Insular Life countered that Felipe did not disclose the ailments (viz.
, Type 2 Diabetes
G.R. No. 195176. April 18, 2016.*
THE INSULAR LIFE ASSURANCE COMPANY, LTD., petitioner, vs. PAZ Y. KHU, FELIPE Y. KHU,
JR., and FREDERICK Y. KHU, respondents.
Insurance Law; Insurance Policy; It is settled that the reinstatement of an insurance
policy should be reckoned from the date when the same was approved by the insurer.—
In Lalican v. The Insular Life Assurance Company, Limited, 597 SCRA 159 (2009), which
coincidentally also involves the herein petitioner, it was there held that the reinstatement of
the insured’s policy is to be reckoned from the date when the application was processed and
approved by the insurer. There, we stressed that: To reinstate a policy means to restore the
same to premium-paying status after it has been permitted to lapse. x x x x x x x In the instant
case, Eulogio’s death rendered impossible full compliance with the conditions for
reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed to file his
Application for Reinstatement and deposit the amount for payment of his overdue premiums
and interests thereon with Malaluan; but Policy No. 9011992 could only be considered
reinstated after the Application for Reinstatement had been processed and approved by
Insular Life during Eulogio’s lifetime and good health. Thus, it is settled that the reinstatement
of an insurance policy should be reckoned from the date when the same was approved by the
insurer.
Facts:
On March 6, 1997, Felipe N. 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. Insular Life thereafter issued him Policy Number A000015683 with a face value of
PI million. This took effect on June 22, 1997.
On June 23, 1999, Felipe's policy lapsed due to non-payment of the premium covering
the period from June 22, 1999 to June 23, 2000
On September 7, 1999, Felipe applied for the reinstatement of his policy and paid
P25,020.00 as premium
On October 12, 1999, Insular Life advised Felipe that his application for reinstatement
may only be considered if he agreed to certain conditions such as payment of additional
premium and the cancellation of the riders pertaining to premium waiver and accidental
death benefits. Felipe agreed to these conditions[8] and on December 27, 1999 paid the
agreed additional premium of P3,054.50
On September 22, 2001, Felipe died
On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. .and Frederick Y. Khu (collectively,
Felipe's beneficiaries or respondents) filed with Insular Life a claim for benefit under the
reinstated policy. This claim was denied.
Issues:
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...
whether Felipe's reinstated life insurance policy is already incontestable at the time of his
death.
Ruling:
this Court adopts the interpretation favorable to the insured in determining the date
when the reinstatement was approved.
We deny the Petition.
Based on the foregoing, we find that the CA did not commit any error in holding that
the subject insurance policy be considered as reinstated on June 22, 1999. This finding must
be upheld not only because it accords with the evidence, but also because this is favorable to
the insured who was not responsible for causing the ambiguity or obscurity in the insurance
contract.
WHEREFORE, the Petition is DENIED. The assailed June 24, 2010 Decision and
December 13, 2010 Resolution of the Court of Appeals in CA-GR. CV No. 81730 are
AFFIRMED.
G.R. No. 175666. July 29, 2013.*
MANILA BANKERS LIFE INSURANCE CORPORATION, petitioner, vs. CRESENCIA P. ABAN,
respondent.
Insurance Law; Fraud; Fraudulent intent on the part of the insured must be established
to entitle the insurer to rescind the contract.―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. “[F]raudulent intent on the part of the insured must be
established to entitle the insurer to rescind the contract.” In the absence of proof of such
fraudulent intent, no right to rescind arises.
Same; Incontestability Clause; 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.―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.
Same; Insurance Business; 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.―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.
Same; Same; Contract of Adhesion; 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.―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, and is
imbued with public interest. “[A]n 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.”
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.
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.
No. L-16163. February 28, 1963.
IGNACIO SATURNINO, in his own behalf and as the JUDICIAL GUARDIAN OF CARLOS
SATURNINO, minor, plaintiffs-appellants, vs. THE PHILIPPINE AMERICAN LIFE
INSURANCE COMPANY, defendant-appellee.
Insurance; Non-medical insurance; Medical history material to insurability of applicant.
—In non-medical insurance, the waiver of medical examination 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.
 Same; Same; Concealment of previous operation.—The concealment of the fact of the
operation itself is fraudulent, as there could not have been any mistake about it, no matter
what the ailment.
Same; Same; Concealment, whether intentional or unintentional; Ground for rescission.
—In this jurisdiction, a concealment, whether intentional or unintentional, entitles the insurer
to rescind the contract of insurance, concealment being defined as “negligence to
communicate that which a party knows and ought to communicate” (Sections 24 and 26, Act
No. 2427).
Facts:
> 2 months prior to the insurance of the policy, Saturnino was operated on for cancer,
involving complete removal of the right breast, including the pectoral muscles and the glands,
found in the right armpit.
> Notwithstanding the fact of her operation, Saturnino did not make a disclosure
thereof in her application for insurance.
> She stated therein that she did not have, nor had she ever had, among others listed
in the application, cancer or other tumors; that she had not consulted any physician,
undergone any operation or suffered any injury within the preceding 5 years.
> She also stated that she had never been treated for, nor did she ever have any illness
or disease peculiar to her sex, particularly of the breast, ovaries, uterus and menstrual
disorders.
The contention of appellants is that the facts subject of the representation were not
material in view of the non-medical nature of the insurance applied for, which does away
with the usual requirement of medical examination before the policy is issued. The
contention is without merit. If anything, the waiver of medical examination 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.
Appellants also contend that there was no fraudulent concealment of the truth
inasmuch as the insured herself did not know, since her doctor never told her, that the
disease for which she had been operated on was cancer. In the first place, concealment of
the fact of the operation itself was fraudulent, as there could not have been any mistake
about it, no matter what the ailment.
Secondly, in order to avoid a policy, it is not necessary to show actual fraud on the part
of the insured. In this jurisdiction, concealment, whether intentional or unintentional entitled
the insurer to rescind the contract of insurance, concealment being defined as “negligence to
communicate that which a party knows and ought to communicate.” The basis of the rule
vitiating the contract in cases of concealment is that it misleads or deceives the insurer into
accepting the risk, or accepting it at a rate of premium agreed upon. The insurer, relying
upon the belief that the insured will disclose every material fact within his actual or
presumed knowledge, is misled into a belief that the circumstances withheld does not exist,
and he is thereby induced to estimate the risk upon a false basis that it does not exist.

> The application also recited that the declarations of Saturnino constituted a further
basis for the issuance of the policy.

Issue:

Whether or not the insured made such false representation of material facts as to
avoid the policy.

Held:

YES.

There can be no dispute that the information given by her in the application for
insurance was false, namely, that she never had cancer or tumors or consulted any physician
or undergone any operation within the preceding period of 5 years.

The question to determine is: Are the facts then falsely represented material? The
Insurance Law provides that “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 the
communication is due, in forming his estimate of the proposed contract, or making his
inquiries.