case digest comm

7/29/2019 Case Digest Comm

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SUN INSURANCE OFFICE LTD. V CA (TAN)

195 SCRA 193

PARAS; March 13, 1991

NATURE

Petition for certiorari to review the decision of the CA

FACTS

- Private respondent Emilio Tan took from the

petitioner a Peso 300,000 property insurance policy

to cover his interest in the electrical insurance store

of his brother housed in a building in Iloilo City on

August 15, 1983. Four days after the issuance of the

policy, the building including the insured store

burned.

- On August 20, 1983, Tan filed his claim for fire loss.

Sun Insurance, on February 29, 1984, wrote the

private respondent denying the claim. On April 3,

1984, private respondent wrote another letter to the

insurance company requesting reconsideration of thedenial. Tans lawyer wrote another letter to the

insurance company inquiring about the April 3 letter

which sought for a reconsideration of the denial. In

its reply to the lawyers letter, Sun Insurance

reiterated its denial of the claim and enclosed therein

copies of the two previous denials dated February

29, 1984 and May 17, 1985.

- On November 20, 1985, Tan filed a civil case with

the RTC. Petition filed a motion to dismiss on the

alleged ground that the action has already prescribed

based on Condition 27 of the Insurance Policy whichstated that the window to file the appropriate action

with either the Insurance Commission or in any court

of competent jurisdiction is twelve months from the

rejection of the claim. RTC denied the motion and the

subsequent motion for reconsideration. The CA

likewise denied the petition of Sun Insurance.

ISSUE

1. WON the court the filing of a motion for

reconsideration interrupts the 12 months prescription

period to contest the denial of the insurance claim

2. WON the rejection of the claim shall be deemed

final only if it contains words to the effect that the

denial is final

HELD

1. NO

- The SC held that Condition 27 of the Insurance

policy is very clear and free from any doubt or

ambiguity. It has to be taken in its plain, ordinary,

and popular sense. The rejection letter of February


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29, 1984 was clear and plain. The Court noted that

the one year period is likewise in accord with Section

23 of the Insurance Code which states that any

condition which limits the time for commencing an

action to a period of less than one year when the

cause of action accrues is void. The right of action,

according to the SC, accrues at the time that the

claim is rejected at the first instance. A request for

reconsideration of the denial cannot suspend the

running of the prescriptive period. The Court noted

that the rationale for the one year period is to ensure

that the evidence as to the origin and cause of the

destruction have not yet disappeared.

2. NO

- The Court clarified its ruling in Eagle Star Insurance

Co. vs Chia Yu where it ruled that the cause of

action in an insurance contract does not accrue until

the Insureds claim is finally rejected by the Insurerby stating the use of the word finally cannot be

construed to mean the rejection of a petition for

reconsideration. What the court referred to in effect

is the rejection in the first instance as claimed by

Sun Insurance

Disposition The decision of the CA is reversed and

set aside. The case is dismissed

Fieldmans Insurance v. Songco - Disclosure of Material Facts in Insurance

25 SCRA 70

Facts:

> In 1960, Sambat, an agent of Fieldmans Insurance, induced Songco, a man of scant education to enter

into a common carrier insurance contract with Fieldman.

> During the inducement, a son of Songco butted in and said that they could not accept the type of

insurance offered because theirs was an owner-type jeepney and not a common carrier.

> Sambat answered that it did not matter because the insurance company was not owned by the

government and therefore had nothing to do with rules and regulations of the latter (Fieldman).

> The insurance was executed and approved for a year from Sept. 1960-1961. It was renewed in 1961

for another year.

> In Oct. 1961, the jeepney collided with a car in Bulacan and as a result, Sonco died. The remaining

members of the family claimed the proceeds of the insurance with the company but it refused to pay on

the ground that the vehicle was not a common carrier.

Issue:


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Whether or not the Songcos can claim the insurance proceeds despite the fact that the vehicle

concerned was an owner and not a common carrier.

Held:

Yes.

The company is estopped from asserting that the vehicle was not covered. After it had led Federico

Songco to believe that he could qualify under the common carrier liability insurance policy, and to enter

into a contract of insurance paying the premiums due, it could not thereafter be permitted to change its

stand to the detriment of the heirs of the insured. It knew all along that Frederico owned a private

vehicle. Its agent Sambat twice exerted the utmost pressure on the insured, a man of scant education,

and the company did not object to this.

FILIPINO MERCHANTS INS. v. CA (CHOA TIEK

SENG)

179 SCRA 638

REGALADO; November 28, 1989

NATURE

Review of the decision of the CA

FACTS

- Plaintiff insured said shipment with defendant

insurance company under said cargo for the goods

described as 600 metric tons of fishmeal in new

gunny bags of 90 kilos each from Bangkok, Thailand

to Manila against all risks under warehouse to

warehouse terms.

- Some of the goods arrived in bad condition. Plaintiff

made a claim against Filipino Merchants Insurance

Company. The latter refused to pay. Plaintiff brought


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an action against them. The defendant insurance

company presented a third party complaint against

the vessel and the arrastre contractor.

- Judgment was rendered against the insurance

company. On the third party complaint, the third

party defendants were ordered to pay the third party

plaintiffs. The CA affirmed, but modified the same

with regard to the adjudication of the third-party

complaint

ISSUES

1. WON some fortuity, casualty or accidental cause is

needed to be proved despite the all risks policy (as

asserted by the insurance company)

2. WON the respondent has an insurable interest

HELD

1. NO

- The very nature of the term "all risks" must be

given a broad and comprehensive meaning as

covering any loss other than a willful and fraudulent

act of the insured. 7 This is pursuant to the very

purpose of an "all risks" insurance to give protection

to the insured in those cases where difficulties of

logical explanation or some mystery surround the

loss or damage to property.

- Generally, the burden of proof is upon the insured


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to show that a loss arose from a covered peril, but

under an "all risks" policy the burden is not on the

insured to prove the precise cause of loss or damage

for which it seeks compensation. The insured under

an "all risks insurance policy" has the initial burden

of proving that the cargo was in good condition when

the policy attached and that the cargo was damaged

when unloaded from the vessel; thereafter, the

burden then shifts to the insurer to show the

exception to the coverage. As we held in Paris-Manila

Perfumery Co. vs. Phoenix Assurance Co., Ltd. the

basic rule is that the insurance company has the

burden of proving that the loss is caused by the risk

excepted and for want of such proof, the company is

liable. In the present case, there being no showing

that the loss was caused by any of the excepted

perils, the insurer is liable under the policy.

2. YES

- Section 13 of the Insurance Code defines insurable

interest in property as every interest in property,

whether real or personal, or any relation thereto, or

liability in respect thereof, of such nature that a

contemplated peril might directly damnify the

insured. In principle, anyone has an insurable

interest in property who derives a benefit from its


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existence or would suffer loss from its destruction

whether he has or has not any title in, or lien upon

or possession of the property y. 16 Insurable interest

in property may consist in (a) an existing interest;

(b) an inchoate interest founded on an existing

interest; or (c) an expectancy, coupled with an

existing interest in that out of which the expectancy

arises.

- Respondents interest over the goods is based on

the perfected contract of sale. The perfected contract

of sale between him and the shipper of the goods

operates to vest in him an equitable title even before

delivery or before be performed the conditions of the

sale.

- Further, Article 1523 of the Civil Code provides that

where, in pursuance of a contract of sale, the seller

is authorized or required to send the goods to the

buyer, delivery of the goods to a carrier, whether

named by the buyer or not, for, the purpose of

transmission to the buyer is deemed to be a delivery

of the goods to the buyer, the exceptions to said rule

not obtaining in the present case. The Court has

heretofore ruled that the delivery of the goods on

board the carrying vessels partake of the nature of

actual delivery since, from that time, the foreign


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buyers assumed the risks of loss of the goods and

paid the insurance premium covering them

- Moreover, the issue of lack of insurable interest was

not raised in petitioners answer.

Disposition Petition denied

316 SCRA 677

QUISUMBING; October 13, 1999

NATURE

Petition for Review of CA decision

FACTS

- A contract of group life insurance was executed

between petitioner Great Pacific Life Assurance

Corporation (hereinafter Grepalife) and Development

Bank of the Philippines (hereinafter DBP). Grepalife

agreed to insure the lives of eligible housing loan

mortgagors of DBP.

- In Nov. 1983, Dr. Wilfredo Leuterio, a physician and

a housing debtor of DBP applied for membership in

the group life insurance plan. In an application form,

Dr. Leuterio answered Qs concerning his health

condition as follows:

Q: Have you ever had, or consulted, a physician for


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a heart condition, high blood pressure, cancer,

diabetes, lung, kidney or stomach disorder or any

other physical impairment? No.

Q: Are you now, to the best of your knowledge, in

good health? Yes.

- Grepalife issued an insurance coverage of Dr.

Leuterio, to the extent of his DBP mortgage

indebtedness of P86,200.00. In Aug. 1984, Dr.

Leuterio died due to "massive cerebral hemorrhage."

DBP submitted a death claim to Grepalife. Grepalife

denied the claim because Dr. Leuterio was not

physically healthy when he applied for an insurance.

Grepalife insisted that Dr. Leuterio did not disclose he

had been suffering from hypertension, which caused

his death. Allegedly, such non-disclosure constituted

concealment that justified the denial of the claim.

- Herein respondent Medarda Leuterio, widow, filed a

complaint with RTC against Grepalife for "Specific

Performance with Damages." Dr. Mejia, who issued

the death certificate, testified that Dr. Leuterio

complained of headaches presumably due to high

blood pressure. The inference was not conclusive

because Dr. Leuterio was not autopsied, hence, other

causes were not ruled out.

- RTC ruled in favor of respondent widow and against


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Grepalife. CA sustained the RTC decision. Hence, the

present petition.

ISSUES

1. WON CA erred in holding petitioner liable to DBP

as beneficiary in a group life insurance contract from

a complaint filed by the widow of the

decedent/mortgagor

2. WON CA erred in not finding that Dr. Leuterio

concealed that he had hypertension, which would

vitiate the insurance contract

3. WON CA erred in holding Grepalife liable for

P86,200.00 without proof of the actual outstanding

mortgage payable by the mortgagor to DBP

HELD

1. NO

Ratio Insured, being the person with whom the

contract was made, is primarily the proper person to

bring suit. Subject to some exceptions, insured may

thus sue, although the policy is taken wholly or in

part for the benefit of another person named or

unnamed, and although it is expressly made payable

to another as his interest may appear or otherwise.

Although a policy issued to a mortgagor is taken out

for the benefit of the mortgagee and is made payable

to him, yet the mortgagor may sue thereon in his


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own name, especially where the mortgagee's interest

is less than the full amount recoverable under the

policy. (See Sec. 8, Insurance Code)

Reasoning

[a] The insured private respondent did not cede to

the mortgagee all his rights or interests in the

insurance, the policy stating that: In the event of

the debtor's death before his indebtedness with the

Creditor (DBP) shall have been fully paid, an amount

to pay the outstanding indebtedness shall first be

paid to the creditor and the balance of sum assured,

if there is any, shall then be paid to the

beneficiary/ies designated by the debtor. When DBP

submitted the insurance claim against Grepalife, the

latter denied payment thereof, interposing the

defense of concealment committed by the insured.

Thereafter, DBP collected the debt from the

mortgagor and took the necessary action of

foreclosure on the residential lot of private

respondent.

[b] Since a policy of insurance upon life or health

may pass by transfer, will or succession to any

person, whether he has an insurable interest or not,

and such person may recover it whatever the insured

might have recovered, the widow of the decedent Dr.


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Leuterio may file the suit against the insurer,

Grepalife.

2. NO

Ratio The fraudulent intent on the part of the

insured must be established to entitle the insurer to

rescind the contract. Misrepresentation as a defense

of the insurer to avoid liability is an affirmative

defense and the duty to establish such defense by

satisfactory and convincing evidence rests upon the

insurer. In the case at bar, the petitioner failed to

clearly and satisfactorily establish its defense, and is

therefore liable to pay the proceeds of the insurance.

Reasoning

[a] The insured, Dr. Leuterio, had answered in his

insurance application that he was in good health and

that he had not consulted a doctor or any of the

enumerated ailments, including hypertension; when

he died the attending physician had certified in the

death certificate that the former died of cerebral

hemorrhage, probably secondary to hypertension.

From this report, petitioner Grepalife refused to pay

the insurance claim. It alleged that the insured had

concealed the fact that he had hypertension.

[b] Contrary to Grepalifes allegations, there was no

sufficient proof that the insured had suffered from


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hypertension. Aside from the statement of the

insured's widow who was not even sure if the

medicines taken by Dr. Leuterio were for

hypertension, the appellant had not proven nor

produced any witness who could attest to Dr.

Leuterio's medical history.

[c] Grepalife had failed to establish that there was

concealment made by the insured, hence, it cannot

refuse payment of the claim.

3. NO

- Considering the supervening event that DBP

foreclosed in 1995 their residential lot, in satisfaction

of mortgagor's outstanding loan, the insurance

proceeds shall inure to the benefit of the heirs of the

deceased person or his beneficiaries. Equity dictates

that DBP should not unjustly enrich itself at the

expense of another. Hence, it cannot collect the

insurance proceeds, after it already foreclosed on the

mortgage. The proceeds now rightly belong to Dr.

Leuterio's heirs represented by his widow, herein

private respondent.

- The Court ruled this issue based on the clear

provisions of the policy. The mortgagor paid the

premium according to the coverage of his insurance,

which states that: "The policy states that upon


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receipt of due proof of the Debtor's death during the

terms of this insurance, a death benefit in the

amount of P86,200.00 shall be paid In the event of

the debtor's death before his indebtedness with the

creditor shall have been fully paid, an amount to pay

the outstanding indebtedness shall first be paid to

the Creditor and the balance of the Sum Assured, if

there is any shall then be paid to the beneficiary/ies

designated by the debtor." From this, it is clear that

Grepalife is liable and that Dr. Leuterios heirs must

get the proceeds.

Disposition Petition DENIED. CA Decision AFFIRMED

with modification.

Pacific v CA G.R. No. L-41014 November 28, 1988

J. Paras

Facts:

An open fire insurance policy, was issued to Paramount Shirt Manufacturing by Oriental Assurance

Corporation to indemnify P61,000.00, caused by fire to the factorys stocks, materials and supplies.

The insured was a debtor of Pacific Banking in the amount of (P800,000.00) and the goods described in

the policy were held in trust by the insured for Pacific Banking under trust receipts.

The policy was endorsed to Pacific Banking as mortgagee/ trustor of the properties insured, with the

knowledge and consent of private respondent to the effect that "loss if any under this policy is payable

to the Pacific Banking Corporation".

A fire broke out on the premises destroying the goods contained in the building.

The bank sent a letter of demand to Oriental for indemnity.


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The company wasnt ready to give since it was awaiting the adjusters report.

The company then made an excuse that the insured had not filed any claim with it, nor submitted proof

of loss which is a clear violation of Policy Condition No.11, as a result, determination of the liability of

private respondent could not be made.

Pacific Banking filed in the trial court an action for a sum of money for P61,000.00 against Oriental

Assurance.

At the trial, petitioner presented communications of the insurance adjuster to Asian Surety revealing

undeclared co-insurances with the following: P30,000 with Wellington Insurance; P25,000 with Empire

Surety and P250,000 with Asian Surety undertaken by insured Paramount on the same property covered

by its policy with Oriental whereas the only co-insurances declared in the subject policy are those of

P30,000.00 with Malayan P50,000.00 with South Sea and P25.000.00 with Victory.

The defense of fraud, in the form of non-declaration of co-insurances which was not pleaded in the

answer, was also not pleaded in the Motion to Dismiss.

The trial court denied the respondents motion. Oriental filed another motion to include additional

evidence of the co-insurance which could amount to fraud.

The trial court still made Oriental liable for P 61,000. The CA reversed the trial court decision. Pacific

Banking filed a motion for reconsideration of the said decision of the respondent Court of Appeals, but

this was denied for lack of merit.

Issues:

1. WON unrevealed co-insurances Violated policy conditions No. 3

2. WON the insured failed to file the required proof of loss prior to court action.

Held: Yes. Petition dismissed.

Ratio:

1. Policy Condition No. 3 explicitly provides:

3. The Insured shall give notice to the Company of any insurance already 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 insurance or insurances be stated in or endorsed on this Policy by or on


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behalf of the Company before the occurrence of any loss or damage, all benefit under this policy shall be

forfeited.

The insured failed to reveal before the loss three other insurances. Had the insurer known that there

were many co-insurances, it could have hesitated or plainly desisted from entering into such contract.

Hence, the insured was guilty of clear fraud.

Concrete evidence of fraud or false declaration by 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 materially different from the actual number of co-insurances taken over the subject

property.

As the insurance policy against fire expressly required that notice should be given by the insured of

other insurance upon the same property, the total absence of such notice nullifies the policy.

Petitioner points out that Condition No. 3 in the policy in relation to the "other insurance clause"

supposedly to have been violated, cannot certainly defeat the right of the petitioner to recover theinsurance as mortgagee/assignee. Hence, they claimed that the purpose for which the endorsement or

assignment was made was to protect the mortgagee/assignee against any untoward act or omission 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 insured.

It is obvious that petitioner has missed all together the import of subject mortgage clause which

specifically provides:

Loss, if any, under this policy, shall be payable to the PACIFIC BANKING CORPORATION Manila

mortgagee/trustor as its interest may appear, it being hereby understood and agreed that this insurance

as to the interest of the mortgagee/trustor only herein, shall not be invalidated by any act or neglect

except fraud or misrepresentation, or arsonof the mortgagor or owner/trustee of the property

insured; provided, that in case the mortgagor or owner/ trustee neglects or refuses to pay any premium,

the mortgagee/ trustor shall, on demand pay the same.

The paragraph clearly states the exceptions to the general rule that insurance as to the interest of the

mortgagee, cannot be invalidated; namely: fraud, or misrepresentation or arson. Concealment of the

aforecited co-insurances can easily be fraud, or in the very least, misrepresentation.

Undoubtedly, it is but fair and just that where the insured who is primarily entitled to receive the

proceeds of the policy has by its fraud and/or misrepresentation, forfeited said right.

Petitioner further stressed that fraud which was not pleaded as a defense in private respondent's

answer or motion to dismiss, should be deemed to have been waived. It will be noted that the fact of

fraud was tried by express or at least implied consent of the parties. Petitioner did not only object to the

introduction of evidence but on the contrary, presented the very evidence that proved its existence.


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2. 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 presented extrajudicially in the manner

provided in the policy, the cause of action will accrue from the time the insurer finally rejects the claim

for payment

In the case at bar, policy condition No. 11 specifically provides that the insured shall on the happening ofany loss or damage give notice to the company and shall within fifteen (15) days after such loss or

damage deliver to the private 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 other

insurances, if any.

Twenty-four days after the fire did petitioner merely wrote letters to private respondent to serve as a

notice of loss. It didnt even furnish other documents. Instead, petitioner shifted upon private

respondent the burden of fishing out the necessary information to ascertain the particular account of

the articles destroyed by fire as well as the amount of loss. Since the required claim by insured, together

with the preliminary submittal of relevant documents had not been complied with, it follows that

private respondent could not be deemed to have finally rejected petitioner's claim and therefore there

was no cause of action.

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 been waived by the insurer, the insured

cannot recover, much less the here

INSULAR LIFE ASSURANCE CO. v. EBRADO

80 SCRA 181

MARTIN; October 28, 1977

NATURE

Appeal from judgment of RTC.

FACTS

- Buenaventura Ebrado obtained a whole-life

insurance policy from Insular, for P5,882.00 with a

rider for accidental death benefits for the same


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amount. He designated Carponia Ebrado as the

revocable beneficiary, referring to her as the wife.

- Afterwards, he died as a result of an accident when

he was hit by a falling branch of a tree. Carponia

filed a claim for the proceeds as the designated

beneficiary in the policy, although she admits that

she and Buenaventura were merely living as husband

and wife without the benefit of marriage. The legal

wife, Pascuala Vda De Ebrado, also filed her claim as

the widow of the deceased.

- Insular then filed an interpleader in court (CFI

Rizal) to determine to whom the proceeds should be

paid. CFI declared that Carponia was disqualified

from becoming beneficiary of the insured and

directing the Insular to pay the proceeds to the

estate of Buenaventura.

ISSUE

1. WON a common-law wife named as beneficiary in

the insurance policy of a legally married man claim

the proceeds of the same

HELD

1. NO

Ratio The prohibition that husband and wife cannot

donate to each other applies to common-law

relationships. As the appointment of a beneficiary in


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insurance may be considered a donation, one cannot

name as beneficiary his common-law wife.

Reasoning

- It is quite unfortunate that the Insurance Code

does not contain any specific provision grossly

resolutory of the prime question at hand.

- Rather, general rules of civil law should be applied

to resolve the issue. Art.2011, CC states: The

contract of insurance is governed by special laws.

Matters not expressly provided for in such special

laws shall be regulated by this Code. Thus, when not

otherwise specifically provided for by the Insurance

Law, the contract of life insurance is governed by the

general rules of the civil law regulating contracts.

- Also, Art.2012 any person who is forbidden from

receiving any donation under Article 739 cannot be

named beneficiary of a life insurance policy by the

person who cannot make a donation to him.

Common-law spouses are, definitely, barred from

receiving donations from each other.

- Art.739, CC: The following donations shall be void:

1. Those made between persons who were guilty of

adultery or concubinage at the time of donation;

- In essence, a life insurance policy is no different

from a civil donation insofar as the beneficiary is


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concerned. Both are founded upon the same

consideration: liberality. A beneficiary is like a donee,

because from the premiums of the policy which the

insured pays out of liberality, the beneficiary will

receive the proceeds or profits of said insurance. As

a consequence, the proscription in Art.739 CC should

equally operate in life insurance contracts. The

mandate of Art.2012 cannot be laid aside: any

person who cannot receive a donation cannot be

named as beneficiary in the life insurance policy of

the person who cannot make the donation.

- Policy considerations and dictates of morality rightly

justify the institution of a barrier between commonlaw

spouses in regard to property relations since

such relationship ultimately encroaches upon the

nuptial and filial rights of the legitimate family. There

is every reason to hold that the bar in donations

between legitimate spouses and those between

illegitimate ones should be enforced in life insurance

policies since the same are based on similar

consideration.

- So long as marriage remains the threshold of

family laws, reason and morality dictate that the

impediments imposed upon married couple should

likewise be imposed upon extra-marital relationship.


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If legitimate relationship is circumscribed by these

legal disabilities, with more reason should an illicit

relationship be restricted by these disabilities.

Disposition Decision AFFIRMED.

CONSUEGRA v. GSIS

37 SCRA 315

ZALDIVAR; January 30, 1971

NATURE

Appeal from the decision of the Court of First

Instance of Surigao del Norte awarding the 8/16 part

of the proceeds of the deceased Consuegras

retirement benefits to Rosario Diaz.

FACTS

- The late Jose Consuegra, at the time of his death,

was employed as a shop foreman of the office of the

District Engineer in the province of Surigao del Norte.

In his lifetime, Consuegra contracted two marriages,

the first with herein respondent Rosario Diaz,

solemnized in the parish church of San Nicolas de

Tolentino, Surigao, Surigao, on July 15, 1937, out of

which marriage were born two children, namely, Jose

Consuegra, Jr. and Pedro Consuegra, but both

predeceased their father; and the second, which was


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contracted in good faith while the first marriage was

subsisting, with herein petitioner Basilia Berdin, on

May 1, 1957 in the same parish and municipality, out

of which marriage were born seven children, namely,

Juliana, Pacita, Maria Lourdes, Jose, Rodrigo, Lenida

and Luz, all surnamed Consuegra.

- Being a member of the Government Service

Insurance System (GSIS, for short) when Consuegra

died on September 26, 1965, the proceeds of his life

insurance under policy No. 601801 were paid by the

GSIS to petitioner Basilia Berdin and her children

who were the beneficiaries named in the policy.

- However, Consuegra did not designate any

beneficiary who would receive the retirement

insurance benefits due to him. Respondent Rosario

Diaz, the widow by the first marriage, filed a claim

with the GSIS asking that the retirement insurance

benefits be paid to her as the only legal heir of

Consuegra, considering that the deceased did not

designate any beneficiary with respect to his

retirement insurance benefits. Petitioner Basilia

Berdin and her children, likewise, filed a similar claim

with the GSIS, asserting that being the beneficiaries

named in the life insurance policy of Consuegra, they

are the only ones entitled to receive the retirement


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insurance benefits due the deceased Consuegra.

Resolving the conflicting claims, the GSIS ruled that

the legal heirs of the late Jose Consuegra were

Rosario Diaz, his widow by his first marriage who is

entitled to one-half, or 8/16, of the retirement

insurance benefits, on the one hand; and Basilia

Berdin, his widow by the second marriage and their

seven children, on the other hand, who are entitled

to the remaining one-half, or 8/16, each of them to

receive an equal share of 1/16.

- Dissatisfied with the foregoing ruling and

apportionment made by the GSIS, Basilia Berdin and

her children filed on October 10, 1966 a petition for

mandamus with preliminary injunction in the Court of

First Instance of Surigao.

- The CFI of Surigao ruled in favor of respondent

Rosario Diaz and upheld the ruling of GSIS in all

aspect. Thus, Basilia Berdin and her children

appealed said decision to the Supreme Court.

ISSUE

WON GSIS was correct in awarding half of the

retirement benefit of the deceased to Rosario Diaz,

the first wife, notwithstanding the fact that the

petitioners were named as beneficiaries of the life

insurance


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HELD

YES

- The GSIS offers two separate and distinct systems

of benefits to its members, one is the life insurance

and the other is the retirement insurance. These two

distinct systems of benefits are paid out from two

distinct and separate funds that are maintained by

the GSIS. Thus, it doesnt necessarily mean that the

beneficiaries in the life insurance are also the

beneficiaries in the retirement insurance.

- Consuegra started in the government service

sometime during the early part of 1943, or before

1943. In 1943 Com. Act 186 was not yet amended,

and the only benefits then provided for in said Com.

Act 186 were those that proceed from a life

insurance. Upon entering the government service

Consuegra became a compulsory member of the

GSIS, being automatically insured on his life,

pursuant to the provisions of Com. Act 186 which

was in force at the time. During 1943 the operation

of the Government Service Insurance System was

suspended because of the war, and the operation

was resumed sometime in 1946. When Consuegra

designated his beneficiaries in his life insurance he

could not have intended those beneficiaries of his life


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insurance as also the beneficiaries of his retirement

insurance because the provisions on retirement

insurance under the GSIS came about only when

Com. Act 186 was amended by Rep. Act 660 on June

16, 1951. Hence, it cannot be said that because

herein appellants were designated beneficiaries in

Consuegra's life insurance they automatically

became the beneficiaries also of his retirement

insurance.

- The provisions of subsection (b) of Section 11 of

Commonwealth Act 186, as amended by Rep. Act

660, clearly indicate that there is need for the

employee to file an application for retirement

insurance benefits when he becomes a member of

the GSIS, and he should state in his application the

beneficiary of his retirement insurance. Hence, the

beneficiary named in the life insurance does not

automatically become the beneficiary in the

retirement insurance unless the same beneficiary in

the life insurance is so designated in the application

for retirement insurance.

- In the case of the proceeds of a life insurance, the

same are paid to whoever is named the beneficiary

in the life insurance policy. As in the case of a life

insurance provided for in the Insurance Act, the


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beneficiary in a life insurance under the GSIS may

not necessarily be an heir of the insured. The

insured in a life insurance may designate any

person as beneficiary unless disqualified to be

so under the provisions of the Civil Code. And in

the absence of any beneficiary named in the life

insurance policy, the proceeds of the insurance will

go to the estate of the insured.

- On the other hand, the beneficiary of the

retirement insurance can only claim the proceeds of

the retirement insurance if the employee dies before

retirement. If the employee failed or overlooked to

state the beneficiary of his retirement insurance, the

retirement benefits will accrue to his estate and will

be given to his legal heirs in accordance with law, as

in the case of a life insurance if no beneficiary is

named in the insurance policy.

Disposition Petition Denied. It is Our view,

therefore, that the respondent GSIS had correctly

acted when it ruled that the proceeds of the

retirement insurance of the late Jose Consuegra

should be divided equally between his first living wife

Rosario Diaz, on the one hand, and his second wife

Basilia Berdin and his children by her.

SSS v. DAVAC


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17 SCRA 863

BARRERA: July 30, 1966

NATURE

APPEAL from a resolution Of the Social

PHIL. AMERICAN LIFE INSURANCE v. PINEDA

175 SCRA 416

PARAS; July 19, 1989

NATURE

Petition for review on certiorari the orders of CFI

Judge Pineda

FACTS

- In 1968, Private Respondent Rodolfo Dimayuga

procured an ordinary life insurance policy from the

petitioner company and designated his wife and

children as irrevocable beneficiaries. On Feb. 22,

1980, Dimayuga filed with the CFI a petition to

amend the designation of the beneficiaries in his life

policy from irrevocable to revocable. Petitioner filed

an Urgent Motion to reset hearing as well as its

comment and/or Opposition to the respondents

petition.

- Respondent Judge denied petitioners Urgent

Motion, thus allowing private respondent to adduce


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evidence, the consequence of which was the

issuance of the questioned Order granting the

petition. Petitioner then filed a MFR which was also

denied hence this petition.

ISSUE

1. WON the designation of the irrevocable

beneficiaries could be changed or amended without

the consent of all the irrevocable beneficiaries

2. WON the irrevocable beneficiaries herein, one of

whom is already deceased while the others are all

minors could validly give consent to the change or

amendment in the designation of the irrevocable

beneficiaries

HELD

1. NO

- Based on the provision of their contract and the law

applicable, it is only with the consent of all the

beneficiaries that any change or amendment in the

policy concerning the irrevocable beneficiaries may

be legally and validly effected. Both the law and the

Policy do not provide for any other exception.

Reasoning

- Since the policy was procured in 1968, the

applicable law in this case is the Insurance Act and

under that law, the beneficiary designated in a life


28/53

insurance contract cannot be changed without the

consent of the beneficiary because he has a vested

interest in the policy.

- The Beneficiary Designation Indorsement in the

policy in the name of Dimayuga states that the

designation of the beneficiaries is irrevocable: no

right or privilege under the Policy may be exercised,

or agreement made with the Company to any

change in or amendment to the Policy, without the

consent of the said beneficiary/beneficiaries.

- Contracts which are the private laws of the

contracting parties should be fulfilled according to

the literal sense of their stipulations, if their terms

are clear and leave no room for doubt as to the

intention of the contracting parties, for contracts are

obligatory, no matter in what form they may be,

whenever the essential requisites for their validity

are present.

- Finally, the fact that the contract of insurance does

not contain a contingency when the change in the

designation of beneficiaries could be validly effected

means that it was never within the contemplation of

the parties.

2. NO

- The parent-insured cannot exercise rights and/or


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privileges pertaining to the insurance contract, for

otherwise, the vested rights of the irrevocable

beneficiaries would be rendered inconsequential. The

alleged acquiescence of the 6 children beneficiaries

cannot be considered an effective ratification to the

change of the beneficiaries from irrevocable to

revocable. They were minors at the time, and could

not validly give consent. Neither could they act

through their father-insured since their interests are

quite divergent from one another.

Disposition questioned Orders of respondent judge

are nullified and set aside.

CANILANG v. CA (GREAT PACIFIC LIFE

ASSURANCE CORP.)

223 SCRA 443

FELICIANO; June 17, 1993

NATURE

Petition for review on certiorari of the decision of the

Court of Appeals

FACTS

- June 18, 1982 Jaime Canilang was diagnosed by

Dr. Claudio to have sinus tachycardia. He was

directed by the doctor to take a tranquilizer

(Trazepam) and a beta-blocker drug (Aptin).


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- August 3, 1982 Jaime consulted Dr. Claudio again

and was diagnosed to have acute bronchitis.

- August 4, 1982 Jaime applied for a nonmedical

insurance policy with Great Pacific Life Assurance

Company. He named his wife Thelma as his

beneficiary. He was issue the policy with a face

value of P19,700 effective August 9, 1982.

- August 5, 1983 Jaime died of congestive heart

failure, anemia and chronic anemia. Thelma filed her

claim but the insurance company refused to grant it

on the ground that Jaime had concealed information.

- Thelma filed a complaint against Great Pacific to

recover the insurance proceeds. She testified that

she was not aware of her husbands ailments and

that she thought he had died from a kidney disorder.

- Great Pacific presented as witness Dr. Quismorio

who testified that Jaimes insurance application was

the basis of his medical declaration and she

explained that an applicant was required to undergo

medical examination only if the applicant had

disclosed that he had previously been consulted with

a doctor and had been hospitalized.

- The Insurance Commissioner ordered Great Pacific

to pay Thelma the insurance proceeds, including

attorneys fees, holding that Jaimes illness was not


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that serious as to Great Pacifics decision to insure

him and that there was no concealment on the part

of Jaime with regard to his illness.

Petitioners Claim:

> Thelma argues that the non-disclosure of Jaime

did not amount to fraud.

> She also argues that the CA erred in not holding

that the issue in the case agreed upon between the

parties before the Insurance Commission is whether

or not Jaime 'intentionally' made material

concealment in stating his state of health;

Respondents Comments:

> The CA reversed the Insurance Commissioners

decision, holding that the use of the word

'intentionally" by the Insurance Commissioner in

defining and resolving the issue agreed upon by the

parties at pre-trial before the Insurance

Commissioner was not supported by the evidence

and that the issue agreed upon by the parties had

been whether Jaime made a material concealment as

to the state of his health at the time of the filing of

insurance application, justifying the denial of the

claim.

> It also found that the failure of Jaime to disclose

previous medical consultation and treatment


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constituted material information which should have

been communicated to Great Pacific to enable the

latter to make proper inquiries.

ISSUES

1. WON Jaime intentionally withheld information

from Great Pacific

2. WON the information withheld would have been

material to Great Pacifics decision to grant Jaime the

insurance policy

HELD

1. YES

Ratio Section 27 of the Insurance Code of 1978 is

properly read as referring to "any concealment

without regard to whether such concealment is

intentional or unintentional. The restoration in 1985

by B.P. Blg. 874 of the phrase "whether intentional or

unintentional" merely underscored the fact that all

throughout (from 1914 to 1985), the statute did not

require proof that concealment must be "intentional"

in order to authorize rescission by the injured party.

Reasoning

- Art. 27 of the 1978 Insurance Code reads that a

concealment entitles the injured party to rescind a

contract of insurance, which does not include the

words whether intentional or unintentional from the


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previous statutes. The Insurance Commissioner

relied on this deletion in arguing that the statute

intended to limit the kinds of concealment which

generate a right to rescind on the part of the injured

party to "intentional concealments."

- In the case at bar, the nature of the facts not

conveyed to the insurer was such that the failure to

communicate must have been intentional rather than

merely inadvertent.

> Jaime could not have been unaware that his

heart beat would at times rise to high and

alarming levels and that he had consulted a doctor

twice two months before applying for non-medical

insurance.

> The last medical consultation took place just the

day before the insurance application was filed.

2. YES

Ratio Materiality relates rather to the "probable and

reasonable influence of the facts" upon the party to

whom the communication should have been made, in

assessing the risk involved in making or omitting to

make further inquiries and in accepting the

application for insurance; that "probable and

reasonable influence of the farts" concealed must, of

course, be determined objectively, by the judge


34/53

ultimately.

Reasoning

- The information which Jaime failed to disclose was

material to the ability of Great Pacific to estimate the

probable risk he presented as a subject of life

insurance.

- Had Canilang disclosed his visits to his doctor, the

diagnosis made and the medicines prescribed by

such doctor, in the insurance application, it may be

reasonably assumed that Great Pacific would have

made further inquiries and would have probably

refused to issue a non-medical insurance policy or, at

the very least, required a higher premium for the

same coverage.

- As held in the case of Saturnino vs. Philippine-

American Life Insurance, the waiver of medical

examination in a non-medical insurance contract

renders even more material the information inquired

of the applicant concerning previous condition of

health and diseases suffered, for such information

necessarily constitutes an important factor which the

insurer takes into consideration in deciding whether

to issue the policy or not.

Disposition the Petition for Review is DENIED for

lack of merit and the Decision of the Court of Appeals


35/53

dated 16 October 1989 in C.A.-G.R. SP No. 08696 is

hereby AFFIRMED

PACIFIC BANKING CORP v. CA (ORIENTAL

ASSURANCE CORPORATION)

168 SCRA 1

PARAS; November 28, 1988

NATURE

Petition for review on certiorari of the CA decision,

which set aside the decision of CFI Manila, which had

in turn granted the complaint for a sum of money in

civil case filed by Pacific Banking against Oriental

Assurance.

FACTS

- October 21,1963: an open Fire Policy was issued to

the Paramount Shirt Manufacturing Co. (insured), by

which Oriental Assurance Corporation bound itself to

indemnify the insured for any loss or damage, not

exceeding P61,000.00, caused by fire to its property

consisting of stocks, materials and supplies usual to

a shirt factory, including furniture, fixtures,

machinery and equipment while contained in the

ground, second and third floors of the building

situated at number 256 Jaboneros St., San Nicolas,

Manila, for a period of one year commencing from


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that date to October 21, 1964.

- Insured was at the time of the issuance of the

policy and is up to this time, a debtor of Pacific

Banking in the amount of not less P800,000.00 and

the goods described in the policy were held in trust

by the insured for the Pacific Banking under thrust

receipts.

- Said policy was duly endorsed to Pacific Banking as

mortgagee/trustor of the properties insured, with the

knowledge and consent of Oriental Assurance to the

effect that "loss if any under this policy is payable to

the Pacific Banking Corporation".

- While the aforesaid policy was in full force and

effect, a fire broke out on the subject premises

destroying the goods contained in its ground and

second floors. Counsel for the Pacific Banking sent a

letter of demand to Oriental Assurance for indemnity

due to the loss of property by fire. Oriental

Assurance informed counsel that it was not yet ready

to accede to the latter's demand as the former is

awaiting the final report of the insurance adjuster,

H.H. Bayne Adjustment Company.

- Said insurance adjuster notified counsel for the

Pacific Banking that the insured under the policy had

not filed any claim with it, nor submitted proof of


37/53

loss which is a clear violation of Policy Condition

No.11, and for which reason, determination of the

liability of Oriental Assurance could not be had.

Pacific Banking's counsel replied asking the insurance

adjuster to verify from the records of the Bureau of

Customs the entries of merchandise taken into the

customs bonded warehouse razed by fire as a

reliable proof of loss.

- For failure of the insurance company to pay the loss

as demanded, Pacific Banking field before CFI an

action for a sum of money against the Oriental

Assurance, in the principal sum of P61,000.00 issued

in favor of Paramount Shirt Manufacturing Co.

Oriental Assurance defenses

(a) lack of formal claim by insured over the loss and

(b) premature filing 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, either to the Oriental Assurance

or its adjuster H.H. Bayne Adjustment Co.

Pacific Banking

> presented evidence that insured has undeclared

co-insurances with the following: P30,000.00 with

Wellington Insurance; P25,000. 00 with Empire

Surety and P250,000.00 with Asian Surety;


38/53

undertaken by insured Paramount on the same

property covered by its policy with Oriental

Assurance whereas the only co-insurances declared

in the subject policy are those of P30,000.00 with

Malayan, P50,000.00 with South Sea, and

P25.000.00 with Victory

- NOTE: the defense of fraud and/or violation of nondeclaration

of co-insurances was not pleaded in the

answer, also not pleaded in the Motion to Dismiss.

- CFI denied Oriental Assurance's motion on the

ground that since the defense was raised for the first

time, it must be deemed to have waived the

requirement of proof of loss. Case was submitted for

decision. But upon MR, Oriental Asurance was

allowed to present additional evidence, "in order to

prove that 'insured has committed a violation of

condition No. 3 of the policy in relation to the other

Insurance Clause.' " CFI eventually adjudged Oriental

Assurance liable to the Pacific Banking under the said

contract of insurance.

- Court of Appeals reversed. Pacific Banking's MR

denied.

ISSUES

1. WON insured is guilty of fraud

2. WON mortgagee/assignee can still claim from the


39/53

insurance

HELD

1. YES

- The crux of the controversy centers on two points:

(a) unrevealed co-insurances which violated policy

conditions No. 3; and (b) failure of the insured to file

the required proof of loss prior to court action.

- Policy Condition No. 3 explicitly provides: The

Insured shall give notice to the Company of any

insurance already 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 insurance or

insurances be stated in or endorsed on this Policy by

or on behalf of the Company before the occurrence

of any loss or damage, all benefit under this policy

shall be forfeited.

- It is not disputed that the insured failed to reveal

before the loss three other insurances. By reason of

said unrevealed insurances, the insured had been

guilty of a false declaration; a clear

misrepresentation and a vital one because where the

insured had been asked to reveal but did not, that

was deception. Otherwise stated, had the insurer

known that there were many co-insurances, it could


40/53

have hesitated or plainly desisted from entering into

such contract. Hence, the insured was guilty of clear

fraud.

- Pacific Banking's contention that the allegation of

fraud is but a mere inference or suspicion is

untenable. Concrete evidence of fraud or false

declaration by the insured was furnished by the

Pacific Banking itself when the facts alleged in the

policy under clauses "Co-Insurances Declared" and

"Other Insurance Clause" are materially different

from the actual number of co-insurances taken over

the subject property. Consequently, the whole

foundation of the contract fails, the risk does not

attach and the policy never becomes a contract

between the parties. Representations of facts are the

foundation of the contract and if the foundation does

not exist, the superstructure does not arise.

Falsehood in such representations is not shown to

vary or add to the contract, or to terminate a

contract which has once been made, but to show

that no contract has ever existed (Tolentino). A void

or inexistent contract is one which has no force and

effect from the very beginning, as if it had never

been entered into, and which cannot be validated

either by time or by ratification.


41/53

- As the insurance policy against fire expressly

required that notice should be given by the insured

of other insurance upon the same property, the total

absence of such notice nullifies the policy.

- Argument that notice of co-insurances may be

made orally is preposterous and negates policy

condition No. 20 which requires every notice and

other communications to the insurer to be written or

printed.

2. NO

- Subject mortgage clause pecifically provides: Loss,

if any, under this policy, shall be payable to the

PACIFIC BANKING CORPORATION Manila

mortgagee/trustor as its interest may appear, it

being hereby understood and agreed that this

insurance as to the interest of the mortgagee/trustor

only herein, shall not be invalidated by any act or

neglect except fraud or misrepresentation, or arson

of the mortgagor or owner/trustee of the property

insured; provided, that in case the mortgagor or

owner/ trustee neglects or refuses to pay any

premium, the mortgagee/ trustor shall, on demand

pay the same.

- The paragraph clearly states the exceptions to the

general rule that insurance as to the interest of the


42/53


43/53

first presented extrajudicially in the manner provided

in the policy, the cause of action will accrue from the

time the insurer finally rejects the claim for payment.

- In the case at bar, policy condition No. 11

specifically provides that the insured shall on the

happening of any loss or damage give notice to the

company and shall within fifteen (15) days after such

loss or damage deliver to the Oriental Assurance (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 other

insurances, if any. Likewise, insured was required "at

his own expense to produce, procure and give to the

company all such further particulars, plans,

specifications, books, vouchers, invoices, duplicates

or copies thereof, documents, proofs and information

with respect to the claim".

- Evidence adduced shows that 24 days after the fire,

Pacific Banking merely wrote letters to Oriental

Assurance to serve as a notice of loss, thereafter, the

former did not furnish the latter whatever pertinent

documents were necessary to prove and estimate its

loss. Instead, Pacific Banking shifted upon Oriental

Assurance the burden of fishing out the necessary

information to ascertain the particular account of the


44/53

articles destroyed by fire as well as the amount of

loss.

- Oriental Assurance and its adjuster notified Pacific

Banking that insured had not yet filed a written claim

nor submitted the supporting documents in

compliance with the requirements set forth in the

policy. Despite the notice, the latter remained

unheedful. Since the required claim by insured,

together with the preliminary submittal of relevant

documents had not been complied with, it follows

that Oriental Assurance could not be deemed to have

finally rejected Pacific Banking's claim and therefore

the latter's cause of action had not yet arisen.

Compliance with condition No. 11 is a requirement

sine qua non to the right to maintain an action as

prior thereto no violation of Pacific Banking's right

can be attributable to Oriental Assurance. As before

such final rejection, there was no real necessity for

bringing suit. Pacific Banking should have

endeavored to file the formal claim and procure all

the documents, papers, inventory needed by Oriental

Assurance or its adjuster to ascertain the amount of

loss and after compliance await the final rejection of

its claim. Indeed, the law does not encourage

unnecessary litigation.


45/53

- Pacific Banking prematurely filed the civil case and

dismissal thereof was warranted under the

circumstances. While it is a cardinal principle of

insurance law that a policy or contract of insurance is

to be construed liberally in favor of the insured and

strictly as against the insurer company yet, contracts

of insurance, like other contracts, are to be

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

taken and understood in their plain, ordinary and

popular sense.

- 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.

- It appearing that insured has violated or failed to


46/53

perform the conditions under No. 3 and 11 of the

contract, and such violation or want of performance

has not been waived by the insurer, the insured

cannot recover, much less the herein Pacific Banking.

Courts are not permitted to make contracts for the

parties; the function and duty of the courts is simply

to enforce and carry out the contracts actually made.

Disposition Petition dismissed. CA affirmed.

SUNLIFE ASSURANCE COMPANY v. CA (SPS.

BACANI)

245 SCRA 268

QUIASON; June 22, 1995

NATURE

A petition for review on certiorari.

FACTS

- April 15, 1986: Robert John B. Bacani procured a

life insurance contract for himself from SUNLIFE

(petitioner) valued at P100K. The designated

beneficiary was his mother, Bernarda Bacani

(respondent).

- June 26, 1987: the insured died in a plane crash.

Bernarda Bacani filed a claim with Sunlife, seeking

the benefits of the insurance policy taken by her son.

Petitioner conducted an investigation and its findings


47/53

prompted it to reject the claim on the ground that

the insured did not disclose facts material to the

issuance of the policy. The insured gave false

statements in the application when he answered in

the negative to the question have you ever had or

sought advice for urine, kidney, bladder

disorder?

- Sunlife discovered that two weeks prior to the

issuance, insured was diagnosed with renal failure,

was confined, and underwent tests.

- November 17, 1988: Bacani and her husband filed

for specific performance against Sunlife. RTC granted

the plea on the ground that that the facts concealed

by the insured were made in good faith and under

the belief that they need not be disclosed, and that

the disclosure was not material since the policy was

non-medical.

- Sunlife appealed to the CA, but the latter denied

the appeal on the ground that the cause of death

was unrelated to the facts concealed by the insured.

Petitioners Claim

> The insured did not disclose facts relevant to the

issuance of the policy, thus rescission of the contract

may be invoked by the insurance company.

Respondents Comments


48/53


49/53

concealed would have definitely affected petitioner's

action on his application, either by approving it with

the corresponding adjustment for a higher premium

or rejecting the same.

- Good faith is no defense in concealment. It appears

that such concealment was deliberate on the part of

the insured.

- The waiver of a medical examination [in a nonmedical

insurance contract] renders even more

material the information required of the applicant

concerning previous condition of health and diseases

suffered, for such information necessarily constitutes

an important factor which the insurer takes into

consideration in deciding whether to issue the policy

or not.

- Anent the finding that the facts concealed had no

bearing to the cause of death of the insured, it is well

settled that the insured need not die of the disease

he had failed to disclose to the insurer. It is sufficient

that his non-disclosure misled the insurer in forming

his estimates of the risks of the proposed insurance

policy or in making inquiries

Disposition Petition is granted and the decision of

CA is reversed and set aside.


50/53

TAN v. CA ( PHILIPPINE AMERICAN LIFE

INSURANCE COMPANY)

174 SCRA 403

GUTIERREZ; June 29, 1989

NATURE

Review on certiorari of the decision of the Court of

Appeals affirming the decision of the Insurance

Commissioner

FACTS

- On September 23,1973, Tan Lee Siong, father of

herein petitioners, applied for life insurance in the

amount of P 80,000.00 with respondent company.

Said application was approved and was issued

effective November 6, 1973

- On April 26,1975, Tan Lee Siong died of hepatoma

(Exhibit B). Petitioners then filed with respondent

company their claim for the proceeds of the life

insurance policy

-respondent company denied petitioners' claim and

rescinded the policy by reason of the alleged

misrepresentation and concealment of material facts

made by the deceased Tan Lee Siong in his

application for insurance. The premiums paid on the

policy were thereupon refunded

- Petitioners filed on November 27, 1975, a


51/53

complaint against the former with the Office of the

Insurance Commissioner. Commissioner denied

petition. CA affirmed Commissioners decision

ISSUE

WON according to Sec. 48 of the Insurance Code,

insurance company is barred from rescinding

contract

HELD

- 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 have been in force during

the lifetime of the insured for a period of two years

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

concealment or misrepresentation of the insured or

his agent.

- According to the petitioners, the Insurance Law was

amended and the second paragraph of Section 48

added to prevent the insurance company from

exercising a right to rescind after the death of the

insured


52/53

- The so-called "incontestability clause" precludes the

insurer from raising the defenses of false

representations or concealment of material facts

insofar as health and previous diseases are

concerned if the insurance has been in force for at

least two years during the insured's lifetime. The

phrase "during the lifetime" found in Section 48

simply means that the policy is no longer 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."

- The policy was issued on November 6,1973 and the

insured died on April 26,1975. The policy was thus in

force for a period of only one year and five months.

Considering that the insured died before the twoyear

period had lapsed, respondent company is not,

therefore, barred from proving that the policy is void

ab initio by reason of the insured's fraudulent

concealment or misrepresentation.

- The petitioners contend that there could have been

no concealment or 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 legislative answer to the arguments posed by


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the petitioners is the "incontestability clause" added

by the second paragraph of Section 48. The insurer

has two years from the date of issuance of the

insurance contract or of its last reinstatement within

which to contest the policy, whether or not, the

insured still lives within such period. After two years,

the defenses of concealment or misrepresentation,

no matter how patent or well founded, no longer lie

case digest comm

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