G.R. No. L-24899, March 19, 1928
BERNARDO ARGENTE, plaintiff-appellant, vs. WEST COAST LIFE INSURANCE CO., defendant-appellee.

FACTS

Bernardo Argente and his wife, Vicenta de Ocampo, applied for a joint life insurance policy with West Coast Life Insurance Co. The policy for P15,000 was issued on May 15, 1925. Vicenta de Ocampo died on November 18, 1925. Argente filed a claim, but the insurer refused payment, alleging that the policy was obtained through fraud and misrepresentation.

In their applications and medical examinations, both insureds made false statements:
1. Bernardo Argente answered that he had not consulted a physician for any ailment of the brain or nervous system and had not consulted any other physician within the last five years. In truth, he was confined and treated at the Philippine General Hospital in January 1923 for cerebral congestion and Bell’s Palsy.
2. Vicenta de Ocampo answered that she only drank beer occasionally in small quantities, had no history of brain or nervous system ailments, had consulted no other physicians in the last five years, and was in good health. In truth, in May 1924, she was taken to the San Lazaro Hospital where she was diagnosed with “alcoholism” and later with “manic-depressive psychosis” or “psycho-neurosis.”

Argente claimed that they had disclosed these facts to the company’s physician, Dr. Cesareo Sta. Ana, but that the doctor, in collusion with the insurance agent, failed to record them. The trial court found this claim unsupported by evidence and credited the testimony of the doctor and the agent.

ISSUE

Whether the insurance policy is void due to the insureds’ material misrepresentations and concealment of facts in their applications and medical examinations.

RULING

YES, the policy is void. The Supreme Court affirmed the trial court’s decision dismissing the complaint.

1. The misrepresentations were material and fraudulent. The false answers related to the insureds’ health and medical historymatters so obviously important that the insurer would naturally be influenced in deciding whether to accept the risk and fix the premium. The concealment of Bernardo’s recent serious cerebral illness and Vicenta’s hospitalization for alcoholism and psychosis constituted material misrepresentation and concealment under Sections 24 and 25 of the Insurance Act (Act No. 2427).

2. The insureds knew the representations were false. The Court upheld the trial court’s factual finding that the insureds knowingly gave false answers. Argente’s claim of collusion by the company’s physician was rejected for lack of credible evidence and motive.

3. The defense of fraud is not barred. The insurer’s right to rescind was properly exercised. More than a month before Argente filed suit, the company wrote him rejecting the claim due to fraud, declaring the policy void, and offering to refund the premium upon return of the policy. This constituted a valid rescission prior to the commencement of an action, satisfying the requirement under Section 47 of the Insurance Act.

DOCTRINE:
A contract of insurance is one of utmost good faith (*uberrima fides*). A material misrepresentation or concealment of facts by the insured, whether intentional or fraudulent, entitles the insurer to rescind the contract. The materiality is determined by whether the representation or concealment would influence the insurer’s decision to accept the risk or estimate the premium. The right to rescind must be exercised before the commencement of an action on the contract, which can be done by notifying the insured of the rescission based on fraud and tendering a refund of the premium.