Sunlife Assurance Company of Canada vs. Court of Appeals

Concealment in an insurance contract is established when the insured fails to communicate material facts within his knowledge, and materiality is determined not by the eventual cause of death or the insured's state of mind, but solely by the probable and reasonable influence of the concealed facts upon the insurer in forming its estimate of the risk or in making further inquiries. The insurer's waiver of a medical examination in a non-medical policy renders the information required of the applicant concerning previous health conditions even more material, not less, and the insurer need not show that the concealed condition caused the insured's death.

Robert John B. Bacani procured a life insurance contract from petitioner Sunlife Assurance Company of Canada on April 15, 1986, designating his mother, respondent Bernarda Bacani, as beneficiary. The policy, numbered 3-903-766-X, was valued at P100,000.00 with double indemnity in case of accidental death. The application required the insured to disclose his health history, including consultations with doctors, medical tests, hospital admissions, and specific disorders. The insurer waived a medical examination and issued the policy on a "non-medical" basis. The dispute arose after the insured's death when the insurer discovered through investigation that the insured had been hospitalized and diagnosed for renal failure shortly before applying for coverage, facts he had not disclosed in his application.

On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from Sunlife Assurance Company of Canada. He was issued Policy No. 3-903-766-X valued at P100,000.00, with double indemnity in case of accidental death. The designated beneficiary was his mother, Bernarda Bacani. In his application, the insured answered Question No. 5(a) — whether within the past five years he had consulted any doctor or health practitioner — in the affirmative, but limited his answer to a consultation with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital in February 1986 for cough and flu complications. He answered the remaining questions in the negative, including whether he had submitted to ECG, X-rays, blood tests, or other tests, whether he had been admitted to any hospital or medical facility, and whether he had ever had or sought advice for urine, kidney, or bladder disorder.

Two weeks prior to his application for insurance, the insured had in fact been examined and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure. During his confinement, he was subjected to urinalysis, ultra-sonography, and hematology tests. None of this was disclosed in the application.

On June 26, 1987, the insured died in a plane crash. Bernarda Bacani filed a claim with the insurer seeking the benefits of the policy. Petitioner conducted an investigation and, upon discovering the prior hospitalization, rejected the claim. In its letter to the beneficiary, petitioner informed her that the insured had not disclosed material facts relevant to the issuance of the policy, rendering the contract voidable, and attached a check representing the total premiums paid in the amount of P10,172.00.

On November 17, 1988, Bernarda Bacani and her husband Rolando Bacani filed an action for specific performance against petitioner with the Regional Trial Court, Branch 191, Valenzuela, Metro Manila. Petitioner filed its answer with counterclaim and submitted medical records furnished by 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 had no evidence to refute the documentary evidence of concealment or misrepresentation by the decedent regarding his health condition. Petitioner filed a Request for Admissions relative to the authenticity and due execution of several documents and allegations regarding the insured's health; private respondents failed to oppose or reply, thereby rendering an admission of the matters alleged. Petitioner then moved for summary judgment.

The trial court decided in favor of private respondents, ordering petitioner to pay P100,000.00 as the face value of the policy, P100,000.00 as the accidental death benefit, and P5,000.00 as attorney's fees and costs, and dismissing the counterclaim. The trial court found that there was concealment and misrepresentation but concluded that the same was made in good faith and under a belief that the facts need not be disclosed, and held that the health history was immaterial since the policy was "non-medical." The Court of Appeals affirmed, adding the ruling that the insurer could not avoid its obligation because the cause of death was unrelated to the concealed facts, and sustaining the view that the waiver of medical examination rendered the health history irrelevant.

• Concealment of Material Facts: Petitioner argued that the insured failed to disclose material facts relevant to the issuance of the policy — specifically, that two weeks prior to his application he was examined and confined at the Lung Center of the Philippines, diagnosed for renal failure, and subjected to urinalysis, ultra-sonography, and hematology tests — thereby rendering the contract of insurance voidable.
• Materiality of Concealed Information: Petitioner maintained that the information concealed would have affected its action on the application, either by approving it with a corresponding adjustment for a higher premium or by rejecting the same, and that disclosure may have warranted a medical examination to reasonably assess the risk involved.
• Right to Rescind: Petitioner contended that it properly exercised its right to rescind the contract of insurance by reason of concealment, and that rescission was exercised within the two-year contestability period recognized in Section 48 of the Insurance Code.

• Good Faith of the Insured: Respondents argued, and the lower courts found, that the facts concealed by the insured were made in good faith and under a belief that they need not be disclosed.
• Immateriality Due to Non-Medical Policy: Respondents contended that the health history of the insured was immaterial because the insurance policy was "non-medical," and that petitioner's waiver of medical examination debunked the materiality of the facts concealed.
• Lack of Causal Connection: Respondents argued that the insurer could not avoid its obligation by claiming concealment because the cause of death — a plane crash — was unrelated to the facts concealed by the insured, namely renal failure.

• Concealment: Whether the insured's failure to disclose his hospitalization and diagnosis for renal failure two weeks prior to his application for insurance constituted concealment warranting rescission of the policy.
• Materiality: Whether the concealed facts were material to the contract of insurance notwithstanding that the policy was "non-medical" and that the cause of death was unrelated to the concealed condition.
• Good Faith as Defense: Whether the insured's good faith in failing to disclose his health condition constitutes a valid defense against a claim of concealment.
• Effect of Waiver of Medical Examination: Whether the insurer's waiver of medical examination rendered the health information required of the applicant irrelevant or immaterial.

• Concealment: Yes. The insured's failure to disclose his confinement and diagnosis for renal failure constituted concealment warranting rescission, as Section 26 of the Insurance Code requires a party to communicate in good faith all facts within his knowledge which are material to the contract.
• Materiality: Yes. The concealed facts were material, materiality being 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 risk or in making inquiries, and the non-medical nature of the policy rendered the information even more material.
• Good Faith as Defense: No. Good faith is no defense in concealment; the materiality of the information withheld does not depend on the state of mind of the insured.
• Effect of Waiver of Medical Examination: No. The waiver of medical examination in a non-medical insurance contract renders even more material the information required of the applicant concerning previous condition of health and diseases suffered.

• Concealment: Section 26 of the Insurance Code explicitly requires a party to a contract of insurance to communicate to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has no means of ascertaining. The terms of the contract were clear: the insured was specifically required to disclose matters relating to his health. The insured failed to disclose that two weeks prior to his application he was confined at the Lung Center of the Philippines, diagnosed for renal failure, and subjected to urinalysis, ultra-sonography, and hematology tests. This failure raised grave doubts about his bona fides and appeared deliberate. Petitioner properly exercised its right to rescind under Section 27 of the Insurance Code, and rescission was exercised within the two-year contestability period recognized in Section 48.

• Materiality: Section 31 of the Insurance Code 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 communication is due, in forming his estimate of the disadvantages of the proposed contract or in making his inquiries. The matters concealed would have definitely affected petitioner's action on the application — either by approving it with a corresponding adjustment for a higher premium or by rejecting the same. Disclosure may also have warranted a medical examination to reasonably assess the risk. The argument that the cause of death was unrelated to the concealed condition was rejected: it is sufficient that the non-disclosure misled the insurer in forming its estimates of the risks or in making inquiries, and the insured need not die of the disease he failed to disclose.

• Good Faith as Defense: Relying on Vda. de Canilang vs. Court of Appeals, the Court held that the materiality of the information withheld does not depend on the state of mind of the insured. Neither does it depend on the actual or physical events which ensue. Thus, good faith is no defense in concealment. The insured's failure to disclose his hospitalization for two weeks prior to filing his application raised grave doubts about his bona fides, and such concealment appeared deliberate.

• Effect of Waiver of Medical Examination: Relying on Saturnino vs. Philippine American Life Insurance Company, the Court reiterated that the waiver of a medical examination in a non-medical insurance contract 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. The respondents' argument would render Section 27 of the Insurance Code, which allows the injured party to rescind where there is concealment, ineffective.

• Doctrine of Concealment in Insurance — Concealment is the neglect to communicate that which a party knows and ought to communicate. Under Section 26 of the Insurance Code, a party to a contract of insurance must communicate in good faith all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has no means of ascertaining. The Court applied this doctrine to hold that the insured's failure to disclose his hospitalization and diagnosis for renal failure constituted concealment warranting rescission.

• Test of Materiality — Materiality is determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom communication is due, in forming his estimate of the disadvantages of the proposed contract or in making his inquiries (Section 31, Insurance Code). The Court applied this test to reject the lower courts' ruling that the concealed facts were immaterial because the cause of death was unrelated to the concealed condition.

• Good Faith Is No Defense in Concealment — The materiality of the information withheld does not depend on the state of mind of the insured, nor on the actual or physical events which ensue. The Court held that the insured's alleged good faith in failing to disclose his health condition was irrelevant to the question of concealment.

• Effect of Non-Medical Policy on Materiality — The waiver of a medical examination in a non-medical insurance contract renders even more material the information required of the applicant concerning previous condition of health and diseases suffered, because such information constitutes an important factor the insurer considers in deciding whether to issue the policy. The Court applied this doctrine to reject the argument that the non-medical nature of the policy made the health history immaterial.

• "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 communication is due, in forming his estimate of the disadvantages of the proposed contract or in making his inquiries (The Insurance Code, Sec. 31)." — This passage states the controlling test for materiality in concealment, the central ratio decidendi of the decision, and is the formulation most frequently cited in subsequent insurance jurisprudence.

• "Thus, 'good faith' is no defense in concealment. The insured's failure to disclose the fact that he was hospitalized for two weeks prior to filing his application for insurance, raises grave doubts about his bonafides. It appears that such concealment was deliberate on his part." — This passage establishes that the insured's subjective state of mind is irrelevant to the determination of concealment, directly rejecting the lower courts' finding of good faith as a defense.

• "the waiver of a medical examination [in a non-medical insurance contract] 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 quotation, adopted from Saturnino vs. Philippine American Life Insurance Company, articulates the doctrine that non-medical policies heighten rather than diminish the materiality of health disclosures, countering the common misconception that waiver of examination waives the relevance of health information.

• "it is well settled that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in making inquiries" — This passage rejects the proposition that concealment is actionable only when the concealed condition causes the insured's death, clarifying that the test is the effect on the insurer's risk assessment, not the causal connection to the loss.

• Geronimo vs. Court of Appeals, 224 SCRA 494 (1993) — Cited for the exception to the rule that factual findings of lower courts are binding on the Supreme Court, specifically when the judgment is based on a misappreciation of facts. The Court invoked this exception to review the factual findings of the trial court and the Court of Appeals.

• Vda. de Canilang vs. Court of Appeals, 223 SCRA 443 (1993) — Followed for the propositions that materiality of concealed information does not depend on the state of mind of the insured or on the actual or physical events which ensue, and that the argument allowing waiver of medical examination to negate materiality would render Section 27 of the Insurance Code ineffective.

• Saturnino vs. Philippine American Life Insurance Company, 7 SCRA 316 (1963) — Followed for the doctrine that the waiver of a medical examination in a non-medical insurance contract renders even more material the information required of the applicant concerning previous health conditions and diseases suffered.

• Henson vs. The Philippine American Life Insurance Co., 56 O.G. No. 48 (1960) — Followed for the rule that the insured need not die of the disease he failed to disclose; it is sufficient that the non-disclosure misled the insurer in forming its estimates of the risks or in making inquiries.

• Section 26, The Insurance Code — Defines concealment as the neglect to communicate that which a party knows and ought to communicate, requiring a party to a contract of insurance to communicate in good faith all material facts within his knowledge. Applied to hold that the insured's failure to disclose his hospitalization and diagnosis constituted concealment.

• Section 27, The Insurance Code — Allows the injured party to rescind a contract of insurance where there is concealment. Applied to uphold the insurer's right to rescind the policy.

• Section 31, The Insurance Code — 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 communication is due, in forming his estimate of the disadvantages of the proposed contract or in making his inquiries. Applied as the controlling test to determine that the concealed facts were material.

• Section 48, The Insurance Code — Recognizes the two-year contestability period within which an insurer may contest the validity of a policy. Applied to confirm that rescission was exercised within the prescribed period.

Padilla, Davide Jr., Bellosillo, and Kapunan, JJ., concurred.