GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner, vs.

HONORABLE COURT OF
APPEALS, respondents. G.R. No. L-31845 April 30, 1979 LAPULAPU D. MONDRAGON,
petitioner, vs. HON. COURT OF APPEALS and NGO HING, respondents. G.R. No. L-
31878 April 30, 1979 FIRST DIVISION DECISION J. DE CASTRO

The Case: The two above-entitled cases were ordered consolidated by the Resolution
of SC, because the petitioners in both cases sought similar relief, through these
petitions for certiorari by way of appeal, from the amended decision of the CA which
affirmed in toto the decision of the CFI of Cebu, ordering Great Pacific Life Assurance
Company and Mondragon jointly and severally to pay Ngo Hing the amount of
P50,000.00 with interest at 6% from the date of the filing of the complaint, and the
sum of P1,077.75, without interest.

Facts: Ngo Hing filed an application with the Great Pacific Assurance Company
(Grepalife) for a twenty-year endowment policy in the amount of P50,000.00 on the
life of his one-year old daughter Helen Go. Said respondent supplied the essential
data which petitioner Lapulapu D. Mondragon, Branch Manager of the Grepalife in
Cebu City wrote on the corresponding form in his own handwriting. Mondragon finally
type-wrote the data on the application form which was signed by private respondent
Ngo Hing. The latter paid the annual premuim to the Company, but he retained a
certain amount as his commission for being a duly authorized agent of Grepalife.
Upon the payment of the insurance premium, the binding deposit receipt was issued
to private respondent Ngo Hing. Likewise, petitioner Mondragon handwrote at the
bottom of the back page of the application form his strong recommendation for the
approval of the insurance application. Then Mondragon received a letter from
Grepalife disapproving the insurance application. The letter stated that the said life
insurance application for 20-year endowment plan is not available for minors below
seven years old, but Grepalife can consider the same under the Juvenile Triple Action
Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical Declaration
be sent to the company. The non-acceptance of the insurance plan by Grepalife was
allegedly not communicated by Mondragon to Ngo Hing. Instead, Mondragon wrote
back Grepalife again strongly recommending the approval of the 20-year endowment
insurance plan to children, pointing out that since 1954 the customers, especially the
Chinese, were asking for such coverage. It was when things were in such state that
on May 28, 1957 Helen Go died of influenza with complication of bronchopneumonia.
Thereupon, Ngo Hing sought the payment of the proceeds of the insurance, but
having failed in his effort, he filed the action for the recovery of the same before the
CFI of Cebu, which rendered the adverse decision.

Issues:

(2) whether private respondent Ngo Hing concealed the state of health and physical
condition of Helen Go, which rendered void the aforesaid deposit receipt.

Held:

Relative to the second issue of alleged concealment, the Court is of the firm belief
that private respondent had deliberately concealed the state of health and physical
condition of his daughter Helen Go. Where private respondent supplied the required
essential data for the insurance application form, he was fully aware that his one-year
old daughter is typically a mongoloid child. Such a congenital physical defect could
never be ensconced nor disguised. Nonetheless, private respondent, in apparent bad
faith, withheld the fact material to the risk to be assumed by the insurance company.
As an insurance agent of Grepalife, he ought to know, as he surely must have known.
his duty and responsibility to such a material fact. Had he diamond said significant
fact in the insurance application form Grepalife would have verified the same and
would have had no choice but to disapprove the application outright. The contract of
insurance is one of perfect good faith uberrima fides meaning good faith, absolute
and perfect candor or openness and honesty; the absence of any concealment or
demotion, however slight [Black's Law Dictionary, 2nd Edition], not for the alone but
equally so for the insurer (Field man's Insurance Co., Inc. vs. Vda de Songco, 25
SCRA 70).

Concealment is a neglect to communicate that which a party knows and ought to

communicate (Section 25, Act No. 2427). Whether intentional or unintentional the
concealment entitles the insurer to rescind the contract of insurance (Section 26, Id.:
Yu Pang Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino vs. Philippine
American Life Insurance Company, 7 SCRA 316). Private respondent appears guilty
thereof. The SC held that no insurance contract was perfected between the parties
with the noncompliance of the conditions provided in the binding receipt, and
concealment, as legally defined, having been committed by herein private
respondent.

NG GAN ZEE V. ASIAN CRUSADER LIFE ASSURANCE CORP., G.R. NO. L-

30685, [MAY 30, 1983], 207 PHIL 401-407

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, appellee Ng Gan Zee, as
beneficiary. On the same date, appellant, upon receipt of the required premium from
the insured, approved the application and issued the corresponding policy. On
December 6, 1963, Kwong Nam died of cancer of the liver with metastasis. All
premiums had been religiously paid at the time of his death. prcd

On January 10, 1964, his widow Ng Gan Zee presented a claim in due form to
appellant for payment of the face value of the policy. On the same date, she
submitted the required proof of death of the insured. Appellant denied the claim on
the ground that the answers given by the insured to the questions appearing in his
application for life insurance were untrue.

Appellee brought the matter to the attention of the Insurance Commissioner, the
Hon. Francisco Y. Mandamos, 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. This
opinion of the Insurance Commissioner notwithstanding, appellant refused to settle its
obligation.

Issue: Was Kwang Nam guilty of concealment?

A. NO! There was no concealment since the insurer impliedly waived the
information. The information communicated by Kwang Nam was
imperfect and sufficient to have induced the insurer to make further l
inquiries about the ailment and operation of the insured. The failure of
the insurer to make further inquiries constituted a waiver of imperfection
of the answer and rendered the omission to answer more fully
immaterial. Kwang Nam had informed the insurer's medical examiner
that the tumor for which he was operated on was "associated with ulcer
of stomach". In the absence of evidence that the insured had sufficient
knowledge as to enable him to distinguish between "peptic ulcer"
"tumor", his statement that said tumor was associated with ulcer of
stomach" should be construed as an expression made in good faith of his
belief as to the nature of his ailment and operation.

ISSUE: WON THE RESPONDENT IS LIABLE. 

HELD: YES. CONCEALMENT; EXISTENCE AND NATURE THEREOF. — “Concealment

exists where the assured had knowledge of a fact material to the risk, and honesty,
good faith, and fair dealing requires that he should communicate it to the assurer, but
he designedly and intentionally withholds me same.” It has also been held “that the
concealment must, in the absence of inquiries, be not only material, but fraudulent,
or the fact must have been intentionaly withheld.”

INSURANCE CONTRACT; RESCISSION THEREOF; FRAUDULENT INTENTION

REQUIRED; BURDEN OF PROOF RESTS UPON THE INSURER. — Assuming that the
aforesaid answer given by the insured is false, as claimed by the appellant, Sec. 27 of
the Insurance Law, above-quoted, nevertheless requires that fraudulent intent on the
part of the insured be established to entitle the insurer to rescind the contract. And as
correctly observed by the lower court, “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.”

INSURED’S STATEMENT REGARDING HIS AILMENT; CONSTRUED AS MADE IN GOOD

FAITH IN THE ABSENCE OF PROOF THAT HE HAD SUFFICIENT MEDICAL
KNOWLEDGE THEREOF. — 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.

ISSUE: Whether or not Ng Gan Zee can collect the insurance claim.

HELD: Yes. Asian Crusader was not able to prove that Kwong Nam’s statement that
Insular Life did not deny his insurance renewal with them is untrue. In fact, evidence
showed that in April 1962, Insular Life approved Kwong Nam’s request of
reinstatement only with the condition that Kwong Nam’s plan will be lowered from
P50,000.00 to P20,000.00 considering his medical history.

Kwong Nam did not conceal anything from Asian Crusader. His statement that his
operation, in which a tumor the size of a hen’s egg was removed from his stomach,
was only “associated with ulcer of the stomach” and not peptic ulcer can be
considered 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 Asian Crusader.

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 Asian Crusader to make further inquiries about the ailment and
operation of Kwong Nam. 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.

SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner, v. MA. DAISY'S.

SIBYA, JESUS MANUEL S. SIBYA III, JAIME LUIS S. SIBYA, AND THE
ESTATE OF THE DECEASED ATTY. JESUS SIBYA, JR., Respondents.

FACTS : On January 10, 2001, Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life
insurance with Sun Life. In his Application for Insurance, he indicated that he had
sought advice for kidney problems. On February 5, 2001, Sun Life approved Atty.
Jesus Jr.'s application and issued Insurance Policy No. 031097335. On May 11, 2001,
Atty. Jesus Jr. died as a result of a gunshot wound in San Joaquin, Iloilo. As such, Ma.
Daisy filed a Claimant's Statement with Sun Life to seek the death benefits indicated
in his insurance policy. In a letter dated August 27, 2001, however, Sun Life denied
the claim on the ground that the details on Atty. Jesus Jr.'s medical history were not
disclosed in his application. The respondents reiterated their claim against Sun Life
thru a letter dated September 17, 2001. Sun Life, however, refused to heed the
respondents' requests and instead filed a Complaint for Rescission before the RTC
and prayed for judicial confirmation of Atty. Jesus Jr.'s rescission of insurance policy.
In its Complaint, 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. For their defense, the respondents claimed that Atty.
Jesus Jr. did not commit misrepresentation in his application for insurance. The RTC
held that Atty. Jesus Jr. did not commit material concealment and misrepresentation
when he applied for life insurance with Sun Life. Aggrieved, Sun Life elevated the
case to the CA. The CA affirmed the decision of the RTC. Hence this petition.

ISSUE : Whether or not 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 : In Manila Bankers Life Insurance Corporation v. Aban,22 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. Section 48 serves a noble purpose, as it regulates
the actions of both the insurer and the insured. Under the provision, an insurer is
given two years - from the effectivity of a life insurance contract and while the
insured is alive - to discover or prove that the policy is void ab initio or is rescindible
by reason of the fraudulent concealment or misrepresentation of the insured or his
agent. After the two-year period lapses, or when the insured dies within the period,
the insurer must make good on the policy, even though the policy was obtained by
fraud, concealment, or misrepresentation. This is not to say that insurance fraud must
be rewarded, but that insurers who recklessly and indiscriminately solicit and obtain
business must be penalized, for such recklessness and lack of discrimination
ultimately work to the detriment of bona fide takers of insurance and the public in
general. 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.

Sun Life v. CA - Concealment in Insurance

245 SCRA 268 (1995)

Facts:
>  On April 15, 1986, Bacani procured a life insurance contract for himself from Sun
Life. He was issued a life insurance policy with double indemnity in case of accidental
death. The designated beneficiary was his mother, Bernarda.
>  On June 26, 1987, the insured died in a plane crash. Bernarda Bacani filed a claim
with Sun Life, seeking the benefits of the insurance. Sun Life conducted an
investigation and its findings prompted it to reject the claim.
>  Sun Life discovered that 2 weeks prior to his application, Bacani was examined and
confined at the Lung Center of the Philippines, where he was diagnosed for renal
failure. During his confinement, the deceased was subjected to urinalysis, ultra-
sonography and hematology tests.  He did not reveal such fact in his application.
>  In its letter, Sun Life informed Berarda, that the insured did not disclosed material
facts relevant to the issuance of the policy, thus rendering the contract of insurance
voidable. A check representing the total premiums paid in the amount of P10,172.00
was attached to said letter.
>  Bernarda and her husband, filed an action for specific performance against Sun
Life.  RTC ruled for Bernarda holding that the facts concealed by the insured were
made in good faith and under the belief that they need not be disclosed. Moreover, it
held that the health history of the insured was immaterial since the insurance policy
was "non-medical."   CA affirmed.
Issue:
Whether or not the beneficiary can claim despite the concealment.

Held:
NOPE.
Section 26 of the Insurance Code is explicit in requiring a party to a contract of
insurance to communicate to the other, in good faith, all facts within his knowledge
which are material to the contract and as to which he makes no warranty, and which
the other has no means of ascertaining.

Materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom communication is due, in
forming his estimate of the disadvantages of the proposed contract or in making his
inquiries (The Insurance Code, Sec 31)
The terms of the contract are clear. The insured is specifically required to disclose to
the insurer matters relating to his health. The information which the insured failed to
disclose were material and relevant to the approval and the 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.

Thus, "good faith" is no defense in concealment. The insured's failure to disclose the
fact that he was hospitalized for two weeks prior to filing his application for insurance,
raises grave doubts about his bonafides. It appears that such concealment was
deliberate on his part.

REGINA L. EDILLON, as assisted by her husband, MARCIAL

EDILLON, petitioners-appellants,
vs.
MANILA BANKERS LIFE INSURANCE CORPORATION and the COURT OF
FIRST INSTANCE OF RIZAL, BRANCH V, QUEZON CITY, respondents-appellees.
No. L-34200. September 30, 1982.
VASQUEZ, J.

Rule Synopsis

The issuance of an insurance contract that contains a condition with knowledge

(actual or presumptive) of non-compliance with such condition is deemed waiver of
the same.

Case Summary

Carmen Lapuz had an insurance policy with Manila Bankers Life Insurance Corp, with
her sister, Regina Edillon, as beneficiary. Carmen was 65, y.o. at the time of
application. She also paid the premiums and the insurer issued the certificate of
insurance. This notwithstanding that the exclusionary condition in the policy, i.e. the
insurer should not be held liable 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 of sixty (60)
years.” 45 days after said application for insurance, Carmen died in a vehicular
accident. Thus, Regina filed a claim with Manila Bankers. The latter refused on the
ground that Carmen was already over 60 years old at the time of her application for
insurance.

Regina filed an action before the CFI for the recovery of proceeds.

The CFI ruled against Edillon, holding that Manila Bankers was not liable. The CA
certified the case to SC. The SC reversed.

Issues resolved —

1. Should the acceptance by Manila Bankers of the

premium and the issuance of the corresponding certificate
of insurance be deemed a waiver of the exclusionary
condition of overage (over 60 y.o.) stated in the
certificate of insurance?

HELD – YES, MANILA BANKERS IS ESTOPPED.

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Carmen did not conceal her real age. It was clearly indicated that she was 65 y.o. at
the time of filing the application for insurance. Such information was prominent and
material to the application. Yet, Manila Bankers issued the certificate of insurance
without question upon Carmen’s payment of the premium.

As Carmen died 45 days after her application for insurance, Manila Bankers had
enough time to process the application and notice that Carmen was over 60 y.o., it
could have cancelled the policy but it did not. If Manila Bankers 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. Such inaction constitutes waiver of the exclusionary condition.

The SC cited two cases to support its conclusion:

Que Chee Gan vs. Law Union Insurance Co., Ltd.

This case involves a fire insurance policy, which requires, among others, that the
bodega insured should have 11 fire hydrants. Yet the insurance policy was issued
despite it having only 2. In this case, the SC ruled that there was a waiver of the
requirement as to the number of the hydrants, since the insurer, at the time of the
issuance of the policy knew of the fact that the bodega in question only had 2
hydrants. It said:

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.

Capital Insurance & Surety Co., Inc. vs. Plastic Era Co., Inc.

This case involves an insurance policy with a condition that it shall not take effect
unless the premium had been paid. The insured executed a promissory as such
payment which the insurer accepted. The Court held here, that by acceptance of the
promissory note, the insurer is estopped from claiming that the insurance had not yet
taken effect. It said: 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.

Philamcare vs. CA
PHILAMCARE HEALTH SYSTEMS, INC., petitioner,
vs.
COURT OF APPEALS and JULITA TRINOS, respondents.

G.R. No. 125678

March 18, 2002

DOCTRINES:
1. the insurable interest of respondents husband in obtaining the health care
agreement was his own health. 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.
2. The question relating to an applicant’s medical history largely depends on
opinion, rather than fact, especially coming from Ernani, who was not a
medical doctor. Where matters of opinion are called for, answers made in
good faith and without intent to deceive will not avoid a policy even though
 they are untrue.

FACTS:
Ernani Trinos, deceased, husband of respondent Julita Trinos applied for a health care
coverage with petitioner Philamcare Health Systems Inc. In the application form, he
answered “NO” to the question – “Have you or any family member ever consulted or
been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease,
asthma or peptic ulcer?”

The application for was approved for a period of one year, from March 1, 1988 to
March 1, 1989, and he was issued Health Care Agreement, wherein the husband
Ernani was entitled to avail of hospitalization benefits; out patient benefits such as
annual physical examinations and preventive health cared.

The agreement was extended with the coverage amount increasing to P75,000 per
disability. During the period, Ernani suffered a heart attack and was confined in
Manila Medical Center (MMC) for one month. While he was at the hospital, Julita tried
to claim the benefits under the health care agreement, but Philamcare denied liability
saying that such was void. Apparently, Ernani concealed his medical history since the
Manila Medical doctors discovered that he was hypertensive, diabetic and asthmatic,
which was contrary to his answer in the application form. Julita paid the expenses
amounting to P76,000.

RTC: ruled in favor of Julita; ordered Philamcare to pay and reimburse the medical
expenses + Moral Damages + exemplary damages.
CA: affirmed RTC decision in favor of Julita but removed the damages.

ISSUES:
(1) Whether or not a health care agreement is an insurance contract.

(2) Whether or not the alleged concealment avoided the agreement.

HELD:
(1) YES.
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. An insurance
contract exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated
peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk; and
5. In consideration of the insurers promise, the insured pays a premium
Section 3 of the Insurance Code states that any contingent or unknown event,
whether past or future, which may damnify a person having an insurable interest
against him, may be insured against. Every person has an insurable interest in the life
and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:

1. of himself, of his spouse and of his children;

2. of any person on whom he depends wholly or in part for education or
support, or in whom he has a pecuniary interest;
3. of any person under a legal obligation to him for the payment of money,
respecting property or service, of which death or illness might delay or
prevent the performance; and
4. of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of respondents husband in obtaining the
health care agreement was his own health. 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.
(2) NO.
The question relating to an applicant’s medical history largely depends on opinion,
rather than fact, especially coming from Ernani, who was not a medical doctor. Where
matters of opinion are called for, answers made in good faith and without intent to
deceive will not avoid a policy even though they are untrue.

Thus, 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. 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.

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.

Under Section 27 of the Insurance Code, a concealment entitles the injured party to
rescind a contract of insurance. The right to rescind should be exercised previous to
the commencement of an action on the contract. In this case, no rescission was
made. Besides, the cancellation of health care agreements as in insurance policies
require the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of
one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown
in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance
Code and upon request of insured, to furnish facts on which cancellation is
based
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.  By reason of the exclusive
control of the insurance company over the terms and phraseology of the insurance
contract, ambiguity must be strictly interpreted against the insurer and liberally in
favor of the insured, especially to avoid forfeiture. This is equally applicable to Health
Care Agreements. The phraseology used in medical or hospital service contracts, such
as the one at bar, must be liberally construed in favor of the subscriber, and if
doubtful or reasonably susceptible of two interpretations the construction conferring
coverage is to be adopted, and exclusionary clauses of doubtful import should be
strictly construed against the provider
As to incontestability:
Under the title Claim procedures of expenses, the 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.

As to Julita being the proper claimant:

Finally, petitioner alleges that respondent was not the legal wife of the deceased
member considering that at the time of their marriage, the deceased was previously
married to another woman who was still alive. The health care agreement is in the
nature of a contract of indemnity. Hence, payment should be made to the party who
incurred the expenses. She paid all the hospital and medical expenses. She is
therefore entitled to reimbursement.

PACIFIC BANKING CORPORATION, petitioner,

vs.
COURT OF APPEALS and ORIENTAL ASSURANCE
CORPORATION, respondents.
No. L-41014. November 28, 1988.
PARAS, J.

Rule Synopsis

Fraud in material representations of fact avoids the perfection of the insurance

contract.

Case Summary

Paramount Shirt Mfg. Co., a shirt factory, had a fire insurance policy (open policy)
with Oriental Assurance Corporation for an amount not exceeding P61k. Pacific
Banking was Paramount’s creditor for P800k. The goods covered by the insurance
were held in trust by Paramount for the benefit of Pacific under a trust receipt.
Paramount endorsed the policy to Pacific as mortgagor/trustor with Oriental’s
consent. The endorsement stated: “loss if any under this policy is payable to the
Pacific Banking Corporation.” The goods insured were then totally destroyed by fire.
Pacific demanded for indemnity from Oriental. The latter refused on ground that,
according to its adjuster, Pacific was yet to file a formal claim with it and submit proof
of loss. Pacific then informed the adjuster to verify the loss with Bureau of Customs,
and again demanded for payment from Oriental which remain unheeded.

Pacific filed an action for sum of money against Oriental.

As defense, Oriental raised the following: 1) lack of formal claim by Pacific; 2)

premature filing of the action, since Pacific had not yet filed proof of loss which will be
used in the determination of Oriental’s liability.

During trial, it was found that Paramount (original insured) also failed to disclose
other insurances taken over the same goods covered by the insurance with Oriental,
allegedly in violation of Condition No. 3 (Other Insurance Clause) thereon.

The CFI ruled in favor of Pacific. The CA reversed. The SC affirmed.

Issues resolved —

1. Were the unrevealed co-insurances taken by Paramount

a violation of the policy Condition No. 3?

HELD – YES.
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The fact of non-disclosure was undisputed, and Paramount’s failure to do so

constitutes false declaration; a clear misrepresentation and a vital one because where
the insured had been asked to reveal but did not, that was deception. Had Oriental
knew that of the co-insurers, it might have affected its decision to accept the
Paramount’s application.
Concrete evidence of fraud or false declaration by the insured was furnished by
Pacific itself when the facts alleged in the policy under clauses “Co-Insurances
Declared” and “Other Insurance Clause” are materially different from the actual
number of co-insurances taken over the subject property.

This fraudulent declaration avoided that whole insurance contract: “the whole
foundation of the contract fails, the risk does not attach and the policy never
becomes a contract between the parties.”

The status of contract is VOID or INEXISTENT. Citing Tolentino, the SC said:

Representations of facts are the foundation of the contract and if the foundation does
not exist, the superstructure does not arise. Falsehood in such representations is not
shown to vary or add to the contract, or to terminate a contract which has once been
made, but to show that no contract has ever existed.

The policy itself expressly required the insured to give the insurer a notice of its co-
insurers (Condition 3). The said notice shall be made in writing (Condition 20). Failure
to give such notice nullifies the policy.

2. May the untoward act or omission of the insured

(Paramount), in not disclosing its co-insurers defeat the
right of Pacific to recover the insurance as
mortgagee/assignee?

HELD – YES.
The Mortgage Clause provides: “Loss, if any, under this policy, shall be payable to the
PACIFIC BANKING CORPORATION Manila mortgagee/trustor, as its interest may
appear, it being hereby understood and agreed that this insurance as to the
interest of the mortgagee/trustor only herein, shall not be invalidated by
any act or neglect—except fraud or misrepresentation, or arson—of the
mortgagor or owner/trustee of the property insured; provided, that in case the
mortgagor or owner/trustee neglects or refuses to pay any premium, the
mortgagee/trustor shall, on demand pay the same.”

Concealment of the co-insurances can easily be fraud, or in the very least,

misrepresentation, which falls within the exception for which the mortgagee’s (Pacific)
right to recover may be defeated. Furthermore, Pacific was merely claiming as
indorsee of Paramount [i.e. Pacific merely steps into the shoes of Paramount], thus
the former cannot be entitled to such proceeds.

3. Was Pacific’s failure to file the required proof of loss

prior to court action a bar to its recovery? [Was the
action filed by Pacifi premature?]

HELD – YES.
The cause of action on the policy accrues when the loss occurs. But when the policy
provides that no action shall be brought unless the claim is first presented
extrajudicially in the manner provided in the policy, the cause of action will accrue
from the time the insurer finally rejects the claim for payment.

In this case, 24 days after the fire, Pacific merely wrote letters to Oriental to serve as
a notice of loss, thereafter, the former did not furnish the latter whatever pertinent
documents were necessary to prove and estimate its loss. Pacific even intended to
shift the burden to Oriental by saying that necessary information may be obtained
from the Bureau of Customs. Oriental and its adjuster also informed Pacific of the
need for the notice yet the latter still failed to comply.
Compliance with condition No. 11 (filing of formal claim and proof of loss) is a
requirement sine qua non to the right to maintain an action as prior thereto no
violation of Pacific’s right can be attributable to Oriental. Before Oriental’s rejection,
there is no need to file the suit.

In sum, it appearing that Paramount has violated or failed to perform the conditions
under No. 3 (disclosure of co-insurers) and 11 (filing of formal claim and proof of
loss) of the contract, and such violation or want of performance has not been waived
by the Oriental, Paramount cannot recover, much less the Pacific.

Petition dismissed; decision affirmed.

Case Digest: Manila Bankers vs Aban

G.R. No. 175666, July 29, 2013

FACTS:

On July 3, 1993, Delia Sotero took out a life insurance policy from Manila Bankers Life
Insurance, designating respondent Cresencia P. Aban, her niece, as her beneficiary.

Petitioner issued the Insurance Policy, with a face value of P100,000.00, in Sotero’s
favor on August 30, 1993, after the requisite medical examination and payment of the
insurance premium.

On April 10, 1996,when the insurance policy had been in force for more than two
years and seven months, Sotero died. Respondent filed a claim for the insurance
proceeds on July 9, 1996. Petitioner, however, denied the claim and instead refunded
the premiums paid on the policy claiming that the policy was obtained by fraud,
concealment and/or misrepresentation. Petitioner also filed for rescission.

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

ISSUE:

            Whether or not Manila Bankers Life Insurance Corporation can still rescind the
insurance contract

RULING:

            No, Manila Bankers Life Insurance Corporation can no longer rescind the
insurance contract.
Allegations of fraud, which are predicated on respondent’s alleged posing as Sotero
and forgery of her signature in the insurance application, are at once belied by the
trial and appellate courts’ finding that Sotero herself took out the insurance for
herself. “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.

Moreover, Section 48 of the Insurance Code provides that 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.

Section 48 regulates both the actions of the insurers and prospective takers of life
insurance. 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.

In this case, the records show that the insured died after the two-year period, hence,
the petitioner is already barred from proving that the policy is void ab initio by reason
of fraudulent concealment or misrepresentation.

CASE DIGEST : SUN LIFE CANADA VS. SIBYA

G.R. No. 211212, June 08, 2016

SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner, v. MA. DAISY'S.

SIBYA, JESUS MANUEL S. SIBYA III, JAIME LUIS S. SIBYA, AND THE
ESTATE OF THE DECEASED ATTY. JESUS SIBYA, JR., Respondents.

FACTS : On January 10, 2001, Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life
insurance with Sun Life. In his Application for Insurance, he indicated that he had
sought advice for kidney problems. On February 5, 2001, Sun Life approved Atty.
Jesus Jr.'s application and issued Insurance Policy No. 031097335. On May 11, 2001,
Atty. Jesus Jr. died as a result of a gunshot wound in San Joaquin, Iloilo. As such, Ma.
Daisy filed a Claimant's Statement with Sun Life to seek the death benefits indicated
in his insurance policy. In a letter dated August 27, 2001, however, Sun Life denied
the claim on the ground that the details on Atty. Jesus Jr.'s medical history were not
disclosed in his application. The respondents reiterated their claim against Sun Life
thru a letter dated September 17, 2001. Sun Life, however, refused to heed the
respondents' requests and instead filed a Complaint for Rescission before the RTC
and prayed for judicial confirmation of Atty. Jesus Jr.'s rescission of insurance policy.
In its Complaint, 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. For their defense, the respondents claimed that Atty.
Jesus Jr. did not commit misrepresentation in his application for insurance. The RTC
held that Atty. Jesus Jr. did not commit material concealment and misrepresentation
when he applied for life insurance with Sun Life. Aggrieved, Sun Life elevated the
case to the CA. The CA affirmed the decision of the RTC. Hence this petition.

ISSUE : Whether or not 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 : In Manila Bankers Life Insurance Corporation v. Aban,22 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. Section 48 serves a noble purpose, as it regulates
the actions of both the insurer and the insured. Under the provision, an insurer is
given two years - from the effectivity of a life insurance contract and while the
insured is alive - to discover or prove that the policy is void ab initio or is rescindible
by reason of the fraudulent concealment or misrepresentation of the insured or his
agent. After the two-year period lapses, or when the insured dies within the period,
the insurer must make good on the policy, even though the policy was obtained by
fraud, concealment, or misrepresentation. This is not to say that insurance fraud must
be rewarded, but that insurers who recklessly and indiscriminately solicit and obtain
business must be penalized, for such recklessness and lack of discrimination
ultimately work to the detriment of bona fide takers of insurance and the public in
general. 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.

Tan vs. Court of Appeals

174 SCRA 403 (G.R. No. 48049)
June 29, 1989

milio Tan, Juanito Tan, Alberto Tan and Arturo Tan

urt of Appeals and the Philippine American Life Insurance Company

On September 23, 1973, Tan Lee Siong, father of herein petitioner, applied for life
insurance in the amount of ₱80,000.00 with respondent Philippine American Life
Insurance Company. Said application was approved and Policy No. 1082467 was
issued effective November 6, 1973, with petitioners the beneficiaries thereof.

On April 26, 1975, Tan Lee Siong died of Hepatoma. Petitioner then filed with
respondent company their claim for the proceeds of the life insurance policy.
However, in a letter dated September 11, 1975, respondent company denied
petitioner’s claim and rescinded the policy by reason of the alleged misrepresentation
and concealment of material facts made by the deceased Tan Lee Sion in his
application for insurance the premium paid on the policy were thereupon refunded.

Petitioners filed on November 27, 1975, a complaint against the former with the
Office of the Insurance Commissioner.

The Petitioners contend that the respondent company no longer had 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.

ISSUE:

Whether the respondent company had 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:

Yes. The [Petitioner’s] contention is without merit. The so-called “incontestability

clause” precludes the insurer from raising the defenses of false representations or
concealment of material facts insofar as health and previous diseases are concerned if
the insurance has been in force for at least two years during the insurer’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 noted by the Court of Appeals, to wit: “The policy was issued on November 6,
1973 and the insured died on April 26, 1975. The policy was thus in force for a period
of only one year and five months. Considering that the insured died before the two-
year period had lapsed, respondent company is not, therefore, barred from proving
that the policy is void ab initio by reason of the insured’s fraudulent concealment or
misrepresentation. Moreover, respondent company rescinded the contract of
insurance and refunded the premiums paid on September 11, 1975, previous to the
commencement of this action on November 27, 1975.”

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

PILAR C.
DE LIM, plaintiff and appellant vs SUN LIFE ASSURANCE COMPANY OF
CANADA,defendant and appelleeGR No. 15774, November 29, 1920

A contract of insurance, like other contracts, must be assented to by both parties

either inperson or by their agents. So long as an application for insurance has not
been either acceptedor rejected, it is merely an offer or proposal to make a contract.
The contract, to be bindingform the date of the application, must have been a
completed contract, one that leaves nothingto be done, nothing to be completed,
nothing to be passed upon, or determined, before it shalltake effect. There can be no
contract of insurance unless the minds of the parties have met inagreement.

This is an appeal by plaintiff from an order of the Court of First Instance of

Zamboangasustaining the demurrer to plaintiff’s complaint upon the ground that it
fails to state a cause ofaction.

FACTS:

On July 6, 1917, Luis Lim y Garcial made an application to the Sun Life Assurance
Company ofCanada for a policy of insurance on his life in the sum of Php. 5,000.00.
In his application, Luisdesignated his wife, Pilar C. De Lim, herein plaintiff, as
beneficiary. A provisional receipt wasissued to Luis upon his payment of, Php. 433.00,
the first premium. After the issuance of theprovisional policy and before the
application’s approval, Luis died. An action was brought byPilar to recover from the
defendant Sun Life the sum of Php. 5,000.00 indicated in theprovisional receipt. The
provisional receipt states the following: "Received (subject to the following
stipulations and agreements) the sum of four hundred and thirty-three pesos, being
the amount of the first year's premium for a Life Assurance Policy on the life of Mr.
Luis D. Lim y Garcia of Zamboanga for P5,000, for which an application dated the 6 th
day of July, 1917, has been made to the Sun Life Assurance Company of Canada.
"The above-mentioned life is to be assured in accordance with the terms and
conditions contained or inserted by the Company in the policy which may be granted
by it in this particular case for four months only from the date of the application,
provided that the Company shall confirm this agreement by issuing a policy on said
application when the. same shall be submitted to the Head Office in Montreal. Should
the Company not issue such a policy, then this agreement shall be null and void ab
initio, and the Company shall be held not to have been on the risk at all, but in such
case the amount herein acknowledged shall be returned.(assumed ko na lang ito, kasi
walang discussion sa case about the decision of the Lower Court) .The claim was
denied by Sun Life contending that there was no perfected contract of
insurance.Plaintiff Pilar filed an action to recover from the insurance. Defendant
assurance company fileda demurrer to evidence on the ground that it fails to state a
cause of action. The Lower Courtgranted the demurrer and dismissed the action of
plaintiff Pilar.Aggrieved, plaintiff Pilar filed an appeal before the High Court assailing
the order of the LowerCourt.

ISSUE:
Was there a perfected insurance contract?

HELD:

No, there was no perfected insurance contract. Perusal by the High Court of the
language of theinsurance contract leaves an impression of vagueness. Understanding
the provisional policy,the High Court found that it is an acknowledgement on behalf of
the company, that it hasreceived from the person the person named therein the sum
of money agreed upon as the firstyear’s premium upon a policy to be issued upon the
application, if the application is acceptedby the company.

As a primary rule in an insurance contract, like any other contracts, it must be

assented to byboth parties either in person or by their agents. So long as an
application for insurance has notbeen either accepted or rejected, it is merely an offer
or proposal to make a contract.

The contract, to be binding from the date of the application, must have been a
completedcontract, one that leaves nothing to be done, nothing to be completed,
nothing to be passedupon, or determined, before it shall take effect. There can be no
contract of insurance unlessthe minds of the parties have met in agreement. Our view
is, that a contract of insurance wasnot here consummated by the parties. The reliance
of appellant on the first general rule laid in Joyce on Insurance that the act
ofacceptance by the agent and the giving by the latter of a receipt, if within the scope
of theagent’s authority, and nothing remains but to issue a policy, then the receipt
will bind theinsurance company has no application to the issue at hand. While there is
nothing left to bedone but to issue the policy, there was an express condition
stipulated on the contract as to theperfection of the insurance contract between Luis
and Sun Life.

What applies to the case at hand is the second rule laid down by Joyce which
provides thatWhere an agreement is made between the applicant and the agent
whether by signing anapplication containing such condition, or otherwise, that no
liability shall attach until theprincipal approves the risk and a receipt is given by the
agent, such acceptance is merelyconditional, and is subordinated to the act of the
company in approving or rejecting; so in lifeinsurance a "binding slip" or "binding
receipt" does not insure of itself.

The Sun Life will immediately, upon promulgation of the order of the court, pay to the
estate ofLuis the sum of Php. 433.

Finding no error on the order of sustaining the demurrer, the High Court affirmed the
LowerCourt’s judgment.

Pacific Timber v CA G.R. No. L-38613 February 25, 1982

J. De Castro

Facts:

The plaintiff secured temporary insurance from the defendant for its exportation of

1,250,000 board feet of Philippine Lauan and Apitong logs to be shipped from Quezon
Province to Okinawa and Tokyo, Japan.

Workmen’s Insurance issued a cover note insuring the cargo of the plaintiff subject to

its terms and conditions.

The two marine policies bore the numbers 53 HO 1032 and 53 HO 1033. Policy No.
53 H0 1033 was for 542 pieces of logs equivalent to 499,950 board feet. Policy No. 53
H0 1033 was for 853 pieces of logs equivalent to 695,548 board feet. The total cargo
insured under the two marine policies consisted of 1,395 logs, or the  equivalent of
1,195.498 bd. ft.

After the issuance of the cover note, but before the issuance of the two marine
policies Nos. 53 HO 1032 and 53 HO 1033, some of the logs intended to be exported
were lost during loading operations in the Diapitan Bay.
While the logs were alongside the vessel, bad weather developed resulting in 75
pieces of logs which were rafted together co break loose from each other. 45 pieces
of logs were salvaged, but 30 pieces were verified to have been lost or washed away
as a result of the accident.

Pacific Timber informed Workmen’s about the loss of 32 pieces of logs during loading
of SS woodlock.

Although dated April 4, 1963, the letter was received in the office of the defendant
only on April 15, 1963. The plaintiff claimed for insurance to the value of P19,286.79.

Woodmen’s requested an adjustment company to assess the damage. It submitted its

report, where it found that the loss of 30 pieces of logs is not covered by Policies Nos.
53 HO 1032 and 1033 but within the 1,250,000 bd. ft. covered by Cover Note 1010
insured for $70,000.00.

The adjustment company submitted a computation of the defendant's probable

liability on the loss sustained by the shipment, in the total amount of P11,042.04.

Woodmen’s wrote the plaintiff denying the latter's claim on the ground they
defendant's investigation revealed that the entire shipment of logs covered by the two
marine policies were received in good order at their point of destination. It was
further stated that the said loss may be considered as covered under Cover Note No.
1010 because the said Note had become null and void by virtue of the issuance of
Marine Policy Nos. 53 HO 1032 and 1033.

The denial of the claim by the defendant was brought by the plaintiff to the attention
of the Insurance Commissioner. The Insurance Commissioner ruled in favor of
indemnifying Pacific Timber. The company added that the cover note is null and void
for lack of valuable consideration. The trial court ruled in petitioner’s favor while the
CA dismissed the case. Hence this appeal.

Issues:

WON the cover note was null and void for lack of valuable consideration

WON the Insurance company was absolved from responsibility due to

unreasonable delay in giving notice of loss.

Held: No. No. Judgment reversed.

Ratio:

1. The fact that no separate premium was paid on the Cover Note before the loss
occurred does not militate against the validity of the contention even if no such
premium was paid. All Cover Notes do not contain particulars of the shipment that
would serve as basis for the computation of the premiums. Also, no separate
premiums are required to be paid on a Cover Note.

The petitioner paid in full all the premiums, hence there was no account unpaid on
the insurance coverage and the cover note. If the note is to be treated as a separate
policy instead of integrating it to the regular policies, the purpose of the note would
be meaningless. It is a contract, not a mere application for insurance.

It may be true that the marine insurance policies issued were for logs no longer
including those which had been lost during loading operations. This had to be so
because the risk insured against is for loss during transit, because the logs were
safely placed aboard.

The non-payment of premium on the Cover Note is, therefore, no cause for the
petitioner to lose what is due it as if there had been payment of premium, for non-
payment by it was not chargeable against its fault. Had all the logs been lost during
the loading operations, but after the issuance of the Cover Note, liability on the note
would have already arisen even before payment of premium. Otherwise, the note
would serve no practical purpose in the realm of commerce, and is supported by
the doctrine that where a policy is delivered without requiring payment of the
premium, the presumption is that a credit was intended and policy is valid.

2. The defense of delay can’t be sustained. The facts show that instead of invoking
the ground of delay in objecting to petitioner's claim of recovery on the cover note,
the insurer never had this in its mind. It has a duty to inquire when the loss took
place, so that it could determine whether delay would be a valid ground of objection.

There was enough time for insurer to determine if petitioner was guilty of  delay in
communicating the loss to respondent company. It never did in
the Insurance Commission. Waiver can be raised against it under Section 84 of
the Insurance Act.

HH HOLLERO CONSTRUCTION VS GSIS (G.R. NO. 152334 SEPTEMBER

24,  2014)

HH Hollero Construction Inc vs GSIS

G.R. No. 152334 September 24, 2014 

Facts: On April 26, 1988, the GSIS and petitioner entered into a Project Agreement
(Agreement) whereby the latter undertook the development of a GSIS housing
project known as Modesta Village Section B (Project). Petitioner obligated itself to
insurethe Project, including all the improvements, upon the execution of the
Agreement under a Contractors’ All Risks (CAR) Insurance with the GSIS General
Insurance Department for an amount equal to its cost or sound value, which shall not
be subject to any automatic annual reduction. Pursuant to its undertaking, petitioner
secured CAR Policy No. 88/085 in the amount of P development, which was later
increased to P 1,000,000.00 for land 10,000,000.00, effective from May 2, 1988 to
May 2, 1989. Petitioner likewise secured CAR Policy No. 88/086 in the amount of P
1,000,000.00 for the construction of twenty (20) housing units, which amount was
later increased to P 17,750,000.00 from May 2, 1988 to June 1, 1989. to cover the
construction of another 355 new units, effective In turn, the GSIS reinsured CAR
Policy No. 88/085 with respondent Pool of Machinery Insurers (Pool). Under both
policies, it was provided that: (a) there must be prior notice of claim for loss, damage
or liability within fourteen (14) days from the occurrence of the loss or damage; (b)
all benefits thereunder shall be forfeited if no action is instituted within twelve(12)
months after the rejection of the claim for loss, damage or liability; and (c) if the sum
insured is found to be less than the amount required to be insured, the amount
recoverable shall be reduced tosuch proportion before taking into account the
deductibles stated in the schedule (average clause provision). During the
construction, three (3) typhoons hit the country, namely, Typhoon Biring from June 1
to June 4, 1988, Typhoon Huaning on July 29, 1988, and Typhoon Saling on October
11, 1989, which caused considerable damage to the Project. Accordingly, petitioner
filed several claims for indemnity with the GSIS on June 30, 1988, August 25,
1988, and October 18, 1989,  respectively. In a letter dated April 26, 1990, the GSIS
rejected petitioner’s indemnity claims for the damages wrought by Typhoons Biring
and Huaning, finding that no amount is recoverable pursuant to the average clause
provision under the policies. In a letter dated June 21, 1990, the GSIS similarly
rejected petitioner’s indemnity claim for damages wrought by Typhoon Saling on a
“no loss” basis, it appearing from its records that the policies were not renewed
before the onset of the said typhoon.

Issue: Whether or not the petitioner is barred from filing a complaint before the
courts based on the insurance claim.

Held: Yes. 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.

Section 10 of the General Conditions of the subject CAR Policies commonly read:

10. If a claim is in any respect fraudulent, or if any false declaration is made or used
in support thereof, or if any fraudulent means or devices are used by the Insured or
anyone acting on his behalf to obtain any benefit under this Policy, or if a claim is
made and rejected and no action or suit is commenced within twelve months after
such rejectionor, in case of arbitration taking place as provided herein, within twelve
months after the Arbitrator or Arbitrators or Umpire have made their award, all
benefit under this Policy shall be forfeited.

In this relation, case law illumines that the prescriptive period for the insured’s action
for indemnity should be reckoned from the “final rejection” of the claim.

As correctly observed by the CA, “final rejection” simply means denial by the insurer
of the claims of the insured and not the rejection or denial by the insurer of the
insured’s motion or request for reconsideration. The rejection referred to should be
construed as the rejection in the first instance, as in the two instances above-
discussed.

The right of the insured to the payment of his loss accrues from the happening of the
loss. However, the cause of action in an insurance contract does not accrue until the
insured’s claim is finally rejected by the insurer. This is because before such final
rejection there is no real necessity for bringing suit.

EAGLE STAR INSURANCE, et al. vs. CHIA YUJ. A. Reyes | March 31, 1955

TOPIC:PRESCRIPTION OF ACTION

FACTS

On Jan. 15, 1946, Atkin, Kroll & Co. loaded 14 bales of assorted underwear valued at
P8,085 consigned to Chia Yu of Manila on the SS RoephSilverlight owned and
operated by Leigh Hoegh & Co of San Francisco, California.

The shipment was insured against all risks by Eagle Star Insurance of San Francisco
under a policy issued to Leigh Hoegh, which in turned, assigned to Chia Yu. The
vessel arrived in Manila on Feb. 10, 1946, and on Mar. 4, they started
discharging its cargo into the custody of Manila Terminal Co. which was then
operating the arrastre service for the Bureau of Customs. Out the 14 bales consigned
to Chia Yu, only 10 were delivered to him as the remaining could not be found. 3 of
those delivered were also found damaged to at least 50%.Chia Yu claimed
indemnity for the missing and damaged bales. But the claim was denied by
Leigh Hoegh and Eagle Star.

Chia Yu sued Leigh Hoegh,Eagle Star, and their respective agents in the Philippines at
the CFI Manila on Nov. 16, 1948, or more than 2 years after the delivery of
the damaged bales and the date when the missing bales should have
delivered. The action was resisted by the defendants principally on the ground of
prescription.

CFI: In favor of Chia Yu and ordered the defendants to pay him for the sum sued.

CA: Affirmed the CFI’s decision.

ISSUE:

WON the action against the shipper has prescribed –YES

WON the action against the insurer has prescribed –NO

RATIO

On prescription with regards the shipper’s liability

The bill of lading states: “In any event,the carried and the ship shall be
discharged from all liability in respect of loss or damage unless suit is brought within
1 year after the delivery of the goods or the date when the goods should have been
delivered.”The stipulation is but a repetition of a provision contained in the US
Carriage of Goods by Sea Act of 1936 which was adopted and made
applicable to the PH by Commonwealth Act 65 and by express agreement
incorporated in the bill of lading. Following recent SC decisions giving force and
effect to this kind of stipulation in bills of lading covering shipments from the US to
the PH, the SC would have to hold that Chia Yu’s failure to bring his action “within
one year after the delivery of the goods or the date when the goods should have
been delivered” discharged the carrier from all liability.

On prescription with regards the insurer’s liability

The case for the insurer stands on a different footing for its claim of
prescription is founded upon the terms of the policy and not upon the bill of
lading. Under our law, the time limit for bringing a civil action upon a written
contract is 10 years after the right of action accrues.

Eagle Star: The counsel for Eagle Star raises this stipulation in the policy as
an argument: “No suit of action on this Policy, for the recovery of any claim,
shall be sustainable in any court of law or equity unless the insured shall have fully
complied with all the terms and conditions of this Policy nor unless commenced with
12 months next after the happening of the loss”

SC: The argument is untenable. In E. Marcias & Co. vs. China Fire Insurance & Co.,
as relied upon by Eagle Star, the SC held that a clause in an insurance
policy providing that an action upon the policy by the insured must be
brought within a certain time is, if reasonable, valid and will prevail over
statutory limitations of the action. E. Marcias, however, was rendered before the
passage of Act 4101, which amended the Insurance Act by inserting the following:
“Sec. 61-A –Any condition, stipulation or agreement in any policy of insurance,
limiting the time for commencing an action thereunder to a period of less
than 1 year from the time when the cause of action accrues, is void.”

Here, the policy sued upon reduces the period which allows the insured to
bring his action to less than 1 year. This is so because the stated clause
makes the prescriptive period begin from the happening of the loss and at
the same time provides that no suit on the policy shall be sustainable in any court
unless the insured shall have first fully complied with all the terms and
conditions of the policy. It is obvious that compliance with the conditions will
necessarily consume time and thus shorten the period for bring suit to less than 1
year if the period is to begin from ”the happening of the loss.” It may be suggested
that the policy clause should be given the construction that would harmonize it
with Sec. 61-A taking it to mean that the time given the insured for bringing his suit is
12 months after the cause of action accrues. As such, the cause of action did not
accrue until Chia Yu’s claim was finally rejected by Eagle Star. This is because before
such final rejection, there was no real necessity for bringing suit. Here, the rejection
was made on April 22, 1948. As Chia Yu filed the case on Nov. 16, 1948, which is less
than 1 year after the rejection, the action cannot be said to have prescribed.

DISPOSITIVECA’s Decision is AFFIRMED against Eagle Star as insurer REVERSED

against Leigh Hoegh as shipper.

Description
Mayer Steel Pipe Corporation vs Court of Appeals

274 SCRA 432 Mercantile Law Insurance Law

The Policy Prescription of Filing of Insurance Cases

In 1983, Hongkong Government Supplies Department (HGSD) contracted Mayer Steel

PipeCorporation for the latter to manufacture and deliver various steel pipes and
fittings. BeforeMayer Steel shipped the said pipes, it insured them with two insurance
companies namely,South Sea Surety and Insurance Co., Inc. and Charter Insurance
Corporation eachinsurer covering different portions of the shipment. The insurance
policies cover all riskswhich include all causes of conceivable loss or damage.When
the pipes reached Hongkong, the pipes were discovered to have been damaged.The
insurance companies refused to make payment. On April 17 1986, Mayer Steel
suedthe insurance companies. The case reached the Court of Appeals.

The CA ruled that thecase filed by Mayer Steel should be dismissed. It held that the
action is barred underSection 3(6) of the Carriage of Goods by Sea Act since it was
filed only on April 17, 1986, more than two years from the time the goods were
unloaded from the vessel. Section 3(6)of the Carriage of Goods by Sea Act provides
that the carrier and the ship shall be discharged from all liability in respect of loss or
damage unless suit is brought within oneyear after delivery of the goods or the date
when the goods should have been delivered.

The CA ruled that this provision applies not only to the carrier but also to the insurer,
citingthe case of Filipino Merchants Insurance Co., Inc. vs Alejandro.

ISSUE: Whether or not the Court of Appeals is correct.

HELD: No. Section 3(6) of the Carriage of Goods by Sea Act states that the carrier
and theship shall be discharged from all liability for loss or damage to the goods if no
suit is filedwithin one year after delivery of the goods or the date when they should
have beendelivered. Under this provision, only the carriers liability is extinguished if
no suit is broughtwithin one year. But the liability of the insurer is not extinguished
because the insurersliability is based not on the contract of carriage but on the
contract of insurance. A closereading of the law reveals that the Carriage of Goods by
Sea Act governs the relationshipbetween the carrier on the one hand and the shipper,
the consignee and/or the insurer onthe other hand. It defines the obligations of the
carrier under the contract of carriage. It doesnot, however, affect the relationship
between the shipper and the insurer. The latter case is governed by the Insurance
Code.The Filipino Merchants case is different from the case at bar. In Filipino
Merchants, it was the insurer which filed a claim against the carrier for
reimbursement of the amount it paid to the shipper. In the case at bar, it was the
shipper which filed a claim against the insurer. The basis of the shippers claim is the
all risks insurance policies issued by the insurers to Mayer Steel.The ruling in Filipino
Merchants should apply only to suits against the carrier filed either bythe shipper, the
consignee or the insurer.

1.Tiltle: Filipino Merchants Insurance Co., Inc. vs. Court of Appeals G.R. No.
85141. November 28, 1989.

Facts:

In December 1976, plaintiff (CHOA TIEK SENG) insured said shipment with
defendantinsurance company under said cargo Policy No. M-2678 for the sum of
P267,653.59 for the goodsdescribed as 600 metric tons of fishmeal in new gunny
bags of 90 kilos each from Bangkok, Thailand toManila against all risks under
warehouse to warehouse terms. Actually, what was imported was 59.940metric tons
not 600 tons at $395.42 a ton CNF Manila. The fishmeal in 666 new gunny bags
wereunloaded from the ship on December 11, 1976 at Manila unto the arrastre
contractor E. Razon, Inc. anddefendant’s surveyor ascertained and certified that in
such discharge 105 bags were in bad ordercondition. A formal claim statement was
also presented by the plaintiff (CHOA TIEK SENG) against thevessel dated December
21, 1976, Exhibit B, but the defendant Filipino Merchants Insurance Companyrefused
to pay the claim. The defendant (Filipino Merchants) brought a third party complaint
againstthird party defendants Compagnie Maritime Des Chargeurs Reunis and/or E.
Razon, Inc. seekingjudgment against the third (sic) defendants in case judgment is
rendered against the third party plaintiff(Filipino Merchants).

Rtc: after trial on the merits, rendered judgment in favor of private respondent [“On
the third party complaint, the third party defendant Compagnie Maritime Des
Chargeurs Reunis and third party defendant E. Razon, Inc. are ordered to pay to the
third party plaintiff jointly and severally reimbursement of the amounts paid by the
third party plaintiff]

- grounds for decision: NA

CA: the respondent court affirmed the decision of the lower court insofar as the
award on the complaintis concerned and modified the same with regard to the
adjudication of the third-party complaint. [A motion for reconsideration of the
aforesaid decision was denied]

- grounds for decision: NA

Contention of petitioner with SC:

1. petitioner contends that an “all risks” marine policy has a technical meaning in
insurance in that before a claim can be compensable it is essential that there must be
“some fortuity,” “casualty” or “accidental cause” to which the alleged loss is
attributable.

ISSUE:

Whether Choa Tiek Seng has an insurable interest in the cargo . - YES.

Whether the arrival of the cargo in bad condition was covered by the "against all
risks" clause of the insurance policy? - YES.

HELD:

Insurable interest is every interest in property, whether real or personal, or any

relation thereto, or liability in respect thereof, of such nature that a contemplated
peril might directly damnify the insured. Anyone has an insurable interest in property
who derives a benefit from its existence or would suffer loss from its destruction
whether he has or has not any title in, or lien upon or possession of the property.

Insurable interest in property may consist in (a) an existing interest; (b) an inchoate
interest founded on an existing interest; or (c) an expectancy, coupled with an
existing interest in that out of which the expectancy arise.

In the instant case, Choa Tiek Seng’s interest over the goods is based on a perfected
contract of sale, which vests in him an equitable title even before delivery of the
objects of the sale.

Moreover, the Supreme Court held that the “all risks” nature of the insurance contract
at hand does not need the claimant to show “some fortuity,” “casualty” or “accidental
cause” in order to recover their loss. The terms accident and accidental do not
acquire any technical meaning hence are interpreted as all damages/losses suffered
by the insured except when: first, the loss or damage was caused by delay, and
second, the loss or damage was caused by inherent defect of the thing insured.

Generally, the burden of proof belongs to the insured, but under an all risks policy,
the burden is not on the insured to prove the precise cause of the damage. In these
cases, the insured merely has the initial burden of proving that the cargo was in good
condition and then subsequently damaged; thereafter burden of proof shifts to the
insurer to show that the loss falls under the exceptions to the coverage.