76 PHILIPPINE COMMERCIAL LAWS VOLUME I See. 24 ‘The Insurance Code and Financial Rehabititation and insolvency Act of 2010 GAMING OR WAGER POLICY. Gaming or wager policy is one which the persons for whose benefit it was issued had no pecuniary interest in the subject matter insured.” REASON FOR RULE. Wagering or gambling policies of insurance are prohibited because they have a tendency to create a desire for the event insured against to happen?” and furnish strong temptations to the party interested to bring about, if possible, the event insured against.» OBJECTION CANNOT BE WAIVED. Absence of the insurable interest on the part of the person procuring insurance, as ground of objection, cannot be waived by the insurer. Thus, where an insurance agent knew that the person procuring insurance did not have insurable interest on the subject of the insurance, and it was contended that lack of insurable interest was waived by the insurer so as to entitle the insured to the benefits of the policy, the court denied such contention and rufed that waiver could not validate the policy so as to permit recovery, since the policy was illegal as against public policy” TITLE 4 CONCEALMENT SEC. 26. A neglect to communicate that which a party knows and ought to communicate, is called a concealment.” NOTES. This Section is the same as Section 26 of the Insurance Code of 1978 which in turn is an exact copy of Section 25 of the Insurance Act. CONCEALMENT DEFINED. “A neglect to communicate that which a party knows and ought to communicate, is called a concealment.” INSURANCE IS CONTRACT OF UTMOST GOOD FAITH. Contracts of insurance are traditionally contracts uberrimae fidei, which 2%Gamgs v. Covenant Mut. Life Ins. Co., 50 Mo. 44. Warnock v. Davis, Ohio, 104 CS. 775, 26 L. Ed. 924. 21Tyree v. Virginia Fire & Marine Ins. Co., 46 $.W. 706, 55 W. Va. 63, 104 Am. SR. 983, 66 L.R.A. 675, 2 Ann. Cas. 30. 22Etmoro v. Life Ins. Co. of Virginia, 198 $.B. 5, 187 S.C. 504. Asked, 1948 Bar Exams. Section 26; Asked, 1948 Bar Exams.Sec. 26 PARTI — CHAPTERY THE INSURANCE CODE 7 — THE CONTRACT OF INSURANCE ‘m “means Hab ula abe Hae abundant 800d faith: absolute and perfect candor or ps 88 lonesty; the absence of any concealment or deception, however slight.” In insurance cor \s ntsacts, each party has the right to clear on the utmost good faith, uberrimae fidei, of the other party regarding the nature of the risk to be assumed. It is upon this principle that the doctrines of warranties, Tepresentation and concealment are based.** INSURED MUST HAVE KNOWLEDGE OF FACT CON- CEALED. Concealment presupposes knowledge of the fact concealed on the part of the party charged with concealment. Such knowledge must be proven by the party claiming the existence of concealment. Thus, where in the application for life insurance, the statement made by the insured was “no hereditary taint on either side of the house (family) to my knowledge,” in order to show concealment, it was necessary for the insurance company to prove that a hereditary taint alleged to exist was known to the insured.” TIME OF KNOWLEDGE. To be guilty of concealment, a party must have knowledge of the fact concealed at the time of the effectivity of the policy. Even if a party did not know of the existence of a material fact at the time of the application but acquired knowledge thereof after the application, but before the effectivity of the policy, he is guilty of concealment should he fail to communicate such fact to the other party2* Likewise, known changes in conditions material to the risks which occur between the opening of negotiation for insurance and the issuance of the policy must be revealed. That is, there is a continuing, duty on the part of an applicant to disclose newly discovered matters arising between the application for, and the confirmation and effectivity ‘of the contract, where they come to the applicant's knowledge and render his former answers no longer true.” 25Aranilla v, Insular Life Ins. Co. Ltd., CA-G.R. No. 37460 R. December 22, 1971, citing Black's Law Dictionary, 2d. Ed 24Ipid,, cling Qua Chee Gan v. Law Union & Rock Ins. Co., 98 Phil. 85. ZINorthwestern Mut. Life Ins. Co. v. Griely, 100 U. $. 614; Asked, IX, 2016 Bar Exams, 2B4Combs v. Equitable Life Ins. Co., of lowa, C.C.a. Va, 120 F 2d. 432 2349 Couch 24, 346-347; Asked, 1958 Bar Exams.RCIAL LAWS VOLUME 1 See, e ILIA ON Financial Rehabilitation and 6 Insolvency Act of 2010 STRATION: mes ing, for life instrance, but before the insured learns that he is afflicted with to disclose that information constitutes, t which will avoid the policy Where after apply ssuance of the policy, the a fatal disease, his failure concealment of a material fact | rule is that a party is bound to fter the application and before ich rule does not apply: EXCEPTIONS. While the general disclose a material change occurring a! the effectivity of the contract, however, su e policy provides that if the application is approved and the Aa eat shall be in force from the date of the application; and (b) where the change occurs after the consummation of the insurance orally although the formal policy has not been issued yet KNOWLEDGE AFTER EFFECTIVITY. Where an information was acquired after the effectivity of the policy, a failure to communicate the same to the other will not entitle the latter to rescind the contract on the ground of concealment of material fact The reason is that after the policy has taken effect, information subsequently acquired could no longer be material as it will not influence a party anymore to enter into such contract. Thus, whether or not the non-disclosure of a fact constitutes concealment is determined as of the time the contract of insurance takes effect, and does not depend upon or is affected by subsequent events or facts after the contract is completed.”* ILLUSTRATIONS: (1) Cosico applied for life insurance on January 16, 2018 with X Ins. Co. At that time Cosico did not know of any ailment that he has. On January 21, 2018, he had himself physically examined and he found out that he had heart ailment and kidney disease. On January 28, 2618, the life insurance policy of Cosico was issued and he did not inform the insurer about his ailment, believing that he need not reveal the same to the insurer because he acquired knowledge thereof after he applied for life insurance. Question: 2 Combs v. Equitable Life Ins. Co,, supra; see also 9 Couch 2d, 347-348, "Grier v. New York Life Ins. Co, 445. E. 28, 132 N.C. 542. *Southern Life Ins. Co. v. Kempton, 56 Ga. 339, See 7 Couch 2d 116, ™See Vance 2nd Ed,, 349, 59 Couch 2d, 352.Sec. 27 THE INSURANCE CODE ‘THE CONTRACT OF INSURANCE fe aeauired knowledge of before the effectivity of the policy. There discovered Meaty on the part of an applicant to disclose newly conemnlonatters arising between the application for, and the mation and effectivity of the contract, where they come to the applicant’ nt appligant’s knowledge and render his former answers no longer (2) Question: Would your answer be the same if the policy was issued on January 28, 2018 and he was physically examined on February 1, 2018. Cosico did not inform the insurer of the ailment he came to know about? Answer: The answer will not be the same. Cosico is not guilty of concealment because he acquired information about his illness after the effectivity of the policy. Where an information was acquired after the effectivity of the policy, a failure to communicate the same to the other will not entitle the latter to rescind the contract on the ground of concealment of material fact. The reason is that after the policy has taken effect, information subsequently acquired could no longer be material as it will not influence a party anymore to enter into such contract. Thus, whether or not the non-disclosure of a fact constitutes concealment is determined as of the time the contract of insurance takes effect, and does not depend upon or is affected by subsequent events or facts after the contract is completed.” SEC. 27. A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance. revert Note gave NOTES. This section is the same as Section 27 of the Insurance Code of 1978 which was amended by Batas Pambansa Blg. 874 by inserting the phrase “whether intentional or unintentional” thereby ting to the old provision of the Insurance Act. In the Explanatory of Parliamentary Bill No. 1340 which was later enacted as Section 1 of Batas Pambansa Blg. 874, Member of Parliament (MP) H. B. Perez*# the following explanation: “Section 26 of the Insurance Act provided, ‘A concealment whether intentional or unintentional, entitles the injured party to rescind a contract of insurance.’ When Presidential Decree No. 1460 otherwise known as the Insurance Code of 1978 was 2469 Couch 24, 346-347; Asked, 1958 Bar Exams, 379 Couch 24, 352 +5 H{ernando B. Perez, the author of this book.LIPPINE COMMERCIAL LAWS VOLUME I fe ° The Inurance ‘Code and Financlal Rehabilitation and ee Insolvency Act of 2010 Section 27 thereof eliminated the phrase, “whether passed, ‘after the word “concealment” ay intentional or unintentional” appearing in the original provision of the Insurance Act cited above.” “Said change in the right to rescind as a consequence of concealment causes confusion as to the intention of the framers of the Code. And this is compounded by a lack of recorded deliberation which could be the basis of interpretation. If the amendment is intended to deprive the injured party of the right to rescind in case of unintentional concealment, it should have been expressly stated that only intentional concealment would provide a ground for rescission. And if such really was the intention, it would be difficult, if not possible, for the insurer to protect itself against fraudulent and improper claims, and as pointed out by the Supreme Court in Saturnino v. Philippine American Life Insurance Co: ‘It (the insurer) would be wholly at the mercy of anyone who wished to apply for insurance, as it would be impossible to show actual fraud except in the extremist (sic) cases.’ It could not rely on an application as containing inform: on which it could act. There would be no incentive to an ap} to tell the truth.” Under the present law therefore, the party injured by concealment does not have to prove intention to conceal by the other party to be able to rescind the contract of insurance. This observation is bolstered by the decision of the Supreme Court in one case where it ruled that any concealment without regard as to whether such concealment is unintentional or intentional entitles the injured party to rescind the contract. It will be noted that the aforesaid case arose after the Insurance Code of 1978 deleted the phrase “intentional or unintentional” and prior to the restoration thereof by Batas Pambansa Blg. 874. The Supreme Court in the said case further stated that the deletion of the phrase “whether intentional or unintentional” could not have had the effect of imposing an affirmative requirement that a concealment must be intentional if it is to entitle the injured party to rescind a contract of insurance. Therefore, the phrase “whether intentional or unintentional” may be considered superfluous as ruled by the Supreme Court in the 287 SCRA 316, 319. *Vida. de Canilang v. Court of Appeals, 223 SCRA 443.Sec. 27 PARTI— CHAPTER T THE CNSURANCE CODE a1 ‘THE CONTRACT OF INSURANCE aforecited case. However, the restoration in 1985 by Batas Pambansa Blg. 874 a the phrase “whether intentional or unintentional” discourages any change in doctrine and underscores the fact that all throughout (from 1914 to 1985), the statute did not require proof that concealment must be “intentional” in order to authorize rescission by the injured party. However, in one unusual case," the Supreme Court ruled that concealment must be intentional and fraudulent to enable the injured party to rescind the contract. This judicial declaration was compounded by the fact that the said case arose under the Old Insurance Act at which time a provision exactly the same as the present Section 27 as amended. existed. But the said pronouncement by the Supreme Court appears to 7 mere obiter dictum and should not affect the express mandate of e law. ILLUSTRATIVE CASE: Great Pacific Life Assur. Co. v. Court of Appeals, 89 SCRA 543: Ngo Hing was an authorized insurance agent of Great Pacific Life Assurance Company. He applied with Great Pacific Life for a 20-year endowment policy on the life of his one-year old daughter, Helen Go. The insurer issued a binding receipt. Ngo was aware that his daughter was a Mongoloid child but he withheld such information from the insurer. Later, Helen Go died of influenza with complication of bronco-pneumonia. Question: Was the concealment sufficient to relieve the insurer ot liability? Answer: The insurer cannot be liable. As an insurance agent, Ngo Hing ought to know, as he surely must have known his duty and responsibility to supply a material fact, Had he divulged that Helen Go was Mongoloie child in the application form, the insurer would, have disapproved the application. When Ngo Hing concealed his daughter's physical defect which could never be ensconced wor disguised, he was in apparent bad faith. The contract of insurance is one of perfect yood faith, absolute and pestect candor or openness and honesty. Ngo Hing was guilty of concealment which relieved the insurer of any liability. INSURED’S DUTY. A party applying tor insurance is bound to answer truthfully all questions concerning tacts material to the risk 122 9CRA dol PINg Gan Zee v Asian Crusader Lite Assur Comp BY SCRA HS, Asked, No 12, e4Great Pacilc Lite Avsur Co ¥ Court ot Appeals, 1960 Bar ExamsPHILIPPINE COMMERCIAL LAWS VOLUME I sec m5 ‘The Insurance Code and Financial Rehabilitation and Insolvency Act of 2010 a2 Concealment or suppression of material fact is a fraud, and as fatal to the contract as false answer would be.™" EFFECT OF CONCEALMENT. A policy will be vitiated by the ression of known material facts by a party,“ and the insurer may su sch ind of concealment. rescind a policy on the grou! ILLUSTRATION: The insured in applying for a reinstatement of a lapsed life insurance policy, concealed his disease of both kidneys and enlarged liver. After his death, an action was filed against the insurer. Question: Was the insurer liable? Answer: The insurer was not liable because concealment entitled the other to rescind the contract.** BASIS OF RULE. The basis of the rule vitiating the contract in case of conceaiment is that it misleads or deceives the insurer into accepting the risk, or accepting it at the rate of premium agreed upon. The insurer relying upon the belief that the assured will disclose every material fact within his actual or presumed knowledge is misled into a belief that the circumstance withheld does not exist, and he is thereby induced to estimate the risk upon a false basis that it does not exist. The principal question, therefore, must be, was the insurer misled or deceived into entering a contractual obligation or in fixing the premium of insurance by a withholding of material information or facts within the insured’s presumed knowledge?” CONCEALMENT MUST BE PROVEN. Concealment as a defense of the insurer to avoid liability is an affirmative defense and it has the duty to establish such defense by satisfactory and convincing evidence.” 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. 99 Couch 2d, 336. 9 Couch 2d., 338-359. Henson v. Phil. American Life Ins. Co., 56 O.G. 7329; Yu Pang Cheng v. Court of Appeals, 105 Phil. 930; Asked No. XIII, 1997 Bar Exams. Henson v. Phil. American Life Ins. Co., ibid. Argent v. West Coast Life Ins. Co, 51 Phil. 725; 3 Joyce, 194. ™*Philamcare Health Systems, Inc. v. Court of Appeals, et al,, G.R. No. 125678, March 18, 2002.Sec. 28 PART 1 —THE INSU RANCE CODE . CHAPTER I — THE CONTRACT OF INSURANCE NOTES. This section is the same as Section 28 of the Insurance Code of 1978 which is substantially the same as Section 27 of the Insurance Act. REQUISITES OF CONCEALMENT. Each party is bound to communicate to the other all facts that meet the following requisites: (a) such facts must be within his knowledge; (b) must be material to the contract; (c) the other party has not the means of ascertaining such fact; and (d) he makes no warranty as to such facts. INSURER'S INVESTIGATION. The fact that the insurer makes investigation of its own relative to the insurability of the applicant does not absolve the latter from speaking the truth or lessen the right of the insurer to rely on insured’s statement as to his physical condition, especially where the investigation failed to disclose falsity or any suspicious circumstance." FACTS COVERED BY WARRANTY. The facts that a party is bound to communicate are those of which he makes no warranty And it is not necessary to communicate or disclose matters concerning which the insured makes a warranty, express or implied. Thus, where no inquiry is made, the assured need not disclose matters affecting the seaworthiness of the vessel* since seaworthiness is a warranty implied in marine insurance. ‘The reason is that where a fact is covered by a warranty, express or implied, it is superfluous to require disclosure. However, when a fact proves or tends to prove the falsity of a warranty, it must be revealed to the other. Thus, the insured’s concealment of facts or information that falsifies a warranty is in all cases to be deemed a fraud that vitiates the policy,” such as the concealment of an incident which proves or tends to prove the falsity of the implied warranty of seaworthiness of the vessel insured. Asked, 1958 Bar Exam. section 28. 28)Reliance Life Ins Co. v. Sneed, 117 So. 307,217 Ala 669. Section 28. 383 Joyce, 2974-2975. Section 114. 25See 3 Joyce, 2975 footnote 9. section 29. 273 Joyce, 2975. 28Njorth Camarines Lumber Co. v. Metropolitan Ins. Co., 12 Court of Appeals Rep. 963, 977.ILIPPINE, (COMMERCIAL LAWS VOLUME I “ she imurence Code and Financial Rehabilitation and Insolvency Act of 2010 Secs. 29.39 SEC. 29. An intentional and fraudulent omission, on the pay, of one insured, to communicate information of matters proving g, tending to prove the falsity of a warranty, entitles the insurer to rescind. NOTES. This section was copied from Section 28 of the Insurance Act and the same as Section 29 of the Insurance Code of 1978, INFORMATION FALSIFYING WARRANTY. As hereinabove discussed, matters covered by a warranty need not be revealed except facts which prove or tend to prove the falsity of a warranty. The insured must not conceal facts or information which he knows falsify warranty. It is on the truth of the warranty, not merely on the fact that it is given, that the insurer relies. Had the insurer believed it to be false, it would not consent to the insurance and incur the hazard of being made the victim of a fraud.” WHEN FRAUDULENT INTENT NECESSARY. Under the present law, fraudulent intent is not necessary to entitle to other to rescind an insurance contract on the ground of concealment” But where the fact concealed proves or tends to prove the falsity of a warranty, concealment must be intentional and fraudulent to entitle the other to rescind.” 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 a risk excluded by a warranty, and which are not otherwise material; and 33 Joyce, 2975-2976, citing Duer on Insurance. The opinion of Duer became the basis of Section 2569 of the California Civil Code, which, in turn, was embodied in Section 28 of the Insurance Act of the Phil. and later, Section 29 of Insurance Code. 2 See discussions on Section 27. *'Section 29,sec. 30 PART I — THE INSURAI NCE CODE a CHAPTER I — THE CONTRACT OF INSURANCE (e) Those which relate to a risk : Ciuian arehenie ee excepted from the policy and NOTES. This section is an exact co} i 1 py of Section 29 of the Insurance Act and the same as Section 30 of the Insurance Code of 1978. FACTS OTHER PARTY KNOWS. A party is under no duty to disclose to the other what the latter already knows or ought to know,” Such rule is not limited to facts known personally to a party but extends to matters known to his agent. Thus, any information material to the transaction either possessed by the agent at the time of transaction or acquired by him before its completion, is deemed to be knowledge of the principal at least so far as the transaction is concerned even though in fact knowledge is not communicated to the principal at all” Knowledge, therefore, of the insurer’s agent is knowledge of the insurer However, where the agent of the insurer fraudulently conspired with the insured, knowledge of the agent will not bind the insurer.” ILLUSTRATION: (1) A applied for a fire insurance contract. The insurer's agent and surveyor viewed the premises and the neighboring, buildings. Question: Will omission of the insured to mention the neighboring buildings to the insurer entitle the latter to rescind? ‘Answer: Such omission will not avoid the policy for the insurer's agent knew the fact not revealed.” ILLUSTRATIVE CASE: Sun Life of Canada (Phils.), Inc. v. Sibya, et al., G.R. No. 211212, June 8, 2016: Sibya, Jn, applied for life insurance with Sun Life. In his application for insurance, he indicated that he had sought advice for kidney problems. He indicated in his application: “Last 1987, had undergone lithotripsy due to kidney stone under Dr. Jesus Benjamin Mendoza at National Kidney Institute, discharged after 29 Couch 2d, 343. Leonor v. Cia de Seguros, CA-GR. 3659-R, January 10, 1950; Asked, No. XIV, 11988 Bar Exams; No. XX(a), 1993 Bar Exams 2Minsuilar Life Assur. Co. v. Feliciano, 73 Phil. 201; 9 Couch 2d, 444. Bpgular Life Assur. Co. v, Feliciano, 74 Phil, 468 (rehearing); 9 Couch 2d, 345; Asked, No. XIV, 1988 Bar Exams; No. XX (a), 1993 Bar Exams. See 9 Couch 2d 344-345.IPPINE COMMERCIAL LAWS VOLUME | emai! ‘Code and Financial Rehabilitation and Sec.39 Insolvency Act of 2010 5, rence as claimed.” On February 5, 2001, Sun Lite a a sibyas application and issued the life insurance policy, On May 11, 2001, Sibya died of gunshot wound. Sun Life sought to Onvind the policy on the ground of concealment. Sun Life claimed that Sibya did not disclose his previous medical treatment at the NKI in May and August 1994. The beneficiaries claimed that the insured did not commit concealment or misrepresentation and he even authorized Sun Life to inquire further into his medical history for verification purposes. Question: Was the insured guilty of concealment or misrepresentation? Answer: The insured did not commit concealment or misrepresentation. Sibya admitted in his application his medical treatment for kidney ailment. He even executed an authorization in favor of Sun Life to conduct investigation about his medical history. It cannot be said that he concealed his medical history.” FACTS OTHER PARTY OUGHT TO KNOW. Matters supposed to be known by the other party need not be communicated. The facts each party ought to know are: (a) all the general causes which are open to his inquiry, equally with that of the other, and which may affect either the political or material perils contemplated; or (b) all general usages of trade” Thus information or facts which, are of public knowledge, or so notorious that a presumption may reasonably exist that the insurer has knowledge thereof need not be disclosed” EXAMPLES: (a) The insurer is presumed to have knowledge of the political or disturbed condition of the country at the time the policy was effected, and cannot claim that such fact was concealed.™” (b) Knowledge of the state of the world, of the allegiance of particular countries, of the risks and embarrassments affecting, commerce, or the course and incidents of the trade, on which they insure, must be imputed to the insurers." 27'Sun Life of Canada (Phils.), Inc. v. Sibya, et al., G.R. No. 211212, June 8, 2016, citing Manila Bankers Life Insurance Corp. v. Aban, G.R. No. 175666, July 29, 2013, | Reyes, ponente with J. Velasco concurring, Section 32. 79 Couch 2d, 343-344. 9 Couch 2d, 344. ™'Buck v. Chesapeake Ins.Co,, 1 Pet., 151.Sec. 30 PARTI — CHAPTER T — THE CNSURANCE CODE a7 ‘THE CONTRACT OF INSURANCE (©) The insurer is presu: and customs pertaining Presumed to know the various usages to maritime matters (d) it i 7 are a The insured is not obliged to disclose matters which in the reach of the insurer it are e i and which by fair inguiy nd dite diligence he may lear fom ondinacy scares. wus, the peace and order situation in a certain locality need not be communicated by the insured to the insurer2® COMMUNICATION WAIVED. Information need not be re- vealed to the other where communication thereof was waived. Waiver of the information may either be: (a) express when made by the terms of the insurance or contained in the policy; or (b) implied when there was neglect to make inquiries as to such facts distinctly implied in other facts of which information was communicated. IMPLIED WAIVER. Where an application for insurance is made in writing, and the questions therein as to material facts are unanswered or incompletely answered, and the insurer without further inquiry, issues the policy, it thereby waives all right to a disclosure, or to a more complete answer with respect to the fact to which the unanswered question relates, and the policy cannot thereafter, in the absence of clear proof of a fraudulent intention of suppression of the fact, be avoided on the ground of concealment. Therefore, answers as to the insured’s physical condition or disease, which are such as ought to put a reasonably prudent on inquiry which would have resulted on ascertaining the fact, are equivalent to actual notice.** Thus, “where the insured exhibited to the insurer an extract from a letter, and the latter, knowing of the fact that it was such extract, does not ask to see the whole letter, there is no material concealment of a fact contained in the part not shown.”*” However, where the answer of the applicant to a direct question of the insurer purports to be a complete arswer to the question, any 22Hazard v. New England Ins. Co, 8 Pet. 557,8 L. Ed. 1043. 28Divinagracia v, American Home Assurance Co,, 19 CAR 1043. ™See Section 33. 2859 Couch 2d, 382-383. See also 3 Joyce, 3031-3032; Aranilla v. Insular Life ins. Co. Ltd, supra, citing Conn Mut Life Ins. Co. v. Lucks, 108 U. S. 498, 2 St. Ct. 949, 27 L. Ed. 800, Couch 2d, 382, citing Huestesa v, South Atlantic Life Ins. Co, 88 SC 31, 70 SE 403; Southeastern L. ins Co., v. Palmer, 129 SC 432, 124 SE 577. 2°Couch, Cyclopedia of Insurance Law, Vol. Ill 2439.»PINE COMMERCIAL LAWS VOLUME I rhe Inurence ‘Code and Financial Rehabilitation and See. 39 Insolvency Act of 2010 88 substantial misstatement or ommiesion) in the answer avoids a Policy issued on the faith of the application. The distinction between an answer apparently complete, but in fact incomplete and therefore untrue, and an answer manifestly incom. plete and as such accepted by the insurer, may be illustrated by two cases of fre insurance, which are governed by the same rules in ie respect as in cases of life insurance. If one applying for insurance y a building against fire is asked whether the property is encumbered, and for what amount, and in his answer discloses only one Mortgage when in fact there are two, the policy issued thereon is avoided. fre if to the same question he merely answers that the property is encum. bered, without stating the amount of encumbrance, the issuance of the policy without further inquiry is a waiver of the omission to state the amount.” ILLUSTRATIVE CASES: @) Aranilla v. Insular Life Ins. Co., CA-G.R. No. 374-R, December 22, 1971: In the application for life insurance, the insured was asked if he had ever submitted himself to any infirmary, sanitarium or hospital for consultation and treatment. He answered that he was confined for five days at the Quezon Memorial Hospital for influenza in 1947. It turned out that he had been twice confined at the Alzona Clinic in Lucena City, the first was on July 19- 23, 1959, and the second was from January 29, 1960 which were not mentioned by the insured. Question: Was there a waiver of information as to the confinement at Alzona Clinic? Answer: There was no waiver of information. The answer of the insured to the question propounded by the insurer was complete and the latter had the right to rely on the correctness thereof. The insurer, having been informed that the insured had been confined at the Quezon Memorial Hospital in 1947, without mentioning his confinement at the Alzona Clinic, had the right to rely that the insured had not been confined in any other hospital or clinic. There would have been a waiver of further information if, on its face, the answer appeared to be incomplete or ambiguous; if the insured had merely answered “Yes,” to the question "Have you ever been to any infirmary, sanitarium or hospital for consultation and treatment?” and the insurer did not make any further inquiry.™! *Aranilla v. Insular Life Ins. Co.Ltd., supra, citing Phoenix Mut Life Ins. Co:® Raddin, 120 U. S. 183, S. Ct. 500, L. Ed. 644, wb, citing Towne v. Fitchburg Mut, Fire Ins. Co. 1 Allen (Mass. ibid citing Nicholas v. Fayette Mut. Fire Ins.Co. 1 Allen (Mass) 63 **Ararillav Insular Life Ins. Co, CA-G.R. No. 374, December 22, 1971os ra an rH: et THE INSURANCE CODE ‘CONTRACT OF INSURANCE (2) Ng Gan Zee v. Agi 7 Sena Sian Crusader Life Assurance Corp., 122 On potiey Ree Kwang ‘Nam obtained a 20-year endowment Prormed the Insurer the Premium thereon, Kwang Nam aaa Surer’s medical examiner as follows: “Operated on for tumor (myoma) of the stomach, Claims thet tumor has been. associated with ulcer of stomach. Tumor taken out was hard and of ahen’s egg size. Oper ‘as hard and of ration was two years a ‘ i ‘ars ago in Chinese General Hospital by Dr. Yap. Now, claims he is completely recovered.” The insurer made no further inquiry or investigation, It turned out that the insured was operated on for “peptic ulcer” and not a mere tumot. On December 6, 1963, Kwang, Nam died of cance of the liver with metastasis. The insurer denied the bencticeny's oe tastass, The insurer denied the beneficiary's faim on the ground that the answer given by the insured to the question appearing in his application for life insurance was untrue. Question: Was Kwang Nam guilty of concealment? Answer: 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 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” and a “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.” WAIVER OF MEDICAL EXAMINATION. Waiver of medical examination of the applicant for life insurance should not be construed as a waiver of material information, since the waiver of medical examination is made where the insured represents himself to be of good health. It is reasonable to assume that had the insured revealed material information concerning his health, the insurer would not have waived the medical examination.”” In a non-medical life insurance which dispenses with medical examination, waiver of such medical examination renders even more “orp, 122SCRA 461, Ng Gan Zee v. Asian Crusader Life Assurance Corp. Se v. Phil. American Life Ins. Co,, 7 SCRA 316; Asked, 1975 Bar Exams; No. IV(a), 1996 Bar Exams.LIPPINE COMMERCIAL LAWS VOLUME I . * ‘Thc nmuranee Code and Financial Rehabilitation and » Insolvency Act of 2010 material the information required of the applicant concerning previous condition of health and diseases suffered, for such information necessarily constitutes an important factor, which the insurer takes int consideration in deciding whether to issue the policy, or not. ILLUSTRATIVE CASES: (1) Saturnino v. Phil. American Life Ins. Co., 7 SCRA 316; A obtained a “non-medical” life insurance policy, which dispensed with the medical examination. In the policy, A stated that she never had cancer nor tumor nor undergone operation notwithstanding the fact that two months before the issuance of the policy, she was operated on for cancer. A died. The beneficiaries claimed that there was no material misrepresentation in view of the waiver of medical examination by the insurer. Question: Was the beneficiaries’ contention meritorious? Answer: The contention was without merit. The information required of the insured concerning her previous condition of health constituted an important factor, which the insurer took into consideration in deciding whether to issue the policy or not. It was because the insured had given herself a clean bill of health that the insurer had no longer considered an actual medical check-up necessary.* (2) Sunlife Assurance Company of Canada v. Court of Appeals, 245 SCRA 268: Bacani obtained a “non-medical” life insurance. When asked inhis application for life insurance if he had consulted any doctor or health practitioner, the insured limited his answer to a consultation with Dr. Raymundo of Chinese General Hospital for cough and flu complications. The insurer waived medical examination. It fumed out however, that two weeks before the application, the insured was examined and confined in the Lung Center of the Philippines, where he was diagnosed for renal failure. The insured died and the insurer refused to pay the claim on the ground that the insured did not disclose material facts. The beneficiaries on the other hand, maintained that waiver of medical examination debunk the materiality of the facts concealed. Question: Was it Recessary for the insured to reveal material information? Answer: Yes, since the waiver of a medical examination renders even more material the information requited of the applicant concerning Previous condition of health and diseases suffered because such Ss ™Suntife Assurance Company of Canada v. Court of Appeals, 245 SCRA 268; ‘Asked, No. 1V (a), 1996 Bar Exams; No, XVI, 2001 Bar Exams, Exame Satuino ¥ Phil American Life Ins. Co,, supra; Asked, No. 1V (a), 19%6 BarSec. 31 PART I— Tht CHAPTER ES THE INSURANCE CODE n THE CONTRACT OF INSURANCE information constitutes an important f i i A factor whi in into consideration whethe: Peppa * to issue the policy or not? SEC. 31. Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries. NOTES. This was copied from Section 30 of the Insurance Act and the same as Section 31 of the Insurance Code of 1978, MATERIAL FACT. The fact concealed must be material to entitle the other to rescind the policy. A fact is material where the knowledge or ignorance of it will naturally influence the judgment of the insurer in deciding whether he will enter into the contract, or in estimating the degree and character of the risk, or in fixing the rate of premium.?” It operates as an inducement to the insurer to enter into the contract, where, except for such inducement, it would not have done so, or would have charged a higher premium.** MATTERS SUBJECT OF SPECIAL INQUIRIES. Matters subject of special inquiries are deemed conclusively material, and the failure of an apparently complete answer to make full disclosure will avoid the policy.” Such principle is applicable even though otherwise they might not be regarded as material and, therefore, the insured is required to make full and free disclosure to the questions asked.*" ILLUSTRATION: In an application for life insurance, the insured was asked, “Have you ever been to any infirmary, sanitarium or hospital for consultation and treatment?” Question: Was the information sought by the insurer material? Answer: The information sought Gunlife Assurance Company of Canada v. Court of Appeals, 245 SCRA 268; Asked, No. IV (a), 1996 Bar Exams; No. XVI, 2001 Bar Exams. Hare & Chase v, National Surety Co., 49 F. 2d 447; 60 F. 2d 909. 2989 Couch 24, 349. A ,anilla y, Insular Life ins. Co. Ltd., CA-G.R. No. 37460-R, December 22, 1971, Citing Vance, 3rd Ed., 376; Asked No. 5, 1993 Bar Exams. Spid., citing North American Fire Ins. Co. v. Throop, 22 Mich. 146, 7 Am. Rep 638. uid, citing Smith v. Ins. Co, 49 NY. 211; Talley v. Met Life Ins. Co,, 1 Va. 778, 69S.E, 936,knowledge of the érue in determining whether to accept # )MMERCIAL LAWS VOLUME | PHILIPPINE COMMERCIAI kar se.3 ‘Code and Financial Rehabilitation and The Inaurancef olvency Act of 2010 asked specific question, nota general s material. The insurer had ane vs are deemed conclusively cone, Matters subject of special ingui 1 material TEST OF MATERIALITY. The test of materiality is whether facts would have influenced a prudent insurer he risk or in fixing the amount of premiums." That is, if answers to questions propounded by the Frourer are such as may influence it in determining whether to accept risk and what premium to charge, such answers are material and must be truthful." Thus, every fact is material which increases the risk** or which, if disclosed, might have led the company to decline the risk, or to accept the risk only for higher premium. EXAMPLES: (a) Material illness: 2. Operation for removal of infected cyst from abdomen, attacks of “acute cholecystitis” or serious infection of the gall bladder” 2. Cerebral congestion and Bell’s palsy, cancer,*” and disease of the kidneys." (b) Immaterial illness: 1 Amere cold or slight attack of influenza;" 2. Attack of diarrhea about two years previously: CAUSAL CONNECTION NOT NECESSARY. Concealment need not, in order to be material, be of facts which bring about, or contribute to, or are connected with, insured’s loss. It is immaterial that 473. Supra. *°Clemmer’s Adm’r v. Jefferson Standard Life Ins. Co., D.C. Va. 9 F Supp. 115 249 Couch 2d. 350. 2*Metropolitan Lige Ins. Co. v, Rocraft, 12 N.E 2d 952, 213 Ind. 378, 115A. L.R.98. **Lee v. Metropolitan Life Ins. Co,, 123 S. E. 737, 158 Ga. 517, *”Home Life ins. Co. v. Madoro C. C. A. Miss. 201 F.2d 292, Argent v. West Coast Life Ins. Co., 51 Phil. 725. **Saturnino v. Phil Am. Life Ins. Co,, supra. Henson v. Phil Am, Life Ins. Co,, supra "Traveler's Ins, Co. of Hardfore Conn. v. Byers, 11 P. 2d 444, 123 Cal. App ™ it "Service Life Ins. Co. of Omahja, Neb. v, McCullough, lowa, 13 N, W. 2d 0.sec. 31 1— THE INSURAN 01 PART I — THE INSURANCE CO ee CHAPTER I — TI a ANCE IE CONTRACT OF INSURANCI there is no causal relationship between the fact concealed and the I sustained." The insured, therefore, need not die of the tet disease he failed to reveal to the insurer, It is sufficient that his poeta has misled the insurer in forming its estimate of the disadvantages of the proposed policy or in making its inquiries in order to entitle the insurance company to avoid the contract." ILLUSTRATIVE CASES: (1) Henson v. Phil Am. Life Ins. Co., 56 O. G. 7328: Henson was insured by Philamlife. The policy lapsed for non-payment of premiums. Henson applied for reinstatement of his lapsed life insurance policy. He concealed his disease of both kidneys and of an enlarged liver. Later, after reinstatement of the policy, the insured died of thrombosis. Question: Was the insurer liable? Answer: The insurer was not liable since the fact concealed was material although the insured did not die of the fact concealed. In essence therefore, the insured need not have died of the very diseases he had failed to reveal to the insurance company. It is sufficient that his non-revelation had misled the insurer in forming its estimate of the disadvantages of the proposed policy reinstatement or in making its inquiries, in order to entitle the latter to rescind the contract." (2) Sunlife Assurance Company of Canada v. Court of Appeals, 245 SCRA 269: Bacani applied for a non-medical life insurance. Despite the fact that he was asked if he consulted any doctor or health practitioner within the past five year, the insured did not inform ere insurer that two weeks prior #0 his application for insurance, he was examined and confined at the Lung Center of the Philippines, Where he was diagnosed for renal failure. The insured died in 2 plane crash, The beneficiaries contended that singe the fact copceated had no bearing with the cause of death of the insured, the incurer was liable. Question: Was such contention correct? ‘Answers The contention of the beneficiaries was not correct, The aad need not die of the disease he failed to disclose to the neuen It is sufficient that his non-disclosure misled the insurer in 3139 Couch 2d. 338; Asked No.5, 1983 Bar Exams; No. VI, 1987 Bar Exams; No. XIII, 197 Bar Exams; No. XVI, 2001 Bar Exams. Henson v Phil Am. Life Ins. Co, 56 O. G.7328; Asked 1958 Bar Exams; No. Vi.1987 Bar Exams; No. XII, 1997 Bar Exam; No. XVI, 2004 Bar Exams; Asked, IX, 2016 Bar Exams. 215 Henson v. Phil Am. Life Ins. Co. supm“ PHILIPPINE COMMERCIAL LAWS VOLUME | See, The Insurance Code and Financial Rehabilitation and Ras Insolvency Act of 2010 forming his estimates of the risk of the proposed insurance policy or in making inquiries. The insurer was not liable." SEC, 32. Each party to a contract of insurance is bound to know all the general causes which are open to his inquiry, equally with that of the other, and which may affect the political or material perilg contemplated; and all general usages of trade. SEC. 33. The right to information of material facts may be waived, either by the terms of insurance or by neglect to make inquiry as to such facts, where they are distinctly implied in other facts of which information is communicated. NOTES. These Sections were taken from Sections 31 and 32 of the insurance Act and the same as Sections 32 and 33 of the Insurance Code of 1978. See discussions under Section 30. 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 51. NOTES. This was copied from Section 33 of the Insurance Act and the same as Section 34 of the Insurance Code of 1978. NATURE AND AMOUNT OF INTEREST. The insured need not communicate the nature or amount of his interest except: (a) when the insurer makes an inquiry thereon, and (b) where the insured is not the absolute owner of the property insured.2” SEC. 35. Neither party to a contract of insurance is bound to communicate, even upon inquiry, information of his own judgment upon the matters in question. NOTES. This section was copied from Section 34 of the Insurance Act and the same as Section 35 of the Insurance Code of 1978. OPINION OR JUDGMENT. A party isnot bound to communicate information of his own opinion, or judgment upon the matter in M-Sunlife Assurance Company of Canada v. Court of Appeals, 245 SCRA 26%: Asked No. V(b), 1996 Bar Exams; No. XVI, 2001 Bar Exams. "Section 34; Section 51.secs. M17 PARTI — THE a INSURANCE CODE 95 ‘THE CONTRACT OF INSURANCE question even when asked." And in case a p or judgment to the other, an untrue st arty advances his opinion latement will not avoid the poli if made in good faith without intention to deceive." Thus, oh the insured expresses an opinion that his house is of certain value, the insurer cannot for a moment be justified in thinking that the value of the house is really just what the owner estimates it to be for he must be deemed to know that the value of the property is ordinarily capable of exact ascertainment only by a sale, WHEN OPINION MUST BE COMMUNICATED. In marine insurance, “information of the belief or expectation of a third person, in reference to a material fact, is material” and must be communicated. The opinion therein referred to is that of a third person and not that of the insured. TITLES. REPRESENTATION SEC. 36. A representation may be oral or written. SEC. 37. A representation may be made at the time of, or before, issuance of the policy. NOTES. Section 36 was copied from Section 35 of the Insurance ‘Act while Section 37 is substantially the same as Section 36 of the Insurance Act. Sections 36 and 37 are the same as Sections 36 and 37 of the Insurance Act of 1978. REPRESENTATION DEFINED. A representation is an oral or written statement of a fact or condition affecting the risk made by the insured to the insurance company, tending to induce the insurer to assume the risk.” Section 35. Woodman of the World Life Ins, Soc. v. Velasquez, 139 P 2d 766, 60 Ariz.A57; 9 Couch 2d. 370. ™ Vance, 2d Ed. 367. Section 110. 2gentinel Life Ins. Co. v. Blackmer, 77. 2d 347, 350. Representation may like- wise be defined as “an oral or written statement which precedes the contract of insurance, Ind is not part ofthe policy unless its otherwise stipulated, made by the insused or his authorized agent to the insurer of his authorized aent, anu relates to facts necessary to enable thesnaurer to decide whether he will accept the risk, and at what premiums.” 7 Couch 24. 9.