Benny applied for life insurance for Php 1.5 Million. The insurance company approved his application and issued an insurance policy effective Nov. 6, 2008. Benny named his children as his beneficiaries. On April 6, 2010, Benny died of hepatoma, a liver ailment.
The insurance company denied the children’s claim for the proceeds of the insurance policy on the ground that Benny failed to disclose in his application two previous consultations with his doctors for diabetes and hypertension, and that he had been diagnosed to be suffering from hepatoma. The insurance company also rescinded the policy and refunded the premiums paid.
Was the insurance company correct? (8%)
Suggested answer only. Not an official answer and not legal advice.
Yes, the insurance company was correct in denying the claim and rescinding the policy.
Under Section 27 of the Insurance Code, a concealment, whether intentional or unintentional, entitles the injured party to rescind an insurance contract. Under Section 48, the incontestability clause applies only after a life policy has been in force during the lifetime of the insured for two years from its date of issue.
Here, Benny concealed material health facts by failing to disclose his previous medical consultations for diabetes, hypertension, and hepatoma. Because Benny died on April 6, 2010—less than two years from the policy's effectivity date of November 6, 2008—the incontestability clause had not set in, allowing the insurer to rescind.
Therefore, the insurance company acted correctly in rescinding the policy and denying the claim.
This is not an official scoring system and carries no weight with the Supreme Court or any bar review provider. It measures how much of the suggested answer's wording your response covers, not whether your reasoning is correct. For practice only.
Quick check
What is the legal effect of material concealment on a contract of insurance under Section 27 of the Insurance Code?
Under Section 27 of the Insurance Code, concealment whether intentional or unintentional entitles the injured party to rescind the contract.
When does the incontestability clause bar an insurer from rescinding a life insurance policy under Section 48?
Section 48 provides that a life policy becomes incontestable after being in force during the insured's lifetime for two years.
Does the incontestability clause apply if the insured dies within two years from the policy's effective date?
The incontestability clause requires the policy to be in force during the lifetime of the insured for two years.
If an insurer validly rescinds a life insurance policy due to material concealment, what must it do with the premiums paid?
Upon valid rescission of an insurance contract, the insurer is obligated to refund the premiums paid.
Which primary statute governs life insurance policies, material concealment, and incontestability rules in the Philippines?
Republic Act Number 10607 is the Insurance Code of the Philippines.
Learn more about these topics
1. Concealment in Insurance
Under Section 27 of the Insurance Code of the Philippines (Republic Act Number 10607), a concealment, whether intentional or unintentional, entitles the injured party to rescind a contract of insurance. Concealment is defined as a neglect to communicate that which a party knows and ought to communicate. Failure to disclose material medical history, such as previous consultations for hypertension, diabetes, or severe liver ailments, constitutes material concealment that misleads the insurer in estimating the risk and forming the contract.
2. Incontestability Clause Limits
Under Section 48 of the Insurance Code of the Philippines, after a policy of life insurance has been in force during the lifetime of the insured for a period of two years from its date of issue or last reinstatement, the insurer can no longer prove that the policy is void ab initio or rescindable due to fraudulent concealment or misrepresentation. However, if the insured dies within the two-year period, the incontestability clause does not apply, and the insurer retains the right to rescind the policy for material concealment.
3. Policy Rescission Refund
Under Philippine insurance jurisprudence, when an insurer validly rescinds a life insurance policy prior to the expiration of the two-year incontestability period on the ground of material concealment, the contract is avoided ab initio. Rescission places the parties in status quo ante. Consequently, the insurance company is legally bound to return the premiums paid by the insured, while being completely relieved of any obligation to pay the insurance policy proceeds to the designated beneficiaries.