G.R. No. 48049 – EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners, vs. THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondents.
GUTIERREZ, JR., J.
Rule Synopsis
An insurance contract may be rescinded on grounds of false representations or concealment of material facts within the two-year incontestability period, regardless of whether the insured was still alive or not.
Facts
Tan Lee Siong (petitioners’ father) had a life insurance policy with The American Life Insurance Co. (TALI) effective November 6, 1973. About 17 months after, on April 26, 1975, he died of hepatoma. The petitioners filed a claim with TALI but the latter denied on ground of alleged misrepresentation and concealment of material facts made by Tan in his application. The insurer cancelled the policy and refunded the premiums on September 11, 1975.
The petitioners thus filed a complaint with the Insurance Commissioner. They contended, among others, that the insurer “no longer had the right to rescind the contract of insurance as rescission must allegedly be done during the lifetime of the insured within two years and prior to the commencement of action.”
The IC dismissed the complaint. The CA dismissed the appeal. Judgement affirmed by the SC, the insurer was held not liable.
Issues
- May the insurer still rescind the insurance contract if the insured died within the incontestability period, i.e. within 2 years after the policy was issued?
- Was there no concealment or misrepresentation on the part of Tan given that he did not have to buy insurance and was only pressured by insistent salesmen to do so?
Ruling and Discussion
- Yes. The insurer may still rescind the insurance contract if the insured died within the incontestability period, i.e. within 2 years after the policy was issued.
Section 48 of the Insurance Code provides:
Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent.
According to the petitioners, the insurer must exercise its right to rescind during the lifetime of the insured and the within the 2-year incontestability period.
The SC held that the phrase “during the lifetime” found in Section 48 simply means that the policy is no longer considered in force after the insured has died. The key phrase in the second paragraph of Section 48 is “for a period of two years.
The insurer has two years from the date of issuance of the insurance contract or of its last reinstatement within which to contest the policy, whether or not, the insured still lives within such period. After two years, the defenses of concealment or misrepresentation, no matter how patent or well founded, no longer lie.
The legislative intent behind Sec. 48 is to prevent the insurance companies from avoiding liabilities by employing various tactics such as pressuring the a person to take an insurance by means of salesmanship. - No. There was no concealment or misrepresentation on the part of Tan given that he did not have to buy insurance and was only pressured by insistent salesmen to do so. Tan was guilty of misrepresentation.
The petitioners argued that the insurer failed to show that the questions in the application were explained and understood by the insured. The Court did not heed the argument. By signing the application form, Tan, a businessmen is presumed to understand its terms. He is presumed to take ordinary care of his concerns.
The records show that Tan had at least two consultations on January and December 1973 where he was found diabetic and hypertensive. By concealing these health conditions, the insurer was misled into accepting the risk and approving his application as medically standard and dispensing with further medical investigation and examination.
The Court agreed with the CA that there is no basis for the application of the “fine print” or “contract of adhesion” rule. There is no showing that the questions in the application form for insurance regarding the insured’s medical history are in smaller print than the rest of the printed form or that they are designed in such a way as to conceal from the applicant their importance.
Dispositive
Petition denied. Decision affirmed.