1. Keppel Cebu Shipyard Inc. v. Pioneer Insurance and Surety Corp. [G.R. No. 180880-81.

September
25, 2009]

FACTS

KCSI and WG&A Jebsens Shipmanagement, Inc. (WG&A) executed a Shiprepair Agreement wherein KCSI
would renovate and reconstruct WG&As M/V Superferry 3 using its dry docking facilities pursuant to its
restrictive safety and security rules and regulations. Prior to the execution of the Shiprepair Agreement,
Superferry 3 was already insured by WG&A with Pioneer. In the course of its repair, M/V Superferry 3 was
gutted by fire. Claiming that the extent of the damage was pervasive, WG&A declared the vessels damage as a
total constructive loss and, hence, filed an insurance claim with Pioneer. Armed with the subrogation receipt,
Pioneer tried to collect from KCSI, but the latter denied any responsibility for the loss of the subject vessel.
Arbitration ensued, the Construction Industry Arbitration Commission (CIAC) rendered its Decision declaring
both WG&A and KCSI guilty of negligence. However, the award amount was limited to only PhP50 Million.

ISSUE Whether or not the right of subrogation covers total constructive loss of Superferry 3.

RULING

YES. There existed a total constructive loss so that it had to pay WG&A the full amount of the insurance
coverage and, by operation of law, it was entitled to be subrogated to the rights of WG&A to claim the amount
of the loss. The Supreme Court held that payment by the insurer to the insured operates as an equitable
assignment to the insurer of all the remedies that the insured may have against the third party whose
negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out
of, any privity of contract. It accrues simply upon payment by the insurance company of the insurance claim.
The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice; and is
the mode that equity adopts to compel the ultimate payment of a debt by one who, in justice, equity, and good
conscience, ought to pay. KCSI is ordered to pay Pioneer the net amount of P329,747,351.91 plus legal
interests.

2. ETERNAL GARDENS MEMORIAL PARK CORPORATION vs. THE PHILIPPINE AMERICAN LIFE
INSURANCE COMPANY
G.R. No. 166245, 9 April 2008

FACTS:
Respondent insurance company entered into a Creditor Group Life Policy agreement with Eternal Gardens
Memorial. Under said policy, the clients of Eternal who purchased burial lots from it on installment basis would
be insured by Philamlife. The amount of insurance coverage depended upon the existing balance of the
purchased burial lots. The policy was to be effective for a period of one year, renewable on a yearly basis.
As required under the said policy, Eternal submitted a list of all new lot purchasers, including the application of
each purchaser and their corresponding unpaid balances. Included in this list is a certain John Chuang.
When Chuang died, Eternal sent a letter, together with the pertinent papers, to Philamlife which served as an
insurance claim for Chuangs death. Philamlife required that Eternal submit certain documents relative to its
insurance claim for Chuangs death. Eternal transmitted said documents which Philamlife was able to received.
However, after more than one year, Philamlife did not anymore reply to Eternals insurance claim. This prompted
Eternal to demand the insurance claims. However, Philamlife denied the said claim, prompting Eternal to file a
case before the RTC of Makati.

ISSUE:
Whether or not Philamlife assumed the risk of loss without approving the application.
HELD:
YES. An insurance contract covering the lot purchaser is created and the same is effective, valid, and binding
until terminated by Philamlife by disapproving the insurance application. The second sentence of Creditor Group
Life Policy No. P-1920 on the Effective Date of Benefit is in the nature of a resolutory condition which would
lead to the cessation of the insurance contract. Moreover, the mere inaction of the insurer on the insurance
application must not work to prejudice the insured; it cannot be interpreted as a termination of the insurance
contract. The termination of the insurance contract by the insurer must be explicit and unambiguous.
More often than not, insurance contracts are contracts of adhesion containing technical terms and conditions
of the industry, confusing if at all understandable to laypersons, that are imposed on those who wish to avail of
insurance. As such, insurance contracts are imbued with public interest that must be considered whenever the
rights and obligations of the insurer and the insured are to be delineated. Hence, in order to protect the
interest of insurance applicants, insurance companies must be obligated to act with haste upon insurance
applications, to either deny or approve the same, or otherwise be bound to honor the application as a valid,
binding, and effective insurance contract.

4. THE INSULAR LIFE ASSURANCE COMPANY, LTD. Vs. CARPONIA T. EBRADO

G.R. No. L-44059, 28 October 1977
80 SCRA 181

FACTS:
Buenaventura Ebrado was issued by petitioner company an insurance policy wherein he designated Carponia, his
common-law wife, as his revocable beneficiary.
When Buenaventura died, Carponia filed with the insurer a claim for the proceeds of the policy in the total
amount of P11,745.73.
Pascuala Vda. de Ebrado, Buenaventuras legal wife, likewise filed her claim as the widow of the deceased
insured. She asserts that she is the one entitled to the insurance proceeds, not the common-law wife, Carponia.

ISSUE:
Whether or not a common-law wife named as beneficiary in the life insurance policy of a legally married man can
claim the proceeds thereof in case of death of the latter

HELD:
NO. When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is
governed by the general rules of the civil law regulating contracts. And under Article 2012 of the same Code,
any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a
life insurance policy by the person who cannot make a donation to him. Common-law spouses are, definitely,
barred from receiving donations from each other.
In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned.
Both are founded upon the same consideration: liberality. A beneficiary is like a donee, because from the
premiums of the policy which the insured pays out of liberality, the beneficiary will receive the proceeds or
profits of said insurance. As a consequence, the proscription in Article 739 of the new Civil Code should equally
operate in life insurance contracts. The mandate of Article 2012 cannot be laid aside: any person who cannot
receive a donation cannot be named as beneficiary in the life insurance policy of the person who cannot make
the donation. Under American law, a policy of life insurance is considered as a testament and in construing it,
the courts will, so far as possible treat it as a will and determine the effect of a clause designating the
beneficiary by rules under which wins are interpreted.
ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby
declared disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance policy. As a
consequence, the proceeds of the policy are hereby held payable to the estate of the deceased insured. Costs
against Carponia T. Ebrado
6. Gaisano Cagayan, Inc. v. Insurance Company of North America G.R. No. 147839. June 8, 2006

FACTS

Respondent paid the fire insurance claims of Intercapitol Marketing Corporation (IMC), the maker of Wrangler
Blue Jeans and Levi Strauss (Phils.) Inc. (LSPI). The insurance policies provide for coverage on "book debts in
connection with ready-made clothing materials which have been sold or delivered to various customers and
dealers of the Insured anywhere in the Philippines. Respondent filed a complaint for damages against petitioner
because of the fire incident. In its Answer with Counter Claim, petitioner contends that it could not be held
liable because the property covered by the insurance policies were destroyed due to fortuitous event or force
majeure. Petitioner also avers that despite delivery of the goods to them, IMC and LSPI assumed the risk of
loss when they secured fire insurance policies over the goods.

ISSUE Whether or not there is an insurable interest on book debts.

RULING

YES. Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real
or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril
might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable interest
in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or (c)
an expectancy, coupled with an existing interest in that out of which the expectancy arises. Therefore, an
insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of,
the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence
of such an interest, it is sufficient that the insured is so situated with reference to the property that he would
be liable to loss should it be injured or destroyed by the peril against which it is insured. Anyone has an
insurable interest in property who derives a benefit from its existence or would suffer loss from its
destruction. Indeed, a vendor or seller retains an insurable interest in the property sold so long as he has any
interest therein, in other words, so long as he would suffer by its destruction, as where he has a vendor's lien.
In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of
Account 45 days after the time of the loss covered by the policies, and the petitioner is liable for such unpaid
accounts. (underscoring supplied)

7. RCBC, et al. v. Court of Appeals G.R. No. 128833. April 20, 1998

FACTS

Goyu and Sons, Inc. (GOYU) applied for credit facilities and accommodations with Rizal Commercial Banking
Corporation (RCBC). As security, GOYU executed two real estate mortgages and two chattel mortgages in favor
of RCBC. Under each of these four mortgage contracts, GOYU committed itself to insure the mortgaged
property with an insurance company approved by RCBC, and subsequently, to endorse and deliver the insurance
policies to RCBC. GOYU obtained in its name a total of ten insurance policies from Malayan Insurance (MICO)
thru Alchester, its insurance agent. GOYUs factory buildings in Valenzuela were later gutted by fire.
Consequently, GOYU submitted its claim for indemnity on account of the loss insured against. MICO denied the
claim on the ground that the insurance policies were either attached pursuant to writs of
attachments/garnishments issued by various courts or that the insurance proceeds were also claimed by other
creditors of GOYU alleging better rights to the proceeds than the insured. GOYU filed a complaint for specific
performance and damages. RCBC, one of GOYUs creditors, also filed with MICO its formal claim over the
proceeds of the insurance policies, but said claims were also denied for the same reasons that MICO denied
GOYUs claims. Both the Trial Court and Court of Appeals sustained MICO and RCBCs liabilities.
ISSUE Whether or not RCBC, as mortgagee, has any right over the insurance policies taken by GOYU, the
mortgagor, in case of the occurrence of loss.

RULING

YES. RCBC has preferential rights over the MICO insurance policies. It is basic and fundamental that the first
mortgagee has superior rights over junior mortgagees or attaching creditors. It is also settled that a
mortgagor and a mortgagee have separate and distinct insurable interests in the same mortgaged property,
such that each one of them may insure the same property for his own sole benefit. There is no question that
GOYU could insure the mortgaged property for its own exclusive benefit. In the present case, although it
appears that GOYU obtained the subject insurance policies naming itself as the sole payee, the intentions of
the parties as shown by their contemporaneous acts, must be given due consideration in order to better serve
the interest of justice and equity. GOYU cannot seek relief under Section 53 of the Insurance Code which
provides that the proceeds of insurance shall exclusively apply to the interest of the person in whose name or
for whose benefit it is made. The peculiarity of the circumstances obtaining in the instant case presents a
justification to take exception to the strict application of said provision, it having been sufficiently established
that it was the intention of the parties to designate RCBC as the party for whose benefit the insurance policies
were taken out.

8. Geagonia v. Court of Appeals G.R. No. 114427. February 6, 1995

FACTS The petitioner is the owner of Norman's Mart located in the public market who obtained from the
private respondent fire insurance policy which covered: "Stock-in-trade consisting principally of dry goods such
as RTW's for men and women wear and other usual to assured's business." The policy required the insured to
notify the insurer of any other existing insurance. Otherwise, all benefits under said policy shall be deemed
forfeited, provided that the condition shall not apply when loss or damage is not more than P200,000.00. Fire
of accidental origin broke out and the petitioner's insured stockin-trade were completely destroyed prompting
him to file with the private respondent a claim under the policy. The private respondent denied the claim
because it found that at the time of the loss the petitioner's stocks-in-trade were likewise covered by other
fire insurance policies for P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance Co.,
Inc. (PFIC). The basis of the private respondent's denial was the petitioner's alleged violation of the policy
condition referring to double insurance.

ISSUE Whether or not there is a violation of double insurance.

RULING

NO. The insurable interests of a mortgagor and a mortgagee on the mortgaged property are distinct and
separate. Since the two policies of the PFIC do not cover the same interest as that covered by the policy of
the private respondent, no double insurance exists. The non-disclosure then of the former policies was not fatal
to the petitioner's right to recover on the private respondent's policy. By stating within the policy itself that
such condition shall not apply if the total insurance in force at the time of loss does not exceed P200,000.00,
the private respondent was amenable to assume a co-insurer's liability up to a loss not exceeding P200,000.00.
What it had in mind was to discourage overinsurance. Indeed, the rationale behind the incorporation of "other
insurance" clause in fire policies is to prevent overinsurance and thus avert the perpetration of fraud. When a
property owner obtains insurance policies from two or more insurers in a total amount that exceeds the
property's value, the insured may have an inducement to destroy the property for the purpose of collecting the
insurance. The public as well as the insurer is interested in preventing a situation in which a fire would be
profitable to the insured.
9. sOUTH SEA SURETY AND INSURANCE v. CA(VALENZUELA HARDWOOD)
244 SCRA 744 June 2, 1995
NATURE
Petition for review on certiorari
FACTS
- Hardwood entered into agreement with Seven BrosShipping, where latter undertook to load the formerslogs
on vessel. Hardwood insured the logs withSouth Sea Surety which issued Marine CargoInsurance Policy. The
vessel sank Jan 25, 1984.- Hardwood filed claim with South Sea and Seven Bros. Trial Court favored
Hardwood. CA decided against South Sea, but absolved Seven Bros. South Sea filed this instant petition.
ISSUES
WON the insurance contract was already in effectwhen the vessel sank
HELD
YES- It is already in effect because Hardwood has already paid the insurance premium. It delivered the check
to Victorio Chua before the vessel sank, but Victorio Chua was only to deliver the check to South Sea five days
after the vessel sank. Appellant argues that Chua was not its broker, but itwas found that Chua was authorized
by South Sea to receive the premium on its behalf.

Valenzuela Hardwood and Industrial Supply, Inc. shipped with Seven Brothers' vessel M/V Seven Ambassador
lauan round logs numbering 940 at the port of Maconacon, Isabela for shipment to Manila
Valenzuela insured the logs against loss and/or, damage with South Sea Surety and Insurance Co., Inc. for
P2,000,000 issuing a Marine Cargo Insurance Policy
January 24 1984: Valenzuela gave the check in payment of the premium on the insurance policy to Mr. Victorio
Chua
January 25 1984: M/V Seven Ambassador sank
January 30 1984: The check was tendered to South Sea but it refused. Instead it cancelled the insurance
policy for non-payment of the premium
RTC: favored Valenzuela against South Sea and Seven Brothers
CA: Absolved Seven Brothers
stipulation in the charter party that the ship owner would be exempted from liability in case of loss
South Sea contends that it is cancelled and that Mr. Chua is not authorized
ISSUE: W/N Mr. Chua is an authorized representative to receive the payment

HELD: YES. petition is DENIED

payment of the premium is a condition precedent to, and essential for, the efficaciousness of the contract.
The only two statutorily provided exceptions are
(a) in case the insurance coverage relates to life or industrial life (health) insurance when a grace period applies
and
(b) when the insurer makes a written acknowledgment of the receipt of premium, this acknowledgment being
declared by law to be then conclusive evidence of the premium payment

South Sea Surety and Insurance Co., Inc. delivered to him the policy on 21 January 1984 at his office to be
delivered to the Valenzuela - deemed to have been authorized by the South Sea Surety and Insurance Co., Inc.
to receive the premium

10. Makati Tuscany Condominium Corp. v. Court of Appeals, G.R. No. 95546. November 6, 1992

FACTS Sometime in early 1982, private respondent American Home Assurance Co. (AHAC), represented by
American International Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany Condominium
Corporation (TUSCANY) Insurance Policy #1 on the latter's building and premises, for a period beginning 1
March 1982 and ending 1 March 1983, with a total premium of P466,103.05. The premium was paid on
installments, all of which were accepted by private respondent. On 10 February 1983, private respondent issued
to petitioner Insurance Policy #2, which replaced and renewed the previous policy, for a term covering 1 March
1983 to 1 March 1984. The premium in the same amount was again paid on installments. All payments were
likewise accepted by private respondent. On 20 January 1984, the policy was again renewed and private
respondent issued to petitioner Insurance Policy #3 for the period 1 March 1984 to 1 March 1985. On this
renewed policy, petitioner made two installment payments, both accepted by private respondent, P52,000.00
and P100,000.00. Thereafter, petitioner refused to pay the balance of the premium. Consequently, private
respondent filed an action to recover the unpaid balance of P314,103.05 for last Insurance Policy #3.

ISSUE Whether or not payment by installment of the premiums due on an insurance policy invalidates the
contract of insurance.

RULING

NO. The subject policies are valid even if the premiums were paid on installments. The records clearly show
that petitioner and private respondent intended subject insurance policies to be binding and effective
notwithstanding the staggered payment of the premiums. The initial insurance contract entered into in 1982
was renewed in 1983, then in 1984. In those three (3) years, the insurer accepted all the installment payments.
Such acceptance of payments speaks loudly of the insurer's intention to honor the policies it issued to
petitioner. Certainly, basic principles of equity and fairness would not allow the insurer to continue collecting
and accepting the premiums, although paid on installments, and later deny liability on the lame excuse that the
premiums were not prepared in full. It appearing from the peculiar circumstances that the parties actually
intended to make three (3) insurance contracts valid, effective and binding, petitioner may not be allowed to
renege on its obligation to pay the balance of the premium after the expiration of the whole term of the third
policy in March 1985. Moreover, as correctly observed by the appellate court, where the risk is entire and the
contract is indivisible, the insured is not entitled to a refund of the premiums paid if the insurer was exposed
to the risk insured for any period, however brief or momentary.

11. American Home Assurance Co. v. Chua [G.R. No. 130421. June 28, 1999]

FACTS

Petitioner is a domestic corporation engaged in the insurance business. Respondent obtained from petitioner a
fire insurance covering the stock-in-trade of his business, Moonlight Enterprises, located at Valencia, Bukidnon.
The insurance was due to expire on 25 March 1990. On 5 April 1990 respondent issued PCIBank Check to
petitioners agent, James Uy, as payment for the renewal of the policy. In turn, the latter delivered Renewal
Certificate to respondent. The check was drawn against a Manila bank and deposited in petitioners bank
account in Cagayan de Oro City. The corresponding official receipt was issued on 10 April. Subsequently, a new
insurance policy was issued for the period 25 March 1990 to 25 March 1991. On 6 April 1990 Moonlight
Enterprises was completely razed by fire. Respondent filed an insurance claim with petitioner and four other
co-insurers. Petitioner refused to honor the claim notwithstanding several demands by respondent, thus, the
latter filed an action against petitioner before the trial court. In its defense, petitioner claimed there was no
existing insurance contract when the fire occurred since respondent did not pay the premium.

ISSUE Whether or not there was a valid payment of premium that would result to a valid and binding contract
of insurance, considering respondents checks was cashed after the occurrence of fire.

RULING

YES. Section 78 (now Section 79) of the Insurance Code explicitly provides: An acknowledgment in a policy or
contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the
policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually
paid. This Section establishes a legal fiction of payment and should be interpreted as an exception to Section
77. Here, according to the trial court, the renewal certificate issued to respondent contained the
acknowledgment that premium had been paid. It is not disputed that the check drawn by respondent in favor of
petitioner and delivered to its agent was honored when presented and petitioner forthwith issued its official
receipt. The best evidence of such authority is the fact that petitioner accepted the check and issued the
official receipt for the payment. It is, as well, bound by its agents acknowledgment of receipt of payment.
Since there was a valid payment of premium, then there is a valid and binding contract of insurance that would
hold herein insurer liable.

13. Pacific Timber v CA G.R. No. L-38613 February 25, 1982

Facts:
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 Quezon Province to Okinawa and Tokyo, Japan.
Workmens Insurance issued a cover note insuring the cargo of the plaintiff subject to its terms and conditions.
The two marine policies bore the numbers 53 HO 1032 and 53 HO 1033. Policy No. 53 H0 1033 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. The total cargo insured under the two marine policies consisted of 1,395 logs, or the
equivalent of 1,195.498 bd. ft.
After the issuance of the cover note, 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.
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.
Pacific Timber informed Workmens about the loss of 32 pieces of logs during loading of SS woodlock.
Although dated April 4, 1963, the letter was received in the office of the defendant only on April 15, 1963. The
plaintiff claimed for insurance to the value of P19,286.79.
Woodmens requested an adjustment company to assess the damage. It submitted its report, where it found
that the loss of 30 pieces of logs is not covered by Policies Nos. 53 HO 1032 and 1033 but within the 1,250,000
bd. ft. covered by Cover Note 1010 insured for $70,000.00.
The adjustment company submitted a computation of the defendant's probable liability on the loss sustained by
the shipment, in the total amount of P11,042.04.
Woodmens 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 marine policies 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.
The denial of the claim by the defendant was brought by the plaintiff to the attention of the Insurance
Commissioner. The Insurance Commissioner ruled in favor of indemnifying Pacific Timber. The company added
that the cover note is null and void for lack of valuable consideration. The trial court ruled in petitioners favor
while the CA dismissed the case. Hence this appeal.

Issues:
WON the cover note was null and void for lack of valuable consideration
WON the Insurance company was absolved from responsibility due to unreasonable delay in giving notice of
loss.

Held: No. No. Judgment reversed.

Ratio:
1. The fact that no separate premium was paid on the Cover Note before the loss occurred does not militate
against the validity of the contention even if no such premium was paid. All Cover Notes do not contain
particulars of the shipment that would serve as basis for the computation of the premiums. Also, no separate
premiums are required to be paid on a Cover Note.
The petitioner paid in full all the premiums, hence there was no account unpaid on the insurance coverage and
the cover note. If the note is to be treated as a separate policy instead of integrating it to the regular policies,
the purpose of the note would be meaningless. It is a contract, not a mere application for insurance.
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 for loss during transit,
because the logs were safely placed aboard.
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. Otherwise, the note 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.
2. The defense of delay cant be sustained. The facts show that instead of invoking the ground of delay in
objecting to petitioner's claim of recovery on the cover note, the insurer never had this in its mind. It has a
duty to inquire when the loss took place, so that it could determine whether delay would be a valid ground of
objection.
There was enough time for insurer to determine if petitioner was guilty of delay in communicating the loss to
respondent company. It never did in the Insurance Commission. Waiver can be raised against it under Section
84 of the Insurance Act.

15. Ng Gan Zee v. Asian Crusader Life, 122SCRA 461 NG GAN ZEE V. ASIANCRUSADER LIFE

IMPERFECTION INTHE APPLICATION FORM 122 SCRA 61

Facts:>
In 1962, Kwon Nam applied for a 20yr endowment insurance on his life with his wife, Ng Gan Zee as the
beneficiary.> He stated in his application that he was operated on for tumor of the stomach associated with
ulcer.> In 1963, Kwong died of cancer of the liver with metastasis. Asian refused to pay on the ground of alse
information.> It was found that prior to his application, Kwong was diagnosed to have pepticulcers, and that
during the operation what was removed from Kwongs body was actually a portion of the stomach and not tumor.

Issue: Whether or not the contract may be rescinded on the ground of the imperfection in the application
form.

Held:
NO. Kwong did not have sufficient knowledge as to distinguish between a tumor and a peptic ulcer. His
statement therefore was made in good faith. Asian should have made an inquiry as to the illness and operation
of Kwong when it appeared on the face of the application that a question appeared to be imperfectly
answered. Asians failure to inquire
constituted a waiver of the imperfection in the answer.

16. THELMA VDA. DE CANILANG vs. COURT OF APPEALS

G.R. No. 92492, 17 June 1993

FACTS:
Jaime Canilang applied for a non-medical insurance policy with respondent Great Pacific Life Assurance
Company naming his wife, Thelma Canilang as his beneficiary. But he did not disclose the fact that he was
diagnosed as suffering from sinus tachycardia and that he has consulted a doctor twice. Jaime was issued an
ordinary life insurance policy with the face value of P19,700.00.
Jaime died of congestive heart failure, anemia, and chronic anemia. Petitioner widow and beneficiary of
the insured, filed a claim with Great Pacific which the insurer denied upon the ground that the insured had
concealed material information from it. Hence, Thelma filed a complaint against Great Pacific with the
Insurance Commission for recovery of the insurance proceeds.
ISSUE:
Whether or not the non-disclosure of certain facts about the insureds previous health conditions is material to
warrant the denial of the claims of Thelma Canilang

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

17. EMILIO TAN vs. COURT OF APPEALS

G.R. No. 48049, 29 June 1989

FACTS:
Tan Lee Siong, father of herein petitioners, applied for life insurance in the amount of P80,000.00 with
respondent company Philippine American Life Insurance Company. Said application was approved and a
corresponding policy was issued effective November 5, 1973, with petitioners as the beneficiaries.
On April 26, 1975, Tan Lee Siong died of hepatoma. Hence, petitioners filed with respondent company their
claim for the proceeds of the life insurance policy. However, the insurance company denied the said claim and
rescinded the policy by reason of the alleged misrepresentation and concealment of material facts made by the
deceased Tan Lee Siong in his application for insurance. The premiums paid on the policy were thereupon
refunded.
The petitioners contend that the respondent company no longer had the right to rescind the contract of
insurance as rescission must allegedly be done during the lifetime of the insured within two years and prior to
the commencement of action.

ISSUE:
Whether or not the insurance company has the right to rescind the contract of insurance despite the presence
of an incontestability clause

HELD:
YES. The so-called incontestability clause precludes the insurer from raising the defenses of false
representations or concealment of material facts insofar as health and previous diseases are concerned if the
insurance has been in force for at least two years during the insureds 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 insureds 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.

18. G.R. No. 186983 February 22, 2012 MA.LOURDES S. FLORENDO, Petitioner, vs.PHILAM PLANS,
INC., PERLA ABCEDEMA. CELESTE ABCEDE, Respondents.

FACTS: Manuel Florendo filed an application for comprehensive pension plan with respondent Philam Plans, Inc.
(PhilamPlans) Manuel signed the application andleft to Perla the task of supplying the information needed in the
application. Respondent Ma. Celeste Abcede, Perlas daughter, signed the application as sales counselor. Philam
Plans issued PensionPlan Agreement to Manuel, with petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary.
In time, Manuel paid his quarterly premiums. Eleven months later, Manuel died of blood poisoning. Subsequently,
Lourdes filed a claim with Philam Plans for the payment of the benefits under her husbands plan but Philam
Plans declined her claim prompting her to file the present action against the pension plan company before the
Regional Trial Court(RTC) of Quezon City and ruled in favor ofMa. Lourdes. However, the Court
of Appeals then reversed the RTC decision. Hence this appeal.

ISSUE: Whether or not Ma. Lourdes could claim benefits as the beneficiary of her husband under the
insurance plan despite consideration that her husband Manuel concealed the true condition of his health.

RULING:
The Supreme Court answers this to the negative and the AFFIRMED in its entirety the decision of the Court
of Appeals. The comprehensive pension plan that Philam Plans issued contains a one-year incontestability period.
It states: VIII.INCONTESTABILITY After this Agreement has remained in force for one (1) year, we can no
longer contest for health reasons any claim for insurance under this Agreement, except for the reason that
installment has not been paid (lapsed), or that you are not insurable at the time you bought this pension
program by reason of age. If this Agreement lapses but is reinstated afterwards, the one (1) year
contestability period shall start again on the date of approval of your request for reinstatement. The above
incontestability clause precludes the insurer from disowning liability under the policy it issued on the ground of
concealment or misrepresentation regarding the health of the insured after a year of its issuance. Since
Manuel died on the eleventh month following the issuance of his plan, the one year incontestability period has
not yet set in. Consequently, Philam Plans was not barred from
questioning Lourdes entitlement to the benefits of her husbands pension plan