Tan v. Court of Appeals
NEW DOCTRINEFacts
The Antecedents: Petitioners are beneficiaries of a life insurance policy issued to their late father, Tan Lee Siong, by respondent Philippine American Life Insurance Company for P80,000.00. The policy was effective November 6, 1973. Tan Lee Siong died of hepatoma on April 26, 1975. Petitioners filed a claim for the proceeds, but the respondent company rescinded the policy and refunded the premiums, alleging misrepresentation and concealment of material facts by the deceased in his application. Procedural History: Petitioners filed a complaint with the Office of the Insurance Commissioner, which dismissed their complaint. The Court of Appeals affirmed the Insurance Commissioner's decision. The Petition: Petitioners seek review of the Court of Appeals' decision, raising issues regarding the insurer's right to rescind the policy after the insured's death, the validity of rescission based on concealment contrary to the policy, and whether the insurer was misled.
Issue(s)
Whether the respondent insurer has the right to rescind the policy contract after the insured is already dead. Whether the respondent insurer may be allowed to avoid the policy on grounds of concealment by the deceased assured, contrary to the policy provisions and applicable law. Whether the respondent insurer was misled in issuing the policy.
Ruling
The petition is denied for lack of merit. The questioned decision of the Court of Appeals is affirmed.
Ratio Decidendi
On the right to rescind after the insured's death: The Court reiterated that Section 48 of the Insurance Code provides that the insurer's right to rescind must be exercised previous to the commencement of an action on the contract. The second paragraph states that after a policy has been in force for two years during the lifetime of the insured, the insurer cannot prove it is void ab initio due to fraudulent concealment or misrepresentation. In this case, the policy was issued on November 6, 1973, and the insured died on April 26, 1975, meaning the policy was in force for only one year and five months. Since the insured died before the two-year period lapsed, the respondent company was not barred from proving that the policy was void ab initio due to fraudulent concealment or misrepresentation. Furthermore, the rescission occurred on September 11, 1975, which was prior to the commencement of the action on November 27, 1975, satisfying the requirement of Section 48. On concealment by the deceased assured: The Court affirmed the Court of Appeals' ruling that the deceased, by affixing his signature on the application form, affirmed the correctness of all entries and answers therein. It is presumed that a businessman would not sign unless he understood the significance, and the presumption is that a person intends the ordinary consequence of his voluntary act. Evidence showed the deceased had been diagnosed with diabetes and hypertension prior to the application and was later diagnosed with hepatoma. The concealment of these consultations and treatments misled the respondent company into accepting the risk as medically standard and dispensing with further medical investigation. The Court rejected the petitioners' argument that the insurer should have presented its medical examiners as witnesses, noting that the insurer's evidence sufficiently established the concealment. On whether the insurer was misled: The Court found no strong showing to apply the "fine print" or "contract of adhesion" rule. The questions regarding the insured's medical history were not shown to be in smaller print or designed to conceal their importance. The Court noted that the petitioners failed to discharge their burden of showing that the factual findings of the respondent court were not based on substantial evidence or that its conclusions were contrary to applicable law and jurisprudence. The Court also addressed the petitioners' contention regarding "whirlwind pressure" salesmanship, stating that while this practice is recognized, the legislative answer is the "incontestability clause" in Section 48, which provides a two-year period for the insurer to contest. The petitioners' interpretation that rescission is barred after death within two years would lead to an incongruous situation where beneficiaries could collect even if the insured fraudulently concealed material facts.
Main Doctrine
Under Section 48 of the Insurance Code, an insurer has two years from the date of issuance or last reinstatement of a life insurance policy to contest its validity due to fraudulent concealment or misrepresentation. This period is counted during the lifetime of the insured. If the insured dies within this two-year period, the insurer is not barred from proving the policy is void ab initio. The rescission must be exercised prior to the commencement of an action on the contract.