April 2016 - Philippine Supreme Court Decisions/Resolutions
Philippine Supreme Court Jurisprudence
G.R. No. 195176, April 18, 2016 - THE INSULAR LIFE ASSURANCE COMPANY, LTD., Petitioner, v. PAZ Y. KHU, FELIPE Y. KHU, JR., AND FREDERICK Y. KHU, Respondents.
SECOND DIVISION
G.R. No. 195176, April 18, 2016
THE INSULAR LIFE ASSURANCE COMPANY, LTD., Petitioner, v. PAZ Y. KHU, FELIPE Y. KHU, JR., AND FREDERICK Y. KHU, Respondents.
D E C I S I O N
DEL CASTILLO, J.:
The date of last reinstatement mentioned in Section 48 of the Insurance Code pertains to the date that the insurer approved' the application for reinstatement. However, in light of the ambiguity in the insurance documents to this case, this Court adopts the interpretation favorable to the insured in determining the date when the reinstatement was approved.
Assailed in this Petition for Review on Certiorari1 are the June 24, 2010 Decision2 of the Court of Appeals (CA), which dismissed the Petition in CA-GR. CV No. 81730, and its December 13, 2010 Resolution,3 which denied the petitioner Insular Life Assurance Company Ltd.'s (Insular Life) motion for partial reconsideration.4
Factual Antecedents
On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular Life under the latter's Diamond Jubilee Insurance Plan. Felipe accomplished the required medical questionnaire wherein he did not declare any illness or adverse medical condition. Insular Life thereafter issued him Policy Number A000015683 with a face value of PI million. This took effect on June 22, 1997.5
On June 23, 1999, Felipe's policy lapsed due to non-payment of the premium covering the period from June 22, 1999 to June 23, 2000.6
On September 7, 1999, Felipe applied for the reinstatement of his policy and paid P25,020.00 as premium. Except for the change in his occupation of being self-employed to being the Municipal Mayor of Binuangan, Misamis Oriental, all the other information submitted by Felipe in his application for reinstatement was virtually identical to those mentioned in his original policy.7
On October 12, 1999, Insular Life advised Felipe that his application for reinstatement may only be considered if he agreed to certain conditions such as payment of additional premium and the cancellation of the riders pertaining to premium waiver and accidental death benefits. Felipe agreed to these conditions8 and on December 27, 1999 paid the agreed additional premium of P3,054.50.9
On January 7, 2000, Insular Life issued Endorsement No. PN-A000015683, which reads:
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This certifies that as agreed by the Insured, the reinstatement of this policy has been approved by the Company on the understanding that the following changes are made on the policy effective June 22, 1999:On June 23, 2000, Felipe paid the annual premium in the amount of P28,000.00 covering the period from June 22, 2000 to June 22, 2001. And on July 2, 2001, he also paid the same amount as annual premium covering the period from June 22,2001 to June 21, 2002.11
1. The EXTRA PREMIUM is imposed; and
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY (WPD) rider originally attached to and forming parts of this policy [are] deleted.
In consequence thereof, the premium rates on this policy are adjusted to P28,000.00 annually, P14,843.00 semi-annually and P7,557.00 quarterly, Philippine currency.10ChanRoblesVirtualawlibrary
On September 22, 2001, Felipe died. His Certificate of Death enumerated the following as causes of death:
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Immediate cause: a. End stage renal failure, Hepatic failureOn October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. .and Frederick Y. Khu (collectively, Felipe's beneficiaries or respondents) filed with Insular Life a claim for benefit under the reinstated policy. This claim was denied. Instead, Insular Life advised Felipe's beneficiaries that it had decided to rescind the reinstated policy on the grounds of concealment and misrepresentation by Felipe.
Antecedent cause: b. Congestive heart failure, Diffuse myocardial ischemia.
Underlying cause: c. Diabetes Neuropathy, Alcoholism, and Pneumonia.12ChanRoblesVirtualawlibrary
Hence, respondents instituted a complaint for specific performance with damages. Respondents prayed that the reinstated life insurance policy be declared valid, enforceable and binding on Insular Life; and that the latter be ordered to pay unto Felipe's beneficiaries the proceeeds of this policy, among others.13
In its Answer, Insular Life countered that Felipe did not disclose the ailments (viz., Type 2 Diabetes Mellitus, Diabetes Nephropathy and Alcoholic Liver Cirrhosis with Ascites) that he already had prior to his application for reinstatement of his insurance policy; and that it would not have reinstated the insurance policy had Felipe disclosed the material information on his adverse health condition. It contended that when Felipe died, the policy was still contestable.14
Ruling of the Regional Trial Court (RTC)
On December 12, 2003, the RTC, Branch 39 of Cagayan de Oro City found15 for Felipe's beneficiaries, thus:
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WHEREFORE, in view of the foregoing, plaintiffs having substantiated [their] claim by preponderance of evidence, judgment is hereby rendered in their favor and against defendants, ordering the latter to pay jointly and severally the sum of One Million (P1,000,000.00) Pesos with legal rate of interest from the date of demand until it is fully paid representing the face value of Plan Diamond Jubilee No. PN-A000015683 issued to insured the late Felipe N. Khu[,] Sr; the sum of P20.000.00 as moral damages; P30,000.00 as attorney's fees; P10,000.00 as litigation expenses.In ordering Insular Life to pay Felipe's beneficiaries, the RTC agreed with the latter's claim that the insurance policy was reinstated on June 22, 1999. The RTC cited the ruling in Malayan Insurance Corporation v. Court of Appeals17 that any ambiguity in a contract of insurance should be resolved strictly against the insurer upon the principle that an insurance contract is a contract of adhesion.18 The RTC also held that the reinstated insurance policy had already become incontestable by the time of Felipe's death on September 22, 2001 since more than two years had already lapsed from the date of the policy's reinstatement on June 22, 1999. The RTC noted that' since it was Insular Life itself that supplied all the pertinent forms relative to the reinstated policy, then it is barred from taking advantage of any ambiguity/obscurity perceived therein particularly as regards the date when the reinstated insurance policy became effective.
SO ORDERED.16ChanRoblesVirtualawlibrary
Ruling of the Court of Appeals
On June 24, 2010, the CA issued the assailed Decision19 which contained the following decretal portion:
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WHEREFORE, the appeal is DISMISSED. The assailed Judgment of the lower court is AFFIRMED with the MODIFICATION that the award of moral damages, attorney's fees and litigation expenses [is] DELETED.The CA upheld the RTC's ruling on the non-contestability of the reinstated insurance policy on the date the insured died. It declared that contrary to Insular Life's contention, there in fact exists a genuine ambiguity or obscurity in the language of the two documents prepared by Insular Life itself, viz., Felipe's Letter of Acceptance and Insular Life's Endorsement; that given the obscurity/ambiguity in the language of these two documents, the construction/interpretation that favors the insured's right to recover should be adopted; and that in keeping with this principle, the insurance policy in dispute must be deemed reinstated as of June 22, 1999.21
SO ORDERED.20ChanRoblesVirtualawlibrary
Insular Life moved for partial reconsideration22 but this was denied by the CA in its Resolution of December 13, 2010.23 Hence, the present Petition.
The fundamental issue to be resolved in this case is whether Felipe's reinstated life insurance policy is already incontestable at the time of his death.
Petitioner's Arguments
In praying for the reversal of the CA Decision, Insular Life basically argues that respondents should not be allowed to recover on the reinstated insurance policy because the two-year contestability period had not yet lapsed inasmuch as the insurance policy was reinstated only on December 27, 1999, whereas Felipe died on September 22, 2001;24 that the CA overlooked the fact that Felipe paid the additional extra premium only on December 27, 1999, hence, it is only upon this date that the reinstated policy had become effective; that the CA erred in declaring that resort to the principles of statutory construction is still necessary to resolve that question given that the Application for Reinstatement, the Letter of Acceptance and the Endorsement in and by themselves already embodied unequivocal provisions stipulating that the two-year contestability clause should be reckoned from the date of approval of the reinstatement;25 and that Felipe's misrepresentation and concealment of material facts in regard to his health or adverse medical condition gave it (Insular Life) the right to rescind the contract of insurance and consequently, the right to deny the claim of Felipe's beneficiaries for death benefits under the disputed policy.26
Respondents'Arguments
Respondents maintain that the phrase "effective June 22, 1999" found in both the Letter of Acceptance and in the Endorsement is unclear whether it refers to the subject of the sentence, i.e., the "reinstatement of this policy" or to the subsequent phrase "changes are made on the policy;" that granting that there was any obscurity or ambiguity in the insurance policy, the same, should be laid at the door of Insular Life as it was this insurance company that prepared the necessary documents that make up the same;27 and that given the CA's .finding which effectively affirmed the RTC's finding on this particular issue, it stands to reason that the insurance policy had indeed become incontestable upon the date of Felipe's death.28
We deny the Petition.
The Insurance Code pertinently provides that:
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Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the commencement of an action on the contract.The rationale for this provision was discussed by the Court in Manila Bankers Life Insurance Corporation v. Aban,29
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.
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.In Lalican v. The Insular Life Assurance Company, Limited,30 which coincidentally also involves the herein petitioner, it was there held that the reinstatement of the insured's policy is to be reckoned from the date when the application was processed and approved by the insurer. There, we stressed that:
x x x x
The Court therefore agrees fully with the appellate court's pronouncement that-
x x x x
'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'.
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To reinstate a policy means to restore the same to premium-paying status after it has been permitted to lapse. x x xThus, it is settled that the reinstatement of an insurance policy should be reckoned from the date when the same was approved by the insurer.
x x x x
In the instant case, Eulogio's death rendered impossible full compliance with the conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed to file his Application for Reinstatement and deposit the amount for payment of his overdue premiums and interests thereon with Malaluan; but Policy No. 9011992 could only be considered reinstated after the Application for Reinstatement had been processed and approved by Insular Life during Eulogio's lifetime and good health.31ChanRoblesVirtualawlibrary
In this case, the parties differ as to when the reinstatement was actually approved. Insular Life claims that it approved the reinstatement only on December 27, 1999. On the other hand, respondents contend that it was on June 22, 1999 that the reinstatement took effect.
The resolution of this issue hinges on the following documents: 1) Letter of Acceptance; and 2) the Endorsement.
The Letter of Acceptance32 wherein Felipe affixed his signature was actually drafted and prepared by Insular Life. This pro-forma document reads as follows:
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LETTER OF ACCEPTANCE