Argente v. West Coast Life Insurance Co.

- Misrepresentation

51 PHIL 725

Facts:

A joint life insurance policy was issued to Bernardo Argente and his wife Vicenta upon
payment of premium, by West Coast. On Nov. 18, 1925, during the effectivity of the
policy, Vicenta died of cerebral apoplexy. The representations made by Bernardo
Argente and his wife in their applications to the defendant for life insurance were false
with respect to their estate of health during the period of five years preceding the date
of such applications, and that they knew the representations made by them in their
applications were false. Also, it was further found from the evidence that the answers
given by Bernardo Argente and his wife at the time of the medical examination by
Doctor Sta. Ana were false with respect to the condition of their health at that time and
for a period of several years prior thereto. Thereafter, Bernardo claimed payment but
was refused.

Issue:

Whether or not on the basis of the misrepresentations of Vicenta, Bernardo is barred

from recovery.

Ruling

YES.

One ground for the rescission of a contract of insurance under the Insurance Act is "a
concealment," which in section 25 is defined as "A neglect to communicate that which a
party knows and ought to communicate." The basis of the rule vitiating the contract in
case 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 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 court found that the representations made by Vicenta in his application for life
insurance were false with respect to her state of health and that she knew and was
aware that the representations so made by her were false.  In an action on a life
insurance policy where the evidence conclusively shows that the answers to questions
concerning diseases were untrue, the truth or falsity of the answer becomes the
determining factor.

If the policy was procured by fraudulent misrepresentations, the contract of insurance

apparently set forth therein was never legally existent.  It can be fairly assumed that
had the true facts been disclosed by the insured, the insurance would never have been
granted.
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

Ruling:

1. No.

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.

2. Yes.  

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.
Saturnino vs The Philippine American Life Insurance Company
G.R. No. L-16163 February 28, 1963

Facts:  

The policy sued upon is one for 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, detailed information is called for in the application
concerning the applicant’s health and medical history. The written application in this
case was submitted by Estefania A. Saturnino to appellee on November 16, 1957,
witnessed by appellee’s agent Edward A. Santos. The policy was issued on the same
day, upon payment of the first year’s premium of P339.25.

On September 19, 1958 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 this suit was
subsequently instituted.

It appears that two months prior to the issuance of the policy or on September 9, 1957,
Saturnino was operated on for cancer, involving complete removal of the right breast,
including the pectoral muscles and the glands found in the right armpit. She stayed in
the hospital for a period of eight days, after which she was discharged, although
according to the surgeon who operated on her she could not be considered definitely
cured, her ailment being of the malignant type. Notwithstanding the fact of her
operation, Saturnino 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; that she had not
consulted any physician, undergone any operation or suffered any injury within the
preceding five years; and that she had never been treated for nor did she ever have any
illness or disease peculiar to her sex, particularly of the breast, ovaries, uterus, and
menstrual disorders. The application also recites that the foregoing declarations
constituted “ a further basis of insurance policy”.

Issue:

Whether or not the failure of Saturnino to disclose the severity of his previous illness is
material to the avoidance of the insurance policy.

Ruling:

Yes. In the application for insurance signed by the insured in this case, she agreed to
submit to a medical examination by a duly appointed examiner of appellee if in the
latter’s opinion such examination was necessary as further evidence of insurability. In
not asking her to submit to a medical examination, appellants maintain, appellee was
guilty of negligence, which precluded it from finding about her actual state of health. No
such negligence can be imputed to appellee. It was precisely because the insured had
given herself a clean bill of health that appellee no longer considered an actual medical
checkup necessary.

In the first place the concealment of the fact of the operation itself was fraudulent, as
there could not have been any mistake about it, no matter what the ailment. Secondly,
in order to avoid a policy it is not necessary to show actual fraud on the part of the
insured.

In this jurisdiction 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” (Sections 24 & 26,
Act No. 2427). In the case of Argente v. West Coast Life Insurance Co., 51 Phil. 725,
732, this Court said, quoting from Joyce, The Law of Insurance, 2nd ed., Vol. 3:

“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 fact within his actual or presumed knowledge, is misled into a belief that the
circumstance withheld does not exist, and he is thereby induced to estimate the risk
upon a false basis that it does not exist.”
Canilang vs Court of Appeals
G.R. No. 92492 June 17, 1993

Facts: 

On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed
as suffering from “sinus tachycardia.” The doctor prescribed the following fro him:
Trazepam, a tranquilizer; and Aptin, a beta-blocker drug. Mr. Canilang consulted the
same doctor again on 3 August 1982 and this time was found to have “acute bronchitis.”
On next day, 4 August 1982, Jaime Canilang applied for a “non-medical” insurance
policy with respondent Great Pacific Life Assurance Company (“Great Pacific”) naming
his wife, Thelma Canilang, as his beneficiary. Jaime Canilang was issued ordinary life
insurance Policy No. 345163, with the face value of P19,700, effective as of 9 August
1982. On 5 August 1983, Jaime Canilang 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 on 5 December 1983 upon the ground that the
insured had concealed material information from it. Petitioner then filed a complaint
against Great Pacific with the Insurance Commission for recovery of the insurance
proceeds. During the hearing called by the Insurance Commissioner, petitioner testified
that she was not aware of any serious illness suffered by her late husband and that, as
far as she knew, her husband had died because of a kidney disorder. A deposition given
by Dr. Wilfredo Claudio was presented by petitioner. There Dr. Claudio stated that he
was the family physician of the deceased Jaime Canilang and that he had previously
treated him for “sinus tachycardia” and “acute bronchitis.” Great Pacific for its part
presented Dr. Esperanza Quismorio, a physician  and a medical underwriter working for
Great Pacific. She testified that the deceased’s insurance application had been approved
on the basis of his medical declaration. She explained that as a rule, medical
examinations are required only in cases where the applicant has indicated in his
application for insurance coverage that he has previously undergone medical
consultation and hospitalization.

Issue: 

Whether or not the non-disclosure of Jaime Canilang of his illness is material to the
validity of the claims from his insurance policy.

Ruling: 

Yes. 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. 15 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 ensue. 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.

In any case, in the case at bar, the nature of the facts not conveyed to the insurer was
such that the failure to communicate must have been intentional rather than merely
inadvertent. For Jaime Canilang could not have been unaware that his heart beat would
at times rise to high and alarming levels and that he had consulted a doctor twice in the
two (2) months before applying for non-medical insurance. Indeed, the last medical
consultation took place just the day before the insurance application was filed. In all
probability, Jaime Canilang went to visit his doctor precisely because of the discomfort
and concern brought about by his experiencing “sinus tachycardia.”

We find it difficult to take seriously the argument that Great Pacific had waived inquiry
into the concealment by issuing the insurance policy notwithstanding Canilang’s failure
to set out answers to some of the questions in the insurance application. Such failure
precisely constituted concealment on the part of Canilang. Petitioner’s argument, if
accepted, would obviously erase Section 27 from the Insurance Code of 1978.