Case Summary (G.R. No. L-55624)
Applicable Law and Governing Constitution
Governing constitutional framework: 1987 Philippine Constitution (decision rendered after 1990).
Statutory provisions cited and applied from The Insurance Code: Section 26 (duty to communicate in good faith; definition of concealment), Section 31 (materiality determined by probable and reasonable influence on insurer), Section 27 (right to rescind for concealment), and Section 48 (two-year contestability period). Procedural vehicle: petition for review on certiorari under Rule 45 of the Revised Rules of Court.
Factual Background
The insured answered a standard insurance application questionnaire: he admitted consulting a doctor within the past five years only as to a consultation with Dr. Reinaldo D. Raymundo at Chinese General Hospital in February 1986 for cough and flu; he answered negatively to several other health-related questions (including submissions to ECG, x-rays, blood tests and prior hospitalizations) and denied ever having sought advice for urine, kidney, or bladder disorders. Petitioner’s investigation revealed that two weeks before the application the insured had been examined and confined at the Lung Center of the Philippines, diagnosed with renal failure, and subjected to urinalysis, ultrasonography and hematology tests. After denying the claim petitioner returned total premiums paid (P10,172.00) and notified the beneficiary that the contract was voidable due to nondisclosure of material facts.
Procedural History
Respondents sued for specific performance in the Regional Trial Court (Branch 191, Valenzuela, Metro Manila). Petitioner answered with a counterclaim and submitted Lung Center medical records. Respondents later filed a “Proposed Stipulation with Prayer for Summary Judgment,” admitting they had no evidence to refute documentary evidence of concealment/misrepresentation. Petitioner’s Requests for Admission went unanswered, producing deemed admissions. The trial court nevertheless rendered judgment for the plaintiffs (respondents), awarding the face value and accidental death benefit and dismissing petitioner’s counterclaim. The Court of Appeals affirmed, and its denial of reconsideration led to this Rule 45 petition to the Supreme Court.
Legal Issues Presented
- Whether the insured’s nondisclosure and misrepresentation concerning prior hospitalization and diagnostic tests were material to the insurance contract and justified rescission.
- Whether the insured’s asserted “good faith” and the alleged non-relation of the concealed facts to the cause of death preclude rescission.
- Whether petitioner’s waiver of a medical examination and characterization of the policy as “non-medical” negate the materiality of the insured’s health history.
Trial Court and Court of Appeals' Reasoning
Both lower courts recognized misrepresentation but concluded the nondisclosures were made in good faith and that the insured’s health history was immaterial because the policy was “non-medical” and petitioner had waived a medical examination. The Court of Appeals additionally held that the concealed facts did not bear on the cause of death, concluding petitioner could not avoid its obligation on concealment grounds for those reasons.
Supreme Court’s Analysis of Materiality and Concealment
The Supreme Court applied The Insurance Code’s rules: concealment is a neglect to communicate facts known to a party (Sec. 26), and materiality is determined by the probable and reasonable influence of the facts upon the insurer in forming its estimate of disadvantages or in making inquiries (Sec. 31). The Court rejected the notion that the insured’s subjective good faith removes liability for concealment; materiality does not depend on the insured’s state of mind or on the actual events that ensue. The Court emphasized that the insured’s failure to disclose a recent two-week hospitalization and diagnostic testing was material because those facts would have reasonably influenced petitioner’s decision either to adjust premium, require further inquiry or medical examination, or decline the application. The Court also noted that a waiver of medical examination in a “non-medical” policy makes prior health disclosures even more important to the insurer’s assessment of risk.
Treatment of Causation and Timeliness
The Court reaffirmed that the undisclosed condition need not be the direct cause of
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Facts of the Case
- On April 15, 1986, Robert John B. Bacani procured a life insurance contract from petitioner Sunlife Assurance Company of Canada.
- The policy issued was identified in the record as Policy No. 3-903-766-X, with a face value of P100,000.00 and double indemnity in case of accidental death.
- The designated beneficiary named in the policy was the insured’s mother, respondent Bernarda Bacani.
- The insured died on June 26, 1987, in a plane crash.
- Bernarda Bacani filed a claim with petitioner for the insurance benefits under the policy following the insured’s death.
- Petitioner investigated the claim and, based on its findings, denied the claim and declared the contract voidable for failure to disclose material facts. Petitioner returned to respondent Bernarda Bacani a check representing the total premiums paid in the amount of P10,172.00.
- The insurer alleged material misrepresentations in the insured’s answers to application questions, specifically:
- Question No. 5 items (a), (b), (c) concerning consultations with doctors, submission to ECG/X-rays/blood/other tests, and hospital admissions.
- Question No. 6(b) regarding urine, kidney or bladder disorder.
- The insured’s application answers, as reflected in the record, indicated:
- Question No. 5(a) answered in the affirmative with a limited disclosure: consultation with Dr. Reinaldo D. Raymundo of the Chinese General Hospital in February 1986 for cough and flu.
- Other questions (including questions about tests and kidney/urinary disorders) answered in the negative.
- Petitioner discovered that approximately two weeks prior to the insurance application, the insured had been examined and confined at the Lung Center of the Philippines, diagnosed with renal failure, and subjected to urinalysis, ultrasonography and hematology tests.
Procedural History in the Trial Court
- On November 17, 1988, respondents Rolando and Bernarda Bacani (spouses) filed an action for specific performance against petitioner in the Regional Trial Court, Branch 191, Valenzuela, Metro Manila, seeking payment under the policy.
- Petitioner filed an answer with a counterclaim and submitted a list of exhibits including medical records from the Lung Center of the Philippines.
- On January 14, 1990, private respondents filed a "Proposed Stipulation with Prayer for Summary Judgment" in which they manifested that they "have no evidence to refute the documentary evidence of concealment/misrepresentation by the decedent of his health condition" (Rollo, p. 62).
- Petitioner propounded Requests for Admissions regarding the authenticity and execution of documents and allegations about the insured’s health; private respondents neither opposed nor replied, thereby rendering those matters admitted.
- Petitioner moved for summary judgment on the basis of those admissions and the documentary evidence.
Trial Court Ruling and Findings
- The trial court ultimately decided in favor of plaintiffs (private respondents), denying petitioner’s counterclaim.
- The trial court concluded:
- That concealment and misrepresentation by the insured were made in "good faith" and under a belief that they need not be disclosed.
- That the insured’s health history was immaterial because the policy was characterized as a "non-medical" policy.
- The dispositive portion of the trial court decision (as reproduced in the record) reads:
- "WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant, condemning the latter to pay the former the amount of One Hundred Thousand Pesos (P100,000.00) the face value of insured's Insurance Policy No. 3903766, and the Accidental Death Benefit in the amount of One Hundred Thousand Pesos (P100,000.00) and further sum of P5,000.00 in the concept of reasonable attorney's fees and costs of suit. Defendant's counterclaim is hereby Dismissed" (Rollo, pp. 43-44).
Court of Appeals Decision
- Petitioner appealed to the Court of Appeals.
- The Court of Appeals affirmed the trial court’s decision.
- The appellate court’s reasoning included:
- That Sunlife could not avoi