G.R. No. 47593 - Insular Life Assurance Co., Ltd. vs. Feliciano

Evaristo Feliciano applied for life insurance upon the solicitation of an agent of the petitioner, THE INSULAR LIFE ASSURANCE CO., LTD.
Two policies were issued in his name: one for P20,000 and another for P5,000, with a total premium payment of P1,389.
The policies contained standard stipulations, including that the contract would be binding only upon payment of the first premium and delivery of the policy, and that modifications could be made only in writing by designated officials.

Evidence showed that Feliciano, at the time of application and his physical examination, was suffering from tuberculosis—a fact not reflected in the application nor the medical report.
The agent, along with the company’s medical examiner, had arranged for Feliciano to sign the application and the report in blank. Later, they filled in answers that misrepresented his true condition.
Both Feliciano and his family had informed the agent and the examiner about his sickness (including repeated visits to the Santol Sanatorium and a history of coughing), yet the documents were falsified to indicate he was a fit risk for insurance.

The insurance company, like many modern insurers, relied heavily on agents who were given detailed instructions, blank applications, and were motivated through incentives and contests.
Agents acted as the general representatives of the company, having the responsibility to solicit, procure applications, and facilitate the underwriting process.
The industry's competitive nature and the economic necessity of insurance created pressures that sometimes led to improper practices by agents and examiners.

The trial court rendered a judgment in favor of the plaintiffs, finding upon exhaustive examination that Feliciano was already ill at the time of his application and that the agent and examiner had manipulated the application in his absence.
The Court of Appeals sustained the lower court’s findings, particularly noting that the falsification was done by the agent and examiner despite the applicant and his family’s truthful disclosures regarding his health.
The case reached the Supreme Court on the proposition of whether an insurance company may avoid a policy when its agent knowingly inserted false answers—even when the insured had not participated in the fraud.

The first policy application was signed on October 12, 1934, and the second on October 28, 1934.
On the day of the first application, after an X-ray examination at the Santol Sanatorium, Feliciano’s dire pulmonary condition was noted by a doctor, indicating he was in “a very serious and practically hopeless condition.”

The dissent noted that Agent David and Medical Examiner Valdez were implicated in colluding to falsify the health record by inserting false answers even after being informed of Feliciano’s ill health.
It was also mentioned that the insured, who could not read English (the language of the application), had no opportunity to review or contest the misrepresentations made on his behalf.

Whether the insurance company is entitled to avoid a policy on the ground that its agent, without the insured’s fraud, colluded in falsifying the application by writing false answers or statements.
Whether an agent, by acting outside the verified disclosures of the insured—by filling in blank spaces and misrepresenting the insured’s condition—can bind the insurer to a contract that was procured through such misrepresentation.
Whether the insured’s failure to read or verify the contents of the application (due to his inability to read English) implicates him in the fraud or precludes him from later contesting the validity of the policy.
Whether the doctrine of agency, which holds that an agent is authorized to act on behalf of the company, implies that the company must bear the loss when the agent’s unauthorised misrepresentations cause harm, even if the insured was not directly responsible.
Whether, in cases of misrepresentation involving insured lives—where the agent’s fraudulent act induces the issuance of a policy—the appropriate remedy should be voiding the policy or simply refunding the premiums paid.