The Insular Life Ass. Co., Ltd. v. Paz Y. Khu Paz Y. Khu, Felipe Y. Khu, Jr.
Y. Khu, Felipe Y. Khu, Jr. and Frederick Y. Khu (Felipe’s beneficiaries or respondents) filed
Case Doctrine: 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 latter’s interest. Limitations of liability should be regarded with
extreme jealousy and must be construed in such a way as to preclude the insurer
from noncompliance with its obligations.
Fallo: WHEREFORE, the Petition is DENIED
Facts:
March 1997 – Felipe Khu, Sr. (Felipe) applied for a life insurance policy with Insular
Life under the latter’s Diamond Jubilee Insurance Plan. Felipe accomplished the
required medical questionnaire wherein he did not declare any illness or adverse
medical condition. This took effect on June 22, 1997.
June 1999 - Felipe’s policy lapsed due to non-payment of the premium covering the
period from June 22, 1999 to June 23, 2000.
September 1999 - Felipe applied for the reinstatement of his policy and paid
P25,020.00 as premium. Except for the change in his occupation of being self-
employed to being the Municipal Mayor of Binuangan, Misamis Oriental, all the
other information submitted by Felipe in his application for reinstatement was
virtually identical to those mentioned in his original policy.
Oct 1999 – Insular Life advised Felipe that his application for reinstatement may
only be considered if he agreed to certain conditions such as payment of additional
premium and the cancellation of the riders pertaining to premium waiver and
accidental death benefits. Felipe agreed to these conditions and paid the agreed
additional premium.
Jan 2000 – Insular Life reinstated Felipe’s policy and issued an Endorsement stating:
This certifies that as agreed by the Insured, the reinstatement of this policy has been
approved by the Company on the understanding that the following changes are made on the
policy effective June 22, 1999…
Sept 2001 – Felipe died.
1
with Insular Life a claim for benefit under the reinstated policy.
Insular Life denied the claim. It rescinded the reinstated policy on the grounds of
concealment and misrepresentation by Felipe since he did not disclose the ailments (Type 2
Diabetes Mellitus, Diabetes Nephropathy and Alcoholic Liver Cirrhosis with Ascites) that he
already had prior to his application for reinstatement of his insurance policy; and that it
would not have reinstated the insurance policy had Felipe disclosed the material information
on his adverse health condition. It contended that when Felipe died, the policy was still
contestable.
Respondents instituted a complaint for specific performance with damages.
RTC and CA: ruled in favor of respondents
Issue: Whether Felipe’s reinstated life insurance policy is already incontestable at
the time of his death – YES.
Ratio: Sec 48 of the Insurance Code provides:
…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.
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’.
In the Letter of Acceptance, Khu declared that he was accepting "the imposition of
an extra/additional premium of P5.00 a year per thousand of insurance; effective
June 22, 1999". It is true that the phrase as used in this particular paragraph does
not refer explicitly to the effectivity of the reinstatement. But the Court notes that
the reinstatement was conditioned upon the payment of additional premium not
only prospectively, that is, to cover the remainder of the annual period of coverage,
but also retroactively, that is for the period starting June 22, 1999. Hence, by paying
the amount of P3,054.50 on December 27, 1999 in addition to the P25,020.00 he
had earlier paid on September 7, 1999, Khu had paid for the insurance coverage
starting June 22, 1999. At the very least, this circumstance has engendered a true
lacuna.
In the Endorsement, the obscurity is patent. In the first sentence of the
Endorsement, it is not entirely clear whether the phrase "effective June 22, 1999"
refers to the subject of the sentence, namely "the reinstatement of this policy," or
to the subsequent phrase "changes are made on the policy."
Given the obscurity of the language, the construction favorable to the insured will
be adopted by the courts.
Accordingly, the subject policy is deemed reinstated as of June 22, 1999. Thus, the
period of contestability has lapsed.
Manila Bankers Life Insurance Corporation vs Aban
Facts: 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, as her beneficiary. Petitioner issued Insurance
Policy No. 747411 (the policy), with a face value of P 100,000.00, in Sotero’s favor
on August 30, 1993, after the requisite medical examination and payment of the
insurance premium. On April 10, 1996, 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, 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; and 5. Respondent was the one who filed the insurance
application, and x x x designated herself as the beneficiary. For the above reasons,
petitioner denied respondent’s claim on April 16, 1997 and refunded the premiums
paid on the policy.
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Issue: Whether or not Manila Bankers is barred from denying the insurance claims
based on fraud or concealment.
Held: Yes. 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.
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.
. MANULIFE PHILIPPINES, INC., Petitioner vs. HERMENEGILDA YBAÑEZ,
Facts: Manulife Philippines, Inc. (Manulife) instituted a Complaint for Rescission of
Insurance Contracts against Hermenegilda Ybañez (Hermenegilda) and the BPI
Family Savings Bank (BPI Family). It is alleged in the Complaint that Insurance which
Manulife issued in favor of Dr. Gumersindo Solidum Ybañez (insured), were void
due to concealment or misrepresentation of material facts in the latter's
applications for life insurance; that Hermenegilda, wife of the said insured, was
revocably designated as beneficiary in the subject insurance policies; that on
November 17, 2003, when one of the subject insurance policies had been in force
for only one year and three months, while the other for only four months, the
insured died; that Manulife conducted an investigation into the circumstances
leading to the said insured's death, in view of the aforementioned entries in the
said insured's Death Certificate; that Manulife thereafter concluded that the
insured misrepresented or concealed material facts at the time the subject
insurance policies were applied for; and that for this reason Manulife accordingly
denied Hermenegilda's death claims and refunded the premiums that the insured
paid on the subject insurance policies.
BPI Family filed a Manifestation praying that either it be dropped from the case or
that the case be dismissed with respect to it, since no objection was interposed to
this prayer by either Manulife or Hermenegilda, the RTC granted the prayer.
Manulife presented its sole witness in the person of Ms. Jessiebelle Victoriano
(Victoriano ), the Senior Manager of its Claims and Settlements Department. The
oral testimony of this witness chiefly involved identifying herself as the Senior
Manager of Manulife's Claims and Settlements Department and also identifying the
evidence. After due proceedings, the RTC dismissed Manulife's Complaint. The RTC
found no merit at all in Manulife's Complaint for rescission of the subject insurance
policies because it utterly failed to prove that the insured had committed the
alleged misrepresentation/s or concealment/s. The CA affirmed the decision of RTC.
Issue: Whether the CA committed any reversible error in affirming the RTC Decision
dismissing Manulife's Complaint for rescission of insurance contracts for failure to
prove concealment on the part of the insured.
Held: No. The RTC correctly held that the CDH’s medical records that might have
established the insured’s purported misrepresentation/s or concealment/s was
inadmissible for being hearsay, given the fact that Manulife failed to present the
physician or any responsible official of the CDH who could confirm or attest to the
due execution and authenticity of the alleged medical records.
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Manulife's sole witness gave no evidence at all relative to the particulars of the
purported concealment or misrepresentation allegedly perpetrated by the insured.
In fact, Victoriano merely perfunctorily identified the documentary exhibits
adduced by Manulife; she never testified in regard to the circumstances attending
the execution of these documentary exhibits much less in regard to its contents. Of
course, the mere mechanical act of identifying these documentary exhibits, without
the testimonies of the actual participating parties thereto, adds up to nothing.
These documentary exhibits did not automatically validate or explain themselves.
"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." For failure of Manulife
to prove intent to defraud on the part of the insured, it cannot validly sue for
rescission of insurance contracts.
ALPHA INSURANCE v CASTOR
On February 21, 2007, respondent entered into a contract of insurance with
petitioner, involving her motor vehicle, a Toyota Revo. The contract of insurance
obligates the petitioner to pay the respondent the amount of P630K in case of loss
or damage to said vehicle during the period covered.
Respondent instructed her driver to bring the above-described vehicle to a nearby
auto-shop for a tune-up. However, Jose
Lanuza no longer returned the motor vehicle to respondent. Respondent promptly
reported the incident to the police and concomitantly notified petitioner of the said
loss and demanded payment of the insurance proceeds. Petitioner denied the
insurance claim of respondent, stating that on the provision of the Policy, “the
company shall not be liable for Any malicious damage caused by the Insured, any
member of his family or by "A PERSON IN THE INSURED’S SERVICE.”
Respondent argued that the exception refers to damage of the motor vehicle and
not to its loss. However, petitioner’s denial of respondent’s insured claim remains
firm.
 Respondent filed a claim for sum of money and damages with the RTC. RTC
rendered a decision in favor of respondent, CA affirmed.
ISSUE: Whether or not the loss of respondent’s vehicle is excluded under the
insurance policy.
RULING: No. SC did not agree with petitioner’s argument that the word "damage,"
under paragraph 4 of "Exceptions to Section III," means loss due to injury or harm
to person, property or reputation, and should be construed to cover malicious
"loss" as in "theft", thus being exempt from the policy. Based on the evidence as
can be seen in the said policy, the insurance company, subject to the limits of
liability, is obligated to indemnify the insured against theft. Said provision does not
qualify as to who would commit the theft. Thus, even if the same is committed by
the driver of the insured, there being no categorical declaration of exception, the
same must be covered. Moreover, 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
Accordingly, in interpreting the exclusions in an insurance contract, the terms used
specifying the excluded classes therein are to be given their meaning as understood
in common speech. "malicious damage," as provided for in the subject policy as one
of the exceptions from coverage, is the damage that is the direct result from the
deliberate or willful act of the insured, members of his family, and any person in the
insured’s service, whose clear plan or purpose was to cause damage to the insured
vehicle for purposes of defrauding the insurer. However, when the terms of the
insurance policy are ambiguous, equivocal or uncertain, such that the parties
themselves disagree about the meaning of particular provisions, the policy will be
construed by the courts liberally in favor of the assured and strictly against the
insurer. Lastly, a contract of insurance is a contract of adhesion. So, when the terms
of the insurance contract contain limitations on liability, courts should construe
them in such a way as to preclude the insurer from non-compliance with his
obligation.
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FLORENDINO v PHIL AM
Manuel Florendo filed an application for comprehensive pension plan with
respondent Philam Plans, Inc. (Philam Plans) Manuel signed the application and left
to Perla the task of supplying the information needed in the application.
Respondent Ma. Celeste Abcede, Perla’s daughter, signed the application as sales
counselor. Philam Plans issued Pension Plan Agreement to Manuel, with petitioner
Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his quarterly
premiums. Eleven months later, Manuel died of blood poisoning. Subsequently,
Lourdes filed a claim with Philam Plans for the payment of the benefits under her
husband’s plan but Philam Plans declined her claim prompting her to file the
present action against the pension plan company before the Regional Trial Court
(RTC) of Quezon City and ruled in favor of Ma. Lourdes. However, the Court of
Appeals then reversed the RTC decision. Hence this appeal.
ISSUE: Whether or not Ma. Lourdes could claim benefits as the beneficiary of her
husband under the insurance plan despite consideration that her husband Manuel
concealed the true condition of his health.
RULING:
The Supreme Court answers this to the negative and the AFFIRMED in its entirety
the decision of the Court of Appeals.
The comprehensive pension plan that Philam Plans issued contains a one-year
incontestability period. It states:
VIII. INCONTESTABILITY
After this Agreement has remained in force for one (1) year, we can no longer
contest for health reasons any claim for insurance under this Agreement, except for
the reason that installment has not been paid (lapsed), or that you are not insurable
at the time you bought this pension program by reason of age. If this Agreement
lapses but is reinstated afterwards, the one (1) year contestability period shall start
again on the date of approval of your request for reinstatement.
The above incontestability clause precludes the insurer from disowning liability ISSUE: Whether or not a member of a health care provider can recover to the
under the policy it issued on the ground of concealment or misrepresentation extent agreed in the contract.
regarding the health of the insured after a year of its issuance.
Whether or not ambiguities should be taken in favor of the member.
Since Manuel died on the eleventh month following the issuance of his plan, the
one year incontestability period has not yet set in. Consequently, Philam Plans was HELD:
not barred from questioning Lourdes’ entitlement to the benefits of her husband’s
1.)Yes. In the case at bar, the Supreme Court said that for purposes of determining
pension plan.
the liability of a health care provider to its members, jurisprudence holds that a
health care agreement is in the nature of non-life insurance, which is primarily a
FORTUNE v AMORIN
contract of indemnity. Once the member incurs hospital, medical or any other
While Amorin was on vacation in Hawaii, he underwent an emergency surgery, expense arising from sickness, injury or other stipulated contingent, the health care
specifically appendectomy, causing him to incur professional and hospitalization provider must pay for the same to the extent agreed upon under the contract.
expenses of US$7,242.35 and US$1,777.79, respectively. Being a
2.) Yes. With regard the ambiguities in the contract, settled is the rule that they
cardholder/member of Fortune Medicare, Inc. (Fortune Care), a corporation
should be interpreted against the party that caused the ambiguity. “Any ambiguity
engaged in providing health maintenance services to its members, he attempted to
in a contract whose terms are susceptible of different interpretations must be read
recover the full amount upon his return to Manila. However, the company merely
against the party who drafted it.” Furthermore, it affirmed the CA’s finding that
approved a reimbursement of P12,151.36, an amount that was based on the
Fortune Care’s liability to Amorin under the subject Health Care Contract should be
average cost of appendectomy, net of medicare deduction, if the procedure were
based on the expenses for hospital and professional fees which he actually incurred,
performed in an accredited hospital in Metro Manila. Amorin received under
and should not be limited by the amount that he would have incurred had his
protest the approved amount, but asked for its adjustment to cover the total
emergency treatment been performed in an accredited hospital in the Philippines.
amount of professional fees which he had paid, and eighty percent (80%) of the
approved standard charges based on “American standard”, considering that the
SUNLIFE v CA
emergency procedure occurred in the U.S.A., citing provisions of the contract.
Robert John Bacani procured a life insurance contract for himself from petitioner-
He then filed a complaint for breach of contract with damages but this was
company, designating his mother Bernarda Bacani, herein private respondent, as
dismissed by the RTC. It said that the parties intended to use the Philippine
the beneficiary. He was issued a policy valued at P100,000.00 with double
standard as basis. However, this was reversed by the CA. The appellate court
indemnity in case of accidental death. Sometime after, the insured died in a plane
pointed out that, first, health care agreements such as the subject Health Care
crash. Bernarda filed a claim with petitioner, seeking the benefits of the insurance
Contract, being like insurance contracts, must be liberally construed in favor of the
policy taken by her son. However, said insurance company rejected the claim on the
subscriber. In case its provisions are doubtful or reasonably susceptible of two
ground that the insured did not disclose material facts relevant to the issuance of
interpretations, the construction conferring coverage is to be adopted and
the policy, thus rendering the contract of insurance voidable. Petitioner discovered
exclusionary clauses of doubtful import should be strictly construed against the
that two weeks prior to his application for insurance, the insured was examined and
provider. Second, the CA explained that there was nothing under the Health Care
confined at the Lung Center of the Philippines, where he was diagnosed for renal
Contract which provided that the Philippine standard should be used even in the
failure. The RTC, as affirmed by the CA, this fact was concealed, as alleged by the
event of an emergency confinement in a foreign territory.
petitioner. But the fact that was concealed was not the cause of death of the
insured and that matters relating to the medical history of the insured is deemed to
5
be irrelevant since petitioner waived the medical examination prior to the approval
and issuance of the insurance policy.

ISSUE: Whether or not the concealment of such material fact, despite it not being
the cause of death of the insured, is sufficient to render the insurance contract
voidable

HELD:

YES. 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. 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. The SC, therefore,
ruled 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.