Case Summary (G.R. No. 183272)
Factual Background
The insured, Norberto Tan Kit, applied for a life insurance policy with face value P300,000 on October 28, 1999. He answered “No” to an application question whether he had smoked within the prior twelve months. Norberto died of disseminated gastric carcinoma on February 19, 2001, within the two-year contestability period under Section 48 of the Insurance Code. Medical records and physician affidavits showed that Norberto had been a smoker and had stopped only in August 1999. Petitioner asserted that the insured concealed material information and would not have issued the policy had the truth been known. Petitioner treated the policy as rescinded, tendered a premium refund in the amount of P13,080.93 with its September 3, 2001 denial letter, and thereafter filed a complaint for rescission.
RTC Proceedings and Ruling
The Regional Trial Court found in favor of respondents. The RTC noted that petitioner conducted a medical examination and that petitioner’s agent had lived with knowledge of the insured’s background. The RTC ruled that the affidavit of Dr. Anna Chua was hearsay because she did not testify in court. The RTC held that petitioner had not complied with the conditions for rescission as articulated in Philamcare Health Systems, Inc. v. Court of Appeals, and concluded that petitioner had not proved misrepresentation or concealment. The RTC ordered petitioner to pay the policy face amount P300,000 with interest at six percent per annum from October 4, 2002.
CA Proceedings and Ruling
On appeal, the Court of Appeals reversed. The CA found that medical records and physician statements showed that Norberto had smoked within the year prior to application and thus had concealed material facts. The CA held that respondents had failed to deny the medical records after service of a Rule 26 Request for Admission, so those records were deemed admitted. The CA concluded that petitioner validly rescinded the policy and ordered petitioner to reimburse respondents P13,080.93 with interest at twelve percent per annum from the time of the insured’s death until fully paid.
Procedural Posture and Question Presented
Petitioner moved for reconsideration before the CA, which the CA denied. Petitioner then filed a Petition for Review on Certiorari to the Supreme Court. The sole legal issue presented to the Supreme Court was whether petitioner was liable to pay interest on the premium to be refunded to respondents, and if so, from what date and at what rate.
Parties’ Contentions on Interest
Petitioner contended that no interest should attach because it timely and directly tendered the premium refund and respondents rejected that tender in favor of pursuing the proceeds; petitioner relied on Tio Khe Chio v. Court of Appeals to argue that interest attaches only where an insurer unreasonably withholds or delays payment pursuant to Sections 243 and 244 of the Insurance Code and Article 2209. Respondents argued that the premium refund constituted a money obligation giving rise to interest and that the CA correctly imposed twelve percent per annum as compensatory interest; respondents explained their refusal of the tender as a choice to pursue the proceeds and suggested consignation would have been proper if petitioner wished to avoid dispute.
Characterization of Interest and Governing Principles
The Court distinguished monetary interest from compensatory interest. Monetary interest is contractual and due only when expressly stipulated in writing. Compensatory interest is a legal or judicial indemnity for damages and is governed by Article 2209 and Article 2212 of the New Civil Code. The Court observed that the CA’s order imposing twelve percent per annum was compensatory in character because it was not based on any written stipulation and it was expressed as damages for delay from the time of death of the insured.
Analysis of Whether Petitioner Was Liable for Compensatory Interest
The Court held that compensatory interest is due only when the obligor failed to comply with an obligation. Here, petitioner had promptly tendered the premium refund simultaneously with the notice of rescission and attached a check for P13,080.93. Respondents refused the tender because they sought the policy proceeds. Petitioner then instituted judicial rescission. The CA ultimately vindicated petitioner’s rescission. The Court found that petitioner did not unreasonably deny or withhold payment and did not incur delay entitling respondents to compensatory interest. Consequently, the CA erred in imposing compensatory interest from the date of death.
Remedy Ordered and Interest in Case of Nonpayment
The Court modified the CA decision. It ordered petitioner to reimburse respondents P13,080.93 within fifteen days from the finality of the Supreme Court decision. The Court provided that if petitioner failed to pay within the prescribed period, the amount would be deemed a forbearance of credit and would therea
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Case Syllabus (G.R. No. 183272)
Parties and Procedural Posture
- Sun Life of Canada (Philippines), Inc. is the petitioner before this Court and insurer of the subject policy.
- Sandra Tan Kit is the widow and designated beneficiary, and the Estate of the Deceased Norberto Tan Kit is the co-respondent.
- The Regional Trial Court of Makati City rendered judgment awarding respondents PHP 300,000 with interest at six percent per annum from October 4, 2002.
- The Court of Appeals reversed the RTC, granted rescission, ordered refund of premiums in the amount of PHP 13,080.93, and imposed interest at 12% per annum from the time of death until fully paid.
- The CA denied motions for reconsideration and petitioner filed this Petition for Review on Certiorari raising only the question of interest on the premium refund.
Key Factual Allegations
- The insured, Norberto, applied for the policy on October 28, 1999, and a life policy with face value PHP 300,000 was issued.
- Norberto died on February 19, 2001, which was within the two-year contestability period under Section 48 of the Insurance Code.
- The insurance application contained a negative answer to the question whether the applicant had smoked within the past 12 months.
- Medical records and physicians’ affidavits indicated that Norberto had been a smoker and stopped only in 1999.
- Petitioner denied the claim by letter dated September 3, 2001, tendered a check for PHP 13,080.93 as premium refund, and respondents refused the tender.
- Petitioner filed a complaint for rescission on October 4, 2002, after respondents rejected the refunded premium.
Lower Court Rulings
- The RTC found that petitioner failed to prove actionable misrepresentation or concealment, discredited certain physicians’ affidavits as hearsay, applied Philamcare Health Systems, Inc. v. Court of Appeals, and ordered payment of the policy face value with interest.
- The Court of Appeals found concealment by the insured, deemed medical records admitted under Rule 26, rescinded the policy, awarded refund of premiums of PHP 13,080.93, and imposed interest at 12% per annum from the time of death until fully paid.
- The CA denied the parties’ motions for reconsideration and made the award final before the filing of this petition.
Issues Presented
- Whether petitioner is liable to pay interest on the refunded premium.
- If interest is due, what is the nature of such interest and from what date should it be reckoned.