xxx xxx xxx

G.R. No. 105135 June 22, 1995 b) urine, kidney or bladder disorder? (Rollo, p. 53)

SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner, The deceased answered question No. 5(a) in the affirmative but limited his answer to a consultation
vs. with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on February 1986, for cough
The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA BACANI, respondents. and flu complications. The other questions were answered in the negative (Rollo, p. 53).

Petitioner discovered that two weeks prior to his application for insurance, the insured was examined
and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure. During
his confinement, the deceased was subjected to urinalysis, ultra-sonography and hematology tests.
QUIASON, J.:

On November 17, 1988, respondent Bernarda Bacani and her husband, respondent Rolando Bacani,
This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court to reverse and filed an action for specific performance against petitioner with the Regional Trial Court, Branch 191,
set aside the Decision dated February 21, 1992 of the Court of Appeals in CA-G.R. CV No. 29068, and Valenzuela, Metro Manila. Petitioner filed its answer with counterclaim and a list of exhibits consisting
its Resolution dated April 22, 1992, denying reconsideration thereof. of medical records furnished by the Lung Center of the Philippines.

We grant the petition. On January 14, 1990, private respondents filed a "Proposed Stipulation with Prayer for Summary
Judgment" where they manifested that they "have no evidence to refute the documentary evidence of
I concealment/misrepresentation by the decedent of his health condition (Rollo, p. 62).

On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from petitioner. Petitioner filed its Request for Admissions relative to the authenticity and due execution of several
He was issued Policy No. 3-903-766-X valued at P100,000.00, with double indemnity in case of documents as well as allegations regarding the health of the insured. Private respondents failed to
accidental death. The designated beneficiary was his mother, respondent Bernarda Bacani. oppose said request or reply thereto, thereby rendering an admission of the matters alleged.

On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim with
petitioner, seeking the benefits of the insurance policy taken by her son. Petitioner conducted an
investigation and its findings prompted it to reject the claim.
In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not disclose material
facts relevant to the issuance of the policy, thus rendering the contract of insurance voidable. A check
representing the total premiums paid in the amount of P10,172.00 was attached to said letter.
Petitioner claimed that the insured gave false statements in his application when he answered the
following questions:
Petitioner then moved for a summary judgment and the trial court decided in favor of private
respondents. The dispositive portion of the decision is reproduced as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against
the defendant, condemning the latter to pay the former the amount of One
Hundred Thousand Pesos (P100,000.00) the face value of insured's Insurance
Policy No. 3903766, and the Accidental Death Benefit in the amount of One
Hundred Thousand Pesos (P100,000.00) and further sum of P5,000.00 in the
concept of reasonable attorney's fees and costs of suit.
Defendant's counterclaim is hereby Dismissed (Rollo, pp. 43-44).

5. Within the past 5 years have you:

In ruling for private respondents, the trial court concluded that the facts concealed by the insured were
made in good faith and under a belief that they need not be disclosed. Moreover, it held that the health
a) consulted any doctor or other health practitioner? history of the insured was immaterial since the insurance policy was "non-medical".

b) submitted to: Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. The appellate
court ruled that petitioner cannot avoid its obligation by claiming concealment because the cause of
death was unrelated to the facts concealed by the insured. It also sustained the finding of the trial court
EGG?
that matters relating to the health history of the insured were irrelevant since petitioner waived the
X-rays?
medical examination prior to the approval and issuance of the insurance policy. Moreover, the
blood tests?
appellate court agreed with the trial court that the policy was "non-medical" (Rollo, pp. 4-5).
other tests?

Petitioner's motion for reconsideration was denied; hence, this petition.

c) attended or been admitted to any hospital or other
medical facility?
II
6. Have you ever had or sought advice for:

1
We reverse the decision of the Court of Appeals.
The rule that factual findings of the lower court and the appellate court are binding on this Court is not
absolute and admits of exceptions, such as when the judgment is based on a misappreciation of the
facts (Geronimo v. Court of Appeals, 224 SCRA 494 [1993]).
In weighing the evidence presented, the trial court concluded that indeed there was concealment and
misrepresentation, however, the same was made in "good faith" and the facts concealed or
misrepresented were irrelevant since the policy was "non-medical". We disagree.
Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to
communicate to the other, in good faith, all facts within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has no means of ascertaining.
Said Section provides:
A neglect to communicate that which a party knows and ought to communicate,
is called concealment.
Materiality is to be determined not by the event, but solely by the probable and reasonable influence of
the facts upon the party to whom communication is due, in forming his estimate of the disadvantages
of the proposed contract or in making his inquiries (The Insurance Code, Sec. 31).
The terms of the contract are clear. The insured is specifically required to disclose to the insurer
matters relating to his health.
The information which the insured failed to disclose were material and relevant to the approval and
issuance of the insurance policy. The matters 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. Moreover, a disclosure may have warranted a medical examination of the
insured by petitioner in order for it to reasonably assess the risk involved in accepting the application.
In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of the
information withheld does not depend on the state of mind of the insured. Neither does it depend on
the actual or physical events which ensue.
Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact that he was
hospitalized for two weeks prior to filing his application for insurance, raises grave doubts about
his bonafides. It appears that such concealment was deliberate on his part.
The argument, that petitioner's waiver of the medical examination of the insured debunks the
materiality of the facts concealed, is untenable. We reiterate our ruling in Saturnino v. Philippine
American Life Insurance Company, 7 SCRA 316 (1963), that " . . . the waiver of a medical examination
[in a non-medical 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 . . . "
Moreover, such argument of private respondents would make Section 27 of the Insurance Code, which
allows the injured party to rescind a contract of insurance where there is concealment, ineffective
(See Vda. de Canilang v. Court of Appeals, supra).
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 (Henson v. The Philippine American Life Insurance Co., 56 O.G.
No. 48 [1960]).
We, therefore, rule that petitioner properly exercised its right to rescind the contract of insurance by
reason of the concealment employed by the insured. It must be emphasized that rescission was
exercised within the two-year contestability period as recognized in Section 48 of The Insurance Code.
WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED and
SET ASIDE.
SO ORDERED.
SECOND DIVISION
[G.R. No. 113899. October 13, 1999]
GREAT PACIFIC LIFE ASSURANCE CORP., petitioner vs. COURT OF APPEALS AND MEDARDA
V. LEUTERIO, respondents.
DECISION
QUISUMBING, J.:
This petition for review, under Rule 45 of the Rules of Court, assails the Decision[1] dated May
17, 1993, of the Court of Appeals and its Resolution[2] dated January 4, 1994 in CA-G.R. CV No.
18341. The appellate court affirmed in toto the judgment of the Misamis Oriental Regional Trial Court,
Branch 18, in an insurance claim filed by private respondent against Great Pacific Life Assurance
Co. The dispositive portion of the trial courts decision reads:
WHEREFORE, judgment is rendered adjudging the defendant GREAT PACIFIC LIFE ASSURANCE
CORPORATION as insurer under its Group policy No. G-1907, in relation to Certification B-18558
liable and ordered to pay to the DEVELOPMENT BANK OF THE PHILIPPINES as creditor of the
insured Dr. Wilfredo Leuterio, the amount of EIGHTY SIX THOUSAND TWO HUNDRED PESOS
(P86,200.00); dismissing the claims for damages, attorneys fees and litigation expenses in the
complaint and counterclaim, with costs against the defendant and dismissing the complaint in respect
to the plaintiffs, other than the widow-beneficiary, for lack of cause of action.[3]
The facts, as found by the Court of Appeals, are as follows:
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.
On November 11, 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
questions concerning his health condition as follows:
2
 7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer,
diabetes, lung, kidney or stomach disorder or any other physical impairment?
Answer: No. If so give details ___________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [ x ] Yes [ ] No.[4]
On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance coverage of Dr.
Leuterio, to the extent of his DBP mortgage indebtedness amounting to eighty-six thousand, two
hundred (P86,200.00) pesos.
On August 6, 1984, Dr. Leuterio died due to massive cerebral hemorrhage. Consequently, DBP
submitted a death claim to Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not
physically healthy when he applied for an insurance coverage on November 15, 1983. 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.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a
complaint with the Regional Trial Court of Misamis Oriental, Branch 18, against Grepalife for Specific
Performance with Damages.[5] During the trial, Dr. Hernando Mejia, who issued the death certificate,
was called to testify. Dr. Mejias findings, based partly from the information given by the respondent
widow, stated 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.
On February 22, 1988, the trial court rendered a decision in favor of respondent widow and
against Grepalife. On May 17, 1993, the Court of Appeals sustained the trial courts decision. Hence,
the present petition. Petitioners interposed the following assigned errors:
"1. THE LOWER COURT ERRED IN HOLDING DEFENDANT-APPELLANT LIABLE TO
THE DEVELOPMENT BANK OF THE PHILIPPINES (DBP) WHICH IS NOT A
PARTY TO THE CASE FOR PAYMENT OF THE PROCEEDS OF A MORTGAGE
REDEMPTION INSURANCE ON THE LIFE OF PLAINTIFFS HUSBAND WILFREDO
LEUTERIO ONE OF ITS LOAN BORROWERS, INSTEAD OF DISMISSING THE
CASE AGAINST DEFENDANT-APPELLANT [Petitioner Grepalife] FOR LACK OF
CAUSE OF ACTION.
2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR WANT OF
JURISDICTION OVER THE SUBJECT OR NATURE OF THE ACTION AND OVER
THE PERSON OF THE DEFENDANT.
3. THE LOWER COURT ERRED IN ORDERING DEFENDANT-APPELLANT TO PAY TO
DBP THE AMOUNT OF P86,200.00 IN THE ABSENCE OF ANY EVIDENCE TO
SHOW HOW MUCH WAS THE ACTUAL AMOUNT PAYABLE TO DBP IN
ACCORDANCE WITH ITS GROUP INSURANCE CONTRACT WITH DEFENDANT-
APPELLANT.
4. THE LOWER COURT ERRED IN - HOLDING THAT THERE WAS NO
CONCEALMENT OF MATERIAL INFORMATION ON THE PART OF WILFREDO
LEUTERIO IN HIS APPLICATION FOR MEMBERSHIP IN THE GROUP LIFE
INSURANCE PLAN BETWEEN DEFENDANT-APPELLANT OF THE INSURANCE
CLAIM ARISING FROM THE DEATH OF WILFREDO LEUTERIO.[6]
Synthesized below are the assigned errors for our resolution:
1. Whether the Court of Appeals 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. Whether the Court of Appeals erred in not finding that Dr. Leuterio concealed that he
had hypertension, which would vitiate the insurance contract?
3. Whether the Court of Appeals erred in holding Grepalife liable in the amount of eighty
six thousand, two hundred (P86,200.00) pesos without proof of the actual outstanding
mortgage payable by the mortgagor to DBP.
Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real
party in interest, hence the trial court acquired no jurisdiction over the case. It argues that when the
Court of Appeals affirmed the trial courts judgment, Grepalife was held liable to pay the proceeds of
insurance contract in favor of DBP, the indispensable party who was not joined in the suit.
To resolve the issue, we must consider the insurable interest in mortgaged properties and the
parties to this type of contract. The rationale of a group insurance policy of mortgagors, otherwise
known as the mortgage redemption insurance, is a device for the protection of both the mortgagee and
the mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that in the
event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the
proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving
the heirs of the mortgagor from paying the obligation.[7] In a similar vein, ample protection is given to
the mortgagor under such a concept so that in the event of death; the mortgage obligation will be
extinguished by the application of the insurance proceeds to the mortgage
indebtedness.[8] Consequently, where the mortgagor pays the insurance premium under the group
insurance policy, making the loss payable to the mortgagee, the insurance is on the mortgagors
interest, and the mortgagor continues to be a party to the contract. In this type of policy insurance, the
mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make the
mortgagee a party to the contract.[9]
Section 8 of the Insurance Code provides:
Unless the policy provides, where a mortgagor of property effects insurance in his own name providing
that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the
insurance is deemed to be upon the interest of the mortgagor, who does not cease to be a party to the
original contract, and any act of his, prior to the loss, which would otherwise avoid the insurance, will
have the same effect, although the property is in the hands of the mortgagee, but any act which, under
the contract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee
therein named, with the same effect as if it had been performed by the mortgagor.
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 debtors 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.[10] When DBP submitted the insurance claim against
petitioner, 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.[11] In Gonzales La O vs. Yek Tong Lin Fire &
Marine Ins. Co.[12] we held:
Insured, being the person with whom the contract was made, is primarily the proper person to bring
suit thereon. * * * 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 own name, especially where the mortgagees interest is less than the full
amount recoverable under the policy, * * *.
And in volume 33, page 82, of the same work, we read the following:
Insured may be regarded as the real party in interest, although he has assigned the policy for the
purpose of collection, or has assigned as collateral security any judgment he may obtain.[13]
3
 And 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,[14] the widow of the decedent Dr. Leuterio may file the suit against the
insurer, Grepalife.
The second assigned error refers to an alleged concealment that the petitioner interposed as its
defense to annul the insurance contract. Petitioner contends that Dr. Leuterio failed to disclose that he
had hypertension, which might have caused his death. Concealment exists where the assured had
knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that he
should communicate it to the assured, but he designedly and intentionally withholds the same.[15]
Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as
supported by the information given by the widow of the decedent. Grepalife asserts that Dr. Mejias
technical diagnosis of the cause of death of Dr. Leuterio was a duly documented hospital record, and
that the widows declaration that her husband had possible hypertension several years ago should not
be considered as hearsay, but as part of res gestae.
On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an
autopsy on the body of the decedent. As the attending physician, Dr. Mejia stated that he had no
knowledge of Dr. Leuterios any previous hospital confinement.[16] Dr. Leuterios death certificate stated
that hypertension was only the possible cause of death. The private respondents statement, as to the
medical history of her husband, was due to her unreliable recollection of events. Hence, the statement
of the physician was properly considered by the trial court as hearsay.
The question of whether there was concealment was aptly answered by the appellate court,
thus:
The policy states that upon receipt of due proof of the Debtors 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 debtors 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.[22] (Emphasis omitted)
However, we noted that the Court of Appeals decision was promulgated on May 17, 1993. In
private respondents memorandum, she states that DBP foreclosed in 1995 their residential lot, in
satisfaction of mortgagors outstanding loan. Considering this supervening event, 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 (Nemo cum alterius
detrimenio protest). Hence, it cannot collect the insurance proceeds, after it already foreclosed on the
mortgage. The proceeds now rightly belong to Dr. Leuterios heirs represented by his widow, herein
private respondent Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the Court of
Appeals in CA-G.R. CV 18341 is AFFIRMED with MODIFICATION that the petitioner is ORDERED to
pay the insurance proceeds amounting to Eighty-six thousand, two hundred (P86,200.00) pesos to the
heirs of the insured, Dr. Wilfredo Leuterio (deceased), upon presentation of proof of prior settlement of
mortgagors indebtedness to Development Bank of the Philippines. Costs against petitioner.
SO ORDERED.

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, the appellant insurance company
G.R. No. L-31845 April 30, 1979
refused to pay the insurance claim. Appellant alleged that the insured had concealed the fact that he
had hypertension.
GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,
vs.
Contrary to appellants allegations, there was no sufficient proof that the insured had suffered from
HONORABLE COURT OF APPEALS, respondents.
hypertension. Aside from the statement of the insureds 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. Leuterios medical history... G.R. No. L-31878 April 30, 1979

xxx LAPULAPU D. MONDRAGON, petitioner,

vs.
HON. COURT OF APPEALS and NGO HING, respondents.
Appellant insurance company had failed to establish that there was concealment made by the insured,
hence, it cannot refuse payment of the claim.[17]
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner Company.
The fraudulent intent on the part of the insured must be established to entitle the insurer to
rescind the contract.[18] Misrepresentation as a defense of the insurer to avoid liability is an affirmative Voltaire Garcia for petitioner Mondragon.
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the
insurer.[19] 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. Pelaez, Pelaez & Pelaez for respondent Ngo Hing.

And that brings us to the last point in the review of the case at bar. Petitioner claims that there
was no evidence as to the amount of Dr. Leuterios outstanding indebtedness to DBP at the time of the
mortgagors death. Hence, for private respondents failure to establish the same, the action for specific
performance should be dismissed. Petitioners claim is without merit. A life insurance policy is a valued DE CASTRO, J.:
policy.[20] Unless the interest of a person insured is susceptible of exact pecuniary measurement, the
measure of indemnity under a policy of insurance upon life or health is the sum fixed in the
policy.[21] The mortgagor paid the premium according to the coverage of his insurance, which states The two above-entitled cases were ordered consolidated by the Resolution of this Court dated April 29,
that: 1970, (Rollo, No. L-31878, p. 58), because the petitioners in both cases seek similar relief, through

4
these petitions for certiorari by way of appeal, from the amended decision of respondent Court of
Appeals which affirmed in toto the decision of the Court of First Instance of Cebu, ordering "the
defendants (herein petitioners Great Pacific Ligfe Assurance Company and Mondragon) jointly and
severally to pay plaintiff (herein private respondent Ngo Hing) the amount of P50,000.00 with interest
at 6% from the date of the filing of the complaint, and the sum of P1,077.75, without interest.
It appears that on March 14, 1957, private respondent Ngo Hing filed an application with the Great
Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a twenty-year endownment
policy in the amount of P50,000.00 on the life of his one-year old daughter Helen Go. Said respondent
supplied the essential data which petitioner Lapulapu D. Mondragon, Branch Manager of the Pacific
Life in Cebu City wrote on the corresponding form in his own handwriting (Exhibit I-M). Mondragon
finally type-wrote the data on the application form which was signed by private respondent Ngo Hing.
The latter paid the annual premuim the sum of P1,077.75 going over to the Company, but he reatined
the amount of P1,317.00 as his commission for being a duly authorized agebt of Pacific Life. Upon the
payment of the insurance premuim, the binding deposit receipt (Exhibit E) was issued to private
respondent Ngo Hing. Likewise, petitioner Mondragon handwrote at the bottom of the back page of the
application form his strong recommendation for the approval of the insurance application. Then on April
30, 1957, Mondragon received a letter from Pacific Life disapproving the insurance application (Exhibit
3-M). The letter stated that the said life insurance application for 20-year endowment plan is not
available for minors below seven years old, but Pacific Life can consider the same under the Juvenile
Triple Action Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be
sent to the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by petitioner
Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote back Pacific
Life again strongly recommending the approval of the 20-year endowment insurance plan to children,
pointing out that since 1954 the customers, especially the Chinese, were asking for such coverage
(Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen Go died of influenza with
complication of bronchopneumonia. Thereupon, private respondent sought the payment of the
proceeds of the insurance, but having failed in his effort, he filed the action for the recovery of the
same before the Court of First Instance of Cebu, which rendered the adverse decision as earlier
refered to against both petitioners.
The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E) constituted a
temporary contract of the life insurance in question; and (2) whether private respondent Ngo Hing
concealed the state of health and physical condition of Helen Go, which rendered void the aforesaid
Exhibit E.
1. At the back of Exhibit E are condition precedents required before a deposit is considered a BINDING
RECEIPT. These conditions state that:
A. If the Company or its agent, shan have received the premium deposit ... and
the insurance application, ON or PRIOR to the date of medical examination
... said insurance shan be in force and in effect from the date of such medical
examination, for such period as is covered by the deposit ..., PROVIDED the
company shall be satisfied that on said date the applicant was insurable on
standard rates under its rule for the amount of insurance and the kind of policy
requested in the application.
D. If the Company does not accept the application on standard rate for the
amount of insurance and/or the kind of policy requested in the
application but issue, or offers to issue a policy for a different plan and/or amount
..., the insurance shall not be in force and in effect until the applicant shall have
accepted the policy as issued or offered by the Company and shall have paid the
full premium thereof. If the applicant does not accept the policy, the deposit shall
be refunded.
E. If the applicant shall not have been insurable under Condition A above, and
the Company declines to approve the application the insurance applied for shall
not have been in force at any time and the sum paid be returned to the applicant
upon the surrender of this receipt. (Emphasis Ours).
The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is intended to be
merely a provisional or temporary insurance contract and only upon compliance of the following
conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates;
(2) that if the company does not accept the application and offers to issue a policy for a different plan,
the insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the
deposit shall be reftmded; and (3) that if the applicant is not ble according to the standard rates, and
the company disapproves the application, the insurance applied for shall not be in force at any time,
and the premium paid shall be returned to the applicant.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an
acknowledgment, on behalf of the company, that the latter's branch office had received from the
applicant the insurance premium and had accepted the application subject for processing by the
insurance company; and that the latter will either approve or reject the same on the basis of whether or
not the applicant is "insurable on standard rates." Since petitioner Pacific Life disapproved the
insurance application of respondent Ngo Hing, the binding deposit receipt in question had never
become in force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does
not insure outright. As held by this Court, where an agreement is made between the applicant and the
agent, no liability shall attach until the principal approves the risk and a receipt is given by the agent.
The acceptance is merely conditional and is subordinated to the act of the company in approving or
rejecting the application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by
itself (De Lim vs. Sun Life Assurance Company of Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M),
Pacific Life disapproved the insurance application in question on the ground that it is not offering the
twenty-year endowment insurance policy to children less than seven years of age. What it offered
instead is another plan known as the Juvenile Triple Action, which private respondent failed to accept.
In the absence of a meeting of the minds between petitioner Pacific Life and private respondent Ngo
Hing over the 20-year endowment life insurance in the amount of P50,000.00 in favor of the latter's
one-year old daughter, and with the non-compliance of the abovequoted conditions stated in the
disputed binding deposit receipt, there could have been no insurance contract duly perfected between
thenl Accordingly, the deposit paid by private respondent shall have to be refunded by Pacific Life.
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of insurance, like
other contracts, must be assented to by both parties either in person or by their agents ... The contract,
to be binding from the date of the application, must have been a completed contract, one that leaves
nothing to be dione, nothing to be completed, nothing to be passed upon, or determined, before it shall
take effect. There can be no contract of insurance unless the minds of the parties have met in
agreement."
We are not impressed with private respondent's contention that failure of petitioner Mondragon to
communicate to him the rejection of the insurance application would not have any adverse effect on
the allegedly perfected temporary contract (Respondent's Brief, pp. 13-14). In this first place, there was
no contract perfected between the parties who had no meeting of their minds. Private respondet, being
an authorized insurance agent of Pacific Life at Cebu branch office, is indubitably aware that said
company does not offer the life insurance applied for. When he filed the insurance application in
dispute, private respondent was, therefore, only taking the chance that Pacific Life will approve the
5
recommendation of Mondragon for the acceptance and approval of the application in question along We are thus constrained to hold that no insurance contract was perfected between the parties with the
with his proposal that the insurance company starts to offer the 20-year endowment insurance plan for noncompliance of the conditions provided in the binding receipt, and concealment, as legally defined,
children less than seven years. Nonetheless, the record discloses that Pacific Life had rejected the having been comraitted by herein private respondent.
proposal and recommendation. Secondly, having an insurable interest on the life of his one-year old
daughter, aside from being an insurance agent and an offense associate of petitioner Mondragon,
private respondent Ngo Hing must have known and followed the progress on the processing of such WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is hereby
application and could not pretend ignorance of the Company's rejection of the 20-year endowment life entered absolving petitioners Lapulapu D. Mondragon and Great Pacific Life Assurance Company from
insurance application. their civil liabilities as found by respondent Court and ordering the aforesaid insurance company to
reimburse the amount of P1,077.75, without interest, to private respondent, Ngo Hing. Costs against
private respondent.
At this juncture, We find it fit to quote with approval, the very apt observation of then Appellate
Associate Justice Ruperto G. Martin who later came up to this Court, from his dissenting opinion to the
amended decision of the respondent court which completely reversed the original decision, the SO ORDERED.
following:
G.R. No. 48049 June 29, 1989
Of course, there is the insinuation that neither the memorandum of rejection
(Exhibit 3-M) nor the reply thereto of appellant Mondragon reiterating the desire
EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners,
for applicant's father to have the application considered as one for a 20-year
vs.
endowment plan was ever duly communicated to Ngo; Hing, father of the minor
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE
applicant. I am not quite conninced that this was so. Ngo Hing, as father of the
COMPANY, respondents.
applicant herself, was precisely the "underwriter who wrote this case" (Exhibit H-
1). The unchallenged statement of appellant Mondragon in his letter of May 6,
1957) (Exhibit 4-M), specifically admits that said Ngo Hing was "our associate" O.F. Santos & P.C. Nolasco for petitioners.
and that it was the latter who "insisted that the plan be placed on the 20-year
endowment plan." Under these circumstances, it is inconceivable that the
progress in the processing of the application was not brought home to his Ferry, De la Rosa and Associates for private respondent.
knowledge. He must have been duly apprised of the rejection of the application
for a 20-year endowment plan otherwise Mondragon would not have asserted
that it was Ngo Hing himself who insisted on the application as originally filed,
thereby implictly declining the offer to consider the application under the Juvenile
Triple Action Plan. Besides, the associate of Mondragon that he was, Ngo Hing GUTIERREZ, JR., J.:
should only be presumed to know what kind of policies are available in the
company for minors below 7 years old. What he and Mondragon were apparently
trying to do in the premises was merely to prod the company into going into the This is a petition for review on certiorari of the Court of Appeals' decision affirming the decision of the
business of issuing endowment policies for minors just as other insurance Insurance Commissioner which dismissed the petitioners' complaint against respondent Philippine
companies allegedly do. Until such a definite policy is however, adopted by the American Life Insurance Company for the recovery of the proceeds from their late father's policy. The
company, it can hardly be said that it could have been bound at all under the facts of the case as found by the Court of Appeals are:
binding slip for a plan of insurance that it could not have, by then issued at all.
(Amended Decision, Rollo, pp- 52-53). Petitioners appeal from the Decision of the Insurance Commissioner dismissing
herein petitioners' complaint against respondent Philippine American Life
2. Relative to the second issue of alleged concealment. this Court is of the firm belief that private Insurance Company for the recovery of the proceeds of Policy No. 1082467 in
respondent had deliberately concealed the state of health and piysical condition of his daughter Helen the amount of P 80,000.00.
Go. Wher private regpondeit supplied the required essential data for the insurance application form, he
was fully aware that his one-year old daughter is typically a mongoloid child. Such a congenital On September 23,1973, Tan Lee Siong, father of herein petitioners, applied for
physical defect could never be ensconced nor disguished. Nonetheless, private respondent, in life insurance in the amount of P 80,000.00 with respondent company. Said
apparent bad faith, withheld the fact materal to the risk to be assumed by the insurance compary. As application was approved and Policy No. 1082467 was issued effective
an insurance agent of Pacific Life, he ought to know, as he surely must have known. his duty and November 6,1973, with petitioners the beneficiaries thereof (Exhibit A).
responsibility to such a material fact. Had he diamond said significant fact in the insurance application
fom Pacific Life would have verified the same and would have had no choice but to disapprove the
application outright. 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. However, in a letter dated September 11, 1975, respondent company
The contract of insurance is one of perfect good faith uberrima fides meaning good faith, absolute and denied petitioners' claim and rescinded the policy by reason of the alleged
perfect candor or openness and honesty; the absence of any concealment or demotion, however slight misrepresentation and concealment of material facts made by the deceased Tan
[Black's Law Dictionary, 2nd Edition], not for the alone but equally so for the insurer (Field man's Lee Siong in his application for insurance (Exhibit 3). The premiums paid on the
Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70). Concealment is a neglect to communicate that policy were thereupon refunded .
which a partY knows aDd Ought to communicate (Section 25, Act No. 2427). Whether intentional or
unintentional the concealment entitles the insurer to rescind the contract of insurance (Section 26, Id.:
Yu Pang Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino vs. Philippine American Life Alleging that respondent company's refusal to pay them the proceeds of the
Insurance Company, 7 SCRA 316). Private respondent appears guilty thereof. policy was unjustified and unreasonable, petitioners filed on November 27, 1975,

6
 a complaint against the former with the Office of the Insurance Commissioner,
docketed as I.C. Case No. 218.
After hearing the evidence of both parties, the Insurance Commissioner rendered
judgment on August 9, 1977, dismissing petitioners' complaint. (Rollo, pp. 91-92)
The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner's decision
for lack of merit
Hence, this petition.
The petitioners raise the following issues in their assignment of errors, to wit:
A. The conclusion in law of respondent Court that respondent insurer has the
right to rescind the policy contract when insured is already dead is not in
accordance with existing law and applicable jurisprudence.
B. The conclusion in law of respondent Court that respondent insurer may be
allowed to avoid the policy on grounds of concealment by the deceased assured,
is contrary to the provisions of the policy contract itself, as well as, of applicable
legal provisions and established jurisprudence.
C. The inference of respondent Court that respondent insurer was misled in
issuing the policy are manifestly mistaken and contrary to admitted evidence.
(Rollo, p. 7)
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 the lifetime of the insured within two years and
prior to the commencement of action.
The contention is without merit.
The pertinent section in the Insurance Code provides:
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.
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."
As noted by the Court of Appeals, to wit:
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 two-year 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. Moreover, respondent company rescinded the contract of
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)
xxx xxx xxx
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 petitioners state:
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
the door of the insurer to buy insurance. He was the object of solicitations and
visits.
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 ailments
in anticipation of death during the two-year period, he certainly could have gotten
a bigger insurance. He did not.
Insurer Philamlife could have presented as witness its Medical Examiner Dr.
Urbano Guinto. It was he who accomplished the application, Part II, medical.
Philamlife did not.
Philamlife could have put to the witness stand its Agent Bienvenido S. Guinto, a
relative to Dr. Guinto, Again Philamlife did not. (pp. 138139, Rollo)
xxx xxx xxx
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
of us have been subjected to that pressure, that practice. This court took judicial
cognizance of the whirlwind pressure of insurance selling-especially of the
agent's practice of 'supplying the information, preparing and answering the
application, submitting the application to their companies, concluding the
transactions and otherwise smoothing out all difficulties.
We call attention to what this Honorable Court said in Insular Life v. Feliciano, et al., 73 Phil. 201; at
page 205:
It is of common knowledge that the selling of insurance today is subjected to the
whirlwind pressure of modern salesmanship.
7
 Insurance companies send detailed instructions to their agents to solicit and
procure applications.
These agents are to be found all over the length and breadth of the land. They
are stimulated to more active efforts by contests and by the keen competition
offered by the other rival insurance companies.
They supply all the information, prepare and answer the applications, submit the
applications to their companies, conclude the transactions, and otherwise smooth
out all difficulties.
The agents in short do what the company set them out to do.
The Insular Life case was decided some forty years ago when the pressure of
insurance salesmanship was not overwhelming as it is now; when the population
of this country was less than one-fourth of what it is now; when the insurance
companies competing with one another could be counted by the fingers. (pp.
140-142, Rollo)
xxx xxx xxx
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
denounced, the assured who dies within the two-year period, should stand
charged of fraudulent concealment and misrepresentation." (p. 142, Rollo)
The legislative answer to the arguments posed by 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. Congress felt this was a sufficient answer to the various tactics employed
by insurance companies to avoid liability. The petitioners' interpretation would give rise to the
incongruous situation where the beneficiaries of an insured who dies right after taking out and paying
for a life insurance policy, would be allowed to collect on the policy even if the insured fraudulently
concealed material facts.
The petitioners argue that no evidence was presented to show that the medical terms were explained
in a layman's language to the insured. They state that the insurer should have presented its two
medical field examiners as witnesses. Moreover, the petitioners allege that the policy intends that the
medical examination must be conducted before its issuance otherwise the insurer "waives whatever
imperfection by ratification."
We agree with the Court of Appeals which ruled:
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
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 deceased, by affixing his signature on the application form, affirmed the
correctness of all the entries and answers appearing therein. It is but to be
expected that he, a businessman, would not have affixed his signature on the
application form unless he clearly understood its significance. For, the
presumption is that a person intends the ordinary consequence of his voluntary
act and takes ordinary care of his concerns. [Sec. 5(c) and (d), Rule 131, Rules
of Court].
The evidence for respondent company shows that on September 19,1972, the
deceased was examined by Dr. Victoriano Lim and was found to be diabetic and
hypertensive; that by January, 1973, the deceased was complaining of
progressive weight loss and abdominal pain and was diagnosed to be suffering
from hepatoma, (t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another physician,
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.,
Aug. 23,1976, p. 5; Exhibit 6) Because of the concealment made by the
deceased of his consultations and treatments for hypertension, diabetes and liver
disorders, respondent company was thus misled into accepting the risk and
approving his application as medically standard (Exhibit 5- C) and dispensing
with further medical investigation and examination (Exhibit 5-A). For as long as
no adverse medical history is revealed in the application form, an applicant for
insurance is presumed to be healthy and physically fit and no further medical
investigation or examination is conducted by respondent company. (t.s.n., April
8,1976, pp. 6-8). (Rollo, pp. 96-98)
There is no strong showing that we should apply the "fine print" or "contract of adhesion" rule in this
case. (Sweet Lines, Inc. v. Teves, 83 SCRA 361 [1978]). The petitioners cite:
It is a matter of common knowledge that large amounts of money are collected
from ignorant persons by companies and associations which adopt high
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.
G.R. No. 175666 July 29, 2013
8
MANILA BANKERS LIFE INSURANCE CORPORATION, Petitioner.
vs.
CRESENCIA P. ABAN, Respondent.
DECISION
DEL CASTILLO, J.:
The ultimate aim of Section 48 of the Insurance Code is to compel insurers to solicit business from or
provide insurance coverage only to legitimate and bona fide clients, by requiring them to thoroughly
investigate those they insure within two years from effectivity of the policy and while the insured is still
alive. If they do not, they will be obligated to honor claims on the policies they issue, regardless of
fraud, concealment or misrepresentation. The law assumes that they will do just that and not sit on
their laurels, indiscriminately soliciting and accepting insurance business from any Tom, Dick and
Harry.
Assailed in this Petition for Review on Certiorari1 are the September 28, 2005 Decision2 of the Court of
Appeals' (CA) in CA-G.R. CV No. 62286 and its November 9, 2006 Resolution3 denying the petitioner’s
Motion for Reconsideration.4
Factual Antecedents
On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Manila Bankers Life
Insurance Corporation (Bankers Life), designating respondent Cresencia P. Aban (Aban), her
niece,5 as her beneficiary.
Petitioner issued Insurance Policy No. 747411 (the policy), with a face value of ₱100,000.00, in
Sotero’s favor on August 30, 1993, after the requisite medical examination and payment of the
insurance premium.6
On April 10, 1996,7 when the insurance policy had been in force for more than two years and seven
months, Sotero died. Respondent filed a claim for the insurance proceeds on July 9, 1996. Petitioner
conducted an investigation into the claim,8 and came out with the following findings:
1. Sotero did not personally apply for insurance coverage, as she was illiterate;
2. Sotero was sickly since 1990;
3. Sotero did not have the financial capability to pay the insurance premiums on Insurance
Policy No. 747411;
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 designated herself
as the beneficiary.10
For the above reasons, petitioner denied respondent’s claim on April 16, 1997 and refunded the
premiums paid on the policy.11
On April 24, 1997, petitioner filed a civil case for rescission and/or annulment of the policy, which was
docketed as Civil Case No. 97-867 and assigned to Branch 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 under the Insurance Code,12 which thus renders it voidable under Article 139013 of
the Civil Code.
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 provides as follows:
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 rescindible by reason of the
fraudulent concealment or misrepresentation of the insured or his agent.
During the proceedings on the Motion to Dismiss, petitioner’s investigator testified in court, stating
among others that the insurance underwriter who solicited the insurance is a cousin of respondent’s
husband, Dindo Aban,15 and that it was the respondent who paid the annual premiums on the policy.16
Ruling of the Regional Trial Court
On December 9, 1997, the trial court issued an Order17 granting respondent’s Motion to Dismiss, thus:
WHEREFORE, defendant CRESENCIA P. ABAN’s Motion to Dismiss is hereby granted. Civil Case
No. 97-867 is hereby dismissed.
SO ORDERED.18
In dismissing the case, the trial court found that Sotero, and not respondent, was the one who procured
the insurance; thus, Sotero could legally take out 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 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 moved for reconsideration, but in another Order19 dated October 20, 1998, the trial court
stood its ground.
Petitioner interposed an appeal with the CA, docketed as CA-G.R. CV No. 62286. Petitioner
questioned the dismissal of Civil Case No. 97-867, arguing that the trial court erred in applying Section
48 and declaring that prescription has set in. 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 interest.
Ruling of the Court of Appeals
On September 28, 2005, the CA issued the assailed Decision, which contained the following decretal
portion:
WHEREFORE, in the light of all the foregoing, the instant appeal is DISMISSED for lack of merit.
9
SO ORDERED.20
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 void ab initio or rescindible by reason of
fraudulent concealment or misrepresentation after the lapse of more than two years from its issuance.
It ratiocinated that petitioner was equipped with ample means to determine, within the first two years of
the policy, whether fraud, concealment or 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
protected and allowed to claim upon the policy.
Petitioner moved for reconsideration,21 but the CA denied the same in its November 9, 2006
Resolution.22 Hence, the present Petition.
Issues
Petitioner raises the following issues for resolution:
I insurance for herself, designating respondent as her beneficiary. Both courts are in accord in this
WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE ORDER OF THE TRIAL
COURT DISMISSING THE COMPLAINT ON THE GROUND OF PRESCRIPTION IN
CONTRAVENTION (OF) PERTINENT LAWS AND APPLICABLE JURISPRUDENCE.
II
WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE APPLICATION OF THE
INCONTESTABILITY PROVISION IN THE INSURANCE CODE BY THE TRIAL COURT.
III
WHETHER THE COURT OF APPEALS ERRED IN DENYING PETITIONER’S MOTION FOR
RECONSIDERATION.23
Petitioner’s Arguments
In praying that the CA Decision be reversed and that the case be remanded to 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 beneficiary under the insurance contract posed as the insured and obtained
the policy under fraudulent circumstances. It adds that respondent, who was merely Sotero’s niece,
had no insurable interest in the life of her aunt.
Relying on the results of the investigation that it conducted after the claim for the insurance proceeds
was filed, petitioner insists that respondent’s claim was spurious, as it appeared that Sotero did not
actually apply for insurance 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 Sotero and
fraudulently obtaining insurance in the latter’s name without her knowledge and consent.
Petitioner adds that Insurance Policy No. 747411 was void ab initio and could not have given rise to
rights and obligations; as such, the action for the declaration of its nullity or inexistence does not
prescribe.25
Respondent’s Arguments
Respondent, on the other hand, essentially argues in her Comment26 that the CA is correct in applying
Section 48. She adds that petitioner’s new allegation in its Petition that the policy is void ab initio merits
no attention, having failed to raise the same below, as it had claimed originally that the policy was
merely voidable.
On the issue of insurable interest, respondent echoes the CA’s pronouncement that since it was Sotero
who obtained the insurance, insurable interest was present. Under Section 10 of the Insurance Code,
Sotero had insurable interest in her own life, and could validly designate anyone as her beneficiary.
Respondent submits that the CA’s findings of fact leading to such conclusion should be respected.
Our Ruling
The Court denies the Petition.
The Court will not depart from the trial and appellate courts’ finding that it was Sotero who obtained the
respect, and the Court is loath to disturb this. While petitioner insists that its independent investigation
on the claim reveals that it was respondent, posing as Sotero, who obtained the insurance, this claim is
no longer feasible in the wake of the courts’ finding that it was Sotero who obtained the insurance for
herself. This finding of fact binds the Court.
With the above crucial finding of fact – that it was Sotero who obtained the insurance for herself –
petitioner’s case is severely weakened, if not totally 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 once belied by the trial and appellate courts’ finding that Sotero herself took out the
insurance for herself. "Fraudulent intent on the part of the insured must be established to entitle the
insurer to rescind the contract."27 In the absence of proof of such fraudulent intent, no right to rescind
arises.
Moreover, the results and conclusions arrived at during the investigation conducted unilaterally by
petitioner after the claim was filed may simply be dismissed as self-serving and may not form the basis
of a cause of action given the existence and application of Section 48, as will be discussed at length
below.
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 effectivity of a life insurance contract and
while the insured is alive – to discover or prove that the policy is void ab initio or is rescindible by
reason of the 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 insurer must make good on the
policy, even though the policy was obtained by fraud, concealment, or misrepresentation. This is not to
say that insurance fraud must be rewarded, but that insurers who recklessly and indiscriminately solicit
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.
Section 48 regulates both the actions of the insurers and prospective takers of life insurance. It gives
insurers enough time to inquire whether the policy was obtained by fraud, concealment, or
misrepresentation; on the other hand, it forewarns scheming individuals that their attempts at insurance
fraud would be timely uncovered – thus deterring them from venturing into such nefarious enterprise.
At the same time, legitimate policy holders are absolutely protected from unwarranted denial of their
claims or delay in the collection of insurance proceeds occasioned by allegations of fraud,
concealment, or misrepresentation by insurers, claims which may no longer be set up after the two-
year period expires as ordained under the law.
10
Thus, the self-regulating feature of Section 48 lies in the fact that both the 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 would be struck down. Life insurance policies that pass the
statutory two-year 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 of the insurance industry.
Section 48 prevents a situation where the insurer knowingly continues to accept annual premium
payments on life insurance, only to later on deny a claim on 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 instance an investigation into the circumstances surrounding the issuance of
Insurance Policy No. 747411 which would have timely exposed the supposed flaws and irregularities
attending it as it now professes, petitioner appears to have turned a blind eye and opted instead to
continue collecting the premiums on the policy. For nearly three years, petitioner collected the
premiums and devoted the same to its own profit. It cannot now deny the claim when it is called to
account. Section 48 must be applied to it with full force and effect.
The Court therefore agrees fully with the appellate court’s pronouncement that –
the "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 during the lifetime of the insured for a period of two
(2) 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 rescindible by reason of fraudulent concealment or misrepresentation of the
insured or his agent.
The purpose of the law is to give protection to the insured or his beneficiary by limiting the rescinding of
the contract of insurance on the ground of fraudulent concealment or misrepresentation to a period of
only two (2) years from the issuance of the policy or its last reinstatement.
The insurer is deemed to have the necessary facilities to discover such 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 alive, only to raise the issue of fraudulent concealment or
misrepresentation when the insured dies in order to defeat the right of the beneficiary to recover under
the policy.
At least two (2) years from the issuance of the policy or its last reinstatement, 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 date of the last reinstatement.
After two years, the defenses of concealment or misrepresentation, no matter how patent or well-
founded, will no longer lie.
Congress felt this was a sufficient answer to the various tactics employed by insurance companies to
avoid liability.
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."
As borne by the records, the policy was issued on August 30, 1993, the insured 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 days. Considering that the insured died after the two-year period, the plaintiff-
appellant is, therefore, barred from proving that the policy is void ab initio by reason of the insured’s
fraudulent concealment or misrepresentation or want of insurable interest on the part of the beneficiary,
herein defendant-appellee.
Well-settled is the rule that it is the plaintiff-appellant’s burden to show that the factual findings of the
trial court are not based on substantial evidence or that its conclusions are contrary to applicable law
and jurisprudence. The plaintiff-appellant failed to discharge that burden.28
Petitioner claims that its insurance agent, who solicited the Sotero account, happens to be the cousin
of respondent’s husband, and thus insinuates that both connived to commit insurance fraud. If this
were truly the case, then petitioner would have discovered the scheme earlier if it had in earnest
conducted an investigation into the circumstances surrounding the Sotero 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 after 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 before taking them in to market their products, or if they do not
thoroughly investigate the insurance contracts they enter into with their clients, then they have only
themselves to blame. Otherwise said, insurers cannot be allowed to collect premiums on insurance
policies, use these amounts collected and invest the same through the years, generating profits and
returns therefrom for their own benefit, and thereafter conveniently deny insurance claims by
questioning 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 Section 48 aims to prevent.
Insurers may not be allowed to delay the payment of claims by filing frivolous cases in court, hoping
that the inevitable may be put off for years – or even decades – by the pendency of these unnecessary
court cases. In the meantime, they benefit from collecting the interest and/or returns on both the
premiums previously paid by the insured and the insurance proceeds which should otherwise go to
their beneficiaries. The business of insurance is a highly regulated commercial activity in the
country,29 and is imbued with public interest.30 "An insurance contract is a contract of adhesion which
must be construed liberally in favor of the insured and strictly against the insurer in order to safeguard
the former’s interest."31
WHEREFORE, the Petition is DENIED. The assailed September 28, 2005 Decision and the November
9, 2006 Resolution of the Court of Appeals in CA-G.R. CV No. 62286 are AFFIRMED.
SO ORDERED.
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