What is the effect of concealment?
As a rule, failure on the part of the insured to disclose conditions affecting the risk of which he is aware, makes the contract voidable at the insured’s option. The reason is that insurance policies are traditionally contracts uberrime fidae, that is, contracts of the outmost good faith. This doctrine is essential on account of the fact that the full circumstances of the subject-matter of insurance are, as a rule, known to the insured only, and the insurer, in deciding whether or not to accept a risk, must rely primarily upon the information supplied to him by the appellant.
In order to rescind a contract on the ground of concealment, must the insurer prove fraud?
NO. Under Sec. 27, the insurer need not prove fraud in order to rescind a contract on the ground of concealment. The duty of communication is independent of the intention and is violated by the fact of concealment, even when there is no intention to deceive. Sec. 27 provides that the effect of concealment is the same regardless of whether the concealment is intentional or unintentional.
Why does the law make no distinction between international and unintentional concealment? Because you have to prove fraud. And if you have to prove fraud, you have to prove intention to deceive. And it is so hard to prove intention to deceive because we are not mind-readers.
What is the reason behind Sec. 27?
The reason behind the Sec. is that in cases of concealment, the insurer is misled or deceived into accepting the risk , or accepting it at the rate of premium agreed upon. The insurer, relying upon the belief that the insured 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.
What is the criterion then if we were to apply Sec. 27?
We must ask ourselves the question: Was the insurer misled or deceiving into entering a contract obligation or in fixing the premium of insurance by the withholding of material information or facts within the insured’s knowledge or presumed knowledge? The application of Sec 27, necessarily depends on the answer to this question.
Problems.
In his application for life insurance, A did not reveal the fact that he was suffering from a certain ailment. Is there concealment if the ailment was not material to the contract?
Whether or not A was aware of the ailment, there is no concealment if the ailment is not material to the contract.
Same facts as above but the ailment is material to the contract. Is there concealment?
YES. There is concealment. However, we can distinguish. If A, was aware of the ailment, but honestly believed that it was not material, the concealment is not fraudulent or intentional. But if A was aware of the materiality of the ailment, there is fraudulent concealment. Nevertheless, the effect is the same. It entitles the insurer to rescind the contract.
Cases:
(44) Argente v. West Coast Life Insurance Co. 51 PHIL 725
Facts:
A joint life insurance policy was issued to Bernardo Argente and his wife Vicenta upon payment of premium, by West Coast.
On Nov. 18, 1925, during the effectivity of the policy, Vicenta died of cerebral apoplexy. Thereafter, Bernardo claimed payment but was refused.
It is admitted that in the Medical Examiner’s report, Vicenta, in response to the question asked by the medical examiner, her replies were as follows:
o “How frequently do you use beer, wine, spirits and other intoxicants?” she answered “beer only in small quantities”.
o
“What physician have you consulted or been treated by within the last 5 years and for what illness or ailment?” she answered “none” It is however, not disputed that in 1924, Vicenta was taken to a hospital for what was first diagnosed as alcoholism and later changed to manic-depressive psychosis and then again changed to pscyhonuerosis. Issue: WON on the bais of the misrepresentations of Vicenta, Bernardo is barred from recovery.
Held: YES.
The court found that the representations made by Vicenta in his application for life insurance were false with respect to her state of health and that she knew and was aware that the representations so made by her were false. In an action on a life insurance policy where the evidence conclusively shows that the answers to questions concerning diseases were untrue, the truth or falsity of the answer becomes the determining factor.
If the policy was procured by fraudulent misrepresentations, the contract of insurance apparently set forth therein was never legally existent. It can be fairly assumed that had the true facts been disclosed by the insured, the insurance would never have been granted.
(45) Yu Pang Cheng v. CA 105 PHIL 1930
Facts:
Yu Pang Eng obtained a life insurance policy naming his brother Yu Pang Cheng as beneficiary. Eng subsequently died of medullary carcinoma, Grade 4, advanced and lesser curvature. Cheng claims the proceeds of the policy.
Insurance co. refused payment on the ground that the policy was void due to the concealment. Issue: WON the policy is void.
Held: YES.
In the application for the policy, Eng was asked whether he had been ill or had consulted a doctor due to symptoms or illnesses enumerated in the questionnaire. He answered “ No”, when in fact he was hospitalized seven months prior to his application for the said policy.
(46) Saturnino v. Philamlife 7 SCRA 316
Facts:
2 months prior to the insurance of the policy, 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. Notwithstanding the fact of her operation, Saturnino did not make a disclosure thereof in her application for insurance.
She stated therein that she did not have, nor had she ever had, among others 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 5 years.
She also stated 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 recited that the declarations of Saturnino constituted a further basis for the issuance of the policy.
Issue: WON the insured made such false representation of material facts as to avoid the policy. Held: YES.
There can be no dispute that the information given by her in the application for insurance was false, namely, that she never had cancer or tumors or consulted any physician or undergone any operation within the preceding period of 5 years.
The question to determine is: Are the facts then falsely represented material? The Insurance Law provides that “materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the proposed contract, or making his inquiries.
The contention of appellants is that the facts subject of the representation were not material in view of the non-medical nature of the insurance applied for, which does away with the usual requirement of medical examination before the policy is issued. The contention is without merit. 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.
Appellants also contend that there was no fraudulent concealment of the truth inasmuch as the insured herself did not know, since her doctor never told her, that the disease for which she had been operated on was cancer. In the first place, concealment of the fact of the operation itself was fraudulent, as there could not have been any mistake about it, no matter what the ailment.
Secondly, in order to avoid a policy, it is not necessary to show actual fraud on the part of the insured. In this jurisdiction, concealment, whether intentional or unintentional entitled the insurer to rescind the contract of insurance, concealment being defined as “negligence to communicate that which a party knows and ought to communicate.” The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the insurer into accepting the risk, or accepting it at a rate of premium agreed upon. The insurer, relying upon the belief that the insured will disclose every material fact within his actual or presumed knowledge, is misled into a belief that the circumstances withheld does not exist, and he is thereby induced to estimate the risk upon a false basis that it does not exist.
(47) Grepalife v. CA (repeat – case #15) Facts:
On Mar 4, 1957, Ngo Hing filed an application with Grepalife for a 20-yr endowment policy for P50T on the life of his 1-yr old daughter Helen Go.
Upon payment of the insurance premium, a binding deposit receipt was issued to HIng by the branch manager of the insurer in Cebu.
On May 28, 1957, Helen died of influenza with complication of broncho pneumonia.
Hing filed a claim with Grepalife, but the latter denied liability on the ground of concealment. Issue: WON Grepalife is liable to HIng.
Held: NO. There was concealment.
The SC was of the firm belief that Ngo Hing had deliberately concealed the state of health and physical condition of his daughter Helen. When he supplied the required essential data for the insurance form, he was fully aware that Helen was a mongoloid.
Such a congenital defect could not be ensconced or disguised. Nonetheless, Ngo Hing, in apparent gad faith, withheld such fact which is material to the risk to be assumed by the insurance company. Had he divulged said significant fact in the insurance form, Grepalife would have verified the same and would have had no obvious choice but to disapprove the application outright. Concealment entitles the insurer to resolve the contract of insurance.
(48) Henson v. Philamlife 56 OG 7328
Facts:
Celestino Henson was insured by Philamlife in 1954 upon his application or a 20-yr endowment life policy.
In 1955, the policy lapsed due to non-payment of the premiums.
Upon payment of the premiums due, the policy was reinstated, but in the application for reinstatement, Henson did not disclose the fact that he had been previously diagnosed for pyelonephritis, enlarged liver and hernia. He also did not disclose that he had been examined by a physician.
In 1956, Henson died, and his beneficiaries’ claim was rejected by Philamlife on the ground of concealment.
The company then filed for rescission. Beneficiaries’ contend that the intent to conceal must be proven to warrant rescission.
Issue: WON there is need to prove intent to conceal to warrant rescission. Held: NO.
Sec. 26 provides that “a concealment whether intentional or unintentional entitles the injured party to rescind the contract of insurance”. And aside from this, intent, being a state of the mind is hard to prove.
According to Sec. 30 of the Insurance Code: 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. In essence therefore, the insured need not have died of the very diseases he had failed to reveal to the insurance company. It is sufficient that his non-revelation had misled the insurer in forming its estimate of the disadvantages of the proposed policy reinstatement or in making its inquiries, in order to entitle the latter to rescind the contract.
(49) Soliman v. US Life 104 PHIL 1046
Facts:
US Life issued a 20yr endowment life policy on the joint lives of Patricio Soliman and his wife Rosario, each of them being the beneficiary of the other.
In March 1949, the spouses were informed that the premium for Jan 1949 was still unpaid notwithstanding that the 31-day grace period had already expired, and they were furnished at the same time long-form health certificates for the reinstatement of the policies.
In Aprl 1949, they submitted the health certificates and paid the premium due up to said month.
In Jan. 1950, Rosario died of acute dilatation of the heart, and thereafter Patricio filed a claim for the proceeds of the insurance.
US Life denied the claim and it filed a case for rescission on the ground that the health certificates failed to disclose that Rosario had been suffering from bronchial asthma for three years prior to the submission. Patricio claims that the answers to the questions in the health certificates were made by US Life’s agent. Issue: WON the policy can be rescinded.
Held: YES.
The spouses in allowing the agent to answer some of the blanks in the certificates and afterwards stamping their signature thereon are presumed to have at least acquiesced in and approved all that had bee stated therein in their behalf.
(50) Bautista v. Capital Insurance 1 CA Rep. 228
Facts:
In 1952, a contract of insurance was entered by the parties, upon PIlar Bautista’s house.
The policy described the building as “occupied as dwelling only”. There was a stipulation to the effect that any misrepresentation of material fact or misdescription of the property shall render the insurer not liable for its loss.
Before the policy was issued however, Manuel Leyson, Bautista’s lessee, subleased the ground floor to ONg, who used it as a factory for the manufacture of shoes. A month later, rubber heels, soles and canvass were stored therein.
Subsequently, the house was destroyed by fire. Bautista filed her claims with Capital Insurance, but the latter denied her claim on the ground of breach of warranty.
Bautista said that the statement “occupied as dwelling only” was not hers, but of the insurance agent, and that the policy was in English (which she did not understand) and was never read to her.
Issue: WON Capital may rescind the contract. Held: It can.
Bautista was bound to know the contents of the policy in accepting it. In the absence of fraud, she is presumed to know the contents of the contract and to have assented to them. Failure to read the policy is negligence, and the insured is regarded as having assumed the risk of the falsity or misstatements of its contents.
(51) Gen. Insurance & Surety Corp v. NG Hua 106 PHIL 1117
Facts:
In 1952, General issued a fire policy to Ng Hua to cover the contents of the Central Pomade Factory owned by him.
There was a provision in the policy that should there be any insurance already effected or to be subsequently procured, the insured shall give notice to the insurer.
Ng Hua declared that there was non. The very next day, the building and the goods stored therein burned.
Subsequently, the claim of Ng Hua for the proceeds was denied by General since it discovered that Ng Hua had obtained an insurance from General Indemnity for the same goods and for the same period of time.
Issue: WON General Insurance can refuse to pay the proceeds. Held: Yes.
Violation of the statement which is to be considered a warranty entitles the insurer to rescind the contract of insurance. Such misrepresentation is fatal.
(52) Vda. De Canilang v. CA 223 SCRA 443 (1993) Facts:
Canilang consulted Dr. Claudio and was diagnosed as suffering from "sinus tachycardia." Mr. Canilang consulted the same doctor again on 3 August 1982 and this time was found to have "acute bronchitis."
On the next day, 4 August 1982, Canilang applied for a "non-medical" insurance policy with Grepalife naming his wife, as his beneficiary. Canilang was issued ordinary life insurance with the face value of P19,700.
On 5 August 1983, Canilang died of "congestive heart failure," "anemia," and "chronic anemia." The wife as beneficiary, filed a claim with Grepalife which the insurer denied on the ground that the insured had concealed material information from it. Vda Canilang filed a complaint with the Insurance Commissioner against Grepalife contending that as far as she knows her husband was not suffering from any disorder and that he died of kidney disorder.
Grepalife was ordered to pay the widow by the Insurance Commissioner holding that there was no intentional concealment on the Part of Canilang and that Grepalife had waived its right to inquire into thehealth condition of the applicant by the issuance of the policy despite the lack of answers to "some of the pertinent questions" in the insurance application. CA reversed.
Issue: WON Grepalife is liable. Held:
SC took note of the fact that Canilang failed to disclose that hat he had twice consulted Dr. Wilfredo B. Claudio who had found him to be suffering from "sinus tachycardia" and "acute bronchitis. Under the relevant provisions of the Insurance Code, the information concealed must be information which the concealing party knew and "ought to [have] communicate[d]," that is to say, information which was "material to the contract.
The information which Canilang failed to disclose was material to the ability of Grepalife 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 the medicines prescribed by such doctor, in the insurance application, it may be reasonably assumed that Grepalife 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 Canilang from Grepalife 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 ensue. 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.
SC found it difficult to take seriously the argument that Grepalife had waived inquiry into the concealment by issuing the insurance policy notwithstanding Canilang's failure to set out answers to some of the questions in the insurance application. Such failure precisely constituted concealment on the part of