RESCISSION OF INSURANCE CONTRACTS

Topic: Concealment; Material Concealment: Incontestability Clause (1994)

On September 23, 1990, Tan took a life insurance policy from Philam. The policy was issued on
November 6, 1990. He died on April 26, 1992 of hepatoma. The insurance company denied the
beneficiaries‘ claim and rescinded the policy by reason of alleged misrepresentation and
concealment of material facts made by Tan in his application. It returned the premiums paid.
The beneficiaries contend that the company had no right to rescind the contract as rescission
must be done ―during the lifetime‖ of the insured within two years and prior to the
commencement of the action. Is the contention of the beneficiaries tenable?

ANSWER:
No. The incontestability clause does not apply. The insured dies within less than two years from
the issuance of the policy on September 23, 1990. The insured died on April 26, 1992, or less
than 2 years from September 23, 1990.
The right of the insurer to rescind is only lost if the beneficiary has commenced an action on the
policy. There is no such action in this case.