Sun Life of Canada v. Tan Kit
REITERATIONFacts
The Antecedents: Norberto Tan Kit (Norberto) applied for a life insurance policy with Sun Life of Canada (Philippines), Inc. (Sun Life) on October 28, 1999, with Sandra Tan Kit (Sandra) as the beneficiary. In his application, Norberto stated he had not smoked cigarettes or cigars within the last 12 months. On February 19, 2001, within the two-year contestability period, Norberto died of disseminated gastric carcinoma. Sandra filed a claim, but Sun Life denied it on September 3, 2001, asserting that Norberto concealed his smoking history. Medical records revealed Norberto was a smoker who only stopped in August 1999. Sun Life tendered a check for P13,080.93 representing the premium refund, which Sandra refused, insisting on the full insurance proceeds. Procedural History: Sun Life filed a Complaint for Rescission of Insurance Contract before the Regional Trial Court (RTC) of Makati City. The RTC ruled in favor of the respondents, ordering Sun Life to pay the P300,000 face value plus 6% interest, finding the medical records to be hearsay. On appeal, the Court of Appeals (CA) reversed the RTC, ruling that Norberto was guilty of concealment. The CA upheld the rescission but ordered Sun Life to reimburse the premiums with 12% interest per annum reckoned from the time of the insured's death until fully paid. The Petition: Sun Life filed a Petition for Review on Certiorari under Rule 45 of the Rules of Court, specifically assailing the CA's imposition of 12% interest on the premium refund. Sun Life argued that it was not in delay as it had timely tendered the refund, which the respondents rejected. Respondents countered that the refund was a money obligation arising from a forbearance of money, justifying the 12% interest rate.
Issue(s)
Whether the petitioner is liable to pay compensatory interest on the insurance premium to be refunded to the respondents. Whether the Court of Appeals correctly imposed a 12% interest rate from the time of the insured's death, and if not, what is the correct interest rate and from when should it be applied.
Ruling
The Petition is GRANTED. The Decision of the Court of Appeals is MODIFIED. Sun Life of Canada (Philippines), Inc. is ordered to reimburse the sum of P13,080.93 representing the premium paid within fifteen (15) days from the date of finality of the Decision. If the amount is not reimbursed within said period, it shall earn interest at the rate of 6% per annum until fully paid.
Ratio Decidendi
On the liability for compensatory interest: The Supreme Court (SC) ruled that Sun Life is not liable for compensatory interest because it did not incur delay (mora). Under Article 2209 of the Civil Code, interest as indemnity for damages is only due when the debtor is in delay. In this case, Sun Life tendered the premium refund check simultaneously with its notice of rescission in September 2001. The respondents' refusal to accept the check because they were pursuing the full insurance proceeds meant that Sun Life had fulfilled its obligation to return the premiums. Since the insurer did not unjustifiably withhold the money, there is no legal basis to impose a penalty in the form of compensatory interest from the date of death. On the nature of the interest and the applicable rate: The Court distinguished between monetary interest (agreed upon for the use of money) and compensatory interest (penalty for delay). The interest imposed by the CA was compensatory, but it was incorrectly applied because Sun Life was not in default. Furthermore, the 12% rate was erroneous because a premium refund is not a 'forbearance of money, goods, or credit.' Applying the doctrine in Nacar v. Gallery Frames, the Court held that if the refund is not paid within 15 days from the finality of the judgment, the obligation then becomes a forbearance of credit. Only at that point would the amount earn interest at the prevailing legal rate of 6% per annum until fully satisfied.
Main Doctrine
Compensatory interest is an indemnity for damages imposed by law or the courts when a debtor incurs delay in the performance of an obligation. In cases of insurance contract rescission due to concealment, the insurer's obligation is to return the premiums paid. If the insurer tenders the refund check simultaneously with the notice of rescission and the beneficiary refuses the tender, the insurer does not incur delay (mora). Consequently, the insurer cannot be held liable for compensatory interest from the time of the insured's death or the tender of payment, as the refusal of the tender constitutes mora accipiendi on the part of the creditor.