TITLE III – INSURABLE INTEREST
Section 31. Materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries.
What is the test of materiality?
The test is simply: IF the knowledge of a fact would cause the insurer to reject the risk , or to accept it only at a higher premium rate, that fact is material, though it may not even remotely contribute to the contingency upon which the insurer would become liable, or in any wise affect the risk.
What is the principal question that must be asked?
The principal question in determining whether the concealment is material is: Was the insurer misled or deceived into entering a contract, obligation or in fixing the premium of insurance by a withholding of material information or facts within the insured’s actual or presumed knowledge? If so, then the contract is avoided, even if the cause of the loss which subsequently occurred be unconnected with the fact concealed.
Cases:
(58) Saturnino v. Philamlife (repeat – case #46) 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.
(59) Henson v. Philamlife (repeat – case #48) 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.
(60) Sun Life v. CA (repeat – Case # 53) 245 SCRA 268 (1995)
Facts:
On April 15, 1986, Bacani procured a life insurance contract for himself from Sun Life. He was issued a life insurance policy with double indemnity in case of accidental death. The designated beneficiary was his mother, Bernarda.
On June 26, 1987, the insured died in a plane crash. Bernarda Bacani filed a claim with Sun Life, seeking the benefits of the insurance. Sun Life conducted an investigation and its findings prompted it to reject the claim.
Sun Life discovered that 2 weeks prior to his application, Bacani was examined and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure. During his confinement, the deceased was subjected to urinalysis, ultra-sonography and hematology tests. He did not reveal such fact in his application.
In its letter, Sun Life informed Berarda, that the insured did not disclosed material facts relevant to the issuance of the policy, thus rendering the contract of insurance voidable. A check representing the total premiums paid in the amount of P10,172.00 was attached to said letter.
Bernarda and her husband, filed an action for specific performance against Sun Life. RTC ruled for Bernarda holding that the facts concealed by the insured were made in good faith and under the belief that they need not be disclosed. Moreover, it held that the health history of the insured was immaterial since the insurance policy was "non-medical." CA affirmed.Issue: WON the beneficiary can claim despite the concealment. Held: NOPE.
Section 26 of the Insurance Code is explicit in requiring a party to a contract of insurance to communicate to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has no means of ascertaining.
Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom communication is due, in forming his estimate of the disadvantages of the proposed contract or in making his inquiries (The Insurance Code, Sec 31)
The terms of the contract are clear. The insured is specifically required to disclose to the insurer matters relating to his health. The information which the insured failed to disclose were material and relevant to the approval and the issuance of the insurance policy. The matters concealed would have definitely affected petitioner's action on his application, either by approving it with the corresponding adjustment for a higher premium or rejecting the same. Moreover, a disclosure may have warranted a medical examination of the insured by petitioner in order for it to reasonably assess the risk involved in accepting the application.
Thus, "good faith" is no defense in concealment. The insured's failure to disclose the fact that he was hospitalized for two weeks prior to filing his application for insurance, raises grave doubts about his bonafides. It appears that such concealment was deliberate on his part.