No. L-20552 – FILIPINAS LIFE ASSURANCE Co., ET AL., petitioners, vs. GONZALO P. NAVA, respondent.
BAUTISTA ANGELO, J.
Rule Synopsis
On the nature of the contractual relation between the insured and the insurer. Insurance policies establish contractual relations whereby the insured is deemed to be a debtor of the insurer for premiums.
On violation of insurance contract provisions. Violation of material policy conditions by the insurer entitles the insured to rescind, and recover full amount of premiums paid.
Note that the usual case is that it is the insured who violated a provision in the insurance contract. In this case, it is the insurer that violated the same.
Facts
Nava took out 18 life insurances — 1 from Insular Life, and 17 from Filipinas Life Assurance. The policies uniformly provide for loan clauses stating that Nava is entitled to a policy loan, equal to or less than the policies’ cash surrender values, upon payment of 3 full years of premium (without default). Nava completed 3 years of premium payments to both insurers. Thus, he applied for a loan in accordance withe aforementioned loan clause. However, the insurers refused to grant the same on the ground that the regulation issued by the Insurance Commission on May 20, 1946 required insurance companies to withhold the payments on premiums made during the Japanese occupation because the same shall be subject to future adjustments “as soon as debtor-creditor relationship is established” and because of such process of “withholding” Nava was not entitled to borrow any amount until such adjustment has been made. On September 1948, Nava again reiterated his application, then citing the SC’s decision in the case of Haw Pia v. China Banking Corporation establishing and recognizing the relationship of debtor and creditor with respect to payments in fiat currency made during the Japanese occupation on pre-war obligations. His loan application remained unheeded.
Nava then brought an action before the CFI for the rescission of the policies and the refund of the premiums paid.
The CFI rescinded the insurance contracts and ordered Filipinas and Insular to pay the amounts paid as premium. The CA affirmed. The SC affirmed.
Issues
- Did the insurers violate the loan clause in the insurance policies entitling Nava to their rescission, on the strength of the ruling in the Haw Pia case?
- Should the insurers refund the total amount of premiums paid by Nava based on Art. 1295, or just their cash surrender values?
Ruling and Discussion
- Yes. The insurers violated the loan clause in the insurance policies entitling Nava to their rescission.
The aforestated regulation issued by the Insurance Commissioner has already lost its legal effect and value when on April 9, 1948 our Supreme Court rendered its decision in the Haw Pia case wherein it was declared, among others, that all payments made in fiat currency during the Japanese occupation in relation with any contractual obligation (debtor-creditor relationship) executed before the war were valid to all intents and purposes.
The insurers content that the Haw Pia ruling finds no application in the valuation of premium payments in Japanese military notes during the war on life insurance policies because the insured is by no means a debtor of the insurer and vice versa.
The SC held that a life insurance policy involves a contractual obligation where the insured is obligated to pay premiums of the insurer, otherwise the policy will lapse. And for such purposes, the insured is deemed to be a debtor of the insurer. In other words, insurance policies are in the nature of a contractual obligation within the meaning of the civil law.
Given such, according to the Haw Pia case, the payments made by Nava should be considered as valid payments. This leaves the insurers no excuse to refuse granting him as policy loans requested.
Furthermore, the regulation of the Insurance Commissioner invoked by the insurers was of doubtful validity in relation to its effect to suspend the effectivity of a provision embodied in a valid insurance policy. In such case, it would partake the nature of an impairment of the obligations of contracts in violation of the Constitutional provision.
For violation of the loan clause by the insurer, the insured is entitled to rescind the subject policies. Basis: Sec. 69 of the Insurance Act – “[t]he violation of a material warranty, or other material provision of a policy, on the part of either party thereto, entitles the other to rescind.” - The insurers refund the total amount of premiums paid by Nava based on Art. 1295.
The insurers argued that Nava is entitled merely to the cash surrender value of the policies given that the latter was in effect during the subject period, that the insurers had assumed the risk of his death, and that to return to him the all the premiums paid would constitute unjust enrichment.
The SC said — considering that our Insurance Law (then) did not contain an express provision as to what the court should do in cases of rescission of an insurance policy under Section 69, the provision that should apply is that embodied in Article 1295 of the old Civil Code. It states, in part: “[r]escission makes necessary the return of the things which were the subject-matter of the contract, with their fruits, and of the price paid, with interest thereon.”
Dispositive
Decision affirmed.