IX.

RESCISSION OF INSURANCE CONTRACTS

C. CONCEALMENT

Manila Bankers Life Insurance Corporation vs Aban

G.R. No. 175666 July 29, 2013

Facts:

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

Issue:

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

Held:

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

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

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

SUN LIFE OF CANADA v. MA. DAISY'S. SIBYA

GR No. 211212, Jun 08, 2016

FACTS:
On January 10, 2001, Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life insurance with Sun
Life. In his Application for Insurance, he indicated that he had sought advice for kidney
problems.[5] Atty. Jesus Jr. indicated the following in his application:
"Last 1987, had undergone lithotripsy due to kidney stone under Dr. Jesus Benjamin Mendoza at
National Kidney Institute, discharged after 3 days, no recurrence as claimed.
On February 5, 2001, Sun Life approved Atty. Jesus Jr.'s application and issued Insurance Policy
No. 031097335. The policy indicated the respondents as beneficiaries and entitles them to a
death benefit of P1,000,000.00 should Atty. Jesus Jr. dies on or before February 5, 2021, or a sum
of money if Atty. Jesus Jr. is still living on the endowment date.

On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound in San Joaquin, Iloilo. As
such, Ma. Daisy filed a Claimant's Statement with Sun Life to seek the death benefits indicated
in his insurance policy.

In a letter dated August 27, 2001, however, Sun Life denied the claim on the ground that the
details on Atty. Jesus Jr.'s medical history were not disclosed in his application. Simultaneously,
Sun Life tendered a check representing the refund of the premiums paid by Atty. Jesus Jr.[9]

The respondents reiterated their claim against Sun Life thru a letter dated September 17, 2001.
Sun Life, however, refused to heed the respondents' requests and instead filed a Complaint for
Rescission before the RTC and prayed for judicial confirmation of Atty. Jesus Jr.'s rescission of
insurance policy.

In its Complaint, Sun Life alleged that Atty. Jesus Jr. did not disclose in his insurance application
his previous medical treatment at the National Kidney Transplant Institute in May and August of
1994. According to Sun Life, the undisclosed fact suggested that the insured was in "renal
failure" and at a high risk medical condition. Consequently, had it known such fact, it would not
have issued the insurance policy in favor of Atty. Jesus Jr.

For their defense, the respondents claimed that Atty. Jesus Jr. did not commit misrepresentation
in his application for insurance. They averred that Atty. Jesus Jr. was in good faith when he
signed the insurance application and even authorized Sun Life to inquire further into his medical
history for verification purposes. According to them, the complaint is just a ploy to avoid the
payment of insurance claims.

ISSUE:
Essentially, the main issue of the instant case is whether or not the CA erred when it affirmed the
RTC decision finding that there was no concealment or misrepresentation when Atty. Jesus Jr.
submitted his insurance application with Sun Life.
HELD:
The petition has no merit.
In Manila Bankers Life Insurance Corporation v. Aban, the Court held that if the insured dies
within the two-year contestability period, the insurer is bound to make good its obligation under
the policy, regardless of the presence or lack of concealment or misrepresentation. The Court
held:
Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured.
Under the provision, an insurer is given two years - from the effectivity of a life insurance
contract and while the insured is alive - to discover or prove that the policy is void ab initio or is
rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his
agent. After the two-year period lapses, or when the insured dies within the period, the insurer
must make good on the policy, even though the policy was obtained by fraud, concealment, or
misrepresentation. This is not to say that insurance fraud must be rewarded, but that insurers who
recklessly and indiscriminately solicit and obtain business must be penalized, for such
recklessness and lack of discrimination ultimately work to the detriment of bona fide takers of
insurance and the public in general.
In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Thus, it has two
years from its issuance, to investigate and verify whether the policy was obtained by fraud,
concealment, or misrepresentation. Upon the death of Atty. Jesus Jr., however, on May 11, 2001,
or a mere three months from the issuance of the policy, Sun Life loses its right to rescind the
policy. As discussed in Manila Bankers, the death of the insured within the two-year period will
render the right of the insurer to rescind the policy nugatory. As such, the incontestability period
will now set in.

Assuming, however, for the sake of argument, that the incontestability period has not yet set in,
the Court agrees, nonetheless, with the CA when it held that Sun Life failed to show that Atty.
Jesus Jr. committed concealment and misrepresentation.
As correctly observed by the CA, Atty. Jesus Jr. admitted in his application his medical treatment
for kidney ailment. Moreover, he executed an authorization in favor of Sun Life to conduct
investigation in reference with his medical history. The decision in part states:
Records show that in the Application for Insurance, [Atty. Jesus Jr.] admitted that he had sought
medical treatment for kidney ailment. When asked to provide details on the said medication,
[Atty. Jesus Jr.] indicated the following information: year ("1987"), medical procedure
("undergone lithotripsy due to kidney stone"), length of confinement ("3 days"), attending
physician ("Dr. Jesus Benjamin Mendoza") and the hospital ("National Kidney Institute").

It appears that [Atty. Jesus Jr.] also signed the Authorization which gave [Sun Life] the
opportunity to obtain information on the facts disclosed by [Atty. Jesus Jr.] in his insurance
application. x x x
Given the express language of the Authorization, it cannot be said that [Atty. Jesus Jr.] concealed
his medical history since [Sun Life] had the means of ascertaining [Atty. Jesus Jr.'s] medical
record.

With regard to allegations of misrepresentation, we note that [Atty. Jesus Jr.] was not a medical
doctor, and his answer "no recurrence" may be construed as an honest opinion. 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. Indeed, the intent to defraud on the part of the
insured must be ascertained to merit rescission of the insurance contract. Concealment as a
defense for the 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 the present
case, Sun Life failed to clearly and satisfactorily establish its allegations, and is therefore liable
to pay the proceeds of the insurance.

Moreover, well-settled is the rule that this Court is not a trier of facts. Factual findings of the
lower courts are entitled to great weight and respect on appeal, and in fact accorded finality when
supported by substantial evidence on the record. WHEREFORE, the petition for review is
DENIED. The Decision dated November 18, 2013 and Resolution dated February 13, 2014 of
the Court of Appeals in CA-G.R. CV. No. 93269 are hereby AFFIRMED.
IX. RESCISSION OF INSURANCE CONTRACTS
C. CONCEALMENT

MANULIFE PHILIPPINES, INC. VS. HERMENEGILDA YBAÑEZ

G.R. No. 204736, November 28, 2016

FACTS:
Before the RTC of Makati City, Manulife Philippines, Inc. (Manulife) instituted a Complaint for
Rescission of Insurance Contracts against Hermenegilda Ybañez (Hermenegilda) and the BPI
Family Savings Bank (BPI Family). This was docketed as Civil Case No. 04-1119.

It is alleged in the Complaint that Insurance Policy Nos. 6066517-1 and 6300532-6 (subject
insurance policies) which Manulife issued on October 25, 2002 and on July 25, 2003,
respectively, both in favor of Dr. Gumersindo Solidum Ybañez (insured), were void due to
concealment or misrepresentation of material facts in the latter's applications for life insurance,
particularly the forms entitled Non-Medical Evidence dated August 28, 2002 (NME), Medical
Evidence Exam dated September 10, 2002 (MEE), and the Declaration of Insurability in the
Application for Life Insurance (DOI) dated July 9, 2003;that Hermenegilda, wife of the said
insured, was revocably designated as beneficiary in the subject insurance policies; that on
November 17, 2003, when one of the subject insurance policies had been in force for only one
year and three months, while the other for only four months, the insured died; that on December
10, 2003, Hermenegilda, now widow to the said insured, filed a Claimant's Statement-Death
Claim with respect to the subject insurance policies; that the Death Certificate dated November
17, 2003 stated that the insured had "Hepatocellular CA., Crd Stage 4, secondary to Uric Acid
Nephropathy; SAM Nephropathy recurrent malignant pleural effusion; NASCVC"; that Manulife
conducted an investigation into the circumstances leading to the said insured's death, in view of
the aforementioned entries in the said insured's Death Certificate; that Manulife thereafter
concluded that the insured misrepresented or concealed material facts at the time the subject
insurance policies were applied for; and that for this reason Manulife accordingly denied
Hermenegilda's death claims and refunded the premiums that the insured paid on the subject
insurance policies.

Manulife also set forth in said Complaint the details of the insured's supposed
misrepresentation/s or concealment/s, to wit:

On the basis of the authority granted by [Hermenegilda] in her Claimant's Statement (Annex
"H"), [Manulife] conducted an investigation [into] the Insured's medical records and history, and
discovered that the Insured concealed material facts which the law, good faith, and fair dealing
required him to reveal when he answered the [NME] (Annex "C"), [the MEE] (Annex "D"), and
[the DOI] (Annex "E"), as follows:
Insured's confinement at the Cebu Doctors' Hospital [CDH] from 27 December 2000 to 31
December 2000, wherein he underwent total parotidectomy on 28 December 2000 due to the
swelling of his right parotid gland and the presence of a tumor, and was found to have had a
history of being hypertensive, and his kidneys have become atretic or shrunken. A copy of each
of the Admission and Discharge Record and PGIS' Interns' Progress Notes and Operative Record
of the [CDH] is attached hereto and made an integral part hereof as Annex "K", "K-1", and "K-
2", respectively.

Insured’s confinement at the CDH from 9 May 2002 to 14 May 2002, wherein he was diagnosed
to have acute pancreatitis, in addition to being hypertensive. A copy [of] each of the Insured's
Admission and Discharge Record and Doctor's History/Progress Notes is attached hereto and
made an integral part hereof as Annex "L" and "L-1", respectively.

Insured's diagnosis for leptospirosis in 2000. A copy [of] each of the Insured's Admission and
Discharge Record and History Sheet is attached hereto and made an integral part hereof as Annex
"M" and "M-1", respectively.

Due to the Insured's concealment of material facts at the time the subject insurance policies were
applied for and issued, [Manulife] exercised its right to rescind the subject insurance contracts
and denied the claims on those policies.

Manulife thus prayed that judgment be rendered finding its act of rescinding the subject
insurance policies proper; declaring these subject insurance policies null and void; and
discharging. it from any obligation whatsoever under these policies.

ISSUE:
Whether the CA committed any reversible error in affirming the RTC Decision dismissing
Manulife's Complaint for rescission of insurance contracts for failure to prove concealment on
the part of the insured.

HELD:

The present recourse essentially challenges anew the findings of fact by both the RTC and the
CA that the Complaint for rescission of the insurance policies in question will not prosper
because Manulife failed to prove concealment on the part of the insured. This is not allowed. It is
horn-book law that in appeal by certiorari to this Court under Rule 45 of the Revised Rules of
Court, the findings of fact by the CA especially where such findings of fact are affirmatory or
confirmatory of the findings of fact of the RTC, as in this case, are conclusive upon this Court.
The reason is simple: this Court not being a trial court, it does not embark upon the task of
dissecting, analyzing, evaluating, calibrating or weighing all over again the evidence, testimonial
or documentary, that the parties adduced during trial.
Of course, there are exceptions to this rule, such as when the conclusion is grounded upon
speculations, surmises or conjectures; when the inference is manifestly mistaken, absurd or
impossible; when there is a grave abuse of discretion; when the judgment is based on a
misapprehension of facts; when the findings of fact are conflicting; when there is no citation of
specific evidence on which the factual findings are based; when the findings of absence of facts
is contradicted by the presence of evidence on record; when the findings of the CA are contrary
to the findings of the RTC; when the CA manifestly overlooked certain relevant and undisputed
facts that, if properly considered, would justify a different conclusion; when the findings of the
CA are beyond the issues of the case; and, when the CA's findings are contrary to the admission
of both parties. We are satisfied that none of these exceptions obtains in the Petition at bench.
Thus, this Court must defer to the findings of fact of the RTC - as affirmed or confirmed by the
CA - that Manulife's Complaint for rescission of the insurance policies in question was totally
bereft of factual and legal bases because it had utterly failed to prove that the insured had
committed the alleged misrepresentation/s or concealment/s of material facts imputed against
him.
The RTC correctly held that the CDH's medical records that might have established the insured's
purported misrepresentation/s or concealment/s was inadmissible for being hearsay, given the
fact that Manulife failed to present the physician or any responsible official of the CDH who
could confirm or attest to the due execution and authenticity of the alleged medical records.
Manulife had utterly failed to prove by convincing evidence that it had been beguiled, inveigled,
or cajoled into selling the insurance to the insured who purportedly with malice and deceit
passed himself off as thoroughly sound and healthy, and thus a fit and proper applicant for life
insurance. Manulife's sole witness gave no evidence at all relative to the particulars of the
purported concealment or misrepresentation allegedly perpetrated by the insured. In fact,
Victoriano merely perfunctorily identified the documentary exhibits adduced by Manulife; she
never testified in regard to the circumstances attending the execution of these documentary
exhibits much less in regard to its contents. Of course, the mere mechanical act of identifying
these documentary exhibits, without the testimonies of the actual participating parties thereto,
adds up to nothing. These documentary exhibits did not automatically validate or explain
themselves. "The fraudulent intent on the part of the insured must be established to entitle the
insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is
an affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the insurer." For failure of Manulife to prove intent to defraud on the part of
the insured, it cannot validly sue for rescission of insurance contracts.
IX. RESCISSION OF INSURANCE CONTRACTS
F. WARRANTIES/BREACH OF WARRANTIES

Young v Midland
G.R. No. L-9370 March 31, 1915

Facts:
Young owned a candy and fruit store in Manila. Midland issued a policy for the payment of a
premium of P60. The indemnity was 3,000 if the place was destroyed by fire. One clause
claimed:
“Waranty B. – It is hereby declared and agreed that during the pendency of this policy no
hazardous goods stored or kept for sale, and no hazardous trade or process be carried on, in the
building to which this insurance applies, or in any building connected therewith.”
Young then placed three boxes of fireworks. The plaintiff intended to use them for Chinese New
Year, but the authorities prohibited the use. The bodega was destroyed by fire.
Both of the parties agree that said fireworks come within the phrase “hazardous goods,”
mentioned in said “warranty B” of the policy. But it was found out that the fireworks were found
in a part of the building not destroyed by the fire, and that they in no way contributed to the fire.

Issue:
Whether or not the placing of said fireworks in the building insured is a violation of the terms of
the contract of insurance and especially of “warranty B”

Held:
Yes. Petition dismissed.Both the plaintiff and defendant agree that if they were “hazardous
goods,” and if they were “stored,” then the act of the plaintiff was a violation of the terms of the
contract of insurance and the defendant was justified in repudiating its liability.
This leads us to a consideration of the meaning of the accord “stored” as used in said “warranty
B.” Whether a particular article is “stored” or not must, in some degree, depend upon the
intention of the parties. Nearly all of the cases cited by the lower court are cases where the article
was being put to some reasonable and actual use, which might easily have been permitted by the
terms of the policy, and within the intention of the parties, and excepted from the operation of the
warranty, like the present.
The author of the Century Dictionary defines the world “store” to be a deposit in a store or
warehouse for preservation or safe keeping; o place in a warehouse or other place of deposit for
safe keeping.
Said definitions, of course, do not include a deposit in a store, in small quantities, for daily use.
“Daily use” precludes the idea of a deposit for preservation or safe keeping, as well as a deposit
for future consumption, or safe keeping.

The plaintiff makes no claim that he deposited them there with any other idea than “for future
use” – for future consumption. It seems clear to us that the “hazardous goods” in question were
“stored” in the bodega, as that word is generally defined. That being true, suppose the defendant
had made an examination of the premises, even in the absence of a fire, and had found the
“hazardous goods” there, under the conditions above described, would it not have been justified,
then and there, in declaring the policy null and of no effect by reason of a violation of its terms?
The appellant argues, however, that in view of the fact that the “storing” of the fireworks on the
premises of the insured did not contribute in any way to the damage occasioned by the fire, he
should be permitted to recover – that the “storing” of the “hazardous goods” in no way caused
injury to the defendant company. The “storing” was a violation of the terms of the contract by
virtue of the provisions of the policy itself, terminated the contractual relations.
The plaintiff paid a premium based upon the risk at the time the policy was issued. Certainly it
cannot be denied that the placing of the firecrackers in the building insured increased the risk.
The plaintiff had not paid a premium based upon the increased risk, neither had the defendant
issued a policy upon the theory of a different risk. The plaintiff was enjoying, if his contention
may be allowed may be allowed, the benefits of an insurance policy upon one risk, whereas, as a
matter of fact, it was issued upon an entirely different risk. The defendant had neither been paid
nor had issues a policy to cover the increased risk. An increase of risk which is substantial and
which is continued for a considerable period of time, is a direct and certain injury to the insurer,
and changes the basis upon which the contract of insurance rests.
IX. RESCISSION OF INSURANCE CONTRACTS
F. WARRANTIES/BREACH OF WARRANTIES

Ang Giok Chip v Springfield

G.R. No. L-33637 December 31, 1931

Facts:
Ang insured his warehouse for the total value of Php 60,000. One of these, amounting to 10,000,
was with Springfield Insurance Company. His warehouse burned down, then he attempted to
recover 8,000 from Springfield for the indemnity. The insurance company interposed its defense
on a rider in the policy in the form of Warranty F, fixing the amount of hazardous good that can
be stored in a building to be covered by the insurance. They claimed that Ang violated the 3
percent limit by placing hazardous goods to as high as 39 percent of all the goods stored in the
building. His suit to recover was granted by the trial court. Hence, this appeal.

Issue:
Whether a warranty referred to in the policy as forming part of the contract of insurance and in
the form of a rider to the insurance policy, is null and void because not complying with the
Philippine Insurance Act.

Held:
No. The warranty is valid. Petition dismissed. The Insurance Act, Section 65, taken from
California law, states:
"Every express warranty, made at or before the execution of a policy, must be contained in the
policy itself, or in another instrument signed by the insured and referred to in the policy, as
making a part of it."
Warranty F, indemnifying for a value of Php 20,000 and pasted on the left margin of the policy
stated:
It is hereby declared and agreed that during the currency of this policy no hazardous goods be
stored in the Building to which this insurance applies or in any building communicating
therewith, provided, always, however, that the Insured be permitted to stored a small quantity of
the hazardous goods specified below, but not exceeding in all 3 per cent of the total value of the
whole of the goods or merchandise contained in said warehouse, viz; . . . .
Also, the court stated a book that said, "any express warranty or condition is always a part of the
policy, but, like any other part of an express contract, may be written in the margin, or contained
in proposals or documents expressly referred to in the policy, and so made a part of it."
“It is well settled that a rider attached to a policy is a part of the contract, to the same extent and
with like effect as it actually embodied therein. In the second place, it is equally well settled that
an express warranty must appear upon the face of the policy, or be clearly incorporated therein
and made a part thereof by explicit reference, or by words clearly evidencing such intention.”
The court concluded that Warranty F is contained in the policy itself, because by the contract of
insurance agreed to by the parties it was made to be a part. It wasn’t aseparate instrument agreed
to by the parties.
The receipt of the policy by the insured without objection binds him. It was his duty to read the
policy and know its terms. He also never chose to accept a different policy by considering the
earlier one as a mistake. Hence, the rider is valid.