Ignacio Saturnino vs. The Philippine American Life Insurance Company

False representations of material facts in an insurance application, even without actual fraud or intent to deceive, entitle the insurer to rescind the policy. Materiality is determined not by the event but by the probable and reasonable influence of the facts upon the insurer in forming its estimate of the proposed contract or in making its inquiries, and the waiver of medical examination in non-medical policies renders the information required of the applicant even more material.

The defendant-appellee is a life insurance company issuing, among others, 20-year endowment non-medical insurance policies, which dispense with the usual medical examination of applicants. In lieu of examination, the application requires detailed information concerning the applicant's health and medical history, which serves as the basis for the insurer's decision to issue the policy. The Insurance Law (Act No. 2427) governs the contract, particularly Sections 24, 26, and 30 concerning concealment and materiality of representations.

Estefania A. Saturnino submitted a written application for a 20-year endowment non-medical insurance policy to the Philippine American Life Insurance Company on November 16, 1957, witnessed by the insurer's agent Edward A. Santos. The policy was issued on the same day upon payment of the first year's premium of P339.25. On September 19, 1958, Saturnino died of pneumonia, secondary to influenza. Her surviving husband, Ignacio Saturnino, acting in his own behalf and as judicial guardian of their minor child Carlos Saturnino, demanded payment of the policy's face value. The claim was rejected, and the suit was instituted.

Two months prior to the issuance of the policy, on September 9, 1957, 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. She remained hospitalized for eight days, after which she was discharged, although according to the surgeon who operated on her, she could not be considered definitely cured, her ailment being of the malignant type.

Notwithstanding her operation, Saturnino did not disclose it in her application for insurance. On the contrary, she stated that she did not have, nor had she ever had, among other ailments 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 five years; and 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 recited that these declarations constituted "a further basis for the issuance of the policy."

Appellants argued that due information concerning the insured's previous illness and operation had been given to the insurer's agent Edward A. Santos, who filled the application form after it was signed in blank by Estefania A. Saturnino. Santos denied this in his testimony, and the trial court found his testimony to be true. The insured had also agreed in her application to submit to a medical examination by a duly appointed examiner of the insurer if, in the latter's opinion, such examination was necessary as further evidence of insurability; the insurer did not require such examination. Appellants further contended that the insured herself did not know, since her doctor never told her, that the disease for which she had been operated on was cancer.

• Materiality of Non-Medical Insurance: Appellants contended 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.
• Agent's Responsibility for the Application: Appellants argued that due information concerning the insured's previous illness and operation had been given to the insurer's agent Edward A. Santos, who filled the application form after it was signed in blank by Estefania A. Saturnino.
• Insurer's Negligence: Appellants maintained that in not asking the insured to submit to a medical examination, the insurer was guilty of negligence, which precluded it from finding out about her actual state of health.
• Lack of Fraudulent Concealment: Appellants contended 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.

• Falsity of Representations: The insurer set up special defenses in its answer, asserting that the insured made false representations of material facts in her application, namely, that she had never had cancer or tumors, or consulted any physician or undergone any operation within the preceding period of five years.
• Counterclaim for Damages: The insurer filed a counterclaim for damages allegedly sustained as a result of the unwarranted presentation of the case.
• Agent as Insured's Agent: The insurer argued, which was upheld by the trial court, that in signing the application form in blank and leaving it to Edward A. Santos to fill, the insured in effect made Santos her agent for that purpose and consequently was responsible for the errors in the entries made by him in that capacity.

• Materiality of Representations: Whether the insured's false representations concerning her medical history were material so as to avoid the insurance policy.
• Effect of Non-Medical Nature of Policy: Whether the non-medical nature of the insurance policy rendered the facts falsely represented immaterial.
• Agent's Knowledge and Responsibility: Whether the insurer's agent's alleged knowledge of the insured's medical history and his filling of the application form signed in blank relieved the insured of responsibility for the false statements.
• Insurer's Negligence: Whether the insurer's failure to require a medical examination constituted negligence precluding it from avoiding the policy.
• Fraudulent Concealment and Knowledge of Disease: Whether the insured's lack of knowledge that her ailment was cancer negated fraudulent concealment.

• Materiality of Representations: Yes. The insured's false representations were material, as materiality is determined not by the event but solely by the probable and reasonable influence of the facts upon the insurer in forming its estimate of the proposed contract or in making its inquiries, pursuant to Section 30 of the Insurance Law.
• Effect of Non-Medical Nature of Policy: No. 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.
• Agent's Knowledge and Responsibility: No. The trial court found Santos's denial to be true, and this finding of fact is binding upon the Supreme Court, the appeal having been taken upon questions of law alone.
• Insurer's Negligence: No. No negligence can be imputed to the insurer, for it was precisely because the insured had given herself a clean bill of health that the insurer no longer considered an actual medical checkup necessary.
• Fraudulent Concealment and Knowledge of Disease: No. The 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; moreover, in order to avoid a policy it is not necessary to show actual fraud on the part of the insured.

• Materiality of Representations: The Court applied Section 30 of the Insurance Law, which 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 in making his inquiries." There was no dispute that the information given by the insured in her application was false, namely, that she had never had cancer or tumors, or consulted any physician or undergone any operation within the preceding period of five years. The Court found these facts material because the insurer would logically have required a medical examination had it been properly apprised of the insured's medical history.
• Effect of Non-Medical Nature of Policy: The Court rejected the appellants' contention that the non-medical nature of the policy rendered the representations immaterial. 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. It is logical to assume that if the insurer had been properly apprised of the insured's medical history, she would at least have been made to undergo medical examination in order to determine her insurability.
• Agent's Knowledge and Responsibility: The Court declined to consider the insurer's additional argument that the insured made Santos her agent by signing the application in blank, because the trial court's finding that Santos denied receiving due information and that his testimony was true is a finding of fact binding upon the Supreme Court, the appeal having been taken upon questions of law alone.
• Insurer's Negligence: The Court found no negligence on the part of the insurer in not requiring a medical examination. It was precisely because the insured had given herself a clean bill of health that the insurer no longer considered an actual medical checkup necessary.
• Fraudulent Concealment and Knowledge of Disease: The Court held that the 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. Citing Kasprzyk vs. Metropolitan Insurance Co., 140 N.Y.S. 211, 214, the Court noted that if actual knowledge of falsity were required, it would be impossible for an insurance company to protect itself and its honest policyholders against fraudulent and improper claims. In this jurisdiction, a concealment, whether intentional or unintentional, entitles the insurer to rescind the contract of insurance, concealment being defined as "negligence to communicate that which a party knows and ought to communicate" (Sections 24 & 26, Act No. 2427). Quoting Argente vs. West Coast Life Insurance Co., 51 Phil. 725, 732, the Court stated that 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 the rate of premium agreed upon.

• Materiality in Insurance Contracts — Materiality is 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 in making his inquiries (Section 30, Insurance Law). The Court applied this standard to find that the insured's false statements about her cancer operation and medical history were material, as the insurer would have required a medical examination had it known the truth.
• Concealment in Insurance Contracts — A concealment, whether intentional or unintentional, entitles the insurer to rescind the contract of insurance, concealment being defined as "negligence to communicate that which a party knows and ought to communicate" (Sections 24 & 26, Act No. 2427). 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 the rate of premium agreed upon.
• Non-Medical Insurance and Materiality — The waiver of medical examination in non-medical insurance policies 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.
• Actual Fraud Not Required for Avoidance — In order to avoid a policy, it is not necessary to show actual fraud on the part of the insured. If actual knowledge of falsity were required, it would be impossible for an insurance company to protect itself and its honest policyholders against fraudulent and improper claims.

• "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 in making his inquiries." — This quotation from Section 30 of the Insurance Law states the controlling standard for determining materiality of representations in insurance contracts and is the ratio decidendi of the Court's ruling.
• "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." — This passage articulates the Court's reasoning for rejecting the appellants' argument that the non-medical nature of the policy diminished the materiality of the false representations.
• "In the first place the 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." — This passage establishes that the insured's lack of knowledge of her cancer diagnosis does not negate the insurer's right to rescind, as the concealment of the operation itself was fraudulent and actual fraud is not required.
• "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 the rate of premium agreed upon. The insurer, relying upon the belief that the assured will disclose every material fact within his actual or presumed knowledge, is misled into a belief that the circumstance withheld does not exist, and he is thereby induced to estimate the risk upon a false basis that it does not exist." — This quotation from Argente v. West Coast Life Insurance Co. explains the doctrinal basis for vitiating insurance contracts in cases of concealment.

• Kasprzyk vs. Metropolitan Insurance Co., 140 N.Y.S. 211 — Cited as persuasive foreign authority for the proposition that actual knowledge of falsity on the part of the insured is not required to avoid a policy on the ground of misrepresentation, as requiring such proof would make it impossible for insurers to protect themselves against fraudulent claims.
• Argente vs. West Coast Life Insurance Co., 51 Phil. 725 — Quoted as controlling Philippine precedent explaining the basis of the rule vitiating insurance contracts in cases of concealment: that concealment misleads or deceives the insurer into accepting the risk or accepting it at the agreed premium rate.

• Section 30, Insurance Law (Act No. 2427) — 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 in making his inquiries. The Court applied this provision to determine that the insured's false representations were material.
• Sections 24 and 26, Insurance Law (Act No. 2427) — Define concealment as "negligence to communicate that which a party knows and ought to communicate" and provide that a concealment, whether intentional or unintentional, entitles the insurer to rescind the contract of insurance. The Court relied on these provisions to hold that the insured's concealment of her operation entitled the insurer to rescind.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, and Regala, JJ., concurred.