G.R. No. 85141 November 28, 1989FILIPINO MERCHANTS INSURANCE CO., INC.,petitioner,vs.COURT OF APPEALS and CHOA TIEK SENG,respondents.Balgos & Perez Law Offices for petitioner.Lapuz Law office for private respondent.REGALADO,J.:This is a review of the decision of the Court of Appeals, promulgated on July 19,1988, the dispositive part of which reads:WHEREFORE, the judgment appealed from is affirmed insofar as it orders defendant Filipino Merchants Insurance Company to pay the plaintiff the sum of P51,568.62 with interest at legal rate from the date of filing of the complaint, and is modified with respect to the third party complaint in that (1) third party defendant E. Razon, Inc. is ordered to reimburse third party plaintiff the sum of P25,471.80 with legal interest from the date of payment until the date of reimbursement, and (2) the third-party complaint against third party defendant Compagnie Maritime Des Chargeurs Reunis is dismissed.1The facts as found by the trial court and adopted by the Court of Appeals are as follows:This is an action brought by the consignee of the shipment of fishmeal loaded on board the vessel SS Bougainville and unloaded at the Port of Manila on or about December 11, 1976 and seeks to recover from the defendant insurance company the amount of P51,568.62 representing damages to said shipment which has been insured by the defendant insurance company under Policy No. M-2678. The defendant brought a third party complaint against third party defendants Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the third (sic) defendants in case Judgment is rendered against the third party plaintiff. It appears from the evidence presented that in December 1976, plaintiff insured said shipment with defendant insurance company under said cargo Policy No. M-2678 for the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in new gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks under warehouse to warehouse terms. Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton CNF Manila. The fishmeal in 666 new gunny bags were unloaded from the ship on December 11, 1976 at Manila unto the arrastre contractor E. Razon, Inc. and defendant's surveyor ascertained and certified that in such discharge 105 bags were in bad order condition as jointly surveyed by the ship's agent and the arrastre contractor. The condition of the bad order was reflected in the turn over survey report of Bad Order cargoes Nos. 120320 to 120322, as Exhibit C-4 consisting of three (3) pages which are also Exhibits 4, 5 and 6- Razon. The cargo was also surveyed by the arrastre contractor before delivery of the cargo to the consignee and the condition of the cargo on such delivery was reflected in E. Razon's Bad Order Certificate No. 14859, 14863 and 14869 covering a total of 227 bags in bad order condition. Defendant's surveyor has conducted a final and detailed survey of the cargo in the warehouse for which he prepared a survey report Exhibit F with the findings on the extent of shortage or loss on the bad order bags totalling 227 bags amounting to 12,148 kilos, Exhibit F-1. Based on said computation the plaintiff made a formal claim against the defendant Filipino Merchants Insurance Company for P51,568.62 (Exhibit C) the computation of which claim is contained therein. A formal claim statement was also presented by the plaintiff against the vessel dated December 21, 1976, Exhibit B, but the defendant Filipino Merchants Insurance Company refused to pay the claim. Consequently, the plaintiff brought an action against said defendant as adverted to above and defendant presented a third party complaint against the vessel and the arrastre contractor.2The court below, after trial on the merits, rendered judgment in favor of private respondent, the decretal portion whereof reads:WHEREFORE, on the main complaint, judgment is hereby rendered in favor of the plaintiff and against the defendant Filipino Merchant's (sic) Insurance Co., ordering the defendants to pay the plaintiff the following amount:The sum of P51,568.62 with interest at legal rate from the date of the filing of the complaint;On the third party complaint, the third party defendant Compagnie Maritime Des Chargeurs Reunis and third party defendant E. Razon, Inc. are ordered to pay to the third party plaintiff jointly and severally reimbursement of the amounts paid by the third party plaintiff with legal interest from the date of such payment until the date of such reimbursement.Without pronouncement as to costs.3On appeal, the respondent court affirmed the decision of the lower court insofar as the award on the complaint is concerned and modified the same with regard to the adjudication of the third-party complaint. A motion for reconsideration of the aforesaid decision was denied, hence this petition with the following assignment of errors:1. The Court of Appeals erred in its interpretation and application of the "all risks" clause of the marine insurance policy when it held the petitioner liable to the private respondent for the partial loss of the cargo, notwithstanding the clear absence of proof of some fortuitous event, casualty, or accidental cause to which the loss is attributable, thereby contradicting the very precedents cited by it in its decision as well as a prior decision of the same Division of the said court (then composed of Justices Cacdac, Castro-Bartolome, and Pronove);2. The Court of Appeals erred in not holding that the private respondent had no insurable interest in the subject cargo, hence, the marine insurance policy taken out by private respondent is null and void;3. The Court of Appeals erred in not holding that the private respondent was guilty of fraud in not disclosing the fact, it being bound out of utmost good faith to do so, that it had no insurable interest in the subject cargo, which bars its recovery on the policy.4On the first assignment of error, petitioner contends that an "all risks" marine policy has a technical meaning in insurance in that before a claim can be compensable it is essential that there must be "some fortuity, " "casualty" or "accidental cause" to which the alleged loss is attributable and the failure of herein private respondent, upon whom lay the burden, to adduce evidence showing that the alleged loss to the cargo in question was due to a fortuitous event precludes his right to recover from the insurance policy. We find said contention untenable.The "all risks clause" of the Institute Cargo Clauses read as follows:5. This insurance is against all risks of loss or damage to the subject-matter insured but shall in no case be deemed to extend to cover loss, damage, or expense proximately caused by delay or inherent vice or nature of the subject-matter insured. Claims recoverable hereunder shall be payable irrespective of percentage.5An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by an accidental cause of any kind. The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical meaning. They are construed by the courts in their ordinary and common acceptance. Thus, the terms have been taken to mean that which happens by chance or fortuitously, without intention and design, and which is unexpected, unusual and unforeseen. An accident is an event that takes place without one's foresight or expectation; an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected.6The very nature of the term "all risks" must be given a broad and comprehensive meaning as covering any loss other than a willful and fraudulent act of the insured.7This is pursuant to the very purpose of an "all risks" insurance to give protection to the insured in those cases where difficulties of logical explanation or some mystery surround the loss or damage to property.8An "all asks" policy has been evolved to grant greater protection than that afforded by the "perils clause," in order to assure that no loss can happen through the incidence of a cause neither insured against nor creating liability in the ship; it is written against all losses, that is, attributable to external causes.9The term "all risks" cannot be given a strained technical meaning, the language of the clause under the Institute Cargo Clauses being unequivocal and clear, to the effect that it extends to all damages/losses suffered by the insured cargo except (a) loss or damage or expense proximately caused by delay, and (b) loss or damage or expense proximately caused by the inherent vice or nature of the subject matter insured.Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but under an "all risks" policy the burden is not on the insured to prove the precise cause of loss or damage for which it seeks compensation. The insured under an "all risks insurance policy" has the initial burden of proving that the cargo was in good condition when the policy attached and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to the insurer to show the exception to the coverage.10As we held inParis-Manila Perfumery Co. vs. Phoenix Assurance Co., Ltd.11the basic rule is that the insurance company has the burden of proving that the loss is caused by the risk excepted and for want of such proof, the company is liable.Coverage under an "all risks" provision of a marine insurance policy creates a special type of insurance which extends coverage to risks not usually contemplated and avoids putting upon the insured the burden of establishing that the loss was due to the peril falling within the policy's coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly excludes the loss from coverage.12A marine insurance policy providing that the insurance was to be "against all risks" must be construed as creating a special insurance and extending to other risks than are usually contemplated, and covers all losses except such as arise from the fraud of the insured.13The burden of the insured, therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the insurer to prove that the loss was due to excepted perils. To impose on the insured the burden of proving the precise cause of the loss or damage would be inconsistent with the broad protective purpose of "all risks" insurance.In the present case, there being no showing that the loss was caused by any of the excepted perils, the insurer is liable under the policy. As aptly stated by the respondent Court of Appeals, upon due consideration of the authorities and jurisprudence it discussed ... it is believed that in the absence of any showing that the losses/damages were caused by an excepted peril, i.e. delay or the inherent vice or nature of the subject matter insured, and there is no such showing, the lower court did not err in holding that the loss was covered by the policy.There is no evidence presented to show that the condition of the gunny bags in which the fishmeal was packed was such that they could not hold their contents in the course of the necessary transit, much less any evidence that the bags of cargo had burst as the result of the weakness of the bags themselves. Had there been such a showing that spillage would have been a certainty, there may have been good reason to plead that there was no risk covered by the policy (See Berk vs. Style [1956] cited in Marine Insurance Claims,Ibid, p. 125). Under an 'all risks' policy, it was sufficient to show that there was damage occasioned by some accidental cause of any kind, and there is no necessity to point to any particular cause.14Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The agreement has the force of law between the parties. The terms of the policy constitute the measure of the insurer's liability. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense.15Anent the issue of insurable interest, we uphold the ruling of the respondent court that private respondent, as consignee of the goods in transit under an invoice containing the terms under "C & F Manila," has insurable interest in said goods.Section 13 of the Insurance Code defines insurable interest in property as every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured. In principle, anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction whether he has or has not any title in, or lien upon or possession of the property y.16Insurable interest in property may consist in (a) an existing interest; (b) an inchoate interest founded on an existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises.17Herein private respondent, as vendee/consignee of the goods in transit has such existing interest therein as may be the subject of a valid contract of insurance. His interest over the goods is based on the perfected contract of sale.18The perfected contract of sale between him and the shipper of the goods operates to vest in him an equitable title even before delivery or before be performed the conditions of the sale.19The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of whether the vendee has an insurable interest or not in the goods in transit. The perfected contract of sale even without delivery vests in the vendee an equitable title, an existing interest over the goods sufficient to be the subject of insurance.Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for, the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, the exceptions to said rule not obtaining in the present case. The Court has heretofore ruled that the delivery of the goods on board the carrying vessels partake of the nature of actual delivery since, from that time, the foreign buyers assumed the risks of loss of the goods and paid the insurance premium covering them.20C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum the cost of the goods and freight to the named destination.21It simply means that the seller must pay the costs and freight necessary to bring the goods to the named destination but the risk of loss or damage to the goods is transferred from the seller to the buyer when the goods pass the ship's rail in the port of shipment.22Moreover, the issue of lack of insurable interest was not among the defenses averred in petitioners answer. It was neither an issue agreed upon by the parties at the pre-trial conference nor was it raised during the trial in the court below. It is a settled rule that an issue which has not been raised in the courta quocannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process.23This is but a permuted restatement of the long settled rule that when a party deliberately adopts a certain theory, and the case is tried and decided upon that theory in the court below, he will not be permitted to change his theory on appeal because, to permit him to do so, would be unfair to the adverse party.24If despite the fundamental doctrines just stated, we nevertheless decided to indite a disquisition on the issue of insurable interest raised by petitioner, it was to put at rest all doubts on the matter under the facts in this case and also to dispose of petitioner's third assignment of error which consequently needs no further discussion.WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent Court of Appeals is AFFIRMED intoto.SO ORDERED.ONG LIM SING, JR. vs. FEB LEASING AND FINANCE CORPORATIONG.R. No. 168115 - June 8, 2007

FACTS:On March 9, 1995, FEB Leasing and Finance Corporation entered into a lease of equipment and motor vehicles with JVL Food Products. On the same date, Vicente Ong Lim Sing, Jr. executed an Individual Guaranty Agreement with FEB to guarantee the prompt and faithful performance of the terms and conditions of the aforesaid lease agreement. Corresponding Lease Schedules with Delivery and Acceptance Certificates over the equipment and motor vehicles formed part of the agreement. Under the contract, JVL was obliged to pay FEB an aggregate gross monthly rental of One Hundred Seventy Thousand Four Hundred Ninety-Four Pesos (P170,494.00).

JVL defaulted in the payment of the monthly rentals. As of July 31, 2000, the amount in arrears, including the penalty charges and insurance premiums, amounted to Three Million Four Hundred Fourteen Thousand Four Hundred Sixty-Eight and 75/100 Pesos (P3,414,468.75). On August 23, 2000, FEB sent a letter to JVL demanding payment of the said amount. However, JVL failed to pay.

On December 6, 2000, FEB filed a Complaint with the Regional Trial Court of Manila for sum of money, damages, and replevin against JVL, Lim, and John Doe.

In an Amended Answer, JVL and Lim admitted the existence of the lease agreement but asserted that it is in reality a sale of equipment on instalment basis, with FEB acting as the financier. On November 22, 2002, the trial court ruled in favor of JVL and Lim and stressed the contradictory terms found in the lease agreement. The trial court stated, among others, that if JVL and Lim (then defendants) were to be regarded as only a lessee, logically the lessor who asserts ownership will be the one directly benefited or injured and therefore the lessee is not supposed to be the assured as he has no insurable interest.

On December 27, 2002, FEB filed its Notice of Appeal. Accordingly, on January 17, 2003, the court issued an Order elevating the entire records of the case to the Court of Appeals. On March 15, 2005, the Court of Appeals issued its Decision declaring the transaction between the parties as a financial lease agreement. The said decision reversed and set aside the trial courts decision dated November 22, 2002. Hence, Lim filed the present Petition for Review on Certiorari.

ISSUE:Whether or not petitioner has an insurable interest in the equipment and motor vehicles leased.

RULING:Yes.

The stipulation in Section 14 of the leased contract, that the equipment shall be insured at the cost and expense of the lessee against loss, damage, or destruction from fire, theft, accident, or other insurable risk for the full term of the lease, is a binding and valid stipulation. Petitioner, as a lessee, has an insurable interest in the equipment and motor vehicles leased. Section 17 of the Insurance Code provides that the measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof. It cannot be denied that JVL will be directly damnified in case of loss, damage, or destruction of any of the properties leased.GAISANO CAGAYAN VS INSURANCE COMPANY OF NORTH AMERICAFACTS: Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. whileLevi Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co IMC and LSPI separately obtained from Insurance Company of North Americafire insurance policies for their book debt endorsementsrelated to their ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines which are unpaid45 days after the time of the loss February 25, 1991: Gaisano Superstore Complex in Cagayan de Oro City, owned by Gaisano Cagayan, Inc., containingthe ready-made clothing materials sold and delivered by IMC and LSPIwas consumed by fire. February 4, 1992: Insurance Company of North America fileda complaint for damages againstGaisano Cagayan, Inc.alleges that IMC and LSPI filed their claims under their respective fire insurance policies which it paid thus it was subrogated to their rights Gaisano Cagayan, Inc:not be held liable because it wasdestroyed due to fortuities event or force majeure RTC:IMC and LSPI retained ownership of the delivered goods until fully paid, it must bear the loss (res perit domino) CA: Reversed -sales invoices is an exception under Article 1504 (1) of the Civil Code to res perit dominoISSUE: W/NInsurance Company of North America can claim against Gaisano Cagayan for the debt that was isnured

HELD: YES.petition is partly GRANTED.order to pay P535,613 is DELETED insurance policy is clear that the subject of the insurance is thebook debts and NOTgoods sold and delivered to the customers and dealers of the insured ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery; IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of who bears the risk of loss, in property insurance, one's interest is not determined by concept of title, but whether insured has substantial economic interest in the property Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction. it is sufficient that the insured is so situated with reference to the property that he would be liable to loss should it be injured or destroyed by the peril against which it is insured an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such an interest insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire -obligation is pecuniary in nature obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event Article 1263 of the Civil Code in an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation (Genus nunquan perit) The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as insurer and IMC as the insured, but also the amount paid to settle the insurance claim Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. As toLSPI, no subrogation receipt was offered in evidence. Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amount of P535,613

Grepalife v. CA - Real Party In Interest

316 SCRA 677Facts:> A contract of group life insurance was executed between Grepalife and DBP. Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP.> Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group life insurance plan.> In an application form, Dr. Leuterio answered questions concerning his health stating that he is in good health and has never consulted a physician for or a heart condition, high blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any other physical impairment.> Grepalife issued the insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness amounting to eighty-six thousand, two hundred (P86,200.00) pesos.> Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP submitted a death claim to Grepalife.> Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied for an insurance coverage and insisted that Dr. Leuterio did not disclose that he had been suffering from hypertension, which caused his death. Allegedly, such non-disclosure constituted concealment that justified the denial of the claim.> The widow of the late Dr. Leuterio, filed a complaint against Grepalife for "Specific Performance with Damages." During the trial, Dr. Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejias findings, based partly from the information given by the widow, stated that Dr. Leuterio complained of headaches presumably due to high blood pressure. The inference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes were not ruled out.> RTC ruled in favor of widow and against Grepalife. Grepalife appealed contending that the wife was not the proper party in interest to file the suit, since it is DBP who insured the life of Dr. Leuterio.

Issue:Whether or not the widow is the real party in interest, (not DBP) and has legal standing to file the suit.

Held:YES.Grepalife alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in interest, hence the trial court acquired no jurisdiction over the case. It argues that when the Court of Appeals affirmed the trial courts judgment, Grepalife was held liable to pay the proceeds of insurance contract in favor of DBP, the indispensable party who was not joined in the suit.

To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this type of contract. The rationale of a group insurance policy of mortgagors, otherwise known as the "mortgage redemption insurance," is a device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation.

In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event of death; the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness. Consequently, where the mortgagor pays the insurance premium under the group insurance policy, making the loss payable to the mortgagee, the insurance is on the mortgagors interest, and the mortgagor continues to be a party to the contract. In this type of policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make the mortgagee a party to the contract.

The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy stating that:"In the event of the debtors death before his indebtedness with the Creditor [DBP] shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies designated by the debtor."When DBP submitted the insurance claim against petitioner, the latter denied payment thereof, interposing the defense of concealment committed by the insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary action of foreclosure on the residential lot of private respondent

And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover it whatever the insured might have recovered, 14 the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

As to the question of whether there was concealment, CA held as affirmed by the SC that contrary to Grepalifes allegations, there was no sufficient proof that the insured had suffered from hypertension. Aside from the statement of the insureds widow who was not even sure if the medicines taken by Dr. Leuterio were for hypertension, the appellant had not proven nor produced any witness who could attest to Dr. Leuterios medical history.

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. In the case at bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insuranceGrepalife v. CA89 SCRA 543DE CASTRO,J.:The two above-entitled cases were ordered consolidated by the Resolution of this Court dated April 29, 1970, (Rollo, No. L-31878, p. 58), because the petitioners in both cases seek similar relief, through these petitions for certiorari by way of appeal, from the amended decision of respondent Court of Appeals which affirmed in toto the decision of the Court of First Instance of Cebu, ordering "the defendants (herein petitioners Great Pacific Ligfe Assurance Company and Mondragon) jointly and severally to pay plaintiff (herein private respondent Ngo Hing) the amount of P50,000.00 with interest at 6% from the date of the filing of the complaint, and the sum of P1,077.75, without interest.It appears that on March 14, 1957, private respondent Ngo Hing filed an application with the Great Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a twenty-year endownment policy in the amount of P50,000.00 on the life of his one-year old daughter Helen Go. Said respondent supplied the essential data which petitioner Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the corresponding form in his own handwriting (Exhibit I-M). Mondragon finally type-wrote the data on the application form which was signed by private respondent Ngo Hing. The latter paid the annual premuim the sum of P1,077.75 going over to the Company, but he reatined the amount of P1,317.00 as his commission for being a duly authorized agebt of Pacific Life. Upon the payment of the insurance premuim, the binding deposit receipt (Exhibit E) was issued to private respondent Ngo Hing. Likewise, petitioner Mondragon handwrote at the bottom of the back page of the application form his strong recommendation for the approval of the insurance application. Then on April 30, 1957, Mondragon received a letter from Pacific Life disapproving the insurance application (Exhibit 3-M). The letter stated that the said life insurance application for 20-year endowment plan is not available for minors below seven years old, but Pacific Life can consider the same under the Juvenile Triple Action Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be sent to the company.The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by petitioner Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote back Pacific Life again strongly recommending the approval of the 20-year endowment insurance plan to children, pointing out that since 1954 the customers, especially the Chinese, were asking for such coverage (Exhibit 4-M).It was when things were in such state that on May 28, 1957 Helen Go died of influenza with complication of bronchopneumonia. Thereupon, private respondent sought the payment of the proceeds of the insurance, but having failed in his effort, he filed the action for the recovery of the same before the Court of First Instance of Cebu, which rendered the adverse decision as earlier refered to against both petitioners.The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E) constituted a temporary contract of the life insurance in question; and (2) whether private respondent Ngo Hing concealed the state of health and physical condition of Helen Go, which rendered void the aforesaid Exhibit E.1. At the back of Exhibit E are condition precedents required before a deposit is considered a BINDING RECEIPT. These conditions state that:A. If the Company or its agent, shan have received the premium deposit ... and the insurance application, ON or PRIOR to the date of medical examination ...said insurance shan be in force and in effectfrom the date of such medical examination, for such period as is covered by the deposit ...,PROVIDED the company shall be satisfied that on said date the applicant was insurable on standard rates under its rulefor the amount of insurance and the kind of policy requested in the application.D. If the Company does not accept the applicationon standard rate for the amount of insurance and/or the kind of policy requested in the applicationbutissue, oroffers to issue a policy for a different plan and/or amount ..., the insurance shall not be in force and in effect until the applicant shall have accepted the policyas issued oroffered by the Companyand shall have paid the full premium thereof.If the applicant does not accept the policy, the deposit shall be refunded.E. If the applicant shall not have been insurable under Condition A above, and the Company declines to approve the application the insurance applied for shall not have been in force at any time and the sum paid be returned to the applicant upon the surrender of this receipt.(Emphasis Ours).The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is intended to be merely a provisional or temporary insurance contract and only upon compliance of the following conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates; (2) that if the company does not accept the application and offers to issue a policy for a different plan, the insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the deposit shall be reftmded; and (3) that if the applicant is not ble according to the standard rates, and the company disapproves the application, the insurance applied for shall not be in force at any time, and the premium paid shall be returned to the applicant.Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an acknowledgment, on behalf of the company, that the latter's branch office had received from the applicant the insurance premium and had accepted the application subject for processing by the insurance company; and that the latter will either approve or reject the same on the basis of whether or not the applicant is "insurable on standard rates." Since petitioner Pacific Life disapproved the insurance application of respondent Ngo Hing, the binding deposit receipt in question had never become in force at any time.Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does not insure outright. As held by this Court, where an agreement is made between the applicant and the agent, no liability shall attach until the principal approves the risk and a receipt is given by the agent. The acceptance is merely conditional and is subordinated to the act of the company in approving or rejecting the application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself (De Lim vs. Sun Life Assurance Company of Canada, 41 Phil. 264).It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M), Pacific Life disapproved the insurance application in question on the ground that it is not offering the twenty-year endowment insurance policy to children less than seven years of age. What it offered instead is another plan known as the Juvenile Triple Action, which private respondent failed to accept. In the absence of a meeting of the minds between petitioner Pacific Life and private respondent Ngo Hing over the 20-year endowment life insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter, and with the non-compliance of the abovequoted conditions stated in the disputed binding deposit receipt, there could have been no insurance contract duly perfected between thenl Accordingly, the deposit paid by private respondent shall have to be refunded by Pacific Life.As held inDe Lim vs. Sun Life Assurance Company of Canada,supra, "a contract of insurance, like other contracts, must be assented to by both parties either in person or by their agents ... The contract, to be binding from the date of the application, must have been a completed contract, one that leaves nothing to be dione, nothing to be completed, nothing to be passed upon, or determined, before it shall take effect. There can be no contract of insurance unless the minds of the parties have met in agreement."We are not impressed with private respondent's contention that failure of petitioner Mondragon to communicate to him the rejection of the insurance application would not have any adverse effect on the allegedly perfected temporary contract (Respondent's Brief, pp. 13-14). In this first place, there was no contract perfected between the parties who had no meeting of their minds. Private respondet, being an authorized insurance agent of Pacific Life at Cebu branch office, is indubitably aware that said company does not offer the life insurance applied for. When he filed the insurance application in dispute, private respondent was, therefore, only taking the chance that Pacific Life will approve the recommendation of Mondragon for the acceptance and approval of the application in question along with his proposal that the insurance company starts to offer the 20-year endowment insurance plan for children less than seven years. Nonetheless, the record discloses that Pacific Life had rejected the proposal and recommendation. Secondly, having an insurable interest on the life of his one-year old daughter, aside from being an insurance agent and an offense associate of petitioner Mondragon, private respondent Ngo Hing must have known and followed the progress on the processing of such application and could not pretend ignorance of the Company's rejection of the 20-year endowment life insurance application.At this juncture, We find it fit to quote with approval, the very apt observation of then Appellate Associate Justice Ruperto G. Martin who later came up to this Court, from his dissenting opinion to the amended decision of the respondent court which completely reversed the original decision, the following:Of course, there is the insinuation that neither the memorandum of rejection (Exhibit 3-M) nor the reply thereto of appellant Mondragon reiterating the desire for applicant's father to have the application considered as one for a 20-year endowment plan was ever duly communicated to Ngo; Hing, father of the minor applicant. I am not quite conninced that this was so. Ngo Hing, as father of the applicant herself, was precisely the "underwriter who wrote this case" (Exhibit H-1). The unchallenged statement of appellant Mondragon in his letter of May 6, 1957) (Exhibit 4-M), specifically admits that said Ngo Hing was "our associate" and that it was the latter who "insisted that the plan be placed on the 20-year endowment plan." Under these circumstances, it is inconceivable that the progress in the processing of the application was not brought home to his knowledge. He must have been duly apprised of the rejection of the application for a 20-year endowment plan otherwise Mondragon would not have asserted that it was Ngo Hing himself who insisted on the application as originally filed, thereby implictly declining the offer to consider the application under the Juvenile Triple Action Plan. Besides, the associate of Mondragon that he was, Ngo Hing should only be presumed to know what kind of policies are available in the company for minors below 7 years old. What he and Mondragon were apparently trying to do in the premises was merely to prod the company into going into the business of issuing endowment policies for minors just as other insurance companies allegedly do. Until such a definite policy is however, adopted by the company, it can hardly be said that it could have been bound at all under the binding slip for a plan of insurance that it could not have, by then issued at all. (Amended Decision, Rollo, pp- 52-53).2. Relative to the second issue of alleged concealment. this Court is of the firm belief that private respondent had deliberately concealed the state of health and piysical condition of his daughter Helen Go. Wher private regpondeit supplied the required essential data for the insurance application form, he was fully aware that his one-year old daughter is typically a mongoloid child. Such a congenital physical defect could never be ensconced nor disguished. Nonetheless, private respondent, in apparent bad faith, withheld the fact materal to the risk to be assumed by the insurance compary. As an insurance agent of Pacific Life, he ought to know, as he surely must have known. his duty and responsibility to such a material fact. Had he diamond said significant fact in the insurance application fom Pacific Life would have verified the same and would have had no choice but to disapprove the application outright.The contract of insurance is one of perfect good faith uberrima fides meaning good faith, absolute and perfect candor or openness and honesty; the absence of any concealment or demotion, however slight [Black's Law Dictionary, 2nd Edition], not for the alone but equally so for the insurer (Field man's Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70). Concealment is a neglect to communicate that which a partY knows aDd Ought to communicate (Section 25, Act No. 2427). Whether intentional or unintentional the concealment entitles the insurer to rescind the contract of insurance (Section 26, Id.: Yu Pang Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino vs. Philippine American Life Insurance Company, 7 SCRA 316). Private respondent appears guilty thereof.We are thus constrained to hold that no insurance contract was perfected between the parties with the noncompliance of the conditions provided in the binding receipt, and concealment, as legally defined, having been comraitted by herein private respondent.WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is hereby entered absolving petitioners Lapulapu D. Mondragon and Great Pacific Life Assurance Company from their civil liabilities as found by respondent Court and ordering the aforesaid insurance company to reimburse the amount of P1,077.75, without interest, to private respondent, Ngo Hing. Costs against private respondent.SO ORDERED.Philamcare Health Systems, Inc. vs Court of Appeals379 SCRA 356 Mercantile Law Insurance Law Representation Concealment Rescission of an Insurance Contract Health Care Agreement is an Insurance ContractIn 1988, Ernani Trinos applied for a health care insurance under the Philamcare Health Systems, Inc. He was asked if he was ever treated for high blood, heart trouble, diabetes, cancer, liver disease, asthma, or peptic ulcer; he answered no. His application was approved and it was effective for one year. His coverage was subsequently renewed twice for one year each. While the coverage was still in force in 1990, Ernani suffered a heart attack for which he was hospitalized. The cost of the hospitalization amounted to P76,000.00. Julita Trinos, wife of Ernani, filed a claim before Philamcare for the latterto pay the hospitalization cost. Philamcare refused to pay as it alleged that Ernani failed to disclose the fact that he was diabetic, hypertensive, and asthmatic. Julita ended up paying the hospital expenses. Ernani eventually died. In July 1990, Julita sued Philamcare for damages. Philamcare alleged that the health coverage is not an insurance contract; that the concealment made by Ernani voided the agreement.ISSUE:Whether or not Philamcare can avoid the health coverage agreement.HELD:No. The health coverage agreement (health care agreement) entered upon by Ernani with Philamcare is a non-life insurance contract and is covered by the Insurance Law. It 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. There is no concealment on the part of Ernani. He answered the question with good faith. He was not a medical doctor hence his statement in answering the question asked of him when he was applying is an opinion rather than a fact. Answers made in good faith will not void the policy.Further, Philamcare, in believing there was concealment, should have taken the necessary steps to void the health coverage agreement prior to the filing of the suit by Julita. Philamcare never gave notice to Julita of the fact that they are voiding the agreement. Therefore, Philamcare should pay the expenses paid by Julita.G.R. No. 186983 February 22, 2012MA. LOURDES S. FLORENDO,Petitioner,vs.PHILAM PLANS, INC., PERLA ABCEDE MA. CELESTE ABCEDE,Respondents.D E C I S I O NABAD,J.:This case is about an insureds alleged concealment in his pension plan application of his true state of health and its effect on the life insurance portion of that plan in case of death.The Facts and the CaseOn 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 ofP997,050.00, payable in 10 years, and had a maturity value ofP2,890,000.00 after 20 years.1Manuel signed the application and left to Perla the task of supplying the information needed in the application.2Respondent Ma. Celeste Abcede, Perlas daughter, signed the application as sales counselor.3Aside from pension benefits, the comprehensive pension plan also provided life insurance coverage to Florendo.4This was covered by a Group Master Policy that Philippine American Life Insurance Company (Philam Life) issued to Philam Plans.5Under the master policy, Philam Life was to automatically provide life insurance coverage, including accidental death, to all who signed up for Philam Plans comprehensive pension plan.6If the plan holder died before the maturity of the plan, his beneficiary was to instead receive the proceeds of the life insurance, equivalent to the pre-need price. Further, the life insurance was to take care of any unpaid premium until the pension plan matured, entitling the beneficiary to the maturity value of the pension plan.7On October 30, 1997 Philam Plans issued Pension Plan Agreement PP430055848to Manuel, with petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his quarterly premiums.9Eleven 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.10Because Manuel died before his pension plan matured and his wife was to get only the benefits of his life insurance, Philam Plans forwarded her claim to Philam Life.11On May 3, 1999 Philam Plans wrote Lourdes a letter,12declining her claim. Philam Life found that Manuel was on maintenance medicine for his heart and had an implanted pacemaker. Further, he suffered from diabetes mellitus and was taking insulin. Lourdes renewed her demand for payment under the plan13but Philam Plans rejected it,14prompting her to file the present action against the pension plan company before the Regional Trial Court (RTC) of Quezon City.15On March 30, 2006 the RTC rendered judgment,16ordering Philam Plans, Perla and Ma. Celeste, solidarily, to pay Lourdes all the benefits from her husbands pension plan, namely:P997,050.00, the proceeds of his term insurance, andP2,890,000.00 lump sum pension benefit upon maturity of his plan;P100,000.00 as moral damages; and to pay the costs of the suit. The RTC ruled that Manuel was not guilty of concealing the state of his health from his pension plan application.On December 18, 2007 the Court of Appeals (CA) reversed the RTC decision,17holding 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.18Issues PresentedThe issues presented in this case are:1. Whether or not the CA erred in finding Manuel guilty of concealing his illness when he kept blank and did not answer questions in his pension plan application regarding the ailments he suffered from;2. Whether or not the CA erred in holding that Manuel was bound by the failure of respondents Perla and Ma. Celeste to declare the condition of Manuels health in the pension plan application; and3. Whether or not the CA erred in finding that Philam Plans approval of Manuels pension plan application and acceptance of his premium payments precluded it from denying Lourdes claim.Rulings of the CourtOne. Lourdes points out that, seeing the unfilled spaces in Manuels pension plan application relating to his medical history, Philam Plans should have returned it to him for completion. Since Philam Plans chose to approve the application just as it was, it cannot cry concealment on Manuels part. Further, Lourdes adds that Philam Plans never queried Manuel directly regarding the state of his health. Consequently, it could not blame him for not mentioning it.19But Lourdes is shifting to Philam Plans the burden of putting on the pension plan application the true state of Manuels health. She forgets that since Philam Plans waived medical examination for Manuel, it had to rely largely on his stating the truth regarding his health in his application. For, after all, he knew more than anyone that he had been under treatment for heart condition and diabetes for more than five years preceding his submission of that application. But he kept those crucial facts from Philam Plans.Besides, when Manuel signed the pension plan application, he adopted as his own the written representations and declarations embodied in it. It is clear from these representations that he concealed his chronic heart ailment and diabetes from Philam Plans. The pertinent portion of his representations and declarations read as follows:I hereby represent and declare to the best of my knowledge that:x x x x(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) : ____________________________x x x x.20(Emphasis supplied)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,21and insulin, a drug used in the treatment of diabetes mellitus, at that time.22Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent, knew that Manuel had a pacemaker implanted on his chest in the 70s or about 20 years before he signed up for the pension plan.23But by its tenor, the responsibility for preparing the application belonged to Manuel. Nothing in it implies that someone else may provide the information that Philam Plans needed. Manuel cannot sign the application and disown the responsibility for having it filled up. If he furnished Perla the needed information and delegated to her the filling up of the application, then she acted on his instruction, not on Philam Plans instruction.Lourdes next points out that it made no difference if Manuel failed to reveal the fact that he had a pacemaker implant in the early 70s since this did not fall within the five-year timeframe that the disclosure contemplated.24But a pacemaker is an electronic device implanted into the body and connected to the wall of the heart, designed to provide regular, mild, electric shock that stimulates the contraction of the heart muscles and restores normalcy to the heartbeat.25That Manuel still had his pacemaker when he applied for a pension plan in October 1997 is an admission that he remained under treatment for irregular heartbeat within five years preceding that application.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. More, even if Perlas knowledge of Manuels pacemaker may be applied to Philam Plans under the theory of imputed knowledge,26it is not claimed that Perla was aware of his two other afflictions that needed medical treatments. Pursuant to Section 2727of the Insurance Code, Manuels concealment entitles Philam Plans to rescind its contract of insurance with him.Two. Lourdes contends that the mere fact that Manuel signed the application in blank and let Perla fill in the required details did not make her his agent and bind him to her concealment of his true state of health. Since there is no evidence of collusion between them, Perlas fault must be considered solely her own and cannot prejudice Manuel.28But Manuel forgot that in signing the pension plan application, he certified that he wrote all the information stated in it or had someone do it under his direction. Thus:APPLICATION FOR PENSION PLAN(Comprehensive)I hereby apply to purchase from PHILAM PLANS, INC. a Pension Plan Program described herein in accordance with the General Provisions set forth in this application and hereby certify that the date and other information stated herein are written by me or under my direction. x x x.29(Emphasis supplied)Assuming that it was Perla who filled up the application form, Manuel is still bound by what it contains since he certified that he authorized her action. Philam Plans had every right to act on the faith of that certification.Lourdes could not seek comfort from her claim that Perla had assured Manuel that the state of his health would not hinder the approval of his application and that what is written on his application made no difference to the insurance company. But, indubitably, Manuel was made aware when he signed the pension plan application that, in granting the same, Philam Plans and Philam Life were acting on the truth of the representations contained in that application. Thus:DECLARATIONS AND REPRESENTATIONSx x x xI agree that the insurance coverage of this application is based on the truth of the foregoing representations and is subject to the provisions of the Group Life Insurance Policy issued by THE PHILIPPINE AMERICAN LIFE INSURANCE CO. to PHILAM PLANS, INC.30(Emphasis supplied)As the Court said in New Life Enterprises v. Court of Appeals:31It may be true that x x x insured persons may accept policies without reading them, and that this is not negligence per se. But, this is not without any exception. It is and was incumbent upon petitioner Sy to read the insurance contracts, and this can be reasonably expected of him considering that he has been a businessman since 1965 and the contract concerns indemnity in case of loss in his money-making trade of which important consideration he could not have been unaware as it was precisely the reason for his procuring the same.32The same may be said of Manuel, a civil engineer and manager of a construction company.33He could be expected to know that one must read every document, especially if it creates rights and obligations affecting him, before signing the same. Manuel is not unschooled that the Court must come to his succor. It could reasonably be expected that he would not trifle with something that would provide additional financial security to him and to his wife in his twilight years.Three. In a final attempt to defend her claim for benefits under Manuels pension plan, 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.34The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a one-year incontestability period. It states:VIII. INCONTESTABILITYAfter this Agreement has remained in force for one (1) year, we can no longer contest for health reasons any claim for insurance under this Agreement, except for the reason that installment has not been paid (lapsed), or that you are not insurable at the time you bought this pension program by reason of age. If this Agreement lapses but is reinstated afterwards, the one (1) year contestability period shall start again on the date of approval of your request for reinstatement.351wphi1The 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,36the one year incontestability period has not yet set in. Consequently, Philam Plans was not barred from questioning Lourdes entitlement to the benefits of her husbands pension plan.WHEREFORE, the Court AFFIRMS in its entirety the decision of the Court of Appeals in CA-G.R. CV 87085 dated December 18, 2007.SO ORDERED.NG GAN ZEE VS ASIAN CRUSADER122 SCRA 461 Mercantile Law Insurance Law Concealment Misrepresentation Duty of Insurance Company to Make InquiryIn May 1962, Kwong Nam applied for a 20-yearendowment policywith Asian Crusader Life Assurance Corporation. Asian Crusader asked the following question: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.Kwong Nam answered No to the above question.Kwong Nam was also examined by Asian Crusaders medical examiner to whom he disclosed that he was once operated and a tumor was removed from his stomach and such was associated with ulcer of the stomach.Kwong Nams application was approved. In May 1963, he died. His widow, Ng Gan Zee, filed an insurance claim but Asian Crusader refused her claim as it insisted that Kwong Nam concealed material facts from them when he was applying for the insurance; that he misrepresented the fact that he was actually denied application by Insular Life when he was renewing his application with them; that Kwong Nam was actually operated for peptic ulcer.ISSUE:Whether or not Ng Gan Zee can collect the insurance claim.HELD:Yes. Asian Crusader was not able to prove that Kwong Nams statement that Insular Life did not deny his insurance renewal with them is untrue. In fact, evidence showed that in April 1962, Insular Life approved Kwong Nams request of reinstatement only with the condition that Kwong Nams plan will be lowered from P50,000.00 to P20,000.00 considering his medical history.Kwong Nam did not conceal anything from Asian Crusader. His statement that his operation, in which a tumor the size of a hens egg was removed from his stomach, was only associated with ulcer of the stomach and not peptic ulcer can be considered as an expression made in good faith of his belief as to the nature of his ailment and operation. Indeed, such statement must be presumed to have been made by him without knowledge of its incorrectness and without any deliberate intent on his part to mislead Asian Crusader.While it may be conceded that, from the viewpoint of a medical expert, the information communicated was imperfect, the same was nevertheless sufficient to have induced Asian Crusader to make further inquiries about the ailment and operation of Kwong Nam. It has been held that where, upon the face of the application, 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.G.R. No. 175666 July 29, 2013MANILA BANKERS LIFE INSURANCE CORPORATION,Petitioner.vs.CRESENCIA P. ABAN,Respondent.D E C I S I O NDEL CASTILLO,J.:The ultimate aim of Section 48 of the Insurance Code is to compel insurers to solicit business from or provide insurance coverage only to legitimate and bona fide clients, by requiring them to thoroughly investigate those they insure within two years from effectivity of the policy and while the insured is still alive. If they do not, they will be obligated to honor claims on the policies they issue, regardless of fraud, concealment or misrepresentation. The law assumes that they will do just that and not sit on their laurels, indiscriminately soliciting and accepting insurance business from any Tom, Dick and Harry.Assailed in this Petition for Review on Certiorari1are the September 28, 2005 Decision2of the Court of Appeals' (CA) in CA-G.R. CV No. 62286 and its November 9, 2006 Resolution3denying the petitioners Motion for Reconsideration.4Factual AntecedentsOn July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Manila Bankers Life Insurance Corporation (Bankers Life), designating respondent Cresencia P. Aban (Aban), her niece,5as her beneficiary.Petitioner issued Insurance Policy No. 747411 (the policy), with a face value ofP100,000.00, in Soteros favor on August 30, 1993, after the requisite medical examination and payment of the insurance premium.6On April 10, 1996,7when the insurance policy had been in force for more than two years and seven months, Sotero died. Respondent filed a claim for the insurance proceeds on July 9, 1996. Petitioner conducted an investigation into the claim,8and came out with the following findings:1. Sotero did not personally apply for insurance coverage, as she was illiterate;2. Sotero was sickly since 1990;3. Sotero did not have the financial capability to pay the insurance premiums on Insurance Policy No. 747411;4. Sotero did not sign the July 3, 1993 application for insurance;9and5. Respondent was the one who filed the insurance application, and x x x designated herself as the beneficiary.10For the above reasons, petitioner denied respondents claim on April 16, 1997 and refunded the premiums paid on the policy.11On April 24, 1997, petitioner filed a civil case for rescission and/or annulment of the policy, which was docketed as Civil Case No. 97-867 and assigned to Branch 134 of the Makati Regional Trial Court. The main thesis of the Complaint was that the policy was obtained by fraud, concealment and/or misrepresentation under the Insurance Code,12which thus renders it voidable under Article 139013of the Civil Code.Respondent filed a Motion to Dismiss14claiming that petitioners cause of action was barred by prescription pursuant to Section 48 of the Insurance Code, which provides as follows: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.During the proceedings on the Motion to Dismiss, petitioners investigator testified in court, stating among others that the insurance underwriter who solicited the insurance is a cousin of respondents husband, Dindo Aban,15and that it was the respondent who paid the annual premiums on the policy.16Ruling of the Regional Trial CourtOn December 9, 1997, the trial court issued an Order17granting respondents Motion to Dismiss, thus:WHEREFORE, defendant CRESENCIA P. ABANs Motion to Dismiss is hereby granted. Civil Case No. 97-867 is hereby dismissed.SO ORDERED.18In dismissing the case, the trial court found that Sotero, and not respondent, was the one who procured the insurance; thus, Sotero could legally take out insurance on her own life and validly designate as she did respondent as the beneficiary. It held further that under Section 48, petitioner had only two years from the effectivity of the policy to question the same; since the policy had been in force for more than two years, petitioner is now barred from contesting the same or seeking a rescission or annulment thereof.Petitioner moved for reconsideration, but in another Order19dated October 20, 1998, the trial court stood its ground.Petitioner interposed an appeal with the CA, docketed as CA-G.R. CV No. 62286. Petitioner questioned the dismissal of Civil Case No. 97-867, arguing that the trial court erred in applying Section 48 and declaring that prescription has set in. It contended that since it was respondent and not Sotero who obtained the insurance, the policy issued was rendered void ab initio for want of insurable interest.Ruling of the Court of AppealsOn September 28, 2005, the CA issued the assailed Decision, which contained the following decretal portion:WHEREFORE, in the light of all the foregoing, the instant appeal is DISMISSED for lack of merit.SO ORDERED.20The CA thus sustained the trial court. Applying Section 48 to petitioners case, the CA held that petitioner may no longer prove that the subject policy was void ab initio or rescindible by reason of fraudulent concealment or misrepresentation after the lapse of more than two years from its issuance. It ratiocinated 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. If it failed to do so within the statutory two-year period, then the insured must be protected and allowed to claim upon the policy.Petitioner moved for reconsideration,21but the CA denied the same in its November 9, 2006 Resolution.22Hence, the present Petition.IssuesPetitioner raises the following issues for resolution:IWHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE ORDER OF THE TRIAL COURT DISMISSING THE COMPLAINT ON THE GROUND OF PRESCRIPTION IN CONTRAVENTION (OF) PERTINENT LAWS AND APPLICABLE JURISPRUDENCE.IIWHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE APPLICATION OF THE INCONTESTABILITY PROVISION IN THE INSURANCE CODE BY THE TRIAL COURT.IIIWHETHER THE COURT OF APPEALS ERRED IN DENYING PETITIONERS MOTION FOR RECONSIDERATION.23Petitioners ArgumentsIn praying that the CA Decision be reversed and that the case be remanded to the trial court for the conduct of further proceedings, petitioner argues in its Petition and Reply24that Section 48 cannot apply to a case where the beneficiary under the insurance contract posed as the insured and obtained the policy under fraudulent circumstances. It adds that respondent, who was merely Soteros niece, had no insurable interest in the life of her aunt.Relying on the results of the investigation that it conducted after the claim for the insurance proceeds was filed, petitioner insists that respondents claim was spurious, as it appeared that Sotero did not actually apply for insurance coverage, was unlettered, sickly, and had no visible source of income to pay for the insurance premiums; and that respondent was an impostor, posing as Sotero and fraudulently obtaining insurance in the latters name without her knowledge and consent.Petitioner adds that Insurance Policy No. 747411 was void ab initio and could not have given rise to rights and obligations; as such, the action for the declaration of its nullity or inexistence does not prescribe.25Respondents ArgumentsRespondent, on the other hand, essentially argues in her Comment26that the CA is correct in applying Section 48. She adds that petitioners new allegation in its Petition that the policy is void ab initio merits no attention, having failed to raise the same below, as it had claimed originally that the policy was merely voidable.On the issue of insurable interest, respondent echoes the CAs pronouncement that since it was Sotero who obtained the insurance, insurable interest was present. Under Section 10 of the Insurance Code, Sotero had insurable interest in her own life, and could validly designate anyone as her beneficiary. Respondent submits that the CAs findings of fact leading to such conclusion should be respected.Our RulingThe Court denies the Petition.The Court will not depart from the trial and appellate courts finding that it was Sotero who obtained the insurance for herself, designating respondent as her beneficiary. Both courts are in accord in this respect, and the Court is loath to disturb this. While petitioner insists that its independent investigation on the claim reveals that it was respondent, posing as Sotero, who obtained the insurance, this claim is no longer feasible in the wake of the courts finding that it was Sotero who obtained the insurance for herself. This finding of fact binds the Court.With the above crucial finding of fact that it was Sotero who obtained the insurance for herself petitioners case is severely weakened, if not totally disproved. Allegations of fraud, which are predicated on respondents alleged posing as Sotero and forgery of her signature in the insurance application, are at once belied by the trial and appellate courts finding that Sotero herself took out the insurance for herself. "Fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract."27In the absence of proof of such fraudulent intent, no right to rescind arises.Moreover, the results and conclusions arrived at during the investigation conducted unilaterally by petitioner after the claim was filed may simply be dismissed as self-serving and may not form the basis of a cause of action given the existence and application of Section 48, as will be discussed at length below.Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured. Under the provision, an insurer is given two years from the effectivity of a life insurance contract and while the insured is alive to discover or prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent. After the two-year period lapses, or when the insured dies within the period, the insurer must make good on the policy, even though the policy was obtained by fraud, concealment, or misrepresentation. This is not to say that insurance fraud must be rewarded, but that insurers who recklessly and indiscriminately solicit and obtain business must be penalized, for such recklessness and lack of discrimination ultimately work to the detriment of bona fide takers of insurance and the public in general.Section 48 regulates both the actions of the insurers and prospective takers of life insurance. It gives insurers enough time to inquire whether the policy was obtained by fraud, concealment, or misrepresentation; on the other hand, it forewarns scheming individuals that their attempts at insurance fraud would be timely uncovered thus deterring them from venturing into such nefarious enterprise. At the same time, legitimate policy holders are absolutely protected from unwarranted denial of their claims or delay in the collection of insurance proceeds occasioned by allegations of fraud, concealment, or misrepresentation by insurers, claims which may no longer be set up after the two-year period expires as ordained under the law.Thus, the self-regulating feature of Section 48 lies in the fact that both the insurer and the insured are given 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. In this manner, Section 48 contributes to the stability of the insurance industry.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 what obtains in the instant case. Thus, instead of conducting at the first instance an investigation into the circumstances surrounding the issuance of Insurance Policy No. 747411 which would have timely exposed the supposed flaws and irregularities attending it as it now professes, petitioner appears to have turned a blind eye and opted instead to continue collecting the premiums on the policy. For nearly three years, petitioner collected the premiums and devoted the same to its own profit. It cannot now deny the claim when it is called to account. Section 48 must be applied to it with full force and effect.The Court therefore agrees fully with the appellate courts pronouncement that the "incontestability clause" is a provision in law that after a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two (2) years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of fraudulent concealment or misrepresentation of the insured or his agent.The purpose of the law is to give protection to the insured or his beneficiary by limiting the rescinding of the contract of insurance on the ground of fraudulent concealment or misrepresentation to a period of only two (2) years from the issuance of the policy or its last reinstatement.The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or misrepresentation within a period of two (2) years. It is not fair for the insurer to collect the premiums as long as the insured is still alive, only to raise the issue of fraudulent concealment or misrepresentation when the insured dies in order to defeat the right of the beneficiary to recover under the policy.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.After two years, the defenses of concealment or misrepresentation, no matter how patent or well-founded, will no longer lie.Congress felt this was a sufficient answer to the various tactics employed by insurance companies to avoid liability.The so-called "incontestability clause" precludes the insurer from raising the defenses of false representations or concealment of material facts insofar as health and previous diseases are concerned if the insurance has been in force for at least two years during the insureds lifetime. The phrase "during the lifetime" found in Section 48 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."As borne by the records, the policy was issued on August 30, 1993, the insured died on April 10, 1996, and the claim was denied on April 16, 1997. The insurance policy was thus 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-appellant is, therefore, barred from proving that the policy is void ab initio by reason of the insureds fraudulent concealment or misrepresentation or want of insurable interest on the part of the beneficiary, herein defendant-appellee.Well-settled is the rule that it is the plaintiff-appellants burden to show that the factual findings of the trial court are not based on substantial evidence or that its conclusions are contrary to applicable law and jurisprudence. The plaintiff-appellant failed to discharge that burden.28Petitioner claims that its insurance agent, who solicited the Sotero account, happens to be the cousin of respondents 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 in earnest conducted an investigation into the circumstances surrounding the Sotero policy. But because it did not and it 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.Besides, if insurers cannot vouch for the integrity and honesty of their insurance agents/salesmen and the insurance policies they issue, then they should cease doing business. If they could not properly screen their agents or salesmen before taking them in to market their products, or if they do not thoroughly investigate the insurance contracts they enter into with their clients, then they have only themselves to blame. Otherwise said, insurers cannot be allowed to collect premiums on insurance policies, use these amounts collected and invest the same through the years, generating profits and returns therefrom for their own benefit, and thereafter conveniently deny insurance claims by questioning the authority or integrity of their own agents or the insurance policies they issued to their premium-paying clients. This is exactly one of the schemes which Section 48 aims to prevent.Insurers may not be allowed to delay the payment of claims by filing frivolous cases in court, hoping that the inevitable may be put off for years or even decades by the pendency of these unnecessary court cases. In the meantime, they benefit from collecting the interest and/or returns on both the premiums previously paid by the insured and the insurance proceeds which should otherwise go to their beneficiaries. The business of insurance is a highly regulated commercial activity in the country,29and is imbued with public interest.30"An insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly against the insurer in order to safeguard the formers interest."31WHEREFORE, the Petition is DENIED. The assailed September 28, 2005 Decision and the November 9, 2006 Resolution of the Court of Appeals in CA-G.R. CV No. 62286 are AFFIRMED.SO ORDERED.