The Supreme Court (SC) has ruled that intentional or unintentional concealment of material information in an insurance application may justify rescission of the insurance contract without proof of fraudulent intent.
In a decision penned by Associate Justice Japar B. Dimaampao, the SC En Banc upheld the rescission of a life insurance contract due to the insured’s failure to disclose material information about his medical history.
“Ineluctably, Section 27 negates any distinction between intentional and unintentional concealments. Thus, no proof of fraudulent intent is necessary in cases of rescission due to concealment,” the SC wrote.
FACTS AND ISSUES
The case stemmed from loans obtained by Indalicio Monera from Meycauayan Rural Bank in 1984, including a second loan covered by a group credit life insurance policy issued by Manila Bankers Life Insurance Corporation (MB Life) after he settled his first loan.
In applying for the second policy, Monera declared that he had not experienced prolonged illness or consulted a physician for any disease within the preceding five years.
Following Monera’s death in May 1984, MB Life denied the insurance claim after discovering that he had undergone medical consultations and procedures involving a mass and had been diagnosed with metastatic cancer before applying for the second policy.
Meycauayan Bank subsequently foreclosed the mortgaged property, prompting Monera’s heirs to file a complaint for specific performance and damages against MB Life and challenge the foreclosure proceedings.
The Regional Trial Court (RTC) initially ruled in favor of the heirs but reversed its decision upon reconsideration, finding that Monera’s concealment of his medical condition justified rescission of the insurance contract.
The Court of Appeals (CA) affirmed the reversal, prompting the heirs to elevate the case to the SC, arguing that the absence of fraudulent intent and the incontestability clause barred rescission.
The heirs also challenged the validity of the foreclosure sale, alleging fraud and irregularities in the proceedings.
RULING
The SC denied the petition and affirmed the CA decision, sustaining MB Life’s right to rescind the insurance contract and upholding the validity of the extrajudicial foreclosure sale.
Under Sections 27 and 31 of the Insurance Code, the Court explained that intentional or unintentional concealment may justify rescission, with materiality determined by the undisclosed information’s probable and reasonable influence on the insurer’s assessment of risk.
The SC found Monera’s failure to disclose his medical consultations and procedures material because the information could have affected MB Life’s evaluation of his application and the premiums charged.
The Court also rejected the heirs’ reliance on the incontestability clause under Section 234(b) of the Insurance Code, finding that the first and second policies, with terms of two and three months, respectively, did not satisfy the statutory two-year requirement.
The SC also recognized a gap in the law concerning the period within which insurers may rescind short-term policies and deferred to the legislature to address the issue.
On the foreclosure issue, the Court found insufficient evidence of fraud or irregularity to invalidate the sale, emphasizing that such allegations must be supported by clear and convincing evidence.
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