G.R. No. 229256 - De Guzman vs. Office of the Ombudsman

Case Summary (G.R. No. 229256)

Key Dates and Documentary Background

Policy issued: October 28, 1999 (face value P300,000). Death of insured: February 19, 2001 (within two-year contestability period). September 3, 2001: petitioner denied claim and tendered premium refund of P13,080.93 by check. September 13, 2001: respondent refused the refund check. October 4, 2002: petitioner filed complaint for rescission before the RTC. RTC decision: November 30, 2005 (ruled for respondents, awarded P300,000 with 6% interest from October 4, 2002). CA decision: October 17, 2007 (reversed RTC, granted rescission for petitioner and ordered refund of premium P13,080.93 with 12% interest per annum from time of death). CA resolution denying reconsideration: June 12, 2008. Supreme Court decision modified CA: reimburse P13,080.93 within 15 days or else bear 6% per annum interest.

Factual Antecedents

Norberto applied for a life insurance policy and answered "No" to whether he had smoked within the prior 12 months. Medical records and affidavits from physicians (Dr. Chua, Dr. Ledesma) reflected that Norberto had been a smoker and had stopped only in August 1999, making the "No" answer untrue when he applied on October 28, 1999. Petitioner’s underwriters contend that had accurate information been provided, the policy would not have been approved. Upon discovering the undisclosed smoking history, petitioner rescinded the policy and tendered the refund of premiums to respondents, who refused the tender and sought the policy proceeds instead.

RTC Finding and Rationale

The RTC found in favor of respondents, concluding that petitioner had cleared the insured of any misrepresentation because petitioner’s examining physician and agent had conducted examinations and the agent answered “No” to knowledge of adverse risk factors. The RTC treated the physicians’ affidavits as hearsay because the affiants did not testify. The RTC further held that petitioner failed to comply with requirements for rescission and therefore ordered payment of the policy face amount (P300,000) with 6% interest from October 4, 2002.

CA Finding and Rationale

The Court of Appeals reversed the RTC, finding that Norberto was guilty of concealment of material facts (smoking history) which justified rescission of the insurance contract. The CA considered the medical records admitted under Rule 26 (Request for Admission) because respondents failed to deny the matters within the time allowed, thereby deeming the medical records and physicians’ affidavits admitted. The CA therefore ordered petitioner to reimburse the premium paid (P13,080.93) with interest at 12% per annum from the time of the insured’s death until fully paid.

Sole Legal Issue Presented

Whether petitioner is liable to pay interest on the premium to be refunded to respondents, and if so, the proper rate and period for such interest.

Parties’ Contentions on Interest

Petitioner: argued no interest should be imposed because it timely and directly tendered the premium refund (which respondents rejected), it did not delay or unjustifiably withhold payment, and therefore should not be penalized with interest; relied on Tio Khe Chio (1991) as instructive on interest in insurance cases. Respondents: argued the premium refund is a money obligation and thus subject to 12% interest per annum; contended that their refusal to accept tender did not waive their rights and that petitioner should have consigned the refund in court if it wanted to avoid liability for interest.

Legal Framework and Relevant Authorities

Insurance Code Section 48 (two-year contestability rule for life insurance policies).
Insurance Code Sections 243–244 (payment of loss or damage and interest for unreasonable denial/withholding, applied generally to non-life policies and litigation).
New Civil Code Article 2209 (legal interest of 6% per annum when debtor in delay and no stipulation) and Article 2212 (interest due shall earn legal interest from time judicially demanded).
Rules of Court, Rule 26 (Request for Admission and deemed admissions).
Distinction between monetary interest (stipulated for use or forbearance of money) and compensatory interest (penalty or indemnity for damages imposed by law or court).
Jurisprudence cited in the decision: Tio Khe Chio (pertaining to marine insurance and insurer delay), Philamcare (requirements for cancellation/rescission in health care/insurance contexts), Nacar v. Gallery Frames (on consequences if insurer fails to pay within prescribed period — forbearance leading to legal interest), Asia Trust Development Bank v. Tuble, and Siga-an v. Villanueva (on nature of interest and stipulation).

Court’s Analysis on Precedent Applicability

The Supreme Court determined that Tio Khe Chio, which addressed interest in the context of unpaid insurance proceeds (and involved Sections 243–244 of the Insurance Code and Article 2209), was not controlling because that case dealt with insurer delay or unreasonable denial of proceeds. In contrast, this case involves refund of premiums following a valid rescission for concealment by the insured and an early tender of refund by the insurer that respondents refused. Therefore the circumstances differ materially from cases where the insurer unjustifiably withheld proceeds.

Court’s Analysis on Nature of the Interest Imposed by the CA

The Court emphasized the distinction between monetary interest (contractual, for use/forbearance agreed in writing) and compensatory interest (legal indemnity for breach or delay). Because no written stipulation for monetary interest existed, and because the CA’s formula (12% per annum from time of death) reflected compensatory interest, the Court treated the CA-imposed interest as compensatory. Compensatory interest requires proof that the obligor failed to comply with the obligation and was in delay.

Court’s Analysis on Whether Compensatory Interest Was Proper

The Supreme Court found that petitioner had not failed in its obligation: upon discovering misrepresentation, petitioner timely notified respondents of rescission and tendered the premium refund by check. Respondents rejected the tender, electing to pursue the policy proceeds. After fi

Case Syllabus (G.R. No. 229256)

Case Details and Procedural Posture

Supreme Court Second Division decision reported at 745 Phil. 482; 111 OG No. 19, 2708 (May 11, 2015); G.R. No. 183272, October 15, 2014.
The appeal is a Petition for Review on Certiorari from the Court of Appeals (CA) Decision dated October 17, 2007 in CA-G.R. CV No. 86923 and the CA Resolution dated June 12, 2008 denying petitions for reconsideration.
The sole question presented to the Supreme Court was whether petitioner Sun Life of Canada (Philippines), Inc. (petitioner) is liable to pay interest on the premium (P13,080.93) to be refunded to respondents Sandra Tan Kit (respondent Tan Kit) and the Estate of the Deceased Norberto Tan Kit (respondent estate).

Factual Antecedents

Norberto Tan Kit applied for a life insurance policy with petitioner; Policy No. 030500710 was issued on October 28, 1999 with a face amount of P300,000.00.
Norberto died on February 19, 2001 of disseminated gastric carcinoma — within the two-year contestability period provided under Section 48 of the Insurance Code.
In his application, Norberto answered "No" to whether he had smoked cigarettes or cigars within the last 12 months prior to application.
Medical records and a medical report of Dr. Anna Chua indicate that Norberto was a smoker and had only stopped smoking in August 1999.
Petitioner’s position: Norberto concealed material information (smoking history) that would have affected underwriting; petitioner would not have approved the policy with correct information and therefore treated the policy as rescindable and limited liability to refund of premiums paid.
On September 3, 2001, petitioner denied the claim and enclosed a check for P13,080.93 representing the premium refund.
On September 13, 2001, respondent Tan Kit refused the check and demanded payment of policy proceeds.
Petitioner instituted an action for Rescission of Insurance Contract before the Regional Trial Court (RTC) of Makati City on October 4, 2002.

RTC Findings and Ruling (Makati RTC, November 30, 2005)

The RTC noted that petitioner’s physician Dr. Charity Salvador conducted a medical examination of Norberto.
Petitioner’s agent Irma Joy E. Javelosa answered "No" to being aware of any adverse lifestyle, habits, medical history or risk factors regarding the life to be insured in her Agent’s Report; Javelosa had known Norberto for two years prior to application approval.
The RTC concluded that petitioner, through its agent and physician, had effectively cleared Norberto of any misrepresentation he may have made.
The RTC found the affidavit of Dr. Chua to be hearsay because Dr. Chua did not testify in court, and held that because Norberto had a subsisting policy with petitioner at the time of application, petitioner had the duty to ascertain his condition given the extra burden assumed.
The RTC held petitioner did not comply with requirements for rescission under the test articulated in Philamcare Health Systems, Inc. v. Court of Appeals (429 Phil. 82, 93 (2002)).
Dispositive RTC order: judgment for respondents for the P300,000.00 policy face amount with interest at six percent (6%) per annum from October 4, 2002 until fully paid; costs de oficio.
Petitioner’s motion for reconsideration in the RTC was denied on February 15, 2006; petitioner appealed to the Court of Appeals.

Court of Appeals Decision (October 17, 2007) and Resolution (June 12, 2008)

The CA reversed the RTC and found Norberto guilty of concealment:
- CA relied on medical consultations showing Norberto told Dr. Anna Chua (on August 19, 2000) and Dr. John Ledesma (on December 28, 2000) that he had stopped smoking only in 1999, which contradicted his application answer and indicated he had smoked within 12 months prior to the October 28, 1999 application.
- The CA held that concealment misled petitioner’s underwriting and afforded petitioner the right to rescind the contract.
The CA applied Rule 26 (Request for Admission) and concluded respondents had effectively admitted the content of Norberto’s medical records by failing to deny them within the prescribed period; as admissions, the medical records and physician affidavits were admissible and not hearsay for CA purposes.
Dispositive CA order: grant of complaint for rescission; petitioner ordered to reimburse respondents P13,080.93 (premium refund) with interest at 12% per annum from the time of death of the insured until fully paid.
Separate motions for reconsideration by petitioner