G.R. No.

113899 October 13, 1999

GREAT
PACIFIC
LIFE
ASSURANCE
CORP.,
COURT OF APPEALS AND MEDARDA V. LEUTERIO, respondents.
QUISUMBING, J.:

vs.

A contract of group life insurance was executed between Grepalife and Development
Bank of the Philippines (hereinafter DBP). Grepalife agreed to insure the lives of
eligible housing loan mortgagors of DBP.
Nov 11, 1983: Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP
applied for membership in the group life insurance plan. In an application form, Dr.
Leuterio answered questions concerning his health condition as follows:
7. Have you ever had, or consulted, a physician for a heart condition, high
blood pressure, cancer, diabetes, lung; kidney or stomach disorder or any
other physical impairment?
Answer: No.
8. Are you now, to the best of your knowledge, in good health?
Answer: [x] Yes
NOV 15 1983: Grepalife issued an insurance coverage of Dr. Leuterio, to the extent
of his DBP mortgage indebtedness amounting to P86,200.00
August 6, 1984: Dr. Leuterio died due to "massive cerebral hemorrhage."
Consequently, DBP submitted a death claim to Grepalife. Grepalife denied the claim
alleging that Dr. Leuterio was not physically healthy when he applied for an insurance
coverage on November 15, 1983. Grepalife insisted that Dr. Leuterio did not disclose
he had been suffering from hypertension, which caused his death. Allegedly, such
non-disclosure constituted concealment that justified the denial of the claim.
October 20, 1986: the widow of the late Dr. Leuterio, Medarda, filed a complaint
against Grepalife for "Specific Performance with Damages."
TRIALCOURT rendered a decision in favor of the widow and against Grepalife.
CA sustained the trial court's decision. Hence, the present petition.
ISSUE: WON GREPALIFE is liable to DBP as beneficiary in a group life
insurance contract from a complaint filed by the widow of the
decedent/mortgagor?

INSURANCE |Aug 1| 1
The rationale of a group insurance policy of mortgagors, otherwise known as
the "mortgage redemption insurance," is a device for the protection of both the
mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such
form of contract so that in the event of the unexpected demise of the mortgagor during
the subsistence of the mortgage contract, the proceeds from such insurance will be
applied to the payment of the mortgage debt, thereby relieving the heirs of the
mortgagor from paying the obligation. 7 In a similar vein, ample protection is given to
the mortgagor under such a concept so that in the event of death; the mortgage
obligation will be extinguished by the application of the insurance proceeds to the
mortgage indebtedness. 8 Consequently, where the mortgagor pays the insurance
premium under the group insurance policy, making the loss payable to the mortgagee,
the insurance is on the mortgagor's interest, and the mortgagor continues to be a
party to the contract. In this type of policy insurance, the mortgagee is simply an
appointee of the insurance fund, such loss-payable clause does not make the
mortgagee a party to the contract.
The insured did not cede to the mortgagee all his rights or interests in the
insurance, the policy stating that: "In the event of the debtor's death before his
indebtedness with the Creditor [DBP] shall have been fully paid, an amount to pay the
outstanding indebtedness shall first be paid to the creditor and the balance of sum
assured, if there is any, shall then be paid to the beneficiary/ies designated by the
debtor." 10 When DBP submitted the insurance claim against petitioner, the latter
denied payment thereof, interposing the defense of concealment committed by the
insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary
action of foreclosure on the residential lot of private respondent.
And since a policy of insurance upon life or health may pass by transfer, will or
succession to any person, whether he has an insurable interest or not, and such person
may recover it whatever the insured might have recovered, 14 the widow of the
decedent Dr. Leuterio may file the suit against the insurer, Grepalife.
WON THERE IS CONCEALMENT THAT JUSTIFIES THE DENIAL OF CLAIM
Petitioner contends that Dr. Leuterio failed to disclose that he had
hypertension, which might have caused his death. 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 assured, but he designedly and
intentionally withholds the same.

Contrary to GREPALIFE's allegations, there was no sufficient proof that the

insured had suffered from hypertension. Aside from the statement of the insured's
widow who was not even sure if the medicines taken by Dr. Leuterio were for
hypertension, the appellant had not proven nor produced any witness who could attest
HELD: Petitioner alleges that the complaint was instituted by the widow of Dr. to Dr. Leuterio's medical history . . .
Leuterio, not the real party in interest, hence the trial court acquired no jurisdiction
over the case. It argues that when the CA affirmed the trial court's judgment,
The fraudulent intent on the part of the insured must be established to entitle
Grepalife was held liable to pay the proceeds of insurance contract in favor of DBP, the insurer to rescind the contract. 18 Misrepresentation as a defense of the insurer to
the indispensable party who was not joined in the suit.
avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the insurer. 19 In the case at bar, the

petitioner failed to clearly and satisfactorily establish its defense, and is therefore
liable to pay the proceeds of the insurance.

G.R. No. L-54216 July 19, 1989

THE
PHILIPPINE
AMERICAN
INSURANCE
COMPANY, petitioner,
vs.
HONORABLE GREGORIO G. PINEDA in his capacity as Judge of the Court of
First Instance of Rizal, and RODOLFO C. DIMAYUGA, respondents.
PARAS, J.:
January 15, 1968, RODOLFO C. DIMAYUGA procured an ordinary life insurance
policy from the PHILAM and designated his wife and children as irrevocable
beneficiaries of said policy.
February 22, 1980: DIMAYUGA filed a petition before CFI RIZAL to amend the
designation of the beneficiaries in his life policy from irrevocable to revocable.
PHILAM oppoosed the petition. CFI granted Dimayuga's petition. MR denied.
Hence, this petition.
ISSUE: WHETHER OR NOT THE DESIGNATION OF THE IRREVOCABLE
BENEFICIARIES COULD BE CHANGED OR AMENDED WITHOUT THE CONSENT
OF ALL THE IRREVOCABLE BENEFICIARIES. -NO
HELD: Under the INSURANCE ACT, the beneficiary designated in a life insurance
contract cannot be changed without the consent of the beneficiary because he has a
vested interest in the policy.
In this regard, it is worth noting that the Beneficiary Designation Indorsement in the
policy in the name of Rodolfo Dimayuga states that the designation of the
beneficiaries is irrevocable. Inevitably therefore, based on the aforequoted provision
of the contract, it is only with the consent of all the beneficiaries that any change or
amendment in the policy concerning the irrevocable beneficiaries may be legally and
validly effected. Both the law and the policy do not provide for any other exception,
thus, abrogating the contention of the private respondent that said designation can
be amended if the Court finds a just, reasonable ground to do so.
Similarly, the alleged acquiescence of the six (6) children beneficiaries of the policy
(the beneficiary-wife predeceased the insured) cannot be considered an effective
ratification to the change of the beneficiaries from irrevocable to revocable.
Indubitable is the fact that all the six (6) children named as beneficiaries were

INSURANCE |Aug 1| 2
minors at the time,** for which reason, they could not validly give their consent.
Neither could they act through their father insured since their interests are quite
divergent from one another. Therefore, the parent-insured cannot exercise rights
and/or privileges pertaining to the insurance contract, for otherwise, the vested rights
of the irrevocable beneficiaries would be rendered inconsequential.
Of equal importance is the well-settled rule that the contract between the parties is the
law binding on both of them and for so many times, this court has consistently issued
pronouncements upholding the validity and effectivity of contracts. Where there is
nothing in the contract which is contrary to law, good morals, good customs, public
policy or public order the validity of the contract must be sustained. Likewise, contracts
which are the private laws of the contracting parties should be fulfilled according to the
literal sense of their stipulations, if their terms are clear and leave no room for doubt
as to the intention of the contracting parties, for contracts are obligatory, no matter in
what form they may be, whenever the essential requisites for their validity are present.
Undeniably, the contract in the case at bar, contains the indispensable elements for its
validity and does not in any way violate the law, morals, customs, orders, etc. leaving
no reason for Us to deny sanction thereto.
Finally, the fact that the contract of insurance does not contain a contingency when the
change in the designation of beneficiaries could be validly effected means that it was
never within the contemplation of the parties. The lower court, in gratuitously
providing for such contingency, made a new contract for them, a proceeding which we
cannot tolerate. Ergo, We cannot help but conclude that the lower court acted in excess
of its authority when it issued the Order dated March 19, 1980 amending the
designation of the beneficiaries from "irrevocable" to "revocable" over the
disapprobation of the petitioner insurance company.
CFI JUDGMENT REVERSED

INSURANCE |Aug 1| 3
6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha
spouses and United.
7. On 2 June 1992, the RTC MANILA rendered a decision * ordering United to pay CKS
the amount of P335,063.11 and Cha spouses to pay P50,000.00 as exemplary
damages, P20,000.00 as attorney's fees and costs of suit.
8. On appeal, CA rendered a decision affirming the trial court, deleting however the
awards for exemplary damages and attorney's fees. A motion for reconsideration by
United was denied.
ISSUE: WON THE STIPULATION IN THE CONTRACT OF LEASE TRANSFERRING THE
PROCEEDS OF THE INSURANCE TO RESPONDENT IS NULL AND VOID FOR BEING
CONTRARY TO LAW, MORALS AND PUBLIC POLICY

G.R. No. 124520 August 18, 1997

Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO.,
INC., petitioners, vs. CA and CKS DEVELOPMENT CORPORATION, respondents.
PADILLA, J.:
FACTS: 1. SPS Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract
with CKS Development Corporation , as lessor, on 5 October 1988.
2. One of the stipulations of the one (1) year lease contract states:
18. . . . The LESSEE shall not insure against fire the chattels, merchandise,
textiles, goods and effects placed at any stall or store or space in the leased
premises without first obtaining the written consent and approval of the
LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent
of the LESSOR then the policy is deemed assigned and transferred to the
LESSOR for its own benefit; . . . 1
3. Notwithstanding the above stipulation in the lease contract, the Cha spouses
insured against loss by fire the merchandise inside the leased premises for
P500,000.00 with the United Insurance Co., Inc. without the written consent of CKS.
4. On the day that the lease contract was to expire, fire broke out inside the leased
premises.
5. When CKS learned of the insurance earlier procured by the Cha spouses (without
its consent), it wrote the insurer (United) a demand letter asking that the proceeds
of the insurance contract (between the Cha spouses and United) be paid directly to
CKS, based on its lease contract with the Cha spouses.

The core issue to be resolved in this case is whether or not the aforequoted paragraph
18 of the lease contract entered into between CKS and the Cha spouses is valid insofar
as it provides that any fire insurance policy obtained by the lessee (Cha spouses) over
their merchandise inside the leased premises is deemed assigned or transferred to the
lessor (CKS) if said policy is obtained without the prior written consent of the latter.
HELD: It is, of course, basic in the law on contracts that the stipulations contained in a
contract cannot be contrary to law, morals, good customs, public order or public policy.
Sec. 18 of the Insurance Code provides:
Sec. 18. No contract or policy of insurance on property shall be enforceable
except for the benefit of some person having an insurable interest in the
property insured.
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses
over their merchandise is primarily a contract of indemnity. Insurable interest in the
property insured must exist at the time the insurance takes effect and at the time the
loss occurs. 4 The basis of such requirement of insurable interest in property insured is
based on sound public policy: to prevent a person from taking out an insurance policy
on property upon which he has no insurable interest and collecting the proceeds of said
policy in case of loss of the property. In such a case, the contract of insurance is a
mere wager which is void under Section 25 of the Insurance Code, which provides:
Sec. 25. Every stipulation in a policy of Insurance for the payment of loss,
whether the person insured has or has not any interest in the property
insured, or that the policy shall be received as proof of such interest, and
every policy executed by way of gaming or wagering, is void.
In the present case, it cannot be denied that CKS has no insurable interest in the
goods and merchandise inside the leased premises under the provisions of Section 17
of the Insurance Code which provide:
Sec. 17. The measure of an insurable interest in property is the extent to
which the insured might be damnified by loss of injury thereof.

Therefore, CKS cannot, under the Insurance Code a special law be validly a
beneficiary of the fire insurance policy taken by the petitioner-spouses over their
merchandise. This insurable interest over said merchandise remains with the insured,
the Cha spouses. The automatic assignment of the policy to CKS under the provision
of the lease contract previously quoted is void for being contrary to law and/or public
policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses
Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be
compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has
no insurable interest in the property insured.
The liability of the Cha spouses to CKS for violating their lease contract in that the
Cha spouses obtained a fire insurance policy over their own merchandise, without the
consent of CKS, is a separate and distinct issue which we do not resolve in this case.
The proceeds of the fire insurance policy was awarded to Nilo Cha and Stella Uy-Cha.

INSURANCE |Aug 1| 4
Upon the payment of the insurance premuim, the binding deposit receipt was
issued to Ngo Hing. Likewise, Mondragon handwrote at the bottom of the back page of
the application form his strong recommendation for the approval of the insurance
application. Then on April 30, 1957, Mondragon received a letter from Pacific Life
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 Pacific Life 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 Pacific Life was allegedly not
communicated by Mondragon to Ngo Hing. Instead, on May 6, 1957, Mondragon wrote
back Pacific Life 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.
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.
ISSUES: (1) whether the binding deposit receipt (Exhibit E) constituted a temporary
contract of the life insurance in question; and

G.R. No. L-31845 April 30, 1979

GREAT PACIFIC LIFE ASSURANCE COMPANY vs. CA

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

G.R. No. L-31878 April 30, 1979

LAPULAPU D. MONDRAGON vs. CA and NGO HING,

The provisions printed on Exhibit E show that the binding deposit receipt is
intended to be merely a provisional or temporary insurance contract and only upon
compliance of the following conditions: (1) that the company shall be satisfied that the
applicant was insurable on standard rates; (2) that if the company does not accept the
application and offers to issue a policy for a different plan, the insurance contract shall
not be binding until the applicant accepts the policy offered; otherwise, the deposit
shall be reftmded; and (3) that if the applicant is not ble according to the standard
rates, and the company disapproves the application, the insurance applied for shall not
be in force at any time, and the premium paid shall be returned to the applicant.

DE CASTRO, J.:
The two cases were ordered consolidated because the petitioners in both cases seek
similar relief, from the amended CA decision which affirmed in toto the decision of
the CFI CEBU, ordering Great Pacific Ligfe 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.
March 14, 1957: Ngo Hing filed an application with GREPALIFE for a 20-year
endownment policy in the amount of P50,000.00 on the life of his one-year old
daughter Helen Go. NGO HING supplied the essential data which Lapulapu D.
Mondragon, Branch Manager of the Pacific Life 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 the sum of P1,077.75 going over to the Company, but he
reatined the amount of P1,317.00 as his commission for being a duly authorized
agebt of Pacific Life.

Clearly implied from the aforesaid conditions is that the binding deposit
receipt in question is merely an acknowledgment, on behalf of the company, that the
latter's branch office had received from the applicant the insurance premium and had
accepted the application subject for processing by the insurance company; and that
the latter will either approve or reject the same on the basis of whether or not the
applicant is "insurable on standard rates." Since Pacific Life disapproved the insurance
application of Ngo Hing, the binding deposit receipt in question had never become in
force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly,
merely conditional and does not insure outright. As held by this Court, where an

agreement is made between the applicant and the agent, no liability shall attach until
the principal approves the risk and a receipt is given by the agent. The acceptance is
merely conditional and is subordinated to the act of the company in approving or
rejecting the application. Thus, in life insurance, a "binding slip" or "binding receipt"
does not insure by itself.
Pacific Life disapproved the insurance application in question on the ground
that it is not offering the twenty-year endowment insurance policy to children less
than seven years of age. What it offered instead is another plan known as the
Juvenile Triple Action, which NGO HING failed to accept. In the absence of a meeting
of the minds between Pacific Life and Ngo Hing over the 20-year endowment life
insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter,
and with the non-compliance of the abovequoted conditions stated in the disputed
binding deposit receipt, there could have been no insurance contract duly perfected
between thenl Accordingly, the deposit paid by private respondent shall have to be
refunded by Pacific Life.
A contract of insurance, like other contracts, must be assented to by both
parties either in person or by their agents ... The contract, to be binding from the
date of the application, must have been a completed contract, one that leaves
nothing to be dione, nothing to be completed, nothing to be passed upon, or
determined, before it shall take effect. There can be no contract of insurance unless
the minds of the parties have met in agreement.
We are not impressed with NGO HING's contention that failure of Mondragon
to communicate to him the rejection of the insurance application would not have any
adverse effect on the allegedly perfected temporary contract. In this first place, there
was no contract perfected between the parties who had no meeting of their minds.
Private respondet, being an authorized insurance agent of Pacific Life at Cebu branch
office, is indubitably aware that said company does not offer the life insurance
applied for. When he filed the insurance application in dispute, ngo hing was,
therefore, only taking the chance that Pacific Life will approve the recommendation of
Mondragon for the acceptance and approval of the application in question along with
his proposal that the insurance company starts to offer the 20-year endowment
insurance plan for children less than seven years. Nonetheless, the record discloses
that Pacific Life had rejected the proposal and recommendation. Secondly, having an
insurable interest on the life of his one-year old daughter, aside from being an
insurance agent and an offense associate of Mondragon, Ngo Hing must have known
and followed the progress on the processing of such application and could not
pretend ignorance of the Company's rejection of the 20-year endowment life
insurance application.
Ngo Hing, as father of the applicant herself, was precisely the "underwriter
who wrote this case". The unchallenged statement of appellant Mondragon in his
letter of May 6, 1957, specifically admits that said Ngo Hing was "our associate" and
that it was the latter who "insisted that the plan be placed on the 20-year
endowment plan." Under these circumstances, it is inconceivable that the progress in
the processing of the application was not brought home to his knowledge. He must
have been duly apprised of the rejection of the application for a 20-year endowment
plan otherwise Mondragon would not have asserted that it was Ngo Hing himself who

INSURANCE |Aug 1| 5
insisted on the application as originally filed, thereby implictly declining the offer to
consider the application under the Juvenile Triple Action Plan. Besides, the associate of
Mondragon that he was, Ngo Hing should only be presumed to know what kind of
policies are available in the company for minors below 7 years old. What he and
Mondragon were apparently trying to do in the premises was merely to prod the
company into going into the business of issuing endowment policies for minors just as
other insurance companies allegedly do. Until such a definite policy is however,
adopted by the company, it can hardly be said that it could have been bound at all
under the binding slip for a plan of insurance that it could not have, by then issued at
all.
2. Relative to the second issue of alleged concealment. this Court is of the firm belief
that private respondent had deliberately concealed the state of health and piysical
condition of his daughter Helen Go. Wher private regpondeit 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 disguished. Nonetheless, private respondent, in apparent bad
faith, withheld the fact materal to the risk to be assumed by the insurance compary. As
an insurance agent of Pacific Life, 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 fom Pacific Life 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, not for the alone but equally so for the
insurer. Concealment is a neglect to communicate that which a partY knows aDd Ought
to communicate. Whether intentional or unintentional the concealment entitles the
insurer to rescind the contract of insurance. Ngo hing appears guilty thereof.
We are thus constrained to hold 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 comraitted by
herein private respondent.

INSURANCE |Aug 1| 6
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.
The widow Ng Gan Zee presented a claim in due form for payment of the face value of
the policy. She submitted the required proof of death of the insured. ASIAN CRUSADER
denied the claim on the ground that the answers given by the insured to the questions
appealing in his application for life insurance were untrue.
NG GAN ZEE brought the matter to the attention of the Insurance Commissioner
Mandamus, and the latter, after conducting an investigation, wrote the INSURER that
he had found no material concealment on the part of the insured and that, therefore,
Ng Gan Zee should be paid the full face value of the policy. However, insurer refused to
settle its obligation.
Insurer alleged that the insured was guilty of misrepresentation when he answered
"No" to the following question appearing in the application for life insuranceHas any life insurance company ever refused your application for insurance or
for reinstatement of a lapsed policy or offered you a policy different from that
applied for? If, so, name company and date.
Insurer further maintains that when the insured was examined in connection with his
application for life insurance, he gave the insurer's medical examiner false and
misleading information as to his ailment and previous operation. The alleged false
statements given by Kwong Nam are as follows:
Operated on for a Tumor [mayoma] of the stomach. Claims that Tumor has
been associated with ulcer of stomach. Tumor taken out was hard and of a hen's
egg size. Operation was two [2] years ago in Chinese General Hospital by Dr.
Yap. Now, claims he is completely recovered.
Medical data showed that the insured was operated on for peptic ulcer",
involving the excision of a portion of the stomach, insurer argues that the insured's
statement in his application that a tumor, "hard and of a hen's egg size," was removed
during said operation, constituted material concealment.
ISSUE : Was INSURER, because of insured's aforesaid representation, misled
or deceived into entering the contract or in accepting the risk at the rate of
premium agreed upon? -NO
G.R. No. L-30685 May 30, 1983
NG GAN ZEE, vs. ASIAN CRUSADER LIFE ASSURANCE CORPORATION
ESCOLIN, J.:
May 12, 1962: Kwong Nam applied for a 20-year endowment insurance on his life
for the sum of P20,000.00, with his wife, Ng Gan Zee as beneficiary. ASIAN
CRUSADER, upon receipt of the required premium from the insured, approved the

HELD: Section 27 of the Insurance Law [Act 2427] provides:

Sec. 27. Such party a contract of insurance must communicate to the
other, in good faith, all facts within his knowledge which are material
to the contract, and which the other has not the means of
ascertaining, and as to which he makes no warranty.

INSURANCE |Aug 1|
Thus, "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 the same." Also, the
concealment must, in the absence of inquiries, be not only material, but fraudulent,
or the fact must have been intentionally withheld."
Assuming that the aforesaid answer given by the insured is false, as claimed by the
insurer. 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. Misrepresentation as a defense of the insurer to
avoid liability is an 'affirmative' defense. The duty to establish such a defense by
satisfactory and convincing evidence rests upon the defendant. The evidence before
the Court does not clearly and satisfactorily establish that defense.
It bears emphasis that Kwong Nam had informed the appellant's medical
examiner that the tumor for which he was operated on was "associated with ulcer of
the stomach." In the absence of evidence that the insured had sufficient medical
knowledge as to enable him to distinguish between "peptic ulcer" and "a tumor", his
statement that said tumor was "associated with ulcer of the stomach, " should be
construed as an expression made in good faith of his belief as to the nature of his
ailment and operation. Indeed, such statement must be presumed to have been
made by him without knowledge of its incorrectness and without any deliberate
intent on his part to mislead the appellant.
While it may be conceded that, from the viewpoint of a medical expert, the
information communicated was imperfect, the same was nevertheless sufficient to
have induced appellant to make further inquiries about the ailment and operation of
the insured. Section 32 of Insurance Law [Act No. 24271 provides as follows:
Section 32. The right to information of material facts maybe waived either by
the terms of insurance or by neglect to make inquiries as to such facts where
they are distinctly implied in other facts of which information is
communicated.
It has been held that where, upon the face of the application, a question
appears to be not answered at all or to be imperfectly answered, and the insurers
issue a policy without any further inquiry, they waive the imperfection of the answer
and render the omission to answer more fully immaterial.
if the ailment and operation of Kwong Nam had such an important bearing
on the question of whether the defendant would undertake the insurance or not, the
court cannot understand why the defendant or its medical examiner did not make
any further inquiries on such matters from the Chinese General Hospital or require
copies of the hospital records from the appellant before acting on the application for
insurance. The fact of the matter is that the defendant was too eager to accept the
application and receive the insured's premium. It would be inequitable now to allow
the defendant to avoid liability under the circumstances.

G.R. No. 105135 June 22, 1995

SUNLIFE
ASSURANCE
COMPANY
OF
CANADA, petitioner,
vs.
The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA
BACANI, respondents.
QUIASON, J.:
FACTS: On April 15, 1986, Robert John B. Bacani procured a life insurance contract for
himself from SunLife valued at P100,000.00, with double indemnity in case of
accidental death. The designated beneficiary was his mother, Bernarda Bacani.
On June 26, 1987, the insured died in a plane crash. Bernarda Bacani filed a
claim with SunLife, seeking the benefits of the insurance policy taken by her son.
SunLIfe conducted an investigation and its findings prompted it to reject the claim.
In its letter, SunLIfe informed respondent Bernarda Bacani, that the insured did not
disclose material facts relevant to the issuance of the policy, thus rendering the
contract of insurance voidable. A check representing the total premiums paid in the
amount of P10,172.00 was attached to said letter. SunLife claimed that the insured
gave false statements in his application when he answered the following questions:
5. Within the past 5 years have you:
a) consulted any doctor or other health practitioner? -YES consultation with a
certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on
February 1986, for cough and flu complications.
b) submitted to:
EGG?
X-rays?
blood tests?
other tests?
c) attended or been admitted to any hospital or other medical facility?
6. Have you ever had or sought advice for:
b) urine, kidney or bladder disorder?
SunLife discovered that two weeks prior to his application for insurance, the
insured was examined and confined at the Lung Center of the Philippines, where he
was diagnosed for renal failure. During his confinement, the deceased was subjected to
urinalysis, ultra-sonography and hematology tests.
On November 17, 1988, Bernarda Bacani and her husband, Rolando Bacani,
filed an action for specific performance against SunLife with the RTC Metro Manila.
SunLife filed its answer with counterclaim and a list of exhibits consisting of medical
records furnished by the Lung Center of the Philippines. On January 14, 1990, Bacanis
filed a "Proposed Stipulation with Prayer for Summary Judgment" where they
manifested that they "have no evidence to refute the documentary evidence of
concealment/misrepresentation by the decedent of his health condition.

SunLife filed its Request for Admissions relative to the authenticity and due
execution of several documents as well as allegations regarding the health of the
insured. The Bacanis failed to oppose said request or reply thereto, thereby
rendering an admission of the matters alleged. SunLife then moved for a summary
judgment.
RTC decided in favor of the Bacanis. RTC concluded that the facts concealed by the
insured were made in good faith and under a 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 the decision of the trial court. The appellate court ruled that petitioner
cannot avoid its obligation by claiming concealment because the cause of death was
unrelated to the facts concealed by the insured.
Petitioner's motion for reconsideration was denied; hence, this petition.
ISSUE: WON SUNLIFE IS LIABLE- NO
HELD: The trial court erred in ruling that indeed there was concealment and
misrepresentation, however, the same was made in "good faith" and the facts
concealed or misrepresented were irrelevant since the policy was "non-medical".
Section 26 of The Insurance Code is explicit in requiring a party to a contract of
insurance to communicate to the other, in good faith, all facts within his knowledge
which are material to the contract and as to which he makes no warranty, and which
the other has no means of ascertaining. Said Section provides:
A neglect to communicate that which a party knows and ought to communicate,
is called concealment.
Materiality is to be determined not by the event, but solely by the probable
and reasonable influence of the facts upon the party to whom communication is due,
in forming his estimate of the disadvantages of the proposed contract or in making
his inquiries (The 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 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. The materiality of
the information withheld does not depend on the state of mind of the insured.
Neither does it depend on the actual or physical events which ensue.
Thus, "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

INSURANCE |Aug 1| 8
application for insurance, raises grave doubts about his bonafides. It appears that such
concealment was deliberate on his part.
On SunLife's waiver of the medical examination of the insured, the Court
explained that " . . . the waiver of a medical examination [in a non-medical insurance
contract] renders even more material the information required of the applicant
concerning previous condition of health and diseases suffered, for such information
necessarily constitutes an important factor which the insurer takes into consideration in
deciding whether to issue the policy or not . . . "
Moreover, such argument of private respondents would make Section 27 of
the Insurance Code, which allows the injured party to rescind a contract of insurance
where there is concealment, ineffective.
Anent the finding that the facts concealed had no bearing to the cause of
death of the insured, it is well settled that the insured need not die of the disease he
had failed to disclose to the insurer. It is sufficient that his non-disclosure misled the
insurer in forming his estimates of the risks of the proposed insurance policy or in
making inquiries.
Hence, SunLife properly exercised its right to rescind the contract of insurance
by reason of the concealment employed by the insured. It must be emphasized that
rescission was exercised within the two-year contestability period as recognized in
Section 48 of The Insurance Code.