ‘THE CONTRACT OF INSURANCE Tile 4 Conceaiment When fraudulent intent necessary, Under this section, the concealment rel 2 “falsit replys lates to the “falsity of a Unlike in ordinary concealment (Sec. 27.) the non-disclosure under Section 29 must be intentional and fraudulent in order that the contract may be rescinded. It is to be noted here that the omission is on the part of the insured and the party entitled to rescind is the insurer. Thus, in every contract of marine insurance, the warranty is implied that the ship is seaworthy (Gecs. 113, 114.), the intentional and fraudulent omission on the part of the insured when applying for a policy to communicate information that his ship is in distress or in special peril would entitle the insurer to rescind because the concealment refers to matters proving or tending to prove the falsity of the warranty that the ship is seaworthy. ‘SEC. 30. Neither party to a contract of insurance is bound to communicate information of the matters following, except in answer to the inquiries of the other: (a) Those which the other knows; (b) Those which, in the exercise of ordinary care, the other ought to know, and of which the former has no reason to suppose him ignorant; (c) Those of which the other waives communication; (d) Those which prove or tend to prove the existence of »xcluded by a warranty, and which are not otherwise material; and ‘Those which relate to a risk excepted from the policy and which are not otherwise material. inject of speci Matters inquiries m: — gener it ‘made the subject of inquiry As sral proposition, matters made i must be deemed material, eventhough otherwise they might not 'm, Fire Ins. Co. v. Throop, 22 Mic beso regarded (North make fll and tre disclosure to a inst required te ered (Gait w in. Co, 49N-Y. 211.) questions asked. (Smit[ESANNOTATED Se, se msuRaNCE CODE OF THEPHILIPIS io ue riky complete answer to make full The fare ofa Sry But ap answer incomplete on its ya he patcy in te absence of bad faith. (Vance, EXAMPLE: suing gsi iF one applying for insurance upon building against fre is ake wheter the property is encumbered and for what ssnount and his answer discloses one mortgage when in fact there are wo, the policy issued thereon is avoided. (Rowne v, Fire Ins. Co, 7 Allen (Mass] 57.) to the same question he merely answers that the of Fifthburg, But on he merely operty is encumbered, without stating Encumbrances the isu ofthe policy without is a waiver of the to state the amou Fayetee Mut. Fire Ins. Co, 1 Allen [Mass.] 63.) When there is no duty to make disclosure. ‘The circumstances of the parties to an insurance contract, or the conditions under which it is executed may be such as to render it unnecessary, in the absence of questions req the insured to disclose to the insurer, facts that bbe material. (Vance, op. ct, p. 381.) Thus: (1) Matters known to, or right tobe ki sclosure. — The insured cannot be penalized for isclose matters already known to th obviously, the insurer cannot say the (2) Risks excepted from the policy. — The insurer cannot complain of the insured’s failu only risks excepted from the warranty, from the liability as & Mersey Marin Ins Co, Gua eto disclose facts that concern Policy, either expressly or by ned under the policy. (Thomas ‘aford Ship Co, [1911] A.C. 529.) see.31 ‘THE CONTRACT OF INSURANCE w “Tiled Concaiment It is important to note, however, that in this case, the undisclosed fact must not be material (Sec. 30d, e}.) for otherwise, the rule will not apply. (3) Nature or amount of insured’s interest. — Also, information of the nature or amount of the interest of one insured need not be communicated unless in answer to an inquiry except as prescribed by Section 51. (Sec. 34.) ‘SEC. 31. Materiality is to be determined not by the ‘event, but solely by the probable and reasoné of the facts upon the due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries. nation of materiality. — The test is in the effect which the tion would have on the making of the contract. To be material, a fact need not increase the risk contribute to any loss or damage suffered. It is sufficient if ledge of it would influence the parties in making the it, p. 375.) The matter must, of course, be ‘When D insured his house against fre, he did not dislose received two letters threatening to set his house did not pay P50,000 to the sender. D's house was ‘by an accidental fie. The insurer can deny Fability — A act is material if the (2) From the standpoint ofthe insurer. — A fact is materi knowledge of it would havea "probable and reasonable influence the insurer in assessing the risk involved and in making eee ether inquires, and cause him either to reject the er premium rate or on different ‘ct may not even remotely contribute to the hich the insurer would become liable, or in 1326; see Argente vs. West Coast any wise affect the rissmguranct CODEOFTHEPHIUPPINESANNOTATED Sec 150 THEINSURAN Life Ins. Co, 51 Phil. 725 (1928; Canilang vs. Court of Appeals, 223 SCRA 443 [1993 (@) Thus, where the applicant concealed the fact that he had pneumonia, diabetes, or syphilis, the policy is avoided although the cause of the death (e., plane crash) be totally unconnected with the material fact concealed or misrepresented. (De Leon vs. Crown Life Ins. Co., [C. 44842, June 20, 1939.) roposed insurance policy or in making inquiries. (Sunlife Aovur Co. of Canada vs. Court of Appeals, 245 SCRA 268 [1995].) (&) The materiality of the existence of other insurance contracts against fire upon the same property insured, when ‘one of the conditions specified in the fire is not open to doubt. (Union Manufacturing Guaranty Co, Inc, 47 SCRA 271 [1973}.) () Innon-medical insurance (which does away, with the usual medical examination before the policy is issued), the waiver by the insurance company of medical examination renders more material, the information required of the applicant concerning the previous condition of health and disease suffered, for such information necessarily constitutes animportant factor which the insurer takes into consideration in deciding whether to issue the pol Phil. American Life Insurance Co. 7 SCI Assur. Co, ii vac {rosa °° Of Canada vs. Court of Appeals, 245 SCRA 268 See 31 ‘THE CONTRACT OF INSURANCE 151 Title 4— Concealment, deceased insured with legal interest from the time payment was made. (A.V. Amor vs. Travellers Life Insurance of the Philippines, LC. Case No, 185, March 7, 197.) (3) When concealment regarded as intentional. — 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. ‘The nature of the facts not conveyed to the insurer may be ilure of the insured to communicate must have mal rather than inadvertent. (Canilang vs. Court of pra.) (a) The concealment by the insured of the fact that he “was operated on for cancer, involving complete removal of the right breast and stayed in the hospital for a period of 8) in itself fraudulent, although the insured’s doctor never told her, that the disease for which she was there could not have been any urnino vs. Phil. American Life Ins. Co,, 7 SCRA 316 [1963].) The withholding by the applicant, father of one- insured, of the fact that his daughter was typically never be ensconced nor the insurance to the contract, ic Life Assn. rt of Appeals, 89 SCRA 543 [1979] ‘The concealment was held intentional on the part of before the insurance the insured] went t his doctor pre concer brought about by his experiencing sinus tachycardia (Canilang vs. Court of Appeals, supra.)se NSURANCE CODE OF THE PHILIPPINES ANNOTATED Se. 3 idence of the uninsurability of a _ at ce coug,cancealment thereof ng round for annulment ofthe policy. (insular Life Assn. Co, vs, Pineda, [C.A.] 40 0.G. 285.) ; (4) Where fact concealed not material. —The insured cannot be guilty of concealment where the fact concealed is not material, ‘Thus, where the insured underwent an ECG (electrocardiogram) test and the results showed a normal condition but he gar ative answer to the question whether twas held tha the failure ofthe insured to reveal the fact did not amount to concealment as would vitiate the contract. Since the result of the test was negative, even i insurer, the same would not have affected its decision to insure the deceased. (E. Agos vs. The Phil. American Life Insurance Co,, LC. Case No. 10, March 11, 1976,) Time when information acquired. Asa corollary to the rule of materiality stated above, it can be ma the sense of req possible th: influence the other in the making of the contract. (1) After contract has become effective. — Therefore, if the contract is already complete and binding before the information in question is acquired, there can be no duty resting upon the in ven though the policy is yet to issue. Wance, op. cit. p. 378.) In other words, concealment must take lace at the time the contract is entered into in order that the Policy may be avoided and not afterwards. The duty of disclosure ends with the completion and effectivity of the contract, The rules different in reinsurance. (sce Sec. 98.) (2) Before contract becomes efectve es effective. — If the contr: effective only upon the issuance of the policy, an spite eine — n applicant f insurance, for instance, is under a duty to disclose to th changes in his health occurring ot coy ‘ between the date of submiting his applica medical examination and the date tipcich v, litan Li Psich v. Metropolitan Life Ins. Co, 277 US, 311.) that no information possessed by one acne ‘a seen 3258 ‘THE CONTRACT OF INSURANCE Ties Concealment ‘SEC. 32. Each party to a contract of insurance is bound to know Matters each party bound to know. Under Section 32, the insured need not communicate public events, such as that a nation is at war or the laws and political conditions in other countries (Beech v. Ins, Co.,7L. Ed. 90 [1800], jance of particular countries, the sources of his information being equally open to the insurer who is, therefore, presumed to know them. Likewise, the insurer is charged with the knowledge of the general trade usages and rules of navigation, kind of seasons, and all the risks connected with navigation. SEC. 33. The right to information of material facts ‘may bo waived, either by the terms of insurance or by neglect to make inquiry as to such facts, where they are information is distinctly implied in other facts of whi ‘communicated. is, by the terms o ly, make inquiry as to the facts already 1e applicant has answered the questions tion, he is justified in assuming that no is desired. (Commonwealth Life Ins. Co. v Reder, 154 S.W. 906.) A waiver is a type of estoppel. EXAMPLE: In an answer to a question, the insured communicated to ‘The insurer the insurer that he had once stayed in a hospital. did not inquire as tothe cause ofthe confinement. th cae th law presumes hat hee implied waver onthe pata he sure of tsright 0 benfomed of he kindANNOTATED See, 4 THEINSURANCE CODE OFTHE PHIPPINES » ILLUSTRATIVE CASES: wer had every means to ascer cause of death of the insured was reveal in her application It appears, however, that answered the questions in the a Knowledge even indicating the addresses and names of persons, laboratories and hospitals when and where she had consultations. Issue: Was the insured guilt of concealment of fact material to the insurance contract? Held: No. The insurer had every mé truth of the mater alge in the ap the insurer to ma te 2. Insured laced su to distinguish between media rat requie completion of a detailed se 4 ‘THE CONTRACT OF INSURANCE Tile 4— Concealment ation was two years ago, Now claims he is comple! er Years ago, Now claims he is completely It appears that the insured’s ailment was diagnosed as “peptic ulcer” for which an operation known as “sub-total as performed; and that the specimen body was “a portion of stomach measuring along the lesser curvature with a diameter of 15cm. along the greatest dimension” ‘Was the insurer, because of insured’s representation, ed into entering the contract of in accepting, fe of premium agreed upon? . In the absence of evidence thatthe insured had medical knowledge as to enable him to distinguish le” and a “tumor” his statement, that ‘associated with peptic ulcer of the stomach” strued as an expression made in good faith of his belief as to the nature of hs ailment and operation. Indeed, such statement must be presumed to have been made by him without knowle t any deliberate inten SEC. 34. Information of the nature or amount of the interest of one insured need not be communicated unless in answer to an inquiry, except as prescribed by Section st. Disclosure of nature and extent rer has asked a noha, the insured would be Und is required that a policy of insurance the information it deems material © ofthe insured in property insured, if he186 THEINSURANCE CODE OFTHEPHILIPPINES ANNOTATED See, 35, is not the absolute owner thereof.” So, a mortgagee must disclose his particular interest even if no inquiry is made by the insurer in relation thereto, Such requirement is made so that the insurer may determine the extent of the insured’s insurable interest. (see Secs. 17, 18) But there is no need to disclose the interest in the property insured absolute. EXAMPLE: A fie insurance policy was issued to D ( described as the owne SEC. 35. Neither party to a contract bound to communicate, even u formation of even upon inqui is own judgment upon the matters inquest Disclosure of judgment in oo ‘upon the matters The duty facts. (Hart were is no duty 8 Wao oF expectation. (Folsom ¥. 237; : ned gee o8 CF 1056; se Sec. 101) TITLES REPRESENTATION ‘SEC. 36. A representation may be oral or written. Representation defined. is a statement made by the insured at the time contract Itmay desires Misrepresentation defined. Misrepresentation’ in insurance is a statement (1) as a fact of something which is untrue, (2) which the insured stated with knowledge that it is untrue and with an intent to deceive, or which he states positively as true without knowing it to be true and which has a tendency to mislead, and (3) where such fact in either case is material to the risk. (43 Am. Jur. 2d 1019.)188 THEINSURANCE CODE OFTHE PHILIPPINES ANNOTATED Sec. 6 Misrepresentation may be viewed as the active form of concealment. Form and nature of representation. (1) Information given concerning risk. — It is the duty of the person applying for insurance to give to the insurer all such information concerning the risk as will be of use to the latter in estimating its character and in determining whether or not to assume it, and the terms on which it will accept in case to do so. This information may be given ot Papers not connected with the contract, su prospectuses, or in the a as circulars and ication or examiner's report, or it may appear in the policy itself. (2) Forms basis of contract. — However communicated, the information thus pen s Riven forms the basis of the contract as @) Intended as cola made to influence teral inducements, — resentatons are the insurer to accept the wh tisk. Being merely () An underwriter who he a steamer cannc Tee sean certian ey get of lertaking was at Sei i ed for ‘ies * and stor tossed e ipl ‘that he had. Rot insured a weasel fs that: phates red a vessel described as $008. 37.38 Bs SURANCE 188 ble for the loss of (2) The insurer of a brick house isnot sme ses nose whines amano 90, bl forthe death of a man who was then 55, even though in every other respect he may answer to the description ofthe person insured (Ibid) But the insurer could not decline to pay for the loss of @ use of ship because the one insured was described as being painted green though otherwise identical in description with the subject ofthe loss. (bid) SEC. 37. A representation may be made at the time of, or before, issuance of the policy. ‘Time when representation may be made. ‘The very nature of representation requires that it precede the execution of the contract. (see Sec. 41.) rty to enter into the contract. However, issuance of the policy. (ee Sec. 39.) langu: hich itis expressed was in answ the agent of chosen by the insurer; if in answer to an inquiry, the incurer usually phrases the answer to a question worded by the insurer. The great number and particularity of the inquiries made and the nature of the information asked, are such that “no160 THE INSURANCE CODEOF THEPHILIPPINES ANNOTATED Sec.39 human being could, with safety, undertake to answer correctly and warrant the correctness of his answers.” (Vance, op. cit., p. 399.) ILLUSTRATIVE CASES: ___L_ Questions sto the useofliquor. —They willbe construed, ifpossible, as referring to habitual use and not to occasional use ‘or even occasional sprees. (Penn. Mutual Life Ins. Co. v. Nunnery, 176 Miss. 197,) 2 Questions as to having any illness. — In a case the insured had stated that he had never had ” local disease or injury in any organ,” it was held tha representation was substantially true despite the fact the insured had been discharged from the army becau lammation of the eyes, which, however, had been entit cured before the application fr the policy. see If itis true that there are “abou ody uhichcomean ete “sbout fity parts ofthe human glands of the skin, etc,” then skin injured ora vein cutat an wh ts is png sept Jams Rep son ae Am. Popular Lif ins. Co, 58 N.Y 357,17 3. Questions as to itn ae am ness or dis en to the 15 The Phil America i ‘medical practitions ih oye) Mm LB nse Coc 1e ce te he ‘The rules referred to i Civil Code on “interpretane to 38 a the provisions o toAricle 179, "ttn of Contacts" om Artes 1590 SEC. 39. A re deemed a promise ment!" 85 to the future is to be statement of belief or ompect appears that it was merely a n. 50.39 THE CONTRACT OF INSURANCE 161 ‘ile — Representation Kinds of representation, ‘A representation may be: (1) oral or written (Sec. 36.); (2) made at the time of issuing the policy or before (Sec. 37.); and (3) affirmative or promissory. (Secs. 39, 42.) (1) An affirmative representation is any allegation as to the existence or non-existence ofa fact when the contract begins. (see Sec, 42.) Thus, the statement of the insured that the house to be insured is used only for residential purposes is an affirmative representation. (2) A promissory representation is any promise to be fulfilled after the contract has come into existence or any statement concerning what is to happen during the existence of the insurance. Nature of promissory representations. The term “promissory representation” i (1) First, itis used to indicate a parol or oral promise made in connection with the insurance, but not incorporated in the policy. The non-performance of such a promise cannot be shown by the insurer in defense to an action on the policy, but proof that the promise was made with fraudulent intent will serve to defeat the insurance; and (2) Secondly, an undertaking by the insured, inserted in the policy, but not specifically made a warrant a “promissory representation.” It is, however, in such a case, merely an executory term of the contract, and not properly a representation. (Vance, op. cit., p- 396.) ‘A promissory representation is, therefore, substantially a condition or a warranty. ised in two senses: EXAMPLE: ‘An applicant for fire insurance on a building makes a promise contained in the policy that it shall be occupied, which Promise induces the insurer to issue the policy at a lower rate. lear that the promise is not representation at a term of the contract, the performance of which may be made a condition of the insurer's liability.162 THEINSURANCE CODE OF THEPHILIPPINES ANNOTATED See. 39 Butif the promises oral, the insurer may not ‘of the rule of evidence for ‘The promise, however, may be proved fora di that is, to prove thatthe insured had made the promise in bad faith Effect on policy of expr of opinion or expect thlbad faith of the insured. — A representatis the expectation, intentio: insured, although false, will not avoid a poli there is no actual fraud in inducing the acceptané rer is not justified in relying upon such a statement, ted to make further inquiry. (43 Am. Jur. 2d 1023; see Philamcare Health Systems, Inc. vs. Court of Appeals, 379 SCRA 356 [2002] (2) Liability ofthe insurer. — As to such represent: ‘g00d faith of the insured furnishes the crt can be false only when the intention, not honestly entertained. (Vance, op the insurer must prove both mater and the latter’s intent to deceive, of fe the ii nec 1 1 - be prove alt and matey fda gar Tee fo and 46. The intent to deceive is presumed f EXAMPLES: (1) The insured may e of acemin vases oon ht Ns hose disease. Here, the insurer knows that ‘may be mistaken but the fact that such o crenata may be of great value tohim in eatimating the risk jut the policy will not be avoj or aro to be erroneous. (see Mouler: sec. 40 ‘THE CONTRACT OF INSURANCE 1 “Tile — Representation @) In response to a question, an applicant for a motor vehicle insurance replied: “I am a very good driver.” The merely an expression of it does not know how to representation of material When representation deemed a mere expression of opinion. An oral representation as to a future event or condition, over th the insured has no control, with reference to property or i ion which . (Bryant ¥. will avoid a contract only when made in bad fait Ocean Ins. Co., 22 Pick [Mass.] 200.) EXAMPLE: ‘Theingured madean ora promise that thebuilding sured shall be occupied. The subsequent to promise ifmade in, Sood tity ‘will not avoid the policy even though the risk be increased by the building's being unoccupied. lity an express tation cannot SEC. 40, A reproser may qualify an provision in a contract of insurance, bul implied warranty. Effect of representation on express provisions of policy. Ee ‘A representation cannot qualify an express provision or an expen enemy na contract of insurance. This sso because a representation is not a part of the contract but only a collateral inducement to it. é ‘Arepresentation, however, may qualify an implied warranty. EXAMI icy expressly provides that the house insured iat) tthe Pa oy epesentaton mae by thelnsared prior to the issuance ofthe policy tothe effect that the house vias used only asa residence is nota defense in the action for recovery ofthe amount of insurancetet -THEINSURANCECODE OF THEPHILPPINES ANNOTATED Sec. 1-4 SEC. 41.A representation may be altered or withdrawn before the insurance is effected, but not afterwards. When representation may be altered or withdrawn. representation, not beinga part of the contract of insurance, may be altered or withdrawn before the contract actually takes effect but not afterwards since the insurer has already by the representation in assuming the risk contemy contract. ‘SEC. 42.A representation must be presumed to referto the date on which the contract goes in effect. Time to which representation refers. Representations refer only to the time of makin As already shown, statements promissory of conditions to exist subsequent to the completion of the contract may be conditions or warranties. They cannot be representation. Hence, conditions represented as existing must be so during the making of the Contract but not necessarily afterwards (Vance, op. and representations found be'withdmeen ae found to be afterwards (See 1) '* emPletion o se representation if it is true at the the time the contract takes effect. the insured Tokyo, when in fact it 2 into effect ofthe cont (presented that his vessel was in ach tn ftoRBkong, but at the taking 'a8 already in Tokyo, there the contract is avoided even if sec. 43 THE CONTRACT OF INSURANCE 1s Til 5— Representation the representation was true at the time it was made, but false at the contract takes effect. ion that the vessel was in Tokyo to the contract the vessel 1eX applied had never suffered SEC. 43, When a person insured has no personal knowledge of afact, hemay nevertheless repeatinformation which he has upon the subject, and which he believes with the explanation that he does so on the of others; or he may submit the information, responsible for its tru of the insured, whose duty it is to give the inform: Effect where information obtained ‘no personal knowledge. If the representation turns out to be false, he is not responsible therefor, provided he gives explanation that he does so on the information of others.165 THEINSURANCE CODE OF THE PHILIPPINES ANNOTATED Sec. 43, Sate 1 knowledge of the cause of i no personal know use of the des ooh eae cause they died ‘when the insured ‘was still an infant, he may report information obtained from friends and relatives, expressly stating that he does not possess knowledge personally but through others. In this case, the insured is not responsible for the truth of the information. (On the other hand, where a party orders insurance, and afterwards receives information material to the risk, or has knowledge of a loss, he ought to communicate it to his agent as soon as, with due and reasonable diligence, it can be com- ‘municated for the purpose of countermanding the order, or laying the circumstances before the insurer. If he omits to do so, the policy is avoided. (M. Lanahen v. Universal Ins. Co., 7 L. Ed. Effect where information obtained from agent of insured/insurer. (1) Agent of the insured, — Eth the truth, EXAMPLE: Acaptain of a cowie wag fe rd shaun to communicate its loss to the yan an insurance on the ship “lost or ignorance of the antecedent loss due to the fraud (oF negligence of the captai poli. Go Proud the isured cannot recover on the fontefine, LR. 2Q.B. 511.) 4 same prep ie the ust be bore in mind that the things, the question does not Sra ‘roach 7 the nature of Sec ‘THE CONTRACT OF INSURANCE “ile 5 — Representation a surer would effect an insurance upon a vessel “lost i” when his agent under a duty of disclosing to the kknew that the vessel had, in fact, arived safely, the insurance would be void, and the insured would be entitled to a return of premium. (Vance, op. cit, p. 383) SEC. 44. A representation is to be deemed false when the facts fail to correspond with its assertions or stipulations. When representation deemed false. Section 44 defines misrepresentation. (see also the definition under Sec. 36.) Unlike in the case of arenot required tobi true. In order that a pol ranties (see Sec. 67,), representations ly true; they need only be substantially shall be avoided, a repr in every particular materi conduct of the insurer would not have been different if the exact truth had been alleged. Where a representation partly fails but is true or ‘with so far as is essential to the risk insured against, the The insured is required to state the exact and jon to all matters that he represents, or i lose. (Sec. 109.) The upon ingui loses or assumes to disc insurer generally relies to a large degree on the statements of the applicant regarding the risk. EXAMPLES: ; Confinement in childbirth is not a “personal ailment” the representation made by a married woman that she had not consulted a physician “in regard to personal ailment ‘years priot to her application. (see Rasicot v. ibors of America, 109 P. 1048. re of insured to include an illness occasioned by a Fal eed comp were Was eld168 THEINSURANCECODEOF THE PHILIPPINES ANNOTATED Sec. 4 have since childhood.” (see Missouri State Life In 256 SW. 46.) ‘Query: But is it not the right of the insurer to determine the nature of the injury or illness or its ultimate effect on the insurable character of the life proposed before deciding ‘whether or not to enter into the contract? (see Sec. 46.) (3) Astatement that the applicant is in good he not to mean that he isin perfect health, but that of any disease of such a serious, permanently. That he is temporasi ‘malady doesnot render his represen ly untrue. {ee Connetut Mut Life Ins. Co. Union Trust Co, 122 US. (4) The reply: “not more than 5,000 kms.” of the insured to the question asked bythe insurer's agent how many kilometers usually drove each year when in fact, as salesman, he drives the car an average of 20,000 kilometers each year, is a misrepresentation, giving the insurer the right to void the policy considering the increas in risks not made known to the Contes Of representation as affirmative. pee ' ta ing ones ay te ch fe Promissory representation (Sec. 30.) when possible, as an afin (see See. 42.)in order eo native PI mn of a present fact *osave the policy from avoidance. EXAMPLE The ir pups ort netball is usd for a cntin The truth ofthe ve wed on the premises. ena aa es buildings put se A%WUent change in the aoc vo tach the (Gee Home Ins, Concrete ato smoking in the premises. 994 Hast v Inscane cg neat eee Coy HS. * ..399,) sec 45 ‘THE CONTRACT OF INSURANCE 168 ‘Tile — Representation SEC. 45. Ifa representation is false In a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time when the representation becomes false.”(a) Effect of falsity of representation. Fraud or intent to misrepresent facts is not essential to entitle the injured party to rescind a contract of insurance on the ground of false representation. ymaterial that a false representation ‘of a material fact risk relied on by the insurer is made in the honest correspond with thi Representations of fact the foundation does not exis, the superstructure does not arise. ‘mball v. Aetna Ins. Co, 9 Allen 540.) In other words, the minds of the parties never meet. EXAMPLES: insurance denied in his app! family had been sick or that he ww that a brother and a sister70 ‘THEINSURANCECODE OF THEPHTUFPINES ANNOTATED Se.45 ILLUSTRATIVE CASE: ‘On the written application she answered “no! With respect tothe applicant or any member of his household . « Has any license oF pe rive any automobile been revoked, suspended, or refused? ‘Actually, M's husband had two previous suspensions of time M applied for insurance, she tative that she would be the only driver and that her husband did not have a driver’ license and ‘would not be driving, M's husband was involved in an accident while driving the insured automobile which resulted in the death of his passenger and injuries to the driver ofthe other automobile. Al State brought an action to have the void, after it leamed for the firs time accident of the previous suspensions o ise Was jsf inasuming thal he ques to her driver's license only? ones Held: No. In risk assumed by the insurer, and ‘upon by the insurer inthe issuance of ‘The untruthfulness of M's s represe wording ofthe guesion was cer (F tony member of is household driving ree of M's represeriations made Insurance Co. « Melon of i, 236 A 2d 402 [Super Ct. Nb See 46 ‘THE CONTRACT OF INSURANCE m Tile — Representation Effect of collusion or fraud of agent of insurer. Collusion with insured. — Ce the insured in misrepresenting policy even though the a i of his authority. (Mutu: When there is collusio principal, and represents him: the insurer is not estopped from avoiding the policy. (Sison vs. Sun Life Assur. Co. of Canada, [C.A.] 47 OG. 1954.) (2) Principal of agent. — Likewise, where the insured merely signed the application form and made the agent of the insurer fill the same for him, it was held that by doing so, the insured made the agent of the insurer his own agent. (Insular Life Assur. Co. vs. Feliciano, 74 Phil. 469 [1943].) But where the insurer required its medical examiner to put the questions and fill out the answers in his own handwriting, the writer of the application is not the agent of the insured. (Wilson v. Conway Ins. Co, 4 RL. 141.) The insurer is liable when its agent writes a false answer into the application without the knowledge of the insured. (45 CJ.S. 179.) jon between the agent vitiate the ing within the apparent scope ¥. Blackwall, 196 $.W. 792.) ‘SEC. 46. The materiality of a representation is deter- mined by the same rules as the materiality of a conceal- ment. Materiality of representation. of materiality. — The materiality of the representation ined not by the event, but solely by the probable question. — Who determines the materiality of the represe insurance company t0 say after the loss has occurred that it would or would not have issued the policy had an answer been truly given. No sound principle of law would permit a determination172 THEINSURANCE CODEOFTHE PHILIPPINES ANNOTATED 5.7 of this question solely upon the say s0 of the company. The ‘matter misrepresented must be of that character which the court can say would reasonably affect the insurer's judgment, ‘No misrepresentation of a mere trifling matter in the aj health if he might honestly be mistaken about it, the statement false so as to avoid the policy, merely because an insurance company says that it would not have issued the policy otherwise. (Volunteer State Life Ins. Co. v. Richardson, 244, $.W. 4) Concealment and misrepresentation compared. (1) In concealment, the insured withholds information of ‘material facts from the insurer, whereas in misrepresentation, the insured makes erroneous statements of facts with the intent of inducing the insurer to enter into the insurance contract. (2) The materiality of a concealment is determined by the ‘same rules as applied in cases of misrepresentati . a A srecines on the part of the insured has the same resentation and give i ight t Foor olor Sives the insurer a right to (4) Whether intentional or not, rescind a contract of insurance representation. Si n good ae icontact Of insurance is said to be one of utmost on concralment ard eos on Pais to the agreement, the rules "presentation apply likewise to the insurer: the injured party is entitled to ‘on ground of concealment or false ‘modification of ofthis chapter apply as well to formation, * °Mtact of insurance as to its original Applicability of Sections 26 og, The provisic . and Sections 35 tod ge ett® 26 t0 35 governing, concealment the original formation ofthe nee PeSentations apply not only © the same during the time ne contt2ct but also to a modification of "sin force. Thus, where the insure! Sec. 48 by a misrepresi point, the insurer 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. insurance made payable on the have been in force during the 1a period of two (2) years from issue or of its last reinstatement, the prove that the policy is void ab initio or is. by reason of the fraudulent concealment or misrepresentation of the insured or his agent. When an insurer must exercise his right to rescind. ‘insurance may be rescinded on first paragraph the existence to an action through false representations, fraud through false rep _ escinded. Hence, the policy was obtained not in the — Under the first paragraph of Section surer may rescind a contract of insurance, x ‘commencement of an wc. In other words, the insurer is no longer ‘contract of insurance after the insured has lect the amount of the insurance. It has been entitled to rescind a174 THEINSURANCE CODE OF THEPHILIPPINES ANNOTATED Sec 4g operates to rescind a contract of insurance. (Argente vs. West Coast Life Ins. Co, 51 Phil. 275 (19271. ) In if policy. — With reference to life insurance contracts, the foregoing rulings should be understood to be qualified by the second paragraph of Section 48, By virtue of the second paragraph, the defenses mentioned are available only during the first two years of a life insurance policy. After the two-year period or when the insured dies within the period, the insurer must make good on the policy even though it was ol by reason of the fraudulent concealment or misrepresent: insured or his agent. stated period are in general use, and are now require: in force in many states. (Vance, of contractual statute be raised by the insurer. testability means that after the requisites are shown to insurer shall be estopped from contesting the policy OF setting up any defense, except as is allowed, on the ground of public poli ii and lack of discrimina takers of insu [Philippines}, tion ultimately work ie and the public in genera ife of Canada Ines Sy 795 seen (Sun Life of Car Theory at i nary and object ofthe incontestable Payments on the insurance, on policy on the ground of fraud. 9 scheming individuals that their att sec. 48 ‘THE CONTRACT OF INSURANCE vs Tle 5— Representation would be timely discovered. (Manila Bankers Life Insurance vs. Aban, 702 SCRA 427 [2012].) AAs to the insurer. — The theory is that an insurer should have a reasonable opportunity to investigate the statements which the applicant makes in procuring his policy and that after sto the insured. — The clause has as its object to give the greatest possible assurance to a policyholder that his beneficiaries would receive payment without question as to the validity of the policy (Newton v. New York Life Ins., 325 F. 2d 498.) or the existence of the coverage once the period of contestabil ; designed to protect the policyholder or beneficiary from a t contesting the validity of the policy after a considerable nce of the facts surrounding the (Note, 62 Harvard L. Rev. 890 the various tactics employed purchase may be unavailabl [1949],) It is a sufficient answer by insurance companies to avoi Requisites for incontestability. Under our law, in order that the insurance shall be incontestable, the following requisites must be present: (1) The po! It is payable on the death of the insured; and It has been in force during the lifetime of the insured for at least two years from its date of issue or of its last reinstatement? (ee Secs. 233[b], 234[b], 2361 is alife insurance policy; "Where diferent dates are concerned, however, this may aot aways be true. For176 THEINSURANCE CODE OF THE PHILIPPINES ANNOTATED Sec. 43 sf two years for contesting a life insurance poli oy et ya eats stipulation. The phrase “during the lifetime” simply means that the policy is no longer considered in force after the insured has died. The key phrase is “for a period of two (2) years.” (Tan vs, ‘Court of Appeals, 174 SCRA 403 (1989].) Effect when policy becomes incontestable. When a policy of life insurance becomes incontestable, the insurer may not refuse to pay the same by claiming that: (2) the policy is void ab initio; or (2) itis rescissible by reason ofthe fraudulent concealment of cr his agent, no matter how patent or well-founded; or ___ (3) itis rescissible by reason of the fraudulent misrepresenta- ‘ions of the insured or his agent. Since the law speaks of a policy in force for two years, the expression “void a initio” should be u “voidable” and the dea the inducement: (see Art. 1338, ‘ode.) In case of reinstated Policy, the period of contestability should be counted from the i = reinstatement and not from the date of the issuance of Policy. A policy of insurance, ater it has lapsed or become forfeited, as for nonpayment of premiums or breach of & seo 48 ‘THE CONTRACT OF INSURANCE 7 Tile 5— Representation warranty or condition, may be revived or reinstated pursuant ied in the policy or the agreement of the - Co, v. Malone, 56 ALR 1075.) of the insured for a period of two years. Hence, his beneficiary cannot recover on the policy. oF not X is dead or alive, the insurer cannot after two years issued. The fraud committed by X is cured by the lapse of the period. he policy is payable not upon the death of the ‘certain period of time, the insurer ca annulment oF rescission. ILLUSTRATIVE CASE: sires approval of eplicaton for reinstatement was made afer ed's death but before her death, insured had alrendy complied for rinstatem Facts: During the pendency of her application for the however, that D, before her death, had already the conditions for reinstatement, namely; insurability (@ Health Statement) Did D's death pending appro for reinstatement operate to avoid the pol Held: No. The approval of her application was merely 4 mechanical act which should be granted upon compliance ‘withthe conditions mentioned. Since in fact, R approved her her application178 THEINSURANCECODEOF THE PHILIPPINES ANNOTATED Sec. 48 a . the original policy is deemed reinstated as of the Retive premium cu shown the policy that, January 14, 1971. ‘The argument that the approval of the application is the effective date of the policy would allow R to determine the effective date and where loss has already occurred, will permit conditions ofthe original policy and The Phil Defenses not barred by incontestable clause. (1) Incontestabitty not absolute policy under the law is not absolute; any person who had procured a be entitled to the ity only deprives sheinawer of those defenses which arise in connection with the formation and operation of the policy prior to loss. (Business Law, Wyatt and Wyatt, 1963 Ed, p. 878,) (2) Grounds to contest incontes contest the policy by way of defense Poli or by ation to rescind thes grounds: 1 — The insurer may still a suit brought upon the on any of the following. (a) That the person taking st eee na the insurance lacked insurable itt eee cause of the death of the insured is an (©) That the pret 233{b], 234(b], 236[b] (@) That the condition ‘or naval service have bi ums have not been paid (Secs. 77; 8 of the policy a on ile ey lating to miliary taken out in furtherance of a scheme t murder the in ser the insured, or where the insured substitutes anotheT Sec. 48 THE CONTRACT OF INSURANCE. 19 “Tie 5— Representation for the medical examination, or where the beneficiary jously kills the insured (Vance, op. cit., pp. 582-583.); (© That the beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy after the loss has happened (see Sec. 248.); or (g) That the action was not brought within the time specified. (see Sec. 63.) pe felonic —000—