Title
Tan vs. Court of Appeals
Case
G.R. No. L-48049
Decision Date
Jun 29, 1989
Insured's death within two-year incontestability period allowed insurer to rescind policy due to material concealment of medical history.
life insurance policy
incontestability clause
two years

Case Summary (G.R. No. L-48049)

Factual Background

The petitioners were named beneficiaries under Policy No. 1082467 issued by The Philippine American Life Insurance Company for PHP 80,000 upon the application of their father, Tan Lee Siong. The policy was issued effective November 6, 1973. The insured died on April 26, 1975 of hepatoma. The petitioners presented a claim for the policy proceeds. The insurer denied the claim and rescinded the policy on the ground of alleged misrepresentation and concealment of material facts in the application, and refunded the premiums.

Administrative Proceedings

The petitioners filed a complaint with the Office of the Insurance Commissioner on November 27, 1975, docketed as I.C. Case No. 218, seeking recovery of the policy proceeds. After hearing the parties, the Insurance Commissioner dismissed the petitioners’ complaint by decision dated August 9, 1977. The petitioners appealed to the Court of Appeals, which affirmed the Insurance Commissioner’s dismissal.

Issues Presented

The petitioners presented three principal assignments of error: (A) that the insurer lacked the right to rescind the life policy after the insured’s death and that rescission must be exercised during the insured’s lifetime; (B) that avoidance of the policy on grounds of concealment by the deceased was contrary to the policy terms and applicable law; and (C) that the Court of Appeals’ inference that the insurer was misled in issuing the policy was manifestly mistaken and contrary to the admitted evidence.

Petitioners’ Contentions

The petitioners argued that the second paragraph of Section 48, Insurance Code (the incontestability clause) barred the insurer from asserting fraudulent misrepresentation or concealment after two years from issuance, and that rescission must be exercised during the insured’s lifetime and prior to action. They further contended that the insured had been pressured by agents to procure the insurance, that the insured was a man of means who had no motive to conceal ailments, and that the insurer failed to produce its medical examiners or agent witnesses to prove concealment. The petitioners also invoked the doctrine against enforcement of fine-print conditions in adhesion contracts to argue that the insurer should bear the burden of proving the insured’s understanding of medical questions in the application.

Respondent’s Defenses and Evidence

The insurer relied on evidence that the policy had been in force for only one year and five months at the time of the insured’s death, and that it rescinded the policy and refunded premiums on September 11, 1975, before the petitioners commenced administrative action on November 27, 1975. The insurer presented medical evidence showing prior diagnoses and consultations for diabetes, hypertension, progressive weight loss, abdominal pain, and hepatoma by physicians who examined or treated the insured before and shortly after the policy issuance. The insurer maintained that the insured’s application contained signed answers affirming the correctness of the entries and that the concealment of adverse medical history had misled the insurer into accepting the risk and dispensing with further medical investigation.

Court of Appeals’ Findings

The Court of Appeals found that the policy was not in force for the two-year period required by the incontestability clause because it had been issued on November 6, 1973 and the insured died on April 26, 1975, a period of one year and five months. The Court noted that the insurer exercised its right to rescind and refunded premiums on September 11, 1975 prior to the filing of the administrative complaint. The Court also accepted the insurer’s medical evidence that the insured had earlier consultations and diagnoses for conditions material to risk assessment, and concluded that the insurer had been misled by nondisclosure.

Supreme Court’s Analysis and Reasoning

The Supreme Court reviewed the Insurance Commissioner’s and Court of Appeals’ findings for substantial evidence and conformity with law. The Court interpreted Section 48, Insurance Code to mean that the insurer’s right to contest on grounds of fraudulent concealment or misrepresentation was barred only after the policy had been in force during the insured’s lifetime for a period of two years from issue or last reinstatement. Because the policy here had not reached the two-year mark at the time of death, the Court found that the insurer was not barred from proving the policy void ab initio. The Court also deemed the insurer’s rescission timely because it occurred prior to the commencement of action. The Court sustained the factual finding that the insured had concealed material medical history, relying on medical testimony and documentary exhibits and on the legal presumption that a person intends the ordinary consequences of a voluntary act, including the affixing of his signature on the application. The Court rejected the petitioners’ contention that the insurer’s failure to produce the medical examiner or agent compelled a finding for petitioners. The Court further declined to apply the fine-print or contract

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