3rd Batch of Cases for Midterm Insurance
Content
D. INSURABLE INTEREST
Spouses Cha v. Court of Appeals
Facts:
Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with
private respondent CKS Development Corporation (hereinafter CKS), as lessor, on 5 October
1988.
One of the stipulations of the one (1) year lease contract states:
"18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and
effects placed at any stall or store or space in the leased premises without first obtaining the
written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof
without the consent of the LESSOR then the policy is deemed assigned and transferred to the
LESSOR for its own benefit; . . .”
Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss
by fire their merchandise inside the leased premises for Five Hundred Thousand (P500,000.00)
with the United Insurance Co., Inc. (hereinafter United) without the written consent of private
respondent CKS.
On the day that the lease contract was to expire, fire broke out inside the leased premises.
When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it
wrote the insurer (United) a demand letter asking that the proceeds of the insurance contract
(between the Cha spouses and United) be paid directly to CKS, based on its lease contract with
the Cha spouses.
United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and
United.
RTC ordered United to pay CKS and the Cha spouses
CA affirmed but deleted the awards for exemplary and attorney’s fee.
Issue/s:
WON, the aforequoted paragraph 18 of the lease contract entered into between CKS and the Cha
spouses is valid insofar as it provides that any fire insurance policy obtained by the lessee (Cha
spouses) over their merchandise inside the leased premises is deemed assigned or transferred to
the lessor (CKS) if said policy is obtained without the prior written consent of the latter.
Held/Ratio:
It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be
contrary to law, morals, good customs, public order or public policy.
Sec. 18 of the Insurance Code provides:
"Sec. 18. No contract or policy of insurance on property shall be enforceable except for the
benefit of some person having an insurable interest in the property insured."
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses
over their merchandise is primarily a contract of indemnity. Insurable interest in the property
insured must exist at the time the insurance takes effect and at the time the loss occurs. 4
The basis of such requirement of insurable interest in property insured is based on sound
public policy: to prevent a person from taking out an insurance policy on property upon
which he has no insurable interest and collecting the proceeds of said policy in case of loss
of the property. In such a case, the contract of insurance is a mere wager which is void
under Section 25 of the Insurance Code, which provides:
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"Section 25. Every stipulation in a policy of Insurance for the payment of loss whether the
person insured has or has not any interest in the property insured, or that the policy shall be
received as proof of such interest, and every policy executed by way of gaming or wagering,
is void."
In the present case, it cannot be denied that CKS has no insurable interest in the goods and
merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code
which provide:
"Section 17. The measure of an insurable interest in property is the extent to which the
insured might be damnified by loss of injury thereof.”
Therefore, respondent CKS cannot, under the Insurance Code — a special law — be validly a
beneficiary of the fire insurance policy taken by the petitioner-spouses over their merchandise. This
insurable interest over said merchandise remains with the insured, the Cha spouses. The
automatic assignment of the policy to CKS under the provision of the lease contract previously
quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance
policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The
insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a person
(CKS) who has no insurable interest in the property insured.
The liability of the Cha spouses to CKS for violating their lease contract in that the Cha spouses
obtained a fire insurance policy over their own merchandise, without the consent of CKS, is a
separate and distinct issue which we do not resolve in this case.
Great Pacific Life Insurance Corp v. Court of Appeals, 316 SCRA 677
Facts:
A contract of group life insurance was executed between petitioner Great Pacific Life Assurance
Corporation (hereinafter Grepalife) and Development Bank of the Philippines (hereinafter DBP).
Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP.
On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for
membership in the group life insurance plan. In an application form, Dr. Leuterio answered
questions concerning his health condition as follows:
"7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure,
cancer, diabetes, lung, kidney or stomach disorder or any other physical impairment?
Answer: No. If so give details ___________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [ x ] Yes [ ] No."
On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance coverage of Dr.
Leuterio, to the extent of his DBP mortgage indebtedness amounting to eighty-six thousand, two
hundred (P86,200.00) pesos.
On August 6, 1984, Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP
submitted a death claim to Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not
physically healthy when he applied for an insurance coverage on November 15, 1983. Grepalife
insisted that Dr. Leuterio did not disclose he had been suffering from hypertension, which caused
his death. Allegedly, such non-disclosure constituted concealment that justified the denial of the
claim.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a
complaint with the Regional Trial Court of Misamis Oriental, Branch 18, against Grepalife for
"Specific Performance with Damages." During the trial, Dr. Hernando Mejia, who issued the death
certificate, was called to testify. Dr. Mejia's findings, based partly from the information given by the
respondent widow, stated that Dr. Leuterio complained of headaches presumably due to high blood
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pressure. The inference was not conclusive because Dr. Leuterio was not autopsied, hence, other
causes were not ruled out.
RTC ruled against Grepalife. CA sustained. Hence, this petition.
Issue/s:
1. WON, CA erred in holding Grepalife liable to DBP as beneficiary in a group life insurance
contract from a complaint filed by the widow of the decedent/mortgagor?
2. WON, CA erred in not finding that Dr. Leuterio concealed that he had hypertension, which would
vitiate the insurance contract?
Held/Ratio:
Grepalife alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in
interest, hence the trial court acquired no jurisdiction over the case. It argues that when the Court
of Appeals affirmed the trial court's judgment, Grepalife was held liable to pay the proceeds of
insurance contract in favor of DBP, the indispensable party who was not joined in the suit.
1) To resolve the issue, we must consider the insurable interest in mortgaged properties and the
parties to this type of contract. The rationale of a group insurance policy of mortgagors, otherwise
known as the "mortgage redemption insurance," is a device for the protection of both the
mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of
contract so that in the event of the unexpected demise of the mortgagor during the subsistence of
the mortgage contract, the proceeds from such insurance will be applied to the payment of the
mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. In a similar
vein, ample protection is given to the mortgagor under such a concept so that in the event of death;
the mortgage obligation will be extinguished by the application of the insurance proceeds to the
mortgage indebtedness. Consequently, where the mortgagor pays the insurance premium under
the group insurance policy, making the loss payable to the mortgagee, the insurance is on the
mortgagor's interest, and the mortgagor continues to be a party to the contract. In this type of
policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable
clause does not make the mortgagee a party to the contract.
Section 8 of the Insurance Code provides:
"Unless the policy provides, where a mortgagor of property effects insurance in his own name
providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a
mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not
cease to be a party to the original contract, and any act of his, prior to the loss, which would
otherwise avoid the insurance, will have the same effect, although the property is in the hands
of the mortgagee, but any act which, under the contract of insurance, is to be performed by the
mortgagor, may be performed by the mortgagee therein named, with the same effect as if it had
been performed by the mortgagor.”
The insured Dr. Leuterio did not cede to the mortgagee all his rights or interests in the insurance,
the policy stating that: "In the event of the debtor's death before his indebtedness with the Creditor
[DBP] shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid
to the creditor and the balance of sum assured, if there is any, shall then be paid to the
beneficiary/ies designated by the debtor." When DBP submitted the insurance claim against
Grepalife, the latter denied payment thereof, interposing the defense of concealment committed by
the insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary action
of foreclosure on the residential lot of private respondent. In Gonzales La O vs. Yek Tong Lin Fire &
Marine Ins. Co. we held:
"Insured, being the person with whom the contract was made, is primarily the proper person
to bring suit thereon. . . . Subject to some exceptions, insured may thus sue, although the
policy is taken wholly or in part for the benefit of another person named or unnamed, and
although it is expressly made payable to another as his interest may appear or otherwise. . . .
Although a policy issued to a mortgagor is taken out for the benefit of the mortgagee and is
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made payable to him, yet the mortgagor may sue thereon in his own name, especially where
the mortgagee's interest is less than the full amount recoverable under the policy, . . . .'
And in volume 33, page 82, of the same work, we read the following:
'Insured may be regarded as the real party in interest, although he has assigned the policy for the
purpose of collection, or has assigned as collateral security any judgment he may obtain.”
And since a policy of insurance upon life or health may pass by transfer, will or succession to any
person, whether he has an insurable interest or not, and such person may recover it whatever the
insured might have recovered, the widow of the decedent Dr. Leuterio may file the suit against the
insurer, Grepalife.
2) The second assigned error refers to an alleged concealment that the Grepalife interposed as its
defense to annul the insurance contract. Grepalife contends that Dr. Leuterio failed to disclose that
he had hypertension, which might have caused his death. Concealment exists where the assured
had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that
he should communicate it to the assured, but he designedly and intentionally withholds the same.
Grepalife merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as
supported by the information given by the widow of the decedent. Grepalife asserts that Dr. Mejia's
technical diagnosis of the cause of death of Dr. Leuterio was a duly documented hospital record,
and that the widow's declaration that her husband had "possible hypertension several years ago"
should not be considered as hearsay, but as part of res gestae.
On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an
autopsy on the body of the decedent. As the attending physician, Dr. Mejia stated that he had no
knowledge of Dr. Leuterio's any previous hospital confinement. Dr. Leuterio's death certificate
stated that hypertension was only "the possible cause of death." The private respondent's
statement, as to the medical history of her husband, was due to her unreliable recollection of
events. Hence, the statement of the physician was properly considered by the trial court as
hearsay.
The question of whether there was concealment was aptly answered by the appellate court, thus:
"The insured, Dr. Leuterio, had answered in his insurance application that he was in good health
and that he had not consulted a doctor or any of the enumerated ailments, including hypertension;
when he died the attending physician had certified in the death certificate that the former died of
cerebral hemorrhage, probably secondary to hypertension. From this report, the appellant
insurance company refused to pay the insurance claim. Appellant alleged that the insured had
concealed the fact that he had hypertension.
Contrary to appellant's allegations, there was no sufficient proof that the insured had suffered from
hypertension. Aside from the statement of the insured's widow who was not even sure if the
medicines taken by Dr. Leuterio were for hypertension, the appellant had not proven nor produced
any witness who could attest to Dr. Leuterio's medical history. . .
xxx xxx xxx
Appellant insurance company had failed to establish that there was concealment made by the
insured, hence, it cannot refuse payment of the claim.”
The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind
the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon
the insurer. In the case at bar, the Grepalife failed to clearly and satisfactorily establish its defense,
and is therefore liable to pay the proceeds of the insurance.
And that brings us to the last point in the review of the case at bar. Grepalife claims that there was
no evidence as to the amount of Dr. Leuterio's outstanding indebtedness to DBP at the time of the
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mortgagor's death. Hence, for private respondent's failure to establish the same, the action for
specific performance should be dismissed. Grepalife's claim is without merit. A life insurance policy
is a valued policy. Unless the interest of a person insured is susceptible of exact pecuniary
measurement, the measure of indemnity under a policy of insurance upon life or health is the sum
fixed in the policy. The mortgagor paid the premium according to the coverage of his insurance,
which states that:
"The policy states that upon receipt of due proof of the Debtor's death during the terms of this
insurance, a death benefit in the amount of P86,200.00 shall be paid. cda
In the event of the debtor's death before his indebtedness with the creditor shall have been fully
paid, an amount to pay the outstanding indebtedness shall first be paid to the Creditor and the
balance of the Sum Assured, if there is any shall then be paid to the beneficiary/ies designated by
the debtor.”
However, we noted that the Court of Appeals' decision was promulgated on May 17, 1993. In
private respondent's memorandum, she states that DBP foreclosed in 1995 their residential lot, in
satisfaction of mortgagor's outstanding loan. Considering this supervening event, the insurance
proceeds shall inure to the benefit of the heirs of the deceased person or his beneficiaries. Equity
dictates that DBP should not unjustly enrich itself at the expense of another (Nemo cum alterius
detrimenio protest). Hence, it cannot collect the insurance proceeds, after it already foreclosed on
the mortgage. The proceeds now rightly belong to Dr. Leuterio's heirs represented by his widow,
herein private respondent Medarda Leuterio.
G. INCONTESTABLE CLAUSE
45. Tan v. Court of Appeals, 174 SCRA 403
Facts:
Tan appeal from the Decision of the Insurance Commissioner dismissing herein Tans' complaint
against respondent Philippine American Life Insurance Company for the recovery of the proceeds
of Policy No. 1082467 in the amount of P80,000.00.
On September 23, 1973, Tan Lee Siong, father of herein Tans, applied for life insurance in the
amount of P80,000.00 with respondent company. Said application was approved and Policy No.
1082467 was issued effective November 6, 1973, with Tans the beneficiaries thereof.
On April 26, 1975, Tan Lee Siong died of hepatoma. Tans 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 Tans' 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. The premiums paid on the policy were thereupon refunded.
The Tans filed a complaint before the Insurance Commission. It rendered judgment against Tan.
CA affirmed.
Hence, this petition.
Issue/s:
WON the insurer 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.
Held/Ratio:
The pertinent section in the Insurance Code provides:
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"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 rescindible
by reason of the fraudulent concealment or misrepresentation of the insured or his agent."
According to the Tans, 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 Tans 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 Tans 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 P80,000.00. If
his purpose were to misrepresent and to conceal his ailments in anticipation of death during the
two-year period, he certainly could have gotten a bigger insurance. He did not.
"Insurer Philamlife could have presented as witness its Medical Examiner Dr. Urbano Guinto. It
was he who accomplished the application, Part II, medical. Philamlife did not.
"Philamlife could have put to the witness stand its Agent Bievenido S. Guinto, a relative to Dr.
Guinto, Again Philamlife did not." (pp. 138-139, Rollo)
xxx xxx xxx
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 application.'
"
" '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.' “
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" '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 Tans 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 Tans' 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 Tans 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 Tans 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, Tans argue that no evidence was presented by respondent company to show
that the questions appearing in Part II of the application for insurance were asked, explained to and
understood by the deceased so as to prove concealment on his part. The same is not well taken.
The deceased, by affixing his signature on the application form, affirmed the correctness of all the
entries and answers appearing therein. It is but to be expected that he, a businessman, would not
have affixed his signature on the application form unless he clearly understood its significance. For,
the presumption is that a person intends the ordinary consequence of his voluntary act and takes
ordinary care of his concerns. [Sec. 5(c) and (d), Rule 131, Rules of Court].
"The evidence for respondent company shows that on September 19, 1972, the deceased was
examined by Dr. Victoriano Lim and was found to be diabetic and hypertensive; that by January,
1973, the deceased was complaining of progressive weight loss and abdominal pain and was
diagnosed to be suffering from hepatoma, (t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another
physician, Dr. Wenceslao Vitug, testified that the deceased came to see him on December 14,
1973 for consultation 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, and applicant for insurance is presumed to be healthy
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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 Tans 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
Tans' 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.
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Spouses Cha v. Court of Appeals
Facts:
Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with
private respondent CKS Development Corporation (hereinafter CKS), as lessor, on 5 October
1988.
One of the stipulations of the one (1) year lease contract states:
"18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and
effects placed at any stall or store or space in the leased premises without first obtaining the
written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof
without the consent of the LESSOR then the policy is deemed assigned and transferred to the
LESSOR for its own benefit; . . .”
Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss
by fire their merchandise inside the leased premises for Five Hundred Thousand (P500,000.00)
with the United Insurance Co., Inc. (hereinafter United) without the written consent of private
respondent CKS.
On the day that the lease contract was to expire, fire broke out inside the leased premises.
When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it
wrote the insurer (United) a demand letter asking that the proceeds of the insurance contract
(between the Cha spouses and United) be paid directly to CKS, based on its lease contract with
the Cha spouses.
United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and
United.
RTC ordered United to pay CKS and the Cha spouses
CA affirmed but deleted the awards for exemplary and attorney’s fee.
Issue/s:
WON, the aforequoted paragraph 18 of the lease contract entered into between CKS and the Cha
spouses is valid insofar as it provides that any fire insurance policy obtained by the lessee (Cha
spouses) over their merchandise inside the leased premises is deemed assigned or transferred to
the lessor (CKS) if said policy is obtained without the prior written consent of the latter.
Held/Ratio:
It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be
contrary to law, morals, good customs, public order or public policy.
Sec. 18 of the Insurance Code provides:
"Sec. 18. No contract or policy of insurance on property shall be enforceable except for the
benefit of some person having an insurable interest in the property insured."
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses
over their merchandise is primarily a contract of indemnity. Insurable interest in the property
insured must exist at the time the insurance takes effect and at the time the loss occurs. 4
The basis of such requirement of insurable interest in property insured is based on sound
public policy: to prevent a person from taking out an insurance policy on property upon
which he has no insurable interest and collecting the proceeds of said policy in case of loss
of the property. In such a case, the contract of insurance is a mere wager which is void
under Section 25 of the Insurance Code, which provides:
Page 1 of 8
"Section 25. Every stipulation in a policy of Insurance for the payment of loss whether the
person insured has or has not any interest in the property insured, or that the policy shall be
received as proof of such interest, and every policy executed by way of gaming or wagering,
is void."
In the present case, it cannot be denied that CKS has no insurable interest in the goods and
merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code
which provide:
"Section 17. The measure of an insurable interest in property is the extent to which the
insured might be damnified by loss of injury thereof.”
Therefore, respondent CKS cannot, under the Insurance Code — a special law — be validly a
beneficiary of the fire insurance policy taken by the petitioner-spouses over their merchandise. This
insurable interest over said merchandise remains with the insured, the Cha spouses. The
automatic assignment of the policy to CKS under the provision of the lease contract previously
quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance
policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The
insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a person
(CKS) who has no insurable interest in the property insured.
The liability of the Cha spouses to CKS for violating their lease contract in that the Cha spouses
obtained a fire insurance policy over their own merchandise, without the consent of CKS, is a
separate and distinct issue which we do not resolve in this case.
Great Pacific Life Insurance Corp v. Court of Appeals, 316 SCRA 677
Facts:
A contract of group life insurance was executed between petitioner Great Pacific Life Assurance
Corporation (hereinafter Grepalife) and Development Bank of the Philippines (hereinafter DBP).
Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP.
On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for
membership in the group life insurance plan. In an application form, Dr. Leuterio answered
questions concerning his health condition as follows:
"7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure,
cancer, diabetes, lung, kidney or stomach disorder or any other physical impairment?
Answer: No. If so give details ___________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [ x ] Yes [ ] No."
On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance coverage of Dr.
Leuterio, to the extent of his DBP mortgage indebtedness amounting to eighty-six thousand, two
hundred (P86,200.00) pesos.
On August 6, 1984, Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP
submitted a death claim to Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not
physically healthy when he applied for an insurance coverage on November 15, 1983. Grepalife
insisted that Dr. Leuterio did not disclose he had been suffering from hypertension, which caused
his death. Allegedly, such non-disclosure constituted concealment that justified the denial of the
claim.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a
complaint with the Regional Trial Court of Misamis Oriental, Branch 18, against Grepalife for
"Specific Performance with Damages." During the trial, Dr. Hernando Mejia, who issued the death
certificate, was called to testify. Dr. Mejia's findings, based partly from the information given by the
respondent widow, stated that Dr. Leuterio complained of headaches presumably due to high blood
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pressure. The inference was not conclusive because Dr. Leuterio was not autopsied, hence, other
causes were not ruled out.
RTC ruled against Grepalife. CA sustained. Hence, this petition.
Issue/s:
1. WON, CA erred in holding Grepalife liable to DBP as beneficiary in a group life insurance
contract from a complaint filed by the widow of the decedent/mortgagor?
2. WON, CA erred in not finding that Dr. Leuterio concealed that he had hypertension, which would
vitiate the insurance contract?
Held/Ratio:
Grepalife alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in
interest, hence the trial court acquired no jurisdiction over the case. It argues that when the Court
of Appeals affirmed the trial court's judgment, Grepalife was held liable to pay the proceeds of
insurance contract in favor of DBP, the indispensable party who was not joined in the suit.
1) To resolve the issue, we must consider the insurable interest in mortgaged properties and the
parties to this type of contract. The rationale of a group insurance policy of mortgagors, otherwise
known as the "mortgage redemption insurance," is a device for the protection of both the
mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of
contract so that in the event of the unexpected demise of the mortgagor during the subsistence of
the mortgage contract, the proceeds from such insurance will be applied to the payment of the
mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. In a similar
vein, ample protection is given to the mortgagor under such a concept so that in the event of death;
the mortgage obligation will be extinguished by the application of the insurance proceeds to the
mortgage indebtedness. Consequently, where the mortgagor pays the insurance premium under
the group insurance policy, making the loss payable to the mortgagee, the insurance is on the
mortgagor's interest, and the mortgagor continues to be a party to the contract. In this type of
policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable
clause does not make the mortgagee a party to the contract.
Section 8 of the Insurance Code provides:
"Unless the policy provides, where a mortgagor of property effects insurance in his own name
providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a
mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not
cease to be a party to the original contract, and any act of his, prior to the loss, which would
otherwise avoid the insurance, will have the same effect, although the property is in the hands
of the mortgagee, but any act which, under the contract of insurance, is to be performed by the
mortgagor, may be performed by the mortgagee therein named, with the same effect as if it had
been performed by the mortgagor.”
The insured Dr. Leuterio did not cede to the mortgagee all his rights or interests in the insurance,
the policy stating that: "In the event of the debtor's death before his indebtedness with the Creditor
[DBP] shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid
to the creditor and the balance of sum assured, if there is any, shall then be paid to the
beneficiary/ies designated by the debtor." When DBP submitted the insurance claim against
Grepalife, the latter denied payment thereof, interposing the defense of concealment committed by
the insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary action
of foreclosure on the residential lot of private respondent. In Gonzales La O vs. Yek Tong Lin Fire &
Marine Ins. Co. we held:
"Insured, being the person with whom the contract was made, is primarily the proper person
to bring suit thereon. . . . Subject to some exceptions, insured may thus sue, although the
policy is taken wholly or in part for the benefit of another person named or unnamed, and
although it is expressly made payable to another as his interest may appear or otherwise. . . .
Although a policy issued to a mortgagor is taken out for the benefit of the mortgagee and is
Page 3 of 8
made payable to him, yet the mortgagor may sue thereon in his own name, especially where
the mortgagee's interest is less than the full amount recoverable under the policy, . . . .'
And in volume 33, page 82, of the same work, we read the following:
'Insured may be regarded as the real party in interest, although he has assigned the policy for the
purpose of collection, or has assigned as collateral security any judgment he may obtain.”
And since a policy of insurance upon life or health may pass by transfer, will or succession to any
person, whether he has an insurable interest or not, and such person may recover it whatever the
insured might have recovered, the widow of the decedent Dr. Leuterio may file the suit against the
insurer, Grepalife.
2) The second assigned error refers to an alleged concealment that the Grepalife interposed as its
defense to annul the insurance contract. Grepalife contends that Dr. Leuterio failed to disclose that
he had hypertension, which might have caused his death. Concealment exists where the assured
had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that
he should communicate it to the assured, but he designedly and intentionally withholds the same.
Grepalife merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as
supported by the information given by the widow of the decedent. Grepalife asserts that Dr. Mejia's
technical diagnosis of the cause of death of Dr. Leuterio was a duly documented hospital record,
and that the widow's declaration that her husband had "possible hypertension several years ago"
should not be considered as hearsay, but as part of res gestae.
On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an
autopsy on the body of the decedent. As the attending physician, Dr. Mejia stated that he had no
knowledge of Dr. Leuterio's any previous hospital confinement. Dr. Leuterio's death certificate
stated that hypertension was only "the possible cause of death." The private respondent's
statement, as to the medical history of her husband, was due to her unreliable recollection of
events. Hence, the statement of the physician was properly considered by the trial court as
hearsay.
The question of whether there was concealment was aptly answered by the appellate court, thus:
"The insured, Dr. Leuterio, had answered in his insurance application that he was in good health
and that he had not consulted a doctor or any of the enumerated ailments, including hypertension;
when he died the attending physician had certified in the death certificate that the former died of
cerebral hemorrhage, probably secondary to hypertension. From this report, the appellant
insurance company refused to pay the insurance claim. Appellant alleged that the insured had
concealed the fact that he had hypertension.
Contrary to appellant's allegations, there was no sufficient proof that the insured had suffered from
hypertension. Aside from the statement of the insured's widow who was not even sure if the
medicines taken by Dr. Leuterio were for hypertension, the appellant had not proven nor produced
any witness who could attest to Dr. Leuterio's medical history. . .
xxx xxx xxx
Appellant insurance company had failed to establish that there was concealment made by the
insured, hence, it cannot refuse payment of the claim.”
The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind
the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon
the insurer. In the case at bar, the Grepalife failed to clearly and satisfactorily establish its defense,
and is therefore liable to pay the proceeds of the insurance.
And that brings us to the last point in the review of the case at bar. Grepalife claims that there was
no evidence as to the amount of Dr. Leuterio's outstanding indebtedness to DBP at the time of the
Page 4 of 8
mortgagor's death. Hence, for private respondent's failure to establish the same, the action for
specific performance should be dismissed. Grepalife's claim is without merit. A life insurance policy
is a valued policy. Unless the interest of a person insured is susceptible of exact pecuniary
measurement, the measure of indemnity under a policy of insurance upon life or health is the sum
fixed in the policy. The mortgagor paid the premium according to the coverage of his insurance,
which states that:
"The policy states that upon receipt of due proof of the Debtor's death during the terms of this
insurance, a death benefit in the amount of P86,200.00 shall be paid. cda
In the event of the debtor's death before his indebtedness with the creditor shall have been fully
paid, an amount to pay the outstanding indebtedness shall first be paid to the Creditor and the
balance of the Sum Assured, if there is any shall then be paid to the beneficiary/ies designated by
the debtor.”
However, we noted that the Court of Appeals' decision was promulgated on May 17, 1993. In
private respondent's memorandum, she states that DBP foreclosed in 1995 their residential lot, in
satisfaction of mortgagor's outstanding loan. Considering this supervening event, the insurance
proceeds shall inure to the benefit of the heirs of the deceased person or his beneficiaries. Equity
dictates that DBP should not unjustly enrich itself at the expense of another (Nemo cum alterius
detrimenio protest). Hence, it cannot collect the insurance proceeds, after it already foreclosed on
the mortgage. The proceeds now rightly belong to Dr. Leuterio's heirs represented by his widow,
herein private respondent Medarda Leuterio.
G. INCONTESTABLE CLAUSE
45. Tan v. Court of Appeals, 174 SCRA 403
Facts:
Tan appeal from the Decision of the Insurance Commissioner dismissing herein Tans' complaint
against respondent Philippine American Life Insurance Company for the recovery of the proceeds
of Policy No. 1082467 in the amount of P80,000.00.
On September 23, 1973, Tan Lee Siong, father of herein Tans, applied for life insurance in the
amount of P80,000.00 with respondent company. Said application was approved and Policy No.
1082467 was issued effective November 6, 1973, with Tans the beneficiaries thereof.
On April 26, 1975, Tan Lee Siong died of hepatoma. Tans 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 Tans' 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. The premiums paid on the policy were thereupon refunded.
The Tans filed a complaint before the Insurance Commission. It rendered judgment against Tan.
CA affirmed.
Hence, this petition.
Issue/s:
WON the insurer 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.
Held/Ratio:
The pertinent section in the Insurance Code provides:
Page 5 of 8
"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 rescindible
by reason of the fraudulent concealment or misrepresentation of the insured or his agent."
According to the Tans, 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 Tans 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 Tans 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 P80,000.00. If
his purpose were to misrepresent and to conceal his ailments in anticipation of death during the
two-year period, he certainly could have gotten a bigger insurance. He did not.
"Insurer Philamlife could have presented as witness its Medical Examiner Dr. Urbano Guinto. It
was he who accomplished the application, Part II, medical. Philamlife did not.
"Philamlife could have put to the witness stand its Agent Bievenido S. Guinto, a relative to Dr.
Guinto, Again Philamlife did not." (pp. 138-139, Rollo)
xxx xxx xxx
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 application.'
"
" '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.' “
Page 6 of 8
" '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 Tans 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 Tans' 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 Tans 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 Tans 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, Tans argue that no evidence was presented by respondent company to show
that the questions appearing in Part II of the application for insurance were asked, explained to and
understood by the deceased so as to prove concealment on his part. The same is not well taken.
The deceased, by affixing his signature on the application form, affirmed the correctness of all the
entries and answers appearing therein. It is but to be expected that he, a businessman, would not
have affixed his signature on the application form unless he clearly understood its significance. For,
the presumption is that a person intends the ordinary consequence of his voluntary act and takes
ordinary care of his concerns. [Sec. 5(c) and (d), Rule 131, Rules of Court].
"The evidence for respondent company shows that on September 19, 1972, the deceased was
examined by Dr. Victoriano Lim and was found to be diabetic and hypertensive; that by January,
1973, the deceased was complaining of progressive weight loss and abdominal pain and was
diagnosed to be suffering from hepatoma, (t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another
physician, Dr. Wenceslao Vitug, testified that the deceased came to see him on December 14,
1973 for consultation 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, and applicant for insurance is presumed to be healthy
Page 7 of 8
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 Tans 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
Tans' 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.
Page 8 of 8
