Insurance Case Digests

Insurance Law case digests SY 2010-2011

Interpretation of insurance contracts DIOSDADO C. TY vs. FIRST NATIONAL SURETY & ASSURANCE CO. INC. G.R. NO. L-16138, April 29, 961 1 SCRA 1324 Facts: Petitioner obtained personal accident policies which stipulated, among others, that for partial disability resulting to the loss of eith either er hand hand,, the the in insu sure rerr sh shal alll be liab liable le for for P6 P650 50.0 .00. 0. It was was further stated in the policies that, “That loss of a hand shall mean the loss by amputation through the bones of the wrist.” A fire broke out which totally destroyed Broadway Cotton Factory, Ty’ Ty’s s empl employ oyer er.. Figh Fighti ting ng hi his s way way out out of the the fact factor ory, y, Ty was was inju in jure red d on the the left left hand hand by a hea heavy obje object ct.. As a resu result lt,, Ty suff su ffer ered ed a temp tempor orar ary y tota totall di disa sabi bili lity ty of hi his s left left hand hand whic which h prevented hi from performing his work or labor necessary in the pursuance of his occupation. Issue: Whether or not the insurer is liable Held: The insurer was not liable. We can not go beyond the clear and express conditions of the insurance policies, all of which defined partial disability as loss of either hand by amputation through the bones of the wrist. There was no such amputation. All that was found was that the physical injuries caused temporary total disability of Ty’s left hand. We might add that the agreement cont contai aine ned d in the the in insu sura ranc nce e polic policie ies s are are clea clear, r, expr expres ess s and and specif ecific ic tha that only amputati tation on of the the left left hand should be cons consid ider ered ed as a loss loss ther thereo eof, f, an in inte terp rpre reta tati tion on that that woul would d incl in clud ude e the the mere mere frac fractu ture re or othe otherr temp tempor orar ary y di disa sabi bilit lity y not not covered by the policies would certainly be unwarranted. WHEREFO WHEREFORE, RE, the decision decision appealed appealed from is hereby hereby affirmed affirmed,, with costs against the plaintiff-appellant.


Interpretation of insurance contracts SIMON DE LA CRUZ vs. THE CAPITAL INSURANCE AND SURETY CO., INC. G.R. No. L-21574, June 30, 1966 17 SCRA 599 FACTS: Eduardo de la Cruz, the son of herein petitioner, was the holder of an accid iden entt in ins suran rance polic olicy y. In con connecti ection on with ith the the celebr celebrat ation ion of the New New Year, Year, the ins insure ured, d, a non-p non-prof rofess ession ional al boxer, participated in a boxing contest. In the course of his bout with another person, likewise a non-professional, of the same height, weight, and size, Eduardo slipped and was hit by his oppo oppone nent nt on the the left left part part of the the back back of the the head head,, caus causin ing g Eduardo to fall, with his head hitting the rope of the ring. The insured died with the cause of death reported as “hemorrhage intercranial, left”. The insurer refused to pay the proceeds of the policy on the ground that the death of the insured, caused by his participation in a boxing contest, was not accidental and, therefore, not covered by insurance. ISSUE: Whether or not the death of the insured is covered by the policy HELD: The terms “accident” and “accidental” as used in the insurance contra contract, ct, have have not not acqu acquire ired d any any techn technica icall mean meaning ing,, and and are construed by the courts in their ordin ina ary and common acceptation. Thus, the terms have been taken to mean that which happen by chance or fortuitously, without intention and design, and which is unexpected, unusual, and unforeseen. An accident is an event that proceeds from an unknown cause and, therefore, not expected. Without the unintentional slipping of the deceased, perhaps he would not have received the blow in the head and would not have died. Boxing is attended with some risks of external injuries, but any injury received in the course of the game could be accidental. In boxing, as in other equa equall lly y phys physic ical ally ly rigo rigoro rous us sp spor orts ts,, su such ch as bask basket etb ball all or base baseba ball ll,, death eath is not ordi ordina nari rily ly anti antici cipa pate ted d to resu result lt.. If, If, therefore, it ever does, the injury or death can only be accidental accidental or produced by some unforeseen happening happening or event as what occurred in this case. The insurer was liable.


WHEREFORE, in view of the foregoing, considerations, the decision appealed from is hereby affirmed, with costs against appellant, so ordered.


Interpretation of insurance contracts MISAMIS LUMBER CORPORATION vs. CAPITAL INSURANCE AND SURETY CO., INC. G.R. No. L-21380, May 20, 1966 17 SCRA 228 FACTS: Misamis Lumber has insured its Ford Falcon motor car for the amount of P14,000.00 with Capital Insurance & Surety. It is included in the policy that the insured may authorize the repair of the said vehicle and that the insurance company will be liable for it provided that a detailed estimate of the cost is forwarded immediately to the insurance company and that the estimated cost of such repair shall not exceed the authorized Repair Limit which is set at P150.00. Sometime after, the car figured in a minor accident that broke its crankcase and flywheel. The plaintiff then had it repaired, the repair costs totaled P302.27. However, the insurance company refused to pay for the total cost of repairs because it claimed that the cost exceeded that which was stipulated as the repair limit. ISSUE: Whether or not the insurance company is held liable for the cost of repair which exceeded the stipulated repair limit HELD: The Insurance Company is liable for only P150.00. The insurance policy stipulated in paragraph 4 that if the insured authorizes the repair the liability of the insurer, per its subparagraph (a) is limited to P150.00. The literal meaning of this stipulation must control, it being the actual contract, expressly and plainly provided for in the policy. The insurance contract may be rather onerous (“one-sided” as the lower court put it), but that in itself does not justify the abrogation of its express terms, terms which the insured accepted or adhered to and which is the law between the contracting parties. Finally, to require the insurer to prove that the cost of the repairs ordered by the insured is unreasonable, as the appealed decision does, when the insurer was not given an opportunity to inspect and assess the damage before the repairs were made, strikes us as contrary to elementary justice and equity.


For the foregoing reasons, the appealed decision is hereby modified by ordering the defendant-appellant Capital Insurance & Surety Company, Inc. to pay not more than P150.00 to the plaintiff-appellee Misamis Lumber Corporation. Each party shall bear its own costs and attorney’s fees.


Interpretation of insurance contracts JEWEL VILLACORTA vs. THE INSURANCE COMMISSION G.R. No. L-54171, 28 October 1980 100 SCRA 467 FACTS: Villacorta had her Colt Lancer car insured with Empire Insurance Company against own damage, theft and 3rd party liability. While the car was in the repair shop, one of the employees of the said repair shop took it out for a joyride after which it figured in a vehicular accident. This resulted to the death of the driver and some of the passengers as well as to extensive damage to the car. Villacorta filed a claim for total loss with the said insurance company. However, it denied the claim on the ground that the accident did not fall within the provisions of the policy either for the Own Damage or Theft coverage, invoking the policy provision on “Authorized Driver Clause”. This was upheld by the Insurance Commission further stating that the car was not stolen and therefore not covered by the Theft Clause because it is not evident that the person who took the car for a joyride intends to permanently deprive the insured of his/ her car. ISSUE: Whether or not the insurer company should pay the said claim HELD: Yes. Where the insured’s car is wrongfully taken without the insured’s consent from the car service and repair shop to whom it had been entrusted for check-up and repairs (assuming that such taking was for a joy ride, in the course of which it was totally smashed in an accident), respondent insurer is liable and must pay insured for the total loss of the insured vehicle under the Theft Clause of the policy. Assuming, despite the totally inadequate evidence, that the taking was “temporary” and for a “joy ride”, the Court sustains as the better view that which holds that when a person, either with the object of going to a certain place, or learning how to drive, or enjoying a free ride, takes possession of a vehicle belonging to another, without the consent of its owner, he is guilty of theft because by taking possession of the personal property belonging to another and using it, his intent to gain is


evident since he derives therefrom utility, satisfaction, enjoymet and pleasure. ACCORDINGLY, the appealed decision is set aside and judgment is hereby rendered sentencing private respondent to pay petitioner the sum of P35,000.00 with legal interest from the filing of the complaint until full payment is made and to pay the costs of suit.


Interpretation of insurance contracts SIMEON DEL ROSARIO vs. THE EQUITABLE INSURANCE and CASUALTY CO., INC.

G.R. No. L-16215, June 29, 1963 8 SCRA 343 FACTS: The defendant insurance company issued a personal accident policy on the life of Francisco del Rosario, herein plaintiff’s son, binding itself to pay the sum of P1,000.00 to P3,000.00 as indemnity for the death of the insured. In the said policy, for the different causes of death, disability of the insured, there is a corresponding is a specific amount as indemnity. As for death due to drowning, there was no specific amount, hence, an ambiguous provision. Later, Francisco died of drowning as he was forced to jump off the motor launch on which he was riding on account of fire that broke out on the said vessel. Simeon then filed a claim for payment with defendant company which then paid him the sum of P1,000.00. However, Simeon’s lawyer, informed the said company that the amount was wrong. In turn, the defendant company referred the matter to the Insurance Commissioner, who rendered an opinion that the liability of the company was only P1,000.00. Hence, it refused to pay more than P1,00.00. A complaint for the recovery of the balance of P2,000.00 was instituted with the CFI of Rizal. ISSUE: Whether or not the amount paid is the correct indemnity HELD: And so it has been generally held that the “terms in an insurance policy, which are ambiguous, equivocal or uncertain… are to be construed strictly against, the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved,” and the reason for this rule is that the “insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by expert and legal advisers employed by, and acting exclusively in the interest of, the insurance company”.


Where two interpretations, equally fair, of languages used in an insurance policy may be made, that which allows the greater indemnity will prevail. At any event, the policy under consideration, covers death or disability by accidental means, and the appellant insurance company agreed to pay P1,000.00 to P3,000.00 is indemnity for death of the insured. In view of the conclusions reached, it would seem unnecessary to discuss the other issued raised in the appeal. The judgment appealed from is hereby affirmed. Without costs.

Interpretation of insurance contracts VIOLETA LALICAN vs. THE INSULAR LIFE ASSURANCE COMPANY LIMITED G.R. No. 183526, August 25, 2009, 597 SCRA 159 FACTS: Eulogio, the husband of herein petitioner, applied for an insurance policy the value of which is P1,500,000.00. Under the policy terms, Eulogio is obliged to pay the premiums on a quarterly basis, until the end of the 20-year period of the policy. It was likewise stated therein that the insured has 31-day grace period for the payment of each premium subsequent to the first and that default in any payment of said premiums shall result in the automatic lapse of the said policy. Eulogio failed to pay a premium even after the lapse of the 31-day grace period. Hence, the policy lapsed and became void. He filed an Application for Reinstatement of said policy and paying the amount of the premium due. However, Insular Life notified him that they could not fully process his application because the amount he paid is inadequate to cover the accrued interests. Hence, he again applied for the reinstatement of said policy this time, together with the required amount. The husband of the insurance agent was the one who received his application because the agent was away at that time. Within the same day, the insured died. This fact was unknown to the agent who then submitted Eulogio’s application for reinstatement to the Insular Life Regional Office. Violeta then filed a claim for payment of the full proceeds of the policy. However, the company said that she is not entitled to the insurance proceeds because they claimed that the policy


was not reinstated during her husband’s lifetime and good health. ISSUE: Whether or not Eulogio was able to reinstate the lapsed insurance policy before his death HELD: NO. The Court agrees with the RTC that the conditions for reinstatement under the Policy Contract and Application for Reinstatement were written in clear and simple language, which could not admit of any meaning or interpretation other than those that they so obviously embody. Violeta did not adduce any evidence that Eulogio might have failed to fully understand the import and meaning of the provisions of his Policy Contract and/or Application for Reinstatement both of which he voluntarily signed. While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in favor of the insured and strictly as against the insurer company, yet, contracts of insurance, like other contracts are to be construed according to the sense and meaning of the terms, which the parties themselves have used, if such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. WHEREFORE, premises considered, the Court DENIES the instant Petition for Review on Certiorari under Rule 45 of the Rules of Court. The Court AFFIRMS the Orders dated 10 April 2008 and 3 July 2008 of the RTC of Gapan City, Branch 34, in Civil Case No. 2177, denying petitioner Violeta R. Lalican’s Notice of Appeal, on the ground that the Decision dated 30 August 2007 subject thereof, was already final and executor. No costs. Estoppel as applied to insurance contracts QUA CHEE GAN vs. LAW UNION AND ROCK INSURANCE CO., LTD. G.R. No. L-4611, 17 December 1955 FACTS: Plaintiff-appellee owned four bodegas used for the storage of copra and hemp. These buildings, together with their contents, were insured with the defendant company since 1937 and the loss made payable to the Philippine National Bank as mortgage of the hemp and crops, to the extent of its interest.


Sometime after, three of the bodegas, together with the merchandise inside, were completely destroyed by fire of an undetermined origin. Consequently, Qua Chee Gan notified the insurance company of his loss. The latter conducted an extensive investigation. The damage was determined to be equivalent to P398,562.81 which was later reduced to the full amount of the insurance, Php370,000.00. However, the insurance company refused payment, claiming violation of warranties and conditions, filing of fraudulent claims, and that the fire had been deliberately caused by the insured or by other persons in connivance with him. If moreover argued that since the bodegas insured had an external wall perimeter of 500 meters or 1,640 feet, the appellee should have 11 fire hydrants in the compound, and that he actually had only 2 with a further pair nearby, belonging to the municipality of Tabaco. ISSUE: Whether or not the insurer company is liable HELD: YES. The SC is in agreement with the trial court that the appellant is barred by waiver (or rather estoppel) to claim violation of the so-called fire hydrants warranty, for the reason that knowing fully all that the number of hydrants demanded therein never existed from the very beginning, the appellant nevertheless issued the policies in question subject to such warranty, and received the corresponding premiums. It would be perilously close to conniving at fraud upon the insured to allow appellant to claims now as void ab initio the policies that it had issued to the plaintiff without warining of their fatal defect, of which it was informed, and after it had misled the defendant into believing that the policies were effective. The contract of insurance is one of perfect good faith (uferrimal fidei) not for the insured alone, but equally so for the insurer, in fact, it is mere so for the latter, since its dominant bargaining position carries with it stricter responsibility. We find no reversible error in the judgment appealed from, wherefore the same is hereby affirmed. Costs against the appellant.


Estoppel due to insurer’s inequitable conduct FIELDMEN’S INSURANCE CO., INC. vs. MERCEDES VDA. DE SONGCO G.R. No. L-24833, 23 September 1968 FACTS: Federico Songco, a man who was only able to finish grade 1, owned a private jeepney which he, through the inducement of Fieldmen’s insurance agent, insured with the plaintiff company. The policy is a Common Carrier’s Accident Insurance Policy. The insurance agent told Federico that whether his vehicle was an “owner” type or for passengers it could be insured because their company is not owned by the Governent and that the Government has nothing to do with their company, hence, they could do what they please whenever they believe a vehicle is insurable. During the policy’s covered period, the insured vehicle while being driven by Rodolfo, a duly licensed driver and son of Federico figured in a vehicular accident resulting in the death of both father and son as well as physical injuries to the other passengers of the jeepney. The insurance company refused payment. ISSUE: Whether or not the insurance company is liable HELD: YES. Where inequitable conduct is shown by an insurance firm, it is “estopped from enforcing forfeitures in its favor, in order to forestall fraud or imposition on the insured.” After petitioner Fieldmen’s Insurance Co., Inc. had led the insured Federico Songco to believe that he could qualify under the common carrier liability insurance policy, and to enter into contract of insurance paying the premiums due, it could not, thereafter, in any litigation arising out of such representation, be permitted to change its stand to the detriment of the heirs of the insured. As estoppel is primarily based on the doctrine of good faith and the avoidance of harm that will befall the innocent party due to its injurious reliance, the failure to apply it in this case would result in a gross travesty of justice. That is all that needs be said insofar as the first alleged error of respondent Court of Appeals is concerned, petitioner being adamant in its far-from-reasonable plea that estoppels could not be invoked by the heirs of the insured as a bar to the alleged breach of warranty and condition in the policy. It would


now rely on the fact that the insured owned a private vehicle, not a common carrier, something which it knew all along when not once but twice its agent, no doubt without any objection in its part, exerted the utmost pressure on the insured, a man of scant education, to enter into such a contract. WHEREFORE, the decision of respondent Court of Appeals of July 20, 1965, is affirmed in its entirety. Costs against petitioner Fieldmen’s Insurance Co., Inc.


Automatic Insurance Coverage ETERNAL GARDENS MEMORIAL PARK CORPORATION vs. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY G.R. No. 166245, 9 April 2008 FACTS: Respondent insurance company entered into a Creditor Group Life Policy agreement with Eternal Gardens Memorial. Under said policy, the clients of Eternal who purchased burial lots from it on installment basis would be insured by Philamlife. The amount of insurance coverage depended upon the existing balance of the purchased burial lots. The policy was to be effective for a period of one year, renewable on a yearly basis. As required under the said policy, Eternal submitted a list of all new lot purchasers, including the application of each purchaser and their corresponding unpaid balances. Included in this list is a certain John Chuang. When Chuang died, Eternal sent a letter, together with the pertinent papers, to Philamlife which served as an insurance claim for Chuang’s death. Philamlife required that Eternal submit certain documents relative to its insurance claim for Chuang’s death. Eternal transmitted said documents which Philamlife was able to received. However, after more than one year, Philamlife did not anymore reply to Eternal’s insurance claim. This prompted Eternal to demand the insurance claims. However, Philamlife denied the said claim, prompting Eternal to file a case before the RTC of Makati. ISSUE: Whether or not Philamlife assumed the risk of loss without approving the application. HELD: YES. An insurance contract covering the lot purchaser is created and the same is effective, valid, and binding until terminated by Philamlife by disapproving the insurance application. The second sentence of Creditor Group Life Policy No. P-1920 on the Effective Date of Benefit is in the nature of a resolutory condition which would lead to the cessation of the insurance contract. Moreover, the mere inaction of the insurer on the insurance application must not work to prejudice the insured; it cannot be interpreted as a termination of the insurance contract. The termination of the insurance contract by the insurer must be explicit and unambiguous.


More often than not, insurance contracts are contracts of adhesion containing technical terms and conditions of the industry, confusing if at all understandable to laypersons, that are imposed on those who wish to avail of insurance. As such, insurance contracts are imbued with public interest that must be considered whenever the rights and obligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest of insurance applicants, insurance companies must be obligated to act with haste upon insurance applications, to either deny or approve the same, or otherwise be bound to honor the application as a valid, binding, and effective insurance contract. WHEREFORE, we GRANT the petition.

When estoppel not applied to insurance contracts JAMES STOKES vs. MALAYAN INSURANCE CO., INC. G.R. No. L-34768, 24 February 1984 127 SCRA 766 FACTS: Daniel Adolfson had a subsisting Malayan car insurance policy with coverage against own damage as well as 3 rd party liability when his car figured in a vehicular accident with another car, resulting to damage to both vehicles. At the time of the accident, Adolfson’s car was being driven by James Stokes, who was authorized to do so by Adolfson. Stokes, an Irish tourist who had been in the Philippines for only 90 days, had a valid and subsisting Irish driver’s license but without a Philippine driver’s license. Adolfson filed a claim with Malayan but the latter refused to pay contending that Stokes was not an authorized driver under the “Authorized Driver” clause of the insurance policy in relation to Section 21 of the Land Transportation Office. ISSUE: Whether or not Malayan is liable to pay the insurance claim of Adolfson HELD: NO. A contract of insurance is a contract of indemnity upon the terms and conditions specified therein. When the insurer is called upon to pay in case of loss or damage, he has the right to insist upon compliance with the terms of the contract. If the


insured cannot bring himself within the terms and conditions of the contract, he is not entitled as a rule to recover for the loss or damage suffered. For the terms of the contract constitute the measure of the insurer’s liability, and compliance therewith is a condition precedent to the right of recovery. At the time of the accident, Stokes had been in the Philippines for more than 90 days. Hence, under the law, he could not drive a motor vehicle without a Philippine driver’s license. He was therefore not an “authorized driver” under the terms of the insurance policy in question, and Malayan was right in denying the claim of the insured. Acceptance of premium within the stipulated period for payment thereof, including the agreed period of grace, merely assures continued effectivity of the insurance policy in accordance with its terms. Such acceptance does not estop the insurer from interposing any valid defense under the terms of the insurance policy. The principle of estoppel is an equitable principle rooted upon natural justice which prevents a person from going back on his own acts and representations to the prejudice of another whom he has led to rely upon them. The principle does not apply to the instant case. In accepting the premium payment of the insured, Malayan was not guilty of any inequitable act or representation. There is nothing inconsistent between acceptance of premium due under an insurance policy and the enforcement of its terms. WHEREFORE, the appealed judgment is reversed. The complaint is dismissed. Costs against appellees.

Change of irrevocable beneficiaries to revocable beneficiaries need consent of the irrevocable beneficiaries THE PHILIPPINE AMERICAN INSURANCE COMPANY vs. HONORABLE GREGORIO G. PINEDA G.R. No. L-54216, 19 July 1989 175 SCRA 416 FACTS: On January 15, 1968, Rodolfo Dimayuga procured an ordinary life insurance policy from the petitioner company and designated his wife and children as irrevocable beneficiaries of said policy. In February 22, 1980, Dimayuga filed a petition before the CFI of Rizal to amend the designation of the beneficiaries in his life policy from irrevocable to revocable.


ISSUE: 1) Whether or not the designation of the irrevocable beneficiaries could be changed or amended without the consent of all the irrevocable beneficiaries. 2) Whether or not the irrevocable beneficiaries, one of whom is already deceased while the others are all minors, could validly give consent to such amendment HELD:

1) NO. Needless to say, the applicable law in the instant case is the Insurance Act, otherwise known as Act No. 2427 as amended, the policy having been procured in 1968. Under the said law, 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 the policy. Inevitably therefore, based on the aforequoted provision of the contract, not to mention the law then applicable, 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. 2) NO. the alleged acquiescence of the six 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 children named as beneficiaries were 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. WHEREFORE, premises considered, the questioned Orders of the respondent Judge are hereby nullified and set aside.

Common-law spouse is disqualified to be the beneficiary of insured


THE INSULAR LIFE ASSURANCE COMPANY, LTD. Vs. CARPONIA T. EBRADO G.R. No. L-44059, 28 October 1977 80 SCRA 181 FACTS: Buenaventura Ebrado was issued by petitioner company an insurance policy wherein he designated Carponia, his commonlaw wife, as his revocable beneficiary. When Buenaventura died, Carponia filed with the insurer a claim for the proceeds of the policy in the total amount of P11,745.73. Pascuala Vda. de Ebrado, Buenaventura’s legal wife, likewise filed her claim as the widow of the deceased insured. She asserts that she is the one entitled to the insurance proceeds, not the common-law wife, Carponia. ISSUE: Whether or not a common-law wife named as beneficiary in the life insurance policy of a legally married man can claim the proceeds thereof in case of death of the latter HELD: NO. When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is governed by the general rules of the civil law regulating contracts. And under Article 2012 of the same Code, “any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy by the person who cannot make a donation to him. Common-law spouses are, definitely, barred from receiving donations from each other. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy which the insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of the new Civil Code should equally operate in life insurance contracts. The mandate of Article 2012 cannot be laid aside: any person who cannot receive a donation cannot be named as beneficiary in the life insurance policy of the person who cannot make the donation. Under American law, a policy of life insurance is considered as a testament and in construing it, the courts will, so far as possible treat it as a will


and determine the effect of a clause designating the beneficiary by rules under which wins are interpreted. ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby declared disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance policy. As a consequence, the proceeds of the policy are hereby held payable to the estate of the deceased insured. Costs against Carponia T. Ebrado

Health Care agreement is in the nature of non-life insurance PHILAMCARE HEALTH SYSTEMS, INC. vs. COURT OF APPEALS G.R. No. 125678, 18 March 2002 FACTS: Ernani Trinos obtained a health care coverage with petitioner Philamcare. Under the agreement, Trinos was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was entitled to avail of “out-patient benefits” such as annual physical examinations, preventive health care and other out-patient services. During the period of coverage, Trinos suffered a heart attack and was hospitalized for one month. During this time, his wife, Julita Trinos, tried to claim the benefits under the health care agreement but petitioner company denied her claim on the ground that the Health Care Agreement was void because there was concealment regarding Ernani’s medical history. Doctors allegedly discovered at the time of Ernani’s confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus Julita paid the hospitalization expenses herself. When Ernani died, Julita instituted with the RTC of Manila an action for damages against petitioner and its president. She asked for reimbursement of her expenses plus moral damages and attorney’s fees. ISSUE: Whether or not the petitioner is liable HELD: YES. 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. 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. It is not controverted that respondent paid all the hospital and medical expenses. She is therefore entitled to reimbursement. The records adequately prove the expenses incurred by respondent for the deceased’s hospitalization, medication and the professional fees of the attending physicians. WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals dated December 14, 1995 is AFFIRMED.


Concealment SUNLIFE ASSURANCE COMPANY OF CANADA vs. COURT OF APPEALS G.R. No. 105135, 22 June 1995 FACTS: Robert John Bacani procured a life insurance contract for himself from petitioner-company, designating his mother Bernarda Bacani, herein private respondent, as the beneficiary. He was issued a policy valued at P100,000.00 with double indemnity in case of accidental death. Sometime after, the insured died in a plane crash. Bernarda filed a claim with petitioner, seeking the benefits of the insurance policy taken by her son. However, said insurance company rejected the claim on the ground that the insured did not disclose material facts relevant to the issuance of the policy, thus rendering the contract of insurance voidable. Petitioner 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. The RTC, as affirmed by the CA, this fact was concealed, as alleged by the petitioner. But the fact that was concealed was not the cause of death of the insured and that matters relating to the medical history of the insured is deemed to be irrelevant since petitioner waived the medical examination prior to the approval and issuance of the insurance policy. ISSUE: Whether or not the concealment of such material fact, despite it not being the cause of death of the insured, is sufficient to render the insurance contract voidable HELD: YES. 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. 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.


The SC, therefore, ruled that petitioner 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. WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED and SET ASIDE.


Waiver of medical examination IGNACIO SATURNINO vs. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY G.R. No. L-16163, 28 February 1963 FACTS: Estefania Saturnino obtained a 20-year endowment non-medical insurance. This kind of policy dispenses with the medical examination of the applicant usually required in ordinary life policies. However, two months prior to the issuance of the policy, Saturnino was operated on for cancer, involving mastectomy of the right breast. She did not make a disclosure thereof in her application for insurance. On the contrary, she stated therein that she did not have, nor had she ever had, among other ailments listed in the application, cancer or other tumors. Sometime after, Saturnino died of pneumonia, secondary to influenza. Appellants here, who are her surviving husband and minor child, respectively, demanded payment of the face value of the policy. The claim was rejected and hence an action was subsequently instituted. ISSUE: Whether or not the insured made such false representations of material facts as to avoid the policy HELD: YES. The Insurance Law provides that “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 proposed contract, or in making his inquiries.” The waiver of medical examination 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. It is logical to assume that if appellee had been properly apprised of the insured’s medical history she would at least have been made to undergo medical examination in order to determine her insurability. A concealment, whether intentional or unintentional, entitles the insurer to rescind the contract of insurance, concealment being defined as “negligence to communicate that which a


party knows and ought to communicate”. The basis of the rule vitiating the contract in cases of concealment 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 facts 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 judgment appealed from, dismissing the complaint and awarding the return to appellants of the premium already, paid, with interest at 6% up to January 29, 1959, affirmed, with costs against appellants.

Materiality of the information THELMA VDA. DE CANILANG vs. COURT OF APPEALS G.R. No. 92492, 17 June 1993 FACTS: Jaime Canilang applied for a “non-medical” insurance policy with respondent Great Pacific Life Assurance Company naming his wife, Thelma Canilang as his beneficiary. But he did not disclose the fact that he was diagnosed as suffering from sinus tachycardia and that he has consulted a doctor twice. Jaime was issued an ordinary life insurance policy with the face value of P19,700.00. Jaime died of “congestive heart failure”, “anemia”, and “chronic anemia”. Petitioner widow and beneficiary of the insured, filed a claim with Great Pacific which the insurer denied upon the ground that the insured had concealed material information from it. Hence, Thelma filed a complaint against Great Pacific with the Insurance Commission for recovery of the insurance proceeds. ISSUE: Whether or not the non-disclosure of certain facts about the insured’s previous health conditions is material to warrant the denial of the claims of Thelma Canilang HELD: YES. The SC agreed with the Court of Appeals that the information which Jaime Canilang failed to disclose was material to the ability of Great Pacific to estimate the probable risk he


presented as a subject of life insurance. Had Canilang disclosed his visits to his doctor, the diagnosis made and medicines prescribed by such doctor, in the insurance application, it may be reasonably assumed that Great Pacific would have made further inquiries and would have probably refused to issue a non-medical insurance policy or, at the very least, required a higher premium for the same coverage. The materiality of the information withheld by Great Pacific did not depend upon the state of mind of Jaime Canilang. A man’s state of mind or subjective belief is not capable of proof in our judicial process, except through proof of external acts or failure to act from which inferences as to his subjective belief may be reasonably drawn. Neither does materiality depend upon the actual or physical events which ensure. Materiality relates rather to the “probable and reasonable influence of the facts” upon the party to whom the communication should have been made, in assessing the risk involved in making or omitting to make further inquiries and in accepting the application for insurance; that “probable and reasonable influence of the facts” concealed must, of course, be determined objectively, by the judge ultimately. WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the Court of Appeals dated 16 October 1989 in C.A.-G.R. SP No. 08696 is hereby AFFIRMED. No pronouncement as to the costs.

Effect of partial payment of premium PHILIPPINE PHOENIX SURETY & WOODWORKS, INC. G.R. No. L-22684, 31 August 1967

INSURANCE,

INC.

vs.

FACTS: Plaintiff Philippine Phoenix Surety issued to defendant company a fire insurance policy for the amount of P300,000.00. The defendant was obligated to pay P6,051.95 as premium of the said policy. However, the defendant was only able to pay P3,000.00. Despite several demands made by the plaintiff on the defendant to pay the amount of P3,522.09, the latter failed to pay. ISSUE:


Whether or not the insurance company has the right to demand the balance of the premium HELD: YES. There is, consequently, no doubt at all that, as between the insurer and the insured, there was not only a perfected contract of insurance but a partially performed one as far as the payment of the agreed premium was concerned. Thereafter the obligation of the insurer to pay the insured the amount for which the policy was issued in case the conditions therefor had been complied with, arose and became binding upon it, while the obligation of the insured to pay the remainder of the total amount of the premium due became demandable. As the contract had become perfected, the parties could demand from each other the performance of whatever obligations they had assumed. In the case of the insurer, it is obvious that it had the right to demand from the insured the completion of the payment of the premium due or sue for the rescission of the contract. As it chose to demand specific performance of the insured’s obligation to pay the balance of the premium, the latter’s duty to pay is indeed indubitable. Wherefore, the appealed decision being in accordance with law and the evidence, the same is hereby affirmed, with costs.


Incontestability Clause EMILIO TAN vs. COURT OF APPEALS G.R. No. 48049, 29 June 1989 FACTS: Tan Lee Siong, father of herein petitioners, applied for life insurance in the amount of P80,000.00 with respondent company Philippine American Life Insurance Company. Said application was approved and a corresponding policy was issued effective November 5, 1973, with petitioners as the beneficiaries. On April 26, 1975, Tan Lee Siong died of hepatoma. Hence, petitioners filed with respondent company their claim for the proceeds of the life insurance policy. However, the insurance company denied the said claim and rescinded the policy by reason of the alleged misrepresentation and concealment of material facts made by the deceased Tan Lee Siong in his application for insurance. The premiums paid on the policy were thereupon refunded. 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 or not the insurance company has the right to rescind the contract of insurance despite the presence of an incontestability clause HELD: YES. 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 insured’s lifetime. The phrase “during the lifetime” found in Section 48 of the Insurance Law 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”. 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 has 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 November 11, 1975, previous to the commencement of this action on November 27, 1975. WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision of the Court of Appeals is AFFIRMED.

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