SPOUSES CHA VS CA

Lessons Applicable: Effect of Lack of Insurable Interest (Insurance)

Laws Applicable: Sec. 17, Sec. 18, Sec. 25 of the Insurance Code

FACTS:

Spouses Nilo Cha and Stella Uy-Cha and CKS Development Corporation entered a 1 year lease contract with a stipulation not to insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store or space in the leased premises without first obtaining the written consent and approval of the lessor. But it insured against loss by fire their merchandise inside the leased premises for P500,000 with the United Insurance Co., Inc. without the written consent of CKS

On the day the lease contract was to expire, fire broke out inside the leased premises and CKS learning that the spouses procured an insurance wrote to United to have the proceeds be paid directly to them. But United refused so CKS filed against Spouses Cha and United.

RTC: United to pay CKS the amount of P335,063.11 and Spouses Cha to pay P50,000 as exemplary damages, P20,000 as attorney’s fees and costs of suit

CA: deleted exemplary damages and attorney’s fees

ISSUE: W/N the CKS has insurable interest because the spouses Cha violated the stipulation

HELD: NO. CA set aside. Awarding the proceeds to spouses Cha.

Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist a t the time the insurance takes effect and at the time the loss occurs. The basis of such requirement of insurable interest in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the contract of insurance is a mere wager which is void under Section 25 of the Insurance Code.

SECTION 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has or has not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering, is void

Section 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by loss of injury thereof

The automatic assignment of the policy to CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses. The liability of the Cha spouses to CKS for violating their lease contract in that Cha spouses obtained a fire insurance policy over their own merchandise, without the consent of CKS, is a separate and distinct issue which we do not resolve in this case.

Great Pacific Life Insurance Corp. vs CA

INSURANCE LAW: Insurable Interes

FACTS:

Great Pacific Life Assurance Corporation (Grepalife) executed a contract of group life insurance with Development Bank of the Philippines (DBP) wherein Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP.

One such loan mortgagor is Dr. Wilfredo Leuterio. In an application form, Dr. Leuterio answered questions concerning his test, attesting among others that he does not have any heart conditions and that he is in good health to the best of his knowledge.

However, after about a year, Dr. Leuterio died due to “massive cerebral hemorrhage.” When DBP submitted a death claim to Grepalife, the latter denied the claim, alleging that Dr. Leuterio did not disclose he had been suffering from hypertension, which caused his death. Allegedly, such non-disclosure constituted concealment that justified the denial of the claim.

Hence, the widow of the late Dr. Leuterio filed a complaint against Grepalife for “Specific Performance with Damages.” Both the trial court and the Court of Appeals found in favor of the widow and ordered Grepalife to pay DBP.

ISSUE:

Whether the CA erred in holding Grepalife liable to DBP as beneficiary in a group life insurance contract from a complaint filed by the widow of the decedent/mortgagor

HELD:

The rationale of a group of insurance policy of mortgagors, otherwise known as the “mortgage redemption insurance,” is a device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event of death, the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness. In this type of policy insurance, the mortgagee is simply an appointee of the insurance fund. Such loss-payable clause does not make the mortgagee a party to the contract.

The insured, being the person with whom the contract was made, is primarily the proper person to bring suit thereon. Subject to some exceptions, insured may thus sue, although the policy is taken wholly or in part for the benefit of another person, such as a mortgagee.

And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover it whatever the insured might have recovered, the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

2. ID.; ID.; ID.; INSURED MAY BE REGARDED AS REAL PARTY IN INTEREST, ALTHOUGH HE HAS ASSIGNED THE POLICY FOR PURPOSE OF COLLECTION, OR HAS ASSIGNED AS COLLATERAL SECURITY ANY JUDGMENT HE MAY OBTAIN. — The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy stating that: "In the event of the debtor's death before his indebtedness with the Creditor [DBP] shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies designated by the debtor." When DBP submitted the insurance claim against petitioner, the latter denied payment thereof, interposing the defense of concealment committed by the insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary action of foreclosure on the residential lot of private respondent. In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co. we held: "Insured, being the person with whom the contract was made, is primarily the proper person to bring suit thereon. . . . Subject to some exceptions, insured may thus sue, although the policy is taken wholly or in part for the benefit of another person named or unnamed, and although it is expressly made payable to another as his interest may appear or otherwise. . . . Although a policy issued to a mortgagor is taken out for the benefit of the mortgagee and is made payable to him, yet the mortgagor may sue thereon in his own name, especially where the mortgagee's interest is less than the full amount recoverable under the policy, . . . 'And in volume 33, page 82, of the same work, we read the following: `Insured may be regarded as the real party in interest, although he has assigned the policy for the purpose of collection, or has assigned as collateral security any judgment he may obtain." And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover it whatever the insured might have recovered, the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife

3. ID.; ID.; ID.; FRAUDULENT INTENT ON THE PART OF THE INSURED MUST BE ESTABLISHED TO ENTITLE THE INSURER TO RESCIND THE CONTRACT. — The question of whether there was concealment was aptly answered by the appellate court, thus: "The insured, Dr. Leuterio, had answered in his insurance application that he was in good health and that he had not consulted a doctor for any of the enumerated ailments, including hypertension; when he died the attending physician had certified in the death certificate that the former died of cerebral hemorrhage, probably secondary to hypertension. From this report, the appellant insurance company refused to pay the insurance claim. Appellant alleged that the insured had concealed the fact that he had hypertension. Contrary to appellant's allegations, there was no sufficient proof that the insured had suffered from hypertension. Aside from the statement of the insured's widow who was not even sure if the medicines taken by Dr. Leuterio were for hypertension, the appellant had not proven nor produced any witness who could attest to Dr. Leuterio's medical history . . . Appellant insurance company had failed to establish that there was concealment made by the insured, hence, it cannot refuse payment of the claim." 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. In the case at bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance.

The Insular Life Assurance Co., LTD v. Feliciano 1941 -concealment

Facts:

Evaristo Feliciano (Evaristo) filed and was issued with 2 insurance policies worth P25k by The Insular Life Assurance Co., LTD (Insular Life)

When Evaristo died in 1935, Insular life refused to pay on the ground that the policies were fraudulently obtained, the insured having given false answers and statements in the application as well as in the medical report.

Evaristo’s kin and their guardian then filed an action to recover the amount of the insurance

TC: for the Felicianos

oEvaristo was made to sign a blank application and medical examiner’s form

oThat both the agent and the medical examiner have knowledge with regards to Evaristo’s health condition (Evaristo was then suffering from tuberculosis), but due to an inter-provincial contest which the compamy was holding among its soliciting agents to boost the sales of the policies, the agent bribed the medical examiner so that it was the two of them who filled up Evaristo’s application and examiner’s form, making it appear that the latter was a fit subject for insurance

CA: sustain TC’s findings

oan insurance company has no right to avoid a policy where its agent knowingly and intentionally wrote down the answers in the application differing from those made by the insured, in disregard of the exception that when the agent, instead of serving the interests of his principal, acts in his own or another's interest and adversely to that of his principal, the said principal is not bound by said acts of the agent.

Issue: WON CA erred in its decision.

Held:

No, it did not.

In the present case, the agent knew all the time the true state of health of the insured. The insurer's medical examiner approve the application knowing full well that the applicant was sick. The situation is one in which one of two innocent parties must bear a loss for his reliance upon a third person. In this case, it was the insurer who gave the agent authority to deal with the applicant. It was the one who selected the agent, thus implying that the insured could put his trust on him. It was the one who drafted and accepted the policy and consummated the contract. It seems reasonable that as between the two of them, the one who employed and gave character to the third person as its agent should be the one to bear the loss.

The weight of authority is that if an agent of the insurer, after obtaining from an applicant for insurance a correct and truthful answer to interrogatories contained in the application for insurance, without knowledge of the applicant fills in false answers, either fraudulently or otherwise, the insurer cannot assert the falsity of such answers as a defense to liability on the policy, and this is true generally without regard to the subject matter of the answers or the nature of the agent's duties or limitations on his authority, at least if not brought to the attention of the applicant.

The fact that the insured did not read the application which he signed, is not indicative of bad faith.

1. INSURANCE; KNOWLEDGE BY INSURER'S AGENT OF TRUE STATE OF HEALTH OF INSURED; FALSIFICATION BY INSURER'S AGENT OF ANSWERS GIVEN BY INSURED; LIABILITY OF INSURER; CASE AT BAR. — In the present case, the agent knew all the time the true state of health of the insured. The insurer's medical examiner approved the application knowing full well that the applicant was sick. The situation is one in which one of two innocent parties must bear a loss for his reliance upon a third person. In this case, it was the insurer who gave the agent authority to deal with the applicant. It was the one who selected the agent, thus implying that the insured could put his trust on him. It was the one who drafted and accepted the policy and consummated the contract. Held: That as between the two of them, the one who employed and gave character to the third person as its agent should be the one to bear the loss.

2. ID.; ID.; ID.; ID.; ID. — If an agent of the insurer, after obtaining from an applicant for insurance a correct and truthful answer to interrogatories contained in the application for insurance, without knowledge of the applicant fills in false answers, either fraudulently or otherwise, the insurer cannot assert the falsity of such answers as a defense to liability on the policy, and this is true generally without regard to the subject matter of the answers or the nature of the agent's duties or limitations on his authority, at least if not brought to the attention of the applicant.

3. ID.; ID.; ID.; ID.; ID.; FAILURE OF INSURED TO READ APPLICATION. — The fact that the insured did not read the application which he signed, is not indicative of bad faith. It has been held that it is not negligence for the insured to sign an application without first reading it if the insurer by its conduct in appointing the agent influenced the insured to place trust and confidence in the agent. In the instant case, it has been proved that the insured could not read English, the language in which the application was written, and that after the contract was signed, it was kept by his mother. As a consequence, the insured had no opportunity to read or correct any misstatement therein.

THE INSULAR LIFE ASSURANCE CO., LTD.,petitioner, vs. SERAFIN D. FELICIANO ETAL., respondents. -concealment

G.R. No. L-47593 December 29, 1943 OZAETA,

J.:

Facts: In a four-to-three decision promulgated on September 13, 1941, this Court affirmed the judgment of the Court of Appeals in favor of the respondents and against the petitioner for the sum of P25,000,representing the value of two insurance policies issued by the petitioner on the life of Evaristo Feliciano. A motion to reconsider and set aside said decision has been filed by the petitioner, and both parties have submitted exhaustive and luminous written arguments in support of their respective contentions.

Evaristo Feliciano, who died on September 29, 1935, was suffering with advanced pulmonary tuberculosis when he signed his application for insurance with the petitioner on October 12, 1934. On that same date Doctor Trepp, who had taken X-ray pictures of his lungs, informed the respondent Dr. Serafin D. Feliciano, brother of Evaristo, that the latter "was already in a very serious and practically hopeless condition." Nevertheless the question contained in the application — "Have you ever suffered from any ailment or disease of the lungs, pleurisy, pneumonia or asthma?" — appears to have been answered, "No." And above the signature of the applicant, following the answers to the various questions propounded to him, is the following printed statement…

ISSUE: WON Insular Life was bound by their agent’s acts and liable to pay respondent.

Held: The petitioner insists that upon the facts of the case the policies in question are null and void ab initio and that all that the respondents are entitled to is the refund of the premiums paid thereon. After a careful re-examination of the facts and the law, we are persuaded that petitioner's contention is correct. To the reasons adduced in the dissenting opinion heretofore published, we only desire to add the following considerations:

When Evaristo Feliciano, the applicant for insurance, signed the application in blank and authorized the soliciting agent and/or medical examiner of the Company to write the answers for him, he made them his own agents for that purpose, and he was responsible for their acts in that connection. If they falsified the answers for him, he could not evade the responsibility for the falsification. He was not supposed to sign the application in blank. He knew that the answers to the questions therein contained would be "the basis of the policy," and for that every reason he was required with his signature to vouch for truth thereof.

Moreover, from the facts of the case we cannot escape the conclusion that the insured acted in connivance with the soliciting agent and the medical examiner of the Company in accepting the policies in question.

From all the facts and circumstances of this case, we are constrained to conclude that the insured was a coparticipant, and coresponsible with Agent David and Medical Examiner Valdez, in the fraudulent procurement of the policies in question and that by reason thereof said policies are void ab initio.

Wherefore, the motion for reconsideration is sustained and the judgment of the Court of Appeals is hereby reversed. Let another judgment be entered in favor of the respondents and against the petitioner for the refund of the premiums amounting to P1,389, with legal interest thereon from the date of the complaint, and without any finding as to costs.

Sunlife Assurance vs CA -concealment

INSURANCE LAW: Concealment

Disclosure of material facts is required

Good faith is not a defense in determining the materiality of the information to be disclosed

Waiver of medical examination by insured is not a defense

Cause of death is immaterial in case of concealment

FACTS:

Bacani procured a life insurance contract for himself from Sunlife Assurance. Specifically, the policy included a double indemnity in case of accidental death, designating his mother as beneficiary.

Later, Bacani died in a plane crash and so the mother filed a claim. After investigation, Sunlife rejected the claim on ground of non-disclosure of material facts. They said that Bacani did not mention that two weeks prior to his insurance application he was examined and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure.

The trial court ruled that the facts concealed by the insured were made in good faith and under the belief that they need not be disclosed. Also, it held that the health history of the insured was immaterial since the insurance policy was “non-medical.”

The CA affirmed, stating that the cause of death was unrelated to the facts concealed by the insured.

ISSUE:

Whether or not the concealment made by Bacani warranted the rejection of the insurance claim

HELD:

The Supreme Court reversed the decision of the CA and ruled that rescission of the insurance contract was proper.

Disclosure of Material Facts required

Under sec. 26 of the Insurance Code, a party to a contract of insurance is required to communicate to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has no means of ascertaining.

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 communication is due, in forming his estimate of the disadvantages of the proposed contract or in making his inquiries. (The Insurance Code, sec. 31)

The information which the insured failed to disclose was material and relevant to the approval and issuance of the insurance policy. The matters concealed would have definitely affected petitioner’s action on his application, either by approving it with the corresponding adjustment for a higher premium or rejecting the same. Moreover, a disclosure may have warranted a medical examination of the insured by the petitioner in order for it to reasonably assess the risk involved in accepting the application.

Good Faith not a defense

Materiality of the information withheld does not depend on the state of mind of the insured. Neither does it depend on the actual or physical events which ensue.

Thus, “good faith” is no defense in concealment.

Waiver of Medical Examination not a defense

The waiver of the medical examination of the insured does not mean that material facts need not be disclosed. In fact, it 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.

Cause of Death

It is well settled that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in making inquiries.

Vda Canilang v CA G.R. No. 92492 June 17, 1993 -concealment

J. Feliciano

Facts:

Canilang was found to have suffered from sinus tachycardia then bronchitis after a check-up from his doctor. The next day, he applied for a "non-medical" insurance policy with respondent Grepalife naming his wife, Thelma Canilang, as his beneficiary. This was to the value of P19,700.

He died of "congestive heart failure," "anemia," and "chronic anemia." The widow filed a claim with Great Pacific which the insurer denied on the ground that the insured had concealed material information from it.

Petitioner then filed a complaint against Great Pacific for recovery of the insurance proceeds. Petitioner testified that she was not aware of any serious illness suffered by her late husband and her husband had died because of a kidney disorder. The doctor who gave the check up stated that he treated the deceased for “sinus tachycardia” and "acute bronchitis."

Great Pacific presented a physician who testified that the deceased's insurance application had been approved on the basis of his medical declaration. She explained that as a rule, medical examinations are required only in cases where the applicant has indicated in his application for insurance coverage that he has previously undergone medical consultation and hospitalization.

The Insurance Commissioner ordered Great Pacific to pay P19,700 plus legal interest and P2,000.00 as attorney's fees. On appeal by Great Pacific, the Court of Appeals reversed. It found that the failure of Jaime Canilang to disclose previous medical consultation and treatment constituted material information which should have been communicated to Great Pacific to enable the latter to make proper inquiries.

Hence this petition by the widow.

Issue: Won Canilang was guilty of misrepresentation

Held: Yes. Petition denied.

Ratio:

There was a right of the insurance company to rescind the contract if it was proven that the insured committed fraud in not affirming that he was treated for heart condition and other ailments stipulated.

Apart from certifying that he didn’t suffer from such a condition, Canilang also failed to disclose in the that he had twice consulted a doctor who had found him to be suffering from "sinus tachycardia" and "acute bronchitis."

Under the Insurance Code:

Sec. 26. A neglect to communicate that which a party knows and ought to communicate, is called a concealment.

Sec. 28. Each party to a contract of insurance must communicate to the other, in good faith, all factors within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining.

The information concealed must be information which the concealing party knew and should have communicated. The test of materiality of such information is contained in Section 31:

Sec. 31. 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 disadvantages of the proposed contract, or in making his inquiries.

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 he 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.

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.

The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain information to the insurer was not "intentional" in nature, for the reason that Canilang believed that he was suffering from minor ailment like a common cold. Section 27 stated that:

Sec. 27. A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance.

The failure to communicate must have been intentional rather than inadvertent. Canilang could not have been unaware that his heart beat would at times rise to high and alarming levels and that he had consulted a doctor twice in the two (2) months before applying for non-medical insurance. Indeed, the last medical consultation took place just the day before the insurance application was filed. In all probability, Jaime Canilang went to visit his doctor precisely because of the ailment.

Canilang's failure to set out answers to some of the questions in the insurance application constituted concealment.