Florendo vs. Philam Plans, Inc.

An insured who signs an application containing declarations of good health and absence of treatment for specified ailments, while in fact under continuing treatment for those conditions, is guilty of concealment under Section 27 of the Insurance Code, entitling the insurer to rescind the contract of insurance — regardless of whether the insured personally filled in the form or delegated the task to the soliciting agent, and regardless of the insurer's approval of the application and acceptance of premiums, provided the claim is contested within the one-year incontestability period.

Manuel Florendo, a civil engineer and manager of a construction company, was the husband of petitioner Ma. Lourdes S. Florendo. Respondent Philam Plans, Inc. sold comprehensive pension plans that, in addition to pension benefits, provided life insurance coverage to plan holders through a Group Master Policy issued by Philippine American Life Insurance Company (Philam Life) to Philam Plans. Under the master policy, if a plan holder died before the plan's maturity, the beneficiary would receive the proceeds of the life insurance equivalent to the pre-need price, and the life insurance would cover any unpaid premiums until the plan matured, entitling the beneficiary to the maturity value. Respondents Perla Abcede, the soliciting agent who convinced Manuel to purchase the plan, and Ma. Celeste Abcede, Perla's daughter who signed the application as sales counselor, were impleaded in the suit for benefits.

On October 23, 1997, Manuel Florendo filed an application for a comprehensive pension plan with respondent Philam Plans, Inc. after some convincing by respondent Perla Abcede. The plan had a pre-need price of ₱997,050.00, payable in ten years, and a maturity value of ₱2,890,000.00 after twenty years. Manuel signed the application and left to Perla the task of supplying the information needed in it. Respondent Ma. Celeste Abcede, Perla's daughter, signed the application as sales counselor. Aside from pension benefits, the comprehensive pension plan also provided life insurance coverage to Manuel, covered by a Group Master Policy that Philippine American Life Insurance Company (Philam Life) issued to Philam Plans. Under the master policy, Philam Life was to automatically provide life insurance coverage, including accidental death, to all who signed up for the comprehensive pension plan. If 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, and the life insurance was to cover any unpaid premium until the pension plan matured, entitling the beneficiary to the maturity value.

On October 30, 1997, Philam Plans issued Pension Plan Agreement PP43005584 to Manuel, with petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his quarterly premiums. The application Manuel signed contained declarations and representations that he had 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, and that he was in good health and physical condition. The form provided spaces for details of confinement if any answer revealed otherwise, but these spaces were left blank. Manuel also certified that the date and other information stated in the application were written by him or under his direction, and agreed that the insurance coverage was based on the truth of the foregoing representations.

Eleven months later, on September 15, 1998, Manuel died of blood poisoning. Subsequently, Lourdes filed a claim with Philam Plans for the payment of benefits under her husband's plan. Because 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. On May 3, 1999, Philam Plans wrote Lourdes a letter declining 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 plan, but Philam Plans rejected it, prompting her to file the present action against the pension plan company before the Regional Trial Court of Quezon City. The RTC ruled in her favor, finding that Manuel was not guilty of concealment. The Court of Appeals reversed, holding that insurance policies are contracts uberrimae fidae requiring disclosure of material facts and finding Manuel guilty of concealment.

• Burden of Disclosure on Insurer: Petitioner argued that Philam Plans should have returned the unfilled application to Manuel for completion and, having chosen to approve it as submitted, could not later claim concealment. She contended that Philam Plans never directly queried Manuel regarding his health, so it could not blame him for not mentioning it.
• Agent's Knowledge Imputed to Insurer: Petitioner maintained that Perla, the soliciting agent, knew that Manuel had a pacemaker implanted in the 1970s, roughly twenty years before the application, and that this knowledge should be imputed to Philam Plans.
• Pacemaker Outside Five-Year Window: Petitioner argued that the pacemaker implant in the early 1970s did not fall within the five-year timeframe contemplated by the disclosure requirement.
• No Agency Between Insured and Soliciting Agent: Petitioner contended that Manuel's signing of the application in blank and letting Perla fill in the details did not make her his agent binding him to any concealment, and that absent evidence of collusion, Perla's fault was solely her own and could not prejudice Manuel.
• Waiver by Approval and Acceptance of Premiums: Petitioner argued that any defect or insufficiency in the information provided should be deemed waived after the application was approved, the policy issued, and the premiums collected.

• Concealment by Leaving Application Blank: Whether the Court of Appeals 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.
• Liability for Agent's Failure to Disclose: Whether the Court of Appeals erred in holding that Manuel was bound by the failure of respondents Perla and Ma. Celeste to declare the condition of Manuel's health in the pension plan application.
• Effect of Approval and Premium Acceptance: Whether the Court of Appeals erred in finding that Philam Plans' approval of Manuel's pension plan application and acceptance of his premium payments precluded it from denying Lourdes' claim.

• Concealment by Leaving Application Blank: Yes, the CA did not err. Manuel was guilty of concealment under Section 27 of the Insurance Code by signing an application declaring he had never been treated for heart condition or diabetes in the last five years while in fact being on maintenance medication for both conditions at the time.
• Liability for Agent's Failure to Disclose: Yes, the CA did not err. Manuel certified that the information in the application was written by him or under his direction, binding him to its contents regardless of who physically filled in the form.
• Effect of Approval and Premium Acceptance: Yes, the CA did not err. The plan contained a one-year incontestability clause, and since Manuel died eleven months after issuance, the insurer was not yet barred from contesting the claim on health grounds.

• Concealment by Leaving Application Blank: Because Philam Plans waived medical examination for Manuel, it relied largely on his truthful declaration of his health in the application. The application contained a representation that Manuel had never been treated for heart condition, high blood pressure, cancer, diabetes, lung, kidney, or stomach disorder in the last five years and that he was in good health. By signing without filling in the details regarding his continuing treatments, the assumption was that he had never been so treated — which was false, as he had been taking Coumadin for venous thrombosis and insulin for diabetes mellitus at the time. Even if Perla's knowledge of the pacemaker were imputed to Philam Plans under Section 30 of the Insurance Code, it was not claimed that Perla was aware of his other afflictions requiring medical treatment. The pacemaker, still present when Manuel applied, was itself an admission that he remained under treatment for irregular heartbeat within the five-year period. Pursuant to Section 27 of the Insurance Code, this concealment — whether intentional or unintentional — entitled Philam Plans to rescind the contract of insurance.

• Liability for Agent's Failure to Disclose: The application form expressly stated that Manuel certified the date and other information were written by him or under his direction. Even if Perla filled up the form, Manuel authorized her action and was bound by its contents. Philam Plans had every right to act on the faith of that certification. Manuel was also made aware, through the declarations and representations in the application, that the insurance coverage was based on the truth of the foregoing representations. As a civil engineer and manager of a construction company, Manuel could reasonably be expected to read every document creating rights and obligations before signing it, following the principle articulated in New Life Enterprises vs. Court of Appeals that an insured person, especially one of business experience, is incumbent upon to read insurance contracts.

• Effect of Approval and Premium Acceptance: The comprehensive pension plan contained a one-year incontestability clause providing that after the agreement had remained in force for one year, the insurer could no longer contest for health reasons any claim for insurance, except for nonpayment of installments or uninsurability by reason of age. Since Manuel died on the eleventh month following the issuance of his plan, the one-year incontestability period had not yet set in. Consequently, Philam Plans was not barred from questioning Lourdes' entitlement to the benefits of her husband's pension plan on the ground of concealment.

• Concealment in Insurance Contracts (Section 27, Insurance Code) — A concealment, whether intentional or unintentional, entitles the injured party to rescind a contract of insurance. The insured has the duty to disclose to the insurer conditions affecting the risk of which he is aware or material facts that he knew or ought to know, especially when the insurer has waived medical examination and relies on the insured's declarations. In this case, Manuel's failure to disclose his chronic heart ailment and diabetes — conditions for which he was on continuing treatment — constituted concealment entitling Philam Plans to rescission.

• Contracts Uberrimae Fidae (Utmost Good Faith) — Insurance policies are traditionally contracts of utmost good faith, requiring the insured to disclose material facts affecting the risk. The insured's duty to disclose is not diminished by the insurer's approval of the application or acceptance of premiums, provided the incontestability period has not yet lapsed.

• Binding Effect of Signed Declarations — A person who signs an application form certifying that the information therein was written by him or under his direction is bound by its contents, regardless of who physically completed the form. The insurer has the right to act on the faith of that certification. This principle applies even when the insured delegated the physical completion of the form to a soliciting agent, as the agent acts on the insured's instruction, not the insurer's.

• Incontestability Clause — A one-year incontestability period precludes the insurer from contesting a claim on health grounds after the policy has been in force for one year. However, if the insured dies before the period lapses, the insurer may still raise concealment or misrepresentation as a defense. In this case, the insured's death eleven months after issuance meant the incontestability period had not yet attached.

• "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 passage articulates the rationale for finding concealment: the insured's failure to complete the form's disclosure fields, combined with his signature on declarations of good health, created a false representation entitling rescission.

• "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." — This defines the agency relationship between the insured and the soliciting agent who completes the application form, establishing that the insured bears responsibility for the form's contents.

• "After 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." — This is the verbatim incontestability clause from the pension plan agreement, the application of which was decisive: because the insured died within eleven months, the clause had not yet taken effect and the insurer remained free to contest the claim.

• New Life Enterprises vs. Court of Appeals, G.R. No. 94071, March 31, 1992, 207 SCRA 669 — Followed. The Court applied the principle that an insured person, especially one of business experience, is expected to read insurance contracts before signing them. Manuel, as a civil engineer and construction company manager, could reasonably be expected to read and understand the application's declarations before signing.

• Sunace International Management Services, Inc. vs. National Labor Relations Commission, 515 Phil. 779 (2006) — Cited in relation to the doctrine of imputed knowledge under Section 30 of the Insurance Code, regarding whether the soliciting agent's knowledge of the insured's pacemaker could be imputed to the insurer.

• Section 27, Insurance Code — "A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance." This provision was the statutory basis for allowing Philam Plans to rescind the insurance contract due to Manuel's concealment of his heart condition and diabetes.

• Section 30, Insurance Code — Relating to imputed knowledge; the Court considered whether Perla's knowledge of Manuel's pacemaker could be imputed to Philam Plans, but noted that even if imputed, it was not claimed that Perla knew of his other afflictions requiring treatment.

• Incontestability Clause, Pension Plan Agreement PP43005584 — The plan's own one-year incontestability provision, which precluded the insurer from contesting health-based claims only after one year of continuous force. Because Manuel died in the eleventh month, the clause had not yet attached.

Presbitero J. Velasco, Jr. (Chairperson), Diosdado M. Peralta, Jose Catral Mendoza, and Estela M. Perlas-Bernabe concurred. No separate concurring opinions were filed.