Florendo v. Philam Plans

G.R. No. 186983 (February 22, 2012)

Florendo's denied life insurance highlights the need for honesty in insurance applications.

Facts:

On October 23, 1997, Manuel Florendo applied for a comprehensive pension plan with Philam Plans, Inc. (Philam Plans), encouraged by Perla Abcede, a sales agent. The pension plan had a pre-need price of P997,050.00, payable over ten years, and a maturity value of P2,890,000.00 after twenty years. Manuel signed the application but left the completion of the medical information to Perla, who filled out the application as the sales counselor. The plan included life insurance coverage under a Group Master Policy issued by Philippine American Life Insurance Company (Philam Life), which provided that if the plan holder died before maturity, the beneficiary would receive the life insurance proceeds equivalent to the pre-need price.

On October 30, 1997, Philam Plans issued Pension Plan Agreement PP43005584 to Manuel, designating his wife, Ma. Lourdes S. Florendo, as the beneficiary. Manuel paid his quarterly premiums until his death from blood poisoning on September 15, 1998. Following his death, Lourdes filed a claim for benefits under the pension plan. However, Philam Plans forwarded her claim to Philam Life, which subsequently denied the claim on May 3, 1999, citing Manuel's failure to disclose significant health issues, including a heart condition and diabetes, which required maintenance medication.

Lourdes contested the denial, leading to a lawsuit against Philam Plans and the Abcede respondents in the Regional Trial Court (RTC) of Quezon City. The RTC ruled in favor of Lourdes, ordering the payment of benefits, including the maturity value of the pension plan and moral damages, concluding that Manuel did not conceal his health status.

The Court of Appeals (CA) later reversed the RTC's decision, asserting that Manuel was guilty of concealment due to his failure to disclose his medical conditions in the application. The CA emphasized the principle of utmost good faith in insurance contracts, which required full disclosure of material facts.

Legal Issues:

  1. Did the CA err in finding Manuel guilty of concealing his illness by leaving questions regarding his health unanswered in the pension plan application?
  2. Was Manuel bound by the failure of Perla and Ma. Celeste to declare his health condition in the application?
  3. Did the approval of Manuel's application and acceptance of premium payments preclude Philam Plans from denying Lourdes's claim?

Arguments:

  • Petitioner (Lourdes Florendo):

    • Lourdes argued that Philam Plans should have returned the application for completion due to the unfilled medical history sections. She contended that since Philam Plans approved the application without further inquiry, it could not claim concealment.
    • She maintained that Manuel had not concealed anything, as Perla was aware of his pacemaker and that the responsibility for the application lay with Manuel, not Perla.
    • Lourdes asserted that any defects in the application should be deemed waived after approval and premium collection.

  • Respondents (Philam Plans and Philam Life):

    • The respondents contended that Manuel had a duty to disclose his medical history, which he failed to do, thereby committing concealment. They argued that Manuel's representations in the application were false and misleading.
    • They emphasized that Manuel was responsible for the accuracy of the information in the application, regardless of who filled it out.
    • The respondents pointed out that the one-year incontestability clause did not apply since Manuel died within eleven months of the policy's issuance, allowing them to contest the claim based on concealment.

Court's Decision and Legal Reasoning:

The Supreme Court affirmed the CA's decision, holding that Manuel was indeed guilty of concealment. The Court reasoned that:

  1. Manuel's failure to disclose his chronic heart condition and diabetes constituted a breach of the duty of utmost good faith required in insurance contracts. By signing the application, he adopted the representations made therein, which falsely stated he had never been treated for these conditions.
  2. The Court rejected Lourdes's argument that the application should have been returned for completion, emphasizing that Manuel had the responsibility to ensure the accuracy of the information provided.
  3. The Court found that even if Perla had knowledge of Manuel's pacemaker, it did not absolve him of his duty to disclose his ongoing medical treatments, which were material to the risk assessment by Philam Plans.
  4. The one-year incontestability clause did not bar Philam Plans from contesting the claim, as Manuel's death occurred before the expiration of that period.

Significant Legal Principles Established:

  • The principle of utmost good faith (uberrima fides) in insurance contracts requires full disclosure of all material facts by the insured.
  • An insured party is bound by the representations made in their application, regardless of who filled it out, as long as they have certified the accuracy of the information.
  • The one-year incontestability clause does not protect an insured from claims of concealment or misrepresentation if the insured dies within that period.