Insurance Batch 3

No. L-34200.
September 30, 1982.*

REGINA L. EDILLON, as assisted by her husband, MARCIAL EDILLON, petitioners-appellants, vs. MANILA BANKERS
LIFE INSURANCE CORPORATION and the COURT OF FIRST INSTANCE OF RIZAL, BRANCH V, QUEZON CITY,
respondents-appellees.
Commercial Law; Insurance; Concealment of age, not a case of; Estoppel; Acceptance by insurance corporation of the
premium and issuance of corresponding certificate of insurance in favor of the insured was deemed a waiver of the exclusionary
condition of overage stated in said certificate of insurance.—The age of the insured Carmen O. Lapuz was not concealed to the
insurance company. Her application for insurance coverage which was on a printed form furnished by private respondent and which
contained very few items of information clearly indicated her age at the time of filing the same to be almost 65 years of age. Despite
such information which could hardly be overlooked in the application form, considering its prominence thereon and its materiality to
the coverage applied for, the respondent insurance corporation received her payment of premium and issued the corresponding
certificate of insurance without question. The accident which resulted in the death of the insured, a risk covered by the policy,
occurred on May 31, 1969 or FORTY-FIVE (45) DAYS after the insurance coverage was applied for. There was sufficient time for
the private respondent to process the application and to notice that the application was over 60 years of age and thereby cancel the
policy on that ground if it was minded to do so. If the private respondent failed to act, it is either because it was willing to waive such
disqualification; or, through the negligence or incompetence of its employees for which it has only itself to blame, it simply
overlooked such fact. Under the circumstances, the insurance corporation is already deemed in estoppel. Its inaction to revoke the
policy despite a departure from the exclusionary condition contained in the said policy constituted a waiver of such condition.
APPEAL from a decision of the Court of First Instance of Rizal, Br. V, Quezon City.
The facts are stated in the opinion of the Court.

________________
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FIRST DIVISION.
188
188 SUPREME COURT REPORTS ANNOTATED
Edillon vs. Manila Bankers Life Insurance Corp.
K V. Faylona for petitioners-appellants.
L. L. Reyes for respondents-appellees.
VASQUEZ, J.:
The question of law raised in this case that justified a direct appeal from a decision of the Court of First Instance Rizal, Branch V,
Quezon City, to be taken directly to the Supreme Court is whether or not the acceptance by the private respondent insurance
corporation of the premium and the issuance of the corresponding certificate of insurance should be deemed a waiver of the
exclusionary condition of overage stated in the said certificate of insurance.
The material facts are not in dispute. Sometime in April 1969, Carmen O, Lapuz applied with respondent insurance corporation for
insurance coverage against accident and injuries. She filled up the blank application form given to her and filed the same with the
respondent insurance corporation. In the said application form which was dated April 15, 1969, she gave the date of her birth as July
11, 1904. On the same date, she paid the sum of P20.00 representing the premium for which she was issued the corresponding receipt
signed by an authorized agent of the respondent insurance corporation. (Rollo, p. 27.) Upon the filing of said application and the
payment of the premium on the policy applied for, the respondent insurance corporation issued to Carmen O. Lapuz its Certificate of
Insurance No. 128866. (Rollo, p. 28.) The policy was to be effective for a period of 90 days.
On May 31, 1969 or during the effectivity of Certificate of Insurance No. 12886, Carmen O. Lapuz died in a vehicular accident in the
North Diversion Road.
On June 7, 1969, petitioner Regina L. Edillon, a sister of the insured and who was the named beneficiary in the policy, filed her claim
for the proceeds of the insurance, submitting all the necessary papers and other requisites with the private respondent. Her claim
having been denied, Regina L. Edillon instituted this action in the Court of First Instance of Rizal on August 27, 1969.
In resisting the claim of the petitioner, the respondent insurance corporation relies on a provision contained in the Certificate of
Insurance, excluding its liability to pay claims under the policy in behalf of "persons who are under the age of sixteen (16) years of
age or over the age of sixty (60) years ..." It is pointed out that the insured being over sixty (60) years of age when she applied for the
insurance coverage, the policy was null and void, and no risk on the part of the respondent insurance corporation had arisen
therefrom.
1
The trial court sustained the contention of the private respondent and dismissed the complaint; ordered the petitioner to pay attorney's
fees in the sum of ONE THOUSAND (P1,000.00) PESOS in favor of the private respondent; and ordered the private respondent to
return the sum of TWENTY (P20.00) PESOS received by way of premium on the insurancy policy. It was reasoned out that a policy
of insurance being a contract of adhesion, it was the duty of the insured to know the terms of the contract he or she is entering into; the
insured in this case, upon learning from its terms that she could not have been qualified under the conditions stated in said contract,
what she should have done is simply to ask for a refund of the premium that she paid. It was further argued by the trial court that the
ruling calling for a liberal interpretation of an insurance contract in favor of the insured and strictly against the insurer may not be
applied in the present case in view of the peculiar facts and circumstances obtaining therein.
We REVERSE the judgment of the trial court. The age of the insured Carmen 0. Lapuz was not concealed to the insurance company.
Her application for insurance coverage which was on a printed form furnished by private respondent and which contained very few
items of information clearly indicated her age of the time of filing the same to be almost 65 years of age. Despite such information
which could hardly be overlooked in the application form, considering its prominence thereon and its materiality to the coverage
applied for, the respondent insurance corporation received her payment of premium and issued the corresponding certificate of
insurance without question. The accident which resulted in the death of the insured, a risk covered by the policy, occurred on May 31,
1969 or FORTY-FIVE (45) DAYS after the insurance coverage was applied for. There was sufficient time for the private respondent
to process the application and to notice that the applicant was over 60 years of age and thereby cancel the policy on that ground if it
was minded to do so. If the private respondent failed to act, it is either because it was willing to waive such disqualification; or,
through the negligence or incompetence of its employees for which it has only itself to blame, it simply overlooked such fact. Under
the circumstances, the insurance corporation is already deemed in estoppel. It inaction to revoke the policy despite a departure from
the exclusionary condition contained in the said policy constituted a waiver of such condition, as was held in the case of "Que Chee
Gan vs. Law Union Insurance Co., Ltd.,", 98 Phil. 85. This case involved a claim on an insurance policy which contained a provision
as to the installation of fire hydrants the number of which depended on the height of the external wan perimeter of the bodega that was
insured. When it was determined that the bodega should have eleven (11) fire hydrants in the compound as required by the terms of
the policy, instead of only two (2) that it had, the claim under the policy was resisted on that ground. In ruling that the said deviation
from the terms of the policy did not prevent the claim under the same, this Court stated the following:
We are in agreement with the trial Court that the appellant is barred by waiver (or rather estoppel) to claim violation
of the so-called fire hydrants warranty, for the reason that knowing fully an that the number of hydrants demanded
therein never existed from the very beginning, the appellant nevertheless issued the policies in question subject to
such warranty, and received the corresponding premiums. It would be perilously close to conniving at fraud upon
the insured to allow appellant to claim now as void ab initio the policies that it had issued to the plaintiff without
warning of their fatal defect, of which it was informed, and after it had misled the defendant into believing that the
policies were effective.
The insurance company was aware, even before the policies were issued, that in the premises insured there were
only two fire hydrants installed by Que Chee Gan and two others nearby, owned by the municipality of Tabaco,
contrary to the requirements of the warranty in question. Such fact appears from positive testimony for the insured
that appellant's agents inspected the premises; and the simple denials of appellant's representative (Jamiczon) can
not overcome that proof. That such inspection was made it moreover rendered probable by its being a prerequisite
for the fixing of the discount on the premium to which the insured was entitled, since the discount depended on the
number of hydrants, and the fire fighting equipment available (See"'Scale of Allowances" to which the policies were
expressly made subject). The law, supported by a long line of cases, is expressed by American Jurisprudence (Vol.
29, pp. 611-612) to be as follows:
It is usually held that where the insurer, at the time of the issuance of a policy of insurance, has
knowledge of existing facts which, if insisted on, would invalidate the contract from its very
inception, such knowledge constitutes a waiver of conditions in the contract inconsistent with the
known facts, and the insurer is stopped thereafter from asserting the breach of such conditions.
The law is charitable enough to assume, in the absence of any showing to the contrary, that an
insurance company intends to execute a valid contract in return for the premium received; and
when the policy contains a condition which renders it voidable at its inception, and this result is
known to the insurer, it will be presumed to have intended to waive the conditions and to execute a
binding contract, rather than to have deceived the insured into thinking he is insured when in fact
he is not, and to have taken is money without consideration.' (29 Am. Jur., Insurance, section 807,
at pp. 611-612.)
The reason for the rule is not difficult to find.
2
The plain, human justice of this doctrine is perfectly apparent. To allow a company to accept one's
money for a policy of insurance which it then knows to be void and of no effect, though it knows
as it must, that the assured believes it to be valid and binding, is so contrary to the dictates of
honesty and fair dealing, and so closely related to positive fraud, as to be abhorent to fairminded
men. It would be to allow the company to treat the policy as valid long enough to get the premium
on it, and leave it at liberty to repudiate it the next moment. This cannot be deemed to be the real
intention of the parties. To hold that a literal construction of the policy expressed the true intention
of the company would be to indict it, for fraudulent purposes and designs which we cannot believe
it to be guilty of (Wilson vs. Commercial Union Assurance Co., 96 Atl. 540, 543544).
A similar view was upheld in the case of Capital Insurance & Surety Co., Inc. vs. Plastic Era Co., Inc., 65 SCRA 134, which involved
a violation of the provision of the policy requiring the payment of premiums before the insurance shall become effective. The
company issued the policy upon the execution of a promissory note for the payment of the premium. A check given subsequent by the
insured as partial payment of the premium was dishonored for lack of funds. Despite such deviation from the terms of the policy, the
insurer was held liable.
Significantly, in the case before Us the Capital Insurance accepted the promise of Plastic Era to pay the insurance
premium within thirty (30) days from the effective date of policy. By so doing, it has impliedly agreed to modify the
tenor of the insurance policy and in effect, waived the provision therein that it would only pay for the loss or damage
in case the same occurs after the payment of the premium. Considering that the insurance policy is silent as to the
mode of payment, Capital Insurance is deemed to have accepted the promissory note in payment of the premium.
This rendered the policy immediately operative on the date it was delivered. The view taken in most cases in the
United States:
... is that although one of conditions of an insurance policy is that "it shall not be valid or binding
until the first premium is paid", if it is silent as to the mode of payment, promissory notes received
by the company must be deemed to have been accepted in payment of the premium. In other
words, a requirement for the payment of the first or initial premium in advance or actual cash may
be waived by acceptance of a promissory note...
WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE. In lieu thereof, the private respondent insurance
corporation is hereby ordered to pay to the petitioner the sum of TEN THOUSAND (P10,000.00) PESOS as proceeds of Insurance
Certificate No. 128866 with interest at the legal rate from May 31, 1969 until fully paid, the further sum of TWO THOUSAND
(P2,000.00) PESOS as and for attorney's fees, and the costs of suit.
SO ORDERED.
G.R. No. 125678. March 18, 2002.*

PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITA TRINOS, respondents.
Insurance; Elements; Words and Phrases; A contract of insurance is an agreement whereby one undertakes for a consideration
to indemnify another against loss, damage or liability arising from an unknown or contingent event.—Section 2 (1) of the Insurance
Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event. An insurance contract exists where the fol-
______________
*
FIRST DIVISION.
357
VOL. 379, MARCH 18, 2002 357
Philamcare Health Systems, Inc. vs. Court of Appeals
lowing elements concur: 1. The insured has an insurable interest; 2. The insured is subject to a risk of loss by the happening of
the designated peril; 3. The insurer assumes the risk; 4. Such assumption of risk is part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk; and 5. In consideration of the insurer’s promise, the insured pays a premium.
Same; Every person has an insurable interest in the life and health of himself.—Section 3 of the Insurance Code states that any
contingent or unknown event, whether past or future, which may damnify a person having an insurable interest against him, may be
insured against. Every person has an insurable interest in the life and health of himself. Section 10 provides: Every person has an
insurable interest in the life and health: (1) of himself, of his spouse and of his children; (2) of any person on whom he depends wholly
or in part for education or support, or in whom he has a pecuniary interest; (3) of any person under a legal obligation to him for the
payment of money, respecting property or service, of which death or illness might delay or prevent the performance; and (4) of any
person upon whose life any estate or interest vested in him depends.
3
Same; Health Care Agreements; A health care agreement is in the nature of non-life insurance, which is primarily a contract of
indemnity.—In the case at bar, the insurable interest of respondent’s husband in obtaining the health care agreement was his own
health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the
member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care
provider must pay for the same to the extent agreed upon under the contract.
Same; Same; Misrepresentation; Where matters of opinion are called for, answers made in good faith and without intent to
deceive will not avoid a policy even though they are untrue.—The answer assailed by petitioner was in response to the question
relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondent’s
husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and without
intent to deceive will not avoid a policy even though they are untrue. Thus, (A)lthough false, a representation of the expectation,
intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of
the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the
statement is obviously of the
358
foregoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make
further inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to
be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by
the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. (Italics ours)
Same; Same; Concealment; Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer; The liability
of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever
he avails of the covered benefits which he has prepaid.—The fraudulent intent on the part of the insured must be established to
warrant rescission of the insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer.
In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a
responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the
health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails
of the covered benefits which he has prepaid.
Same; Same; Same; Rescission; The right to rescind should be exercised previous to the commencement of an action on the
contract.—Under Section 27 of the Insurance Code, “a concealment entitles the injured party to rescind a contract of insurance.” The
right to rescind should be exercised previous to the commencement of an action on the contract. In this case, no rescission was made.
Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: 1.
Prior notice of cancellation to insured; 2. Notice must be based on the occurrence after effective date of the policy of one or more of
the grounds mentioned; 3. Must be in writing, mailed or delivered to the insured at the address shown in the policy; 4. Must state the
grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation
is based.
359
VOL. 379, MARCH 18, 2002 359
Same; Same; Contracts; The rule that by reason of the exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured,
especially to avoid forfeiture, is equally applicable to Health Care Agreements.—None of the above preconditions was fulfilled in this
case. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude
the insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract—the insurer. By reason of the exclusive control of the insurance
company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and
liberally in favor of the insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements. The phraseology
used in medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if
doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary
clauses of doubtful import should be strictly construed against the provider.
Same; Same; Since a health care agreement is in the nature of a contract of indemnity, payment should be made to the party
who incurred the expenses.—Petitioner alleges that respondent was not the legal wife of the deceased member considering that at the
time of their marriage, the deceased was previously married to another woman who was still alive. The health care agreement is in the
nature of a contract of indemnity. Hence, payment should be made to the party who incurred the expenses. It is not controverted that
respondent paid all the hospital and medical expenses. She is therefore entitled to reimbursement. The records adequately prove the
expenses incurred by respondent for the deceased’s hospitalization, medication and the professional fees of the attending physicians.
4
PETITION for review on certiorari of a decision of the Court of Appeals.

Alvin B. Cunada for petitioner.
Ronald O. Layawen for private respondent.
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner Philamcare Health
Systems, Inc. In the standard application form, he answered no to the following question:
Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes,
cancer, liver disease, asthma or peptic ulcer? (If Yes, give details). 1
The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly, he was issued Health Care
Agreement No. P010194. Under the agreement, respondent’s husband was entitled to avail of hospitalization benefits, whether
ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations,
preventive health care and other out-patient services.
Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from
March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability.2
During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one
month beginning March 9, 1990. While her husband was in the hospital, respondent tried to claim the benefits under the health care
agreement. However, petitioner denied her claim saying that the Health Care Agreement was void. According to petitioner, there was
a concealment regarding Ernani’s medical history. Doctors at the MMC allegedly discovered at the time of Ernani’s confinement that
he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus, respondent paid the hospitalization
expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the
Chinese General Hospital. Due to financial difficulties, however, respondent brought her husband home again. In the morning of April
13, 1990, Ernani had fever and was feeling very weak. Respondent was constrained to bring him back to the Chinese General Hospital
where he died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action for damages against petitioner
and its president, Dr. Benito Reverente, which was docketed as Civil Case No. 90-53795. She asked for reimbursement of her
expenses plus moral damages and attorney’s fees. After trial, the lower court ruled against petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the amount of P76,000.00
plus interest, until the amount is fully paid to plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;
4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.
SO ORDERED.3
On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and absolved petitioner
Reverente.4 Petitioner’s motion for reconsideration was denied.5 Hence, petitioner brought the instant petition for review, raising the
primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance
Code6 does not apply.1âwphi1.nêt
5
Petitioner argues that the agreement grants "living benefits," such as medical check-ups and hospitalization which a member may
immediately enjoy so long as he is alive upon effectivity of the agreement until its expiration one-year thereafter. Petitioner also points
out that only medical and hospitalization benefits are given under the agreement without any indemnification, unlike in an insurance
contract where the insured is indemnified for his loss. Moreover, since Health Care Agreements are only for a period of one year, as
compared to insurance contracts which last longer,7 petitioner argues that the incontestability clause does not apply, as the same
requires an effectivity period of at least two years. Petitioner further argues that it is not an insurance company, which is governed by
the Insurance Commission, but a Health Maintenance Organization under the authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists where
the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a
similar risk; and
5. In consideration of the insurer’s promise, the insured pays a premium.8
Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a person
having an insurable interest against him, may be insured against. Every person has an insurable interest in the life and health of
himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or
illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of respondent’s husband in obtaining the health care agreement was his own health. The health
care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity.9 Once the member incurs hospital,
medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the
same to the extent agreed upon under the contract.
Petitioner argues that respondent’s husband concealed a material fact in his application. It appears that in the application for health
coverage, petitioners required respondent’s husband to sign an express authorization for any person, organization or entity that has any
record or knowledge of his health to furnish any and all information relative to any hospitalization, consultation, treatment or any
other medical advice or examination.10 Specifically, the Health Care Agreement signed by respondent’s husband states:
We hereby declare and agree that all statement and answers contained herein and in any addendum annexed to this
application are full, complete and true and bind all parties in interest under the Agreement herein applied for, that there shall
be no contract of health care coverage unless and until an Agreement is issued on this application and the full Membership
Fee according to the mode of payment applied for is actually paid during the lifetime and good health of proposed Members;
that no information acquired by any Representative of PhilamCare shall be binding upon PhilamCare unless set out in writing
in the application; that any physician is, by these presents, expressly authorized to disclose or give testimony at anytime
relative to any information acquired by him in his professional capacity upon any question affecting the eligibility for health
care coverage of the Proposed Members and that the acceptance of any Agreement issued on this application shall be a
6
ratification of any correction in or addition to this application as stated in the space for Home Office
Endorsement.11 (Underscoring ours)
In addition to the above condition, petitioner additionally required the applicant for authorization to inquire about the applicant’s
medical history, thus:
I hereby authorize any person, organization, or entity that has any record or knowledge of my health and/or that of
__________ to give to the PhilamCare Health Systems, Inc. any and all information relative to any hospitalization,
consultation, treatment or any other medical advice or examination. This authorization is in connection with the application
for health care coverage only. A photographic copy of this authorization shall be as valid as the original.12 (Underscoring
ours)
Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads:
Failure to disclose or misrepresentation of any material information by the member in the application or medical
examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and
liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information
is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of
a higher Membership Fee for the benefit or benefits applied for.13
The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends
on opinion rather than fact, especially coming from respondent’s husband who was not a medical doctor. Where matters of opinion or
judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are
untrue.14 Thus,
(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the
policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this
is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character,
since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is
a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a
matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the
facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual
fraud.15(Underscoring ours)
The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. 16 Concealment as a
defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate,
petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to
answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized
for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to
rescind should be exercised previous to the commencement of an action on the contract. 17 In this case, no rescission was made.
Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on
which cancellation is based.18
None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability,
courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. 19 Being a contract of
adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract – the
insurer.20 By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract,
7
ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. 21 This is
equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar,
must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction
conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider. 22
Anent the incontestability of the membership of respondent’s husband, we quote with approval the following findings of the trial
court:
(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had twelve months from the
date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of
asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods
having expired, the defense of concealment or misrepresentation no longer lie.23
Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time of their marriage,
the deceased was previously married to another woman who was still alive. The health care agreement is in the nature of a contract of
indemnity. Hence, payment should be made to the party who incurred the expenses. It is not controverted that respondent paid all the
hospital and medical expenses. She is therefore entitled to reimbursement. The records adequately prove the expenses incurred by
respondent for the deceased’s hospitalization, medication and the professional fees of the attending physicians. 24
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals dated December 14,
1995 is AFFIRMED.
SO ORDERED.
No. L-41014. November 28, 1988.*

PACIFIC BANKING CORPORATION, petitioner, vs. COURT OF APPEALS and ORIENTAL ASSURANCE
CORPORATION, respondents.
Insurance; Co-insurance; Fraud; Insured was guilty of clear fraud for failure to reveal three other insurances.—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).
Same; Same; Same; Contention that the allegation of fraud is but a mere inference or suspicion is untenable.—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
_______________
*
SECOND DIVISION.
2
Pacific Banking Corp. vs. Court of Appeals
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
beginning, as if it had never been entered into, and which cannot be validated either by time or by ratification (Tongoy v. C.A., 123
SCRA 99 [1983]; Avila v. C.A. 145 SCRA [1986]).
Same; Same; Same; Absence of notice of other insurances nullifies the policy.—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.
Same; Same; Same; Fraud or misrepresentation or arson are exceptions to the general rule that insurance as to the interest of
the mortgagee cannot be invalidated.—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).
Same; Same; Same; Same; Petitioner which is merely claiming as indorsee of the insured cannot be entitled to the proceeds. —
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
8
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.
Same; Same; Same; The fact of fraud was tried by express or at least implied consent of the parties.—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.
Same; Same; Same; Same; Court can consider a fact which surfaced only after trial proper.—Be that as it may, it is
established
3
VOL. 168, NOVEMBER 28, 1988 3
that the Supreme Court has ample authority to go 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.
Same; Action; Cause of action accrues from the time the insurer finally rejects the claim for payment.—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.
Same; Same; Same; 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.—The evidence adduced shows that twenty-four
(24) days after the fire, petitioner merely wrote letters to private respondent to serve as 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 quo 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.
Same; 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.—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 yet, contracts of insurance, like other contracts,
are to be
4
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.
Same; Same; Insurance contracts are contracts of indemnity and compliance of the insured with the terms of the policy is a
condition precedent to the right of recovery.—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 right of recovery.
Evidence; Findings of the appellate court are final and cannot be disturbed by the Supreme Court except in certain cases. —
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.
PETITION for certiorari to review the decision of the Court of Appeals. Gatmaitan, J.

Flores, Ocampo, Dizon and Domingo Law Office for petitioner.
Cabochan and Reyes Law Office for respondents.
PARAS, J.:
9
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 broke out on the subject premises destroying the
goods contained in its ground 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 endorsement of said policy (Brief for Plaintiff-Appellee, pp. 16-17).
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 (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 with Victory (Brief for the Defendant
pp. 13-14).
It will be noted that the defense of fraud and/or violation of Condition No. 3 in the Policy, in the form of non-declaration of co-
insurances which was not pleaded in the answer was also not pleaded in the Motion to Dismiss.
At any rate, on June 30, 1967, the trial court denied private respondent's motion on the ground that the defense of lack of proof of loss
or defects therein was raised for the first time after the commencement of the suit and that it must be deemed to have waived the
requirement of proof of loss (Sections 83 and 84, Insurance Act; Record on Appeal, p. 61).
10
On September 9, 1967, the case was considered submitted for decision from which order private respondent filed a motion for
reconsideration to set the case 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 relation to the other Insurance Clause.' " (Record on Appeal, pp. 61-69).
On September 30,1967, the case was set for the continuation of the hearing for the reception merely of the testimony of Alejandro Tan
Gatue, Manager of the Adjustment Co., over the vehement opposition of the petitioner (Record on Appeal, p. 129).
On April 18, 1 968, the trial court rendered a decision adjudging private respondent liable to the petitioner under the said contract of
insurance, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff P61,000.00, with interest at
the 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, P6,100.00, as attorney's fees, and the costs.
SO ORDERED. (Record on Appeal, pp. 140-141)
On appeal, the Court of Appeals reversed the decision of the trial court (Decision promulgated on April 23, 1975, Rollo, pp. 21-33).
Petitioner filed a motion for reconsideration of the said decision of the respondent Court of Appeals, but this was denied on July
3,1975 for lack of merit (Rollo, pp. 54-67), resulting in this petition with the following assigned errors;
I
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN CONCLUDING FRAUD

FROM THE BARE FACT THAT THE INSURED PARAMOUNT PROCURED ADDITIONAL INSURANCES
OTHER THAN THOSE STATED IN THE POLICY IN SPITE OF THE EXISTENCE OF CONTRARY
PRESUMPTIONS AND ADMITTED FACT AND CIRCUMSTANCES WHICH NEGATE THE CORRECTNESS
OF SAID CONCLUSION.
(a) The respondent Court did not consider the legal presumption against the existence of fraud,
which should be established with such quantum of proof as is required for any crime.
(b) The record of the case is bereft of proof of such fraud.
(c) The private respondent insurer did not even plead or in anywise raise fraud as a defense in its
answer or motion to dismiss and, therefore, it should have been considered waived.
(d) The total amount of insurance procured by the insured from the different companies amounted
to hardly onehalf (½) of the value of the goods insured.
II
RESPONDENT COURT ERRED IN NOT HOLDING THAT CONSIDERING THE VOTING ON THE
PARTICULAR QUESTION OF FRAUD, THE FINDING OF THE TRIAL COURT THEREON SHOULD BE
CONSIDERED AFFIRMED.
III
THE CONCURRING OPINION OF MR. JUSTICE CHANCO IS LEGALLY ERRONEOUS IN HOLDING THAT
THE ACTION WAS PREMATURELY BROUGHT BECAUSE 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.
11
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.
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 beginning, as if it had never been entered
into, and which cannot be validated 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
12
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]).
13
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.
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.
Commercial Law; Insurance; Essence of the phrase “Incontestabil-ity clause.”—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.”
Same; Same; Same; Respondent company not barred from proving that the policy is void ab initio by reason of the insured’s
fraudulent concealment or misrepresentation.—As noted by the Court of Appeals, to wit: “The policy was issued on November 6,
14
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. C onsidering
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.”
Same; Same; Same; Incontestability clause is a sufficient answer to the various tactics employed by insurance companies to
avoid liability.—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
_______________
*
THIRD DIVISION.
404
Tan vs. Court of Appeals
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.
PETITION for certiorari to review the decision of the Court of Appeals.

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:
15
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.
16
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
17
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.
SO ORDERED.
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
_______________
* SECOND DIVISION.
418
Manila Bankers Life Insurance Corporation vs. Aban
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
18
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.419
VOL. 702, JULY 29, 2013 419
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.”
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
Puyat, Jacinto & Santos for petitioner.
DEL CASTILLO, J.:
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 fide clients, by requiring them to thoroughly investigate those they insure within two years from
effectivity of the policy and while the insured is still alive. If they do not, they will be obligated to honor claims on the policies they
issue, regardless of fraud, concealment or misrepresentation. The law assumes that they will do just that and not sit on their laurels,
indiscriminately soliciting and accepting insurance business from any Tom, Dick and Harry.420
Assailed in this Petition for Review on Certiorari1 are the September 28, 2005 Decision2 of the Court of Appeals (CA) in CA-G.R.
CV No. 62286 and its November 9, 2006 Resolution3 denying the petitioner’s Motion for Reconsideration.4
Factual Antecedents
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,5 as her beneficiary.
Petitioner issued Insurance Policy No. 747411 (the policy), with a face value of P100,000.00, in Sotero’s favor on August 30,
1993, after the requisite medical examination and payment of the insurance premium.6
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 illiterate;
2. Sotero was sickly since 1990;
_______________
1 Rollo, pp. 3-14.
2 CA Rollo, pp. 38-47; penned by Associate Justice Amelita G. Tolentino and concurred in by Associate Justices Danilo B. Pine
and Vicente S.E. Veloso.
3 Id., at pp. 59-60; penned by Associate Justice Amelita G. Tolentino and concurred in by Associate Justices Regalado E.
Maambong and Vicente S.E. Veloso.
4 Id., at pp. 48-56.
5 Rollo, p. 6.
6 Id., at pp. 6-7, 71.
7 Records, p. 23.
8 Rollo, p. 7.
421
VOL. 702, JULY 29, 2013 421
19
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;9 [and]
5. Respondent was the one who filed the insurance application, and x x x designated herself as the beneficiary.10
For the above reasons, petitioner denied respondent’s claim on April 16, 1997 and refunded the premiums paid on the policy.11
On April 24, 1997, petitioner filed a civil case for rescission and/or annulment of the policy, which was docketed as Civil Case
No. 97-867 and assigned to Branch 134 of the Makati Regional Trial Court. The main thesis of the Complaint was that the policy was
obtained by fraud, concealment and/or misrepresentation under the Insurance Code,12 which thus renders it voidable under Article
139013of the Civil Code.
Respondent filed a Motion to Dismiss14 claiming that petitioner’s cause of action was barred by prescription pursuant
_______________
9 Id., at pp. 7, 16.
10 Records, p. 2.
11 Id.
12 Presidential Decree No. 612.
13 Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage to the
contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.
14 Records, pp. 19-22.
422
to Section 48 of the Insurance Code, which provides as follows:
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.
During the proceedings on the Motion to Dismiss, petitioner’s investigator 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 that it was the respondent
who paid the annual premiums on the policy.16
Ruling of the Regional Trial Court
On December 9, 1997, the trial court issued an Order17granting respondent’s Motion to Dismiss, thus:
WHEREFORE, defendant CRESENCIA P. ABAN’s Motion to Dismiss is hereby granted. Civil Case No. 97-867 is
hereby dismissed.
SO ORDERED.18
_______________
15 TSN, May 5, 1998, pp. 12-13; records, pp. 95-96.
16 Id., at p. 15; id., at p. 98.
17 Records, pp. 55-56; penned by Judge Ignacio M. Capulong.
18 Id., at p. 56.
423
VOL. 702, JULY 29, 2013 423
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 on her own life and validly designate — as she did — respondent as the beneficiary. It held further
that under Section 48, petitioner had only two years from the effectivity of the policy to question the same; since the policy had been
in force for more than two years, petitioner is now barred from contesting the same or seeking a rescission or annulment thereof.
Petitioner moved for reconsideration, but in another Order19 dated October 20, 1998, the trial court stood its ground.
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 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 insurance, the policy issued was rendered void ab initio for want of
insurable interest.
Ruling of the Court of Appeals
On September 28, 2005, the CA issued the assailed Decision, which contained the following decretal portion:
WHEREFORE, in the light of all the foregoing, the instant appeal is DISMISSED for lack of merit.
SO ORDERED.20
20
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
_______________
19 Id., at pp. 116-119.
20 CA Rollo, p. 46.
424
ratiocinated that petitioner was equipped with ample means to determine, within the first two years of the policy, whether fraud,
concealment or misrepresentation was present when the insurance coverage was obtained. If it failed to do so within the statutory two-
year period, then the insured must be protected and allowed to claim upon the policy.
Petitioner moved for reconsideration,21 but the CA denied the same in its November 9, 2006 Resolution. 22Hence, the present
Petition.
Issues
Petitioner raises the following issues for resolution:
I
[WHETHER] THE COURT OF APPEALS ERRED IN SUSTAINING THE ORDER OF THE TRIAL COURT DISMISSING THE
COMPLAINT ON THE GROUND OF PRESCRIPTION IN CONTRAVENTION (OF) PERTINENT LAWS AND APPLICABLE
JURISPRUDENCE.
II
[WHETHER] THE COURT OF APPEALS ERRED IN SUSTAINING THE APPLICATION OF THE INCONTESTABILITY
PROVISION IN THE INSURANCE CODE BY THE TRIAL COURT.
III
[WHETHER] THE COURT OF APPEALS ERRED IN DENYING PETITIONER’S MOTION FOR RECONSIDERATION. 23
_______________
21 Id., at pp. 48-56.
22 Id., at pp. 59-60.
23 Rollo, p. 9.
425
VOL. 702, JULY 29, 2013 425
Petitioner’s Arguments
In praying that the CA Decision be reversed and that the case be remanded to the trial court for the conduct of further proceedings,
petitioner argues in its Petition 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 consent.
Petitioner adds that Insurance Policy No. 747411 was void ab initio and could not have given rise to rights and obligations; as
such, the action for the declaration of its nullity or inexistence does not prescribe. 25
Respondent’s Arguments
Respondent, on the other hand, essentially argues in her Comment 26 that the CA is correct in applying Section 48. She adds that
petitioner’s new allegation in its Petition that the policy is void ab initio merits no attention, having failed to raise the same below, as
it had claimed originally that the policy was merely voidable.
_______________
24 Id., at pp. 69-75.
25 Citing Article 1410 of the Civil Code:
Art. 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe.
26 Rollo, pp. 57-67.
426
On the issue of insurable interest, respondent echoes the CA’s pronouncement that since it was Sotero who obtained the insurance,
insurable interest was 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 submits that the CA’s findings of fact leading to such conclusion should be
respected.
21
Our Ruling
The Court denies the Petition.
The Court will not depart from the trial and appellate courts’ finding that it was Sotero who obtained the insurance for herself,
designating respondent as her 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 claim reveals that it was respondent, posing as Sotero, who obtained the
insurance, this claim is no longer feasible in the wake of the courts’ finding that it was Sotero who obtained the insurance for herself.
This finding of fact binds the Court.
With the above crucial finding of fact — that it was Sotero who obtained the insurance for herself — petitioner’s case is severely
weakened, if not totally 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 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.”27 In the absence of proof of such fraudulent intent, no right to rescind arises.
_______________
27 Great Pacific Life Assurance Corporation v. Court of Appeals, 375 Phil. 142, 152; 316 SCRA 677, 687 (1999).
427
VOL. 702, JULY 29, 2013 427
Moreover, the results and conclusions arrived at during the investigation 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 the existence and application of
Section 48, as will be discussed at length below.
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.
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.
Thus, the self-regulating feature of Section 48 lies in the fact that both the insurer and the insured are given the as-
428
surance that any dishonest scheme to obtain life insurance would be exposed, and attempts at unduly denying a claim would be struck
down. Life insurance policies that pass the statutory two-year period are 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 claim. In this manner, Section 48
contributes to the stability of the insurance industry.
Section 48 prevents a situation where the insurer knowingly continues to accept annual premium payments on life insurance, only
to later on deny a claim on the policy on specious claims of fraudulent concealment and misrepresentation, such as what obtains in the
instant case. Thus, instead of conducting at the first instance an investigation into the circumstances surrounding the issuance of
Insurance Policy No. 747411 which would have timely exposed the supposed flaws and irregularities attending it as it now professes,
petitioner appears to have turned a blind eye and opted instead to continue collecting the premiums on the policy. For nearly three
years, petitioner collected the premiums and devoted the same to its own profit. It cannot now deny the claim when it is called to
account. Section 48 must be applied to it with full force and effect.
The Court therefore agrees fully with the appellate court’s pronouncement that —
[t]he “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
429
VOL. 702, JULY 29, 2013 429
concealment or misrepresentation to a period of only two (2) years from the issuance of the policy or its last reinstatement.
22
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.
After two years, the defenses of concealment or misrepresentation, no matter how patent or well-founded, will no longer
lie.
Congress felt this was a sufficient answer to the various tactics employed by insurance companies to avoid liability.
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 borne by the records, the policy was issued on August 30, 1993, the insured died on April 10, 1996, and the claim was
denied on April 16, 1997. The insurance policy was thus in force for a period of 3 years, 7 months, and 24 days. Considering
that the insured died after the
430
two-year period, the plaintiff-appellant is, therefore, barred from proving that the policy is void ab initio by reason of the
insured’s fraudulent concealment or misrepresentation or want of insurable interest on the part of the beneficiary, herein
defendant-appellee.
Well-settled is the rule that it is the plaintiff-appellant’s burden to show that the factual findings of the trial court are not
based on substantial evidence or that its conclusions are contrary to applicable law and jurisprudence. The plaintiff-appellant
failed to discharge that burden.28
Petitioner claims that its insurance agent, who solicited the Sotero account, happens to be the cousin of respondent’s husband, and
thus insinuates that both connived to commit insurance fraud. If this were truly the case, then petitioner would have discovered the
scheme earlier if it had in earnest conducted an investigation into the circumstances surrounding the Sotero policy. But because it did
not and it investigated the Sotero account only after a claim was filed thereon more than two years later, naturally it was unable to
detect the scheme. For its negligence and inaction, the Court cannot sympathize with its plight. Instead, its case precisely provides the
strong argument for requiring insurers to diligently conduct investigations on each policy they issue within the two-year period
mandated under Section 48, and not after claims for insurance proceeds are filed with them.
Besides, 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 premi-
_______________
28 CA Rollo, pp. 44-46.
431
VOL. 702, JULY 29, 2013 431
ums 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.
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, 29 and is imbued
with public interest.30 “[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.” 31
WHEREFORE, the Petition is DENIED. The assailed September 28, 2005 Decision and the November 9, 2006 Resolution of the
Court of Appeals in CA-G.R. CV No. 62286 are AFFIRMED.
SO ORDERED.
Carpio (Chairperson), Brion, Perez and Perlas-Bernabe, JJ., concur.
_______________
29 Tongko v. The Manufacturers Life Insurance Company (Phils.), Inc., G.R. No. 167622, June 29, 2010, 622 SCRA 58, 75.
23
30 Republic v. Del Monte Motors, Inc., 535 Phil. 53, 60; 504 SCRA 53, 58 (2006); White Gold Marine Services, Inc. v. Pioneer
Insurance & Surety Corporation, 502 Phil. 692, 700; 464 SCRA 448, 457 (2005).
31 Eternal Gardens Memorial Park Corporation v. Philippine American Life Insurance Company, G.R. No. 166245, April 9,
2008, 551 SCRA 1, 13.
432
Petition denied, judgment and resolution affirmed.
Notes.―A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which the
other party may accept or reject, but which the latter cannot modify. (Saludo, Jr. vs. Security Bank Corporation, 633 SCRA 247
[2010])
An incontestability clause precludes the insurer from disowning liability under the policy it issued on the ground of concealment
or misrepresentation. (Florendo vs. Philam Plans, Inc., 666 SCRA 618 [2012])
――o0o――
G.R. No. 211212. June 8, 2016.*

SUN LIFE OF CANADA (PHILIPPINES), INC., petitioner, vs. MA. DAISY S. SIBYA, JESUS MANUEL S. SIBYA III,
JAIME LUIS S. SIBYA, and THE ESTATE OF THE DECEASED ATTY. JESUS SIBYA, JR., respondents.
Insurance Law; Concealment; Misrepresentation; Contestability Period; In Manila Bankers Life Insurance Corporation v.
Aban, 702
_______________
* THIRD DIVISION.

46
Sun Life of Canada (Philippines), Inc. vs. Sibya
SCRA 417 (2013), the Supreme Court (SC) held that if the insured dies within the two (2)-year contestability period, the insurer
is bound to make good its obligation under the policy, regardless of the presence or lack of concealment or misrepresentation.—
In Manila Bankers Life Insurance Corporation v. Aban, 702 SCRA 417 (2013), the Court held that if the insured dies within the two-
year contestability period, the insurer is bound to make good its obligation under the policy, regardless of the presence or lack of
concealment or misrepresentation. The Court held: 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; Same; Burden of Proof; Concealment as a defense for the insurer to avoid liability is an affirmative defense and the duty
to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer.—Indeed, the intent to defraud on
the part of the insured must be ascertained to merit rescission of the insurance contract. Concealment as a defense for the insurer to
avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the
24
provider or insurer. In the present case, Sun Life failed to clearly and satisfactorily establish its allegations, and is therefore liable to
pay the proceeds of the insurance.
Remedial Law; Courts; Supreme Court; Well-settled is the rule that this Court is not a trier of facts. —Well-settled is the rule
that this Court is not a trier of facts. Factual findings of the lower courts are entitled to great weight and respect on appeal, and in fact
accorded finality when supported by substantial evidence on the record.

47
VOL. 793, JUNE 8, 2016 47
Padlan, Salvador, Coloma & Associates for petitioner.
Egargo, Puertollano, Gervacio & Garrido Law Officesfor respondents.
REYES, J.:

Before this Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court seeking to annul and set aside the
Decision2 dated November 18, 2013 and Resolution3 dated February 13, 2014 of the Court of Appeals (CA) in C.A.-G.R. CV No.
93269. In both instances, the CA affirmed the Decision 4 dated March 16, 2009 of the Regional Trial Court (RTC) of Makati City,
Branch 136, in Civil Case No. 01-1506, ordering petitioner Sun Life of Canada (Philippines), Inc. (Sun Life) to pay Ma. Daisy S.
Sibya (Ma. Daisy), Jesus Manuel S. Sibya III, and Jaime Luis S. Sibya (respondents) the amounts of P1,000,000.00 as death benefits,
P100,000.00 as moral damages, P100,000.00 as exemplary damages, and P100,000.00 as attorney’s fees and costs of suit. Insofar as
the charges for violation of Sections 241 and 242 of Presidential Decree No. 612, or the Insurance Code of the Philippines, however,
the CA modified the decision of the RTC and absolved Sun Life therein.
_______________
1 Rollo, pp. 33-54.

2 Penned by Associate Justice Nina G. Antonio-Valenzuela, with Associate Justices Isaias P. Dicdican and Michael P. Elbinias,
concurring; id., at pp. 6-18.
3 Id., at pp. 29-30.
4 Rendered by Acting Presiding Judge Rowena De Juan-Quinagoran; id., at pp. 84-88.

48
Statement of Facts of the Case

On January 10, 2001, Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life insurance with Sun Life. In his Application for
Insurance, he indicated that he had sought advice for kidney problems.5 Atty. Jesus Jr. indicated the following in his application:

“Last 1987, had undergone lithotripsy due to kidney stone under Dr. Jesus Benjamin Mendoza at National Kidney Institute,
discharged after 3 days, no recurrence as claimed.”6

On February 5, 2001, Sun Life approved Atty. Jesus Jr.’s application and issued Insurance Policy No. 031097335. The policy
indicated the respondents as beneficiaries and entitles them to a death benefit of P1,000,000.00 should Atty. Jesus Jr. dies on or before
February 5, 2021, or a sum of money if Atty. Jesus Jr. is still living on the endowment date. 7
On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound in San Joaquin, Iloilo. As such, Ma. Daisy filed a Claimant’s
Statement with Sun Life to seek the death benefits indicated in his insurance policy.8
In a letter dated August 27, 2001, however, Sun Life denied the claim on the ground that the details on Atty. Jesus Jr.’s medical
history were not disclosed in his application. Simultaneously, Sun Life tendered a check representing the refund of the premiums paid
by Atty. Jesus Jr.9
The respondents reiterated their claim against Sun Life thru a letter dated September 17, 2001. Sun Life, however, refused to heed
the respondents’ requests and instead filed a
_______________
5 Id., at pp. 6-7.

6 Id., at p. 7.
7 Id.
25
8 Id.
9 Id.

49
VOL. 793, JUNE 8, 2016 49
Complaint for Rescission before the RTC and prayed for judicial confirmation of Atty. Jesus Jr.’s rescission of insurance policy. 10
In its Complaint, Sun Life alleged that Atty. Jesus Jr. did not disclose in his insurance application his previous medical treatment
at the National Kidney Transplant Institute in May and August of 1994. According to Sun Life, the undisclosed fact suggested that the
insured was in “renal failure” and at a high risk medical condition. Consequently, had it known such fact, it would not have issued the
insurance policy in favor of Atty. Jesus Jr.11
For their defense, the respondents claimed that Atty. Jesus Jr. did not commit misrepresentation in his application for insurance.
They averred that Atty. Jesus Jr. was in good faith when he signed the insurance application and even authorized Sun Life to inquire
further into his medical history for verification purposes. According to them, the complaint is just a ploy to avoid the payment of
insurance claims.12

Ruling of the RTC

On March 16, 2009, the RTC issued its Decision 13 dismissing the complaint for lack of merit. The RTC held that Sun Life violated
Sections 241, paragraph 1(b), (d), and (e)14 and
_______________
10 Id.
11 Id., at pp. 7-8.
12 Id., at p. 8.
13 Id., at pp. 84-88.
14 Sec. 241. (1) No insurance company doing business in the Philippines shall refuse, without just cause, to pay or settle
claims arising under coverages provided by its policies, nor shall any such company engage in unfair claim settlement practices. Any
of the following acts by an insurance company, if committed without just cause and performed with such frequency as to indicate a
general business practice, shall constitute unfair claim settlement practices:
x x x x

50
24215 of the Insurance Code when it refused to pay the rightful claim of the respondents. Moreover, the RTC ordered Sun Life to
pay the amounts of P1,000,000.00 as death benefits, P100,000.00 as moral damages, P100,000.00 as exemplary damages, and
P100,000.00 as attorney’s fees and costs of suit.
The RTC held that Atty. Jesus Jr. did not commit material concealment and misrepresentation when he applied for life insurance
with Sun Life. It observed that given the disclosures and the waiver and authorization to investigate exe-
_______________
(b) failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its
policies;
x x x x
(d) not attempting in good faith to effectuate prompt, fair and equitable settlement of claims submitted in which liability has
become reasonably clear; or
(e) compelling policyholders to institute suits to recover amounts due under its policies by offering without justifiable reason
substantially less than the amounts ultimately recovered in suits brought by them.
x x x x
15 Sec. 242. The proceeds of a life insurance policy shall be paid immediately upon maturity of the policy, unless such
proceeds are made payable in installments or as an annuity, in which case the installments, or annuities shall be paid as they become
due: Provided, however, That in the case of a policy maturing by the death of the insured, the proceeds thereof shall be paid within
sixty days after presentation of the claim and filing of the proof of the death of the insured. Refusal or failure to pay the claim within
the time prescribed herein will entitle the beneficiary to collect interest on the proceeds of the policy for the duration of the delay at
the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the
claim is fraudulent.
26
The proceeds of the policy maturing by the death of the insured payable to the beneficiary shall include the discounted value of all
premiums paid in advance of their due dates, but are not due and payable at maturity.

51
VOL. 793, JUNE 8, 2016 51
cuted by Atty. Jesus Jr. to Sun Life, the latter had all the means of ascertaining the facts allegedly concealed by the applicant. 16
Aggrieved, Sun Life elevated the case to the CA.

Ruling of the CA

On appeal, the CA issued its Decision17 dated November 18, 2013 affirming the RTC decision in ordering Sun Life to pay death
benefits and damages in favor of the respondents. The CA, however, modified the RTC decision by absolving Sun Life from the
charges of violation of Sections 241 and 242 of the Insurance Code.18
The CA ruled that the evidence on records show that there was no fraudulent intent on the part of Atty. Jesus Jr. in submitting his
insurance application. Instead, it found that Atty. Jesus Jr. admitted in his application that he had sought medical treatment for kidney
ailment.19
Sun Life filed a Motion for Partial Reconsideration 20 dated December 11, 2013 but the same was denied in a Resolution 21 dated
February 13, 2014.
Undaunted, Sun Life filed an appeal by way of petition for review on certiorari under Rule 45 of the Rules of Court before this
Court.

The Issue

Essentially, the main issue of the instant case is whether or not the CA erred when it affirmed the RTC decision finding
_______________
16 Rollo, p. 86.
17 Id., at pp. 6-18.
18 Id., at p. 17.
19 Id., at p. 14.
20 Id., at pp. 19-28.
21 Id., at pp. 29-30.

52
that there was no concealment or misrepresentation when Atty. Jesus Jr. submitted his insurance application with Sun Life.

Ruling of the Court

The petition has no merit.
In Manila Bankers Life Insurance Corporation v. Aban,22 the Court held that if the insured dies within the two-year contestability
period, the insurer is bound to make good its obligation under the policy, regardless of the presence or lack of concealment or
misrepresentation. The Court held:

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.23 (Emphasis ours)
27
In the present case, Sun Life issued Atty. Jesus Jr.’s policy on February 5, 2001. Thus, it has two years from its issuance, to
investigate and verify whether the policy was obtained by fraud, concealment, or misrepresentation. Upon the death of
_______________
22 715 Phil. 404; 702 SCRA 417 (2013).

23 Id., at p. 415; p. 427.

53
VOL. 793, JUNE 8, 2016 53
Atty. Jesus Jr., however, on May 11, 2001, or a mere three months from the issuance of the policy, Sun Life loses its right to
rescind the policy. As discussed in Manila Bankers, the death of the insured within the two-year period will render the right of the
insurer to rescind the policy nugatory. As such, the incontestability period will now set in.
Assuming, however, for the sake of argument, that the incontestability period has not yet set in, the Court agrees, nonetheless, with
the CA when it held that Sun Life failed to show that Atty. Jesus Jr. committed concealment and misrepresentation.
As correctly observed by the CA, Atty. Jesus Jr. admitted in his application his medical treatment for kidney ailment. Moreover,
he executed an authorization in favor of Sun Life to conduct investigation in reference with his medical history. The decision in part
states:

Records show that in the Application for Insurance, [Atty. Jesus Jr.] admitted that he had sought medical treatment for
kidney ailment. When asked to provide details on the said medication, [Atty. Jesus Jr.] indicated the following information:
year (“1987”), medical procedure (“undergone lithotripsy due to kidney stone”), length of confinement (“3 days”), attending
physician (“Dr. Jesus Benjamin Mendoza”) and the hospital (“National Kidney Institute”).
It appears that [Atty. Jesus Jr.] also signed the Authorization which gave [Sun Life] the opportunity to obtain information
on the facts disclosed by [Atty. Jesus Jr.] in his insurance application. x x x
x x x x
Given the express language of the Authorization, it cannot be said that [Atty. Jesus Jr.] concealed his medical history since
[Sun Life] had the means of ascertaining [Atty. Jesus Jr.’s] medical record.
With regard to allegations of misrepresentation, we note that [Atty. Jesus Jr.] was not a medical doctor, and

54
his answer “no recurrence” may be construed as an honest opinion. Where matters of opinion or judgment are called for,
answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. 24 (Citations
omitted and italics in the original)

Indeed, the intent to defraud on the part of the insured must be ascertained to merit rescission of the insurance contract.
Concealment as a defense for the insurer to avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the provider or insurer. 25 In the present case, Sun Life failed to clearly and
satisfactorily establish its allegations, and is therefore liable to pay the proceeds of the insurance.
Moreover, well-settled is the rule that this Court is not a trier of facts. Factual findings of the lower courts are entitled to great
weight and respect on appeal, and in fact accorded finality when supported by substantial evidence on the record. 26
WHEREFORE, the petition for review is DENIED. The Decision dated November 18, 2013 and Resolution dated February 13,
2014 of the Court of Appeals in C.A.-G.R. CV No. 93269 are hereby AFFIRMED.
SO ORDERED.
Velasco, Jr. (Chairperson) and Perez, JJ., concur.
Peralta and Jardeleza, JJ., On Official Leave.
_______________
24 Rollo, pp. 14-15.

25 Philamcare Health Systems, Inc. v. Court of Appeals, 429 Phil. 82, 92; 379 SCRA 356, 365 (2002).
26 Bernales v. Heirs of Julian Sambaan, 624 Phil. 88, 97; 610 SCRA 90, 99 (2010).

55
28
VOL. 793, JUNE 8, 2016 55
Notes.—Manuel had been taking medicine for his heart condition and diabetes when he submitted his pension plan application;
Pursuant to Section 27 of the Insurance Code, Manuel’s concealment entitles Philam Plans to rescind its contract of insurance with
him. (Florendo vs. Philam Plans, Inc., 666 SCRA 618 [2012])
An incontestability clause precludes the insurer from disowning liability under the policy it issued on the ground of concealment
or misrepresentation. (Id.)

——o0o——
29
[No. 15774. November 29, 1920.]
PILAR C. DE LIM, plaintiff and appellant, vs. SUN LIFE ASSURANCE COMPANY OF CANADA, defendant and appellee.
1. 1.INSURANCE CONTRACTS; PROVISIONAL POLICIES.—A so-called "provisional policy" was issued to the applicant
reading as follows: "Received (subject to the following stipulations and agreements) the sum of four hundred and thirty-
three pesos, being the amount of the first year's premium for a Life Assurance Policy on the life of Mr. Luis D. Lim y
Garcia of Zamboanga for P5,000 for which an application, dated the 6th day of July, 1917, has been made to the Sun Life
Assurance Company of Canada. The above mentioned life is to be assured in accordance with the terms and conditions
contained or inserted by the Company in the policy which may be granted by it in this particular case for four months
only from the date of the application, provided that the Company shall confirm this agreement by issuing a policy on said
application -when the same shall be submitted to the Head Office in Montreal. Should the Company not issue such a policy,
then this agreement shall be null and void ab initio, and the Company shall be held not to have been on the risk at all, but in
such case the amount herein acknowledged shall be returned. (Seal.) (Sgd.) T. B. MACAULAY, President. (Sgd.) A. F.
PETERS, Agent." Held: That a contract of insurance was not here consummated by the parties and that, consequently, the
widow of the deceased cannot recover the amount of the insurance from the insurance company.
264
264 PHILIPPINE REPORTS ANNOTATED
De Lim vs. Sun Life Assurance Co. of Canada.
1. 2.ID. ; ID.—A contract of insurance, like other contracts, must be assented to by both parties either in person or by their
agents, So long as an application for insurance has not been either accepted or rejected, it is merely an offer or proposal to
make a contract. The contract, to be binding from the date of the application, must have been a completed contract, one that
leaves nothing to be done, nothing to be completed, nothing to be passed upon, or determined, before it shall take effect.
There can be no contract of insurance unless the minds of the parties have met in agreement.
1. 3.ID.; ID.—Where an agreement is made between the applicant and the agent whether by signing an application containing
such condition, or otherwise, that no liability shall attach until the principal approves the risk and a receipt is given by the
agent, such acceptance is merely conditional, and is subordinated to the act of the company in approving or rejecting; so in
life insurance a "binding slip" or "binding receipt" does not insure of itself.
APPEAL from an order of the Court of First Instance of Zamboanga. Soriano, J.

The facts are stated in the opinion of the court.
Sanz & Luzuriaga for appellant.
Cohn & Fisher for appellee.
MALCOLM, J.:
This is an appeal by plaintiff f rom an order of the Court of First Instance of Zamboanga sustaining a demurrer to plaintiff's complaint.
upon the ground that it fails to state a cause of action.
As the demurrer had the effect of admitting the material facts set forth in the complaint, the facts are those alleged by the plaintiff.
On July 6, 1917, Luis Lim y Garcia of Zamboanga made application to the Sun Life Assurance Company of Canada for a policy of
insurance on his life in the sum of P5,000. In his application Lim designated his wife, Pilar C. de Lim, the plaintiff herein, as the
beneficiary. The first premium of P433 was paid by Lim, and upon such payment the company issued what was called a "provisional
policy." Luis Lim y Garcia died on August 23, 1917, after the issuance of the provisional policy but before approval
265
VOL. 41, NOVEMBER 29, 1920. 265
De Lim vs. Sun Life Assurance Co. of Canada. .
30
of the application by the home office of the insurance company. The instant action is brought by the beneficiary, Pilar C. de Lim, to
recover from the Sun Life Assurance Company of Canada the sum of P5,000, the amount named in the provisional policy.
The "provisional policy" upon which this action rests reads as f ollows:
"Received (subject to the f ollowing stipulations and agreements) the sum of four hundred and thirty-three pesos, being the amount
of the first year's premium for a Life Assurance Policy on the life of Mr. Luis D. Lim y Garcia of Zamboanga for P5,000, for which an
application dated the 6th day of July, 1917, has been made to the Sun Life Assurance Company of Canada.
"The above-mentioned life is to be assured in accordance with the terms and conditions contained or inserted by the Company in
the policy which may be granted by it in this particular case for four months only from the date of the application, provided that the
Company shall confirm this agreement by issuing a policy on said application when the. same shall be submitted to the Head Office in
Montreal. Should the Company not issue such a policy, then this agreement shall be null and void ab initio, and the Company shall be
held not to have been on the risk at all, but in such case the amount herein acknowledged shall be returned.
[SEAL.] (Sgd.) "T. B. MACAULAY, President.
(Sgd.) "A. F. PETERS, Agent"
Our duty in this case is to ascertain the correct meaning of the document above quoted. A perusal of the same many times by the
writer and by other members of the court leaves a decided impression of vagueness in the mind. Apparently it is to be a provisional
policy "for four months only from the date of this application." We use the term "apparently" advisedly, because immediately
following the words fixing the four months period comes the word "provided" which has the meaning of "if." Otherwise stated, the
policy for four months is expressely made subject to the the affirmative condition that "the company shall confirm this
266
agreement by issuing a policy on said application when the same shall be submitted to the head office in Montreal." To reënforce the
same there follows the negative condition—
"Should the company not issue such a policy, then this agreement shall be null and void ab initio, and the company shall be held
not to have been on the risk." Certainly, language could hardly be used which would more clearly stipulate that-the agreement should
not go into effect until the home office of the company should confirm it by issuing a policy. As we read and understand the so-called
provisional policy it amounts to nothing but an acknowledgment on behalf of the company, that it has received from the person named
therein the sum of money agreed upon as the first year's premium upon a policy to be issued upon the application, if the application is
accepted by the company.
It is of course a primary rule that a contract of insurance, like other contracts, must be assented to' by both parties either in person
or by their agents. So long as an application for insurance has not been either accepted or rejected, it is merely an offer or proposal to
make a contract. The contract, to be binding from the date of the application, must have been a completed contract, one that leaves
nothing to be done, nothing to be completed, nothing to be passed upon, or determined, before it shall take effect. There can be no
contract of insurance unless the minds of the parties have met in agreement. Our view is, that a contract of insurance was not here
consummated by the parties.
Appellant relies on Joyce on Insurance. Beginning at page 253, of Volume I, Joyce states the general rules concerning the agent's
receipt pending approval or issuance of policy. The first rule which Joyce lays down is this: If the act of acceptance of the risk by the
agent and the giving by him of a receipt, is within the scope of the agent's authority, and nothing remains but to issue a policy, then the
receipt will bind the company. This rule does not apply, for while here nothing remained but to issue the
267
VOL. 41, NOVEMBER 29, 1920 267
policy, this was made an express condition to the contract. The second rule laid down by Joyce is this: Where an agreement is made
between the applicant and the agent whether by signing an application containing such condition, or otherwise, that no liability shall
attach until the principal approves the risk and a receipt is given by the agent, such acceptance is merely conditional, and is
subordinated to the act of the company in approving or rejecting; so in life insurance a "binding slip" or "binding receipt" does not
insure of itself. This is the rule which we believe applies to the instant case. The third rule announced by Joyce is this: Where the
acceptance by the agent is within the scope of his authority a receipt containing a contract for insurance for a specified time which is
not absolute but conditional, upon acceptance or rejection by the principal, covers the specified 'period unless the risk is declined
within that period. The case cited by Joyce to substantiate the last principle is that of Goodfellow vs. Times & Beacon Assurance
Com. (17 U. C. Q. B., 411), not available.
The two cases most nearly in point come from the federal courts and the Supreme Court of Arkansas.
In the case of Steinle vs. New York Life Insurance Co.([1897], 81 Fed., 489) the facts were that the amount of the first premium
had been paid to an insurance agent and a receipt given therefor. The receipt, however, expressly declared that if the application was
accepted by the company, the insurance shall take effect from the date of the application but that if the application was not accepted,
the money shall be returned. The trite decision of the circuit court of appeals was, "On the conceded facts of this case, there was no
contract of life insurance perfected and the judgment of the circuit court must be affirmed."
In the case of Cooksey vs. Mutual Life Insurance Co.([1904], 73 Ark., 117) the person applying for the life insurance paid an
amount equal to the first premium, but the application and the receipt for the money paid, stipu-
31
268
lated that the insurance was to become effective only when the application was approved and the policy issued. The court held that the
transaction did not amount to an agreement for preliminary or temporary insurance. It was said:
"It is not an unfamiliar custom among life insurance companies in the operation of the business, upon receipt of an application for
insurance, to enter into a contract with the applicant in the shape of a so-called binding receipt for temporary insurance pending the
consideration of the application, to last until the policy be issued or the application rejected, and such contracts are upheld and
enforced when the applicant dies before the issuance of a policy or final rejection of the aplication. It is held, too, that such contracts
may rest in parol. Counsel for appellant insists that such a preliminary contract for temporary insurance was entered into in this
instance, but we do not think so. On the contrary, the clause in the application and the receipt given by the solicitor, which are to be
read together, stipulate expressly that the insurance shall become effective only when the 'application shall be approved and the policy
duly signed by the secretary at the head office of the company and issued/ It constituted no agreement at all for preliminary or
temporary insurance; Mohrstadt vs, Mutual Life Ins. Co., 115 Fed., 81, 52 C. C. A., 675 Steinle Steinle vs. New York Life Ins. Co., 81
Fed., 489, 26 C. C. A., 491." (See further Wein08: vs. Mutual Reserve Fund Life Ass'n. [1892], 53 Fed., 208; Mohrstadt vs. Mutual
Life Insurance Co'. [1902], 115 Fed., 81; Insurance Co. vs. Young's Administrator [1875], 90 U. S., 85; Chamberlain vs. Prudential
Insurance Company of America [1901], 109 Wis., 4; Shawnee Mut. Fire Ins. Co. vs.McClure [1913], 39 Okla., 535; Dorman
Connecticut Fire Ins. Co. [1914], 51 Okla., 509; contra, We are vs. Mutual Life Ins. Co: [1905], 41 Wash., 228.)
We are of the opinion that the trial court committed no error in sustaining the demurrer and dismissing the case. It is to be noted,
however, that counsel for appellee admits
269
VOL, 41, NOVEMBER 29, 1920. 269
Enriquez vs. Sun Life Assurance Co. of Canada.
the liability of the company for the return of the first premium to the estate of the deceased. It is not to be doubted but that the Sun
Life Assurance Company of Canada will immediately, on the promulgation of this decision, pay to the estate of the late Luis Lim y
Garcia the sum of P433.
The order appealed from, in the nature of a final judgment is affirmed, without special finding as to costs in this instance. So
ordered.
Mapa, C. J., Johnson, Araullo, Avanceña, and Villamor, JJ., concur.
Order affirmed.
_________________
32
No. L-38613. February 25, 1982.*
PACIFIC TIMBER EXPORT CORPORATION, petitioner, vs. THE HONORABLE COURT OF APPEALS and
WORKMEN’S INSURANCE COMPANY, INC., respondents.
Insurance Law; A “Cover Note” issued in advance of the issuance of a marine policy is binding as an insurance contract
although no separate premium was paid therefor.—The fact that no separate premium was paid on the Cover Note before the loss
insured against occurred, does not militate against the validity of petitioner’s contention, for no such premium could have been paid,
since by the nature of the Cover Note, it did not contain, as all Cover Notes do not contain particulars of the shipment that would serve
as basis for the computation of the premiums. As a logical consequence, no separate premiums are intended or required to be paid on a
Cover Note. This is a fact admitted by an official of respondent company, Juan Jose Camacho, in charge of issuing cover notes of the
respondent company (p. 33, tsn, September 24, 1965).
Same; Same.—At any rate, it is not disputed that petitioner paid in full all the premiums as called for by the statement issued by
private respondent after the issuance of the two regular marine insurance policies, thereby leaving no account unpaid by petitioner due
on the insurance coverage, which must be deemed to include the Cover Note. If the Note is to be treated as a separate policy instead of
integrating it to the regular policies subsequently issued, the purpose and function of the Cover Note would be set at naught or
rendered meaningless, for it is in a real sense a contract, not a mere application for insurance which is a mere offer.
Same; Same.—The non-payment of premium on the Cover Note is, therefore, no cause for the petitioner to lose what is due it as
if
________________
*
FIRST DIVISION
200
Pacific Timber Export Corp. vs. Court of Appeals
there had been payment of premium, for non-payment by it was not chargeable against its fault. Had all the logs been lost during
the loading operations, but after the issuance of the Cover Note, liability on the note would have already arisen even before payment
of premium. This is how the cover note as a “binder” should legally operate; otherwise, it would serve no practical purpose in the
realm of commerce, and is supported by the doctrine that where a policy is delivered without requiring payment of the premium, the
presumption is that a credit was intended and policy is valid.
Same; Delay of insured in reporting the loss must be objected to promptly by insurer. Sending of insurance adjuster to assess
the loss amounts to waiver of delay in giving notice of loss.—The defense of delay as raised by private respondent in resisting the
claim cannot be sustained. The law requires this ground of delay to be promptly and specifically asserted when a claim on the
insurance agreement is made. The undisputed facts show that instead of invoking the ground of delay in objecting to petitioner’s claim
of recovery on the cover note, it took steps clearly indicative that this particular ground for objection to the claim was never in its
mind. The nature of this specific ground for resisting a claim places the insurer on duty to inquire when the loss took place, so that it
could determine whether delay would be a valid ground upon which to object to a claim against it.
Same; Same.—In the proceedings that took place later in the Office of the Insurance Commissioner, private respondent should
then have raised this ground of delay to avoid liability. It did not do so. It must be because it did not find any delay, as this Court fails
to find a real and substantial sign thereof. But even on the assumption that there was delay, this Court is satisfied and convinced that as
expressly provided by law, waiver can successfully be raised against private respondent.
PETITION to review the decision of the Court of Appeals.
DE CASTRO, ** J.:
This petition seeks the review of the decision of the Court of Appeals reversing the decision of the Court of First Instance of Manila in
favor of petitioner and against private respondent which ordered the latter to pay the sum of Pll,042.04 with interest at the rate of 12%
interest from receipt of notice of loss on April 15, 1963 up to the complete payment, the sum of P3,000.00 as attorney's fees and the
costs 1 thereby dismissing petitioner s complaint with costs. 2
33
The findings of the of fact of the Court of Appeals, which are generally binding upon this Court, Except as shall be indicated in the
discussion of the opinion of this Court the substantial correctness of still particular finding having been disputed, thereby raising a
question of law reviewable by this Court 3 are as follows:
March 19, l963, the plaintiff secured temporary insurance from the defendant for its exportation of 1,250,000 board
feet of Philippine Lauan and Apitong logs to be shipped from the Diapitan. Bay, Quezon Province to Okinawa and
Tokyo, Japan. The defendant issued on said date Cover Note No. 1010, insuring the said cargo of the plaintiff
"Subject to the Terms and Conditions of the WORKMEN'S INSURANCE COMPANY, INC. printed Marine Policy
form as filed with and approved by the Office of the Insurance Commissioner (Exhibit A).
The regular marine cargo policies were issued by the defendant in favor of the plaintiff on April 2, 1963. The two
marine policies bore the numbers 53 HO 1032 and 53 HO 1033 (Exhibits B and C, respectively). Policy No. 53 H0
1033 (Exhibit B) was for 542 pieces of logs equivalent to 499,950 board feet. Policy No. 53 H0 1033 was for 853
pieces of logs equivalent to 695,548 board feet (Exhibit C). The total cargo insured under the two marine policies
accordingly consisted of 1,395 logs, or the equivalent of 1,195.498 bd. ft.
After the issuance of Cover Note No. 1010 (Exhibit A), but before the issuance of the two marine policies Nos. 53
HO 1032 and 53 HO 1033, some of the logs intended to be exported were lost during loading operations in the
Diapitan Bay. The logs were to be loaded on the 'SS Woodlock' which docked about 500 meters from the shoreline
of the Diapitan Bay. The logs were taken from the log pond of the plaintiff and from which they were towed in rafts
to the vessel. At about 10:00 o'clock a. m. on March 29, 1963, while the logs were alongside the vessel, bad weather
developed resulting in 75 pieces of logs which were rafted together co break loose from each other. 45 pieces of logs
were salvaged, but 30 pieces were verified to have been lost or washed away as a result of the accident.
In a letter dated April 4, 1963, the plaintiff informed the defendant about the loss of 'appropriately 32 pieces of log's during loading of
the 'SS Woodlock'. The said letter (Exhibit F) reads as follows:
April 4, 1963
Workmen's Insurance Company, Inc. Manila, Philippines
Gentlemen:
This has reference to Insurance Cover Note No. 1010 for shipment of 1,250,000 bd. ft. Philippine Lauan and
Apitong Logs. We would like to inform you that we have received advance preliminary report from our Office in
Diapitan, Quezon that we have lost approximately 32 pieces of logs during loading of the SS Woodlock.
We will send you an accurate report all the details including values as soon as same will be reported to us.
Thank you for your attention, we wish to remain.
Very respectfully yours,
PACIFIC TIMBER EXPORT CORPORATION
(Sgd.) EMMANUEL S. ATILANO Asst. General Manager.
Although dated April 4, 1963, the letter was received in the office of the defendant only on April 15, 1963, as shown
by the stamp impression appearing on the left bottom corner of said letter. The plaintiff subsequently submitted a
'Claim Statement demanding payment of the loss under Policies Nos. 53 HO 1032 and 53 HO 1033, in the total
amount of P19,286.79 (Exhibit G).
On July 17, 1963, the defendant requested the First Philippine Adjustment Corporation to inspect the loss and assess
the damage. The adjustment company submitted its 'Report on August 23, 1963 (Exhibit H). In said report, the
adjuster found that 'the loss of 30 pieces of logs is not covered by Policies Nos. 53 HO 1032 and 1033 inasmuch as
said policies covered the actual number of logs loaded on board the 'SS Woodlock' However, the loss of 30 pieces of
logs is within the 1,250,000 bd. ft. covered by Cover Note 1010 insured for $70,000.00.
34
On September 14, 1963, the adjustment company submitted a computation of the defendant's probable liability on
the loss sustained by the shipment, in the total amount of Pl1,042.04 (Exhibit 4).
On January 13, 1964, the defendant wrote the plaintiff denying the latter's claim, on the ground they defendant's
investigation revealed that the entire shipment of logs covered by the two marines policies No. 53 110 1032 and 713
HO 1033 were received in good order at their point of destination. It was further stated that the said loss may be
considered as covered under Cover Note No. 1010 because the said Note had become 'null and void by virtue of the
issuance of Marine Policy Nos. 53 HO 1032 and 1033'(Exhibit J-1). The denial of the claim by the defendant was
brought by the plaintiff to the attention of the Insurance Commissioner by means of a letter dated March 21, 1964
(Exhibit K). In a reply letter dated March 30, 1964, Insurance Commissioner Francisco Y. Mandanas observed that
'it is only fair and equitable to indemnify the insured under Cover Note No. 1010', and advised early settlement of
the said marine loss and salvage claim (Exhibit L).
On June 26, 1964, the defendant informed the Insurance Commissioner that, on advice of their attorneys, the claim
of the plaintiff is being denied on the ground that the cover note is null and void for lack of valuable consideration
(Exhibit M). 4
Petitioner assigned as errors of the Court of Appeals, the following:
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THE COVER NOTE WAS NULL AND VOID FOR
LACK OF VALUABLE CONSIDERATION BECAUSE THE COURT DISREGARDED THE PROVEN FACTS
THAT PREMIUMS FOR THE COMPREHENSIVE INSURANCE COVERAGE THAT INCLUDED THE
COVER NOTE WAS PAID BY PETITIONER AND THAT INCLUDED THE COVER NOTE WAS PAID BY
PETITIONER AND THAT NO SEPARATE PREMIUMS ARE COLLECTED BY PRIVATE RESPONDENT ON
ALL ITS COVER NOTES.
II
THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT WAS RELEASED FROM
LIABILITY UNDER THE COVER NOTE DUE TO UNREASONABLE DELAY IN GIVING NOTICE OF LOSS
BECAUSE THE COURT DISREGARDED THE PROVEN FACT THAT PRIVATE RESPONDENT DID NOT
PROMPTLY AND SPECIFICALLY OBJECT TO THE CLAIM ON THE GROUND OF DELAY IN GIVING
NOTICE OF LOSS AND, CONSEQUENTLY, OBJECTIONS ON THAT GROUND ARE WAIVED UNDER
SECTION 84 OF THE INSURANCE ACT. 5
1. Petitioner contends that the Cover Note was issued with a consideration when, by express stipulation, the cover note is made subject
to the terms and conditions of the marine policies, and the payment of premiums is one of the terms of the policies. From this
undisputed fact, We uphold petitioner's submission that the Cover Note was not without consideration for which the respondent court
held the Cover Note as null and void, and denied recovery therefrom. The fact that no separate premium was paid on the Cover Note
before the loss insured against occurred, does not militate against the validity of petitioner's contention, for no such premium could
have been paid, since by the nature of the Cover Note, it did not contain, as all Cover Notes do not contain particulars of the shipment
that would serve as basis for the computation of the premiums. As a logical consequence, no separate premiums are intended or
required to be paid on a Cover Note. This is a fact admitted by an official of respondent company, Juan Jose Camacho, in charge of
issuing cover notes of the respondent company (p. 33, tsn, September 24, 1965).
At any rate, it is not disputed that petitioner paid in full all the premiums as called for by the statement issued by private respondent
after the issuance of the two regular marine insurance policies, thereby leaving no account unpaid by petitioner due on the insurance
coverage, which must be deemed to include the Cover Note. If the Note is to be treated as a separate policy instead of integrating it to
the regular policies subsequently issued, the purpose and function of the Cover Note would be set at naught or rendered meaningless,
for it is in a real sense a contract, not a mere application for insurance which is a mere offer. 6
It may be true that the marine insurance policies issued were for logs no longer including those which had been lost during loading
operations. This had to be so because the risk insured against is not for loss during operations anymore, but for loss during transit, the
logs having already been safely placed aboard. This would make no difference, however, insofar as the liability on the cover note is
concerned, for the number or volume of logs lost can be determined independently as in fact it had been so ascertained at the instance
of private respondent itself when it sent its own adjuster to investigate and assess the loss, after the issuance of the marine insurance
policies.
35
The adjuster went as far as submitting his report to respondent, as well as its computation of respondent's liability on the insurance
coverage. This coverage could not have been no other than what was stipulated in the Cover Note, for no loss or damage had to be
assessed on the coverage arising from the marine insurance policies. For obvious reasons, it was not necessary to ask petitioner to pay
premium on the Cover Note, for the loss insured against having already occurred, the more practical procedure is simply to deduct the
premium from the amount due the petitioner on the Cover Note. The non-payment of premium on the Cover Note is, therefore, no
cause for the petitioner to lose what is due it as if there had been payment of premium, for non-payment by it was not chargeable
against its fault. Had all the logs been lost during the loading operations, but after the issuance of the Cover Note, liability on the note
would have already arisen even before payment of premium. This is how the cover note as a "binder" should legally operate otherwise,
it would serve no practical purpose in the realm of commerce, and is supported by the doctrine that where a policy is delivered without
requiring payment of the premium, the presumption is that a credit was intended and policy is valid. 7
2. The defense of delay as raised by private respondent in resisting the claim cannot be sustained. The law requires this ground of
delay to be promptly and specifically asserted when a claim on the insurance agreement is made. The undisputed facts show that
instead of invoking the ground of delay in objecting to petitioner's claim of recovery on the cover note, it took steps clearly indicative
that this particular ground for objection to the claim was never in its mind. The nature of this specific ground for resisting a claim
places the insurer on duty to inquire when the loss took place, so that it could determine whether delay would be a valid ground upon
which to object to a claim against it.
As already stated earlier, private respondent's reaction upon receipt of the notice of loss, which was on April 15, 1963, was to set in
motion from July 1963 what would be necessary to determine the cause and extent of the loss, with a view to the payment thereof on
the insurance agreement. Thus it sent its adjuster to investigate and assess the loss in July, 1963. The adjuster submitted his report on
August 23, 1963 and its computation of respondent's liability on September 14, 1963. From April 1963 to July, 1963, enough time was
available for private respondent to determine if petitioner was guilty of delay in communicating the loss to respondent company. In the
proceedings that took place later in the Office of the Insurance Commissioner, private respondent should then have raised this ground
of delay to avoid liability. It did not do so. It must be because it did not find any delay, as this Court fails to find a real and substantial
sign thereof. But even on the assumption that there was delay, this Court is satisfied and convinced that as expressly provided by law,
waiver can successfully be raised against private respondent. Thus Section 84 of the Insurance Act provides:
Section 84.—Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any act of his or
if he omits to take objection promptly and specifically upon that ground.
From what has been said, We find duly substantiated petitioner's assignments of error.
ACCORDINGLY, the appealed decision is set aside and the decision of the Court of First Instance is reinstated in toto with the
affirmance of this Court. No special pronouncement as to costs.
SO ORDERED.
G.R. No. 152334. September 24, 2014.*

H.H. HOLLERO CONSTRUCTION, INC., petitioner, vs. GOVERNMENT SERVICE INSURANCE SYSTEM and POOL
OF MACHINERY INSURERS, respondents.
Insurance Law; Contracts; 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.—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.
Same; Prescription; Case law illumines that the prescriptive period for the insured’s action for indemnity should be reckoned
from the “final rejection” of the claim.—Section 10 of the General Conditions of the subject CAR Policies commonly read: 10. If a
claim is in any respect fraudulent, or if any false declaration is made or used in support thereof, or if any fraudulent means or devices
are used by the Insured or anyone acting on his behalf to obtain any benefit under this Policy, or if a claim is made and rejected and
no action or suit is commenced within twelve months after such rejection or, in case of arbitration taking place as provided herein,
within twelve months after the Arbitrator or Arbitrators or Umpire have made their award, all benefit under this Policy shall be
36
forfeited. (Emphases supplied) In this relation, case law illumines that the prescriptive period for the insured’s action for indemnity
should be reckoned from the “final rejection” of the claim.
Same; Same; Final Rejection; Words and Phrases; “Final rejection” simply means denial by the insurer of the claims of the
insured and not the rejection or denial by the insurer of the insured’s motion or request for reconsideration.—As correctly observed
by the CA, “final rejection” simply means denial by the insurer of the claims of the insured and not the rejection or denial by the
insurer of the insured’s motion or request for reconsideration. The rejection re-
_______________
* FIRST DIVISION.
304
H.H. Hollero Construction, Inc. vs. Government Service Insurance System
ferred to should be construed as the rejection in the first instance, as in the two instances above discussed.
Quisumbing, Fernando & Javellana Law Offices for petitioner.
Douglas A.C. Marigomen for respondent GSIS.
Ismael Andres for respondent Pool of Machinery Insurers.

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated March 13, 2001 and the Resolution 3 dated February 21,
2002 of the Court of Appeals (CA) in C.A.-G.R. CV No. 63175, which set aside and reversed the Judgment 4 dated February 3, 1999 of
the Regional Trial Court of Quezon City, Branch 220 (RTC) in Civil Case No. 91-10144, and dismissed petitioner H.H. Hollero
Construction, Inc.’s (petitioner) Complaint for Sum of Money and Damages under the insurance policies issued by public respondent,
the Government Service Insurance System (GSIS), on the ground of prescription.

The Facts

On April 26, 1988, the GSIS and petitioner entered into a Project Agreement (Agreement) whereby the latter undertook
_______________
1 Erroneously titled as Petition for Certiorari. (Rollo, pp. 10-31.)

2 Id., at pp. 34-46. Penned by Associate Justice Romeo J. Callejo, Jr., with Associate Justices Renato C. Dacudao and Josefina
Guevarra-Salonga, concurring.
3 Id., at p. 47.
4 Id., at pp. 211-230. Penned by Judge Prudencio Altre Castillo, Jr.
305
VOL. 736, SEPTEMBER 24, 2014 305
the development of a GSIS housing project known as Modesta Village Section B (Project). 5 Petitioner obligated itself to insure the
Project, including all the improvements, upon the execution of the Agreement under a Contractors’ All Risks (CAR) Insurance with
the GSIS General Insurance Department for an amount equal to its cost or sound value, which shall not be subject to any automatic
annual reduction.6
Pursuant to its undertaking, petitioner secured CAR Policy No. 88/085 7 in the amount of P1,000,000.00 for land development,
which was later increased to P10,000,000.00, 8effective from May 2, 1988 to May 2, 1989. 9 Petitioner likewise secured CAR Policy
No. 88/08610 in the amount of P1,000,000.00 for the construction of twenty (20) housing units, which amount was later increased to
P17,750,000.0011 to cover the construction of another 355 new units, effective from May 2, 1988 to June 1, 1989. 12 In turn, the GSIS
reinsured CAR Policy No. 88/085 with respondent Pool of Machinery Insurers (Pool).13
Under both policies, it was provided that: (a) there must be prior notice of claim for loss, damage or liability within fourteen (14)
days from the occurrence of the loss or damage; 14 (b) all benefits thereunder shall be forfeited if no action is instituted within twelve
(12) months after the rejection of the claim for loss, damage or liability; 15 and (c) if the sum insured is found to be less than the amount
required to be insured,
_______________
5 Id., at p. 34.
6 Id., at pp. 34-35.
37
7 Id., at pp. 128-132.
8 Id., at pp. 134-135.
9 Id., at pp. 35-36.
10 Id., at pp. 136-141.
11 Id., at pp. 142-143.
12 Id., at p. 36.
13 Id., at p. 77.
14 See CAR Policies, General Conditions, paragraph 7; id., at pp. 128 and 136 (reverse side).
15 See CAR Policies, General Conditions, paragraph 10; id.
306
the amount recoverable shall be reduced to such proportion before taking into account the deductibles stated in the schedule
(average clause provision).16
During the construction, three (3) typhoons hit the country, namely, Typhoon Biring from June 1 to June 4, 1988, Typhoon
Huaning on July 29, 1988, and Typhoon Saling on October 11, 1989, which caused considerable damage to the Project. 17 Accordingly,
petitioner filed several claims for indemnity with the GSIS on June 30, 1988,18 August 25, 1988,19 and October 18, 1989,20respectively.
In a letter21 dated April 26, 1990, the GSIS rejected petitioner’s indemnity claims for the damages wrought by Typhoons Biring
and Huaning, finding that no amount is recoverable pursuant to the average clause provision under the policies. 22 In a letter23 dated
June 21, 1990, the GSIS similarly rejected petitioner’s indemnity claim for damages wrought by Typhoon Saling on a “no loss” basis,
it appearing from its records that the policies were not renewed before the onset of the said typhoon.24
In a letter25 dated April 18, 1991, petitioner impugned the rejection of its claims for damages/loss on account of Typhoon Saling,
and reiterated its demand for the settlement of its claims.
_______________
16 Id., at pp. 130 and 137.

17 Id., at pp. 36-38.
18 Id., at pp. 150-155.
19 Id., at pp. 37 and 156-157.
20 Id., at pp. 166-175.
21 Id., at pp. 163-165.
22 Id., at p. 223.
23 Id., at p. 176.
24 Id., at p. 38.
25 Id., at pp. 179-180.
307
VOL. 736, SEPTEMBER 24, 2014 307
On September 27, 1991, petitioner filed a Complaint 26for Sum of Money and Damages before the RTC, docketed as Civil Case
No. 91-10144,27 which was opposed by the GSIS through a Motion to Dismiss 28 dated October 25, 1991 on the ground that the causes
of action stated therein are barred by the twelve-month limitation provided under the policies, i.e., the complaint was filed more than
one (1) year from the rejection of the indemnity claims. The RTC, in an Order 29 dated May 13, 1993, denied the said motion; hence,
the GSIS filed its answer30 with counterclaims for litigation expenses, attorney’s fees, and exemplary damages. Subsequently, the
GSIS filed a Third Party Complaint31 for indemnification against Pool, the reinsurer.

The RTC’s Ruling

In a Judgment32 dated February 3, 1999, the RTC granted petitioner’s indemnity claims. It held that: (a) the average clause
provision in the policies which did not contain the assent or signature of the petitioner cannot limit the GSIS’ liability, for being
inefficacious and contrary to public policy; 33 (b) petitioner has established that the damages it sustained were due to the peril insured
against;34 and (c) CAR Policy No. 88/086 was deemed renewed when the GSIS withheld the amount of P35,855.00 corresponding to
the premium payable,35
_______________
26 Dated September 3, 1991. (Id., at pp. 48-56.)

27 Id., at p. 38.
28 Id., at pp. 57-59.
29 Id., at p. 65. Penned by Judge Ignacio D. Salvador.
30 Answer with Affirmative Defenses and Counterclaim Dated July 21, 1993. (Id., at pp. 66-71.)
38
31 Dated October 11, 1993. (Id., at pp. 76-78.)
32 Id., at pp. 211-230.
33 Id., at p. 226.
34 Id., at p. 227.
35 Id., at p. 228.
308
from the retentions it released to petitioner. 36 The RTC thereby declared the GSIS liable for petitioner’s indemnity claims for the
damages brought about by the said typhoons, less the stipulated deductions under the policies, plus 6% legal interest from the dates of
extrajudicial demand, as well as for attorney’s fees and costs of suit. It further dismissed for lack of merit GSIS’s counterclaim and
third party complaint.37
Dissatisfied, the GSIS elevated the matter to the CA.

The CA’s Ruling

In a Decision38 dated March 13, 2001, the CA set aside and reversed the RTC Judgment, thereby dismissing the complaint. It ruled
that the complaint filed on September 27, 1991 was barred by prescription, having been commenced beyond the twelve-month
limitation provided under the policies, reckoned from the final rejection of the indemnity claims on April 26, 1990 and June 21, 1990.

The Issue Before the Court

The essential issue for the Court’s resolution is whether or not the CA committed reversible error in dismissing the complaint on
the ground of prescription.

The Court’s Ruling

The petition lacks merit.
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
_______________
36 See Memorandum dated November 9, 1989 of the GSIS Accounting Department to the GSIS General Insurance Group; id., at
p. 178.
37 Id., at pp. 229-230.
38 Id., at pp. 34-46.
309
VOL. 736, SEPTEMBER 24, 2014 309
unambiguous, they must be taken and understood in their plain, ordinary, and popular sense. 39
Section 1040 of the General Conditions of the subject CAR Policies commonly read:
10. If a claim is in any respect fraudulent, or if any false declaration is made or used in support thereof, or if any fraudulent means
or devices are used by the Insured or anyone acting on his behalf to obtain any benefit under this Policy, or if a claim is made and
rejected and no action or suit is commenced within twelve months after such rejection or, in case of arbitration taking place as
provided herein, within twelve months after the Arbitrator or Arbitrators or Umpire have made their award, all benefit under this
Policy shall be forfeited. (Emphases supplied)
In this relation, case law illumines that the prescriptive period for the insured’s action for indemnity should be reckoned from the
“final rejection” of the claim.41
Here, petitioner insists that the GSIS’s letters dated April 26, 1990 and June 21, 1990 did not amount to a “final rejection” of its
claims, arguing that they were mere tentative resolutions pending further action on petitioner’s part or submission of proof in
refutation of the reasons for rejection.42 Hence, its causes of action for indemnity did not accrue on those dates.
_______________
39 Alpha Insurance and Surety Co. v. Castor, G.R. No. 198174, September 2, 2013, 704 SCRA 550, 556.
40 See Rollo, pp. 128 and 136 (reverse side).
41 See Eagle Star Ins. Co., Ltd., et al. v. Chia Yu, 96 Phil. 696, 701-702 (1955), as cited in Summit Guaranty and Insurance Co.,
Inc. v. Judge de Guzman, 235 Phil. 389, 399; 151 SCRA 389, 398 (1987) and Travellers Insurance & Surety Corporation v. Court of
Appeals, 338 Phil. 1032, 1043; 272 SCRA 536, 546 (1997).
42 Rollo, pp. 24-25.
39
310
The Court does not agree.
A perusal of the letter43 dated April 26, 1990 shows that the GSIS denied petitioner’s indemnity claims wrought by Typhoons
Biring and Huaning, it appearing that no amount was recoverable under the policies. While the GSIS gave petitioner the opportunity to
dispute its findings, neither of the parties pursued any further action on the matter; this logically shows that they deemed the said letter
as a rejection of the claims. Lest it cause any confusion, the statement in that letter pertaining to any queries petitioner may have on
the denial should be construed, at best, as a form of notice to the former that it had the opportunity to seek reconsideration of the
GSIS’s rejection. Surely, petitioner cannot construe the said letter to be a mere “tentative resolution.” In fact, despite its disavowals,
petitioner admitted in its pleadings 44 that the GSIS indeed denied its claim through the aforementioned letter, but tarried in
commencing the necessary action in court.
The same conclusion obtains for the letter 45 dated June 21, 1990 denying petitioner’s indemnity claim caused by Typhoon Saling
on a “no loss” basis due to the nonrenewal of the policies therefor before the onset of the said typhoon. The fact that petitioner filed a
letter46 of reconsideration therefrom dated April 18, 1991, considering too the inaction of the GSIS on the same similarly shows that
the June 21, 1990 letter was also a final rejection of petitioner’s indemnity claim.
As correctly observed by the CA, “final rejection” simply means denial by the insurer of the claims of the insured and not the
rejection or denial by the insurer of the insured’s mo-
_______________
43 Id., at pp. 163-165.

44 See paragraphs 7, 8, 12 and 13 of the Complaint; id., at pp. 51-52. See also paragraph 1 of the Opposition (Re: Motion to
Dismiss) dated November 13, 1991; id., at pp. 60-61.
45 Id., at p. 176.
46 Id., at pp. 179-180.
311
VOL. 736, SEPTEMBER 24, 2014 311
tion or request for reconsideration. 47 The rejection referred to should be construed as the rejection in the first instance,48 as in the
two instances above discussed.
Comparable to the foregoing is the Court’s action in the case of Sun Insurance Office, Ltd. v. CA49 wherein it debunked “[t]he
contention of the respondents [therein] that the one-year prescriptive period does not start to run until the petition for reconsideration
had been resolved by the insurer,” holding that such view “runs counter to the declared purpose for requiring that an action or suit be
filed in the Insurance Commission or in a court of competent jurisdiction from the denial of the claim.” 50 In this regard, the Court
rationalized that “uphold[ing] respondents’ contention would contradict and defeat the very principle which this Court had laid down.
Moreover, it can easily be used by insured persons as a scheme or device to waste time until any evidence which may be considered
against them is destroyed.”51 Expounding on the matter, the Court had this to say:
The crucial issue in this case is: When does the cause of action accrue?
In support of private respondent’s view, two rulings of this Court have been cited, namely, the case of Eagle Star Insurance
Co. v.Chia Yu ([supra note 41]), where the Court held:
The right of the insured to the payment of his loss accrues from the happening of the loss. However, the cause of action in an
insurance contract does not accrue until the insured’s claim is finally rejected by the in-
_______________
47 Id., at p. 44.
48 See Sun Insurance Office, Ltd. v. Court of Appeals, G.R. No. 89741, March 13, 1991, 195 SCRA 193, 199.
49 Id.
50 Id., at p. 198.
51 Id.
312
surer. This is because before such final rejection there is no real necessity for bringing suit.
and the case of ACCFA v. Alpha Insurance & Surety Co., Inc. (24 SCRA 151 [1968]), holding that:
Since “cause of action” requires as essential elements not only a legal right of the plaintiff and a correlated obligation of the
defendant in violation of the said legal right, the cause of action does not accrue until the party obligated (surety) refuses, expressly or
impliedly, to comply with its duty (in this case to pay the amount of the bond).
40
Indisputably, the above cited pronouncements of this Court may be taken to mean that the insured’s cause of action or his right to
file a claim either in the Insurance Commission or in a court of competent jurisdiction [as in this case] commences from the time of
the denial of his claim by the Insurer, either expressly or impliedly.
But as pointed out by the petitioner insurance company, the rejection referred to should be construed as the rejection, in the first
instance, for if what is being referred to is a reiterated rejection conveyed in a resolution of a petition for reconsideration, such should
have been expressly stipulated.52

In light of the foregoing, it is thus clear that petitioner’s causes of action for indemnity respectively accrued from its receipt of the
letters dated April 26, 1990 and June 21, 1990, or the date the GSIS rejected its claims in the first instance. Consequently, given that it
allowed more than twelve (12) months to lapse before filing the necessary complaint before the RTC on September 27, 1991, its
causes of action had already prescribed.
_______________
52 Id., at pp. 198-199.

313
VOL. 736, SEPTEMBER 24, 2014 313
WHEREFORE, the petition is DENIED. The Decision dated March 13, 2001 and the Resolution dated February 21, 2002 of the
Court of Appeals (CA) in C.A.-G.R. CV No. 63175 are hereby AFFIRMED.
SO ORDERED.
Sereno (CJ., Chairperson), Leonardo-De Castro, Bersamin and Perez, JJ., concur.
Notes.—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. (Manila Bankers Life Insurance Corporation vs. Aban, 702 SCRA 417
[2013])
In interpreting the exclusions in an insurance contract, the terms used specifying the excluded classes therein are to be given their
meaning as understood in common speech. (Alpha Insurance and Surety Co. vs. Castor, 704 SCRA 550 [2013])
——o0o——
41
[No. L-5915. March 31, 1955]
EAGLE STAR INSURANCE Co., LTD., KURR STEAMSHIP Co., INC., ROOSEVELT STEAMSHIP AGENCY, INC., and
LEIF HOEGH & COMPANY, A/S., petitioners vs. CHIA YU, respondent.
1. 1.BAILMENT AND CARRIERS; U. S. CARRIAGE OF GOODS BY SEA ACT OF 1936, MADE BY LAW APPLICABLE
IN THE PHILIPPINES; LIMITATION OF ACTIONS UNDER THAT ACT.—The U. S. Carriage of Goods by Sea Act of
1936 was adopted and made applicable to the Philippines by Commonwealth Act 65. Where
697
VOL. 96, MARCH 31, 1955 697
Eagle Star Ins., Co., Ltd., et al. vs. Chia Yu
1. there is a stipulation in a bill of lading covering shipment from the United States to the Philippines that "the carrier and the
ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after the
delivery of the goods or the date when the goods should have been delivered", the shipper's failure to bring an action for
damages within the said period of one year discharges the carrier from all liability (Chua Kuy vs.Everret Steamship Corp.,
93 Phil., 207; E. E. Elser, Inc. vs.Court of Appeals, supra, p. 264).
1. 2.PLEADING AND PRACTICE; LIMITATION OF ACTIONS; INSURANCE POLICY; CONTRACTUAL LIMITATION

OF ACTION.—Contractual limitations contained in insurance policies are regarded with extreme jealousy by courts and
will be strictly construed against the insurer and should not be permitted to prevent a recovery when their just and honest
application would not produce that result (46 C. J. S., 273).
1. 3.ID.; ID.; ID.; ID.—It was held in Macias & Co. vs. China Fire Insurance Co., Ltd. (46 Phil., 345) that a clause in an
insurance policy providing that an action upon the policy by the insured must be brought within a certain time is, if
reasonable, valid and will prevail over statutory limitations of the action. That decision, however, was .rendered before the
passage of Act 4101, which inserted in the Insurance Act section 61-A providing that "Any condition, stipulation or
agreement in any policy of insurance, limiting the time for commencing an action thereunder to a period of less than one
year from the time -when the cause of action accrues, is void."
1. 4.ID.; ID.; ID.; ID.; CAUSE OF ACTION ACCRUES AFTER CLAIM OF INSURER is FINALLY REJECTED BY THE

CARRIER AND THE INSURER.—Where the policy provides that the insured should file his claim, first, with the carrier
and then with the insurer, the shipper has a right to wait for his claim to be finally decided before going to court. The law
does not encourage unnecessary litigation.
PETITION for review by certiorari of a judgment of the Court of Appeals.

Ross, Selph, Carrascoso & Janda and Delfin L. Gonzalesfor petitioners.
Nabong & Sese for respondent.
REYES, A., J.:
On January 15, 1946, Atkin, Kroll & Co., loaded on the S. S. Roeph Silverlight owned and operated by Leigh Hoegh & Co., A/S, of
San Francisco California, 14 bales of assorted underwear valued at P8,085.23 consigned to Chia Yu in the City of Manila. The
shipment was insured against all risks by Eagle Star Ins. Co. of San Francisco, California, under a policy issued to the shipper and by
the latter assigned to the consignee. The vessel arrived in Manila on February 10, 1946, and on March 4 started discharging its cargo
into the custody of the Manila Terminal Co., Inc., which was then operating the arrastre service for the Bureau of Customs. But the 14
bales consigned to Chia Yu only 10 were delivered to him as the remaining 3 could not be found. Three of those delivered were also
found damaged to the extent of 50 per cent.
42
Chia Yu claimed indemnity for the missing and damaged bales. But the claim was declined, first, by the carrier and afterward by the
insurer, whereupon Chia Yu brought the present action against both, including their respective agents in the Philippines. Commenced
in the Court of First Instance of Manila on November 16, 1948, or more than two years after delivery of the damaged bales and the
date when the missing bales should have been delivered, the action was resisted by the defendants principally on the ground of
prescription. But the trial court found for plaintiff and rendered judgment in his favor for the sum claimed plus legal interest and costs.
The judgment was affirmed by the Court of Appeals, and the case is now before us on appeal by certiorari.
Except for the controversy as to the amount for which the carrier could be held liable under the terms of the bill of lading, the only
question presented for determination is whether plaintiff's action has prescribed.
On the part of the carrier the defense of prescription is made to rest on the following stipulation of the bill of lading:
In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought
within one year after the delivery of the goods or the date when the goods should have been delivered.
The stipulation is but a repetition of a provision contained in section 3 (6) of the United States Carriage of Goods by Sea, Act of 1936,
which was adopted and made applicable to the Philippines by Commonwealth Act 65 and by express agreement incorporated by
reference in the bill of lading. Following our decision in Chua Kuy vs. Everett Steamship Corporation,1 G. R. No L-5554 (May 27,
1953) and in E. R. Elser, Inc., et al., vs. Court of Appeals,. et al.,2 G. R. No. L-6517 (November 29, 1954) giving force and effect to
this kind of stipulation in bills of lading covering shipments from the United States to the Philippines, we have to hold that plaintiff's
failure to bring his action "within one year after the delivery of the goods or the date when the goods should have been delivered"
discharged the carrier from all liability. This dispenses with the necessity of deciding how much could be recovered from the carrier
under the terms of the bill of lading.
The case for the insurer stands on a different footing, for its claim of prescription is founded upon the terms of the policy and not upon
the bill of lading. Under our law the time limit for bringing a civil action upon a written contract is ten years after the right of action
accrues. (Sec. 43, Act 190; Art. 1144, New Civil Code.) But counsel for the insurer claim that this statutory in the policy:
No suit action on this Policy, for the recovery of any claim, shall be sustainable in any Court of law or equity unless the
insured shall have fully complied with all the terms and conditions of this Policy nor unless commenced with twelve (12)
months next after the happening of the loss . . .
To this we cannot agree.
In the case of E. Macias & Co. vs. China Fire Insurance & Co., Ltd., et al., 46 Phil. 345, relied upon by the insurer, this Court held
that a clause in an insurance policy providing that an action upon the policy by the insured must be brought within a certain time is, if
reasonable, valid and will prevail over statutory limitations of the action. That decision, however, was rendered before the passage of
Act 4101, which amended the Insurance Act by inserting the following section in chapter one thereof:
SEC. 61-A. — Any condition, stipulation or agreement in any policy of insurance, limiting the time for commencing an
action thereunder to a period of less than one year from the time when the cause of action accrues, is void.
As "matters respecting a remedy, such as the bringing of suit, admissibility of evidence, and statute of limitations, depend upon the
law of the place where the suit is brought" (Insular Government vs. Frank, 13 Phil. 236), any policy clause repugnant to this
amendment to the Insurance Act cannot be given effect in an action in our courts.
Examining the policy sued upon in the present case, we find that its prescriptive clause, if given effect in accordance with the terms of
the policy, would reduce the period allowed the insured for bringing his action to less than one year. This is so because the said clause
makes the prescriptive period begin from the happening of the loss and at the same time provides that the no suit on the policy shall be
sustainable in any court unless the insured shall have first fully complied with all the terms and conditions of the policy, among them
that which requires that, as so as the loss is determined, written claim therefor be filed with the carrier and that the letter to the carrier
and the latter's reply should be attached to the claim papers to be sent to the insurer. It is obvious that compliance with this condition
precedent will necessarily consume time and thus shorten the period for bringing suit to less than one year if the period is to begin, as
stated in the policy, from "the happening of the loss." Being contrary to the law of the forum, such stipulation cannot be given effect.
It may perhaps be suggested that the policy clause relied on by the insurer for defeating plaintiff's action should be given the
construction that would harmonize it with section 61-A of the Insurance Act by taking it to mean that the time given the insured for
bringing his suit is twelve months after the cause of action accrues. But the question then would be: When did the cause of action
43
accrue? On that question we agree with the court below that plaintiff's cause of action did not accrue until his claim was finally
rejected by the insurance company. This is because, before such final rejection, there was no real necessity for bringing suit. As the
policy provides that the insured should file his claim, first, with the carrier and then with the insurer, he had a right to wait for his
claim to be finally decided before going to court. The law does not encourages unnecessary litigation.
At this junction it should be explained that while the decision of the Court of Appeals states that the claim against the insurance
company "was finally rejected o April 22, 1947, as correctly concluded by the court below," it is obvious from the context and we find
it to be a fact that the date meant was April 22, 1948, for this was the date when, according to the finding of the trial court, the
insurance company in London rejected the claim. The trial court's decision says:
On September 21, 1946, after Roosevelt Steamship Agency Inc., and Manila Terminal Co., Inc., denied plaintiff's claim, a
formal insurance claim was filed with Kerr & Co., Ltd., local agents of Eagle Star Insurance Co., Ltd., (Exh. L.)Kerr & Co.,
Ltd., referred the insurance claim to Eagle Star Insurance Co., Ltd. in London but the latter, after insistent request of plaintiffs
for action, rejected the claim on April 22, 1948, giving as its reasons the lapse of the expiry day of the risks covered by the
policy and returned the claim documents only in August of 1948. (pp. 87-88, Record on Appeal.)
Furthermore, there is nothing in the record to show that the claim was rejected in the year 1947, either by the insurance company in
London or its settling agents in the Philippines, while on the other hand defendant's own Exhibit L-1 is indisputable proof that it was
on 22nd April 1948" that the settling agents informed the claimant "that after due and careful consideration, our Principals confirm our
declination of this claim." It not appearing that the settling agents' decision on claims against their principals were not subject to
reversal or modification by the latter, while on the contrary the insurance policy expressly stipulates, under the heading "Important
Notice," that the said agents "have authority to certify only as to the nature, cause and extent of the damage," and it furthermore
appearing that a reiteration of plaintiffs claim was made to the principals and the latter gave it due course since only "after due and
careful consideration" did they confirm the action taken by the agents, we conclude that, for the purpose of the present action, we
should consider plaintiff's claim to have been finally rejected by the insurer on April 22, 1948. Having been filed within twelve
months form that date, the action cannot be deemed to have prescribed even on the supposition that the period given the insured for
bringing suit under the prescriptive clause of the policy is twelve months after the accrual of the cause of action.
In concluding, we may state that contractual limitations contained in insurance policies are regarded with extreme jealousy by courts
and will be strictly construed against the insurer and should not be permitted to prevent a recovery when their just and honest
application would not produce that result. (46 C. J. S. 273.)
Wherefore, the judgment appealed from is reversed with respect to the carrier and its agents but affirmed with respect to the insurance
company and its agents, with costs against the latter.
44

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No. L-34200.

September 30, 1982.*

The facts are stated in the opinion of the Court.

The reason for the rule is not difficult to find.

G.R. No. 125678. March 18, 2002.*

The facts are stated in the opinion of the Court.

2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;

3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;

4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.

1. The insured has an insurable interest;

3. The insurer assumes the risk;

5. In consideration of the insurer’s promise, the insured pays a premium.8

Every person has an insurable interest in the life and health:

(1) of himself, of his spouse and of his children;

1. Prior notice of cancellation to insured;

No. L-41014. November 28, 1988.*

The facts are stated in the opinion of the Court.

On March 25, 1964, the (Supra, pp. 19-20).

SO ORDERED. (Record on Appeal, pp. 140-141)

RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN CONCLUDING FRAUD

(b) The record of the case is bereft of proof of such fraud.

RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN NOT INTERPRETING

RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN DISMISSING THE

G.R. No. 48049. June 29, 1989.*

PETITION for certiorari to review the decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Hence, this petition.

The contention is without merit.

The pertinent section in the Insurance Code provides:

As noted by the Court of Appeals, to wit:

xxx xxx xxx

xxx xxx xxx

xxx xxx xxx

We agree with the Court of Appeals which ruled:

G.R. No. 175666. July 29, 2013.*

G.R. No. 211212. June 8, 2016.*

1 Rollo, pp. 33-54.

5 Id., at pp. 6-7.

22 715 Phil. 404; 702 SCRA 417 (2013).

24 Rollo, pp. 14-15.

APPEAL from an order of the Court of First Instance of Zamboanga. Soriano, J.

PETITION to review the decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Workmen's Insurance Company, Inc. Manila, Philippines

Thank you for your attention, we wish to remain.

Very respectfully yours,

PACIFIC TIMBER EXPORT CORPORATION

(Sgd.) EMMANUEL S. ATILANO Asst. General Manager.

Petitioner assigned as errors of the Court of Appeals, the following:

G.R. No. 152334. September 24, 2014.*

1 Erroneously titled as Petition for Certiorari. (Rollo, pp. 10-31.)

16 Id., at pp. 130 and 137.

26 Dated September 3, 1991. (Id., at pp. 48-56.)

43 Id., at pp. 163-165.

52 Id., at pp. 198-199.

1. 2.PLEADING AND PRACTICE; LIMITATION OF ACTIONS; INSURANCE POLICY; CONTRACTUAL LIMITATION

1. 4.ID.; ID.; ID.; ID.; CAUSE OF ACTION ACCRUES AFTER CLAIM OF INSURER is FINALLY REJECTED BY THE

PETITION for review by certiorari of a judgment of the Court of Appeals.

To this we cannot agree.

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