FAILURE to disclose a serious medical condition can cost a person his insurance policy, even without proof of intent to deceive, the Supreme Court said.
In a decision penned by Associate Justice Japar Dimaampao, the Supreme Court en banc dismissed the petition filed by the heirs of Indalicio Monera and sustained the rulings in favor of Manila Bankers Life Insurance Corp. (MB Life) and Meycauayan Rural Bank Inc.
Monera had obtained loans from Meycauayan Rural Bank secured by a mortgage and group credit life insurance policies issued by MB Life. The insurance proceeds were supposed to cover his loans if he died.
When he applied for another credit life policy, Monera declared that he had not been sick for seven or more consecutive days and had not consulted a doctor for any illness in the preceding five years.
He died less than a month after the second policy was issued.
When the bank sought payment of the insurance proceeds, MB Life denied the claim after discovering that Monera had undergone a medical procedure to remove a mass and had been diagnosed with cancer that had spread near his right collarbone before applying for the policy.
The heirs challenged the denial, but both the Regional Trial Court and the Court of Appeals ruled for the insurer, finding that Monera’s undisclosed medical history was material to MB Life’s decision to issue the policy.
The heirs then went to the Supreme Court, arguing that MB Life could no longer cancel the policy and that the insurer had failed to prove that Monera deliberately intended to defraud it.
The court rejected both arguments.
The Supreme Court said the Insurance Code allows an insurer to cancel a policy when an applicant fails to disclose material information, whether the concealment was intentional or unintentional.
Information is considered material when it could influence the insurer’s decision to issue the policy or determine its terms, the court said.
Monera’s failure to disclose his surgery, medical consultations and cancer diagnosis was material because the information could have affected MB Life’s assessment of his application, including whether the policy should be issued and under what conditions.
The court stressed that proof of an actual intent to deceive is not required. It explained that in insurance contracts, concealment of material facts is treated as fraudulent because an applicant who knows information is important to the insurer nevertheless chooses not to disclose it.
The Supreme Court ruled that the two-year incontestability rule did not protect Monera’s policies because they were short term. His first policy was effective for two months, while the second had a three-month term.
The court, however, pointed to a gap in the law governing insurance policies that remain in force for less than two years, saying it is for Congress to determine the applicable requirements for such policies.
Senior Associate Justice Marvic Leonen dissented, saying MB Life should have exercised greater diligence in evaluating Monera’s application before approving the policy. He also said the policy, as a contract of adhesion, should be interpreted in favor of the insured and strictly against the insurer.
Associate Justice Ramon Paul Hernando, in a separate concurring opinion, noted that Monera died only about a month after the policy was issued, well before the two-year incontestability period could apply.
Associate Justice Jhosep Lopez said the two-year rule is not absolute, noting that the Insurance Code allows different rules for group life policies subject to approval by the insurance commissioner.
