Manila Bankers Life Insurance Corporation vs Aban

G.R. No. 175666 July 29, 2013

Facts: On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Manila Bankers Life Insurance
Corporation (Bankers Life), designating respondent Cresencia P. Aban (Aban), her niece, as her beneficiary.
Petitioner issued Insurance Policy No. 747411 (the policy), with a face value of P 100,000.00, in Sotero’s favor on
August 30, 1993, after the requisite medical examination and payment of the insurance premium. On April 10, 1996,
when the insurance policy had been in force for more than two years and seven months, Sotero died. Respondent
filed a claim for the insurance proceeds on July 9, 1996. Petitioner conducted an investigation into the claim, and
came out with the following findings: 1. Sotero did not personally apply for insurance coverage, as she was
illiterate; 2. Sotero was sickly since 1990; 3. Sotero did not have the financial capability to pay the insurance
premiums on Insurance Policy No. 747411; 4. Sotero did not sign the July 3, 1993 application for insurance; and 5.
Respondent was the one who filed the insurance application, and x x x designated herself as the beneficiary. For the
above reasons, petitioner denied respondent’s claim on April 16, 1997 and refunded the premiums paid on the
policy.

Issue: Whether or not Manila Bankers is barred from denying the insurance claims based on fraud or concealment.

Held: Yes. The “incontestability clause” is a provision in law that after a policy of life insurance made payable on
the death of the insured shall have been in force during the lifetime of the insured for a period of two (2) years from
the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is
rescindible by reason of fraudulent concealment or misrepresentation of the insured or his agent.

The purpose of the law is to give protection to the insured or his beneficiary by limiting the rescinding of the
contract of insurance on the ground of fraudulent concealment or misrepresentation to a period of only two (2) years
from the issuance of the policy or its last reinstatement.

The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or misrepresentation
within a period of two (2) years. It is not fair for the insurer to collect the premiums as long as the insured is still
alive, only to raise the issue of fraudulent concealment or misrepresentation when the insured dies in order to defeat
the right of the beneficiary to recover under the policy.

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

G.R. 204736, Manulife vs. Ybanez

Facts:

Manulife Philippines, Inc. (Manulife) instituted a Complaint7 for Rescission of Insurance Contracts against
Hermenegilda Ybañez (Hermenegilda) and the BPI Family Savings Bank (BPI Family).
It is alleged in the Complaint that Insurance which in favor of Dr. Gumersindo Solidum Ybañez (insured), were void
due to concealment or misrepresentation of material facts in the latter's applications for life insurance, particularly
the forms entitled Non-Medical Evidence (NME),10 Medical Evidence Exam dated September 10, 2002 (MEE),11
and the Declaration of Insurability in the Application for Life Insurance that He1menegilda, wife of the said insured,
was revocably designated as beneficiary in the subject insurance policies;

When one of the subject insurance policies had been in force for only one year and three months, while the other for
only four months, the insured died. Hermenegilda, now widow to the said insured, filed a Claimant's Statement-
Death Claim13 with respect to the subject insurance policies. For the reason of the alleged misrepresentation and
concealment, Manulife accordingly denied Hermenegilda's death claims and refunded the premiums that the insured
paid on the subject insurance policies.

Hermenegilda countered that: [Manulife's own insurance agent, Ms. Elvira Monteclaros herself] assured [the
insured,] that there would be no problem regarding the application for the insurance policy and it was her who filled
up everything in the questionnaire so that [all that the insured needed to do was sign it,]

Issue: WON Manulife can rescind the insurance contract on the ground of concealment

Held: NO. Manulife’s Complaint for rescission of the insurance policies in question was totally bereft of factual and
legal bases because it had utterly failed to prove that the insured had committed the alleged misrepresentation/s or
concealment/s of material facts imputed against him.

Manulife had utterly failed to prove by convincing evidence that it had been beguiled, inveigled, or cajoled into
selling the insurance to the insured who purportedly with malice and deceit passed himself off as thoroughly sound
and healthy, and thus a fit and proper applicant for life insurance. Manulife's sole witness gave no evidence at all
relative to the particulars of the purported concealment or misrepresentation allegedly perpetrated by the insured. In
fact, Victoriano merely perfunctorily identified the documentary exhibits adduced by Manulife; she never testified in
regard to the circumstances attending the execution of these documentary exhibits much less in regard to its
contents. Of course, the mere mechanical act of identifying these documentary exhibits, without the testimonies of
the actual participating parties thereto, adds up to nothing. These documentary exhibits did not automatically
validate or explain themselves. "The fraudulent intent on the part of the insured must be established to entitle
the insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon
the insurer."39 For failure of Manulife to prove intent to defraud on the part of the insured, it cannot validly sue for
rescission of insurance contracts.

Great Pacific v CA G.R. No. L-31845 April 30, 1979

Facts:

Ngo Hing filed an application with the Great Pacific for a twenty-year endowment policy in the amount of
P50,000.00 on the life of his one-year old daughter Helen. He supplied the essential data which petitioner
Mondragon, the Branch Manager, wrote on the form. The latter paid the annual premium the sum of P1,077.75
going over to the Company, but he retained the amount of P1,317.00 as his commission for being a duly authorized
agent of Pacific Life.

Upon the payment of the insurance premium, the binding deposit receipt was issued Ngo Hing. Likewise, petitioner
Mondragon handwrote at the bottom of the back page of the application form his strong recommendation for the
approval of the insurance application. Then Mondragon received a letter from 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 petitioner Mondragon
to private respondent 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 the
customers were asking for such coverage.

Helen Go died of influenza. Ngo Hing sought the payment of the proceeds of the insurance, but having failed in his
effort, he filed the action for the recovery before the Court of First Instance of Cebu, which ruled against him.

Issues:

1. Whether the binding deposit receipt constituted a temporary contract of the life insurance in question

2. Whether Ngo Hing concealed the state of health and physical condition of Helen Go, which rendered void the
policy

Held: No. Yes. Petition dismissed.

Ratio:

The receipt was intended to be merely a provisional insurance contract. Its perfection was subject to 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 refunded;
and (3) that if 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.

The receipt is merely an acknowledgment 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. There was
still approval or rejection the same on the basis of whether or not the applicant is "insurable on standard rates." Since
Pacific Life disapproved the insurance application of respondent Ngo Hing, the binding deposit receipt in question
had never become in force at any time. The binding deposit receipt is conditional and does not insure outright. This
was held in Lim v Sun.

The deposit paid by private respondent shall have to be refunded by Pacific Life.

Ngo Hing had deliberately concealed the state of health of his daughter Helen Go. When he supplied data, he
was fully aware that his one-year old daughter is typically a mongoloid child. He withheld the fact material to
the risk insured.

“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.”

The concealment entitles the insurer to rescind the contract of insurance.

Facts:

Kwong Nam applied for a 20-year endowment insurance on his life for the sum of P20,000.00, with his wife,
appellee Ng Gan Zee as beneficiary. On the same date, Asian Crusader, upon receipt of the required premium from
the insured, approved the application and issued the corresponding policy. Kwong Nam died of cancer of the liver
with metastasis. All premiums had been paid at the time of his death.

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

Appellee brought the matter to the attention of the Insurance Commissioner. The latter, after conducting an
investigation, wrote the appellant that he had found no material concealment on the part of the insured and that,
therefore, appellee should be paid the full face value of the policy. The company refused to settle its obligation.

Appellant alleged that the insured was guilty of misrepresentation when he answered "No" to the following question
appearing in the application for life insurance-

Has 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.

The lower court ruled against the company on lack of evidence.

Appellant further maintains that when the insured was examined in connection with his application for life
insurance, he gave the appellant's medical examiner false and misleading information as to his ailment and previous
operation. The company contended that he was operated on for peptic ulcer 2 years before the policy was applied
for and that he never disclosed such an operation.

Issue: WON Asian Crusader was deceived into entering the contract or in accepting the risk at the rate of premium
agreed upon because of insured's representation?

Held: No. Petition dismissed.

Ratio:

Section 27 of the Insurance Law:

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.

"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."
It has also been held "that the concealment must, in the absence of inquiries, be not only material, but fraudulent, or
the fact must have been intentionally withheld."

Fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. And as
correctly observed by the lower court, "misrepresentation as a defense of the insurer to avoid liability is an
'affirmative' defense. The duty to establish such a defense by satisfactory and convincing evidence rests upon the
defendant. The evidence before the Court does not clearly and satisfactorily establish that defense."

It bears emphasis that Kwong Nam had informed the appellant's medical examiner of the 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.

While the information communicated was imperfect, the same was sufficient to have induced appellant to make
further inquiries about the ailment and operation of the insured.

Section 32 of Insurance Law:

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.

Where 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.

The company or its medical examiner did not make any further inquiries on such matters from the hospital 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."

Edillon v Manila Bankers Life G.R. No. L-34200 September 30, 1982

Facts:

Carmen O, Lapuz applied with Manila Bankers for insurance coverage against accident and injuries. She
gave the date of her birth as July 11, 1904. She paid the sum of P20.00 representing the premium for
which she was issued the corresponding receipt. The policy was to be effective for 90 days.

During the effectivity, Carmen O. Lapuz died in a vehicular accident in the North Diversion Road.

Petitioner Regina L. Edillon, a sister of the insured and the beneficiary in the policy, filed her claim for
the proceeds of the insurance. Her claim having been denied, Regina L. Edillon instituted this action in
the trial court.

The insurance corporation relies on a provision contained in the contract excluding its liability to pay
claims under the policy in behalf of "persons who are under the age of sixteen (16) years of age or over
the age of sixty (60) years" They pointed out that the insured was over sixty (60) years of age when she
applied for the insurance coverage, hence the policy became void.

The trial court dismissed the complaint and ordered edillon to pay P1000. The reason was that a policy
of insurance being a contract of adhesion, it was the duty of the insured to know the terms of the
contract he or she is entering into.
The insured could not have been qualified under the conditions stated in said contract and should have
asked for a refund of the premium.

Issue:

Whether or not the acceptance by the insurance corporation of the premium and the issuance of the
corresponding certificate of insurance should be deemed a waiver of the exclusionary condition of
coverage stated in the policy.

Held: Yes. Petition granted.

Ratio:

The age of Lapuz was not concealed to the insurance company. Her application clearly indicated her age
of the time of filing the same to be almost 65 years of age. Despite such information which could hardly
be overlooked, the insurance corporation received her payment of premium and issued the
corresponding certificate of insurance without question.

There was sufficient time for the private respondent to process the application and to notice that the
applicant was over 60 years of age and cancel the policy.

Under the circumstances, the insurance corporation is already deemed in estoppel. It inaction to revoke
the policy despite a departure from the exclusionary condition contained in the said policy constituted a
waiver of such condition, similar to Que Chee Gan vs. Law Union Insurance.

The insurance company was aware, even before the policies were issued, that in the premises insured
there were only two fire hydrants contrary to the requirements of the warranty in question.

It is usually held that where the insurer, at the time of the issuance of a policy of insurance, has
knowledge of existing facts which, if insisted on, would invalidate the contract from its very inception,
such knowledge constitutes a waiver of conditions in the contract inconsistent with the known facts, and
the insurer is stopped thereafter from asserting the breach of such conditions.

To allow a company to accept one's money for a policy of insurance which it then knows to be void and
of no effect, though it knows as it must, that the assured believes it to be valid and binding, is so
contrary to the dictates of honesty and fair dealing.

Capital Insurance & Surety Co., Inc. vs. - involved a violation of the provision of the policy requiring the
payment of premiums before the insurance shall become effective. The company issued the policy upon
the execution of a promissory note for the payment of the premium. A check given subsequent by the
insured as partial payment of the premium was dishonored for lack of funds. Despite such deviation
from the terms of the policy, the insurer was held liable.

“... is that although one of conditions of an insurance policy is that "it shall not be valid or binding until
the first premium is paid", if it is silent as to the mode of payment, promissory notes received by the
company must be deemed to have been accepted in payment of the premium. In other words, a
requirement for the payment of the first or initial premium in advance or actual cash may be waived by
acceptance of a promissory note...”

Tan v CA G.R. No. 48049 June 29, 1989

Facts:

Tan Lee Siong, father of the petitioners, applied for life insurance in the amount of P 80,000.00 with
Philamlife. It was approved. Tan Lee Siong died of hepatoma. Petitioners then filed a claim for the
proceeds. The company denied petitioners' claim and rescinded the policy by reason of the alleged
misrepresentation and concealment of material facts. The premiums paid on the policy were refunded.
The petitioners filed a complaint in the Insurance Commission. The latter dismissed the complaint.

The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner's decision for
lack of merit. Hence, this petition.

Issue:

WON Philam didn’t have the right to rescind the contract of insurance as rescission must allegedly be
done during the lifetime of the insured within two years and prior to the commencement of action.

Held: No. Petition dismissed.

Ratio:

The Insurance Code states in Section 48:

“Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this
chapter, such right must be exercised previous to the commencement of an action on the contract.

After a policy of life insurance made payable on the death of the insured shall have been in force during
the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement,
the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.”

The so-called "incontestability clause" in the second paragraph prevents the insurer from raising the
defenses of false representations 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 policy was in force for a period of only one year and five months. Considering that the insured died
before the two-year period had lapsed, respondent company is not, therefore, barred from proving that
the policy is void ab initio by reason of the insured's fraudulent concealment or misrepresentation.

The "incontestability clause" added by the second paragraph of Section 48 is in force for two years. After
this, the defenses of concealment or misrepresentation no longer lie.
The petitioners argue that no evidence was presented to show that the medical terms were explained in
a layman's language to the insured. They also argue that no evidence was presented by respondent
company to show that the questions appearing in Part II of the application for insurance were asked,
explained to and understood by the deceased so as to prove concealment on his part. This couldn’t be
accepted because the insured signed the form. He affirmed the correctness of all the entries.

The company records show that the deceased was examined by Dr. Victoriano Lim and was found to be
diabetic and hypertensive. He was also found to have suffered from hepatoma. Because of the
concealment made by the deceased, the company was thus misled into accepting the risk and approving
his application as medically fit.