Doctrine: The Insurance Code dispenses with proof of fraudulent intent in cases of rescission due to concealment, but not so in cases of rescission due to false representations. When an abundance of available documentary evidence can be referenced to demonstrate a design to defraud, presenting a singular document with an erroneous entry does not qualify as clear and convincing proof of fraudulent intent. Neither does belatedly invoking just one other document, which was not even authored by the alleged miscreant.
Facts: Alvarez and his wife, Adelina, owned a residential lot with improvements registered in the Caloocan City Registry of Deeds. Alvarez applied for and was granted a housing loan by UnionBank in the amount of P648,000.00. This 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 UnionBank as beneficiary. Alvarez was among the mortgagors included in the list of qualified debtors covered by the Group Mortgage Redemption Insurance that UnionBank had with Insular Life.
Alvarez passed away on April 17, 1998. In May 1998, UnionBank filed with Insular Life a death claim under Alvarez's name pursuant to the Group Mortgage Redemption Insurance. In line with Insular Life's standard procedures, UnionBank was required to submit documents to support the claim. These included: (1) Alvarez's birth, marriage, and death certificates; (2) the attending physician's statement; (3) the claimant's statement; and (4) Alvarez's statement of account.
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.
With the claim's denial, the monthly amortizations of the loan stood unpaid. UnionBank sent the Heirs of Alvarez a demand letter, giving them 10 days to vacate the lot. Subsequently, on October 4, 1999, the lot was foreclosed and sold at a public auction with UnionBank as the highest bidder.
On February 14, 2001, the Heirs of Alvarez filed a Complaint for Declaration of Nullity of Contract and Damages against UnionBank, a certain Alfonso P. Miranda, who supposedly benefitted from the loan, and the insurer which was identified only as John Doe. The Heirs of Alvarez denied knowledge of any loan obtained by Alvarez.
The Heirs of Alvarez claimed that after Alvarez's death, they came upon a document captioned "Letter of Undertaking," which appeared to have been sent by UnionBank to Miranda. In this document, UnionBank bound itself to deliver to Miranda P466,000.00 of the approved P648,000.00 housing loan, provided that Miranda would deliver to it TCT No. C-315023, "free from any liens and/or encumbrances.” The Complaint was later amended and converted into one for specific performance to include a demand against Insular Life to fulfill its obligation as an insurer under the Group Mortgage Redemption Insurance.
In its defense, UnionBank asserted that the Heirs of Alvarez could not feign ignorance over the existence of the loan and mortgage considering the Special Power of Attorney executed by Adelina in favor of her late husband, which authorized him to apply for a housing loan with UnionBank.
For its part, Insular Life maintained that based on the documents submitted by UnionBank, Alvarez was no longer eligible under the Group Mortgage Redemption Insurance since he was more than 60 years old when his loan was approved.
The RTC ruled in favor of the Heirs of Alvarez. It found no indication that Alvarez had any fraudulent intent when he gave UnionBank information about his age and date of birth. It explained that UnionBank initiated and negotiated the Group Mortgage Redemption Insurance with Insular Life, and that "ordinary customers will not know about [insurance policies such as this] unless it is brought to their knowledge by the bank." It noted that if UnionBank's personnel were mindful of their duties and if Alvarez appeared to be disqualified for the insurance, they should have immediately informed him of his disqualification. It emphasized that in evaluating Alvarez's worthiness for the loan, UnionBank had been in possession of materials sufficient to inform itself of Alvarez's personal circumstances. It added that if Insular Life had any doubt on the information that UnionBank had provided, it should have inquired further instead of relying solely on the information readily available to it and immediately refusing to pay.
UnionBank and Insular Life filed separate appeals before the CA. CA affirmed RTC’s ruling. It noted that the errors assigned by Insular Life and UnionBank to the RTC boiled down to the issue of whether or not Alvarez was guilty of fraudulent misrepresentation as to warrant the rescission of the Group Mortgage Redemption Insurance obtained by UnionBank on Alvarez's life. It explained that fraud is never presumed and fraudulent misrepresentation as a defense of the insurer to avoid liability must be established by convincing evidence. Insular Life, in this case, failed to establish this defense.
Insular Life opted to directly appeal before the SC. UnionBank filed its Motion for Reconsideration before the CA which was denied. UnionBank then filed before the SC.
Issue: Whether or not petitioner The Insular Life Assurance Co., Ltd. is obliged to pay Union Bank of the Philippines the balance of Jose H. Alvarez's loan given the claim that he lied about his age at the time of the approval of his loan
Held: Fraud is not to be presumed, for "otherwise, courts would be indulging in speculations and surmises." Moreover, it is not to be established lightly. Rather, "[i]t must be established by clear and convincing evidence . . . [; a] mere preponderance of evidence is not even adequate to prove fraud." These precepts hold true when allegations of fraud are raised as grounds justifying the invalidation of contracts, as the fraud committed by a party tends to vitiate the other party's consent.
Citing Section 27 of the Insurance Code, however, Insular Life asserts that in cases of rescission due to concealment, i.e., when a party "neglect[s] to communicate that which [he or she] knows and ought to communicate," proof of fraudulent intent is not necessary.
Section 27 reads:
Section 27. A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance. (Emphasis supplied)
The statutory text is unequivocal. Insular Life correctly notes that proof of fraudulent intent is unnecessary for the rescission of an insurance contract on account of concealment.
This is neither because intent to defraud is intrinsically irrelevant in concealment, nor because concealment has nothing to do with fraud. To the contrary, it is because in insurance contracts, concealing material facts is inherently fraudulent: "if a material fact is actually known to the [insured], its concealment must of itself necessarily be a fraud." When one knows a material fact and conceals it, "it is difficult to see how the inference of a fraudulent intent or intentional concealment can be avoided." Thus, a concealment, regardless of actual intent to defraud, "is equivalent to a false representation.”
Another rule is that if the assured undertakes to state all the circumstances affecting the risk, a full and fair statement of all is required.
It is also held that the concealment must, in the absence of inquiries, be not only material, but fraudulent, or the fact must have been intentionally withheld; so it is held under English law that if no inquiries are made and no fraud or design to conceal enters into the concealment the contract is not avoided. And it is determined that even though silence may constitute misrepresentation or concealment it is not of itself necessarily so as it is a question of fact. Nor is there a concealment justifying a forfeiture where the fact of insanity is not disclosed no questions being asked concerning the same. . . .
Dispositive portion: WHEREFORE, the Petitions are DENIED. The assailed Court of Appeals May 21, 2013 Decision and November 6, 2013 Resolution in CA G.R. CV No. 91820 are AFFIRMED.
Petitioners Union Bank of the Philippines and The Insular Life Assurance Co., Ltd. are ordered to comply with the insurance undertaking under Mortgage Redemption Insurance Policy No. G-098496 by applying its proceeds as payment of the outstanding loan obligation of deceased Jose H. Alvarez with respondent Union Bank of the Philippines;
The extrajudicial foreclosure of the real estate mortgage over Jose H. Alvarez's TCT No. C-315023 is declared null and without legal force and effect;
Petitioner Union Bank of the Philippines is ordered to reconvey the title and ownership over the lot covered by TCT No. C-315023 to the Estate of the deceased Jose H. Alvarez for the benefit of his heirs and successors-in-interest; and
Petitioners Union Bank of the Philippines and The Insular Life Assurance Co., Ltd. are ordered to jointly and severally pay respondents the Heirs of Jose H. Alvarez attorney's fees and the costs of suit.
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