Representation
broke out on the subject premises destroying the goods contained in its ground
A. “Other Insurance” Clause
G.R. No. L-41014 November 28, 1988
PACIFIC BANKING CORPORATION, petitioner,  endorsement of said policy (Brief for Plaintiff-Appellee, pp. 16-17).
vs.
COURT OF APPEALS and ORIENTAL ASSURANCE
CORPORATION, respondents.
Flores, Ocampo, Dizon and Domingo Law Office for petitioner.
Cabochan and Reyes Law Office for respondents.
PARAS, J.:
This is a petition for review on certiorari of the decision of respondent Court of
Appeals * in CA-G.R. No. 41735-R, entitled "Pacific Banking Corporation vs. Oriental Assurance
Corporation", which set aside the decision of the Court of First Instance (CFI) of Manila, ** which had in turn
granted the complaint for a sum of money in Civil Case No. 56889.
As gathered from the records, the undisputed facts of this case are as follows:
On October 21,1963, Fire Policy No. F-3770 (Exhibit "A"), an open policy, was
issued to the Paramount Shirt Manufacturing Co. (hereinafter referred to as the
insured, for brevity), by which private respondent Oriental Assurance
Corporation bound itself to indemnify the insured for any loss or damage, not
exceeding P61,000.00, caused by fire to its property consisting of stocks,
materials and supplies usual to a shirt factory, including furniture, fixtures,
machinery and equipment while contained in the ground, second and third floors
of the building situated at number 256 Jaboneros St., San Nicolas, Manila, for a
period of one year commencing from that date to October 21, 1964.
The insured was at the time of the issuance of the policy and is up to this time, a
debtor of petitioner in the amount of not less than Eight Hundred Thousand
Pesos (P800,000.00) and the goods described in the policy were held in trust by
the insured for the petitioner under thrust receipts (Record on Appeal, p. 4).
Said policy was duly endorsed to petitioner as mortgagee/ trustor of the
properties insured, with the knowledge and consent of private respondent to the
effect that "loss if any under this policy is payable to the Pacific Banking
Corporation".
On January 4, 1964, while the aforesaid policy was in full force and effect, a fire
and second floors (Record on Appeal, p.5)
On January 24, 1964, counsel for the petitioner sent a letter of demand to private
respondent for indemnity due to the loss of property by fire under the
On January 28, 1964, private respondent informed counsel for the petitioner that
it was not yet ready to accede to the latter's demand as the former is awaiting the
final report of the insurance adjuster, H.H. Bayne Adjustment Company (Brief
for Plaintiff-Appellee, pp. 17-18).
On March 25, 1964, the said insurance adjuster notified counsel for the petitioner
that the insured under the policy had not filed any claim with it, nor submitted
proof of loss which is a clear violation of Policy Condition No.11, and for which
reason, determination of the liability of private respondent could not be had
(Supra, pp. 19-20).
On April 24, 1964, petitioner's counsel replied to aforesaid letter asking the
insurance adjuster to verify from the records of the Bureau of Customs the
entries of merchandise taken into the customs bonded warehouse razed by fire as
a reliable proof of loss (Supra,  pp. 21-22). For failure of the insurance company
to pay the loss as demanded, petitioner (plaintiff therein) on April 28, 1 964,
filed in the court a quo an action for a sum of money against the private
respondent, Oriental Assurance Corporation, in the principal sum of P61,000.00
issued in favor of Paramount Shirt Manufacturing Co. (Record on Appeal, pp. 1-
36).
On May 25, 1964, private respondent raised the following defenses in its answer
to wit: (a) lack of formal claim by insured over the loss and (b) premature filing
of the suit as neither plaintiff nor insured had submitted any proof of loss on the
basis of which defendant would determine its liability and the amount thereof,
either to the private respondent or its ad . adjuster H.H. Bayne Adjustment Co.,
both in violation of Policy Condition No.11 (Record on Appeal, pp. 37-38).
At the trial, petitioner presented in evidence Exhibit "H", which is a
communication dated December 22, 1965 of the insurance adjuster, H.H. Bayne
Adjustment Co. to Asian Surety Insurance Co., Inc., revealing undeclared co-
insurances with the following: P30,000.00 with Wellington Insurance; P25,000.
00 with Empire Surety and P250,000.00 with Asian Surety; undertaken by
insured Paramount on the same property covered by its policy with private
respondent whereas the only co-insurances declared in the subject policy are
those of P30,000.00 with Malayan P50,000.00 with South Sea and P25.000.00 I
with Victory (Brief for the Defendant pp. 13-14).
RESPONDENT COURT OF APPEALS COMMITTED A
It will be noted that the defense of fraud and/or violation of Condition No. 3 in GRAVE ERROR OF LAW IN CONCLUDING FRAUD
the Policy, in the form of non-declaration of co-insurances which was not FROM THE BARE FACT THAT THE INSURED
pleaded in the answer was also not pleaded in the Motion to Dismiss. PARAMOUNT PROCURED ADDITIONAL INSURANCES
OTHER THAN THOSE STATED IN THE POLICY IN SPITE
At any rate, on June 30, 1967, the trial court denied private respondent's motion OF THE EXISTENCE OF CONTRARY PRESUMPTIONS
on the ground that the defense of lack of proof of loss or defects therein was AND ADMITTED FACT AND CIRCUMSTANCES WHICH
raised for the first time after the commencement of the suit and that it must be NEGATE THE CORRECTNESS OF SAID CONCLUSION.
deemed to have waived the requirement of proof of loss (Sections 83 and 84,
Insurance Act; Record on Appeal, p. 61). (a) The respondent Court did not consider the
legal presumption against the existence of
On September 9, 1967, the case was considered submitted for decision from fraud, which should be established with such
which order private respondent filed a motion for reconsideration to set the case quantum of proof as is required for any crime.
or further reception of private respondent's additional evidence, "in order to
prove that 'insured has committed a violation of condition No. 3 of the policy in (b) The record of the case is bereft of proof of
relation to the other Insurance Clause.' " (Record on Appeal, pp. 61-69). such fraud.

On September 30,1967, the case was set for the continuation of the hearing for (c) The private respondent insurer did not even
the reception merely of the testimony of Alejandro Tan Gatue, Manager of the plead or in anywise raise fraud as a defense in
Adjustment Co., over the vehement opposition of the petitioner (Record on its answer or motion to dismiss and, therefore,
Appeal, p. 129). it should have been considered waived.

On April 18, 1 968, the trial court rendered a decision adjudging private (d) The total amount of insurance procured by
respondent liable to the petitioner under the said contract of insurance, the the insured from the different companies
dispositive portion of which reads: amounted to hardly onehalf (½) of the value of
the goods insured.
WHEREFORE, judgment is hereby rendered ordering the
defendant to pay the plaintiff P61,000.00, with interest at the II
rate of 8% per annum from January 4, 1964, to April 28, 1964,
and 12% from April 29, 1964, until the amount is fully paid, RESPONDENT COURT ERRED IN NOT HOLDING THAT
P6,100.00, as attorney's fees, and the costs. CONSIDERING THE VOTING ON THE PARTICULAR
QUESTION OF FRAUD, THE FINDING OF THE TRIAL
SO ORDERED. (Record on Appeal, pp. 140-141) COURT THEREON SHOULD BE CONSIDERED
AFFIRMED.
On appeal, the Court of Appeals reversed the decision of the trial court (Decision
promulgated on April 23, 1975, Rollo, pp. 21-33). III

Petitioner filed a motion for reconsideration of the said decision of the THE CONCURRING OPINION OF MR. JUSTICE CHANCO
respondent Court of Appeals, but this was denied on July 3,1975 for lack of IS LEGALLY ERRONEOUS IN HOLDING THAT THE
merit (Rollo, pp. 54-67), resulting in this petition with the following assigned ACTION WAS PREMATURELY BROUGHT BECAUSE
errors; THE REQUIRED CLAIM UNDER THE INSURANCE LAW
 HAS NOT BEEN FILED, NOTWITHSTANDING THE
LETTER, (EXHIBIT "C") OF PETITIONER-APPELLANT'S
LAWYER WHICH IS A SUBSTANTIAL COMPLIANCE OF
THE LEGAL REQUIREMENTS AND NOT HOLDING
THAT PRIVATE RESPONDENT INSURER HAD
ALREADY WAIVED THE SUPPOSED DEFECTS IN THE
CLAIM FILED BY PETITIONER-APPELLANT FOR ITS
FAILURE TO CALL THE ATTENTION OF THE LAYER TO
SUCH ALLEGED DEFECTS AND FOR ENDORSING THE
CLAIM TO ITS ADJUSTER FOR PROCESSING.
IV
RESPONDENT COURT OF APPEALS COMMITTED A
GRAVE ERROR OF LAW IN NOT INTERPRETING THE
PROVISIONS OF THE POLICY LIBERALLY IN FAVOR
OF THE HEREIN PETITIONER-APPELLANT, WHO IS
NOT THE INSURED BUT ONLY THE
ASSIGNEE/MORTGAGEE OF THE PROPERTY INSURED.
V beginning, as if it had never been entered into, and which cannot be validated
RESPONDENT COURT OF APPEALS COMMITTED A
GRAVE ERROR OF LAW IN DISMISSING THE CASE
AND IN NOT AFFIRMING THE APPEALED DECISION OF
THE TRIAL COURT. (Brief for Petitioners, pp. 1-3)
The crux of the controversy centers on two points: (a) unrevealed co-insurances
which violated policy conditions No. 3 and (b) failure of the insured to file the
required proof of loss prior to court action. Policy Condition No. 3 explicitly
provides:
3. The Insured shall give notice to the Company of any
insurance already effected, or which may subsequently be
effected, covering any of the property hereby insured, and
unless such notice be given and the particulars of such
insurance or insurances be stated in or endorsed on this Policy
by or on behalf of the Company before the occurrence of any
loss or damage, all benefit under this policy shall be forfeited.
(Record on Appeal, p. 12)
It is not disputed that the insured failed to reveal before the loss three other
insurances. As found by the Court of Appeals, by reason of said unrevealed
insurances, the insured had been guilty of a false declaration; a clear
misrepresentation and a vital one because where the insured had been asked to
reveal but did not, that was deception. Otherwise stated, had the insurer known
that there were many co-insurances, it could have hesitated or plainly desisted
from entering into such contract. Hence, the insured was guilty of clear fraud
(Rollo, p. 25).
Petitioner's contention that the allegation of fraud is but a mere inference or
suspicion is untenable. In fact, concrete evidence of fraud or false declaration by
the insured was furnished by the petitioner itself when the facts alleged in the
policy under clauses "Co-Insurances Declared" and "Other Insurance Clause" are
materially different from the actual number of co-insurances taken over the
subject property. Consequently, "the whole foundation of the contract fails, the
risk does not attach and the policy never becomes a contract between the parties.
Representations of facts are the foundation of the contract and if the foundation
does not exist, the superstructure does not arise. Falsehood in such
representations is not shown to vary or add to the contract, or to terminate a
contract which has once been made, but to show that no contract has ever existed
(Tolentino, Commercial Laws of the Philippines, p. 991, Vol. II, 8th Ed.) A void
or inexistent contract is one which has no force and effect from the very
either by time or by ratification Tongoy v. C.A., 123 SCRA 99 [1983]; Avila v.
C.A. 145 SCRA [1986]).
As the insurance policy against fire expressly required that notice should be
given by the insured of other insurance upon the same property, the total absence
of such notice nullifies the policy (Sta. Ana v. Commercial Union Assurance
Co., 55 Phil. 333 [1930]; Union Manufacturing Co., Inc. vs. Philippine Guaranty
Co., Inc., 47 SCRA 276 [1972]; Pioneer Ins. & Surety Corp., v. Yap, 61 SCRA
432 [1974]).
The argument that notice of co-insurances may be made orally is preposterous
and negates policy condition No. 20 which requires every notice and other
communications to the insurer to be written or printed.
Petitioner points out that Condition No. 3 in the policy in relation to the "other
insurance clause" supposedly to have been violated, cannot certainly defeat the
right of the petitioner to recover the insurance as mortgagee/assignee.
Particularly referring to the mortgage clause of the policy, petitioner argues that
considering the purpose for which the endorsement or assignment was made, that
is, to protect the mortgagee/assignee against any untoward act or omission of the
insured, it would be absurd to hold that petitioner is barred from recovering the
insurance on account of the alleged violation committed by the insured (Rollo,
Brief for the petitioner, pp, 33-35).
It is obvious that petitioner has missed all together the import of subject
mortgage clause which specifically provides:
Mortgage Clause
Loss, if any, under this policy, shall be payable to the PACIFIC
BANKING CORPORATION Manila mortgagee/trustor as its
interest may appear, it being hereby understood and agreed that
this insurance as to the interest of the mortgagee/trustor only
herein, shall not be invalidated by any act or neglect—except
fraud or misrepresentation, or arson—of the mortgagor or
owner/trustee of the property insured; provided, that in case the
mortgagor or owner/ trustee neglects or refuses to pay any
premium, the mortgagee/ trustor shall, on demand pay the same.
(Rollo, p. 26)
The paragraph clearly states the exceptions to the general rule that insurance as
to the interest of the mortgagee, cannot be invalidated; namely: fraud, or
misrepresentation or arson. As correctly found by the Court of Appeals,
concealment of the aforecited
co-insurances can easily be fraud, or in the very least, misrepresentation (Rollo,
p. 27).
Undoubtedly, it is but fair and just that where the insured who is primarily
entitled to receive the proceeds of the policy has by its fraud and/or
misrepresentation, forfeited said right, with more reason petitioner which is
merely claiming as indorsee of said insured, cannot be entitled to such proceeds.
Petitioner further stressed that fraud which was not pleaded as a defense in
private respondent's answer or motion to dismiss, should be deemed to have been
waived.
It will be noted that the fact of fraud was tried by express or at least implied
consent of the parties. Petitioner did not only object to the introduction of
evidence but on the contrary, presented the very evidence that proved its
existence.
Be that as it may, it is established that the Supreme Court has ample authority to
give beyond the pleadings where in the interest of justice and the promotion of
public policy, there is a need to make its own finding to support its conclusion.
Otherwise stated, the Court can consider a fact which surfaced only after trial
proper (Maharlika Publishing Corp. v. Tagle, 142 SCRA 561 [1986]).
Generally, the cause of action on the policy accrues when the loss occurs, But
when the policy provides that no action shall be brought unless the claim is first
presented extrajudicially in the manner provided in the policy, the cause of
action will accrue from the time the insurer finally rejects the claim for payment
(Eagle Star Insurance v. Chia Yu, 55 Phil 701 [1955]).
In the case at bar, policy condition No. 11 specifically provides that the insured
shall on the happening of any loss or damage give notice to the company and
shall within fifteen (15) days after such loss or damage deliver to the private
respondent (a) a claim in writing giving particular account as to the articles or
goods destroyed and the amount of the loss or damage and (b) particulars of all
other insurances, if any. Likewise, insured was required "at his own expense to
produce, procure and give to the company all such further particulars, plans,
specifications, books, vouchers, invoices, duplicates or copies thereof,
documents, proofs and information with respect to the claim". (Record on
Appeal, pp. 18-20).
The evidence adduced shows that twenty-four (24) days after the fire, petitioner
merely wrote letters to private respondent to serve as a notice of loss, thereafter,
the former did not furnish the latter whatever pertinent documents were
necessary to prove and estimate its loss. Instead, petitioner shifted upon private
respondent the burden of fishing out the necessary information to ascertain the
particular account of the articles destroyed by fire as well as the amount of loss.
It is noteworthy that private respondent and its adjuster notified petitioner that
insured had not yet filed a written claim nor submitted the supporting documents
in compliance with the requirements set forth in the policy. Despite the notice,
the latter remained unheedful. Since the required claim by insured, together with
the preliminary submittal of relevant documents had not been complied with, it
follows that private respondent could not be deemed to have finally rejected
petitioner's claim and therefore the latter's cause of action had not yet arisen.
Compliance with condition No. 11 is a requirement sine qua non to the right to
maintain an action as prior thereto no violation of petitioner's right can be
attributable to private respondent. This is so, as before such final rejection, there
was no real necessity for bringing suit. Petitioner should have endeavored to file
the formal claim and procure all the documents, papers, inventory needed by
private respondent or its adjuster to ascertain the amount of loss and after
compliance await the final rejection of its claim. Indeed, the law does not
encourage unnecessary litigation (Eagle Star Insurance Co., Ltd., et al. v. Chia
Yu, p. 701, supra).<äre||anº•1àw>
Verily, petitioner prematurely filed Civil Case No. 56889 and dismissal thereof
was warranted under the circumstances. While it is a cardinal principle of
insurance law that a policy or contract of insurance is to be construed liberally in
favor of the insured and strictly as against the insurer company (Eagle Star
Insurance Co., Ltd., et al. v. Chia Yu, p. 702, supra; Taurus Taxi Co., Inc. v. The
Capital Ins. & Surety Co., Inc., 24 SCRA 458 [1968]; National Power Corp. v.
CA, 145 SCRA 533 [1986]), yet, contracts of insurance, like other contracts, are
to be construed according to the sense and meaning of the terms which the
parties themselves have used. If such terms are clear and unambiguous, they
must be taken and understood in their plain, ordinary and popular sense (Young
v. Midland Textile Ins. Co., 30 Phil. 617 [1919]; Union Manufacturing Co., Inc.
v. Phil. Guaranty Co., Inc., p. 277 supra; Pichel v. Alonzo, III SCRA 341 [1982];
Gonzales v. CA, 124 SCRA 630 [1983]; GSIS v. CA, 145 SCRA 311 [1986];
Herrera v. Petrophil Corp., 146 SCRA 385 [1986]).
Contracts of insurance are contracts of indemnity upon the terms and conditions
specified in the policy. The parties have a right to impose such reasonable
conditions at the time of the making of the contract as they may deem wise and
necessary. The agreement has the force of law between the parties. The terms of
the policy constitute the measure of the insurer's liability, and in order to recover,
the insured must show himself within those terms. The compliance of the insured
with the terms of the policy is a condition precedent to the light of recovery
(Stokes v. Malayan Insurance Co., Inc., 127 SCRA 766 [1984]).
It appearing that insured has violated or failed to perform the conditions under
No. 3 and 11 of the contract, and such violation or want of performance has not
been waived by the insurer, the insured cannot recover, much less the herein
petitioner. Courts are not permitted to make contracts for the parties; the function
and duty of the courts is simply to enforce and carry out the contracts actually
made (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1915]; Union
Manufacturing Co. Inc. v. Phil. Guaranty Co. Inc., p. 276 supra).
Finally, the established rule in this jurisdiction that findings of fact of the Court
of Appeals when supported by substantial evidence, are not reviewable on appeal
by certiorari, deserves reiteration. Said findings of the appellate court are final
and cannot be disturbed by the Supreme Court except in certain cases Lereos v.
CA, 117 SCRA 395 [1985]; Dalida v. CA, 117 SCRA 480 [1982] Director of
Lands v. CA, 117 SCRA 346 [1982]; Montesa v. CA, 117 SCRA 770 [1982];
Sacay v. Sandiganbayan, 142 SCRA 609 [1986]; Guita v. CA, 139 SCRA 576
[1985]; Manlapaz v. CA, 147 SCRA 238-239 [1987]).
PREMISES CONSIDERED, the petition is DISMISSED for lack of merit, and
the decision appealed from is AFFIRMED. No costs.
SO ORDERED.
B. “Two- year Incontestability” period
G.R. No. 48049 June 29, 1989
EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO
TAN, petitioners, 
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE
INSURANCE COMPANY, respondents.
O.F. Santos & P.C. Nolasco for petitioners.
Ferry, De la Rosa and Associates for private respondent.
GUTIERREZ, JR., J.:
This is a petition for review on certiorari  of the Court of Appeals' decision
affirming the decision of the Insurance Commissioner which dismissed the
petitioners' complaint against respondent Philippine American Life Insurance
Company for the recovery of the proceeds from their late father's policy. The
facts of the case as found by the Court of Appeals are:
Petitioners appeal from the Decision of the Insurance
Commissioner dismissing herein petitioners' complaint against
respondent Philippine American Life Insurance Company for
the recovery of the proceeds of Policy No. 1082467 in the
amount of P 80,000.00.
On September 23,1973, Tan Lee Siong, father of herein
petitioners, applied for life insurance in the amount of P
80,000.00 with respondent company. Said application was
approved and Policy No. 1082467 was issued effective
November 6,1973, with petitioners the beneficiaries thereof
(Exhibit A).
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 denied
petitioners' claim and rescinded the policy by reason of the
alleged misrepresentation and concealment of material facts
made by the deceased Tan Lee Siong in his application for
insurance (Exhibit 3). The premiums paid on the policy were
thereupon refunded .
Alleging that respondent company's refusal to pay them the
proceeds of the policy was unjustified and unreasonable,
petitioners filed on November 27, 1975, 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.
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.
 examination and payment of the insurance premium.6cralaw virtualaw library

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
SECOND DIVISION illiterate;chanr0blesvirtualawlibrary

G.R. No. 175666, July 29, 2013 2. Sotero was sickly since 1990;chanr0blesvirtualawlibrary

MANILA BANKERS LIFE INSURANCE CORPORATION, Petitioner, 3. Sotero did not have the financial capability to pay the insurance
v. CRESENCIA P. ABAN,Respondent. premiums on Insurance Policy No. 747411;chanr0blesvirtualawlibrary

DECISION 4. Sotero did not sign the July 3, 1993 application for insurance;9 [and] 

DEL CASTILLO, J.: 5. Respondent was the one .who filed the insurance application, and x x x
designated herself as the beneficiary.10cralaw virtualaw library
 
For the above reasons, petitioner denied respondent's claim on April 16, 1997
and refunded the premiums paid on the policy.11cralaw virtualaw library
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
On April 24, 1997, petitioner filed a civil case for rescission and/or annulment of
fide clients, by requiring them to thoroughly investigate those they insure within
the policy, which was docketed as Civil Case No. 97-867 and assigned to Branch
two years from effectivity of the policy and while the insured is still alive. If they
134 of the Makati Regional Trial Court. The main thesis of the Complaint was
do not, they will be obligated to honor claims on the policies they issue,
that the policy was obtained by fraud, concealment and/or misrepresentation
regardless of fraud, concealment or misrepresentation. The law assumes that they
under the Insurance Code,12 which thus renders it voidable under Article
will do just that and not sit on their laurels, indiscriminately soliciting and
139013 of the Civil Code.
accepting insurance business from any Tom, Dick and Harry. 
Respondent filed a Motion to Dismiss14 claiming that petitioner's cause of action
Assailed in this Petition for Review on Certiorari1 are the September 28, 2005
was barred by prescription pursuant to Section 48 of the Insurance Code, which
Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 62286 and its
provides as follows: 
November 9, 2006 Resolution3 denying the petitioner's Motion for
Whenever a right to rescind a contract of insurance is given to the insurer by any
Reconsideration.4cralaw virtualaw library
provision of this chapter, such right must be exercised previous to the
commencement of an action on the contract. 
Factual Antecedents 
After a policy of life insurance made payable on the death of the insured shall
On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from
have been in force during the lifetime of the insured for a period of two years
Manila Bankers Life Insurance Corporation (Bankers Life), designating
from the date of its issue or of its last reinstatement, the insurer cannot prove that
respondent Cresencia P. Aban (Aban), her niece,5 as her beneficiary. 
the policy is void ab initio or is rescindible by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.
Petitioner issued Insurance Policy No. 747411 (the policy), with a face value of
During the proceedings on the Motion to Dismiss, petitioner's investigator
P100,000.00, in Sotero's favor on August 30, 1993, after the requisite medical
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 the first two years of the policy, whether fraud, concealment or misrepresentation
that it was the respondent who paid the annual premiums on the policy.16cralaw was present when the insurance coverage was obtained. If it failed to do so
virtualaw library within the statutory two-year period, then the insured must be protected and
allowed to claim upon the policy.
Ruling of the Regional Trial Court 
Petitioner moved for reconsideration,21 but the CA denied the same in its
November 9, 2006 Resolution.22 Hence, the present Petition. 
On December 9, 1997, the trial court issued an Order17 granting respondent's
Motion to Dismiss, thus:  Issues
WHEREFORE, defendant CRESENCIA P. ABAN's Motion to Dismiss is
hereby granted. Civil Case No. 97-867 is hereby dismissed. Petitioner raises the following issues for resolution: 
 
SO ORDERED.18cralaw virtualaw library I
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 [WHETHER] THE COURT OF APPEALS ERRED IN SUSTAINING THE
on her own life and validly designate - as she did — respondent as the ORDER OF THE TRIAL COURT DISMISSING THE COMPLAINT ON THE
beneficiary. It held further that under Section 48, petitioner had only two years GROUND OF PRESCRIPTION IN CONTRAVENTION (OF) PERTINENT
from the effectivity of the policy to question the same; since the policy had been LAWS AND APPLICABLE JURISPRUDENCE. 
in force for more than two years, petitioner is now barred from contesting the
same or seeking a rescission or annulment thereof. II

Petitioner moved for reconsideration, but in another Order19 dated October 20, [WHETHER] THE COURT OF APPEALS ERRED IN SUSTAINING THE
1998, the trial court stood its ground.  APPLICATION OF THE INCONTESTABILITY PROVISION IN THE
INSURANCE CODE BY THE TRIAL COURT.
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 III
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 [WHETHER] THE COURT OF APPEALS ERRED IN DENYING
insurance, the policy issued was rendered void ab initio for want of insurable PETITIONER'S MOTION FOR RECONSIDERATION.23cralaw virtualaw
interest. library

Ruling of the Court of Appeals  Petitioner's Arguments 

On September 28, 2005, the CA issued the assailed Decision, which contained
the following decretal portion:  trial court for the conduct of further proceedings, petitioner argues in its Petition
WHEREFORE, in the light of all the foregoing, the instant appeal
is DISMISSED for lack of merit.
SO ORDERED.20cralaw virtualaw library
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
In praying that the CA Decision be reversed and that the case be remanded to the
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 Moreover, the results and conclusions arrived at during the investigation
consent. 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
Petitioner adds that Insurance Policy No. 747411 was void ab initio and could the existence and application of Section 48, as will be discussed at length below. 
not have given rise to rights and obligations; as such, the action for the
declaration of its nullity or inexistence does not prescribe.25cralaw virtualaw Section 48 serves a noble purpose, as it regulates the actions of both the insurer
library 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
Respondent's Arguments  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
Respondent, on the other hand, essentially argues in her Comment26 that the CA two-year period lapses, or when the insured dies within the period, the insurer
is correct in applying Section 48. She adds that petitioner's new allegation in its must make good on the policy, even though the policy was obtained by fraud,
Petition that the policy is void ab initio merits no attention, having failed to raise concealment, or misrepresentation. This is not to say that insurance fraud must
the same below, as it had claimed originally that the policy was merely voidable.  be rewarded, but that insurers who recklessly and indiscriminately solicit and
obtain business must be penalized, for such recklessness and lack of
On the issue of insurable interest, respondent echoes the CA's pronouncement discrimination ultimately work to the detriment of bona fide takers of insurance
that since it was Sotero who obtained the insurance, insurable interest was and the public in general. 
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 Section 48 regulates both the actions of the insurers and prospective takers of life
submits that the CA's findings of fact leading to such conclusion should be insurance. It gives insurers enough time to inquire whether the policy was
respected.  obtained by fraud, concealment, or misrepresentation; on the other hand, it
forewarns scheming individuals that their attempts at insurance fraud would be
Our Ruling timely uncovered - thus deterring them from venturing into such nefarious
enterprise. At the same time, legitimate policy holders are absolutely protected
The Court denies the Petition.  from unwarranted denial of their claims or delay in the collection of insurance
proceeds occasioned by allegations of fraud, concealment, or misrepresentation
The Court will not depart from the trial and appellate courts' finding that it was by insurers, claims which may no longer be set up after the two-year period
Sotero who obtained the insurance for herself, designating respondent as her expires as ordained under the law. 
beneficiary. Both courts are in accord in this respect, and the Court is loath to
disturb this. While petitioner insists that its independent investigation on the Thus, the self-regulating feature of Section 48 lies in the fact that both the insurer
claim reveals that it was respondent, posing as Sotero, who obtained the and the insured are given the assurance that any dishonest scheme to obtain life
insurance, this claim is no longer feasible in the wake of the courts' finding that it insurance would be exposed, and attempts at unduly denying a claim would be
was Sotero who obtained the insurance for herself. This finding of fact binds the struck down. Life insurance policies that pass the statutory two-year period are
Court.  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
With the above crucial finding of fact - that it was Sotero who obtained the claim. In this manner, Section 48 contributes to the stability of the insurance
insurance for herself - petitioner's case is severely weakened, if not totally industry.
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 Section 48 prevents a situation where the insurer knowingly continues to
once belied by the trial and appellate courts' finding that Sotero herself took out accept annual premium payments on life insurance, only to later on deny a
the insurance for herself. "[Fraudulent intent on the part of the insured must be claim on the policy on specious claims of fraudulent concealment and
established to entitle the insurer to rescind the contract"27 In the absence of proof misrepresentation, such as what obtains in the instant case. Thus, instead of
of such fraudulent intent, no right to rescind arises. conducting at the first instance an investigation into the circumstances
surrounding the issuance of insurance Policy No. 747411 which would have after the insured has died. The key phrase in the second paragraph of Section 48
timely exposed the supposed flaws and irregularities attending it as it now is "for a period of two years."
professes, petitioner appears to have turned a blind eye and opted instead to
continue collecting the premiums on the policy. For nearly three years, As borne by the records, the policy was issued on August 30. 1993, the
petitioner collected the premiums and devoted the same to its own profit. It insured died on April 10, 1996, and the claim was denied on April 16, 1997.
cannot now deny the claim when it is called to account. Section 48 must be The insurance policy was thus in force for a period of 3 years, 7 months, and
applied to it with full force and effect.  24 days. Considering that the insured died after the two-year period, the
plaintiff-appellant is, therefore, barred from proving that the policy is
The Court therefore agrees fully with the appellate court's pronouncement that -  void ab initio by reason of the insured fraudulent concealment or
[t]he "incontestability clause" is a provision in law that after a policy of life misrepresentation or want of insurable interest on the part of the
insurance made payable on the death of the insured shall have been in force beneficiary, herein defendant-appellee. 
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 Well-settled is the rule that it is the plaintiff-appellant's burden to show that the
void ab initio or is rescindible by reason of fraudulent concealment or factual findings of the trial court are not based on substantial evidence or that its
misrepresentation of the insured or his agent.  conclusions are contrary to applicable law and jurisprudence. The plaintiff-
appellant failed to discharge that burden.28cralaw virtualaw library
The purpose of the law is to give protection to the insured or his beneficiary by Petitioner claims that its insurance agent, who solicited the Sotero account,
limiting the rescinding of the contract of insurance on the ground of fraudulent happens to be the cousin of respondent's husband, and thus insinuates that both
concealment or misrepresentation to a period of only two (2) years from the connived to commit insurance fraud. If this were truly the case, then petitioner
issuance of the policy or its last reinstatement. would have discovered the scheme earlier if it had in earnest conducted an
investigation into the circumstances surrounding the Sotero policy. But because
The insurer is deemed to have the necessary facilities to discover such fraudulent it did not and it investigated the Sotero account only after a claim was filed
concealment or misrepresentation within a period of two (2) years. It is not fair thereon more than two years later, naturally it was unable to detect the scheme.
for the insurer to collect the premiums as long as the insured is still alive, only to For its negligence and inaction, the Court cannot sympathize with its plight.
raise the issue of fraudulent concealment or misrepresentation when the insured Instead, its case precisely provides the strong argument for requiring insurers to
dies in order to defeat the right of the beneficiary to recover under the policy.  diligently conduct investigations on each policy they issue within the two-year
period mandated under Section 48, and not alter claims for insurance proceeds
At least two (2) years from the issuance of the policy or its last reinstatement, the are filed with them.
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 Besides, if insurers cannot vouch for the integrity and honesty of their insurance
in case the policy should lapse and is reinstated, that is, from the date of the last agents/salesmen and the insurance policies they issue, then they should cease
reinstatement.  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
After two years, the defenses of concealment or misrepresentation, no matter the insurance contracts they enter into with their clients, then they have only
how patent or well-founded, will no longer lie. themselves to blame. Otherwise said, insurers cannot be allowed to collect
premiums on insurance policies, use these amounts collected and invest the same
Congress felt this was a sufficient answer to the various tactics employed by through the years, generating profits and returns therefrom for their own benefit,
insurance companies to avoid liability.  and thereafter conveniently deny insurance claims by questioning the authority
or integrity of their own agents or the insurance policies they issued to their
The so-called "incontestability clause" precludes the insurer from raising the premium-paying clients. This is exactly one of the schemes which Section 48
defenses of false representations or concealment of material facts insofar as aims to prevent.
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" Insurers may not be allowed to delay the payment of claims by filing frivolous
found in Section 48 simply means that the policy is no longer considered in force 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, illness or adverse medical condition. Insular Life thereafter issued him Policy
they benefit from collecting the interest and/or returns on both the premiums Number A000015683 with a face value of P1 million. This took effect on June
previously paid by the insured and the insurance proceeds which should 22, 1997.5

otherwise go to their beneficiaries. The business of insurance is a highly

regulated commercial activity in the country,29 and is imbued with public On June 23, 1999, Felipe’s policy lapsed due to non-payment of the premium
interest.30 "[A]n insurance contract is a contract of adhesion which must be covering the period from June 22, 1999 to June 23, 2000. 6

construed liberally in favor of the insured and strictly against the insurer in order
to safeguard the [former's] interest."31cralaw virtualaw library On September 7, 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
WHEREFORE, the Petition is DENIED. The assailed September 28, 2005 self-employed to being the Municipal Mayor of Binuangan, Misamis Oriental,
Decision and the November 9, 2006 Resolution of the Court of Appeals in CA- all the other information submitted by Felipe in his application for reinstatement
G.R. CV No. 62286 are AFFIRMED.  was virtually identical to those mentioned in his original policy.
7

SO ORDERED.
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
G.R. No. 195176 payment of additional premium and the cancellation of the riders pertaining to
premium waiver and accidental death benefits. Felipe agreed to these
THE INSULAR LIFE ASSURANCE COMPANY, LTD., Petitioner,  conditions  and on December 27, 1999 paid the agreed additional premium of
8

vs. P3,054.50. 9

PAZ Y. KHU, FELIPE Y. KHU, JR., and FREDERICK Y.

KHU, Respondents.
DECISION
DEL CASTILLO, J.:
The date of last reinstatement mentioned in Section 48 of the Insurance Code
pertains to the date that the insurer approved· the application for reinstatement.
However, in light of the ambiguity in the insurance documents to this case, this
Court adopts the interpretation favorable to the insured in determining the date
when the reinstatement was approved.
Assailed in this Petition for Review on Certiorari   are the June 24, 2010
1
On January 7, 2000, Insular Life issued Endorsement No. PNA000015683,
which reads:
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:
1. The EXTRA PREMIUM is imposed; and
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF
PREMIUM DISABILITY (WPD) rider originally attached to and
forming parts of this policy [are] deleted.

Decision2 of the Court of Appeals (CA), which dismissed the Petition in CA- In consequence thereof, the premium rates on this policy are adjusted to
GR. CV No. 81730, and its December 13, 2010 Resolution3 which denied the P28,000.00 annually, P14,843.00 semi-annually and P7,557.00 quarterly,
petitioner Insular Life Assurance Company Ltd. 's (Insular Life) motion for Philippine currency.10

partial reconsideration.4

On June 23, 2000, Felipe paid the annual premium in the amount of P28,000.00
Factual Antecedents covering the period from June 22, 2000 to June 22, 2001. And on July 2, 2001,
he also paid the same amount as annual premium covering the period from June
On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy 22, 2001 to June 21, 2002.11

with Insular Life under the latter’s Diamond Jubilee Insurance Plan. Felipe
accomplished the required medical questionnaire wherein he did not declare any
On September 22, 2001, Felipe died. His Certificate of Death enumerated the
following as causes of death:
Immediate cause: a. End stage renal failure, Hepatic failure
Antecedent cause: b. Congestive heart failure, Diffuse myocardial
ischemia.
Underlying cause: c. Diabetes Neuropathy, Alcoholism, and
Pneumonia. 12
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. Instead,
Insular Life advised Felipe’s beneficiaries that it had decided to rescind the
reinstated policy on the grounds of concealment and misrepresentation by Felipe.
Hence, respondents instituted a complaint for specific performance with
damages. Respondents prayed that the reinstated life insurance policy be
declared valid, enforceable and binding on Insular Life; and that the latter be
ordered to pay unto Felipe’s beneficiaries the proceeds of this policy, among
others.
13
In its Answer, Insular Life countered that Felipe did not disclose the ailments
(viz., 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. 14
Ruling of the Regional Trial Court (RTC)
On December 12, 2003, the RTC, Branch 39 of Cagayan de Oro City found  for 15
Felipe’s beneficiaries, thus:
WHEREFORE, in view of the foregoing, plaintiffs having substantiated [their]
claim by preponderance of evidence, judgment is hereby rendered in their favor
and against defendants, ordering the latter to pay jointly and severally the sum of
One Million (P1,000,000.00) Pesos with legal rate of interest from the date of
demand until it is fully paid representing the face value of Plan Diamond Jubilee
No. PN-A000015683 issued to insured the late Felipe N. Khu[,] Sr; the sum of
P20,000.00 as moral damages; P30,000.00 as attorney’s fees; P10,000.00 as
litigation expenses.
SO ORDERED. 16
In ordering Insular Life to pay Felipe’s beneficiaries, the RTC agreed with the
latter’s claim that the insurance policy was reinstated on June 22, 1999. The RTC
cited the ruling in Malayan Insurance Corporation v. Court of Appeals  that any
17
ambiguity in a contract of insurance should be resolved strictly against the
insurer upon the principle that an insurance contract is a contract of
adhesion.  The RTC also held that the reinstated insurance policy had already
18
become incontestable by the time of Felipe’s death on September 22, 2001 since
more than two years had already lapsed from the date of the policy’s
reinstatement on June 22, 1999. The RTC noted that since it was Insular Life
itself that supplied all the pertinent forms relative to the reinstated policy, then it
is barred from taking advantage of any ambiguity/obscurity perceived therein
particularly as regards the date when the reinstated insurance policy became
effective.
Ruling of the Court of Appeals
On June 24, 2010, the CA issued the assailed Decision  which contained the
19
following decretal portion:
WHEREFORE, the appeal is DISMISSED. The assailed Judgment of the lower
court is AFFIRMED with the MODIFICATION that the award of moral
damages, attorney’s fees and litigation expenses [is] DELETED.
SO ORDERED. 20
The CA upheld the RTC’s ruling on the non-contestability of the reinstated
insurance policy on the date the insured died. It declared that contrary to Insular
Life’s contention, there in fact exists a genuine ambiguity or obscurity in the
language of the two documents prepared by Insular Life itself, viz.,  Felipe’s
Letter of Acceptance and Insular Life’s Endorsement; that given the
obscurity/ambiguity in the language of these two documents, the
construction/interpretation that favors the insured’s right to recover should be
adopted; and that in keeping with this principle, the insurance policy in dispute
must be deemed reinstated as of June 22, 1999. 21
Insular Life moved for partial reconsideration  but this was denied by the CA in
22
its Resolution of December 13, 2010.  Hence, the present Petition.
23
Issue
The fundamental issue to be resolved in this case is whether Felipe’s reinstated
life insurance policy is already incontestable at the time of his death.
Petitioner’s Arguments
In praying for the reversal of the CA Decision, Insular Life basically argues that
respondents should not be allowed to recover on the reinstated insurance policy
because the two-year contestability period had not yet lapsed inasmuch as the
insurance policy was reinstated only on December 27, 1999, whereas Felipe died
on September 22, 2001;  that the CA overlooked the fact that Felipe paid the
24
additional extra premium only on December 27, 1999, hence, it is only upon this
date that the reinstated policy had become effective; that the CA erred in
declaring that resort to the principles of statutory construction is still necessary to
resolve that question given that the Application for Reinstatement, the Letter of
Acceptance and the Endorsement in and by themselves already embodied
unequivocal provisions stipulating that the two-year contestability clause should
be reckoned from the date of approval of the reinstatement;  and that Felipe’s
25
misrepresentation and concealment of material facts in regard to his health or
adverse medical condition gave it (Insular Life) the right to rescind the contract
of insurance and consequently, the right to deny the claim of Felipe’s
beneficiaries for death benefits under the disputed policy. 26
Respondents’ Arguments
Respondents maintain that the phrase "effective June 22, 1999" found in both the
Letter of Acceptance and in the Endorsement is unclear whether it refers to the
subject of the sentence, i.e., the "reinstatement of this policy" or to the
subsequent phrase "changes are made on the policy;" that granting that there was
any obscurity or ambiguity in the insurance policy, the same should be laid at the
door of Insular Life as it was this insurance company that prepared the necessary
documents that make up the same;  and that given the CA’s finding which
27
effectively affirmed the RTC’s finding on this particular issue, it stands to reason
that the insurance policy had indeed become incontestable upon the date of
Felipe’s death.28
Our Ruling
We deny the Petition.
The Insurance Code pertinently provides that:
Sec. 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 rescindible by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.
The rationale for this provision was discussed by the Court in Manila Bankers
Life Insurance Corporation v. Aban, 29
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.
xxxx
The Court therefore agrees fully with the appellate court’s pronouncement that-
xxxx
‘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 Lalican v. The Insular Life Assurance Company, Limited,  which 30
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
xxxx
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.
31
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.
In this case, the parties differ as to when the reinstatement was actually
approved. Insular Life claims that it approved the reinstatement only on
December 27, 1999. On the other hand, respondents contend that it was on June
22, 1999 that the reinstatement took effect.
The resolution of this issue hinges on the following documents: 1) Letter of
Acceptance; and 2) the Endorsement.
The Letter of Acceptance  wherein Felipe affixed his signature was actually
32
drafted and prepared by Insular Life. This pro-forma document reads as follows:
LETTER OF ACCEPTANCE
Place: Cag. De [O]ro City
The Insular Life Assurance Co., Ltd.
P.O. Box 128, MANILA
Policy No. A000015683
Gentlemen:
Thru your Reinstatement Section, I/WE learned that this policy may be reinstated
provided I/we agree to the following condition/s indicated with a check mark:
[xx] Accept the imposition of an extra/additional extra premium
of [P]5.00 a year per thousand of insurance; effective June 22,
1999
[ ] Accept the rating on the WPD at ____ at standard rates; the
ABD at _____ the standard rates; the SAR at P____ annually
per thousand of Insurance;
[xx] Accept the cancellation of the Premium waiver &
Accidental death benefit.
[]
I am/we are agreeable to the above condition/s. Please proceed with the
reinstatement of the policy.
Very truly yours,
Felipe N. Khu, Sr.
After Felipe accomplished this form, Insular Life, through its Regional
Administrative Manager, Jesse James R. Toyhorada, issued an
Endorsement  dated January 7, 2000. For emphasis, the Endorsement is again
33
quoted as follows:
ENDORSEMENT
PN-A000015683
This certifies that as agreed to 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:
1. The EXTRA PREMIUM is imposed; and
2. The ACCIDENTAL DEATH BENEFIT (ADB) and
WAIVER OF PREMIUM DISABILITY (WPD) rider originally
attached to and forming parts of this policy is deleted.
In consequence thereof, the PREMIUM RATES on this policy are adjusted to
[P]28,000.00 annuallly, [P]14,843.00 semi-annually and [P]7,557.00 quarterly,
Philippine Currency.
Cagayan de Oro City, 07 January 2000.
RCV/
(Signed) Authorized Signature
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. 34
The CA expounded on this point thus –
The Court discerns a genuine ambiguity or obscurity in the language of the two
documents.
In the Letter of Acceptance, Khu declared that he was accepting "the imposition
of an extra/additional x x x 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."
The court below is correct. 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. 35
In Eternal Gardens Memorial Park Corporation v. The Philippine American Life
Insurance Company,  we ruled in favor of the insured and in favor  of the
36
effectivity of the insurance contract in the midst of ambiguity in the  insurance
contract provisions. We held that:
It must be remembered that 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. Thus, in MalayanInsurance
Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with the
general rule of resolving any ambiguity therein in favor of the insured, where the
contract or policy is prepared by the insurer. A contract of insurance, being a
contract of adhesion, par excellence, any ambiguity therein should be
resolved against the insurer; in other words, it should be construed liberally in
favor of the insured and strictly against the insurer. 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.
xxxx
As a final note, to characterize the insurer and the insured as contracting parties
on equal footing is inaccurate at best. Insurance contracts are wholly prepared by
the insurer with vast amounts of experience in the industry purposefully used to
its advantage. More often than not, insurance contracts are contracts of adhesion
containing technical terms and conditions of the industry, confusing if at all
understandable to laypersons, that are imposed on those who wish to avail of
insurance. As such, insurance contracts are imbued with public interest that must
be considered whenever the rights and obligations of the insurer and the insured
are to be delineated. Hence, in order to protect the interest of insurance
applicants, insurance companies must be obligated to act with haste upon
insurance applications, to either deny or approve the same, or otherwise be
bound to honor the application as a valid, binding, and effective insurance
contract. 37
Indeed, more than two years had lapsed from the time the subject insurance
policy was reinstated on June 22, 1999 vis-a-vis Felipe’s death on September 22,
2001.  As such, the subject insurance policy has already become incontestable at
1âwphi1
the time of Felipe’s death.
Finally, we agree with the CA that there is neither basis nor justification for the
RTC’s award of moral damages, attorney’s fees and litigation expenses; hence
this award must be deleted.
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.

SO ORDERED.