INSURANCE | August 15 |1

G.R. No. L-34200 September 30, 1982

REGINA
L.
EDILLON,
as
assisted
by
her
husband,
MARCIAL
EDILLON, petitioners-appellants,
vs.
MANILA BANKERS LIFE INSURANCE CORPORATION and the COURT OF FIRST
INSTANCE OF RIZAL, BRANCH V, QUEZON CITY, respondents-appellees.
K.V. Faylona for petitioners-appellants.
L. L. Reyes for respondents-appellees.

VASQUEZ, J.:
The question of law raised in this case that justified a direct appeal from a decision of
the Court of First Instance Rizal, Branch V, Quezon City, to be taken directly to the
Supreme Court is whether or not the acceptance by the private respondent insurance
corporation of the premium and the issuance of the corresponding certificate of
insurance should be deemed a waiver of the exclusionary condition of overage stated in
the said certificate of insurance.
The material facts are not in dispute. Sometime in April 1969, Carmen O, Lapuz
applied with respondent insurance corporation for insurance coverage against accident
and injuries. She filled up the blank application form given to her and filed the same
with the respondent insurance corporation. In the said application form which was
dated April 15, 1969, she gave the date of her birth as July 11, 1904. On the same
date, she paid the sum of P20.00 representing the premium for which she was issued
the corresponding receipt signed by an authorized agent of the respondent insurance
corporation. (Rollo, p. 27.) Upon the filing of said application and the payment of the
premium on the policy applied for, the respondent insurance corporation issued to
Carmen O. Lapuz its Certificate of Insurance No. 128866. (Rollo, p. 28.) The policy was
to be effective for a period of 90 days.
On May 31, 1969 or during the effectivity of Certificate of Insurance No. 12886,
Carmen O. Lapuz died in a vehicular accident in the North Diversion Road.
On June 7, 1969, petitioner Regina L. Edillon, a sister of the insured and who was the
named beneficiary in the policy, filed her claim for the proceeds of the insurance,
submitting all the necessary papers and other requisites with the private respondent.
Her claim having been denied, Regina L. Edillon instituted this action in the Court of
First Instance of Rizal on August 27, 1969.

In resisting the claim of the petitioner, the respondent insurance corporation relies on a
provision contained in the Certificate of Insurance, 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 ..." It is pointed out that the insured being over
sixty (60) years of age when she applied for the insurance coverage, the policy was
null and void, and no risk on the part of the respondent insurance corporation had
arisen therefrom.
The trial court sustained the contention of the private respondent and dismissed the
complaint; ordered the petitioner to pay attorney's fees in the sum of ONE THOUSAND
(P1,000.00) PESOS in favor of the private respondent; and ordered the private
respondent to return the sum of TWENTY (P20.00) PESOS received by way of premium
on the insurancy policy. It was reasoned out 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 in this case, upon learning from its terms that she could
not have been qualified under the conditions stated in said contract, what she should
have done is simply to ask for a refund of the premium that she paid. It was further
argued by the trial court that the ruling calling for a liberal interpretation of an
insurance contract in favor of the insured and strictly against the insurer may not be
applied in the present case in view of the peculiar facts and circumstances obtaining
therein.
We REVERSE the judgment of the trial court. The age of the insured Carmen 0. Lapuz
was not concealed to the insurance company. Her application for insurance coverage
which was on a printed form furnished by private respondent and which contained very
few items of information 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 in
the application form, considering its prominence thereon and its materiality to the
coverage applied for, the respondent insurance corporation received her payment of
premium and issued the corresponding certificate of insurance without question. The
accident which resulted in the death of the insured, a risk covered by the policy,
occurred on May 31, 1969 or FORTY-FIVE (45) DAYS after the insurance coverage was
applied for. 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 thereby
cancel the policy on that ground if it was minded to do so. If the private respondent
failed to act, it is either because it was willing to waive such disqualification; or,
through the negligence or incompetence of its employees for which it has only itself to
blame, it simply overlooked such fact. 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, as was held in the case of "Que Chee Gan vs. Law Union
Insurance Co., Ltd.,", 98 Phil. 85. This case involved a claim on an insurance policy
which contained a provision as to the installation of fire hydrants the number of which
depended on the height of the external wan perimeter of the bodega that was insured.
When it was determined that the bodega should have eleven (11) fire hydrants in the
compound as required by the terms of the policy, instead of only two (2) that it had,

INSURANCE | August 15 |2
the claim under the policy was resisted on that ground. In ruling that the said deviation
from the terms of the policy did not prevent the claim under the same, this Court
stated the following:
We are 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 an 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 claim now as void ab initio the policies that it had
issued to the plaintiff without warning of their fatal defect, of which it
was informed, and after it had misled the defendant into believing
that the policies were effective.
The insurance company was aware, even before the policies were
issued, that in the premises insured there were only two fire
hydrants installed by Que Chee Gan and two others nearby, owned
by the municipality of Tabaco, contrary to the requirements of the
warranty in question. Such fact appears from positive testimony for
the insured that appellant's agents inspected the premises; and the
simple denials of appellant's representative (Jamiczon) can not
overcome that proof. That such inspection was made it moreover
rendered probable by its being a prerequisite for the fixing of the
discount on the premium to which the insured was entitled, since the
discount depended on the number of hydrants, and the fire fighting
equipment available (See"'Scale of Allowances" to which the policies
were expressly made subject). The law, supported by a long line of
cases, is expressed by American Jurisprudence (Vol. 29, pp. 611612) to be as follows:
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. The
law is charitable enough to assume, in the absence
of any showing to the contrary, that an insurance
company intends to execute a valid contract in
return for the premium received; and when the
policy contains a condition which renders it

voidable at its inception, and this result is known to

the insurer, it will be presumed to have intended to
waive the conditions and to execute a binding
contract, rather than to have deceived the insured
into thinking he is insured when in fact he is not,
and to have taken is money without consideration.'
(29 Am. Jur., Insurance, section 807, at pp. 611612.)
The reason for the rule is not difficult to find.
The plain, human justice of this doctrine is perfectly
apparent. 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, and so closely related to positive
fraud, as to be abhorent to fairminded men. It
would be to allow the company to treat the policy
as valid long enough to get the premium on it, and
leave it at liberty to repudiate it the next moment.
This cannot be deemed to be the real intention of
the parties. To hold that a literal construction of the
policy expressed the true intention of the company
would be to indict it, for fraudulent purposes and
designs which we cannot believe it to be guilty of
(Wilson vs. Commercial Union Assurance Co., 96
Atl. 540, 543544).
A similar view was upheld in the case of Capital Insurance & Surety Co., Inc. vs. Plastic
Era Co., Inc., 65 SCRA 134, which 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.
Significantly, in the case before Us the Capital Insurance accepted
the promise of Plastic Era to pay the insurance premium within thirty
(30) days from the effective date of policy. By so doing, it has
impliedly agreed to modify the tenor of the insurance policy and in
effect, waived the provision therein that it would only pay for the loss
or damage in case the same occurs after the payment of the
premium. Considering that the insurance policy is silent as to the

INSURANCE | August 15 |3
mode of payment, Capital Insurance is deemed to have accepted the
promissory note in payment of the premium. This rendered the policy
immediately operative on the date it was delivered. The view taken in
most cases in the United States:
... 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...
WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE. In lieu
thereof, the private respondent insurance corporation is hereby ordered to pay to the
petitioner the sum of TEN THOUSAND (P10,000.00) PESOS as proceeds of Insurance
Certificate No. 128866 with interest at the legal rate from May 31, 1969 until fully
paid, the further sum of TWO THOUSAND (P2,000.00) PESOS as and for attorney's
fees, and the costs of suit.
SO ORDERED.
G.R. No. 125678

March 18, 2002

PHILAMCARE
HEALTH
SYSTEMS,
vs.
COURT OF APPEALS and JULITA TRINOS, respondents.

INC., petitioner,

YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care
coverage with petitioner Philamcare Health Systems, Inc. In the standard application
form, he answered no to the following question:
Have you or any of your family members ever consulted or been treated for
high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or
peptic ulcer? (If Yes, give details). 1
The application was approved for a period of one year from March 1, 1988 to March 1,
1989. Accordingly, he was issued Health Care Agreement No. P010194. Under the
agreement, respondents husband was entitled to avail of hospitalization benefits,
whether ordinary or emergency, listed therein. He was also entitled to avail of "out-

patient benefits" such as annual physical examinations, preventive health care and
other out-patient services.
Upon the termination of the agreement, the same was extended for another year from
March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The
amount of coverage was increased to a maximum sum of P75,000.00 per disability.2
During the period of his coverage, Ernani suffered a heart attack and was confined at
the Manila Medical Center (MMC) for one month beginning March 9, 1990. While her
husband was in the hospital, respondent tried to claim the benefits under the health
care agreement. However, petitioner denied her claim saying that the Health Care
Agreement was void. According to petitioner, there was a concealment regarding
Ernanis medical history. Doctors at the MMC allegedly discovered at the time of
Ernanis confinement that he was hypertensive, diabetic and asthmatic, contrary to his
answer in the application form. Thus, respondent paid the hospitalization expenses
herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical
therapist at home. Later, he was admitted at the Chinese General Hospital. Due to
financial difficulties, however, respondent brought her husband home again. In the
morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent
was constrained to bring him back to the Chinese General Hospital where he died on
the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch
44, an action for damages against petitioner and its president, Dr. Benito Reverente,
which was docketed as Civil Case No. 90-53795. She asked for reimbursement of her
expenses plus moral damages and attorneys fees. After trial, the lower court ruled
against petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders judgment in favor of
the plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital coverage of the
late Ernani Trinos in the amount of P76,000.00 plus interest, until the amount
is fully paid to plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to
plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as exemplary
damages to plaintiff;
4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit.

INSURANCE | August 15 |4
SO ORDERED.3

(1) of himself, of his spouse and of his children;

On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all
awards for damages and absolved petitioner Reverente. 4 Petitioners motion for
reconsideration was denied.5 Hence, petitioner brought the instant petition for review,
raising the primary argument that a health care agreement is not an insurance
contract; hence the "incontestability clause" under the Insurance Code 6 does not
apply.1wphi1.nt

(2) of any person on whom he depends wholly or in part for education or

support, or in whom he has a pecuniary interest;

Petitioner argues that the agreement grants "living benefits," such as medical checkups and hospitalization which a member may immediately enjoy so long as he is alive
upon effectivity of the agreement until its expiration one-year thereafter. Petitioner also
points out that only medical and hospitalization benefits are given under the
agreement without any indemnification, unlike in an insurance contract where the
insured is indemnified for his loss. Moreover, since Health Care Agreements are only for
a period of one year, as compared to insurance contracts which last longer,7 petitioner
argues that the incontestability clause does not apply, as the same requires an
effectivity period of at least two years. Petitioner further argues that it is not an
insurance company, which is governed by the Insurance Commission, but a Health
Maintenance Organization under the authority of the Department of Health.

(4) of any person upon whose life any estate or interest vested in him
depends.

Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement

whereby one undertakes for a consideration to indemnify another against loss, damage
or liability arising from an unknown or contingent event. An insurance contract exists
where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated
peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk; and
5. In consideration of the insurers promise, the insured pays a premium. 8
Section 3 of the Insurance Code states that any contingent or unknown event, whether
past or future, which may damnify a person having an insurable interest against him,
may be insured against. Every person has an insurable interest in the life and health of
himself. Section 10 provides:
Every person has an insurable interest in the life and health:

(3) of any person under a legal obligation to him for the payment of money,
respecting property or service, of which death or illness might delay or
prevent the performance; and

In the case at bar, the insurable interest of respondents husband in obtaining the
health care agreement was his own health. The health care agreement was in the
nature of non-life insurance, which is primarily a contract of indemnity. 9 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 argues that respondents husband concealed a material fact in his
application. It appears that in the application for health coverage, petitioners required
respondents husband to sign an express authorization for any person, organization or
entity that has any record or knowledge of his health to furnish any and all information
relative to any hospitalization, consultation, treatment or any other medical advice or
examination.10 Specifically, the Health Care Agreement signed by respondents husband
states:
We hereby declare and agree that all statement and answers contained herein
and in any addendum annexed to this application are full, complete and true
and bind all parties in interest under the Agreement herein applied for, that
there shall be no contract of health care coverage unless and until an
Agreement is issued on this application and the full Membership Fee according
to the mode of payment applied for is actually paid during the lifetime and
good health of proposed Members; that no information acquired by any
Representative of PhilamCare shall be binding upon PhilamCare unless set out
in writing in the application;that any physician is, by these presents, expressly
authorized to disclose or give testimony at anytime relative to any information
acquired by him in his professional capacity upon any question affecting the
eligibility for health care coverage of the Proposed Members and that the
acceptance of any Agreement issued on this application shall be a ratification
of any correction in or addition to this application as stated in the space for
Home Office Endorsement.11 (Underscoring ours)

INSURANCE | August 15 |5
In addition to the above condition, petitioner additionally required the applicant for
authorization to inquire about the applicants medical history, thus:
I hereby authorize any person, organization, or entity that has any record or
knowledge of my health and/or that of __________ to give to the PhilamCare
Health Systems, Inc. any and all information relative to any hospitalization,
consultation, treatment or any other medical advice or examination. This
authorization is in connection with the application for health care coverage
only. A photographic copy of this authorization shall be as valid as the
original.12 (Underscoring ours)
Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which
reads:
Failure to disclose or misrepresentation of any material information by the
member in the application or medical examination, whether intentional or
unintentional, shall automatically invalidate the Agreement from the very
beginning and liability of Philamcare shall be limited to return of all
Membership Fees paid. An undisclosed or misrepresented information is
deemed material if its revelation would have resulted in the declination of the
applicant by Philamcare or the assessment of a higher Membership Fee for the
benefit or benefits applied for.13
The answer assailed by petitioner was in response to the question relating to the
medical history of the applicant. This largely depends on opinion rather than fact,
especially coming from respondents husband who was not a medical doctor. Where
matters of opinion or judgment are called for, answers made in good faith and without
intent to deceive will not avoid a policy even though they are untrue. 14 Thus,
(A)lthough false, a representation of the expectation, intention, belief,
opinion, or judgment of the insured will not avoid the policy if there is no
actual fraud in inducing the acceptance of the risk, or its acceptance at a
lower rate of premium, and this is likewise the rule although the statement is
material to the risk, if the statement is obviously of the foregoing character,
since in such case the insurer is not justified in relying upon such statement,
but is obligated to make further inquiry. There is a clear distinction between
such a case and one in which the insured is fraudulently and intentionally
states to be true, as a matter of expectation or belief, that which he then
knows, to be actually untrue, or the impossibility of which is shown by the
facts within his knowledge, since in such case the intent to deceive the insurer
is obvious and amounts to actual fraud.15 (Underscoring ours)
The fraudulent intent on the part of the insured must be established to warrant
rescission of the insurance contract. 16 Concealment as a defense for the health care
provider or insurer to avoid liability is an affirmative defense and the duty to establish

such defense by satisfactory and convincing evidence rests upon the provider or
insurer. In any case, with or without the authority to investigate, petitioner is liable for
claims made under the contract. Having assumed a responsibility under the
agreement, petitioner is bound to answer the same to the extent agreed upon. In the
end, the liability of the health care provider attaches once the member is hospitalized
for the disease or injury covered by the agreement or whenever he avails of the
covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to
rescind a contract of insurance." The right to rescind should be exercised previous to
the commencement of an action on the contract.17 In this case, no rescission was
made. Besides, the cancellation of health care agreements as in insurance policies
require the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or
more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the
policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code
and upon request of insured, to furnish facts on which cancellation is based. 18
None of the above pre-conditions was fulfilled in this case. When the terms of
insurance contract contain limitations on liability, courts should construe them in such a
way as to preclude the insurer from non-compliance with his obligation. 19 Being a
contract of adhesion, the terms of an insurance contract are to be construed strictly
against the party which prepared the contract the insurer.20 By reason of the
exclusive control of the insurance company over the terms and phraseology of the
insurance contract, ambiguity must be strictly interpreted against the insurer and
liberally in favor of the insured, especially to avoid forfeiture. 21 This is equally
applicable to Health Care Agreements. The phraseology used in medical or hospital
service contracts, such as the one at bar, must be liberally construed in favor of the
subscriber, and if doubtful or reasonably susceptible of two interpretations the
construction conferring coverage is to be adopted, and exclusionary clauses of doubtful
import should be strictly construed against the provider.22
Anent the incontestability of the membership of respondents husband, we quote with
approval the following findings of the trial court:
(U)nder the title Claim procedures of expenses, the defendant Philamcare
Health Systems Inc. had twelve months from the date of issuance of the

INSURANCE | August 15 |6
Agreement within which to contest the membership of the patient if he had
previous ailment of asthma, and six months from the issuance of the
agreement if the patient was sick of diabetes or hypertension. The periods
having expired, the defense of concealment or misrepresentation no longer
lie.23
Finally, 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 deceaseds hospitalization,
medication and the professional fees of the attending physicians. 24
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision
of the Court of Appeals dated December 14, 1995 is AFFIRMED.

G.R. No. L-41014 November 28, 1988

PACIFIC
BANKING
CORPORATION, petitioner,
vs.
COURT OF APPEALS and ORIENTAL ASSURANCE CORPORATION, respondents.
Flores, Ocampo, Dizon and Domingo Law Office for petitioner.

SO ORDERED.
Cabochan and Reyes Law Office for respondents.

PARAS, J.:
This is a petition for review on certiorari of the decision of respondent Court of
Appeals * in CA-G.R. No. 41735-R, entitled "Pacific Banking Corporation vs. Oriental
Assurance Corporation", which set aside the decision of the Court of First Instance
(CFI) of Manila, ** which had in turn granted the complaint for a sum of money in Civil
Case No. 56889.
As gathered from the records, the undisputed facts of this case are as follows:
On October 21,1963, Fire Policy No. F-3770 (Exhibit "A"), an open policy, was issued to
the Paramount Shirt Manufacturing Co. (hereinafter referred to as the insured, for
brevity), by which private respondent Oriental Assurance Corporation bound itself to
indemnify the insured for any loss or damage, not exceeding P61,000.00, caused by
fire to its property consisting of stocks, materials and supplies usual to a shirt factory,
including furniture, fixtures, machinery and equipment while contained in the ground,
second and third floors of the building situated at number 256 Jaboneros St., San
Nicolas, Manila, for a period of one year commencing from that date to October 21,
1964.

INSURANCE | August 15 |7
The insured was at the time of the issuance of the policy and is up to this time, a
debtor of petitioner in the amount of not less than Eight Hundred Thousand Pesos
(P800,000.00) and the goods described in the policy were held in trust by the insured
for the petitioner under thrust receipts (Record on Appeal, p. 4).
Said policy was duly endorsed to petitioner as mortgagee/ trustor of the properties
insured, with the knowledge and consent of private respondent to the effect that "loss
if any under this policy is payable to the Pacific Banking Corporation".

At the trial, petitioner presented in evidence Exhibit "H", which is a communication

dated December 22, 1965 of the insurance adjuster, H.H. Bayne Adjustment Co. to
Asian Surety Insurance Co., Inc., revealing undeclared co-insurances with the
following: P30,000.00 with Wellington Insurance; P25,000. 00 with Empire Surety and
P250,000.00 with Asian Surety; undertaken by insured Paramount on the same
property covered by its policy with private respondent whereas the only co-insurances
declared in the subject policy are those of P30,000.00 with Malayan P50,000.00 with
South Sea and P25.000.00 with Victory (Brief for the Defendant pp. 13-14).

On January 4, 1964, while the aforesaid policy was in full force and effect, a fire broke
out on the subject premises destroying the goods contained in its ground and second
floors (Record on Appeal, p.5)

It will be noted that the defense of fraud and/or violation of Condition No. 3 in the
Policy, in the form of non-declaration of co-insurances which was not pleaded in the
answer was also not pleaded in the Motion to Dismiss.

On January 24, 1964, counsel for the petitioner sent a letter of demand to private
respondent for indemnity due to the loss of property by fire under the endorsement of
said policy (Brief for Plaintiff-Appellee, pp. 16-17).

At any rate, on June 30, 1967, the trial court denied private respondent's motion on
the ground that the defense of lack of proof of loss or defects therein was raised for
the first time after the commencement of the suit and that it must be deemed to have
waived the requirement of proof of loss (Sections 83 and 84, Insurance Act; Record on
Appeal, p. 61).

On January 28, 1964, private respondent informed counsel for the petitioner that it
was not yet ready to accede to the latter's demand as the former is awaiting the final
report of the insurance adjuster, H.H. Bayne Adjustment Company (Brief for PlaintiffAppellee, pp. 17-18).
On March 25, 1964, the said insurance adjuster notified counsel for the petitioner that
the insured under the policy had not filed any claim with it, nor submitted proof of loss
which is a clear violation of Policy Condition No.11, and for which reason,
determination of the liability of private respondent could not be had (Supra, pp. 1920).
On April 24, 1964, petitioner's counsel replied to aforesaid letter asking the insurance
adjuster to verify from the records of the Bureau of Customs the entries of
merchandise taken into the customs bonded warehouse razed by fire as a reliable proof
of loss (Supra, pp. 21-22). For failure of the insurance company to pay the loss as
demanded, petitioner (plaintiff therein) on April 28, 1 964, filed in the court a quo an
action for a sum of money against the private respondent, Oriental Assurance
Corporation, in the principal sum of P61,000.00 issued in favor of Paramount Shirt
Manufacturing Co. (Record on Appeal, pp. 1-36).
On May 25, 1964, private respondent raised the following defenses in its answer to wit:
(a) lack of formal claim by insured over the loss and (b) premature filing of the suit as
neither plaintiff nor insured had submitted any proof of loss on the basis of which
defendant would determine its liability and the amount thereof, either to the private
respondent or its ad . adjuster H.H. Bayne Adjustment Co., both in violation of Policy
Condition No.11 (Record on Appeal, pp. 37-38).

On September 9, 1967, the case was considered submitted for decision from which
order private respondent filed a motion for reconsideration to set the case or further
reception of private respondent's additional evidence, "in order to prove that 'insured
has committed a violation of condition No. 3 of the policy in relation to the other
Insurance Clause.' " (Record on Appeal, pp. 61-69).
On September 30,1967, the case was set for the continuation of the hearing for the
reception merely of the testimony of Alejandro Tan Gatue, Manager of the Adjustment
Co., over the vehement opposition of the petitioner (Record on Appeal, p. 129).
On April 18, 1 968, the trial court rendered a decision adjudging private respondent
liable to the petitioner under the said contract of insurance, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered ordering the defendant to
pay the plaintiff P61,000.00, with interest at the rate of 8% per
annum from January 4, 1964, to April 28, 1964, and 12% from April
29, 1964, until the amount is fully paid, P6,100.00, as attorney's
fees, and the costs.
SO ORDERED. (Record on Appeal, pp. 140-141)
On appeal, the Court of Appeals reversed the decision of the trial court (Decision
promulgated on April 23, 1975, Rollo, pp. 21-33).

INSURANCE | August 15 |8
Petitioner filed a motion for reconsideration of the said decision of the respondent
Court of Appeals, but this was denied on July 3,1975 for lack of merit (Rollo, pp. 5467), resulting in this petition with the following assigned errors;
I
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF
LAW IN CONCLUDING FRAUD FROM THE BARE FACT THAT THE
INSURED PARAMOUNT PROCURED ADDITIONAL INSURANCES OTHER
THAN THOSE STATED IN THE POLICY IN SPITE OF THE EXISTENCE
OF CONTRARY PRESUMPTIONS AND ADMITTED FACT AND
CIRCUMSTANCES WHICH NEGATE THE CORRECTNESS OF SAID
CONCLUSION.
(a) The respondent Court did not consider the legal
presumption against the existence of fraud, which
should be established with such quantum of proof
as is required for any crime.
(b) The record of the case is bereft of proof of such
fraud.
(c) The private respondent insurer did not even
plead or in anywise raise fraud as a defense in its
answer or motion to dismiss and, therefore, it
should have been considered waived.
(d) The total amount of insurance procured by the
insured from the different companies amounted to
hardly onehalf () of the value of the goods
insured.
II
RESPONDENT COURT ERRED IN NOT HOLDING THAT CONSIDERING
THE VOTING ON THE PARTICULAR QUESTION OF FRAUD, THE
FINDING OF THE TRIAL COURT THEREON SHOULD BE CONSIDERED
AFFIRMED.
III
THE CONCURRING OPINION OF MR. JUSTICE CHANCO IS LEGALLY
ERRONEOUS IN HOLDING THAT THE ACTION WAS PREMATURELY
BROUGHT BECAUSE THE REQUIRED CLAIM UNDER THE INSURANCE

LAW HAS NOT BEEN FILED, NOTWITHSTANDING THE LETTER,

(EXHIBIT "C") OF PETITIONER-APPELLANT'S LAWYER WHICH IS A
SUBSTANTIAL COMPLIANCE OF THE LEGAL REQUIREMENTS AND NOT
HOLDING THAT PRIVATE RESPONDENT INSURER HAD ALREADY
WAIVED THE SUPPOSED DEFECTS IN THE CLAIM FILED BY
PETITIONER-APPELLANT FOR ITS FAILURE TO CALL THE ATTENTION
OF THE LAYER TO SUCH ALLEGED DEFECTS AND FOR ENDORSING
THE CLAIM TO ITS ADJUSTER FOR PROCESSING.
IV
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF
LAW IN NOT INTERPRETING THE PROVISIONS OF THE POLICY
LIBERALLY IN FAVOR OF THE HEREIN PETITIONER-APPELLANT, WHO
IS NOT THE INSURED BUT ONLY THE ASSIGNEE/MORTGAGEE OF THE
PROPERTY INSURED.
V
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF
LAW IN DISMISSING THE CASE AND IN NOT AFFIRMING THE
APPEALED DECISION OF THE TRIAL COURT. (Brief for Petitioners, pp.
1-3)
The crux of the controversy centers on two points: (a) unrevealed co-insurances which
violated policy conditions No. 3 and (b) failure of the insured to file the required proof
of loss prior to court action. Policy Condition No. 3 explicitly provides:
3. The Insured shall give notice to the Company of any insurance
already effected, or which may subsequently be effected, covering
any of the property hereby insured, and unless such notice be given
and the particulars of such insurance or insurances be stated in or
endorsed on this Policy by or on behalf of the Company before the
occurrence of any loss or damage, all benefit under this policy shall
be forfeited. (Record on Appeal, p. 12)
It is not disputed that the insured failed to reveal before the loss three other
insurances. As found by the Court of Appeals, by reason of said unrevealed insurances,
the insured had been guilty of a false declaration; a clear misrepresentation and a vital
one because where the insured had been asked to reveal but did not, that was
deception. Otherwise stated, had the insurer known that there were many coinsurances, it could have hesitated or plainly desisted from entering into such contract.
Hence, the insured was guilty of clear fraud (Rollo, p. 25).

INSURANCE | August 15 |9
Petitioner's contention that the allegation of fraud is but a mere inference or suspicion
is untenable. In fact, concrete evidence of fraud or false declaration by the insured was
furnished by the petitioner itself when the facts alleged in the policy under clauses "CoInsurances Declared" and "Other Insurance Clause" are materially different from the
actual number of co-insurances taken over the subject property. Consequently, "the
whole foundation of the contract fails, the risk does not attach and the policy never
becomes a contract between the parties. Representations of facts are the foundation of
the contract and if the foundation does not exist, the superstructure does not arise.
Falsehood in such representations is not shown to vary or add to the contract, or to
terminate a contract which has once been made, but to show that no contract has ever
existed (Tolentino, Commercial Laws of the Philippines, p. 991, Vol. II, 8th Ed.) A void
or inexistent contract is one which has no force and effect from the very beginning, as
if it had never been entered into, and which cannot be validated either by time or by
ratification Tongoy v. C.A., 123 SCRA 99 [1983]; Avila v. C.A. 145 SCRA [1986]).
As the insurance policy against fire expressly required that notice should be given by
the insured of other insurance upon the same property, the total absence of such
notice nullifies the policy (Sta. Ana v. Commercial Union Assurance Co., 55 Phil. 333
[1930]; Union Manufacturing Co., Inc. vs. Philippine Guaranty Co., Inc., 47 SCRA 276
[1972]; Pioneer Ins. & Surety Corp., v. Yap, 61 SCRA 432 [1974]).
The argument that notice of co-insurances may be made orally is preposterous and
negates policy condition No. 20 which requires every notice and other communications
to the insurer to be written or printed.
Petitioner points out that Condition No. 3 in the policy in relation to the "other
insurance clause" supposedly to have been violated, cannot certainly defeat the right of
the petitioner to recover the insurance as mortgagee/assignee. Particularly referring to
the mortgage clause of the policy, petitioner argues that considering the purpose for
which the endorsement or assignment was made, that is, to protect the
mortgagee/assignee against any untoward act or omission of the insured, it would be
absurd to hold that petitioner is barred from recovering the insurance on account of
the alleged violation committed by the insured (Rollo, Brief for the petitioner, pp, 3335).
It is obvious that petitioner has missed all together the import of subject mortgage
clause which specifically provides:
Mortgage Clause
Loss, if any, under this policy, shall be payable to the PACIFIC
BANKING CORPORATION Manila mortgagee/trustor as its interest
may appear, it being hereby understood and agreed that this
insurance as to the interest of the mortgagee/trustor only herein,
shall not be invalidated by any act or neglectexcept fraud or

misrepresentation, or arsonof the mortgagor or owner/trustee of

the property insured; provided, that in case the mortgagor or owner/
trustee neglects or refuses to pay any premium, the mortgagee/
trustor shall, on demand pay the same. (Rollo, p. 26)
The paragraph clearly states the exceptions to the general rule that insurance as to the
interest of the mortgagee, cannot be invalidated; namely: fraud, or misrepresentation
or arson. As correctly found by the Court of Appeals, concealment of the aforecited
co-insurances can easily be fraud, or in the very least, misrepresentation (Rollo, p. 27).
Undoubtedly, it is but fair and just that where the insured who is primarily entitled to
receive the proceeds of the policy has by its fraud and/or misrepresentation, forfeited
said right, with more reason petitioner which is merely claiming as indorsee of said
insured, cannot be entitled to such proceeds.
Petitioner further stressed that fraud which was not pleaded as a defense in private
respondent's answer or motion to dismiss, should be deemed to have been waived.
It will be noted that the fact of fraud was tried by express or at least implied consent of
the parties. Petitioner did not only object to the introduction of evidence but on the
contrary, presented the very evidence that proved its existence.
Be that as it may, it is established that the Supreme Court has ample authority to give
beyond the pleadings where in the interest of justice and the promotion of public
policy, there is a need to make its own finding to support its conclusion. Otherwise
stated, the Court can consider a fact which surfaced only after trial proper (Maharlika
Publishing Corp. v. Tagle, 142 SCRA 561 [1986]).
Generally, the cause of action on the policy accrues when the loss occurs, But when the
policy provides that no action shall be brought unless the claim is first presented
extrajudicially in the manner provided in the policy, the cause of action will accrue from
the time the insurer finally rejects the claim for payment (Eagle Star Insurance v. Chia
Yu, 55 Phil 701 [1955]).
In the case at bar, policy condition No. 11 specifically provides that the insured shall on
the happening of any loss or damage give notice to the company and shall within
fifteen (15) days after such loss or damage deliver to the private respondent (a) a
claim in writing giving particular account as to the articles or goods destroyed and the
amount of the loss or damage and (b) particulars of all other insurances, if any.
Likewise, insured was required "at his own expense to produce, procure and give to the
company all such further particulars, plans, specifications, books, vouchers, invoices,
duplicates or copies thereof, documents, proofs and information with respect to the
claim". (Record on Appeal, pp. 18-20).

INSURANCE | August 15 |10

The evidence adduced shows that twenty-four (24) days after the fire, petitioner
merely wrote letters to private respondent to serve as a notice of loss, thereafter, the
former did not furnish the latter whatever pertinent documents were necessary to
prove and estimate its loss. Instead, petitioner shifted upon private respondent the
burden of fishing out the necessary information to ascertain the particular account of
the articles destroyed by fire as well as the amount of loss. It is noteworthy that
private respondent and its adjuster notified petitioner that insured had not yet filed a
written claim nor submitted the supporting documents in compliance with the
requirements set forth in the policy. Despite the notice, the latter remained unheedful.
Since the required claim by insured, together with the preliminary submittal of relevant
documents had not been complied with, it follows that private respondent could not be
deemed to have finally rejected petitioner's claim and therefore the latter's cause of
action had not yet arisen. Compliance with condition No. 11 is a requirement sine qua
non to the right to maintain an action as prior thereto no violation of petitioner's right
can be attributable to private respondent. This is so, as before such final rejection,
there was no real necessity for bringing suit. Petitioner should have endeavored to file
the formal claim and procure all the documents, papers, inventory needed by private
respondent or its adjuster to ascertain the amount of loss and after compliance await
the final rejection of its claim. Indeed, the law does not encourage unnecessary
litigation (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p. 701, supra).<re||
an1w>
Verily, petitioner prematurely filed Civil Case No. 56889 and dismissal thereof was
warranted under the circumstances. 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 (Eagle Star Insurance Co., Ltd., et al. v. Chia
Yu, p. 702, supra; Taurus Taxi Co., Inc. v. The Capital Ins. & Surety Co., Inc., 24 SCRA
458 [1968]; National Power Corp. v. CA, 145 SCRA 533 [1986]), 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 (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1919]; Union
Manufacturing Co., Inc. v. Phil. Guaranty Co., Inc., p. 277 supra; Pichel v. Alonzo, III
SCRA 341 [1982]; Gonzales v. CA, 124 SCRA 630 [1983]; GSIS v. CA, 145 SCRA 311
[1986]; Herrera v. Petrophil Corp., 146 SCRA 385 [1986]).
Contracts of insurance are contracts of indemnity upon the terms and conditions
specified in the policy. The parties have a right to impose such reasonable conditions at
the time of the making of the contract as they may deem wise and necessary. The
agreement has the force of law between the parties. The terms of the policy constitute
the measure of the insurer's liability, and in order to recover, the insured must show
himself within those terms. The compliance of the insured with the terms of the policy
is a condition precedent to the light of recovery (Stokes v. Malayan Insurance Co., Inc.,
127 SCRA 766 [1984]).

It appearing that insured has violated or failed to perform the conditions under No. 3
and 11 of the contract, and such violation or want of performance has not been waived
by the insurer, the insured cannot recover, much less the herein petitioner. Courts are
not permitted to make contracts for the parties; the function and duty of the courts is
simply to enforce and carry out the contracts actually made (Young v. Midland Textile
Ins. Co., 30 Phil. 617 [1915]; Union Manufacturing Co. Inc. v. Phil. Guaranty Co. Inc.,
p. 276 supra).
Finally, the established rule in this jurisdiction that findings of fact of the Court of
Appeals when supported by substantial evidence, are not reviewable on appeal by
certiorari, deserves reiteration. Said findings of the appellate court are final and cannot
be disturbed by the Supreme Court except in certain cases Lereos v. CA, 117 SCRA
395 [1985]; Dalida v. CA, 117 SCRA 480 [1982] Director of Lands v. CA, 117 SCRA
346 [1982]; Montesa v. CA, 117 SCRA 770 [1982]; Sacay v. Sandiganbayan, 142
SCRA 609 [1986]; Guita v. CA, 139 SCRA 576 [1985]; Manlapaz v. CA, 147 SCRA 238239 [1987]).
PREMISES CONSIDERED, the petition is DISMISSED for lack of merit, and the decision
appealed from is AFFIRMED. No costs.
SO ORDERED.

INSURANCE | August 15 |11

and concealment of material facts made by the deceased Tan Lee
Siong in his application for insurance (Exhibit 3). The premiums paid
on the policy were thereupon refunded .

G.R. No. 48049 June 29, 1989

EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE
COMPANY, respondents.
O.F. Santos & P.C. Nolasco for petitioners.
Ferry, De la Rosa and Associates for private respondent.

Alleging that respondent company's refusal to pay them the proceeds

of the policy was unjustified and unreasonable, petitioners filed on
November 27, 1975, a complaint against the former with the Office
of the Insurance Commissioner, docketed as I.C. Case No. 218.
After hearing the evidence of both parties, the Insurance
Commissioner rendered judgment on August 9, 1977, dismissing
petitioners' complaint. (Rollo, pp. 91-92)
The Court of Appeals dismissed ' the petitioners' appeal from the Insurance
Commissioner's decision for lack of merit
Hence, this petition.
The petitioners raise the following issues in their assignment of errors, to wit:

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the Court of Appeals' decision affirming the
decision of the Insurance Commissioner which dismissed the petitioners' complaint
against respondent Philippine American Life Insurance Company for the recovery of the
proceeds from their late father's policy. The facts of the case as found by the Court of
Appeals are:
Petitioners appeal from the Decision of the Insurance Commissioner
dismissing herein petitioners' complaint against respondent Philippine
American Life Insurance Company for the recovery of the proceeds of
Policy No. 1082467 in the amount of P 80,000.00.
On September 23,1973, Tan Lee Siong, father of herein petitioners,
applied for life insurance in the amount of P 80,000.00 with
respondent company. Said application was approved and Policy No.
1082467 was issued effective November 6,1973, with petitioners the
beneficiaries thereof (Exhibit A).
On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit B).
Petitioners then filed with respondent company their claim for the
proceeds of the life insurance policy. However, in a letter dated
September 11, 1975, respondent company denied petitioners' claim
and rescinded the policy by reason of the alleged misrepresentation

A. The conclusion in law of respondent Court that respondent insurer

has the right to rescind the policy contract when insured is already
dead is not in accordance with existing law and applicable
jurisprudence.
B. The conclusion in law of respondent Court that respondent insurer
may be allowed to avoid the policy on grounds of concealment by the
deceased assured, is contrary to the provisions of the policy contract
itself, as well as, of applicable legal provisions and established
jurisprudence.
C. The inference of respondent Court that respondent insurer was
misled in issuing the policy are manifestly mistaken and contrary to
admitted evidence. (Rollo, p. 7)
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.
The contention is without merit.
The pertinent section in the Insurance Code provides:

INSURANCE | August 15 |12

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.
According to the petitioners, the Insurance Law was amended and the second
paragraph of Section 48 added to prevent the insurance company from exercising a
right to rescind after the death of the insured.
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 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."
As noted by the Court of Appeals, to wit:
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 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. Moreover,
respondent company rescinded the contract of insurance and
refunded the premiums paid on September 11, 1975, previous to the
commencement of this action on November 27,1975. (Rollo, pp. 99100)
xxx xxx xxx
The petitioners contend that there could have been no concealment or
misrepresentation by their late father because Tan Lee Siong did not have to buy
insurance. He was only pressured by insistent salesmen to do so. The petitioners state:
Here then is a case of an assured whose application was submitted
because of repeated visits and solicitations by the insurer's agent.

Assured did not knock at the door of the insurer to buy insurance. He
was the object of solicitations and visits.
Assured was a man of means. He could have obtained a bigger
insurance, not just P 80,000.00. If his purpose were to misrepresent
and to conceal his ailments in anticipation of death during the twoyear period, he certainly could have gotten a bigger insurance. He
did not.
Insurer Philamlife could have presented as witness its Medical
Examiner Dr. Urbano Guinto. It was he who accomplished the
application, Part II, medical. Philamlife did not.
Philamlife could have put to the witness stand its Agent Bienvenido
S. Guinto, a relative to Dr. Guinto, Again Philamlife did not. (pp.
138139, Rollo)
xxx xxx xxx
This Honorable Supreme Court has had occasion to denounce the
pressure and practice indulged in by agents in selling insurance. At
one time or another most of us have been subjected to that
pressure, that practice. This court took judicial cognizance of the
whirlwind pressure of insurance selling-especially of the agent's
practice of 'supplying the information, preparing and answering the
application, submitting the
application
to
their
companies, concluding the transactions and otherwisesmoothing out
all difficulties.
We call attention to what this Honorable Court said in Insular Life v. Feliciano, et al., 73
Phil. 201; at page 205:
It is of common knowledge that the selling of insurance today is
subjected to the whirlwind pressureof modern salesmanship.
Insurance companies send detailed instructions to their agents to
solicit and procure applications.
These agents are to be found all over the length and breadth of the
land. They are stimulated to more active efforts by contests and by
the keen competition offered by the other rival insurance companies.

INSURANCE | August 15 |13

They supply all the information, prepare and answer the applications,
submit the applications to their companies, conclude the
transactions, and otherwise smooth out all difficulties.
The agents in short do what the company set them out to do.
The Insular Life case was decided some forty years ago when the
pressure of insurance salesmanship was not overwhelming as it is
now; when the population of this country was less than one-fourth of
what it is now; when the insurance companies competing with one
another could be counted by the fingers. (pp. 140-142, Rollo)
xxx xxx xxx
In the face of all the above, it would be unjust if, having been
subjected to the whirlwind pressure of insurance salesmanship this
Court itself has long denounced, the assured who dies within the
two-year period, should stand charged of fraudulent concealment and
misrepresentation." (p. 142, Rollo)
The legislative answer to the arguments posed by the petitioners
"incontestability clause" added by the second paragraph of Section 48.

is

the

The insurer has two years from the date of issuance of the insurance contract or of its
last reinstatement within which to contest the policy, whether or not, the insured still
lives within such period. After two years, the defenses of concealment or
misrepresentation, no matter how patent or well founded, no longer lie. Congress felt
this was a sufficient answer to the various tactics employed by insurance companies to
avoid liability. The petitioners' interpretation would give rise to the incongruous
situation where the beneficiaries of an insured who dies right after taking out and
paying for a life insurance policy, would be allowed to collect on the policy even if the
insured fraudulently concealed material facts.
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 state that the insurer
should have presented its two medical field examiners as witnesses. Moreover, the
petitioners allege that the policy intends that the medical examination must be
conducted before its issuance otherwise the insurer "waives whatever imperfection by
ratification."
We agree with the Court of Appeals which ruled:
On the other hand, petitioners 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.
The same is not well taken. The deceased, by affixing his signature
on the application form, affirmed the correctness of all the entries
and answers appearing therein. It is but to be expected that he, a
businessman, would not have affixed his signature on the application
form unless he clearly understood its significance. For, the
presumption is that a person intends the ordinary consequence of his
voluntary act and takes ordinary care of his concerns. [Sec. 5(c) and
(d), Rule 131, Rules of Court].
The evidence for respondent company shows that on September
19,1972, the deceased was examined by Dr. Victoriano Lim and was
found to be diabetic and hypertensive; that by January, 1973, the
deceased was complaining of progressive weight loss and abdominal
pain and was diagnosed to be suffering from hepatoma, (t.s.n.
August 23, 1976, pp. 8-10; Exhibit 2). Another physician, Dr.
Wenceslao Vitug, testified that the deceased came to see him on
December 14, 1973 for consolation and claimed to have been
diabetic for five years. (t.s.n., Aug. 23,1976, p. 5; Exhibit 6) Because
of the concealment made by the deceased of his consultations and
treatments for hypertension, diabetes and liver disorders, respondent
company was thus misled into accepting the risk and approving his
application as medically standard (Exhibit 5- C) and dispensing with
further medical investigation and examination (Exhibit 5-A). For as
long as no adverse medical history is revealed in the application
form, an applicant for insurance is presumed to be healthy and
physically fit and no further medical investigation or examination is
conducted by respondent company. (t.s.n., April 8,1976, pp. 6-8).
(Rollo, pp. 96-98)
There is no strong showing that we should apply the "fine print" or "contract of
adhesion" rule in this case. (Sweet Lines, Inc. v. Teves, 83 SCRA 361 [1978]). The
petitioners cite:
It is a matter of common knowledge that large amounts of money
are collected from ignorant persons by companies and associations
which adopt high sounding titles and print the amount of benefits
they agree to pay in large black-faced type, following such
undertakings by fine print conditions which destroy the substance of
the promise. All provisions, conditions, or exceptions which in any
way tend to work a forfeiture of the policy should be construed most
strongly against those for whose benefit they are inserted, and most
favorably toward those against whom they are meant to operate.
(Trinidad v. Orient Protective Assurance Assn., 67 Phil. 184)

INSURANCE | August 15 |14

There is no showing that the questions in the application form for insurance regarding
the insured's medical history are in smaller print than the rest of the printed form or
that they are designed in such a way as to conceal from the applicant their importance.
If a warning in bold red letters or a boxed warning similar to that required for cigarette
advertisements by the Surgeon General of the United States is necessary, that is for
Congress or the Insurance Commission to provide as protection against high pressure
insurance salesmanship. We are limited in this petition to ascertaining whether or not
the respondent Court of Appeals committed reversible error. It is the petitioners'
burden to show that the factual findings of the respondent court are not based on
substantial evidence or that its conclusions are contrary to applicable law and
jurisprudence. They have failed to discharge that burden.
WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision
of the Court of Appeals is AFFIRMED.
SO ORDERED.

MALCOLM, J.:
This is an appeal by plaintiff from an order of the Court of First Instance of Zamboanga
sustaining a demurrer to plaintiff's complaint upon the ground that it fails to state a
cause of action.
As the demurrer had the effect of admitting the material facts set forth in the
complaint, the facts are those alleged by the plaintiff. On July 6, 1917, Luis Lim y
Garcia of Zamboanga made application to the Sun Life Assurance Company of Canada
for a policy of insurance on his life in the sum of P5,000. In his application Lim
designated his wife, Pilar C. de Lim, the plaintiff herein, as the beneficiary. The first
premium of P433 was paid by Lim, and upon such payment the company issued what
was called a "provisional policy." Luis Lim y Garcia died on August 23, 1917, after the
issuance of the provisional policy but before approval of the application by the home
office of the insurance company. The instant action is brought by the beneficiary, Pilar
C. de Lim, to recover from the Sun Life Assurance Company of Canada the sum of
P5,000, the amount named in the provisional policy.
The "provisional policy" upon which this action rests reads as follows:
Received (subject to the following stipulations and agreements) the sum of
four hundred and thirty-three pesos, being the amount of the first year's
premium for a Life Assurance Policy on the life of Mr. Luis D. Lim y Garcia of
Zamboanga for P5,000, for which an application dated the 6th day of July,
1917, has been made to the Sun Life Assurance Company of Canada.

G.R. No. L-15774

The above-mentioned life is to be assured in accordance with the terms and

conditions contained or inserted by the Company in the policy which may be
granted by it in this particular case for four months only from the date of the
application, provided that the Company shall confirm this agreement by
issuing a policy on said application when the same shall be submitted to the
Head Office in Montreal. Should the Company not issue such a policy, then
this agreement shall be null and void ab initio, and the Company shall be held
not to have been on the risk at all, but in such case the amount herein
acknowledged shall be returned.

November 29, 1920

PILAR
C.
DE
LIM, plaintiff-appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.
Sanz
and
Cohn and Fisher for appellee.

Luzuriaga

for

appellant.

[SEAL.]
(Sgd.) A. F. Peters, Agent.

(Sgd.)

T.

B.

MACAULAY,

President.

Our duty in this case is to ascertain the correct meaning of the document above
quoted. A perusal of the same many times by the writer and by other members of the
court leaves a decided impression of vagueness in the mind. Apparently it is to be a
provisional policy "for four months only from the date of this application." We use the
term "apparently" advisedly, because immediately following the words fixing the four

INSURANCE | August 15 |15

months period comes the word "provided" which has the meaning of "if." Otherwise
stated, the policy for four months is expressly made subjected to the affirmative
condition that "the company shall confirm this agreement by issuing a policy on said
application when the same shall be submitted to the head office in Montreal." To
reenforce the same there follows the negative condition
Should the company not issue such a policy, then this agreement shall be null and
void ab initio, and the company shall be held not to have been on the risk." Certainly,
language could hardly be used which would more clearly stipulate that the agreement
should not go into effect until the home office of the company should confirm it by
issuing a policy. As we read and understand the so-called provisional policy it amounts
to nothing but an acknowledgment on behalf of the company, that it has received from
the person named therein the sum of money agreed upon as the first year's premium
upon a policy to be issued upon the application, if the application is accepted by the
company.
It is of course a primary rule that a contract of insurance, like other contracts, must be
assented to by both parties either in person or by their agents. So long as an
application for insurance has not been either accepted or rejected, it is merely an offer
or proposal to make a contract. The contract, to be binding from the date of the
application, must have been a completed contract, one that leaves nothing to be done,
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. Our view is, that a contract of insurance was not here
consummated by the parties.lawph!l.net
Appellant relies on Joyce on Insurance. Beginning at page 253, of Volume I, Joyce
states the general rule concerning the agent's receipt pending approval or issuance of
policy. The first rule which Joyce lays down is this: If the act of acceptance of the risk
by the agent and the giving by him of a receipt, is within the scope of the agent's
authority, and nothing remains but to issue a policy, then the receipt will bind the
company. This rule does not apply, for while here nothing remained but to issue the
policy, this was made an express condition to the contract. The second rule laid down
by Joyce is this: Where an agreement is made between the applicant and the agent
whether by signing an application containing such condition, or otherwise, that no
liability shall attach until the principal approves the risk and a receipt is given buy the
agent, such acceptance is merely conditional, and it subordinated to the act of the
company in approving or rejecting; so in life insurance a "binding slip" or "binding
receipt" does not insure of itself. This is the rule which we believe applies to the instant
case. The third rule announced by Joyce is this: Where the acceptance by the agent is
within the scope of his authority a receipt containing a contract for insurance for a
specific time which is not absolute but conditional, upon acceptance or rejection by the
principal, covers the specified period unless the risk is declined within that period. The
case cited by Joyce to substantiate the last principle is that a Goodfellow vs. Times &
Beacon Assurance Com. (17 U. C. Q. B., 411), not available.

The two cases most nearly in point come from the federal courts and the Supreme
Court of Arkansas.
In the case of Steinle vs. New York Life Insurance Co. ([1897], 81 Fed., 489} the facts
were that the amount of the first premium had been paid to an insurance agent and a
receipt given therefor. The receipt, however, expressly declared that if the application
was accepted by the company, the insurance shall take effect from the date of the
application but that if the application was not accepted, the money shall be returned.
The trite decision of the circuit court of appeal was, "On the conceded facts of this
case, there was no contract to life insurance perfected and the judgment of the circuit
court must be affirmed."
In the case of Cooksey vs. Mutual Life Insurance Co. ([1904], 73 Ark., 117) the person
applying for the life insurance paid and amount equal to the first premium, but the
application and the receipt for the money paid, stipulated that the insurance was to
become effective only when the application was approved and the policy issued. The
court held that the transaction did not amount to an agreement for preliminary or
temporary insurance. It was said:
It is not an unfamiliar custom among life insurance companies in the operation of the
business, upon receipt of an application for insurance, to enter into a contract with the
applicant in the shape of a so-called "binding receipt" for temporary insurance pending
the consideration of the application, to last until the policy be issued or the application
rejected, and such contracts are upheld and enforced when the applicant dies before
the issuance of a policy or final rejection of the application. It is held, too, that such
contracts may rest in parol. Counsel for appellant insists that such a preliminary
contract for temporary insurance was entered into in this instance, but we do not think
so. On the contrary, the clause in the application and the receipt given by the solicitor,
which are to be read together, stipulate expressly that the insurance shall become
effective only when the "application shall be approved and the policy duly signed by
the secretary at the head office of the company and issued." It constituted no
agreement at all for preliminary or temporary insurance; Mohrstadt vs. Mutual Life Ins.
Co., 115 Fed., 81, 52 C. C. A., 675; Steinle vs. New York Life Ins. Co., 81 Fed., 489, 26
C. C. A., 491." (See further Weinfeld vs. Mutual Reserve Fund Life Ass'n. [1892], 53
Fed, 208' Mohrstadt vs. Mutual Life Insurance Co. [1902], 115 Fed., 81; Insurance co.
vs. Young's Administrator [1875], 90 U. S., 85; Chamberlain vs. Prudential Insurance
Company of America [1901], 109 Wis., 4; Shawnee Mut. Fire Ins. Co. vs. McClure
[1913], 39 Okla., 509; Dorman vs. Connecticut Fire Ins. Co. [1914], 51 contra, Starr
vs. Mutual Life Ins. Co. [1905], 41 Wash., 228.)
We are of the opinion that the trial court committed no error in sustaining the
demurrer and dismissing the case. It is to be noted, however, that counsel for appellee
admits the liability of the company for the return of the first premium to the estate of
the deceased. It is not to be doubted but that the Sun Life Assurance Company of

INSURANCE | August 15 |16

Canada will immediately, on the promulgation of this decision, pay to the estate of the
late Luis Lim y Garcia the of P433.
The order appealed from, in the nature of a final judgment is affirmed, without special
finding as to costs in this instance. So ordered.

G.R. No. L-38613 February 25, 1982

PACIFIC
TIMBER
EXPORT
CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and WORKMEN'S INSURANCE COMPANY,
INC., respondents.

DE CASTRO, ** J.:
This petition seeks the review of the decision of the Court of Appeals reversing the
decision of the Court of First Instance of Manila in favor of petitioner and against
private respondent which ordered the latter to pay the sum of Pll,042.04 with interest
at the rate of 12% interest from receipt of notice of loss on April 15, 1963 up to the
complete payment, the sum of P3,000.00 as attorney's fees and the costs 1 thereby
dismissing petitioner s complaint with costs. 2
The findings of the of fact of the Court of Appeals, which are generally binding upon
this Court, Except as shall be indicated in the discussion of the opinion of this Court the
substantial correctness of still particular finding having been disputed, thereby raising a
question of law reviewable by this Court 3 are as follows:
March 19, l963, the plaintiff secured temporary insurance from the
defendant for its exportation of 1,250,000 board feet of Philippine
Lauan and Apitong logs to be shipped from the Diapitan. Bay, Quezon
Province to Okinawa and Tokyo, Japan. The defendant issued on said
date Cover Note No. 1010, insuring the said cargo of the plaintiff
"Subject to the Terms and Conditions of the WORKMEN'S INSURANCE
COMPANY, INC. printed Marine Policy form as filed with and approved
by the Office of the Insurance Commissioner (Exhibit A).

INSURANCE | August 15 |17

The regular marine cargo policies were issued by the defendant in
favor of the plaintiff on April 2, 1963. The two marine policies bore
the numbers 53 HO 1032 and 53 HO 1033 (Exhibits B and C,
respectively). Policy No. 53 H0 1033 (Exhibit B) was for 542 pieces of
logs equivalent to 499,950 board feet. Policy No. 53 H0 1033 was for
853 pieces of logs equivalent to 695,548 board feet (Exhibit C). The
total cargo insured under the two marine policies accordingly
consisted of 1,395 logs, or the equivalent of 1,195.498 bd. ft.
After the issuance of Cover Note No. 1010 (Exhibit A), but before the
issuance of the two marine policies Nos. 53 HO 1032 and 53 HO
1033, some of the logs intended to be exported were lost during
loading operations in the Diapitan Bay. The logs were to be loaded on
the 'SS Woodlock' which docked about 500 meters from the shoreline
of the Diapitan Bay. The logs were taken from the log pond of the
plaintiff and from which they were towed in rafts to the vessel. At
about 10:00 o'clock a. m. on March 29, 1963, while the logs were
alongside the vessel, bad weather developed resulting in 75 pieces of
logs which were rafted together co break loose from each other. 45
pieces of logs were salvaged, but 30 pieces were verified to have
been lost or washed away as a result of the accident.
In a letter dated April 4, 1963, the plaintiff informed the defendant about the loss of
'appropriately 32 pieces of log's during loading of the 'SS Woodlock'. The said letter
(Exhibit F) reads as follows:
April 4, 1963
Workmen's Insurance Company, Inc. Manila, Philippines
Gentlemen:
This has reference to Insurance Cover Note No. 1010 for shipment of
1,250,000 bd. ft. Philippine Lauan and Apitong Logs. We would like to
inform you that we have received advance preliminary report from
our Office in Diapitan, Quezon that we have lost approximately 32
pieces of logs during loading of the SS Woodlock.
We will send you an accurate report all the details including values as
soon as same will be reported to us.
Thank you for your attention, we wish to remain.
Very respectfully yours,

PACIFIC TIMBER EXPORT CORPORATION

(Sgd.) EMMANUEL S. ATILANO Asst. General Manager.
Although dated April 4, 1963, the letter was received in the office of
the defendant only on April 15, 1963, as shown by the stamp
impression appearing on the left bottom corner of said letter. The
plaintiff subsequently submitted a 'Claim Statement demanding
payment of the loss under Policies Nos. 53 HO 1032 and 53 HO 1033,
in the total amount of P19,286.79 (Exhibit G).
On July 17, 1963, the defendant requested the First Philippine
Adjustment Corporation to inspect the loss and assess the damage.
The adjustment company submitted its 'Report on August 23, 1963
(Exhibit H). In said report, the adjuster found that 'the loss of 30
pieces of logs is not covered by Policies Nos. 53 HO 1032 and 1033
inasmuch as said policies covered the actual number of logs loaded
on board the 'SS Woodlock' However, the loss of 30 pieces of logs is
within the 1,250,000 bd. ft. covered by Cover Note 1010 insured for
$70,000.00.
On September 14, 1963, the adjustment company submitted a
computation of the defendant's probable liability on the loss
sustained by the shipment, in the total amount of Pl1,042.04 (Exhibit
4).
On January 13, 1964, the defendant wrote the plaintiff denying the
latter's claim, on the ground they defendant's investigation revealed
that the entire shipment of logs covered by the two marines policies
No. 53 110 1032 and 713 HO 1033 were received in good order at
their point of destination. It was further stated that the said loss may
be considered as covered under Cover Note No. 1010 because the
said Note had become 'null and void by virtue of the issuance of
Marine Policy Nos. 53 HO 1032 and 1033'(Exhibit J-1). The denial of
the claim by the defendant was brought by the plaintiff to the
attention of the Insurance Commissioner by means of a letter dated
March 21, 1964 (Exhibit K). In a reply letter dated March 30, 1964,
Insurance Commissioner Francisco Y. Mandanas observed that 'it is
only fair and equitable to indemnify the insured under Cover Note
No. 1010', and advised early settlement of the said marine loss and
salvage claim (Exhibit L).
On June 26, 1964, the defendant informed the Insurance
Commissioner that, on advice of their attorneys, the claim of the

INSURANCE | August 15 |18

plaintiff is being denied on the ground that the cover note is null and
void for lack of valuable consideration (Exhibit M). 4
Petitioner assigned as errors of the Court of Appeals, the following:
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THE COVER NOTE
WAS NULL AND VOID FOR LACK OF VALUABLE CONSIDERATION
BECAUSE THE COURT DISREGARDED THE PROVEN FACTS THAT
PREMIUMS FOR THE COMPREHENSIVE INSURANCE COVERAGE THAT
INCLUDED THE COVER NOTE WAS PAID BY PETITIONER AND THAT
INCLUDED THE COVER NOTE WAS PAID BY PETITIONER AND THAT
NO SEPARATE PREMIUMS ARE COLLECTED BY PRIVATE RESPONDENT
ON ALL ITS COVER NOTES.
II
THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE
RESPONDENT WAS RELEASED FROM LIABILITY UNDER THE COVER
NOTE DUE TO UNREASONABLE DELAY IN GIVING NOTICE OF LOSS
BECAUSE THE COURT DISREGARDED THE PROVEN FACT THAT
PRIVATE RESPONDENT DID NOT PROMPTLY AND SPECIFICALLY
OBJECT TO THE CLAIM ON THE GROUND OF DELAY IN GIVING
NOTICE OF LOSS AND, CONSEQUENTLY, OBJECTIONS ON THAT
GROUND ARE WAIVED UNDER SECTION 84 OF THE INSURANCE
ACT. 5
1. Petitioner contends that the Cover Note was issued with a consideration when, by
express stipulation, the cover note is made subject to the terms and conditions of the
marine policies, and the payment of premiums is one of the terms of the policies. From
this undisputed fact, We uphold petitioner's submission that the Cover Note was not
without consideration for which the respondent court held the Cover Note as null and
void, and denied recovery therefrom. The fact that no separate premium was paid on
the Cover Note before the loss insured against occurred, does not militate against the
validity of petitioner's contention, for no such premium could have been paid, since by
the nature of the Cover Note, it did not contain, as all Cover Notes do not contain
particulars of the shipment that would serve as basis for the computation of the
premiums. As a logical consequence, no separate premiums are intended or required
to be paid on a Cover Note. This is a fact admitted by an official of respondent
company, Juan Jose Camacho, in charge of issuing cover notes of the respondent
company (p. 33, tsn, September 24, 1965).

At any rate, it is not disputed that petitioner paid in full all the premiums as called for
by the statement issued by private respondent after the issuance of the two regular
marine insurance policies, thereby leaving no account unpaid by petitioner due on the
insurance coverage, which must be deemed to include the Cover Note. If the Note is to
be treated as a separate policy instead of integrating it to the regular policies
subsequently issued, the purpose and function of the Cover Note would be set at
naught or rendered meaningless, for it is in a real sense a contract, not a mere
application for insurance which is a mere offer. 6
It may be true that the marine insurance policies issued were for logs no longer
including those which had been lost during loading operations. This had to be so
because the risk insured against is not for loss during operations anymore, but for loss
during transit, the logs having already been safely placed aboard. This would make no
difference, however, insofar as the liability on the cover note is concerned, for the
number or volume of logs lost can be determined independently as in fact it had been
so ascertained at the instance of private respondent itself when it sent its own adjuster
to investigate and assess the loss, after the issuance of the marine insurance policies.
The adjuster went as far as submitting his report to respondent, as well as its
computation of respondent's liability on the insurance coverage. This coverage could
not have been no other than what was stipulated in the Cover Note, for no loss or
damage had to be assessed on the coverage arising from the marine insurance
policies. For obvious reasons, it was not necessary to ask petitioner to pay premium on
the Cover Note, for the loss insured against having already occurred, the more
practical procedure is simply to deduct the premium from the amount due the
petitioner on the Cover Note. The non-payment of premium on the Cover Note is,
therefore, no cause for the petitioner to lose what is due it as if there had been
payment of premium, for non-payment by it was not chargeable against its fault. Had
all the logs been lost during the loading operations, but after the issuance of the Cover
Note, liability on the note would have already arisen even before payment of premium.
This is how the cover note as a "binder" should legally operate otherwise, it would
serve no practical purpose in the realm of commerce, and is supported by the doctrine
that where a policy is delivered without requiring payment of the premium, the
presumption is that a credit was intended and policy is valid. 7
2. The defense of delay as raised by private respondent in resisting the claim cannot be
sustained. The law requires this ground of delay to be promptly and specifically
asserted when a claim on the insurance agreement is made. The undisputed facts show
that instead of invoking the ground of delay in objecting to petitioner's claim of
recovery on the cover note, it took steps clearly indicative that this particular ground
for objection to the claim was never in its mind. The nature of this specific ground for
resisting a claim places the insurer on duty to inquire when the loss took place, so that
it could determine whether delay would be a valid ground upon which to object to a
claim against it.

INSURANCE | August 15 |19

As already stated earlier, private respondent's reaction upon receipt of the notice of
loss, which was on April 15, 1963, was to set in motion from July 1963 what would be
necessary to determine the cause and extent of the loss, with a view to the payment
thereof on the insurance agreement. Thus it sent its adjuster to investigate and assess
the loss in July, 1963. The adjuster submitted his report on August 23, 1963 and its
computation of respondent's liability on September 14, 1963. From April 1963 to July,
1963, enough time was available for private respondent to determine if petitioner was
guilty of delay in communicating the loss to respondent company. In the proceedings
that took place later in the Office of the Insurance Commissioner, private respondent
should then have raised this ground of delay to avoid liability. It did not do so. It must
be because it did not find any delay, as this Court fails to find a real and substantial
sign thereof. But even on the assumption that there was delay, this Court is satisfied
and convinced that as expressly provided by law, waiver can successfully be raised
against private respondent. Thus Section 84 of the Insurance Act provides:

Section 84.Delay in the presentation to an insurer of notice or proof

of loss is waived if caused by any act of his or if he omits to take
objection promptly and specifically upon that ground.
From what has been said, We find duly substantiated petitioner's assignments of error.
ACCORDINGLY, the appealed decision is set aside and the decision of the Court of First
Instance is reinstated in toto with the affirmance of this Court. No special
pronouncement as to costs.
SO ORDERED.