Qua Chee Gan vs. Law Union, 98 PhiI. 85 (1955)
Where the insurer, at the time of the issuance of a policy of insurance, has knowledge of existing facts which, if insisted on, would invalidate the contract from its very inception, such knowledge constitutes a waiver of conditions in the contract inconsistent with the known facts, and the insurer is stopped thereafter from asserting the breach of such conditions.
FACTS:
Qua Chee Gan, a merchant, owned 4 warehouses in Albay which were used for the storage of copra and hemp in which the appelle deals with exclusively. The warehouses together with the contents were insured with Law Union since 1937 and the loss made payable to PNB as mortgagee of the hemp and copra. A fire of undetermined cause broke out on July 21, 1940 and lasted for almost 1 whole week.
Qua Chee informed the insurer of the unfortunate event and submitted the corresponding fire claims. Insurer refused to pay claiming violations of the warranties and conditions – (a) fire hydrant warranty: the appellee should have 11 fire hydrants in the compound, and that he actually had only two 2 (b) filing of fraudulent claims and that the fire had been deliberately caused by the insured. Insured filed an action before CFI which rendered a decision in favor of the insured.
(1) Whether or not the policies should be avoided for the reason that there was a breach of warranty. (YES)
(2) Whether the insurance company can raise as defense the violation of warranties even when such alleged violations existed at the time the contract of insurance was entered into. -NO
The insurer is barred by estoppel to claim violation of the so-called fire hydrant warranty where, knowing fully well that the number of hydrants demanded in the warranty never existed from the very beginning, it nevertheless issued the policies subject to such warranty, and received the corresponding premiums.
The insurance company was aware, even before the policies were issued, that in the premises insured there were only two fire hydrants installed by Qua Chee Gan and two others nearby, owned by the municipality of Tabaco, contrary to the requirements of the warranty in question.
Where the insurer, at the time of the issuance of a policy of insurance, has knowledge of existing facts which, if insisted on, would invalidate the contract from its very inception, such knowledge constitutes a waiver of conditions in the contract inconsistent with the known facts, and the insurer is stopped thereafter from asserting the breach of such conditions.
The reason for the rule is not difficult to find. “The plain, human justice of this doctrine is perfectly apparent. To allow a company to accept one’s money for a policy of insurance which it then knows to be void and of no effect, though it knows as it must, that the assured believes it to be valid and binding, is so contrary to the dictates of honesty and fair dealing, and so closely related to positive fraud, as to be abhorrent to fair minded men. It would be to allow the company to treat the policy as valid long enough to get the premium on it, and leave it at liberty to repudiate it the next moment. This cannot be deemed to be the real intention of the parties.
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