Insurance Law Case Digests SY 2010-2011

EGUARAS vs. GREAT EASTERN 33 PHIL 263, 24 January 1916

NATURE: Appeal filed through bill of exceptions from the judgment of the CFI FACTS: y Francisca Eguaras filed a written complaint in court, alleging as a cause of action that her son-inlaw Dominador Albay had applied in writing to the defendant insurance company to insure his life for the sum of P5,000, naming as the beneficiary in case of his death the plaintiff Francisca Eguaras; that after compliance with the requisites and the investigation carried on by the defendant company, it accepted the application for insurance and issued the policy; that, said policy being in force, the insured died, and despite the fact that the beneficiary submitted satisfactory proofs of his death and that the defendant company investigated the event, still it refused and continues to refuse to pay to the plaintiff the value of the policy. y Defendant set forth in special defense that the insurance policy issued in the name of Dominador Albay had been obtained through fraud and deceit known and consent to by the interested parties and is therefore completely illegal, void, and ineffective. y A criminal case for frustrated estafa was filed by defendant against Ponciano Remigio, Castor Garcia and Francisca Eguaras. They were acquitted, and claim that the judgment produces the effect of res judicata in the present suit. ISSUE: y WON the life insurance obtained by Dominador Albay was issued through fraud and deceit HELD: y YES. Ratio In a contract where one of the contracting parties may have given his consent through error, violence, intimidation, or deceit, and in any of such cases the contract is void, even though, despite this nullity, no crime was committed. There may not have been estafa in the case at bar, but it was conclusively demonstrated by the trial that deceit entered into the insurance contract, fulfillment whereof is claimed, and therefore the conclusions reached by the court in the judgment it rendered in the criminal proceedings for estafa do not affect this suit, nor can they produce in the present suit the force ofres adjudicata. Reasoning: It is proven that the signatures on the insurance applications reading "Dominado Albay" are false and forged; that the person who presented himself to Dr. Vidal to be examined was not the real Dominador Albay, but Castor Garcia who was positively identified by Dr. Vidal; that at the time of the application for insurance and the issuance of the policy which is the subject matter of this suit the real Dominador Albay was informed of all those machinations, wherefore it is plain that the insurance contract between the defendant and Dominador Albay is null and void because it is false, fraudulent and illegal. Disposition: The judgment appealed from is reversed and the defendant absolved from the complaint without special finding as to the costs.

Argente vs. West Coast Life Insurance Company 51 PHIL 725, 19 March 1928

FACTS: y A joint life insurance was issued to Bernardo Argente and his wife Vicenta upon payment of premium, by West Coast. y On November 18, 1925, during the affectivity of the policy, Vicenta died of cerebral apoplexy. Thereafter, Bernardo claimed payment but was refused. y It is admitted that in the Medical Examiner s report, Vicenta, in respond to the question asked by the medical examiner, her replies were as follows: y Frequently do you use beer, wine, spirits and other intoxicants? she answered beer only in small quantities y What physician have you consulted or been treated by the last within 5 years and for what illness or ailment? she answered none y It is however, not disputed that in 1924, Vicenta was taken to a hospital for what was first diagnose as alcoholism and later changed to manic-dispersive psychosis and then again changed to psychoneurosis. ISSUE: y Whether or Not on the basis of the misrepresentations of Vicenta, Bernardo is barred from recovery. HELD: y YES. The court found that the representations made by Vicenta in his application for Life Insurance were false with respect to her state 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 show that the answer to questions concerning diseases were untrue, the truth or falsity of the answer becomes the determining factor. If the policy were 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.

IGNACIO SATURNINO vs. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY 7 SCRA 316, 28 February 1963

Waiver of medical examination FACTS: y Estefania Saturnino obtained a 20-year endowment non-medical insurance. This kind of policy dispenses with the medical examination of the applicant usually required in ordinary life policies. y However, two months prior to the issuance of the policy, Saturnino was operated on for cancer, involving mastectomy of the right breast. y She did not make a disclosure thereof in her application for insurance. On the contrary, she stated therein that she did not have, nor had she ever had, among other ailments listed in the application, cancer or other tumors. y Sometime after, Saturnino died of pneumonia, secondary to influenza. Appellants here, who are her surviving husband and minor child, respectively, demanded payment of the face value of the policy. The claim was rejected and hence an action was subsequently instituted. ISSUE: y Whether or not the insured made such false representations of material facts as to avoid the policy HELD: y YES. The Insurance Law provides that materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the proposed contract, or in making his inquiries. The waiver of medical examination renders even more material the information required of the applicant concerning previous condition of health and diseases suffered, for such information necessarily constitutes an important factor which the insurer takes into consideration in deciding whether to issue the policy or not. It is logical to assume that if appellee had been properly appraised of the insured s medical history she would at least have been made to undergo medical examination in order to determine her insurability. Concealment, whether intentional or unintentional, entitles the insurer to rescind the contract of insurance, concealment being defined as negligence to communicate that which a party knows and ought to communicate . The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the insurer into accepting the risk, or accepting it at the rate of premium agreed upon. The insurer, relying upon the belief that the assured will disclose every material fact within his actual or presumed knowledge, is misled into a belief that the circumstance withheld does not exist, and he is there by induced to estimate the risk upon a false basis that it does not exist. The judgment appealed from, dismissing the complaint and awarding the return to appellants of the premium already, paid, with interest at 6% up to January 29, 1959, affirmed, with costs against appellants.

Tan Chay Heng v. West Coast Life Insurance Company 51 Phil 80, 21 November 1927

Fraud FACTS: y y y In 1926, Tan Chay Heng sued West Coast on the policy allegedly issued to his uncle , Tan Caeng who died in 1925. He was the sole beneficiary thereof. West Coast refused on the ground that the policy was obtained by Tan Caeng with the help of agents Go Chuilian, Francisco Sanchez and Dr. Locsin of West Coast. West Coast said that it was made to appear that Tan Caeng was single, a merchant, health and not a drug user, when in fact he was married, a laborer, suffering from tuberculosis and addicted to drugs. West Coast now denies liability based on these misrepresentations. Tan Chay contends that West Coast may not rescind the contract because an action for performance has already been filed. Trial court found for Tan Chay holding that an insurer cannot avoid a policy which has been procured by fraud unless he brings an action to rescind it before he is sued thereon.

y y y

ISSUE: y Whether or not West Coast s action for rescission is therefore barred by the collection suit filed by Tan Chay. HELD: y NO. Precisely, the defense of West Cast was that through fraud in its execution, the policy is void ab initio, and therefore, no valid contract was ever made. Its action then cannot before rescission because an action to rescind is founded upon and presupposes the existence of the contract. Hence, West Coast s defense is not barred by Sec. 47. In the instant case, it will be noted that even in its prayer, the defendant does not seek to have the alleged insurance contract rescinded. It denies that it ever made any contract of insurance on the life of Tan Caeng, or that any such a contract ever existed, and that is the question which it seeks to have litigated by its special defense. In the very nature of things, if the defendant never made or entered into the contract in question, there is no contract to rescind, and, hence, section 47 upon which the lower court based its decision in sustaining the demurrer does not apply. As stated, an action to rescind a contract is founded upon and presupposes the existence of the contract which is sought to be rescinded. If all of the materials matters set forth and alleged in the defendant's special plea are true, there was no valid contract of insurance, for the simple reason that the minds of the parties never met and never agreed upon the terms and conditions of the contract. We are clearly of the opinion that, if such matters are known to exist by a preponderance of the evidence, they would constitute a valid defense to plaintiff's cause of action. Upon the question as to whether or not they are or are not true, we do not at this time have or express any opinion, but we are clear that section 47 does not apply to the allegations made in the answer, and that the trial court erred in sustaining the demur

EMILIO TAN vs. COURT OF APPEALS 174 SCRA 403, 29 June 1989

Incontestability Clause FACTS: y Tan Lee Siong, father of herein petitioners, applied for life insurance in the amount of P80, 000.00 with respondent company Philippine American Life Insurance Company. Said application was approved and a corresponding policy was issued effective November 5, 1973, with petitioners as the beneficiaries. y On April 26, 1975, Tan Lee Siong died of hematoma. Hence, petitioners filed with respondent company their claim for the proceeds of the life insurance policy. However, the insurance company denied the said claim and rescinded the policy by reason of the alleged misrepresentation and concealment of material facts made by the deceased Tan Lee Siong in his application for insurance. The premiums paid on the policy were thereupon refunded. y The petitioners contend that the respondent company no longer had the right to rescind the contract of insurance as rescission must allegedly be done during the lifetime of the insured within two years and prior to the commencement of action. ISSUE: y Whether or not the insurance company has the right to rescind the contract of insurance despite the presence of an incontestability clause HELD: y YES. The so-called incontestability clause precludes the insurer from raising the defenses of false representations o concealment of material facts insofar as health and previous diseases are concerned if the insurance has been in force for at least two years during the insured s lifetime. The phrase during the lifetime found in Section 48 of the Insurance Law simply means that the policy is no longer considered in force after the insured has died. The key phrase in the second paragraph of Section 48 is for a period of two years . The policy was issued on November 6, 1973 and the insured died on April 26, 1975. The policy was thus in force for a period of only one year and five months. Considering that the insured died before the two-year period has lapsed, respondent company is not, therefore, barred from proving that the policy is void ab initio by reason of the insured s fraudulent concealment or misrepresentation. Moreover, respondent company rescinded the contract of insurance and refunded the premiums paid on November 11, 1975, previous to the commencement of this action on November 27, 1975. WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision of the Court of Appeals is AFFIRMED.