Emilio Tan et al. v. Court of Appeals et al.

(GR 48049, June 29, 1989)

Doctrine: An insurance contract may be rescinded on grounds of false

representations or concealment of material facts within the two-year
incontestability period, regardless of whether the insured was still alive or not.

Facts: Tan Lee Siong (petitioners’ father) had a life insurance policy with The
American Life Insurance Co. (TALI) effective November 6, 1973. About 17
months after, on April 26, 1975, he died of hepatoma. The petitioners filed a
claim with TALI but the latter denied on ground of alleged misrepresentation and
concealment of material facts made by Tan in his application. The insurer
cancelled the policy and refunded the premiums on September 11, 1975.

The petitioners thus filed a complaint with the Insurance Commissioner. They
contended, among others, that the insurer “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 IC dismissed the complaint. The CA dismissed the appeal. Judgement

affirmed by the SC, the insurer was held not liable.

Issue:

(1) may the insurer still rescind the insurance contract if the insured died
within the incontestability period? (Within 2 years after the policy was
issued)
(2) WoN there is concealment or misrepresentation on the part of Tan

Ruling:

1. Affirmative.

Section 48 of the Insurance Code provides:

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.

According to the petitioners, the insurer must exercise its right to rescind during
the lifetime of the insured and the within the 2-year incontestability period.

The SC held that 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.

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.

The legislative intent behind Sec. 48 is to prevent the insurance companies from
avoiding liabilities by employing various tactics such as pressuring the a person
to take an insurance by means of salesmanship.

2. Tan was guilty of misrepresentation.

The petitioners argued that the insurer failed to show that the questions in the
application were explained and understood by the insured. The Court did not
heed the argument. By signing the application form, Tan, a businessmen is
presumed to understand its terms. He is presumed to take ordinary care of his
concerns.

The records show that Tan had at least two consultations on January and
December 1973 where he was found diabetic and hypertensive. By concealing
these health conditions, the insurer was misled into accepting the risk and
approving his application as medically standard and dispensing with further
medical investigation and examination.

The Court agreed with the CA that there is no basis for the application of the “fine
print” or “contract of adhesion” rule. 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.