Argente vs. West Coast Life Insurance Co.

False representations by the insured in response to questions in an insurance application and medical examination regarding previous illnesses and medical consultations constitute concealment that vitiates the policy, where the concealed facts are material to the risk and within the insured's actual or presumed knowledge, and the insurer's right to rescind is properly exercised by notice and tender of premium refund before the commencement of an action on the contract.

Bernardo Argente and his wife, Vicenta de Ocampo, sought joint life insurance coverage from West Coast Life Insurance Co. through the company's agent, Jose Geronimo del Rosario. The contractual relationship was governed by the Insurance Act, particularly its provisions on concealment (Section 25) and the insurer's right to rescind (Section 47), both derived from California law. The insurer pleaded fraud in obtaining the policy as a special defense, and the case was tried before the Court of First Instance presided over by Judge George R. Harvey.

Bernardo Argente and his wife, Vicenta de Ocampo, applied for joint life insurance with the West Coast Life Insurance Co. On February 9, 1925, both signed separate applications for a joint policy in the sum of P2,000. The applications, apart from the names and signatures, were written by Jose Geronimo del Rosario, an agent for the insurance company, but all the information contained therein was furnished by Argente. Pursuant to their applications, both Argente and his wife were examined on February 10, 1925 by Dr. Cesareo Sta. Ana, a medical examiner for the company—Argente at the Customs House office and his wife at their Manila residence. The results were recorded in Medical Examiner's Reports, with the information and answers furnished by the respective applicants.

On May 9, 1925, Argente and his wife submitted an amended application increasing the insurance amount to P15,000 and requesting that the policy be dated May 15, 1925. The amended application was accompanied by "Short Form Medical Report" documents. A temporary policy for P15,000 was issued as of May 15, 1925, but was not delivered until July 2, 1925, when the first quarterly premium was paid. Because more than thirty days had elapsed since the medical examinations, each applicant was required to file a certificate of health before delivery.

On November 18, 1925, Vicenta de Ocampo died of cerebral apoplexy. Argente thereafter presented a claim for P15,000 under the joint life insurance policy. The insurance company's Manila office manager conducted an investigation, which disclosed that the answers given by the insured in their medical examinations regarding their health, previous illnesses, and medical attendance were untrue. On May 25, 1926, the company rejected the claim, informing Argente that the insurance was obtained through fraud and misrepresentation and offering to refund the premiums upon return of the policy for cancellation.

The Medical Examiner's Report showed that Argente, when asked whether he had ever consulted a physician for or suffered from any ailment or disease of the brain or nervous system, answered "No." When asked about consultations with physicians for any ailment not included in the prior answer, he disclosed only scabies in 1911 treated by Dr. P. Guazon. When asked about physicians consulted within the last five years, he answered "No." It was undisputed, however, that on January 10, 11, and 13, 1923, Argente was confined at the Philippine General Hospital, where he was treated by Dr. Agerico B. M. Sison for cerebral congestion and Bell's Palsy. Similarly, Vicenta de Ocampo answered that she used beer only in small quantities occasionally, denied ever consulting a physician for any brain or nervous system ailment, denied consulting any physician within the last five years, and stated she was in good health. It was undisputed, however, that on May 19, 1924, she was taken to the Meisic police station at Argente's request and transferred to San Lazaro Hospital, where the admitting physician diagnosed her case as "alcoholism," and where Dr. Domingo later diagnosed probable "manic-depressive psychosis" and, at Mary Chiles Hospital, made a final diagnosis of "phycho-neurosis."

Argente conceded most of these facts but alleged that both he and his wife had revealed to Dr. Sta. Ana all facts concerning their previous illnesses and medical attendance, and that the physician, presumably in collusion with the insurance agent, failed to record them. The evidence on this point consisted of the testimony of Argente and his clerk, Apolonio Espiritu, on one hand, and of Dr. Sta. Ana and agent del Rosario on the other. The trial judge found for the insurance company on this factual question, crediting the insurer's witnesses over Argente's. The trial court found that the representations made by both insured in their applications were false with respect to their state of health during the five years preceding the applications, and that they knew the representations were false. The court further found that the answers given during the medical examinations were likewise false. These findings were accepted on appeal as conclusive, the stenographic transcript being incomplete.

• Materiality of Concealment: Appellant argued that the alleged concealment was immaterial and insufficient to avoid the policy.
• Statutory Bar to Rescission: Appellant contended that even if the insurance company had a right to rescind, such right could not be enforced in view of Section 47 of the Insurance Act, which provides that the right to rescind "must be exercised previous to the commencement of an action on the contract."
• Disclosure to Physician: Appellant alleged that both he and his wife had disclosed all facts concerning previous illnesses and medical attendance to the company's physician, Dr. Sta. Ana, but that the physician, presumably in collusion with the insurance agent, failed to record them in the medical reports.

• Concealment: Whether the false answers given by the insured in their insurance applications and medical examinations regarding their health history constitute concealment sufficient to void the policy.
• Right to Rescind: Whether the insurer's right to rescind the contract was properly exercised under Section 47 of the Insurance Act, which requires that the right be exercised previous to the commencement of an action on the contract.

• Concealment: Yes. The false answers given by the insured regarding their prior illnesses and medical consultations constituted concealment of material facts within their actual knowledge, vitiating the policy under Section 25 of the Insurance Act. It can fairly be assumed that had the true facts been disclosed, the insurance would never have been granted.

• Right to Rescind: Yes. The insurer properly exercised its right to rescind before the commencement of the action, having written to the plaintiff more than one month prior to inform him that the contract was void and offering to refund premiums upon return of the policy for cancellation.

• Concealment: Section 25 of the Insurance Act defines concealment as "a neglect to communicate that which a party knows and ought to communicate." The evidence conclusively showed that the answers to questions concerning diseases were untrue. Argente denied having consulted a physician for any brain or nervous system ailment and denied consulting any physician within the last five years, yet he had been confined at the Philippine General Hospital in January 1923 for cerebral congestion and Bell's Palsy. Vicenta de Ocampo similarly denied any brain or nervous system ailment and any physician consultation within five years, yet she had been diagnosed with alcoholism, manic-depressive psychosis, and psycho-neurosis in May 1924. The Court reasoned that the assurer is entitled to know every material fact of which the assured has exclusive or peculiar knowledge, and that concealment of such facts vitiates the policy. The basis of the rule is that concealment misleads or deceives the insurer into accepting the risk or accepting it at the rate of premium agreed upon, inducing the insurer to estimate the risk upon a false basis. Where untrue or false answers are given in response to inquiries and they relate to material facts, the policy is avoided without regard to the knowledge or fraud of the assured. The trial court's factual findings—accepted as conclusive due to the incomplete stenographic transcript—established that the insured knew their representations were false. The Court found no motive for Dr. Sta. Ana to falsify the medical reports, as doing so would jeopardize his career and implicate him criminally, undermining Argente's claim of collusion between the physician and the agent.

• Right to Rescind: Section 47 of the Insurance Act provides that the right to rescind "must be exercised previous to the commencement of an action on the contract." Although the section uses the imperative "must" rather than the permissive "may" found in its California counterpart (Section 2583 of the California Civil Code), the Court found two answers to appellant's contention. First, following the California law from which the provision was derived, a failure to exercise the right of rescission cannot prejudice any defense to the action which the concealment may furnish, as held in Tan Chay Heng vs. West Coast Life Insurance Company (1927). Second, the insurance company had written to Argente more than one month before the commencement of the action, informing him that the contract was void due to fraudulent representations and offering to refund premiums upon return of the policy for cancellation. This constituted a proper exercise of the right to rescind before suit, consistent with the rule in Rankin vs. Amazon Insurance Co. (1891), where tender of premiums and notice of cancellation before suit operate to rescind the contract.

• Concealment in Insurance — Concealment is defined under Section 25 of the Insurance Act as "a neglect to communicate that which a party knows and ought to communicate." The basis of the rule vitiating the contract is that it misleads or deceives the insurer into accepting the risk or accepting it at the agreed premium rate. The insurer, relying on the belief that the assured will disclose every material fact within his actual or presumed knowledge, is induced to estimate the risk upon a false basis. Where untrue or false answers are given in response to inquiries and they relate to material facts, the policy is avoided without regard to the knowledge or fraud of the assured. The assurer is entitled to know every material fact of which the assured has exclusive or peculiar knowledge, as well as all material facts which directly tend to increase the hazard or risk. In this case, both insured made false representations about their health history in response to specific questions, and the concealed facts—cerebral congestion, Bell's Palsy, alcoholism, and psychiatric diagnoses—were material to the risk and within their actual knowledge.

• Insurer's Right to Rescind — Under Section 47 of the Insurance Act, the insurer's right to rescind must be exercised previous to the commencement of an action on the contract. A failure to exercise this right does not prejudice any defense to the action which the concealment may furnish. The right is properly exercised when the insurer, before suit, notifies the insured that the contract is void and offers to refund premiums upon return of the policy for cancellation. In this case, the insurer wrote to Argente more than one month before suit, satisfying the statutory requirement.

• "A neglect to communicate that which a party knows and ought to communicate." — The statutory definition of concealment under Section 25 of the Insurance Act, central to the Court's finding that the insured's failure to disclose their true medical history voided the policy.

• "The basis of the rule vitiating the contract in case of concealment is that it misleads or deceives the insurer into accepting the risk, or accepting it at the rate of premium agreed upon." — This articulates the rationale for why concealment vitiates the insurance contract, explaining that the insurer is induced to estimate the risk upon a false basis.

• "It can fairly be assumed that had the true facts been disclosed by the assured, the insurance would never have been granted." — This establishes the materiality of the concealed facts and the causal connection between the concealment and the insurer's acceptance of the risk.

• "If the assured has exclusive knowledge of material facts, he should fully and fairly disclose the same, whether he believes them material or not." — This states the insured's duty of full and fair disclosure, irrespective of the insured's subjective belief as to materiality.

• Tan Chay Heng vs. West Coast Life Insurance Company (1927) — Followed as authority for the proposition that a failure to exercise the right of rescission cannot prejudice any defense to the action which the concealment may furnish, deriving from the California law underlying Section 47 of the Insurance Act.

• Rankin vs. Amazon Insurance Co. (1891), 89 Cal. 203 — Followed as authority for the rule that where material representations are false, the insurer's tender of the premium and notice that the policy is canceled, before the commencement of suit, operate to rescind the contract of insurance.

• Section 25, Insurance Act — Defines concealment as "a neglect to communicate that which a party knows and ought to communicate." Applied to find that the insured's failure to disclose their true medical history—including Argente's hospitalization for cerebral congestion and Bell's Palsy and Vicenta's diagnoses of alcoholism, manic-depressive psychosis, and psycho-neurosis—constituted concealment of material facts within their actual knowledge.

• Section 47, Insurance Act — Provides that the insurer's right to rescind "must be exercised previous to the commencement of an action on the contract." Derived from Section 2583 of the California Civil Code but using the imperative "must" instead of the permissive "may." Applied to find that the insurer properly rescinded before suit by notifying Argente more than one month prior to the action that the contract was void and offering to refund premiums.

Villamor, Ostrand, Johns, Romualdez, and Villa-Real, JJ., concur.