Contract breach

Dear Atty. Nico,

Back in 1980, my grandmother made a loan from X bank in the amount of P65,000. The loan was secured by a life insurance policy from Y Life Insurance Corporation (Y Life Insurance). The latter issued a life insurance policy (First Policy), valid from March until May 1980.

The proceeds were payable to X bank upon her death.

In June of the same year, she obtained another loan from the same bank in the amount of P75,000. Again, she applied for a life insurance policy with Y Life Insurance and the same was approved (Second Policy).

In the health declaration of the said policy, she claimed to be in good health and without any illness for the last five years. Furthermore, a provision in the terms and conditions stated that Y Life Insurance “reserves the right to reject and/or rescind the Application/Policy if found there was failure on my part whether intentional or unintentional to disclose material facts pertinent to the risk.”

In July, my grandmother died. Upon maturity of her loans, X bank filed its claims with Y Life Insurance but the latter declined the same because my grandmother did not disclose her lupus diagnosis.

May I file a legal action against Y Life Insurance for breach of contract?

Karen

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Dear Karen,

In a recent jurisprudence, it was declared that due to the element of concealment, the insurer has every right to rescind the insurance contract.

In the case of Intestate Heirs of the Late Indalicio Monera v Manila Bankers Life Insurance (G.R. No. 246446), the Supreme Court cited the provisions of the Insurance Code, namely Sections 26 and 27:

Section 26. Concealment is “a neglect to communicate that which a party knows and ought to communicate”;

Section 27. A concealment, whether intentional or unintentional, entitles the injured party to rescind a contract of insurance.

In any event, MB Life is not barred from rescinding the contract and establishing that the policy is void ab initio due to Monera’s concealment of material facts. It is undisputed that he failed to disclose, both in his application and prior to the approval of his Second Policy, that he had undergone an excision of a mass and consulted physicians at Manila Doctors Hospital. What is material is Monera’s concealment, which affected MB Life’s evaluation of his application and the premiums to be charged.

Applying said ruling to the facts of your situation, it is without question that your grandmother concealed her sickness (the lupus diagnosis) which was material to the approval of her Second Policy.

Therefore, Y Life Insurance is correct in denying the claims of X bank by rescinding its contract with your grandmother.

Atty. Nico A. Antonio