Tan v CA G.R. No. 48049 June 29, 1989

J. Gutierrez Jr.

Facts:

Tan Lee Siong, father of the petitioners, applied for life insurance in the amount of P 80,000.00 with Philamlife. It was approved. Tan Lee Siong died of hepatoma. Petitioners then filed a claim for the proceeds. The company denied petitioners' claim and rescinded the policy by reason of the alleged misrepresentation and concealment of material facts. The premiums paid on the policy were refunded. The petitioners filed a complaint in the Insurance Commission. The latter dismissed the complaint.

The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner's decision for lack of merit. Hence, this petition.

Issue:

WON Philam didn’t have 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: No. Petition dismissed.

Ratio:

The Insurance Code states in 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.”

The so-called "incontestability clause"  in the second paragraph prevents the insurer from raising the defenses of false representations 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 policy was 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.

The "incontestability clause" added by the second paragraph of Section 48 is in force for two years. After this, the defenses of concealment or misrepresentation no longer lie.

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 also 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. This couldn’t be accepted because the insured signed the form. He affirmed the correctness of all the entries.

The company records show that the deceased was examined by Dr. Victoriano Lim and was found to be diabetic and hypertensive. He was also found to have suffered from hepatoma. Because of the concealment made by the deceased, the company was thus misled into accepting the risk and approving his application as medically fit.