TOPIC Rescission of Contract of Insurance/ Incontestability Period
CASE TITLE Alvarez II v. Sun Life of Canada
CASE NO.
GR NO. 206674 DATE: 29 September 2014
DOCTRINE:
A party to an insurance contract is therefore obligated to communicate all facts within his knowledge which
are material, to be determined by the probable and reasonable influence of the facts upon the party to whom
the communication is due. And that concealment of such material information, whether intentional or
unintentional, entitles the party to rescind a contract of insurance
FACTS:
On December 1, 2003, Sun Life issued Life Insurance Policy to petitioner Erlinda Alvarez covering the life of
her mother with a face value of 500k payable upon death.
The insured was found to have been suffering from high blood pressure and was classified as high risk to
which the petitioner paid a higher premium.
On April 27, 2005, the insured passed away. Respondent then sent a letter requiring the submission of
documents to facilitate her claim under the policy (authorization of any physician, medical practitioner, hospital
or other medical facility who has attended to the insured to give details on prior medical history).
The respondent then discovered several medical condition (stable angina atherosclerosis and lateral wall
ischemia) which pre-dated insurance application, thus the respondent sent another letter declaring the policy
void and denying petitioner’s claim. They said that had they known those history of illness, they would have
issued the same with higher rating. They further stated that premiums paid by petitioner will be refunded.
On December 6, petitioner sent a letter to respondent demanding payment of insurance claim which
respondent further denied. Petitioner then filed a complaint for breach of contract and damages before the
RTC Makati.
The RTC found no concealment or misrepresentation and ruled in favor of petitioner. It held that insured
was able to disclose her general condition when she gave affirmative answers to: sought advice for high blood
pressure, chest pain, heart murmur, stroke? Within the past 5 years, consulted a doctor, ECG, x-ray? Parents,
brothers or sister had high blood pressure, diabetes prior to age 50?
According to the RTC, affirmative answers negated the existence of concealment and should have prompted
respondent to further examine the health of the insured.
The CA reversed the RTC. It ruled that insured’s concealment of chest pain, lateral ischemia entitled the
respondent to rescind the contract of insurance because the information that the insured failed to disclose
were material and relevant. The CA said that respondent’s acceptance of premiums cannot be deemed waiver
of its right to rescind the contract. It took into consideration the 2 year incontestability clause, that since insured
died April 27, 2005, the incontestability period of 2 years from issuance of policy had not yet set in. Thus
respondent is not barred from rescinding contract on the ground of concealment or misrepresentation.
ISSUE:
Whether or not respondent can rescind the life insurance policy in this case?
HELD:
The Supreme Court held in the affirmative.
It said that Section 27 of the Insurance Code provides that a concealment whether intentional or unintentional
entitles the party to rescind a contract of insurance. Concealment is a neglect to communicate that which a
party knows and ought to communicate.
A party to an insurance contract is therefore obligated to communicate all facts within his knowledge which
are material, to be determined by the probable and reasonable influence of the facts upon the party to whom
the communication is due.
In this case, she did not disclose that she consulted with the UST Hospital and AIM Imaging which diagnosed
her atherosclerosis and ischemia. Such facts are material to the contract in view of its effect on respondent in
forming its estimate of whether or not to approve the contract and the amount of the premium to be paid.
The fact that the insured gave affirmative answers in the application does not relieve her from the obligation
to disclose such diagnoses. She only disclosed check-up at Makati Medical which showed normal except for
slight increase in cholesterol but not with UST Hospital and AIM Imaging. This concealment, therefore,
effectively entitled respondent to rescind the contract.
Further, the incontestability period of 2 years had not yet set-in, respondent was not barred from rescinding
the contract on the ground of concealment and/or misrepresentation.
ADDITIONAL NOTES/DOCTRINES:
