G.R. No.

L-41014 November 28, 1988 the effect that "loss if any under this policy is payable to the Pacific Banking
Corporation".
PACIFIC BANKING CORPORATION, petitioner,
vs. On January 4, 1964, while the aforesaid policy was in full force and effect, a fire
COURT OF APPEALS and ORIENTAL ASSURANCE CORPORATION, respondents. broke out on the subject premises destroying the goods contained in its ground
and second floors (Record on Appeal, p.5)
Flores, Ocampo, Dizon and Domingo Law Office for petitioner.
On January 24, 1964, counsel for the petitioner sent a letter of demand to
Cabochan and Reyes Law Office for respondents. private respondent for indemnity due to the loss of property by fire under the
endorsement of said policy (Brief for Plaintiff-Appellee, pp. 16-17).

PARAS, J.: On January 28, 1964, private respondent informed counsel for the petitioner
that it was not yet ready to accede to the latter's demand as the former is
This is a petition for review on certiorari of the decision of respondent Court of awaiting the final report of the insurance adjuster, H.H. Bayne Adjustment
Appeals * in CA-G.R. No. 41735-R, entitled "Pacific Banking Corporation vs. Company (Brief for Plaintiff-Appellee, pp. 17-18).
Oriental Assurance Corporation", which set aside the decision of the Court of
First Instance (CFI) of Manila, ** which had in turn granted the complaint for a On March 25, 1964, the said insurance adjuster notified counsel for the
sum of money in Civil Case No. 56889. petitioner that the insured under the policy had not filed any claim with it, nor
submitted proof of loss which is a clear violation of Policy Condition No.11, and
As gathered from the records, the undisputed facts of this case are as follows: for which reason, determination of the liability of private respondent could not
be had (Supra, pp. 19-20).
On October 21,1963, Fire Policy No. F-3770 (Exhibit "A"), an open policy, was
issued to the Paramount Shirt Manufacturing Co. (hereinafter referred to as the On April 24, 1964, petitioner's counsel replied to aforesaid letter asking the
insured, for brevity), by which private respondent Oriental Assurance insurance adjuster to verify from the records of the Bureau of Customs the
Corporation bound itself to indemnify the insured for any loss or damage, not entries of merchandise taken into the customs bonded warehouse razed by fire
exceeding P61,000.00, caused by fire to its property consisting of stocks, as a reliable proof of loss (Supra, pp. 21-22). For failure of the insurance
materials and supplies usual to a shirt factory, including furniture, fixtures, company to pay the loss as demanded, petitioner (plaintiff therein) on April 28,
machinery and equipment while contained in the ground, second and third 1 964, filed in the court a quo an action for a sum of money against the private
floors of the building situated at number 256 Jaboneros St., San Nicolas, Manila, respondent, Oriental Assurance Corporation, in the principal sum of P61,000.00
for a period of one year commencing from that date to October 21, 1964. issued in favor of Paramount Shirt Manufacturing Co. (Record on Appeal, pp. 1-
36).
The insured was at the time of the issuance of the policy and is up to this time, a
debtor of petitioner in the amount of not less than Eight Hundred Thousand On May 25, 1964, private respondent raised the following defenses in its answer
Pesos (P800,000.00) and the goods described in the policy were held in trust by to wit: (a) lack of formal claim by insured over the loss and (b) premature filing
the insured for the petitioner under thrust receipts (Record on Appeal, p. 4). of the suit as neither plaintiff nor insured had submitted any proof of loss on the
basis of which defendant would determine its liability and the amount thereof,
Said policy was duly endorsed to petitioner as mortgagee/ trustor of the
either to the private respondent or its ad . adjuster H.H. Bayne Adjustment Co.,
properties insured, with the knowledge and consent of private respondent to
both in violation of Policy Condition No.11 (Record on Appeal, pp. 37-38).
At the trial, petitioner presented in evidence Exhibit "H", which is a SO ORDERED. (Record on Appeal, pp. 140-141)
communication dated December 22, 1965 of the insurance adjuster, H.H. Bayne
Adjustment Co. to Asian Surety Insurance Co., Inc., revealing undeclared co- On appeal, the Court of Appeals reversed the decision of the trial court
insurances with the following: P30,000.00 with Wellington Insurance; P25,000. (Decision promulgated on April 23, 1975, Rollo, pp. 21-33).
00 with Empire Surety and P250,000.00 with Asian Surety; undertaken by Petitioner filed a motion for reconsideration of the said decision of the
insured Paramount on the same property covered by its policy with private respondent Court of Appeals, but this was denied on July 3,1975 for lack of
respondent whereas the only co-insurances declared in the subject policy are merit (Rollo, pp. 54-67), resulting in this petition with the following assigned
those of P30,000.00 with Malayan P50,000.00 with South Sea and P25.000.00 errors;
with Victory (Brief for the Defendant pp. 13-14).
I
It will be noted that the defense of fraud and/or violation of Condition No. 3 in
the Policy, in the form of non-declaration of co-insurances which was not RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN
pleaded in the answer was also not pleaded in the Motion to Dismiss. CONCLUDING FRAUD FROM THE BARE FACT THAT THE INSURED PARAMOUNT
PROCURED ADDITIONAL INSURANCES OTHER THAN THOSE STATED IN THE
At any rate, on June 30, 1967, the trial court denied private respondent's POLICY IN SPITE OF THE EXISTENCE OF CONTRARY PRESUMPTIONS AND
motion on the ground that the defense of lack of proof of loss or defects therein ADMITTED FACT AND CIRCUMSTANCES WHICH NEGATE THE CORRECTNESS OF
was raised for the first time after the commencement of the suit and that it SAID CONCLUSION.
must be deemed to have waived the requirement of proof of loss (Sections 83
and 84, Insurance Act; Record on Appeal, p. 61). (a) The respondent Court did not consider the legal presumption against the
existence of fraud, which should be established with such quantum of proof as
On September 9, 1967, the case was considered submitted for decision from is required for any crime.
which order private respondent filed a motion for reconsideration to set the
case or further reception of private respondent's additional evidence, "in order (b) The record of the case is bereft of proof of such fraud.
to prove that 'insured has committed a violation of condition No. 3 of the policy
(c) The private respondent insurer did not even plead or in anywise raise fraud
in relation to the other Insurance Clause.' " (Record on Appeal, pp. 61-69).
as a defense in its answer or motion to dismiss and, therefore, it should have
On September 30,1967, the case was set for the continuation of the hearing for been considered waived.
the reception merely of the testimony of Alejandro Tan Gatue, Manager of the
(d) The total amount of insurance procured by the insured from the different
Adjustment Co., over the vehement opposition of the petitioner (Record on
companies amounted to hardly onehalf (½) of the value of the goods insured.
Appeal, p. 129).
II
On April 18, 1 968, the trial court rendered a decision adjudging private
respondent liable to the petitioner under the said contract of insurance, the RESPONDENT COURT ERRED IN NOT HOLDING THAT CONSIDERING THE VOTING
dispositive portion of which reads: ON THE PARTICULAR QUESTION OF FRAUD, THE FINDING OF THE TRIAL COURT
THEREON SHOULD BE CONSIDERED AFFIRMED.
WHEREFORE, judgment is hereby rendered ordering the defendant to pay the
plaintiff P61,000.00, with interest at the rate of 8% per annum from January 4, III
1964, to April 28, 1964, and 12% from April 29, 1964, until the amount is fully
paid, P6,100.00, as attorney's fees, and the costs.
THE CONCURRING OPINION OF MR. JUSTICE CHANCO IS LEGALLY ERRONEOUS misrepresentation and a vital one because where the insured had been asked to
IN HOLDING THAT THE ACTION WAS PREMATURELY BROUGHT BECAUSE THE reveal but did not, that was deception. Otherwise stated, had the insurer known
REQUIRED CLAIM UNDER THE INSURANCE LAW HAS NOT BEEN FILED, that there were many co-insurances, it could have hesitated or plainly desisted
NOTWITHSTANDING THE LETTER, (EXHIBIT "C") OF PETITIONER-APPELLANT'S from entering into such contract. Hence, the insured was guilty of clear fraud
LAWYER WHICH IS A SUBSTANTIAL COMPLIANCE OF THE LEGAL REQUIREMENTS (Rollo, p. 25).
AND NOT HOLDING THAT PRIVATE RESPONDENT INSURER HAD ALREADY
WAIVED THE SUPPOSED DEFECTS IN THE CLAIM FILED BY PETITIONER- Petitioner's contention that the allegation of fraud is but a mere inference or
APPELLANT FOR ITS FAILURE TO CALL THE ATTENTION OF THE LAYER TO SUCH suspicion is untenable. In fact, concrete evidence of fraud or false declaration by
ALLEGED DEFECTS AND FOR ENDORSING THE CLAIM TO ITS ADJUSTER FOR the insured was furnished by the petitioner itself when the facts alleged in the
policy under clauses "Co-Insurances Declared" and "Other Insurance Clause" are
PROCESSING.
materially different from the actual number of co-insurances taken over the
IV subject property. Consequently, "the whole foundation of the contract fails, the
risk does not attach and the policy never becomes a contract between the
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN NOT parties. Representations of facts are the foundation of the contract and if the
INTERPRETING THE PROVISIONS OF THE POLICY LIBERALLY IN FAVOR OF THE foundation does not exist, the superstructure does not arise. Falsehood in such
HEREIN PETITIONER-APPELLANT, WHO IS NOT THE INSURED BUT ONLY THE representations is not shown to vary or add to the contract, or to terminate a
ASSIGNEE/MORTGAGEE OF THE PROPERTY INSURED. contract which has once been made, but to show that no contract has ever
V existed (Tolentino, Commercial Laws of the Philippines, p. 991, Vol. II, 8th Ed.) A
void or inexistent contract is one which has no force and effect from the very
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN beginning, as if it had never been entered into, and which cannot be validated
DISMISSING THE CASE AND IN NOT AFFIRMING THE APPEALED DECISION OF THE either by time or by ratification Tongoy v. C.A., 123 SCRA 99 [1983]; Avila v. C.A.
TRIAL COURT. (Brief for Petitioners, pp. 1-3) 145 SCRA [1986]).

The crux of the controversy centers on two points: (a) unrevealed co-insurances As the insurance policy against fire expressly required that notice should be
which violated policy conditions No. 3 and (b) failure of the insured to file the given by the insured of other insurance upon the same property, the total
required proof of loss prior to court action. Policy Condition No. 3 explicitly absence of such notice nullifies the policy (Sta. Ana v. Commercial Union
provides: Assurance Co., 55 Phil. 333 [1930]; Union Manufacturing Co., Inc. vs. Philippine
Guaranty Co., Inc., 47 SCRA 276 [1972]; Pioneer Ins. & Surety Corp., v. Yap, 61
3. The Insured shall give notice to the Company of any insurance already
SCRA 432 [1974]).
effected, or which may subsequently be effected, covering any of the property
hereby insured, and unless such notice be given and the particulars of such The argument that notice of co-insurances may be made orally is preposterous
insurance or insurances be stated in or endorsed on this Policy by or on behalf and negates policy condition No. 20 which requires every notice and other
of the Company before the occurrence of any loss or damage, all benefit under communications to the insurer to be written or printed.
this policy shall be forfeited. (Record on Appeal, p. 12)
Petitioner points out that Condition No. 3 in the policy in relation to the "other
It is not disputed that the insured failed to reveal before the loss three other insurance clause" supposedly to have been violated, cannot certainly defeat the
insurances. As found by the Court of Appeals, by reason of said unrevealed right of the petitioner to recover the insurance as mortgagee/assignee.
insurances, the insured had been guilty of a false declaration; a clear Particularly referring to the mortgage clause of the policy, petitioner argues that
considering the purpose for which the endorsement or assignment was made, evidence but on the contrary, presented the very evidence that proved its
that is, to protect the mortgagee/assignee against any untoward act or omission existence.
of the insured, it would be absurd to hold that petitioner is barred from
recovering the insurance on account of the alleged violation committed by the Be that as it may, it is established that the Supreme Court has ample authority
to give beyond the pleadings where in the interest of justice and the promotion
insured (Rollo, Brief for the petitioner, pp, 33-35).
of public policy, there is a need to make its own finding to support its
It is obvious that petitioner has missed all together the import of subject conclusion. Otherwise stated, the Court can consider a fact which surfaced only
mortgage clause which specifically provides: after trial proper (Maharlika Publishing Corp. v. Tagle, 142 SCRA 561 [1986]).

Mortgage Clause Generally, the cause of action on the policy accrues when the loss occurs, But
when the policy provides that no action shall be brought unless the claim is first
Loss, if any, under this policy, shall be payable to the PACIFIC BANKING presented extrajudicially in the manner provided in the policy, the cause of
CORPORATION Manila mortgagee/trustor as its interest may appear, it being action will accrue from the time the insurer finally rejects the claim for payment
hereby understood and agreed that this insurance as to the interest of the (Eagle Star Insurance v. Chia Yu, 55 Phil 701 [1955]).
mortgagee/trustor only herein, shall not be invalidated by any act or neglect—
except fraud or misrepresentation, or arson—of the mortgagor or In the case at bar, policy condition No. 11 specifically provides that the insured
owner/trustee of the property insured; provided, that in case the mortgagor or shall on the happening of any loss or damage give notice to the company and
owner/ trustee neglects or refuses to pay any premium, the mortgagee/ trustor shall within fifteen (15) days after such loss or damage deliver to the private
shall, on demand pay the same. (Rollo, p. 26) respondent (a) a claim in writing giving particular account as to the articles or
goods destroyed and the amount of the loss or damage and (b) particulars of all
The paragraph clearly states the exceptions to the general rule that insurance as
other insurances, if any. Likewise, insured was required "at his own expense to
to the interest of the mortgagee, cannot be invalidated; namely: fraud, or produce, procure and give to the company all such further particulars, plans,
misrepresentation or arson. As correctly found by the Court of Appeals, specifications, books, vouchers, invoices, duplicates or copies thereof,
concealment of the aforecited documents, proofs and information with respect to the claim". (Record on
co-insurances can easily be fraud, or in the very least, misrepresentation (Rollo, Appeal, pp. 18-20).
p. 27).
The evidence adduced shows that twenty-four (24) days after the fire, petitioner
Undoubtedly, it is but fair and just that where the insured who is primarily merely wrote letters to private respondent to serve as a notice of loss,
entitled to receive the proceeds of the policy has by its fraud and/or thereafter, the former did not furnish the latter whatever pertinent documents
misrepresentation, forfeited said right, with more reason petitioner which is were necessary to prove and estimate its loss. Instead, petitioner shifted upon
merely claiming as indorsee of said insured, cannot be entitled to such private respondent the burden of fishing out the necessary information to
proceeds. ascertain the particular account of the articles destroyed by fire as well as the
Petitioner further stressed that fraud which was not pleaded as a defense in amount of loss. It is noteworthy that private respondent and its adjuster
private respondent's answer or motion to dismiss, should be deemed to have notified petitioner that insured had not yet filed a written claim nor submitted
been waived. the supporting documents in compliance with the requirements set forth in the
policy. Despite the notice, the latter remained unheedful. Since the required
It will be noted that the fact of fraud was tried by express or at least implied claim by insured, together with the preliminary submittal of relevant documents
consent of the parties. Petitioner did not only object to the introduction of had not been complied with, it follows that private respondent could not be
deemed to have finally rejected petitioner's claim and therefore the latter's been waived by the insurer, the insured cannot recover, much less the herein
cause of action had not yet arisen. Compliance with condition No. 11 is a petitioner. Courts are not permitted to make contracts for the parties; the
requirement sine qua non to the right to maintain an action as prior thereto no function and duty of the courts is simply to enforce and carry out the contracts
violation of petitioner's right can be attributable to private respondent. This is actually made (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1915]; Union
so, as before such final rejection, there was no real necessity for bringing suit. Manufacturing Co. Inc. v. Phil. Guaranty Co. Inc., p. 276 supra).
Petitioner should have endeavored to file the formal claim and procure all the
documents, papers, inventory needed by private respondent or its adjuster to Finally, the established rule in this jurisdiction that findings of fact of the Court
ascertain the amount of loss and after compliance await the final rejection of its of Appeals when supported by substantial evidence, are not reviewable on
claim. Indeed, the law does not encourage unnecessary litigation (Eagle Star appeal by certiorari, deserves reiteration. Said findings of the appellate court
are final and cannot be disturbed by the Supreme Court except in certain cases
Insurance Co., Ltd., et al. v. Chia Yu, p. 701, supra).<äre||anº•1àw>
Lereos v. CA, 117 SCRA 395 [1985]; Dalida v. CA, 117 SCRA 480 [1982] Director
Verily, petitioner prematurely filed Civil Case No. 56889 and dismissal thereof of Lands v. CA, 117 SCRA 346 [1982]; Montesa v. CA, 117 SCRA 770 [1982]; Sacay
was warranted under the circumstances. While it is a cardinal principle of v. Sandiganbayan, 142 SCRA 609 [1986]; Guita v. CA, 139 SCRA 576 [1985];
insurance law that a policy or contract of insurance is to be construed liberally in Manlapaz v. CA, 147 SCRA 238-239 [1987]).
favor of the insured and strictly as against the insurer company (Eagle Star
Insurance Co., Ltd., et al. v. Chia Yu, p. 702, supra; Taurus Taxi Co., Inc. v. The PREMISES CONSIDERED, the petition is DISMISSED for lack of merit, and the
Capital Ins. & Surety Co., Inc., 24 SCRA 458 [1968]; National Power Corp. v. CA, decision appealed from is AFFIRMED. No costs.
145 SCRA 533 [1986]), yet, contracts of insurance, like other contracts, are to be SO ORDERED.
construed according to the sense and meaning of the terms which the parties
themselves have used. If such terms are clear and unambiguous, they must be Melencio-Herrera, (Chairman), Padilla, Sarmiento and Regalado, JJ., concur.
taken and understood in their plain, ordinary and popular sense (Young v.
Midland Textile Ins. Co., 30 Phil. 617 [1919]; Union Manufacturing Co., Inc. v.
Phil. Guaranty Co., Inc., p. 277 supra; Pichel v. Alonzo, III SCRA 341 [1982];
Gonzales v. CA, 124 SCRA 630 [1983]; GSIS v. CA, 145 SCRA 311 [1986]; Herrera
v. Petrophil Corp., 146 SCRA 385 [1986]).

Contracts of insurance are contracts of indemnity upon the terms and

conditions specified in the policy. The parties have a right to impose such
reasonable conditions at the time of the making of the contract as they may
deem wise and necessary. The agreement has the force of law between the
parties. The terms of the policy constitute the measure of the insurer's liability,
and in order to recover, the insured must show himself within those terms. The
compliance of the insured with the terms of the policy is a condition precedent
to the light of recovery (Stokes v. Malayan Insurance Co., Inc., 127 SCRA 766
[1984]).

It appearing that insured has violated or failed to perform the conditions under
No. 3 and 11 of the contract, and such violation or want of performance has not
G.R. No. 48049 June 29, 1989 Alleging that respondent company's refusal to pay them the proceeds of the
policy was unjustified and unreasonable, petitioners filed on November 27,
EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners, 1975, a complaint against the former with the Office of the Insurance
vs. Commissioner, docketed as I.C. Case No. 218.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE
COMPANY, respondents. After hearing the evidence of both parties, the Insurance Commissioner
rendered judgment on August 9, 1977, dismissing petitioners' complaint. (Rollo,
O.F. Santos & P.C. Nolasco for petitioners. pp. 91-92)
Ferry, De la Rosa and Associates for private respondent. The Court of Appeals dismissed ' the petitioners' appeal from the Insurance
Commissioner's decision for lack of merit

GUTIERREZ, JR., J.: Hence, this petition.

This is a petition for review on certiorari of the Court of Appeals' decision The petitioners raise the following issues in their assignment of errors, to wit:
affirming the decision of the Insurance Commissioner which dismissed the A. The conclusion in law of respondent Court that respondent insurer has the
petitioners' complaint against respondent Philippine American Life Insurance right to rescind the policy contract when insured is already dead is not in
Company for the recovery of the proceeds from their late father's policy. The
accordance with existing law and applicable jurisprudence.
facts of the case as found by the Court of Appeals are:
B. The conclusion in law of respondent Court that respondent insurer may be
Petitioners appeal from the Decision of the Insurance Commissioner dismissing allowed to avoid the policy on grounds of concealment by the deceased
herein petitioners' complaint against respondent Philippine American Life assured, is contrary to the provisions of the policy contract itself, as well as, of
Insurance Company for the recovery of the proceeds of Policy No. 1082467 in
applicable legal provisions and established jurisprudence.
the amount of P 80,000.00.
C. The inference of respondent Court that respondent insurer was misled in
On September 23,1973, Tan Lee Siong, father of herein petitioners, applied for issuing the policy are manifestly mistaken and contrary to admitted evidence.
life insurance in the amount of P 80,000.00 with respondent company. Said (Rollo, p. 7)
application was approved and Policy No. 1082467 was issued effective
November 6,1973, with petitioners the beneficiaries thereof (Exhibit A). The petitioners contend that the respondent company no longer had the right
to rescind the contract of insurance as rescission must allegedly be done during
On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit B). Petitioners then the lifetime of the insured within two years and prior to the commencement of
filed with respondent company their claim for the proceeds of the life insurance action.
policy. However, in a letter dated September 11, 1975, respondent company
denied petitioners' claim and rescinded the policy by reason of the alleged The contention is without merit.
misrepresentation and concealment of material facts made by the deceased Tan
Lee Siong in his application for insurance (Exhibit 3). The premiums paid on the The pertinent section in the Insurance Code provides:
policy were thereupon refunded . Section 48. Whenever a right to rescind a contract of insurance is given to the
insurer by any provision of this chapter, such right must be exercised previous
to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall the door of the insurer to buy insurance. He was the object of solicitations and
have been in force during the lifetime of the insured for a period of two years visits.
from the date of its issue or of its last reinstatement, the insurer cannot prove
that the policy is void ab initio or is rescindable by reason of the fraudulent Assured was a man of means. He could have obtained a bigger insurance, not
just P 80,000.00. If his purpose were to misrepresent and to conceal his
concealment or misrepresentation of the insured or his agent.
ailments in anticipation of death during the two-year period, he certainly could
According to the petitioners, the Insurance Law was amended and the second have gotten a bigger insurance. He did not.
paragraph of Section 48 added to prevent the insurance company from
exercising a right to rescind after the death of the insured. Insurer Philamlife could have presented as witness its Medical Examiner Dr.
Urbano Guinto. It was he who accomplished the application, Part II, medical.
The so-called "incontestability clause" precludes the insurer from raising the Philamlife did not.
defenses of false representations or concealment of material facts insofar as
health and previous diseases are concerned if the insurance has been in force Philamlife could have put to the witness stand its Agent Bienvenido S. Guinto, a
for at least two years during the insured's lifetime. The phrase "during the relative to Dr. Guinto, Again Philamlife did not. (pp. 138139, Rollo)
lifetime" found in Section 48 simply means that the policy is no longer xxx xxx xxx
considered in force after the insured has died. The key phrase in the second
paragraph of Section 48 is "for a period of two years." This Honorable Supreme Court has had occasion to denounce the pressure and
practice indulged in by agents in selling insurance. At one time or another most
As noted by the Court of Appeals, to wit: of us have been subjected to that pressure, that practice. This court took judicial
The policy was issued on November 6,1973 and the insured died on April cognizance of the whirlwind pressure of insurance selling-especially of the
26,1975. The policy was thus in force for a period of only one year and five agent's practice of 'supplying the information, preparing and answering the
months. Considering that the insured died before the two-year period had application, submitting the application to their companies, concluding the
lapsed, respondent company is not, therefore, barred from proving that the transactions and otherwise smoothing out all difficulties.
policy is void ab initio by reason of the insured's fraudulent concealment or We call attention to what this Honorable Court said in Insular Life v. Feliciano, et
misrepresentation. Moreover, respondent company rescinded the contract of al., 73 Phil. 201; at page 205:
insurance and refunded the premiums paid on September 11, 1975, previous to
the commencement of this action on November 27,1975. (Rollo, pp. 99-100) It is of common knowledge that the selling of insurance today is subjected to
the whirlwind pressure of modern salesmanship.
xxx xxx xxx
Insurance companies send detailed instructions to their agents to solicit and
The petitioners contend that there could have been no concealment or procure applications.
misrepresentation by their late father because Tan Lee Siong did not have to
buy insurance. He was only pressured by insistent salesmen to do so. The These agents are to be found all over the length and breadth of the land. They
petitioners state: are stimulated to more active efforts by contests and by the keen competition
offered by the other rival insurance companies.
Here then is a case of an assured whose application was submitted because of
repeated visits and solicitations by the insurer's agent. Assured did not knock at
They supply all the information, prepare and answer the applications, submit the We agree with the Court of Appeals which ruled:
applications to their companies, conclude the transactions, and otherwise
smooth out all difficulties. On the other hand, petitioners argue that no evidence was presented by
respondent company to show that the questions appearing in Part II of the
The agents in short do what the company set them out to do. application for insurance were asked, explained to and understood by the
deceased so as to prove concealment on his part. The same is not well taken.
The Insular Life case was decided some forty years ago when the pressure of
The deceased, by affixing his signature on the application form, affirmed the
insurance salesmanship was not overwhelming as it is now; when the correctness of all the entries and answers appearing therein. It is but to be
population of this country was less than one-fourth of what it is now; when the expected that he, a businessman, would not have affixed his signature on the
insurance companies competing with one another could be counted by the application form unless he clearly understood its significance. For, the
fingers. (pp. 140-142, Rollo) presumption is that a person intends the ordinary consequence of his voluntary
xxx xxx xxx act and takes ordinary care of his concerns. [Sec. 5(c) and (d), Rule 131, Rules of
Court].
In the face of all the above, it would be unjust if, having been subjected to the
whirlwind pressure of insurance salesmanship this Court itself has long The evidence for respondent company shows that on September 19,1972, the
denounced, the assured who dies within the two-year period, should stand deceased was examined by Dr. Victoriano Lim and was found to be diabetic and
charged of fraudulent concealment and misrepresentation." (p. 142, Rollo) hypertensive; that by January, 1973, the deceased was complaining of
progressive weight loss and abdominal pain and was diagnosed to be suffering
The legislative answer to the arguments posed by the petitioners is the from hepatoma, (t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another physician,
"incontestability clause" added by the second paragraph of Section 48. Dr. Wenceslao Vitug, testified that the deceased came to see him on December
14, 1973 for consolation and claimed to have been diabetic for five years. (t.s.n.,
The insurer has two years from the date of issuance of the insurance contract or
Aug. 23,1976, p. 5; Exhibit 6) Because of the concealment made by the deceased
of its last reinstatement within which to contest the policy, whether or not, the
of his consultations and treatments for hypertension, diabetes and liver
insured still lives within such period. After two years, the defenses of
disorders, respondent company was thus misled into accepting the risk and
concealment or misrepresentation, no matter how patent or well founded, no
approving his application as medically standard (Exhibit 5- C) and dispensing
longer lie. Congress felt this was a sufficient answer to the various tactics
with further medical investigation and examination (Exhibit 5-A). For as long as
employed by insurance companies to avoid liability. The petitioners'
no adverse medical history is revealed in the application form, an applicant for
interpretation would give rise to the incongruous situation where the
insurance is presumed to be healthy and physically fit and no further medical
beneficiaries of an insured who dies right after taking out and paying for a life
investigation or examination is conducted by respondent company. (t.s.n., April
insurance policy, would be allowed to collect on the policy even if the insured
8,1976, pp. 6-8). (Rollo, pp. 96-98)
fraudulently concealed material facts.
There is no strong showing that we should apply the "fine print" or "contract of
The petitioners argue that no evidence was presented to show that the medical
adhesion" rule in this case. (Sweet Lines, Inc. v. Teves, 83 SCRA 361 [1978]). The
terms were explained in a layman's language to the insured. They state that the
petitioners cite:
insurer should have presented its two medical field examiners as witnesses.
Moreover, the petitioners allege that the policy intends that the medical It is a matter of common knowledge that large amounts of money are collected
examination must be conducted before its issuance otherwise the insurer from ignorant persons by companies and associations which adopt high
"waives whatever imperfection by ratification." sounding titles and print the amount of benefits they agree to pay in large black-
faced type, following such undertakings by fine print conditions which destroy
the substance of the promise. All provisions, conditions, or exceptions which in
any way tend to work a forfeiture of the policy should be construed most
strongly against those for whose benefit they are inserted, and most favorably
toward those against whom they are meant to operate. (Trinidad v. Orient
Protective Assurance Assn., 67 Phil. 184)

There is no showing that the questions in the application form for insurance
regarding the insured's medical history are in smaller print than the rest of the
printed form or that they are designed in such a way as to conceal from the
applicant their importance. If a warning in bold red letters or a boxed warning
similar to that required for cigarette advertisements by the Surgeon General of
the United States is necessary, that is for Congress or the Insurance Commission
to provide as protection against high pressure insurance salesmanship. We are
limited in this petition to ascertaining whether or not the respondent Court of
Appeals committed reversible error. It is the petitioners' burden to show that
the factual findings of the respondent court are not based on substantial
evidence or that its conclusions are contrary to applicable law and
jurisprudence. They have failed to discharge that burden.

WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned
decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

Fernan, (C.J., Chairman), Bidin and Cortes, JJ., concur.

Feliciano, took no part.

G.R. No. 175666, July 29, 2013 1. Sotero did not personally apply for insurance coverage, as she was
illiterate;chanr0blesvirtualawlibrary
MANILA BANKERS LIFE INSURANCE CORPORATION, Petitioner, v. CRESENCIA P.
ABAN,Respondent. 2. Sotero was sickly since 1990;chanr0blesvirtualawlibrary

DECISION 3. Sotero did not have the financial capability to pay the insurance
premiums on Insurance Policy No. 747411;chanr0blesvirtualawlibrary
DEL CASTILLO, J.:
4. Sotero did not sign the July 3, 1993 application for insurance;9 [and]

5. Respondent was the one .who filed the insurance application, and x x x
The ultimate aim of Section 48 of the Insurance Code is to compel insurers to designated herself as the beneficiary.10cralaw virtualaw library
solicit business from or provide insurance coverage only to legitimate and bona
fide clients, by requiring them to thoroughly investigate those they insure within For the above reasons, petitioner denied respondent's claim on April 16, 1997
two years from effectivity of the policy and while the insured is still alive. If they and refunded the premiums paid on the policy.11cralaw virtualaw library
do not, they will be obligated to honor claims on the policies they issue,
regardless of fraud, concealment or misrepresentation. The law assumes that On April 24, 1997, petitioner filed a civil case for rescission and/or annulment of
they will do just that and not sit on their laurels, indiscriminately soliciting and the policy, which was docketed as Civil Case No. 97-867 and assigned to Branch
accepting insurance business from any Tom, Dick and Harry. 134 of the Makati Regional Trial Court. The main thesis of the Complaint was
that the policy was obtained by fraud, concealment and/or misrepresentation
Assailed in this Petition for Review on Certiorari1 are the September 28, 2005 under the Insurance Code,12 which thus renders it voidable under Article
Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 62286 and its 139013 of the Civil Code.
November 9, 2006 Resolution3 denying the petitioner's Motion for
Reconsideration.4cralaw virtualaw library Respondent filed a Motion to Dismiss14 claiming that petitioner's cause of action
was barred by prescription pursuant to Section 48 of the Insurance Code, which
Factual Antecedents provides as follows:

On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Whenever a right to rescind a contract of insurance is given to the insurer by
Manila Bankers Life Insurance Corporation (Bankers Life), designating any provision of this chapter, such right must be exercised previous to the
respondent Cresencia P. Aban (Aban), her niece,5 as her beneficiary. commencement of an action on the contract.

Petitioner issued Insurance Policy No. 747411 (the policy), with a face value of After a policy of life insurance made payable on the death of the insured shall
P100,000.00, in Sotero's favor on August 30, 1993, after the requisite medical have been in force during the lifetime of the insured for a period of two years
examination and payment of the insurance premium.6cralaw virtualaw library from the date of its issue or of its last reinstatement, the insurer cannot prove
that the policy is void ab initio or is rescindible by reason of the fraudulent
On April 10, 1996,7 when the insurance policy had been in force for more than concealment or misrepresentation of the insured or his agent.
two years and seven months, Sotero died. Respondent filed a claim for the During the proceedings on the Motion to Dismiss, petitioner's investigator
insurance proceeds on July 9, 1996. Petitioner conducted an investigation into testified in court, stating among others that the insurance underwriter who
the claim,8 and came out with the following findings:
solicited the insurance is a cousin of respondent's husband, Dindo Aban,15 and WHEREFORE, in the light of all the foregoing, the instant appeal
that it was the respondent who paid the annual premiums on the policy.16cralaw is DISMISSED for lack of merit.
virtualaw library
SO ORDERED.20cralaw virtualaw library
Ruling of the Regional Trial Court
The CA thus sustained the trial court. Applying Section 48 to petitioner's case,
the CA held that petitioner may no longer prove that the subject policy was
On December 9, 1997, the trial court issued an Order17 granting respondent's void ab initio or rescindible by reason of fraudulent concealment or
Motion to Dismiss, thus: misrepresentation after the lapse of more than two years from its issuance. It
ratiocinated that petitioner was equipped with ample means to determine,
WHEREFORE, defendant CRESENCIA P. ABAN's Motion to Dismiss is hereby within the first two years of the policy, whether fraud, concealment or
granted. Civil Case No. 97-867 is hereby dismissed. misrepresentation was present when the insurance coverage was obtained. If it
failed to do so within the statutory two-year period, then the insured must be
SO ORDERED.18cralaw virtualaw library protected and allowed to claim upon the policy.

In dismissing the case, the trial court found that Sotero, and not respondent, Petitioner moved for reconsideration,21 but the CA denied the same in its
was the one who procured the insurance; thus, Sotero could legally take out
November 9, 2006 Resolution.22 Hence, the present Petition.
insurance on her own life and validly designate - as she did — respondent as the
beneficiary. It held further that under Section 48, petitioner had only two years Issues
from the effectivity of the policy to question the same; since the policy had
been in force for more than two years, petitioner is now barred from contesting
the same or seeking a rescission or annulment thereof. Petitioner raises the following issues for resolution:

Petitioner moved for reconsideration, but in another Order19 dated October 20,
1998, the trial court stood its ground. I

Petitioner interposed an appeal with the CA, docketed as CA-G.R. CV No. 62286.
[WHETHER] THE COURT OF APPEALS ERRED IN SUSTAINING THE ORDER OF THE
Petitioner questioned the dismissal of Civil Case No. 97-867, arguing that the
TRIAL COURT DISMISSING THE COMPLAINT ON THE GROUND OF PRESCRIPTION
trial court erred in applying Section 48 and declaring that prescription has set in.
IN CONTRAVENTION (OF) PERTINENT LAWS AND APPLICABLE JURISPRUDENCE.
It contended that since it was respondent - and not Sotero - who obtained the
insurance, the policy issued was rendered void ab initio for want of insurable II
interest.

Ruling of the Court of Appeals [WHETHER] THE COURT OF APPEALS ERRED IN SUSTAINING THE APPLICATION
OF THE INCONTESTABILITY PROVISION IN THE INSURANCE CODE BY THE TRIAL
On September 28, 2005, the CA issued the assailed Decision, which contained COURT.
the following decretal portion:
III
 in her own life, and could validly designate anyone as her beneficiary.
[WHETHER] THE COURT OF APPEALS ERRED IN DENYING PETITIONER'S MOTION Respondent submits that the CA's findings of fact leading to such conclusion
FOR RECONSIDERATION.23cralaw virtualaw library should be respected.

Petitioner's Arguments Our Ruling

In praying that the CA Decision be reversed and that the case be remanded to The Court denies the Petition.
the trial court for the conduct of further proceedings, petitioner argues in its
Petition and Reply24 that Section 48 cannot apply to a case where the The Court will not depart from the trial and appellate courts' finding that it was
beneficiary under the insurance contract posed as the insured and obtained the Sotero who obtained the insurance for herself, designating respondent as her
policy under fraudulent circumstances. It adds that respondent, who was merely beneficiary. Both courts are in accord in this respect, and the Court is loath to
Sotero's niece, had no insurable interest in the life of her aunt. disturb this. While petitioner insists that its independent investigation on the
claim reveals that it was respondent, posing as Sotero, who obtained the
Relying on the results of the investigation that it conducted after the claim for insurance, this claim is no longer feasible in the wake of the courts' finding that
the insurance proceeds was filed, petitioner insists that respondent's claim was it was Sotero who obtained the insurance for herself. This finding of fact binds
spurious, as it appeared that Sotero did not actually apply for insurance the Court.
coverage, was unlettered, sickly, and had no visible source of income to pay for
the insurance premiums; and that respondent was an impostor, posing as With the above crucial finding of fact - that it was Sotero who obtained the
Sotero and fraudulently obtaining insurance in the latter's name without her insurance for herself - petitioner's case is severely weakened, if not totally
knowledge and consent. disproved. Allegations of fraud, which are predicated on respondent's alleged
posing as Sotero and forgery of her signature in the insurance application, are at
Petitioner adds that Insurance Policy No. 747411 was void ab initio and could once belied by the trial and appellate courts' finding that Sotero herself took out
not have given rise to rights and obligations; as such, the action for the the insurance for herself. "[Fraudulent intent on the part of the insured must be
declaration of its nullity or inexistence does not prescribe.25cralaw virtualaw established to entitle the insurer to rescind the contract"27 In the absence of
library proof of such fraudulent intent, no right to rescind arises.

Respondent's Arguments Moreover, the results and conclusions arrived at during the investigation
conducted unilaterally by petitioner after the claim was filed may simply be
Respondent, on the other hand, essentially argues in her Comment26 that the CA dismissed as self-serving and may not form the basis of a cause of action given
is correct in applying Section 48. She adds that petitioner's new allegation in its the existence and application of Section 48, as will be discussed at length
Petition that the policy is void ab initio merits no attention, having failed to raise below.
the same below, as it had claimed originally that the policy was merely
voidable. Section 48 serves a noble purpose, as it regulates the actions of both the insurer
and the insured. Under the provision, an insurer is given two years - from the
On the issue of insurable interest, respondent echoes the CA's pronouncement effectivity of a life insurance contract and while the insured is alive - to discover
that since it was Sotero who obtained the insurance, insurable interest was or prove that the policy is void ab initio or is rescindible by reason of the
present. Under Section 10 of the Insurance Code, Sotero had insurable interest fraudulent concealment or misrepresentation of the insured or his agent. After
the two-year period lapses, or when the insured dies within the period, the devoted the same to its own profit. It cannot now deny the claim when it is
insurer must make good on the policy, even though the policy was obtained by called to account. Section 48 must be applied to it with full force and effect.
fraud, concealment, or misrepresentation. This is not to say that insurance fraud
must be rewarded, but that insurers who recklessly and indiscriminately solicit The Court therefore agrees fully with the appellate court's pronouncement that
and obtain business must be penalized, for such recklessness and lack of -
discrimination ultimately work to the detriment of bona fide takers of insurance
and the public in general. [t]he "incontestability clause" is a provision in law that after a policy of life
insurance made payable on the death of the insured shall have been in force
Section 48 regulates both the actions of the insurers and prospective takers of during the lifetime of the insured for a period of two (2) years from the date of
life insurance. It gives insurers enough time to inquire whether the policy was its issue or of its last reinstatement, the insurer cannot prove that the policy is
void ab initio or is rescindible by reason of fraudulent concealment or
obtained by fraud, concealment, or misrepresentation; on the other hand, it
forewarns scheming individuals that their attempts at insurance fraud would be misrepresentation of the insured or his agent.
timely uncovered - thus deterring them from venturing into such nefarious
enterprise. At the same time, legitimate policy holders are absolutely protected The purpose of the law is to give protection to the insured or his beneficiary by
from unwarranted denial of their claims or delay in the collection of insurance limiting the rescinding of the contract of insurance on the ground of fraudulent
proceeds occasioned by allegations of fraud, concealment, or misrepresentation concealment or misrepresentation to a period of only two (2) years from the
by insurers, claims which may no longer be set up after the two-year period issuance of the policy or its last reinstatement.
expires as ordained under the law.
The insurer is deemed to have the necessary facilities to discover such
Thus, the self-regulating feature of Section 48 lies in the fact that both the fraudulent concealment or misrepresentation within a period of two (2) years. It
is not fair for the insurer to collect the premiums as long as the insured is still
insurer and the insured are given the assurance that any dishonest scheme to
obtain life insurance would be exposed, and attempts at unduly denying a claim alive, only to raise the issue of fraudulent concealment or misrepresentation
would be struck down. Life insurance policies that pass the statutory two-year when the insured dies in order to defeat the right of the beneficiary to recover
under the policy.
period are essentially treated as legitimate and beyond question, and the
individuals who wield them are made secure by the thought that they will be
paid promptly upon claim. In this manner, Section 48 contributes to the stability At least two (2) years from the issuance of the policy or its last reinstatement,
of the insurance industry. the beneficiary is given the stability to recover under the policy when the
insured dies. The provision also makes clear when the two-year period should
Section 48 prevents a situation where the insurer knowingly continues to accept commence in case the policy should lapse and is reinstated, that is, from the
annual premium payments on life insurance, only to later on deny a claim on date of the last reinstatement.
the policy on specious claims of fraudulent concealment and misrepresentation,
such as what obtains in the instant case. Thus, instead of conducting at the first After two years, the defenses of concealment or misrepresentation, no matter
instance an investigation into the circumstances surrounding the issuance of how patent or well-founded, will no longer lie.
insurance Policy No. 747411 which would have timely exposed the supposed
flaws and irregularities attending it as it now professes, petitioner appears to Congress felt this was a sufficient answer to the various tactics employed by
have turned a blind eye and opted instead to continue collecting the premiums insurance companies to avoid liability.
on the policy. For nearly three years, petitioner collected the premiums and
The so-called "incontestability clause" precludes the insurer from raising the before taking them in to market their products, or if they do not thoroughly
defenses of false representations or concealment of material facts insofar as investigate the insurance contracts they enter into with their clients, then they
health and previous diseases are concerned if the insurance has been in force have only themselves to blame. Otherwise said, insurers cannot be allowed to
for at least two years during the insured’s lifetime. The phrase "during the collect premiums on insurance policies, use these amounts collected and invest
lifetime" found in Section 48 simply means that the policy is no longer the same through the years, generating profits and returns therefrom for their
considered in force after the insured has died. The key phrase in the second own benefit, and thereafter conveniently deny insurance claims by questioning
paragraph of Section 48 is "for a period of two years." the authority or integrity of their own agents or the insurance policies they
issued to their premium-paying clients. This is exactly one of the schemes which
As borne by the records, the policy was issued on August 30. 1993, the insured Section 48 aims to prevent.
died on April 10, 1996, and the claim was denied on April 16, 1997. The
insurance policy was thus in force for a period of 3 years, 7 months, and 24 Insurers may not be allowed to delay the payment of claims by filing frivolous
days. Considering that the insured died after the two-year period, the plaintiff- cases in court, hoping that the inevitable may be put off for years - or even
appellant is, therefore, barred from proving that the policy is void ab initio by decades — by the pendency of these unnecessary court cases. In the meantime,
reason of the insured fraudulent concealment or misrepresentation or want of they benefit from collecting the interest and/or returns on both the premiums
insurable interest on the part of the beneficiary, herein defendant-appellee. previously paid by the insured and the insurance proceeds which should
otherwise go to their beneficiaries. The business of insurance is a highly
Well-settled is the rule that it is the plaintiff-appellant's burden to show that the regulated commercial activity in the country,29 and is imbued with public
factual findings of the trial court are not based on substantial evidence or that interest.30 "[A]n insurance contract is a contract of adhesion which must be
its conclusions are contrary to applicable law and jurisprudence. The plaintiff- construed liberally in favor of the insured and strictly against the insurer in
appellant failed to discharge that burden.28cralaw virtualaw library order to safeguard the [former's] interest."31cralaw virtualaw library

Petitioner claims that its insurance agent, who solicited the Sotero account, WHEREFORE, the Petition is DENIED. The assailed September 28, 2005 Decision
happens to be the cousin of respondent's husband, and thus insinuates that and the November 9, 2006 Resolution of the Court of Appeals in CA-G.R. CV No.
both connived to commit insurance fraud. If this were truly the case, then
62286 are AFFIRMED.
petitioner would have discovered the scheme earlier if it had in earnest
conducted an investigation into the circumstances surrounding the Sotero SO ORDERED.
policy. But because it did not and it investigated the Sotero account only after a
claim was filed thereon more than two years later, naturally it was unable to
detect the scheme. For its negligence and inaction, the Court cannot sympathize
with its plight. Instead, its case precisely provides the strong argument for
requiring insurers to diligently conduct investigations on each policy they issue
within the two-year period mandated under Section 48, and not alter claims for
insurance proceeds are filed with them.

Besides, if insurers cannot vouch for the integrity and honesty of their insurance
agents/salesmen and the insurance policies they issue, then they should cease
doing business. If they could not properly screen their agents or salesmen
G.R. No. 195176 On October 12, 1999, Insular Life advised Felipe that his application for
reinstatement may only be considered if he agreed to certain conditions such as
THE INSULAR LIFE ASSURANCE COMPANY, LTD., Petitioner, payment of additional premium and the cancellation of the riders pertaining to
vs.
PAZ Y. KHU, FELIPE Y. KHU, JR., and FREDERICK Y. KHU, Respondents. premium waiver and accidental death benefits. Felipe agreed to these
conditions8 and on December 27, 1999 paid the agreed additional premium of
DECISION P3,054.50.9
DEL CASTILLO, J.: On January 7, 2000, Insular Life issued Endorsement No. PNA000015683, which
The date of last reinstatement mentioned in Section 48 of the Insurance Code reads:
pertains to the date that the insurer approved· the application for This certifies that as agreed by the Insured, the reinstatement of this policy has
reinstatement. However, in light of the ambiguity in the insurance documents to been approved by the Company on the understanding that the following
this case, this Court adopts the interpretation favorable to the insured in
changes are made on the policy effective June 22, 1999:
determining the date when the reinstatement was approved.
1. The EXTRA PREMIUM is imposed; and
Assailed in this Petition for Review on Certiorari1 are the June 24, 2010
Decision2 of the Court of Appeals (CA), which dismissed the Petition in CA-GR. 2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY
CV No. 81730, and its December 13, 2010 Resolution3 which denied the (WPD) rider originally attached to and forming parts of this policy [are] deleted.
petitioner Insular Life Assurance Company Ltd. 's (Insular Life) motion for partial
reconsideration.4 In consequence thereof, the premium rates on this policy are adjusted to
P28,000.00 annually, P14,843.00 semi-annually and P7,557.00 quarterly,
Factual Antecedents Philippine currency.10

On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy On June 23, 2000, Felipe paid the annual premium in the amount of P28,000.00
with Insular Life under the latter’s Diamond Jubilee Insurance Plan. Felipe covering the period from June 22, 2000 to June 22, 2001. And on July 2, 2001,
accomplished the required medical questionnaire wherein he did not declare he also paid the same amount as annual premium covering the period from
any illness or adverse medical condition. Insular Life thereafter issued him Policy June 22, 2001 to June 21, 2002.11
Number A000015683 with a face value of P1 million. This took effect on June 22,
On September 22, 2001, Felipe died. His Certificate of Death enumerated the
1997.5
following as causes of death:
On June 23, 1999, Felipe’s policy lapsed due to non-payment of the premium
covering the period from June 22, 1999 to June 23, 2000.6 Immediate cause: a. End stage renal failure, Hepatic failure

On September 7, 1999, Felipe applied for the reinstatement of his policy and Antecedent cause: b. Congestive heart failure, Diffuse myocardial ischemia.
paid P25,020.00 as premium. Except for the change in his occupation of being Underlying cause: c. Diabetes Neuropathy, Alcoholism, and Pneumonia.12
self-employed to being the Municipal Mayor of Binuangan, Misamis Oriental, all
the other information submitted by Felipe in his application for reinstatement On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. and Frederick Y. Khu
was virtually identical to those mentioned in his original policy.7 (collectively, Felipe’s beneficiaries or respondents) filed with Insular Life a claim
for benefit under the reinstated policy. This claim was denied. Instead, Insular
Life advised Felipe’s beneficiaries that it had decided to rescind the reinstated Appeals17 that any ambiguity in a contract of insurance should be resolved
policy on the grounds of concealment and misrepresentation by Felipe. strictly against the insurer upon the principle that an insurance contract is a
contract of adhesion.18 The RTC also held that the reinstated insurance policy
Hence, respondents instituted a complaint for specific performance with had already become incontestable by the time of Felipe’s death on September
damages. Respondents prayed that the reinstated life insurance policy be
22, 2001 since more than two years had already lapsed from the date of the
declared valid, enforceable and binding on Insular Life; and that the latter be policy’s reinstatement on June 22, 1999. The RTC noted that since it was Insular
ordered to pay unto Felipe’s beneficiaries the proceeds of this policy, among Life itself that supplied all the pertinent forms relative to the reinstated policy,
others.13 then it is barred from taking advantage of any ambiguity/obscurity perceived
In its Answer, Insular Life countered that Felipe did not disclose the ailments therein particularly as regards the date when the reinstated insurance policy
(viz., Type 2 Diabetes Mellitus, Diabetes Nephropathy and Alcoholic Liver became effective.
Cirrhosis with Ascites) that he already had prior to his application for
Ruling of the Court of Appeals
reinstatement of his insurance policy; and that it would not have reinstated the
insurance policy had Felipe disclosed the material information on his adverse On June 24, 2010, the CA issued the assailed Decision19 which contained the
health condition. It contended that when Felipe died, the policy was still following decretal portion:

contestable.14 WHEREFORE, the appeal is DISMISSED. The assailed Judgment of the lower
court is AFFIRMED with the MODIFICATION that the award of moral damages,
Ruling of the Regional Trial Court (RTC) attorney’s fees and litigation expenses [is] DELETED.
On December 12, 2003, the RTC, Branch 39 of Cagayan de Oro City found15 for SO ORDERED.20
Felipe’s beneficiaries, thus:
The CA upheld the RTC’s ruling on the non-contestability of the reinstated
WHEREFORE, in view of the foregoing, plaintiffs having substantiated [their] insurance policy on the date the insured died. It declared that contrary to
claim by preponderance of evidence, judgment is hereby rendered in their favor
Insular Life’s contention, there in fact exists a genuine ambiguity or obscurity in
and against defendants, ordering the latter to pay jointly and severally the the language of the two documents prepared by Insular Life itself, viz., Felipe’s
sum of One Million (P1,000,000.00) Pesos with legal rate of interest from the Letter of Acceptance and Insular Life’s Endorsement; that given the
date of demand until it is fully paid representing the face value of Plan Diamond obscurity/ambiguity in the language of these two documents, the
Jubilee No. PN-A000015683 issued to insured the late Felipe N. Khu[,] Sr; the construction/interpretation that favors the insured’s right to recover should be
sum of P20,000.00 as moral damages; P30,000.00 as attorney’s fees; P10,000.00 adopted; and that in keeping with this principle, the insurance policy in dispute
as litigation expenses. must be deemed reinstated as of June 22, 1999.21

SO ORDERED.16 Insular Life moved for partial reconsideration22 but this was denied by the CA in
its Resolution of December 13, 2010.23 Hence, the present Petition.
In ordering Insular Life to pay Felipe’s beneficiaries, the RTC agreed with the
latter’s claim that the insurance policy was reinstated on June 22, 1999. The RTC Issue
cited the ruling in Malayan Insurance Corporation v. Court of The fundamental issue to be resolved in this case is whether Felipe’s reinstated
life insurance policy is already incontestable at the time of his death.
Petitioner’s Arguments Sec. 48. Whenever a right to rescind a contract of insurance is given to the
insurer by any provision of this chapter, such right must be exercised previous
In praying for the reversal of the CA Decision, Insular Life basically argues that to the commencement of an action on the contract.
respondents should not be allowed to recover on the reinstated insurance
policy because the two-year contestability period had not yet lapsed inasmuch After a policy of life insurance made payable on the death of the insured shall
as the insurance policy was reinstated only on December 27, 1999, whereas have been in force during the lifetime of the insured for a period of two years
Felipe died on September 22, 2001;24 that the CA overlooked the fact that Felipe from the date of its issue or of its last reinstatement, the insurer cannot prove
paid the additional extra premium only on December 27, 1999, hence, it is only that the policy is void ab initio or is rescindible by reason of the fraudulent
upon this date that the reinstated policy had become effective; that the CA concealment or misrepresentation of the insured or his agent.
erred in declaring that resort to the principles of statutory construction is still
necessary to resolve that question given that the Application for Reinstatement, The rationale for this provision was discussed by the Court in Manila Bankers
the Letter of Acceptance and the Endorsement in and by themselves already Life Insurance Corporation v. Aban,29
embodied unequivocal provisions stipulating that the two-year contestability Section 48 regulates both the actions of the insurers and prospective takers of
clause should be reckoned from the date of approval of the life insurance. It gives insurers enough time to inquire whether the policy was
reinstatement;25 and that Felipe’s misrepresentation and concealment of obtained by fraud, concealment, or misrepresentation; on the other hand, it
material facts in regard to his health or adverse medical condition gave it forewarns scheming individuals that their attempts at insurance fraud would be
(Insular Life) the right to rescind the contract of insurance and consequently, the timely uncovered – thus deterring them from venturing into such nefarious
right to deny the claim of Felipe’s beneficiaries for death benefits under the enterprise. At the same time, legitimate policy holders are absolutely protected
disputed policy.26 from unwarranted denial of their claims or delay in the collection of insurance
proceeds occasioned by allegations of fraud, concealment, or misrepresentation
Respondents’ Arguments
by insurers, claims which may no longer be set up after the two-year period
Respondents maintain that the phrase "effective June 22, 1999" found in both expires as ordained under the law.
the Letter of Acceptance and in the Endorsement is unclear whether it refers to
the subject of the sentence, i.e., the "reinstatement of this policy" or to the xxxx
subsequent phrase "changes are made on the policy;" that granting that there The Court therefore agrees fully with the appellate court’s pronouncement that-
was any obscurity or ambiguity in the insurance policy, the same should be laid
at the door of Insular Life as it was this insurance company that prepared the xxxx
necessary documents that make up the same;27 and that given the CA’s finding
‘The insurer is deemed to have the necessary facilities to discover such
which effectively affirmed the RTC’s finding on this particular issue, it stands to
fraudulent concealment or misrepresentation within a period of two (2) years. It
reason that the insurance policy had indeed become incontestable upon the
is not fair for the insurer to collect the premiums as long as the insured is still
date of Felipe’s death.28
alive, only to raise the issue of fraudulent concealment or misrepresentation
Our Ruling when the insured dies in order to defeat the right of the beneficiary to recover
under the policy.
We deny the Petition.
At least two (2) years from the issuance of the policy or its last reinstatement,
The Insurance Code pertinently provides that: the beneficiary is given the stability to recover under the policy when the
insured dies. The provision also makes clear when the two-year period should
commence in case the policy should lapse and is reinstated, that is, from the The Insular Life Assurance Co., Ltd.
date of the last reinstatement’. P.O. Box 128, MANILA

In Lalican v. The Insular Life Assurance Company, Limited,30 which coincidentally Policy No. A000015683
also involves the herein petitioner, it was there held that the reinstatement of
the insured’s policy is to be reckoned from the date when the Gentlemen:

application was processed and approved by the insurer. There, we stressed that: Thru your Reinstatement Section, I/WE learned that this policy may be
reinstated provided I/we agree to the following condition/s indicated with a
To reinstate a policy means to restore the same to premium-paying status after check mark:
it has been permitted to lapse. x x x
[xx] Accept the imposition of an extra/additional extra premium of [P]5.00 a
xxxx year per thousand of insurance; effective June 22, 1999

In the instant case, Eulogio’s death rendered impossible full compliance with the [ ] Accept the rating on the WPD at ____ at standard rates; the ABD at _____ the
conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his standard rates; the SAR at P____ annually per thousand of Insurance;
death, managed to file his Application for Reinstatement and deposit
[xx] Accept the cancellation of the Premium waiver & Accidental death benefit.
the amount for payment of his overdue premiums and interests thereon with
Malaluan; but Policy No. 9011992 could only be considered reinstated after the []
Application for Reinstatement had been processed and approved by Insular Life I am/we are agreeable to the above condition/s. Please proceed with the
during Eulogio’s lifetime and good health.31 reinstatement of the policy.
Thus, it is settled that the reinstatement of an insurance policy should be Very truly yours,
reckoned from the date when the same was approved by the insurer.
Felipe N. Khu, Sr.
In this case, the parties differ as to when the reinstatement was actually
approved. Insular Life claims that it approved the reinstatement only on After Felipe accomplished this form, Insular Life, through its Regional
December 27, 1999. On the other hand, respondents contend that it was on Administrative Manager, Jesse James R. Toyhorada, issued an
June Endorsement33 dated January 7, 2000. For emphasis, the Endorsement is again
quoted as follows:
22, 1999 that the reinstatement took effect.
ENDORSEMENT
The resolution of this issue hinges on the following documents: 1) Letter of
Acceptance; and 2) the Endorsement. PN-A000015683

The Letter of Acceptance32 wherein Felipe affixed his signature was actually This certifies that as agreed to by the Insured, the reinstatement of this policy
drafted and prepared by Insular Life. This pro-forma document reads as follows: has been approved by the Company on the understanding that the following
changes are made on the policy effective June 22, 1999:
LETTER OF ACCEPTANCE
1. The EXTRA PREMIUM is imposed; and
Place: Cag. De [O]ro City
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY 1999" refers to the subject of the sentence, namely "the reinstatement of this
(WPD) rider originally attached to and forming parts of this policy is deleted. policy," or to the subsequent phrase "changes are made on the policy."

In consequence thereof, the PREMIUM RATES on this policy are adjusted to The court below is correct. Given the obscurity of the language, the construction
[P]28,000.00 annuallly, [P]14,843.00 semi-annually and [P]7,557.00 quarterly, favorable to the insured will be adopted by the courts.
Philippine Currency.
Accordingly, the subject policy is deemed reinstated as of June 22, 1999. Thus,
Cagayan de Oro City, 07 January 2000. the period of contestability has lapsed.35
RCV/
In Eternal Gardens Memorial Park Corporation v. The Philippine American Life
(Signed) Authorized Signature Insurance Company,36 we ruled in favor of the insured and in favor of the
effectivity of the insurance contract in the midst of ambiguity in the insurance
Based on the foregoing, we find that the CA did not commit any error in holding contract provisions. We held that:
that the subject insurance policy be considered as reinstated on June 22, 1999.
This finding must be upheld not only because it accords with the evidence, but It must be remembered that an insurance contract is a contract of adhesion
also because this is favorable to the insured who was not responsible for which must be construed liberally in favor of the insured and strictly against the
causing the ambiguity or obscurity in the insurance contract.34 insurer in order to safeguard the latter’s interest. Thus, in MalayanInsurance
Corporation v. Court of Appeals, this Court held that:
The CA expounded on this point thus –
Indemnity and liability insurance policies are construed in accordance with the
The Court discerns a genuine ambiguity or obscurity in the language of the two general rule of resolving any ambiguity therein in favor of the insured, where
documents. the contract or policy is prepared by the insurer. A contract of insurance, being
In the Letter of Acceptance, Khu declared that he was accepting "the imposition a contract of adhesion, par excellence, any ambiguity therein should be
of an extra/additional x x x premium of P5.00 a year per thousand of insurance; resolved against the insurer; in other words, it should be construed liberally in
effective June 22, 1999". It is true that the phrase as used in this favor of the insured and strictly against the insurer. Limitations of liability should
be regarded with extreme jealousy and must be construed in such a way as to
particular paragraph does not refer explicitly to the effectivity of the preclude the insurer from noncompliance with its obligations.
reinstatement. But the Court notes that the reinstatement was conditioned
upon the payment of additional premium not only prospectively, that is, to xxxx
cover the As a final note, to characterize the insurer and the insured as contracting parties
remainder of the annual period of coverage, but also retroactively, that is for on equal footing is inaccurate at best. Insurance contracts are wholly prepared
the period starting June 22, 1999. Hence, by paying the amount of P3,054.50 on by the insurer with vast amounts of experience in the industry
December 27, 1999 in addition to the P25,020.00 he had earlier paid on purposefully used to its advantage. More often than not, insurance contracts
September 7, 1999, Khu had paid for the insurance coverage starting June 22, are contracts of adhesion containing technical terms and conditions of the
1999. At the very least, this circumstance has engendered a true lacuna. industry, confusing if at all understandable to laypersons, that are imposed on
In the Endorsement, the obscurity is patent. In the first sentence of the those who wish to avail of insurance. As such, insurance contracts are imbued
Endorsement, it is not entirely clear whether the phrase "effective June 22, with public interest that must be considered whenever the rights and
obligations of the insurer and the insured are to be delineated. Hence, in order
to protect the interest of insurance applicants, insurance companies must be
obligated to act with haste upon insurance applications, to either deny or
approve the same, or otherwise be bound to honor the application as a valid,
binding, and effective insurance contract.37

Indeed, more than two years had lapsed from the time the subject insurance
policy was reinstated on June 22, 1999 vis-a-vis Felipe’s death on September 22,
2001.1âwphi1 As such, the subject insurance policy has already become
incontestable at the time of Felipe’s death.

Finally, we agree with the CA that there is neither basis nor justification for the
RTC’s award of moral damages, attorney’s fees and litigation expenses; hence
this award must be deleted.

WHEREFORE, the Petition is DENIED. The assailed .June 24, 2010 Decision and
December 13, 2010 Resolution of the Court of Appeals in CA-GR. CV No. 81730
are AFFIRMED.

SO ORDERED.