VIII.

POLICY

VIOLETA R. LALICAN, Petitioner, vs. THE INSULAR LIFE ASSURANCE COMPANY LIMITED, AS
REPRESENTED BY THE PRESIDENT VICENTE R. AVILON, Respondent.

FACTS:

Violeta is the widow of Eulogio C. Lalican. During his lifetime, Eulogio applied for an insurance policy with Insular Life.
Insular Life, through Josephine Malaluan its agent in Gapan City, issued in favor of Eulogio Policy No. 9011992 -- it
contained a 20-Year Endowment Variable Income Package Flexi Plan worth P500,000.00, with two riders valued
at P500,000.00 each. Thus, the value of the policy amounted to P1,500,000.00. Violeta was named as the primary
beneficiary.

The ff. are the terms under the Policy Contract:

 Eulogio was to pay the premiums on a quarterly basis in the amount of P8,062.00 for 20 years (payable every 24
April, 24 July, 24 October and 24 January of each year)
 There was a grace period of 31 days for the payment of each premium subsequent to the first
 If any premium was not paid on or before the due date, the policy would be in default, and if the premium
remained unpaid until the end of the grace period, the policy would automatically lapse and become void

Eulogio paid the premiums due on 24 July 1997 and 24 October 1997. However, he failed to pay the premium due on 24
January 1998, even after the lapse of the grace period of 31 days. Policy No. 9011992, therefore, lapsed and became void.

Eulogio submitted, through Malaluan, an Application for Reinstatement of Policy No. 9011992, together with the amount
of P8,062.00 to pay for the premium due on 24 January 1998. In a letter, Insular Life notified Eulogio that his Application
for Reinstatement could not be fully processed because he left unpaid the overdue interest amounting to P322.48. Thus,
Insular Life instructed Eulogio to pay the amount of interest and to file another application for reinstatement.

On 17 September 1998, Eulogio went to Malaluan’s house and submitted a second Application for
Reinstatement, including the amount of P17,500.00 (overdue interest and premium) As Malaluan was away that time, her
husband received Eulogio’s second Application for Reinstatement and issued a receipt for the amount Eulogio deposited.
On the same day, Eulogio died of cardio-respiratory arrest secondary to electrocution.

Without knowing of Eulogio’s death, Malaluan forwarded to the Insular Life Regional Office in the San Fernando, on 18
September 1998, Eulogio’s second Application for Reinstatement and P17,500.00 deposit. However, Insular Life no
longer acted upon Eulogio’s second Application for Reinstatement, as the former was informed that Eulogio had already
passed away.

Violeta filed with Insular Life a claim for payment of the full proceeds of Policy No. 9011992. However, Insular Life
informed Violeta that her claim could not be granted since, at the time of Eulogios death, Policy No. 9011992 had already
lapsed, and Eulogio failed to reinstate the same. According to the Application for Reinstatement, the policy would only be
considered reinstated upon approval of the application by Insular Life during the applicant’s lifetime and good health, and
whatever amount the applicant paid in connection thereto was considered to be a deposit only until approval of said
application. (Enclosed with the letter was a check for P25,417.00 representing the full refund of the payments made by
Eulogio on Policy No. 9011992)

Violeta requested a reconsideration but Insular Life denied the request. However, she returned the check and still
demanded the full payment of the policy. Insular Life responded by agreeing to conduct a re-evaluation of her claim.
Without waiting for the result of the re-evaluation by Insular Life, Violeta filed with the RTC, a Complaint for Death
Claim Benefit. She alleged that Insular Life engaged in unfair claim settlement practice and deliberately failed to act with
reasonable promptness on her insurance claim. On the other hand, Insular Life asserted that the complaint has no legal or
factual bases. RTC rendered a decision in favor of Insular Life.

ISSUE:

Whether or not Eulogio still had insurable interest in his own life when he reinstated Policy No. 9011992 just before he
passed away on 17 September 1998. (NO)

RULING:

NO. An insurable interest is one of the most basic and essential requirements in an insurance contract. In general, an
insurable interest is that interest which a person is deemed to have in the subject matter insured, where he has a relation or
connection with or concern in it, such that the person will derive pecuniary benefit or advantage from the preservation of
the subject matter insured and will suffer pecuniary loss or damage from its destruction, termination, or injury by the
happening of the event insured against. The existence of an insurable interest gives a person the legal right to insure the
subject matter of the policy of insurance. Section 10 of the Insurance Code indeed provides that every person has an
insurable interest in his own life. Section 19 of the same code also states that an interest in the life or health of a person
insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.

In the instant case, Eulogio’s death rendered impossible full compliance with the conditions for reinstatement of Policy
No. 9011992. True, Eulogio, before his death, managed to file his Application for Reinstatement and deposit the amount
for payment of his overdue premiums and interests thereon with Malaluan; but Policy No. 9011992 could only be
considered reinstated after the Application for Reinstatement had been processed and approved by Insular Life during
Eulogio’s lifetime and good health.

The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon written application does not
give the insured absolute right to such reinstatement by the mere filing of an application. The insurer has the right to deny
the reinstatement if it is not satisfied as to the insurability of the insured and if the latter does not pay all overdue premium
and all other indebtedness to the insurer. After the death of the insured the insurance Company cannot be compelled to
entertain an application for reinstatement of the policy because the conditions precedent to reinstatement can no longer be
determined and satisfied.

Malaluan did not have the authority to approve Eulogio’s Application for Reinstatement. Malaluan still had to turn over to
Insular Life Eulogio’s Application for Reinstatement and accompanying deposits, for processing and approval by the
latter.

Violeta did not adduce any evidence that Eulogio might have failed to fully understand the import and meaning of the
provisions of his Policy Contract and/or Application for Reinstatement, both of which he voluntarily signed. While it is a
cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in favor of the insured
and strictly as against the insurer company, yet, contracts of insurance, like other contracts, are to be construed according
to the sense and meaning of the terms, which the parties themselves have used. If such terms are clear and unambiguous,
they must be taken and understood in their plain, ordinary and popular sense.

WHEREFORE, premises considered, the Court DENIES the instant Petition for Review on Certiorari under Rule 45 of
the Rules of Court. The Court AFFIRMS the Orders dated 10 April 2008 and 3 July 2008 of the RTC of Gapan City,
Branch 34, in Civil Case No. 2177, denying petitioner Violeta R. Lalicans Notice of Appeal, on the ground that the
Decision dated 30 August 2007 subject thereof, was already final and executory. No costs.
 IX. PREMIUM PAYMENT

JAIME T. GAISANO, Petitioner, v. DEVELOPMENT INSURANCE AND SURETY CORPORATION,

Respondent.

An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is
valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life
policy whenever the grace period provision applies.

FACTS:

Gaisano was the registered owner of a 1992 Mitsubishi Montero with plate number GTJ-777 while respondent is a
domestic corporation engaged in the insurance business. On September 27, 1996, respondent issued a comprehensive
commercial vehicle policy to petitioner in the amount of P1,500,000.00 over the vehicle for a period of one year
commencing on September 27, 1996 up to September 27, 1997. Respondent also issued two other commercial vehicle
policies to petitioner covering two other motor vehicles for the same period.

To collect the premiums and other charges on the policies, respondent's agent, Trans-Pacific Underwriters Agency (Trans-
Pacific), issued a statement of account to petitioner's company, Noah's Ark Merchandising (Noah's Ark). The latter
immediately processed the payments and issued FEBTC checks amounting to P 140, 893.50 for the payment of the
insurance policies, with P55,620.60 for the premium and other charges over the vehicle. However, nobody from Trans-
Pacific picked up the check that day (September 27) because its president and general manager, Rolando Herradura, was
celebrating his birthday. Trans-Pacific informed Noah's Ark that its messenger would get the check the next day,
September 28.

In the evening of September 27, 1996, while under the official custody of Noah's Ark marketing manager Achilles
Pacquing (Pacquing) as a service company vehicle, the vehicle was stolen in the vicinity of SM Megamall. Pacquing
reported the loss to the Philippine National Police Traffic Management Command. Despite search and retrieval efforts, the
vehicle was not recovered. Trans-Pacific picked up the check the next day, September 28. It issued an official receipt
dated September 28, 1996, acknowledging the receipt of P55,620.60 for the premium and other charges over the vehicle.

On October 1, 1996, Pacquing informed petitioner of the vehicle's loss. Thereafter, petitioner reported the loss and filed a
claim with respondent for the insurance proceeds of P1,500,000.00. On October 1, 1996, Pacquing informed petitioner of
the vehicle's loss. Thereafter, petitioner reported the loss and filed a claim with respondent for the insurance proceeds of
P1,500,000.00. Respondent refused and asserted that the non-payment of the premium rendered the policy ineffective.
The premium was received by the respondent only on October 2, 1996, and there was no known loss covered by the
policy to which the payment could be applied

Petitioner filed a complaint for collection of sum of money and damages21 with the RTC where it sought to collect the
insurance proceeds from respondent. The CA upheld respondent's position that an insurance contract becomes valid and
binding only after the premium is paid pursuant to Section 77 of the Insurance Code

ISSUE:
Whether or not the petitioner is entitled to claim insurance proceeds for the loss of vehicle. NO
RULING:

The check was delivered to and was accepted by respondent's agent, Trans-Pacific, only on September 28, 1996.
No payment of premium had thus been made at the time of the loss of the vehicle on September 27, 1996. While
petitioner claims that Trans-Pacific was informed that the check was ready for pick-up on September 27, 1996, the notice
of the availability of the check, by itself, does not produce the effect of payment of the premium. Trans-Pacific could not
be considered in delay in accepting the check because when it informed petitioner that it will only be able to pick-up the
check the next day, petitioner did not protest to this, but instead allowed Trans-Pacific to do so. Thus, at the time of loss,
there was no payment of premium yet to make the insurance policy effective.

ADDITIONAL RULING:
Petitioner's claim cannot be sustained that the parties agreed that the insurance contract is immediately effective
upon issuance despite non payment of the premiums. Even if there is a waiver of pre-payment of premiums, that in itself
does not become an exception to Section 77, unless the insured clearly gave a credit term or extension. This is the clear
import of the fourth exception in the UCPB General Insurance Co., Inc. To rule otherwise would render nugatory the
requirement in Section 77 that "[n]otwithstanding any agreement to the contrary, no policy or contract of insurance issued
by an insurance company is valid and binding unless and until the premium thereof has been paid, x x x.

The policy states that the insured's application for the insurance is subject to the payment of the premium. There is
no waiver of pre-payment, in full or in installment, of the premiums under the policy. Consequently, respondent cannot be
placed in estoppel.

MAKATI TUSCANY CONDOMINIUM CORPORATION vs. COURT OF APPEALS, AMERICAN HOME

ASSURANCE CO., represented by American International Underwriters (Phils.), Inc. (November 6, 1992
BELLOSILLO, J.)

While in Sec. 77, the parties may not agree to make the insurance contract valid and binding without payment of
premiums, there is nothing in said section which suggests that the parties may not agree to allow payment of the
premiums in installment, or to consider the contract as valid and binding upon payment of the first premium.

FACTS:

Private respondent American Home Assurance Co. (AHAC) issued in favor of petitioner Makati Tuscany
Condominium Corporation (TUSCANY) three insurance polices:
1) In 1982, on the latter's building and premises. The premium of P466,103.05 was paid on installments on 12 March
1982, 20 May 1982, 21 June 1982 and 16 November 1982, all of which were accepted by private respondent.
2) On 10 February 1983, replaced and renewed the previous policy. The premium of P466,103.05 was again paid on
installments on 13 April 1983, 13 July 1983, 3 August 1983, 9 September 1983, and 21 November 1983. All
payments were likewise accepted by private respondent.
3) On 20 January 1984, the policy was again renewed. Petitioner made two installment payments, both accepted by
private respondent, the first on 6 February 1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00.
Thereafter, petitioner refused to pay the balance of the premium.

AHAC filed an action to recover the unpaid balance for the 3rd insurance policy (P314,103.05). Petitioner
claimed that it discontinued the payment of premiums because the policy did not contain a credit clause in its favor and
that the policy was never binding and valid, and no risk attached to the policy. It sought the refund of P924,206.10
representing the premiums paid for 1982-85.

The trial court dismissed the complaint, providing that defendant's counterclaim for refund is not justified. CA
ordered petitioner to pay the balance of the premiums due plus legal interest until fully paid.

ISSUE:

WON payment by installment of the premiums due on an insurance policy invalidates the contract of insurance, in view of
Sec. 77 of the Insurance Code.

RULING:

NO. The insurance contract became valid and binding upon payment of the first premium, and the plaintiff could not have
denied liability on the ground that payment was not made in full, for the reason that it agreed to accept installment
payment.

While in Sec. 77, the parties may not agree to make the insurance contract valid and binding without payment of
premiums, there is nothing in said section which suggests that the parties may not agree to allow payment of the premiums
in installment, or to consider the contract as valid and binding upon payment of the first premium. It also does not
expressly prohibit an agreement granting credit extension.

At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily
accepted. Otherwise, we would allow the insurer to renege on its liability under the contract, had a loss incurred before
completion of payment of the entire premium, despite its voluntary acceptance of partial payments.

The reliance by petitioner on Arce vs. Capital Surety and Insurance Co. is unavailing because in said case, no
payment was made by the insured at all despite the grace period given. In the case before us, petitioner paid the initial
installment and thereafter made staggered payments.

Moreover, the obligation to pay premiums is an indivisible obligation to pay the entire premium. 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

SOUTH SEA SURETY AND INSURANCE COMPANY, INC., petitioner, v.

HON. COURT OF APPEALS and VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY, INC.,
respondents.

DOCTRINE OF THE CASE:

The 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 (Secs. 77-
78, Insurance Code).

FACTS:
In 1984, plaintiff (Valenzuela Hardwood and Industrial Supply, Inc.) entered into an agreement with the defendant Seven
Brothers whereby the latter undertook to load on board its vessel M/V Seven Ambassador the former's lauan round logs at
the port of Maconacon, Isabela for shipment to Manila.

Plaintiff insured the logs, against loss and/or, damage with defendant South Sea Surety and Insurance Co., Inc. for
P2,000,000.00 end the latter issued its Marine Cargo Insurance Policy for P2,000,000.00 on said date. Subsequently, the
plaintiff gave the check in payment of the premium on the insurance policy to Mr. Victorio Chua.

In the meantime, the said vessel M/V Seven Ambassador sank, resulting in the loss of the plaintiffs insured logs. A check
for P5,625.00 to cover payment of the premium and documentary stamps due on the policy was tendered to the insurer but
was not accepted. Instead, the South Sea Surety and Insurance Co., Inc. cancelled the insurance policy it issued as of the
date of inception for non-payment of the premium due in accordance with Section 77 of the Insurance Code.

Plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc. the payment of the proceeds of the policy but
the latter denied liability under the policy. Plaintiff likewise filed a formal claim with defendant Seven Brothers Shipping
Corporation for the value of the lost logs but the latter denied the claim.

Plaintiff filed with the Regional Trial Court in Valenzuela, a complaint for the recovery of the value of lost logs and
freight charges from Seven Brothers Shipping Corporation or, to the extent of its alleged insurance cover, from South Sea
Surety and insurance Company. The trial court rendered judgment in favor of plaintiff Hardwood.

On appeal, the Court of Appeals affirmed the judgment of the court a quo only against the insurance corporation in
absolving the shipping entity from liability.

ISSUE:
(1) Whether or not defendants shipping corporation and the surety company are liable to the plaintiff for the latter's lost
logs.
(2) Whether or not Victorio Chua is an authorized representative of the insurer.

RULING:
(1) YES. Section 77 of the Insurance Code provides:

Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance
company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an
industrial life policy whenever the grace period provision applies.

Undoubtedly, the 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
(Secs. 77-78, Insurance Code). The appellate court, contrary to what the petition suggests, did not make any
pronouncement to the contrary. Indeed, it has said:

Concerning the issue as to whether there is a valid contract of insurance between plaintiff-appellee and defendant-
appellant South Sea Surety and Insurance Co., Inc., Section 77 of the Insurance Code explicitly provides that
notwithstanding any agreement to the contrary, no policy issued by an insurance company is valid and binding unless and
until premium thereof has been paid. It is therefore important to determine whether at the time of the loss, the premium
was already paid.
(2) YES. Appellant surety company insists that Mr. Chua is an administrative assistant for the past ten years and an agent
for less than ten years of the Columbia Insurance Brokers, Ltd. He is paid a salary as a administrative assistant and a
commission as agent based on the premiums he turns over to the broker. Appellant therefore argues that Mr. Chua, having
received the insurance premiums as an agent of the Columbia Insurance Broker, acted as an agent of the insured under
Section 301 of the Insurance Code which provides as follows:

Sec. 301. Any person who for any compensation, commission or other thing of value, acts, or aids in soliciting,
negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance, on behalf of an
insured other than himself, shall be an insurance broker within the intent of this Code, and shall thereby become liable to
all the duties requirements, liabilities and penalties to which an insurance broker is subject.

The appellees, upon the other hand, claim that the second paragraph of Section 306 of the Insurance Code provide as
follows:

Sec. 306. . . . Any insurance company which delivers to an insurance agent or insurance broker a policy or contract
of insurance shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium
which is due on such policy of contract of insurance at the time of its issuance or delivery or which becomes due thereon.

On cross-examination in behalf of South Sea Surety and Insurance Co., Inc. Mr. Chua testified that the marine cargo
insurance policy for the plaintiff's logs was delivered to him on 21 January 1984 at his office to be delivered to the
plaintiff.

When the appellant South Sea Surety and Insurance Co., Inc. delivered to Mr. Chua the marine cargo insurance policy for
the plaintiffs logs, he is deemed to have been authorized by the South Sea Surety and Insurance Co., Inc. to receive the
premium which is due on its behalf.

UCPB GENERAL INSURANCE CO. INC., petitioner, vs. MASAGANA TELAMART, INC., respondent.

FACTS:

Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five (5) insurance policies on its properties [in
Pasay City and Manila]. All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22 May 1991 to
4:00 P.M. of 22 May 1992." On June 13, 1992, plaintiff's properties located at 2410-2432 and 2442-2450 Taft Avenue,
Pasay City were razed by fire. On July 13, 1992, plaintiff tendered, and defendant accepted, five (5) Equitable Bank
Manager's Checks in the total amount of P225,753.45 as renewal premium payments for which Official Receipt Direct
Premium No. 62926 was issued by defendant. On July 14, 1992, Masagana made its formal demand for indemnification
for the burned insured properties. On the same day, defendant returned the five (5) manager's checks stating in its letter
that it was rejecting Masagana's claim on the following grounds:

"a) Said policies expired last May 22, 1992 and were not renewed for another term;

b) Defendant had put plaintiff and its alleged broker on notice of non-renewal earlier; and

c) The properties covered by the said policies were burned in a fire that took place last June 13, 1992, or before tender of
premium payment."
CA - Disagreed with Petitioners stand that Respondents tender of payment of the premiums on 13 July 1992 did not
result in the renewal of the policies, having been made beyond the effective date of renewal as provided under Policy
Condition No. 26

ISSUE: Whether or not the fire insurance policies issued by petitioner to the respondent covering the period from May
22, 1991 to May 22, 1992 had been extended or renewed by an implied credit arrangement though actual payment of
premium was tendered on a later date and after the occurrence of the (fire) risk insured against.

HELD: (June 15, 1999 Decision) Revered the decision of CA

(Motion for Reconsideration) Affirmed the decision of CA in toto, the courts below correctly found that no notice of
non-renewal was made within 45 days before 22 May 1992, or before the expiration date of the fire insurance
policies. Thus, the policies in question were renewed by operation of law and were effective and valid on 30 June 1992
when the fire occurred, since the premiums were paid within the 60- to 90-day credit term.

Respondent also asserts that the principle of estoppel applies to Petitioner. Despite its awareness of Section 77 Petitioner
persuaded and induced Respondent to believe that payment of premium on the 60- to 90-day credit term was perfectly
alright; in fact it accepted payments within 60 to 90 days after the due dates. By extending credit and habitually accepting
payments 60 to 90 days from the effective dates of the policies, it has implicitly agreed to modify the tenor of the
insurance policy and in effect waived the provision therein that it would pay only for the loss or damage in case the same
occurred after payment of the premium.

Upon a meticulous review of the records and reevaluation of the issues raised in the motion for reconsideration and the
pleadings filed thereafter by the parties, we resolved to grant the motion for reconsideration. The following facts, as found
by the trial court and the Court of Appeals, are indeed duly established:

1. For years, Petitioner had been issuing fire policies to the Respondent, and these policies were annually renewed.

2. Petitioner had been granting Respondent a 60- to 90-day credit term within which to pay the premiums on the renewed
policies.

3. There was no valid notice of non-renewal of the policies in question, as there is no proof at all that the notice sent by
ordinary mail was received by Respondent, and the copy thereof allegedly sent to Zuellig was ever transmitted to
Respondent.

4. The premiums for the policies in question in the aggregate amount of P225,753.95 were paid by Respondent within the
60- to 90-day credit term and were duly accepted and received by Petitioners cashier

Section 77 of the Insurance Code of 1978 provides:

SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance
company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an
industrial life policy whenever the grace period provision applies.

This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code) promulgated on 18 December 1974. In
turn, this Section has its source in Section 72 of Act No. 2427 otherwise known as the Insurance Act as amended by R.A.
No. 3540, approved on 21 June 1963, which read:

SEC. 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed to the peril insured
against, unless there is clear agreement to grant the insured credit extension of the premium due. No policy issued by an
insurance company is valid and binding unless and until the premium thereof has been paid. (Underscoring supplied)
It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting an agreement to
extend the period to pay the premium. But are there exceptions to Section 77?

The answer is in the affirmative.

The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy whenever the
grace period provision applies.

The second is that covered by Section 78 of the Insurance Code, which provides:

SEC. 78. Any 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
premium is actually paid.

A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals, wherein we ruled
that Section 77 may not apply if the parties have agreed to the payment in installments of the premium and partial
payment has been made at the time of loss

Tuscany has provided a fourth exception to Section 77, namely, that the insurer may grant credit extension for the
payment of the premium. This simply means that if the insurer has granted the insured a credit term for the payment of the
premium and loss occurs before the expiration of the term, recovery on the policy should be allowed even though the
premium is paid after the loss but within the credit term.

We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly show that
the petitioners 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 years, the insurer accepted all the installment payments. Such acceptance of payments speaks loudly
of the insurers 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 prepaid in full.

AMERICAN HOME ASSURANCE COMPANY, petitioner, vs. ANTONIO CHUA, respondent.

Facts:

Petitioner is a domestic corporation engaged in the insurance business. Sometime in 1990, 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 a check in the amount of P2,983.50 to petitioner's agent, James Uy, as payment for the
renewal of the policy. In turn, the latter delivered Renewal Certificate No. 00099047 to respondent. The check was drawn
against a Manila bank and deposited in petitioner's bank account in Cagayan de Oro City. The corresponding official
receipt was issued on 10 April. Subsequently, a new insurance policy was issued, whereby petitioner undertook to
indemnify respondent for any damage or loss arising from fire up to P200,000 for the period 25 March 1990 to 25 March
1991.

On 6 April 1990 Moonlight Enterprises was completely razed by fire. Total loss was estimated between P4,000,000 and
P5,000,000. 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.

RTC: Ruled in favour of Respondent. (Antonio Chua) It found that respondent paid by way of check a day before the fire
occurred.

CA: Affirmed. The CA found that respondent's claim was substantially proved and petitioner's unjustified refusal to pay
the claim entitled respondent to the award of damages.

Petitioner reiterates its stand that there was no existing insurance contract between the parties. It invokes Section 77 of the
Insurance Code, which provides:

An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is
valid and binding unless and until the premium thereof has been paid, except in the case of life or an industrial life policy
whenever the grace period provision applies.

and cites the case of Arce v. Capital Insurance & Surety Co., Inc.,2 where we ruled that unless and until the premium is
paid there is no insurance.

Petitioner emphasizes that when the fire occurred on 6 April 1990 the insurance contract was not yet subsisting pursuant
to Article 12493 of the Civil Code, which recognizes that a check can only effect payment once it has been cashed.
Although respondent testified that he gave the check on 5 April to a certain James Uy, the check, drawn against a Manila
bank and deposited in a Cagayan de Oro City bank, could not have been cleared by 6 April, the date of the fire. In fact, the
official receipt issued for respondent's check payment was dated 10 April 1990, four days after the fire occurred.

Issue:

Whether or not there was valid payment of premium considering that respondent's check was cashed after the occurrence
of the fire. (Yes)

Ruling: Yes

The general rule in insurance laws is that unless the premium is paid the insurance policy is not valid and binding. The
only exceptions are life and industrial life insurance.6 Whether payment was indeed made is a question of fact which is
best determined by the trial court. The trial court found, as affirmed by the Court of Appeals, that there was a valid check
payment by respondent to petitioner. Well-settled is the rule that the factual findings and conclusions of the trial court and
the Court of Appeals are entitled to great weight and respect, and will not be disturbed on appeal in the absence of any
clear showing that the trial court overlooked certain facts or circumstances which would substantially affect the
disposition of the case.7 We see no reason to depart from this ruling.

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 to respondent on 10 April 1990. Section 306 of
the Insurance Code provides that any insurance company which delivers a policy or contract of insurance to an insurance
agent or insurance broker shall be deemed to have authorized such agent or broker to receive on its behalf payment of any
premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due
thereon.8 In the instant case, 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 agent's acknowledgment of receipt of payment.

Sec. 78 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.

X. DEVICES TO ASCERTAIN AND CONTROL RISK AND LOSS

THE INSULAR LIFE ASSURANCE COMPANY, LTD., petitioner, vs. PAZ Y. KHU, FELIPE Y. KHU, JR., and
FREDERICK Y. KHU, respondents.

It is settled that the reinstatement of an insurance policy should be reckoned from the date when the same was approved
by the insurer.

FACTS:

On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular Life under the latter’s
Diamond Jubilee Insurance Plan. Felipe accomplished the required medical questionnaire wherein he did not declare any
illness or adverse medical condition. Insular Life thereafter issued him Policy Number A000015683 with a face value of
P1 million. This took effect on June 22, 1997. On June 23, 1999, FelipeÊs policy lapsed due to nonpayment of the
premium covering the period from June 22, 1999 to June 23, 2000. On September 7, 1999, Felipe applied for the
reinstatement of his policy and paid P25,020.00 as premium. On October 12, 1999, Insular Life advised Felipe that his
application for reinstatement may only be considered if he agreed to certain conditions such as payment of additional
premium and the cancellation of the riders pertaining to premium waiver and accidental death benefits. Felipe agreed to
these conditions and on December 27, 1999 paid the agreed additional premium of P3,054.50. On June 23, 2000, Felipe
paid the annual premium in the amount of P28,000.00 covering the period from June 22, 2000 to June 22, 2001. And on
July 2, 2001, he also paid the same amount as annual premium covering the period from June 22, 2001 to June 21, 2002.
On September 22, 2001, Felipe died. October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. and Frederick Y. Khu (collectively,
Felipe’s beneficiaries or under the reinstated policy. This claim was denied. Instead, Insular Life advised FelipeÊs
beneficiaries that it had decided to rescind the reinstated policy on the grounds of concealment and misrepresentation by
Felipe. Hence, respondents instituted a complaint for specific performance with damages. Insular Life countered that
Felipe did not disclose the ailments (viz., Type 2 Diabetes Mellitus, Diabetes Nephropathy and Alcoholic Liver Cirrhosis
with Ascites) that he already had prior to his application for reinstatement of and that it would not have reinstated the
insurance policy had Felipe disclosed the material information on his adverse health condition

RTC found for Felipe’s beneficiaries. CA upheld the RTC’s ruling.

ISSUE:

Whether or not Felipe’s reinstated life insurance policy is already incontestable at the time of his death?

RULING:

Yes. The Insurance Code pertinently provides that:

Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such
right must be exercised previous to the commencement of an action on the contract. After a policy of life insurance made
payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two years
from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is
rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent. ÂThe 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. At least two (2) years from the issuance of the policy or its last reinstatement, the beneficiary is
given the stability to recover under the policy when the insured dies. The provision also makes clear when the two-year
period should commence in case the policy should lapse and is reinstated, that is, from the date of the last reinstatement.
In Lalican v. The Insular Life Assurance Company, Limited, 30 which coincidentally also involves the herein petitioner, it
was there held that the reinstatement of the insured’s policy is to be reckoned from the date when theapplication was
processed and approved by the insurer. In this case, the parties differ as to when the reinstatement was actually approved.
Insular Life claims that it approved the reinstatement only on December 27, 1999. On the other hand, respondents contend
that it was on June 22, 1999 that the reinstatement took effect. The Court discerns a genuine ambiguity or obscurity in the
language of the two documents. In the Letter of Acceptance, Khu declared that he was accepting „the imposition of an
extra/additional x x x premium of P5.00 a year per thousand of insurance; effective June 22, 1999.It is true that the phrase
as used in this particular paragraph does not refer explicitly to the effectivity of the reinstatement. But the Court notes that
the reinstatement was conditioned upon the payment of additional premium not only prospectively, that is, to cover the
remainder of the annual period of coverage, but also retroactively, that is for the period starting June 22, 1999. Hence, by
paying the amount of P3,054.50 on December 27, 1999 in addition to the P25,020.00 he had earlier paid on September 7,
1999, Khu had paid for the insurance coverage starting June 22, 1999. At the very least, this circumstance has engendered
a true lacuna. In the Endorsement, the obscurity is patent. In the first sentence of the Endorsement, it is not entirely clear
whether the phrase effective June 22, 1999 refers to the subject of the sentence, namely „the reinstatement of this policy,
or to the subsequent phrase „changes are made on the policy. Given the obscurity of the language, the construction
favorable to the insured will be adopted by the courts. Accordingly, the subject policy is deemed reinstated as of June 22,
1999. Thus, the period of contestability has lapsed.

MANILA BANKERS LIFE INSURANCE CORPORATION, Petitioner. vs. CRESENCIA P. ABAN, Respondent.

Under Section 48, 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.

FACTS:

On July 3, 1993, Delia Sotero took out a life insurance policy from Manila Bankers Life Insurance Corporation,
designating respondent Cresencia P. Aban, her niece, as her beneficiary. Petitioner issued Insurance Policy No. 747411,
with a face value of ₱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 policy had been in effect for more than two years and
seven months, Sotero died. Respondent then filed a claim for the insurance proceeds. Petitioner conducted an
investigation into the claim, and found out that:

Sotero did not personally apply for insurance coverage, as she was illiterate; Was sickly since 1990; Did not have the
financial capability to pay the insurance premiums; Did not sign the application for insurance; and Respondent was the
one who filed the insurance application, and designated herself as the beneficiary. Hence, petitioner denied respondent’s
claim and refunded the premiums paid on the policy.
Petitioner filed for rescission and/or annulment of the policy, alleging that the policy was obtained by fraud, concealment
and/or misrepresentation under the Insurance Code, which thus renders it voidable under the Civil Code. Respondent then
filed a Motion to Dismiss claiming that petitioner’s cause of action was barred by prescription pursuant to Section 48 of
the Insurance Code. During the proceedings on the Motion to Dismiss, petitioner’s investigator testified in court, stating
that the insurance underwriter who solicited the insurance is a cousin of respondent’s husband, Dindo Aban, and that it
was the respondent who paid the annual premiums on the policy.

The Regional Trial Court issued an Order granting respondent’s Motion to Dismiss. The Trial court held that Sotero, was
the one who procured the insurance; Petitioner moved for reconsideration but was subsequently denied.

Petitioner appealed to the Court of Appeals, however, CA sustained the trial court. Applying Section 48, CA
stated that petitioner was equipped with ample means to determine, within the first two years of the policy, whether fraud,
concealment or misrepresentation was present when the insurance coverage was obtained. Hence, may no longer prove
that the subject policy was void ab initio or rescindable. Petitioner moved for reconsideration, but the CA denied the
same. Hence the present petition

ISSUE:

Whether or not there was fraud, concealment and/or misrepresentation which renders the policy voidable.

HELD:

NO. The Court held that it was Sotero who obtained the insurance for herself. Under Section 48, 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.

In the case at bar, the insurance policy was in force for a period of 3 years, 7 months, and 24 days. Considering that the
insured died after the two-year period, the plaintiff is, therefore, barred from proving that the policy is void ab initio by
reason of the insured’s fraudulent concealment or misrepresentation or want of insurable interest on the part of the
beneficiary.

Section 48 prevents a situation where the insurer knowingly continues to accept annual premium payments on life
insurance, only to later on deny a claim on the policy on specious claims of fraudulent concealment and
misrepresentation, such as in the case at bar. Thus, instead of conducting an immediate investigation into the
circumstances surrounding the issuance of Insurance Policy No. 747411 which would have timely exposed the supposed
flaws and irregularities, petitioner appeared to have turned a blind eye and opted instead to continue collecting the
premiums on the policy. Consequently, it cannot now deny the claim when it is called to account.

Section 48 gives both the insurer and the insured, the assurance that any dishonest scheme to obtain life insurance would
be exposed, and attempts at unduly denying a claim would be struck down. Life insurance policies that pass the statutory
two-year period are essentially treated as legitimate and beyond question, and the individuals who wield them are made
secure by the thought that they will be paid promptly upon claim. Hence, it contributes to the stability of the insurance
industry.

ADDITIONAL RULING:

Petitioner claims that its insurance agent, who solicited the Sotero account, happens to be the cousin of respondent’s
husband, and thus insinuates that both connived to commit insurance fraud. If this were truly the case, then petitioner
would have discovered the scheme earlier if it had conducted an investigation into the circumstances surrounding the
Sotero policy. But it only investigated the Sotero account only after a claim was filed thereon more than two years later,
naturally it was unable to detect the scheme. For its negligence and inaction, the Court cannot sympathize with its plight.
Instead, its case precisely provides the strong argument for requiring insurers to diligently conduct investigations on each
policy they issue within the two-year period mandated under Section 48, and not after claims for insurance proceeds are
filed with them.

MANULIFE PHILIPPINES, INC., Petitioner vs. HERMENEGILDA YBAÑEZ, Respondent

G.R. No. 204736 November 28,2016 Del Castillo, J.

"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."

Facts:
Manulife instituted a complaint for rescission of insurance contracts against Hermenegilda Ybanez and BPI Family
Savings Banks. It was alleged that that the insurance policies that were issued by Manulife in favor of Dr. Gumersindo
Ybanez (insured) were void due to concealment or misrepresentation of material facts, particularly the forms entitled Non-
Medical Evidence (NME), Medical Evidence Exam (MEE) and the Declaration of Insurability (DOI) in the Application
for Life Insurance. By such reason, Manulife denied the death claims of Hermenegilda and refunded the premiums that
the insured paid on the insurance policies.

Manulife conducted an investigation into the Insured's medical records and discovered that he concealed material facts
which was required of him to reveal when he answered the NME, MEE and DOI forms. And it was due to such
concealment that Manulife exercised its right to rescind that insurance contract and denied claims.

Hermenegilda countered that Manulife's own insurance agent, Elvira Monteclaros assured her husband (the insured) that
there would be no problem regarding the application for the insurance policy and that in fact it was Monteclaros who
filled up the form and only asked the insured to sign it.

BPI Family Savings filed a Manifestation praying that either it be dropped from the case or that the case be dismissed with
respect to it because it no longer had any interest in the insurance policy as assignee because the insured's obligation with
BPI had been settled or paid. (RTC granted this)

RTC found no merit at all in Manulife's Complaint for rescission of the subject insurance policies because it utterly failed
to prove that the insured had committed the alleged misrepresentation/s or concealment/s. In fact, Victoriano, the one and
only witness that Manulife called to the witness stand, gave no first-hand, direct evidence at all relative to the particulars
of the alleged misrepresentation/s or concealment/s that the insured allegedly practiced or committed against it. This
witness did not testify at all in respect to the circumstances under which these documentary exhibits were executed, nor
yet about what these documentary exhibits purported to embody.

RTC stressed that the CDH medical records that might or could have established the insured's misrepresentation/s or
concealment/s were inadmissible for being hearsay, because Manulife did not present the physician or doctor, or any
responsible official of the CDH, who could confirm the due execution and authenticity of its medical records

CA, like the RTC, found Manulife's Complaint bereft of legal and factual bases. The CA ruled that it is settled that
misrepresentation or concealment in insurance is an affirmative defense, which the insurer must establish by convincing
evidence if it is to avoid liability; and that in this case the one and only witness presented by Manulife utterly failed to
prove the basic elements of the alleged misrepresentation/s or concealment/s of material facts imputed by Manulife
against the now deceased insured.

Issue:
WON 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.

Ruling:
No. 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.

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.

ALPHA INSURANCE AND SURETY CO., PETITIONER, VS. ARSENIA SONIA CASTOR, RESPONDENT.

Facts:
Castor entered into a contract of insurance (Motor Car Policy) with Alpha Insurance (company), involving her
motor vehicle (Toyota Revo).

Sec III - Loss or Damage - Of the Insurance policy provides that the company will pay Castor the amount of
P630K in case of loss or damage to said vehicle during the period covered, which is from Feb 26, 2007-Feb 26 2008.

Castor instructed her driver, Jose, to bring the said vehicle to a nearby auto-shop for a tune-up but Jose no longer
returned the vehicle. Castor immediately reported the incident to the police and later notified Company of said loss and
demanded payment of the insurance proceeds.

The company denied the claim of Castor, because according to the former, the incident in this case falls within the
exceptions provided to Sec III which provides that The Company shall not be liable for Any malicious damage caused by
the Insured, any member of his family or by “A PERSON IN THE INSURED’S SERVICE.”

Arguments:
Castor - the exception refers to damage of the motor vehicle and not to its loss
Company - the word "damage" under paragraph 4 of "exceptions to Section III" means loss due to injury or harm to
person, property, or reputation and should be construed to cover malicious loss as in theft.

RTC and CA ruled in favor of Castor, hence this petition.

Issue: Whether or not Alpha Insurance is liable to Castor for the loss of the latter's motor vehicle due to theft committed
by her driver.
Ruling:
Yes. Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance policy
subject of this case. This is evident from the very provision of Section III – “Loss or Damage.” The insurance company,
subject to the limits of liability, is obligated to indemnify the insured against theft. Said provision does not qualify as to
who would commit the theft. Thus, even if the same is committed by the driver of the insured, there being no categorical
declaration of exception, the same must be covered.

As correctly pointed out by the plaintiff, “(A)n insurance contract should be interpreted as to carry out the purpose
for which the parties entered into the contract which is to insure against risks of loss or damage to the goods. Such
interpretation should result from the natural and reasonable meaning of language in the policy. Where restrictive
provisions are open to two interpretations, that which is most favorable to the insured is adopted.

The Company would argue that if the person employed by the insured would commit the theft and the insurer
would be held liable, then this would result to an absurd situation where the insurer would also be held liable if the insured
would commit the theft. This argument is certainly flawed. Of course, if the theft would be committed by the insured
himself, the same would be an exception to the coverage since in that case there would be fraud on the part of the insured
or breach of material warranty under Section 69 of the Insurance Code.

Moreover, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of
the terms which the parties themselves have used. Adverse to petitioner’s claim, the words “loss” and “damage” mean
different things in common ordinary usage. The word “loss” refers to the act or fact of losing, or failure to keep
possession, while the word “damage” means deterioration or injury to property.

Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy under paragraph 4
of “Exceptions to Section III,” since the same refers only to “malicious damage,” or more specifically, “injury” to the
motor vehicle caused by a person under the insured’s service. Paragraph 4 clearly does not contemplate “loss of property,”
as what happened in the instant case. "malicious damage,” as provided for in the subject policy as one of the exceptions
from coverage, is the damage that is the direct result from the deliberate or willful act

If the intention of the defendant-appellant was to include the term “loss” within the term “damage” then logic
dictates that it should have used the term “damage” alone in the entire policy or otherwise included a clear definition of
the said term as part of the provisions of the said insurance contract

Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the insurance contract contain
limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his
obligation.

PETITION DENIED.

MA. LOURDES S. FLORENDO, vs PHILAM PLANS, INC., PERLA ABCEDE and MA. CELESTE ABCEDE

The comprehensive pension plan that Philam Plans issued contains a one-year incontestability period. 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.

Facts:
October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan with respondent Philam Plans,
Inc. (Philam Plans) after some convincing by respondent Perla Abcede. The plan had a pre-need price of P997,050.00,
payable in 10 years, and had a maturity value of P2,890,000.00 after 20 years. Manuel signed the application and left to
Perla the task of supplying the information needed in the application. Respondent Ma. Celeste Abcede, Perlas daughter,
signed the application as sales counselor. It also provided life insurance coverage covered by a Group Master Policy that
Philippine American Life Insurance Company (Philam Life) issued to Philam Plans. Philam Plans issued Pension Plan
Agreement to Manuel, with petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his
quarterly premiums. Eleven months later or on September 15, 1998, Manuel died of blood
poisoning. Subsequently, Lourdes filed a claim with Philam Plans for the payment of the benefits under her husbands
plan. Philam Plans rejected such, prompting her to file the present action against the pension plan company before RTC
of Quezon City. RTC ruled in favour of petitioner but CA reversed the decision holding that insurance policies are
traditionally contracts uberrimae fidae or contracts of utmost good faith. As such, it required Manuel to disclose to Philam
Plans conditions affecting the risk of which he was aware or material facts that he knew or ought to know.

Issue: WON petitioner was guilty of misrepresentation?

Ruling:

Yes. When Manuel signed the pension plan application, he adopted as his own the written representations and
declarations embodied in it.

xxxx

(c) I have never been treated for heart condition, high blood pressure, cancer, diabetes, lung, kidney or stomach
disorder or any other physical impairment in the last five years.

(d) I am in good health and physical condition.

If your answer to any of the statements above reveal otherwise, please give details in the space provided for:

Date of confinement : ____________________________

Name of Hospital or Clinic : ____________________________

Name of Attending Physician : ____________________________

Findings : ____________________________

Others: (Please specify) : ____________________________

Since Manuel signed the application without filling in the details regarding his continuing treatments for heart condition
and diabetes, the assumption is that he has never been treated for the said illnesses in the last five years preceding his
application. This is implicit from the phrase If your answer to any of the statements above (specifically, the statement: I
have never been treated for heart condition or diabetes) reveal otherwise, please give details in the space provided for. But
this is untrue since he had been on Coumadin, a treatment for venous thrombosis, and insulin, a drug used in the treatment
of diabetes mellitus, at that time. Besides, as already stated, Manuel had been taking medicine for his heart condition and
diabetes when he submitted his pension plan application. These clearly fell within the five-year period. Also, even if
Perlas knowledge of Manuel’s pacemaker may be applied to Philam Plans under the theory of imputed knowledge, it is
not claimed that Perla was aware of his two other afflictions that needed medical treatments. Pursuant to Section 27 of the
Insurance Code, Manuels concealment entitles Philam Plans to rescind its contract of insurance with him.

Lastly, Lourdes points out that any defect or insufficiency in the information provided by his pension plan application
should be deemed waived after the same has been approved, the policy has been issued, and the premiums have been
collected. The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a one-year
incontestability period. 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
husband’s pension plan.

FORTUNE MEDICARE, INC V. AMORIN

Any ambiguity in a contract whose terms are susceptible of different interpretations must be read against the party who
drafted it.

FACTS

David Robert U. Amorin (Amorin), an employee of House of Representative was a cardholder/member of Fortune
Medicare, Inc. (Fortune Care), a corporation engaged in providing health maintenance services to its members. Health
Care Contract was executed on January 6, 2000 by Fortune Care and the House of Representatives.

Sometime in May 1999, Amorin underwent an emergency surgery (appendectomy) in Honolulu, Hawaii at the St. Francis
Medical Center, causing him to incur professional and hospitalization expenses of US$7,242.35 and US$1,777.79,
respectively. He attempted to recover from Fortune Care the full amount thereof upon his return to Manila, but the
company merely approved a reimbursement of ₱12,151.36 which he received under protest. He asked for its adjustment to
cover the total amount of professional fees which he had paid, and eighty percent (80%) of the approved standard charges
based on "American standard". He based his demand on Section 3, Article V on Benefits and Coverages of the Health
Care Contract.

Fortune Care argued that the Health Care Contract did not cover hospitalization costs and professional fees incurred in
foreign countries, as the contract’s operation was confined to Philippine territory. Further, it argued that its liability to
Amorin was extinguished upon the latter’s acceptance from the company of the amount of ₱12,151.36.

RTC ruled in favor of Fortune Care. CA reversed.

ISSUE

Whether or not the phrase “approved standard charges” shall be interpreted as “Philippines Standard” (YES)

RULING

YES. The word "standard" as used in the cited stipulation was vague and ambiguous, as it could be susceptible of different
meanings. Plainly, the term "standard charges" could be read as referring to the "hospitalization costs and professional
fees" which were specifically cited as compensable even when incurred in a foreign country.

Section 3 of the Corporate Health Care Program Contract provides that:

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, Fortune Care shall reimburse the total hospitalization cost including the
professional fee (based on the total approved charges) to a member who receives emergency care in a non-accredited
hospital. The above coverage applies only to Emergency confinement within Philippine Territory. However, if the
emergency confinement occurs in foreign territory, Fortune Care will be obligated to reimburse or pay eighty (80%)
percent of the approved standard charges which shall cover the hospitalization costs and professional fees. x x x23
(Emphasis supplied)
In the instant case, the extent of Fortune Care’s liability to Amorin under the attendant circumstances was governed by
Section 3(B), Article V of the subject Health Care Contract, considering that the appendectomy which the member had to
undergo qualified as an emergency care, but the treatment was performed at St. Francis Medical Center in Honolulu,
Hawaii, U.S.A., a non-accredited hospital.

Health care agreement is in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member
incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care
provider must pay for the same to the extent agreed upon under the contract.

Settled is the rule that ambiguities in a contract are interpreted against the party that caused the ambiguity. "Any
ambiguity in a contract whose terms are susceptible of different interpretations must be read against the party who drafted
it."

Sunlife Assurance Company of Canada v. CA and Spouses Rolando and Bernarda Bacani
G.R. No. 105135. June 22, 1995. Quiason, J.

FACTS:
Robert John Bacani procured a life insurance contract for himself from Sunlife. Such policy was valued at P100k with
double indemnity in case of accidental death. He designated therein his mother, respondent Bernarda.

Robert died on a plane crash. Thus, Bernarda filed a claim with Sunlife but the latter, upon investigation, rejected the
claim and informed Bernarda that Robert failed to disclose material facts relevant to the issuance of the policy thus
rendering it voidable.

5. Within the past 5 years have you:

a) consulted any doctor or other health practitioner?
b) submitted to:EGG? X-rays? blood tests? other tests?
c) attended or been admitted to any hospital or other medical facility?
6. Have you ever had or sought advice for:

All of the questions herein he answered in the negative except that in 5(a) he said for cough and flu complications.
However, Sunlife discovered that prior to his application, Robert was confined at the Lung Center where he was
diagnosed for renal failure(kidney).

The respondent spouses filed for specific performance. The case was then submitted for summary judgment. The trial
court ruled in favor of Bacani holding that the concealed facts were made in good faith in the belief that they need not be
disclosed. On appeal to CA, it affirmed the decision and added that Sunlife cannot avoid its obligation because the cause
of death was unrelated to the facts concealed. Also, it added that Sunlife waived the medical examination prior to the
issuance of the policy so health history is irrelevant. Hence the appeal.

ISSUE: Whether the concealment by the applicant warrants Sunlife’s rescission of the contract (YES)

RULING: Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance 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. Said Section provides:
A neglect to communicate that which a party knows and ought to communicate, is called concealment.
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 terms of the contract are clear. The insured is specifically required to disclose to the insurer matters relating to his
health.

The information which the insured failed to disclose were material and relevant to the approval and issuance of the
insurance policy. The matters concealed would have definitely affected Sunlife'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 Sunlife in order for it to reasonably assess the risk involved in
accepting the application.

Therefore the Court rule that Sunlife properly exercised its right to rescind the contract of insurance by reason of the
concealment employed by the insured. It must be emphasized that rescission was exercised within the two-year
contestability period as recognized in Section 48 of The Insurance Code.

NG GAN ZEE, plaintiff-appellee, vs. ASIAN CRUSADER LIFE ASSURANCE CORPORATION, defendant-
appellant.

Such party a contract of insurance must communicate to the other, in good faith, all facts within his knowledge which is
material to the contract, and which the other has not the means of ascertaining, and as to which he makes no warranty.

FACTS:

In 1962, Kwong Nam applied for a 20-year endowment insurance on his life for the sum of P20,000.00, with his wife,
appellee Ng Gan Zee as beneficiary. On the same date, Asian Crusader upon receipt of the required premium from the
insured, approved the application and issued the corresponding policy. In 1963, Kwong Nam died of cancer of the liver
with metastasis. All premiums had been religiously paid at the time of his death.

Ng Gan Zee presented a claim in due form to Asian Crusader for payment of the face value of the policy. On the same
date, she submitted the required proof of death of the insured. Asian Crusader denied the claim on the ground that the
answers given by the insured to the questions appealing in his application for life insurance were untrue.

Ng Gan Zee brought the matter to the attention of the Insurance Commissioner. After conducting an investigation, the
latter wrote the Asian Crusader that he had found no material concealment on the part of the insured and that, therefore,
Ng Gan Zee should be paid the full face value of the policy. However, despite such, Asian Crusader refused to settle its
obligation.

The company alleged that the insured was guilty of misrepresentation when he answered "No" to the following question
appearing in the application for life insurance – “Has any life insurance company ever refused your application for
insurance or for reinstatement of a lapsed policy or offered you a policy different from that applied for? If, so, name
company and date.”

The lower court ruled against the company on lack of evidence. But the company further maintains that when the insured
was examined in connection with his application for life insurance, he gave the appellant's medical examiner false and
misleading information as to his ailment and previous operation. The company contended that he was operated on for
peptic ulcer 2 years before the policy was applied for and that he never disclosed the operation.
ISSUE:
Whether or not Asian Crusader was deceived into entering the contract or in accepting the risk at the rate
of premium agreed upon because of insured's misrepresentation? (NO)

RULING:

NO. Section 27 of the Insurance Law provides:

Such party a contract of insurance must communicate to the other, in good faith, all facts within his knowledge which is
material to the contract, and which the other has not the means of ascertaining, and as to which he makes no warranty.
Thus, concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair
dealing requires that he should communicate it to the assurer, but he designedly and intentionally withholds the same. It
has also been held that the concealment must, in the absence of inquiries, be not only material, but fraudulent, or the fact
must have been intentionally withheld.

Fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. And as
correctly observed by the lower court, "misrepresentation as a defense of the insurer to avoid liability is an 'affirmative'
defense. The duty to establish such a defense by satisfactory and convincing evidence rests upon the defendant. The
evidence before the Court does not clearly and satisfactorily establish that defense."

It bears emphasis that Kwong Nam had informed the appellant's medical examiner of the tumor. His statement that said
tumor was "associated with ulcer of the stomach" should be construed as an expression made in good faith of his belief as
to the nature of his ailment and operation.

While the information communicated was imperfect, the same was sufficient to have induced appellant to make further
inquiries about the ailment and operation of the insured.

According to Section 32 of Insurance Law:

Section 32. The right to information of material facts may be waived either by the terms of insurance or by neglect to
make inquiries as to such facts where they are distinctly implied in other facts of which information is communicated.

Where a question appears to be not answered at all or to be imperfectly answered, and the insurers issue a policy without
any further inquiry, they waive the imperfection of the answer and render the omission to answer more fully immaterial.
The company or its medical examiner did not make any further inquiries on such matters from the hospital before acting
on the application for insurance. The fact of the matter is that the defendant was too eager to accept the application and
receive the insured's premium. It would be inequitable now to allow the defendant to avoid liability under the
circumstances.

Finding no reversible error committed by the trial court, the judgment appealed from is hereby affirmed, with costs
against appellant Asian-Crusader life Assurance Corporation. SO ORDERED.

THELMA VDA. DE CANILANG, petitioner, vs. HON. COURT OF APPEALS and GREAT PACIFIC LIFE
ASSURANCE CORPORATION, respondents.
 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.

FACTS:

On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as suffering from "sinus
tachycardia." The doctor prescribed the following fro him: Trazepam, a tranquilizer; and Aptin, a beta-blocker drug. Mr.
Canilang consulted the same doctor again on 3 August 1982 and this time was found to have "acute bronchitis."

On next day, August 1982, Jaime Canilang applied for a "non-medical" insurance policy with respondent Great
Pacific Life Assurance Company naming his wife, Thelma Canilang, as his beneficiary. Jaime Canilang was issued
ordinary life insurance Policy, with the face value of P19,700, effective as of 9 August 1982.

On 5 August 1983, Jaime Canilang 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 on 5 December 1983 upon
the ground that the insured had concealed material information from it. During the hearing called by the Insurance
Commissioner, petitioner testified that she was not aware of any serious illness suffered by her late husbandDuring the
hearing called by the Insurance Commissioner, petitioner testified that she was not aware of any serious illness suffered
by her late husband and that, as far as she knew, her husband had died because of a kidney disorder. The insurance
Commissioner ruled in favor of the petitoner. However, it was reversed by the respondent court and found 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.

ISSUE:
Whether or not the non-disclosure of certain facts about the insured’s previous health conditions is material to warrant the
denial of the claims of Thelma Canilang.

RULING:

The Supreme Court affirmed the CA decision 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
man’s 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.

EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN vs. COURT OF APPEALS and THE
PHILIPPINE AMERICAN LIFE INSURANCE COMPANY
(June 29, 1989 GUTIERREZ, JR., J.)
 The incontestability clause precludes the insurer from raising the defenses of false representations or concealment of
material facts insofar as health and previous diseases are concerned if the insurance has been in force for at least two
years during the insured's lifetime.

FACTS:
Tan Lee Siong, father of petitioners, applied for life insurance (P80,000.00) with respondent Philamlife. It was
approved and issued with petitioners as the beneficiaries.

Tan died of hepatoma. Petitioners then filed with Philamlife their claim for the proceeds of the life insurance
policy. However, Philamlife denied petitioners' claim and rescinded the policy by reason of the alleged misrepresentation
and concealment of material facts made by the deceased Tan in his application for insurance. The premiums paid on the
policy were refunded.

Petitioners filed a complaint against the Philamlife. Both the Insurance Commissioner and CA dismissed
petitioners' complaint.

ISSUE:
WON respondent PHILAMLIFE can rescind the contract of inurance.

RULING:
YES. The incontestability clause precludes the insurer from raising the defenses of false representations or
concealment of material facts insofar as health and previous diseases are concerned if the insurance has been in force for
at least two years during the insured's lifetime. The phrase "during the lifetime" found in Section 48 simply means that the
policy is no longer considered in force after the insured has died. The key phrase in the second paragraph of Section 48 is
"for a period of two years."

The policy was thus in force for a period of only one year and five months (issued on November 6,1973 and the
insured died on April 26,1975). Considering that the insured died before the two-year period had lapsed, respondent
company is not barred from proving that the policy is void ab initio by reason of the insured's fraudulent concealment or
misrepresentation.

Moreover, the deceased (a businessman) would not have affixed his signature on the application form unless he
clearly understood its significance. The presumption is that a person intends the ordinary consequence of his voluntary act
and takes ordinary care of his concerns.

Due to the concealment made by the deceased of his consultations and treatments for hypertension, diabetes and
liver disorders, Philamlife was misled into accepting the risk and approving his application as medically standard and
dispensing with further medical investigation and examination. For as long as no adverse medical history is revealed in
the application form, an applicant for insurance is presumed to be healthy and physically fit and no further medical
investigation or examination is conducted by respondent company.

NOTE: There is no strong showing that the "fine print" or "contract of adhesion" rule in Sweet Lines, Inc. v. Teves should
be applied in this case.

QUA CHEE GAN v. LAW UNION AND ROCK INSURANCE CO., LTD.

The contract of insurance is one of perfect good faith (uferrimal fidei) not for the insured alone, but equally so for the
insurer; in fact, it is mere so for the latter, since its dominant bargaining position carries with it stricter responsibility.
FACTS:
Qua Chee Gan, a merchant of Albay, owned four warehouses or bodegas (designated as Bodegas Nos. 1 to 4) in the
Municipality of Tabaco, Albay, used for the storage of stocks of copra and of hemp, baled and loose, they had been, with
their contents, insured with the defendant Company since 1937.

Fire of undetermined origin that broke out in the early morning of July 21, 1940, and lasted almost one week, gutted and
completely destroyed Bodegas Nos. 1, 2 and 4, with the merchandise stored theren. Plaintiff-appellee informed the insurer
by telegram on the same date; and on the next day, the fire adjusters engaged by appellant insurance company arrived and
proceeded to examine and photograph the premises, pored over the books of the insured and conducted an extensive
investigation.

The plaintiff having submitted the corresponding fire claims, totalling P398,562.81 (but reduced to the full amount of the
insurance, P370,000), the Insurance Company resisted payment, claiming violation of warranties and conditions, filing of
fraudulent claims, and that the fire had been deliberately caused by the insured or by other persons in connivance with
him.

Que Chee Gan, with his brother, Qua Chee Pao, and some employees of his, were indicted and tried in 1940 for the crime
of arson, it being claimed that they had set fire to the destroyed warehouses to collect the insurance. They were, however,
acquitted by the trial. The civil suit to collect the insurance money proceeded to its trial and termination in the Court.

ISSUE:
Whether or not the insurance company can void the policies it had issued

RULING:
NO. Law Union cannot exempt itself from paying Qua Chee Gan.

Where the insurer, at the time of the issuance of a policy of insurance, has knowledge of existing facts which, if insisted
on, would invalidate the contract from its very inception, such knowledge constitutes a waiver of conditions in the
contract inconsistent with the facts, and the insurer is estopped thereafter from asserting the breach of such conditions.
The law is charitable enough to assume, in the absence of any showing to the contrary, that an insurance company intends
to execute a valid contract in return for the premium received; and when the policy contains a condition which renders it
voidable at its inception, and this result is known to the insurer, it will be presumed to have intended to waive the
conditions and to execute a binding contract, rather than to have deceived the insured into thinking he is insured when in
fact he is not, and to have taken his money without consideration.

The appellant insurance company is barred by waiver (or rather estoppel) to claim violation of the so-called fire hydrants
warranty, for the reason that knowing fully all that the number of hydrants demanded therein never existed from the very
beginning, the insurance company nevertheless issued the policies in question subject to such warranty, and received the
corresponding premiums.

To allow a company to accept one's money for a policy of insurance which it then knows to be void and of no effect,
though it knows as it must, that the assured believes it to be valid and binding, is so contrary to the dictates of honesty and
fair dealing, and so closely related to positive fraud, as to the abhorrent to fair-minded men.

The appellant company so worded the policies that while exacting the greater number of fire hydrants and appliances, it
kept the premium discount at the minimum of 2 1/2%, thereby giving the insurance company a double benefit. Such
abnormal treatment of the insured strongly points at an abuse of the insurance company's selection of the words and terms
of the contract, over which it had absolute control.

It is a well settled rule of law that an insurer which with knowledge of facts entitling it to treat a policy as no longer in
force, receives and accepts a premium on the policy, is estopped to take advantage of the forfeiture. It cannot treat the
policy as void for the purpose of defense to an action to recover for a loss thereafter occurring and at the same time treat it
as valid for the purpose of earning and collecting further premiums.

Moreover, taking into account the well-known rule that ambiguities or obscurities must be strictly interpreted against the
party that caused them, the "memo of warranty" invoked by appellant bars the latter from questioning the existence of the
appliances called for in the insured premises

IGNACIO SATURNINO, in his own behalf and as the JUDICIAL GUARDIAN OF CARLOS SATURNINO,
minor,plaintiffs-appellants, v. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, defendant-appellee.

FACTS:

The policy sued upon is one for 20-year endowment non-medical insurance. This kind of policy dispenses with the
medical examination of the applicant usually required in ordinary life policies. However, detailed information is
called for in the application concerning the applicant's health and medical history. The written application in this case was
submitted by Saturnino to appellee on November 16, 1957, witnessed by appellee's agent Edward A. Santos. The policy
was issued on the same day, upon payment of the first year's premium of P339.25. On September 19, 1958 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 this suit was subsequently instituted.

It appears that two months prior to the issuance of the policy or on September 9, 1957, Saturnino was operated on
for cancer, involving complete removal of the right breast, including the pectoral muscles and the glands found in
the right armpit. She stayed in the hospital for a period of eight days, after which she was discharged, although
according to the surgeon who operated on her she could not be considered definitely cured, her ailment being of
the malignant type.

Notwithstanding the fact of her operation Estefania A. Saturnino 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; that she had not consulted any physician, undergone any
operation or suffered any injury within the preceding five years; and that she had never been treated for nor did
she ever have any illness or disease peculiar to her sex, particularly of the breast, ovaries, uterus, and menstrual
disorders. The application also recites that the foregoing declarations constituted "a further basis for the issuance
of the policy."

Are the facts then falsely represented material? The Insurance Law (Section 30) 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."

ISSUE: Whether or not the insured made such false representations of material facts as to avoid the policy

HELD: YES, If anything, 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 apprised of the insured's medical history she would at least have been made to
undergo medical examination in order to determine her insurability.
In this jurisdiction a 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". In the case of Argente v. West Coast Life Insurance Co., 51 Phil. 725, 732, this Court said, quoting from
Joyce, The Law of Insurance, 2nd ed., Vol. 3:

"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 thereby induced to estimate the risk upon a false basis that it does not exist."