D. Representation

D. Representation

Insurance Code, as amended by R.A. No. 10607, Sections 36¹–48 and 51

"REPRESENTATION

"Section 36. A representation may be oral or written.

"Section 37. A representation may be made at the time of, or before, issuance of the policy.

"Section 38. The language of a representation is to be interpreted by the same rules as the language of contracts in general.

"Section 39. A representation as to the future is to be deemed a promise, unless it appears that it was merely a statement of belief or expectation.

"Section 40. A representation cannot qualify an express provision in a contract of insurance, but it may qualify an implied warranty.

"Section 41. A representation may be altered or withdrawn before the insurance is effected, but not afterwards.

"Section 42. A representation must be presumed to refer to the date on which the contract goes into effect.

"Section 43. When a person insured has no personal knowledge of a fact, he may nevertheless repeat information which he has upon the subject, and which he believes to be true, with the explanation that he does so on the information of others; or he may submit the information, in its whole extent, to the insurer; and in neither case is he responsible for its truth, unless it proceeds from an agent of the insured, whose duty it is to give the information.

"Section 44. A representation is to be deemed false when the facts fail to correspond with its assertions or stipulations.

"Section 45. If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time when the representation becomes false.

"Section 46. The materiality of a representation is determined by the same rules as the materiality of a concealment.

"Section 47. The provisions of this chapter apply as well to a modification of a contract of insurance as to its original formation.

"Section 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the commencement of an action on the contract.

"After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two (2) years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent.

"Section 51. A policy of insurance must specify:

"(a) The parties between whom the contract is made; "(b) The amount to be insured except in the cases of open or running policies; "(c) The premium, or if the insurance is of a character where the exact premium is only determinable upon the termination of the contract, a statement of the basis and rates upon which the final premium is to be determined; "(d) The property or life insured; "(e) The interest of the insured in property insured, if he is not the absolute owner thereof; "(f) The risks insured against; and "(g) The period during which the insurance is to continue.

Misrepresentation

It occurs when the facts fail to correspond with its assertions or stipulations. Misrepresentation is an affirmative defense. To avoid liability, the insurer has the duty to establish such a defense by satisfactory and convincing evidence. (Sec. 44, IC²; Zee v. Asian Crusader Life Assurance Corporation, G.R. No. L-30685, 30 May 1983³)

NOTE: In the absence of evidence that the insured has sufficient medical knowledge to enable him to distinguish between “peptic ulcer” and “tumor”, the statement of deceased that said tumor was “associated with ulcer of the stomach” should be considered an expression in good faith. A materially false representation may entitle the injured party to rescind under Sec. 45, IC; fraudulent intent is not invariably required. Misrepresentation, as a defense of the insurer to avoid liability, is an affirmative defense which must be proved. The duty to establish such a defense by satisfactory and convincing evidence rests upon the defendant. (Zee v. Asian Crusader Life Assurance Corporation)

Requisites of Misrepresentation (U-K-Ma)

• The representation was false in a material point, whether affirmative or promissory; subject to the applicable limits on rescission, the injured party may rescind from the time it becomes false.

A representation cannot qualify an express provision in a contract of insurance, but it may qualify an implied warranty. (Sec. 40, IC)⁴

Test of Materiality

It 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 representation is made, in forming his estimates of the disadvantages of the proposed contract or in making his inquiries. (Sec. 46, IC)⁵

Effects of Misrepresentation

• It renders the insurance contract voidable at the option of the insurer, although the policy is not thereby rendered void ab initio. The injured party entitled to rescind from the time when the representation becomes false; and
• When the insurer accepted the payment of premium with the knowledge of the ground for rescission, there is waiver of right of rescission.

Concealment vs. Misrepresentation

NOTE: While there are distinctions between the two, concealment has the same effect as misrepresentation in terms of entitling the insurer to rescind the insurance policy. (Divina, 2021)

Application of Concealment and Misrepresentation in case of Loss or Death

GR: Under Sec. 48 of the IC, the insurer must exercise any right to rescind before commencement of an action on the contract. After a life insurance policy payable on the insured’s death has been in force during the insured’s lifetime for two years from its issue or last reinstatement, the insurer cannot prove that it is void ab initio or rescindible by reason of the insured’s or the insured’s agent’s fraudulent concealment or misrepresentation.⁶

Q: Alvarez applied for and was granted a housing loan by Union Bank. The said loan was secured by a promissory note, a real estate mortgage over the lot, and a mortgage redemption insurance taken on the life of Alvarez with Union Bank as beneficiary. Later Alvarez passed away.

Union Bank filed with Insular Life a death claim under Alvarez's name. However, Insular Life denied the claim after determining that Alvarez was not eligible for coverage as he was supposedly more than 60 years old at the time of his loan's approval. It asserts that Alvarez's concealment of his age, whether intentional or unintentional, entitles it to rescind the insurance contract. It claims that proof of fraudulent intent is not necessary for the insurer to rescind the contract on account of concealment. Is Insular Life correct?

A: NO. Sec. 44 of the IC⁷ states, "A representation is to be deemed false when the facts fail to correspond with its assertions or stipulations." In relation to this, Sec. 45 of the Insurance code⁸ provides that, if a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time when the representation becomes false.

A materially false representation may support rescission under Sec. 45 without proof of fraudulent intent. If the insurer relies on fraudulent misrepresentation, it must prove fraud by clear and convincing evidence. Fraud is never presumed and fraudulent misrepresentation as a defense of the insurer to avoid liability must be established by convincing evidence. Consistent with the requirement of clear and convincing evidence, it was Insular Life's burden to establish the merits of its own case. (Insular Assurance Co., Ltd. v. Heirs of Alvarez, G.R. No. 207526, 3 October 2018)⁹

Remedy of the Injured Party in case of Misrepresentation

If there is misrepresentation, the injured party is entitled to rescind from the time when the representation becomes false.