Case Summary (G.R. No. 175666)
Trial Court Ruling
Bankers Life sued for rescission/annulment on grounds of fraud and lack of insurable interest. Aban moved to dismiss, invoking Insurance Code § 48’s two-year incontestability period. The RTC granted dismissal on December 9, 1997, holding that Sotero validly procured insurance and designated a beneficiary, and that more than two years had elapsed, barring any challenge to the policy. Motion for reconsideration was denied October 20, 1998.
Court of Appeals Ruling
On appeal, the CA affirmed the RTC. It held that once a life policy has been in force for two years during the insured’s lifetime, the insurer cannot prove voidness or rescission due to fraud, concealment or misrepresentation. The CA dismissed the appeal for lack of merit on September 28, 2005, and denied reconsideration November 9, 2006.
Issues Presented
- Whether the CA erred in applying prescription under Insurance Code § 48 to bar the insurer’s cause of action.
- Whether the CA erred in affirming the incontestability provision’s application.
- Whether the CA erred in denying the insurer’s motion for reconsideration.
Parties’ Contentions
Petitioner argued § 48 does not apply where the beneficiary, not the insured, obtained the policy fraudulently and lacked insurable interest; the policy was void ab initio, thus not subject to prescription. Respondent maintained that Sotero validly procured the policy, insurable interest existed, and § 48 barred any attack after two years; attempts to invoke void-ab-initio were new and improperly raised.
Supreme Court’s Analysis
- Factual Finding. The SC declined to disturb RTC and CA findings that Sotero personally took out the policy and designated Aban as beneficiary. Fraud allegations were undermined by this binding finding of fact.
- Incontestability Clause. Under Insurance Code § 48, an insurer has two years from policy issuance, while the insured is alive, to discover and prove fraud, concealment or misrepresentation. After that period—whether by lapse of time or death of the insured—the insurer must honor valid claims regardless of any pre-issuance fraud.
- Policy of the Law. Section 48 balances insurer diligence against insured protection. It deters reckless underwriting and shields beneficiari
Case Syllabus (G.R. No. 175666)
Factual Antecedents
- On July 3, 1993, Delia Sotero applied for and secured Life Insurance Policy No. 747411 from Manila Bankers Life Insurance Corporation, with a face value of ₱100,000.00, designating her niece, Cresencia P. Aban, as beneficiary.
- The policy was issued on August 30, 1993, following Sotero’s medical examination and payment of the initial premium.
- Sotero, allegedly illiterate, sickly since 1990, and without visible means to pay premiums, died on April 10, 1996—over two years and seven months after the policy’s issuance.
- On July 9, 1996, Aban filed a claim for the death benefits. Bankers Life investigated and concluded that Sotero did not personally apply, did not sign the application, lacked financial capacity, and that Aban had orchestrated the application and designated herself as beneficiary.
- On April 16, 1997, the insurer denied the claim and refunded all paid premiums.
Procedural History
- April 24, 1997: Bankers Life filed Civil Case No. 97-867 for rescission and/or annulment of the policy on grounds of fraud, concealment, and misrepresentation (Civil Code, Art. 1390) in the Makati RTC, Branch 134.
- Respondent moved to dismiss, invoking Section 48 of the Insurance Code, which bars insurer challenges to life policies after two years of effectivity.
- May 5, 1998: Inspector’s testimony revealed that the insurance underwriter was related to Aban’s husband and that Aban paid the annual premiums.
- December 9, 1997 & October 20, 1998: RTC granted the Motion to Dismiss and denied reconsideration, holding the cause of action prescribed under Sec. 48.
- Bankers Life appealed to the Court of Appeals (CA-G.R. CV No. 62286), arguing void ab initio for want of insurable interest.
- September 28, 2005: CA affirmed the RTC dismissal, applying Sec. 48’s incontestability clause.
- November 9, 2006: CA denied petitioner’s motion for reconsideration.
- The insurer filed a petition for review on certiorari before the Supreme Court.
Issues
- Did the CA err in sustaining the RTC