Flashcards Studio

An insurer issued a fire and property insurance policy to Crestwood Manufacturing Corp. covering a warehouse storing electronics valued at PHP 12,000,000. In Crestwood’s application, the company stated that the warehouse is equipped with a functioning fire-suppression system and that there have been no prior losses. Crestwood failed to disclose that the warehouse roof has leaks and that it stores highly flammable lithium batteries, and that there had been three small fire incidents in the past year which were reported to the underwriter but not disclosed in the application. A fire occurred three months after policy issue, causing PHP 5,000,000 in damages. The insurer seeks rescission on the ground of misrepresentation and concealment. Crestwood contends that the misstatements were immaterial and that the policy remains valid. (a) Identify the controlling doctrine governing rescission of insurance contracts under PD 612 as amended by RA 10607 and state its essential elements. (b) Apply the doctrine to these facts: is rescission proper? what must the insurer prove, and what is the effect on the claim and on premiums already paid? (c) If rescission is improper, what other remedies may the insurer pursue and what are the consequences for Crestwood and the beneficiary?