INSURANCE| ASSIGN 1|1

SECOND DIVISION premium of P3,054.50.9

G.R. No. 195176, April 18, 2016 On January 7, 2000, Insular Life issued Endorsement No. PN-A000015683,
which reads:
THE INSULAR LIFE ASSURANCE COMPANY, LTD., Petitioner, v. PAZ Y.
KHU, FELIPE Y. KHU, JR., AND FREDERICK Y. KHU, Respondents.
This certifes that as agreed by the Insured, the reinstatement of this policy
DECISION has been approved by the Company on the understanding that the following
changes are made on the policy efective June 22, 1999:
DEL CASTILLO, J.:
1. The EXTRA PREMIUM is imposed; and
The date of last reinstatement mentioned in Section 48 of the Insurance Code
pertains to the date that the insurer approved' the application for 2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM
reinstatement. However, in light of the ambiguity in the insurance documents DISABILITY (WPD) rider originally attached to and forming parts of this policy
to this case, this Court adopts the interpretation favorable to the insured in [are] deleted.
determining the date when the reinstatement was approved.
In consequence thereof, the premium rates on this policy are adjusted to
1
Assailed in this Petition for Review on Certiorari are the June 24, 2010 P28,000.00 annually, P14,843.00 semi-annually and P7,557.00 quarterly,
Decision2 of the Court of Appeals (CA), which dismissed the Petition in CA-GR. Philippine currency.
CV No. 81730, and its December 13, 2010 Resolution, 3 which denied the
On June 23, 2000, Felipe paid the annual premium in the amount of
petitioner Insular Life Assurance Company Ltd.'s (Insular Life) motion for
P28,000.00 covering the period from June 22, 2000 to June 22, 2001. And on
partial reconsideration.4
July 2, 2001, he also paid the same amount as annual premium covering the
period from June 22,2001 to June 21, 2002. 11
Factual Antecedents
On September 22, 2001, Felipe died. His Certifcate of Death enumerated the
On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy
following as causes of death:
with Insular Life under the latter's Diamond Jubilee Insurance Plan. Felipe
accomplished the required medical questionnaire wherein he did not declare
any illness or adverse medical condition. Insular Life thereafter issued him Immediate cause: a. End stage renal failure, Hepatic failure
Policy Number A000015683 with a face value of PI million. This took efect on
June 22, 1997.5 Antecedent cause: b. Congestive heart failure, Difuse myocardial ischemia.

On June 23, 1999, Felipe's policy lapsed due to non-payment of the premium Underlying cause: c. Diabetes Neuropathy, Alcoholism, and Pneumonia.
covering the period from June 22, 1999 to June 23, 2000. 6
On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. .and Frederick Y. Khu
(collectively, Felipe's benefciaries or respondents) fled with Insular Life a
On September 7, 1999, Felipe applied for the reinstatement of his policy and
claim for beneft under the reinstated policy. This claim was denied. Instead,
paid P25,020.00 as premium. Except for the change in his occupation of
Insular Life advised Felipe's benefciaries that it had decided to rescind the
being self-employed to being the Municipal Mayor of Binuangan, Misamis
reinstated policy on the grounds of concealment and misrepresentation by
Oriental, all the other information submitted by Felipe in his application for
Felipe.
reinstatement was virtually identical to those mentioned in his original
policy.7
Hence, respondents instituted a complaint for specifc performance with
damages. Respondents prayed that the reinstated life insurance policy be
On October 12, 1999, Insular Life advised Felipe that his application for
declared valid, enforceable and binding on Insular Life; and that the latter be
reinstatement may only be considered if he agreed to certain conditions such
ordered to pay unto Felipe's benefciaries the proceeeds of this policy, among
as payment of additional premium and the cancellation of the riders
others.13
pertaining to premium waiver and accidental death benefts. Felipe agreed to
these conditions8 and on December 27, 1999 paid the agreed additional
In its Answer, Insular Life countered that Felipe did not disclose the ailments
 INSURANCE| ASSIGN 1|2

(viz., Type 2 Diabetes Mellitus, Diabetes Nephropathy and Alcoholic Liver The CA upheld the RTC's ruling on the non-contestability of the reinstated
Cirrhosis with Ascites) that he already had prior to his application for insurance policy on the date the insured died. It declared that contrary to
reinstatement of his insurance policy; and that it would not have reinstated Insular Life's contention, there in fact exists a genuine ambiguity or obscurity
the insurance policy had Felipe disclosed the material information on his in the language of the two documents prepared by Insular Life itself, viz.,
adverse health condition. It contended that when Felipe died, the policy was Felipe's Letter of Acceptance and Insular Life's Endorsement; that given the
still contestable.14 obscurity/ambiguity in the language of these two documents, the
construction/interpretation that favors the insured's right to recover should
Ruling of the Regional Trial Court (RTC) be adopted; and that in keeping with this principle, the insurance policy in
dispute must be deemed reinstated as of June 22, 1999. 21
On December 12, 2003, the RTC, Branch 39 of Cagayan de Oro City
found15 for Felipe's benefciaries, thus: Insular Life moved for partial reconsideration 22 but this was denied by the CA
in its Resolution of December 13, 2010. 23 Hence, the present Petition.
WHEREFORE, in view of the foregoing, plaintifs having substantiated [their]
claim by preponderance of evidence, judgment is hereby rendered in their Issue
favor and against defendants, ordering the latter to pay jointly and severally
the sum of One Million (P1,000,000.00) Pesos with legal rate of interest from The fundamental issue to be resolved in this case is whether Felipe's
the date of demand until it is fully paid representing the face value of Plan reinstated life insurance policy is already incontestable at the time of his
Diamond Jubilee No. PN-A000015683 issued to insured the late Felipe N. death.
Khu[,] Sr; the sum of P20.000.00 as moral damages; P30,000.00 as attorney's
fees; P10,000.00 as litigation expenses. Petitioner's Arguments

SO ORDERED.16 In praying for the reversal of the CA Decision, Insular Life basically argues
that respondents should not be allowed to recover on the reinstated
In ordering Insular Life to pay Felipe's benefciaries, the RTC agreed with the insurance policy because the two-year contestability period had not yet
latter's claim that the insurance policy was reinstated on June 22, 1999. The lapsed inasmuch as the insurance policy was reinstated only on December
RTC cited the ruling in Malayan Insurance Corporation v. Court of 27, 1999, whereas Felipe died on September 22, 2001; 24 that the CA
Appeals17 that any ambiguity in a contract of insurance should be resolved overlooked the fact that Felipe paid the additional extra premium only on
strictly against the insurer upon the principle that an insurance contract is a December 27, 1999, hence, it is only upon this date that the reinstated policy
contract of adhesion.18 The RTC also held that the reinstated insurance policy had become efective; that the CA erred in declaring that resort to the
had already become incontestable by the time of Felipe's death on principles of statutory construction is still necessary to resolve that question
September 22, 2001 since more than two years had already lapsed from the given that the Application for Reinstatement, the Letter of Acceptance and
date of the policy's reinstatement on June 22, 1999. The RTC noted that' the Endorsement in and by themselves already embodied unequivocal
since it was Insular Life itself that supplied all the pertinent forms relative to provisions stipulating that the two-year contestability clause should be
the reinstated policy, then it is barred from taking advantage of any reckoned from the date of approval of the reinstatement; 25 and that Felipe's
ambiguity/obscurity perceived therein particularly as regards the date when misrepresentation and concealment of material facts in regard to his health
the reinstated insurance policy became efective. or adverse medical condition gave it (Insular Life) the right to rescind the
contract of insurance and consequently, the right to deny the claim of Felipe's
Ruling of the Court of Appeals benefciaries for death benefts under the disputed policy. 26

On June 24, 2010, the CA issued the assailed Decision 19 which contained the Respondents' Arguments
following decretal portion:
Respondents maintain that the phrase "efective June 22, 1999" found in both
WHEREFORE, the appeal is DISMISSED. The assailed Judgment of the lower the Letter of Acceptance and in the Endorsement is unclear whether it refers
court is AFFIRMED with the MODIFICATION that the award of moral damages, to the subject of the sentence, i.e., the "reinstatement of this policy" or to the
attorney's fees and litigation expenses [is] DELETED. subsequent phrase "changes are made on the policy;" that granting that
there was any obscurity or ambiguity in the insurance policy, the same,
SO ORDERED.20 should be laid at the door of Insular Life as it was this insurance company that
prepared the necessary documents that make up the same; 27 and that given
the CA's .fnding which efectively afrmed the RTC's fnding on this particular
 INSURANCE| ASSIGN 1|3

issue, it stands to reason that the insurance policy had indeed become commence in case the policy should lapse and is reinstated, that is, from the
incontestable upon the date of Felipe's death.28 date of the last reinstatement'.

Our Ruling In Lalican v. The Insular Life Assurance Company, Limited,30 which
coincidentally also involves the herein petitioner, it was there held that the
We deny the Petition. reinstatement of the insured's policy is to be reckoned from the date when
the application was processed and approved by the insurer. There, we
The Insurance Code pertinently provides that: stressed that:

Sec. 48. Whenever a right to rescind a contract of insurance is given to the To reinstate a policy means to restore the same to premium-paying status
insurer by any provision of this chapter, such right must be exercised after it has been permitted to lapse. x x x
previous to the commencement of an action on the contract.
x x x x
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 In the instant case, Eulogio's death rendered impossible full compliance with
from the date of its issue or of its last reinstatement, the insurer cannot prove the conditions for reinstatement of Policy No. 9011992. True, Eulogio, before
that the policy is void ab initio or is rescindible by reason of the fraudulent his death, managed to fle his Application for Reinstatement and deposit the
concealment or misrepresentation of the insured or his agent. amount for payment of his overdue premiums and interests thereon with
Malaluan; but Policy No. 9011992 could only be considered reinstated after
The rationale for this provision was discussed by the Court in Manila Bankers the Application for Reinstatement had been processed and approved by
Life Insurance Corporation v. Aban,29 Insular Life during Eulogio's lifetime and good health. 31
Section 48 regulates both the actions of the insurers and prospective takers
of life insurance. It gives insurers enough time to inquire whether the policy Thus, it is settled that the reinstatement of an insurance policy should be
was obtained by fraud, concealment, or misrepresentation; on the other reckoned from the date when the same was approved by the insurer.
hand, it forewarns scheming individuals that their attempts at insurance fraud
would be timely uncovered - thus deterring them from venturing into such In this case, the parties difer as to when the reinstatement was actually
nefarious enterprise. At the same time, legitimate policy holders are approved. Insular Life claims that it approved the reinstatement only on
absolutely protected from unwarranted denial of their claims or delay in the December 27, 1999. On the other hand, respondents contend that it was on
collection of insurance proceeds occasioned by allegations of fraud, June 22, 1999 that the reinstatement took efect.
concealment, or misrepresentation by insurers, claims which may no longer
be set up after the two-year period expires as ordained under the law. The resolution of this issue hinges on the following documents: 1) Letter of
Acceptance; and 2) the Endorsement.
x x x x
The Letter of Acceptance 32 wherein Felipe afxed his signature was actually
The Court therefore agrees fully with the appellate court's pronouncement drafted and prepared by Insular Life. This pro-forma document reads as
that- follows:

x x x x LETTER OF ACCEPTANCE

'The insurer is deemed to have the necessary facilities to discover such Place: Cag. De [O]ro City
fraudulent concealment or misrepresentation within a period of two (2) years.
It is not fair for the insurer to collect the premiums as long as the insured is The Insular Life Assurance Co., Ltd.
still alive, only to raise the issue of fraudulent concealment or P.O. Box 128, MANILA
misrepresentation when the insured dies in order to defeat the right of the
benefciary to recover under the policy. Policy No. A000015683

At least two (2) years from the issuance of the policy or its last reinstatement, Gentlemen:
the benefciary is given the stability to recover under the policy when the
insured dies. The provision also makes clear when the two-year period should Thru your Reinstatement Section, I/WE learned that this policy may be
 INSURANCE| ASSIGN 1|4

reinstated provided I/we agree to the following condition/s indicated with a
check mark:
[xx] Accept the imposition of an extra/additional extra premium of [P]5.00
a year per thousand of insurance; efective June 22,1999
Based on the foregoing, we fnd that the CA did not commit any error in
holding that the subject insurance policy be considered as reinstated on June
22, 1999. This fnding must be upheld not only because it accords with the
evidence, but also because this is favorable to the insured who was not
responsible for causing the ambiguity or obscurity in the insurance contract. 34

[] Accept the rating on the WPD at ____ at standard rates; the ABD at The CA expounded on this point thus -
____ the standard rates; the SAR at P ____ annually per thousand of The Court discerns a genuine ambiguity or obscurity in the language of the
Insurance; two documents.
[xx] Accept the cancellation of the Premium waiver & Accidental death
In the Letter of Acceptance, Khu declared that he was accepting "the
beneft.
imposition of an extra/additional x x x premium of P5.00 a year per thousand
[] of insurance; efective June 22, 1999". It is true that the phrase as used in this
particular paragraph does not refer explicitly to the efectivity of the
reinstatement. But the Court notes that the reinstatement was conditioned
I am/we are agreeable to the above condition/s. Please proceed with the upon the payment of additional premium not only prospectively, that is, to
reinstatement of the policy. cover the remainder of the annual period of coverage, but also retroactively,
that is for the period starting June 22, 1999. Hence, by paying the amount of
Very truly yours, P3,054.50 on December 27, 1999 in addition to the P25,020.00 he had earlier
paid on September 7, 1999, Khu had paid for the insurance coverage starting
Felipe N. Khu, Sr. June 22, 1999. At the very least, this circumstance has engendered a true
After Felipe accomplished this form, Insular Life, through its Regional lacuna.
Administrative Manager, Jesse James R. Toyhorada, issued an
Endorsement33 dated January 7, 2000. For emphasis, the Endorsement is hi the Endorsement, the obscurity is patent. In the frst sentence of the
again quoted as follows: Endorsement, it is not entirely clear whether the phrase "efective June 22,
1999" refers to the subject of the sentence, namely "the reinstatement of this
policy," or to the subsequent phrase "changes are made on the policy."
ENDORSEMENT
The court below is correct. Given the obscurity of the language, the
PN-A000015683 construction favorable to the insured will be adopted by the courts.
This certifes that as agreed to by the Insured, the reinstatement of this policy Accordingly, the subject policy is deemed reinstated as of June 22, 1999.
has been approved by the Company on the understanding that the following Thus, the period of contestability has lapsed.35
changes are made on the policy efective June 22, 1999:
In Eternal Gardens Memorial Park Corporation v. The Philippine American Life
1. The EXTRA PREMIUM is imposed; and Insurance Company,36 we ruled in favor of the insured and in favor of the
efectivity of the insurance contract in the midst of ambiguity in the insurance
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM contract provisions. We held that:
DISABILITY (WPD) rider originally attached to and forming parts of this policy
is deleted. It must be remembered that an insurance contract is a contract of adhesion
which must be construed liberally in favor of the insured and strictly against
In consequence thereof, the PREMIUM RATES on this policy are adjusted to the insurer in order to safeguard the latter's interest. Thus, in Malayan
[P]28,000.00 annuallly, [P]14,843.00 semi-annually and [P]7,557.00 Insurance Corporation v. Court of Appeals, this Court held that:
quarterly, Philippine Currency.

Cagayan de Oro City, 07 January 2000. Indemnity and liability insurance policies are construed in accordance with
RCV/ the general rule of resolving any ambiguity therein in favor of the insured,
where the contract or policy is prepared by the insurer. A contract of
insurance, being a contract of adhesion, par excellence, any
(Signed) Authorized Signature
ambiguity therein should be resolved against the insurer; in other
 INSURANCE| ASSIGN 1|5

words, it should be construed liberally in favor of the insured and strictly

against the insurer. Limitations of liability should be regarded with extreme
jealousy and must be construed in such a way as to preclude the insurer from
noncompliance with its obligations.

x x x x

As a fnal note, to characterize the insurer and the insured as contracting

parties on equal footing is inaccurate at best. Insurance contracts are wholly
prepared by the insurer with vast amounts of experience in the industry
purposefully used to its advantage. More often than not, insurance contracts
are contracts of adhesion containing technical terms and conditions of the
industry, confusing if at all understandable to laypersons, that are imposed
on those who wish to avail of insurance. As such, insurance contracts are
imbued with public interest that must be considered whenever the rights and
obligations of the insurer and the insured are to be delineated. Hence, in
order to protect the interest of insurance applicants, insurance companies
must be obligated to act with haste upon insurance applications, to either
deny or approve the same, or otherwise be bound to honor the application as
a valid, binding, and efective insurance contract. 37

Indeed, more than two years had lapsed from the time the subject insurance
policy was reinstated on June 22, 1999 vis-a-vis Felipe's death on September
22, 2001. As such, the subject insurance policy has already become
incontestable at the time of Felipe's death.

Finally, we agree with the CA that there is neither basis nor justifcation for
the RTC's award of moral damages, attorney's fees and litigation expenses;
hence this award must be deleted.

WHEREFORE, the Petition is DENIED. The assailed June 24, 2010 Decision
and December 13, 2010 Resolution of the Court of Appeals in CA-GR. CV No.
81730 are AFFIRMED.

SO ORDERED.
 INSURANCE| ASSIGN 1|6

In view [of] the foregoing, we regret that we cannot act favorably on your
claim.
THIRD DIVISION
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her
claim and argued that the exception refers to damage of the motor vehicle
G.R. No. 198174, September 02, 2013
and not to its loss. However, petitioner’s denial of respondent’s insured claim
remains frm.
ALPHA INSURANCE AND SURETY CO., Petitioner, v. ARSENIA SONIA
CASTOR, Respondent. Accordingly, respondent fled a Complaint for Sum of Money with Damages
against petitioner before the Regional Trial Court (RTC) of Quezon City on
DECISION September 10, 2007.

PERALTA, J.: In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor
of respondent in this wise:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the plaintif and against the defendant ordering the latter as follows:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court assailing the Decision1 dated May 31, 2011 and Resolution 2 dated
August 10, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93027. 1. To pay plaintif the amount of P466,000.00 plus legal interest of 6%
per annum from the time of demand up to the time the amount is fully
The facts follow.
settled;
On February 21, 2007, respondent entered into a contract of insurance, Motor
Car Policy No. MAND/CV-00186, with petitioner, involving her motor vehicle, a 2. To pay attorney’s fees in the sum of P65,000.00; and
Toyota Revo DLX DSL. The contract of insurance obligates the petitioner to
pay the respondent the amount of Six Hundred Thirty Thousand Pesos
(P630,000.00) in case of loss or damage to said vehicle during the period 3. To pay the costs of suit.
covered, which is from February 26, 2007 to February 26, 2008.
All other claims not granted are hereby denied for lack of legal and factual
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose basis.3
Joel Salazar Lanuza (Lanuza), to bring the above-described vehicle to a
nearby auto-shop for a tune-up. However, Lanuza no longer returned the Aggrieved, petitioner fled an appeal with the CA.
motor vehicle to respondent and despite diligent eforts to locate the same,
said eforts proved futile. Resultantly, respondent promptly reported the On May 31, 2011, the CA rendered a Decision afrming in toto the RTC of
incident to the police and concomitantly notifed petitioner of the said loss Quezon City’s decision. The fallo reads:
and demanded payment of the insurance proceeds in the total sum of WHEREFORE, in view of all the foregoing, the appeal is DENIED.
P630,000.00. Accordingly, the Decision, dated December 19, 2008, of Branch 215 of the
Regional Trial Court of Quezon City, in Civil Case No. Q-07-61099, is
In a letter dated July 5, 2007, petitioner denied the insurance claim of hereby AFFIRMED in toto.
respondent, stating among others, thus:
Upon verifcation of the documents submitted, particularly the Police Report SO ORDERED.4
and your Afdavit, which states that the culprit, who stole the Insure[d] unit,
Petitioner fled a Motion for Reconsideration against said decision, but the
is employed with you. We would like to invite you on the provision of the
same was denied in a Resolution dated August 10, 2011.
Policy under Exceptions to Section-III, which we quote:
1.) The Company shall not be liable for:
Hence, the present petition wherein petitioner raises the following grounds
x x x x
for the allowance of its petition:
(4) Any malicious damage caused by the Insured, any member of his family
or by “A PERSON IN THE INSURED’S SERVICE.”
 INSURANCE| ASSIGN 1|7

1. WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT 1. Loss or Damage in respect of any claim or series of claims arising out
ERRED AND GROSSLY OR GRAVELY ABUSED ITS DISCRETION WHEN IT of one event, the frst amount of each and every loss for each and every
ADJUDGED IN FAVOR OF THE PRIVATE RESPONDENT AND AGAINST THE vehicle insured by this Policy, such amount being equal to one percent
PETITIONER AND RULED THAT EXCEPTION DOES NOT COVER LOSS BUT (1.00%) of the Insured’s estimate of Fair Market Value as shown in the
ONLY DAMAGE BECAUSE THE TERMS OF THE INSURANCE POLICY ARE Policy Schedule with a minimum deductible amount of Php3,000.00;
[AMBIGUOUS] EQUIVOCAL OR UNCERTAIN, SUCH THAT THE PARTIES
THEMSELVES DISAGREE ABOUT THE MEANING OF PARTICULAR 2. Consequential loss, depreciation, wear and tear, mechanical or

PROVISIONS, THE POLICY WILL BE CONSTRUED BY THE COURTS electrical breakdowns, failures or breakages;

LIBERALLY IN FAVOR OF THE ASSURED AND STRICTLY AGAINST THE

3. Damage to tires, unless the Schedule Vehicle is damaged at the same
INSURER.
time;

2. WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT

4. Any malicious damage caused by the Insured, any member of his
ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT
family or by a person in the Insured’s service.6
[AFFIRMED] IN TOTO THE JUDGMENT OF THE TRIAL COURT. 5

In denying respondent’s claim, petitioner takes exception by arguing that the

Simply, the core issue boils down to whether or not the loss of respondent’s word “damage,” under paragraph 4 of “Exceptions to Section III,” means loss
vehicle is excluded under the insurance policy. due to injury or harm to person, property or reputation, and should be
construed to cover malicious “loss” as in “theft.” Thus, it asserts that the loss
We rule in the negative. of respondent’s vehicle as a result of it being stolen by the latter’s driver is
excluded from the policy.
Signifcant portions of Section III of the Insurance Policy states:
SECTION III – LOSS OR DAMAGE We do not agree.
The Company will, subject to the Limits of Liability, indemnify the Insured Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated
against loss of or damage to the Schedule Vehicle and its accessories and that theft perpetrated by the driver of the insured is not an exception to the
spare parts whilst thereon: coverage from the insurance policy, since Section III thereof did not qualify as
(a) to who
by accidental collision or overturning, or collision or overturning consequent uponwould commit the
mechanical theft. Thus:
breakdown or consequent upon wear and tear;
Theft perpetrated by a driver of the insured is not an exception to the
(b) coverage
by fre, external explosion, self-ignition or lightning or burglary, housebreaking or from the insurance policy subject of this case. This is evident from
the very provision of Section III – “Loss or Damage.” The insurance company,
(c) by malicious act; subject to the limits of liability, is obligated to indemnify the insured against
theft. Said provision does not qualify as to who would commit the theft. Thus,
(d) even to
whilst in transit (including the processes of loading and unloading) incidental if the
suchsame is by
transit committed
road, rail,by the driver
inland of the
waterway, liftinsured, there being no
or elevator.
categorical declaration of exception, the same must be covered. As correctly
xxxx pointed out by the plaintif, “(A)n insurance contract should be interpreted as
to carry out the purpose for which the parties entered into the contract which
EXCEPTIONS TO SECTION III is to insure against risks of loss or damage to the goods. Such interpretation
should result from the natural and reasonable meaning of language in the
The Company shall not be liable to pay for: policy. Where restrictive provisions are open to two interpretations, that
which is most favorable to the insured is adopted.” The defendant would
argue that if the person employed by the insured would commit the theft and
the insurer would be held liable, then this would result to an absurd situation
where the insurer would also be held liable if the insured would commit the

theft. This argument is certainly fawed. Of course, if the theft would be
committed by the insured himself, the same would be an exception to the
coverage since in that case there would be fraud on the part of the insured or
breach of material warranty under Section 69 of the Insurance Code. 7
Moreover, contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which the parties
themselves have used. If such terms are clear and unambiguous, they must
be taken and understood in their plain, ordinary and popular
sense.8 Accordingly, in interpreting the exclusions in an insurance contract,
the terms used specifying the excluded classes therein are to be given their
meaning as understood in common speech.
Adverse to petitioner’s claim, the words “loss” and “damage” mean diferent
things in common ordinary usage. The word “loss” refers to the act or fact of
losing, or failure to keep possession, while the word “damage” means
deterioration or injury to property.
Therefore, petitioner cannot exclude the loss of respondent’s vehicle under
the insurance policy under paragraph 4 of “Exceptions to Section III,” since
the same refers only to “malicious damage,” or more specifcally, “injury” to
the motor vehicle caused by a person under the insured’s service. Paragraph
4 clearly does not contemplate “loss of property,” as what happened in the
instant case.
Further, the CA aptly ruled that “malicious damage,” as provided for in the
subject policy as one of the exceptions from coverage, is the damage that is
the direct result from the deliberate or willful act of the insured, members of
his family, and any person in the insured’s service, whose clear plan or
purpose was to cause damage to the insured vehicle for purposes of
defrauding the insurer, viz.:
This interpretation by the Court is bolstered by the observation that the
subject policy appears to clearly delineate between the terms “loss” and
“damage” by using both terms throughout the said policy. x x x
x x x x
If the intention of the defendant-appellant was to include the term “loss”
within the term “damage” then logic dictates that it should have used the
term “damage” alone in the entire policy or otherwise included a clear
defnition of the said term as part of the provisions of the said insurance
contract. Which is why the Court fnds it puzzling that in the said policy’s
provision detailing the exceptions to the policy’s coverage in Section III
thereof, which is one of the crucial parts in the insurance contract, the
insurer, after liberally using the words “loss” and “damage” in the entire
policy, suddenly went specifc by using the word “damage” only in the
policy’s exception regarding “malicious damage.” Now, the defendant-
appellant would like this Court to believe that it really intended the word
“damage” in the term “malicious damage” to include the theft of the insured
INSURANCE| ASSIGN 1|8
vehicle.
The Court does not fnd the particular contention to be well taken.
True, it is a basic rule in the interpretation of contracts that the terms of a
contract are to be construed according to the sense and meaning of the
terms which the parties thereto have used. In the case of property insurance
policies, the evident intention of the contracting parties, i.e., the insurer and
the assured, determine the import of the various terms and provisions
embodied in the policy. However, when the terms of the insurance policy
are ambiguous, equivocal or uncertain, such that the parties
themselves disagree about the meaning of particular provisions, the
policy will be construed by the courts liberally in favor of the
assured and strictly against the insurer.10
Lastly, a contract of insurance is a contract of adhesion. So, when the terms
of the insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from non-compliance
with his obligation. Thus, in Eternal Gardens Memorial Park Corporation v.
Philippine American Life Insurance Company,11 this Court ruled –
It must be remembered that an insurance contract is a contract of adhesion
which must be construed liberally in favor of the insured and strictly against
the insurer in order to safeguard the latter’s interest. Thus, in Malayan
Insurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with
the general rule of resolving any ambiguity therein in favor of the insured,
where the contract or policy is prepared by the insurer. A contract of
insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other
words, it should be construed liberally in favor of the insured and strictly
against the insurer. Limitations of liability should be regarded with extreme
jealousy and must be construed in such a way as to preclude the insurer from
non-compliance with its obligations.
In the more recent case of Philamcare Health Systems, Inc. v. Court of
Appeals, we reiterated the above ruling, stating that:
When the terms of insurance contract contain limitations on liability, courts
should construe them in such a way as to preclude the insurer from non-
compliance with his obligation. Being a contract of adhesion, the terms of an
insurance contract are to be construed strictly against the party which
prepared the contract, the insurer. By reason of the exclusive control of the
insurance company over the terms and phraseology of the insurance
contract, ambiguity must be strictly interpreted against the insurer and
liberally in favor of the insured, especially to avoid forfeiture. 12
WHEREFORE, premises considered, the instant Petition for Review
on Certiorari is DENIED. Accordingly, the Decision dated May 31, 2011 and
Resolution dated August 10, 2011 of the Court of Appeals are
hereby AFFIRMED.
 INSURANCE| ASSIGN 1|9

SO ORDERED.
 INSURANCE| ASSIGN 1|10

information from Alice and brought with her a number of documents for
Laingo to sign for the withdrawal of the P995,000.
SECOND DIVISION
More than two years later or on 21 January 2003, Rheozel's sister, Rhealyn
G.R. No. 205206, March 16, 2016 Laingo-Concepcion, while arranging Rheozel's personal things in his room at
their residence in Ecoland, Davao City, found the Personal Accident Insurance
Coverage Certifcate No. 043549 issued by FGU Insurance. Rhealyn
BANK OF THE PHILIPPINE ISLANDS AND FGU INSURANCE
immediately conveyed the information to Laingo.
CORPORATION (PRESENTLY KNOWN AS BPI/MS INSURANCE
CORPORATION), Petitioners, v. YOLANDA LAINGO, Respondent.
Laingo sent two letters dated 11 September 2003 and 7 November 2003 to
BPI and FGU Insurance requesting them to process her claim as benefciary of
DECISION Rheozel's insurance policy. On 19 February 2004, FGU Insurance sent a reply-
letter to Laingo denying her claim. FGU Insurance stated that Laingo should
CARPIO, J.: have fled the claim within three calendar months from the death of Rheozel
as required under Paragraph 15 of the Personal Accident Certifcate of
The Case Insurance which states:

This is a petition for review on certiorari 1 assailing the Decision dated 29 June 15. Written notice of claim shall be given to and fled at FGU Insurance
20122 and Resolution dated 11 December 2012 3 of the Court of Appeals in Corporation within three calendar months of death or disability.
CA-G.R. CV No. 01575.
On 20 February 2004, Laingo fled a Complaint 4 for Specifc Performance with
On 20 July 1999, Rheozel Laingo (Rheozel), the son of respondent Yolanda Damages and Attorney's Fees with the Regional Trial Court of Davao City,
Laingo (Laingo), opened a "Platinum 2-in-1 Savings and Insurance" account Branch 16 (trial court) against BPI and FGU Insurance.
with petitioner Bank of the Philippine Islands (BPI) in its Claveria, Davao City
branch. The Platinum 2-in-1 Savings and Insurance account is a savings In a Decision5 dated 21 April 2008, the trial court decided the case in favor of
account where depositors are automatically covered by an insurance policy respondents. The trial court ruled that the prescriptive period of 90 days shall
against disability or death issued by petitioner FGU Insurance Corporation commence from the time of death of the insured and not from the knowledge
(FGU Insurance), now known as BPI/MS Insurance Corporation. BPI issued of the benefciary. Since the insurance claim was fled more than 90 days
Passbook No. 50298 to Rheozel corresponding to Savings Account No. 2233- from the death of the insured, the case must be dismissed. The dispositive
0251-11. A Personal Accident Insurance Coverage Certifcate No. 043549 was portion of the Decision states:
also issued by FGU Insurance in the name of Rheozel with Laingo as his
named benefciary.
PREMISES CONSIDERED, judgment is hereby rendered dismissing both the
complaint and the counterclaims.
On 25 September 2000, Rheozel died due to a vehicular accident as
evidenced by a Certifcate of Death issued by the Ofce of the Civil Registrar
SO ORDERED.6
General of Tagum City, Davao del Norte. Since Rheozel came from a
reputable and afuent family, the Daily Mirror headlined the story in its Laingo fled an appeal with the Court of Appeals.
newspaper on 26 September 2000.
The Ruling of the Court of Appeals
On 27 September 2000, Laingo instructed the family's personal secretary,
Alice Torbanos (Alice) to go to BPI, Claveria, Davao City branch and inquire In a Decision dated 29 June 2012, the Court of Appeals reversed the ruling of
about the savings account of Rheozel. Laingo wanted to use the money in the the trial court. The Court of Appeals ruled that Laingo could not be expected
savings account for Rheozel's burial and funeral expenses. to do an obligation which she did not know existed. The appellate court
added that Laingo was not a party to the insurance contract entered into
Alice went to BPI and talked to Jaime Ibe Rodriguez, BPI's Branch Manager between Rheozel and petitioners. Thus, she could not be bound by the 90-day
regarding Laingo's request. Due to Laingo's credit standing and relationship stipulation. The dispositive portion of the Decision states:
with BPI, BPI accommodated Laingo who was allowed to withdraw P995,000
from the account of Rheozel. A certain Ms. Laura Cabico, an employee of BPI,
went to Rheozel's wake at the Cosmopolitan Funeral Parlor to verify some WHEREFORE, the Appeal is hereby GRANTED. The Decision dated April 21,
2008 of the Regional Trial Court, Branch 16, Davao City, is hereby REVERSED

and SET ASIDE.
Appellee Bank of the Philippine Islands and FGU Insurance Corporation are
DIRECTED to PAY jointly and severally appellant Yolanda Laingo Actual
Damages in the amount of P44,438.75 and Attorney's Fees in the amount of
P200,000.00.
Appellee FGU Insurance Corporation is also DIRECTED to PAY appellant the
insurance proceeds of the Personal Accident Insurance Coverage of Rheozel
Laingo with legal interest of six percent (6%) per annum reckoned from
February 20, 2004 until this Decision becomes fnal. Thereafter, an interest of
twelve percent (12%) per annum shall be imposed until fully paid.
SO ORDERED.7
Petitioners fled a Motion for Reconsideration which was denied by the
appellate court in a Resolution dated 11 December 2012.
Hence, the instant petition.
The Issue
The main issue for our resolution is whether or not Laingo, as named
benefciary who had no knowledge of the existence of the insurance contract,
is bound by the three calendar month deadline for fling a written notice of
claim upon the death of the insured.
The Court's Ruling
The petition lacks merit.
Petitioners contend that the words or language used in the insurance
contract, particularly under paragraph 15, is clear and plain or readily
understandable by any reader which leaves no room for construction.
Petitioners also maintain that ignorance about the insurance policy does not
exempt respondent from abiding by the deadline and petitioners cannot be
faulted for respondent's failure to comply.
Respondent, on the other hand, insists that the insurance contract is
ambiguous since there is no provision indicating how the benefciary is to be
informed of the three calendar month claim period. Since petitioners did not
notify her of the insurance coverage of her son where she was named as
benefciary in case of his death, then her lack of knowledge made it
impossible for her to fulfll the condition set forth in the insurance contract.
In the present case, the source of controversy stems from the alleged non-
compliance with the written notice of insurance claim to FGU Insurance within
three calendar months from the death of the insured as specifed in the
insurance contract. Laingo contends that as the named benefciary entitled to
INSURANCE| ASSIGN 1|11
the benefts of the insurance claim she had no knowledge that Rheozel was
covered by an insurance policy against disability or death issued by FGU
Insurance that was attached to Rheozel's savings account with BPI. Laingo
argues that she dealt with BPI after her son's death, when she was allowed to
withdraw funds from his savings account in the amount of P995,000.
However, BPI did not notify her of the attached insurance policy. Thus, Laingo
attributes responsibility to BPI and FGU Insurance for her failure to fle the
notice of insurance claim within three months from her son's death.
We agree.
BPI ofered a deposit savings account with life and disability insurance
coverage to its customers called the Platinum 2-in-1 Savings and Insurance
account. This was a marketing strategy promoted by BPI in order to entice
customers to invest their money with the added beneft of an insurance
policy. Rheozel was one of those who availed of this account, which not only
included banking convenience but also the promise of compensation for loss
or injury, to secure his family's future.
As the main proponent of the 2-in-1 deposit account, BPI tied up with its
afliate, FGU Insurance, as its partner. Any customer interested to open a
deposit account under this 2-in-1 product, after submitting all the required
documents to BPI and obtaining BPI's approval, will automatically be given
insurance coverage. Thus, BPI acted as agent of FGU Insurance with respect
to the insurance feature of its own marketed product.
Under the law, an agent is one who binds himself to render some service or
to do something in representation of another. 8 In Doles v. Angeles,9 we held
that the basis of an agency is representation. The question of whether an
agency has been created is ordinarily a question which may be established in
the same way as any other fact, either by direct or circumstantial evidence.
The question is ultimately one of intention. Agency may even be implied from
the words and conduct of the parties and the circumstances of the particular
case. For an agency to arise, it is not necessary that the principal personally
encounter the third person with whom the agent interacts. The law in fact
contemplates impersonal dealings where the principal need not personally
know or meet the third person with whom the agent transacts: precisely, the
purpose of agency is to extend the personality of the principal through the
facility of the agent.
In this case, since the Platinum 2-in-1 Savings and Insurance account was
BPI's commercial product, ofering the insurance coverage for free for every
deposit account opened, Rheozel directly communicated with BPI, the agent
of FGU Insurance. BPI not only facilitated the processing of the deposit
account and the collection of necessary documents but also the necessary
endorsement for the prompt approval of the insurance coverage without any
other action on Rheozel's part. Rheozel did not interact with FGU Insurance
directly and every transaction was coursed through BPI.
 INSURANCE| ASSIGN 1|12

In Eurotech Industrial Technologies, Inc. v. Cuizon,10 we held that when an There is a rationale in the contract of agency, which fows from the "doctrine
agency relationship is established, the agent acts for the principal insofar as of representation," that notice to the agent is notice to the principal, 11 Here,
the world is concerned. Consequently, the acts of the agent on behalf of the BPI had been informed of Rheozel's death by the latter's family. Since BPI is
principal within the scope of the delegated authority have the same legal the agent of FGU Insurance, then such notice of death to BPI is considered as
efect and consequence as though the principal had been the one so acting in notice to FGU Insurance as well. FGU Insurance cannot now justify the denial
the given situation. of a benefciary's insurance claim for being fled out of time when notice of
death had been communicated to its agent within a few days after the death
BPI, as agent of FGU Insurance, had the primary responsibility to ensure that of the depositor-insured. In short, there was timely notice of Rheozel's death
the 2-in-1 account be reasonably carried out with full disclosure to the parties given to FGU Insurance within three months from Rheozel's death as required
concerned, particularly the benefciaries. Thus, it was incumbent upon BPI to by the insurance company.
give proper notice of the existence of the insurance coverage and the
stipulation in the insurance contract for fling a claim to Laingo, as Rheozel's The records show that BPI had ample opportunity to inform Laingo, whether
benefciary, upon the latter's death. verbally or in writing, regarding the existence of the insurance policy
attached to the deposit account. First, Rheozel's death was headlined in a
Articles 1884 and 1887 of the Civil Code state: daily major newspaper a day after his death. Second, not only was Laingo,
through her representative, able to inquire about Rheozel's deposit account
Art. 1884. The agent is bound by his acceptance to carry out the agency and with BPI two days after his death but she was also allowed by BPI's Claveria,
is liable for the damages which, through his non-performance, the principal Davao City branch to withdraw from the funds in order to help defray
may sufer. Rheozel's funeral and burial expenses. Lastly, an employee of BPI visited
He must also fnish the business already begun on the death of the principal, Rheozel's wake and submitted documents for Laingo to sign in order to
should delay entail any danger. process the withdrawal request. These circumstances show that despite
being given many opportunities to communicate with Laingo regarding the
Art. 1887. In the execution of the agency, the agent shall act in accordance existence of the insurance contract, BPI neglected to carry out its duty.
with the instructions of the principal.
Since BPI, as agent of FGU Insurance, fell short in notifying Laingo of the
In default, thereof, he shall do all that a good father of a family would do, as existence of the insurance policy, Laingo had no means to ascertain that she
required by the nature of the business. was entitled to the insurance claim. It would be unfair for Laingo to shoulder
the burden of loss when BPI was remiss in its duty to properly notify her that
The provision is clear that an agent is bound to carry out the agency. The she was a benefciary.
relationship existing between principal and agent is a fduciary one,
demanding conditions of trust and confdence. It is the duty of the agent to Thus, as correctly decided by the appellate court, BPI and FGU Insurance shall
act in good faith for the advancement of the interests of the principal. In this bear the loss and must compensate Laingo for the actual damages sufered
case, BPI had the obligation to carry out the agency by informing the by her family plus attorney's fees. Likewise, FGU Insurance has the obligation
benefciary, who appeared before BPI to withdraw funds of the insured who to pay the insurance proceeds of Rheozel's personal accident insurance
was BPI's depositor, not only of the existence of the insurance contract but coverage to Laingo, as Rheozel's named benefciary.
also the accompanying terms and conditions of the insurance policy in order
for the benefciary to be able to properly and timely claim the beneft. WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 29 June
2012 and Resolution dated 11 December 2012 of the Court of Appeals in CA-
Upon Rheozel's death, which was properly communicated to BPI by his G.R. CV No. 01575. SO ORDERED.
mother Laingo, BPI, in turn, should have fulflled its duty, as agent of FGU
Insurance, of advising Laingo that there was an added beneft of insurance
coverage in Rheozel's savings account. An insurance company has the duty
to communicate with the benefciary upon receipt of notice of the death of
the insured. This notifcation is how a good father of a family should have
acted within the scope of its business dealings with its clients. BPI is expected
not only to provide utmost customer satisfaction in terms of its own products
and services but also to give assurance that its business concerns with its
partner entities are implemented accordingly.
 INSURANCE| ASSIGN 1|13

FIRST DIVISION Cha spouses and United.

[G.R. No. 124520. August 18, 1997.] 7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a
decision * ordering therein defendant United to pay CKS the amount of
SPOUSES NILO CHA and STELLA UY CHA, and UNITED INSURANCE P335,063.11 and defendant Cha spouses to pay P50,000.00 as exemplary
CO., INC., Petitioners, v. COURT OF APPEALS and CKS DEVELOPMENT damages, P20,000.00 as attorney’s fees and costs of suit.
CORPORATION, Respondents.
8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a
decision ** dated 11 January 1996, afrming the trial court decision, deleting
DECISION however the awards for exemplary damages and attorney’s fees. A motion for
reconsideration by United was denied on 29 March 1996.

In the present petition, the following errors are assigned by petitioners to the
PADILLA, J.:
Court of Appeals:

I
This petition for review on certiorari under Rule 45 of the Rules of Court seeks
to set aside a decision of respondent Court of Appeals.
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT
The undisputed facts of the case are as follows: THE STIPULATION IN THE CONTRACT OF LEASE TRANSFERRING THE
PROCEEDS OF THE INSURANCE TO RESPONDENT IS NULL AND VOID FOR
1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a BEING CONTRARY TO LAW, MORALS AND PUBLIC POLICY.
lease contract with private respondent CKS Development Corporation
(hereinafter CKS), as lessor, on 5 October 1988.
II
2. One of the stipulations of the one (1) year lease contract states:
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE
"18. . . . The LESSEE shall not insure against fre the chattels, merchandise,
CONTRACT OF LEASE ENTERED INTO AS A CONTRACT OF ADHESION AND
textiles, goods and efects placed at any stall or store or space in the leased
THEREFORE THE QUESTIONABLE PROVISION THEREIN TRANSFERRING THE
premises without frst obtaining the written consent and approval of the
PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE RULED OUT IN
LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of
FAVOR OF PETITIONER.
the LESSOR then the policy is deemed assigned and transferred to the
LESSOR for its own beneft; . . ." 1
III
3. Notwithstanding the above stipulation in the lease contract, the Cha
spouses insured against loss by fre their merchandise inside the leased
premises for Five Hundred Thousand (P500,000.00) with the United Insurance THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN
Co., Inc. (hereinafter United) without the written consent of private INSURANCE POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE SAID POLICY
respondent CKS. IN CONTRAVENTION OF THE INSURANCE LAW.

4. On the day that the lease contract was to expire, fre broke out inside the IV
leased premises.

5. When CKS learned of the insurance earlier procured by the Cha spouses THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN
(without its consent), it wrote the insurer (United) a demand letter asking that INSURANCE POLICY ON THE BASIS OF A STIPULATION WHICH IS VOID FOR
the proceeds of the insurance contract (between the Cha spouses and United) BEING WITHOUT CONSIDERATION AND FOR BEING TOTALLY DEPENDENT ON
be paid directly to CKS, based on its lease contract with the Cha spouses. THE WILL OF THE RESPONDENT CORPORATION. 2

6. United refused to pay CKS. Hence, the latter fled a complaint against the The core issue to be resolved in this case is whether or not the aforequoted
paragraph 18 of the lease contract entered into between CKS and the Cha
 INSURANCE| ASSIGN 1|14

spouses is valid insofar as it provides that any fre insurance policy obtained
by the lessee (Cha spouses) over their merchandise inside the leased The liability of the Cha spouses to CKS for violating their lease contract in that
premises is deemed assigned or transferred to the lessor (CKS) if said policy the Cha spouses obtained a fre insurance policy over their own merchandise,
is obtained without the prior written consent of the latter. without the consent of CKS, is a separate and distinct issue which we do not
resolve in this case.
It is, of course, basic in the law on contracts that the stipulations contained in
a contract cannot be contrary to law, morals, good customs, public order or WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is
public policy. 3 SET ASIDE and a new decision is hereby entered, awarding the proceeds of
the fre insurance policy to petitioners Nilo Cha and Stella Uy-Cha.
Sec. 18 of the Insurance Code provides:
SO ORDERED.
"Sec. 18. No contract or policy of insurance on property shall be enforceable
except for the beneft of some person having an insurable interest in the
property insured."

A non-life insurance policy such as the fre insurance policy taken by

petitioner-spouses over their merchandise is primarily a contract of
indemnity. Insurable interest in the property insured must exist at the time
the insurance takes efect and at the time the loss occurs. 4 The basis of such
requirement of insurable interest in property insured is based on sound public
policy: to prevent a person from taking out an insurance policy on property
upon which he has no insurable interest and collecting the proceeds of said
policy in case of loss of the property. In such a case, the contract of insurance
is a mere wager which is void under Section 25 of the Insurance Code, which
provides:

"Section 25. Every stipulation in a policy of Insurance for the payment of loss
whether the person insured has or has not any interest in the property
insured, or that the policy shall be received as proof of such interest, and
every policy executed by way of gaming or wagering, is void."

In the present case, it cannot be denied that CKS has no insurable interest in
the goods and merchandise inside the leased premises under the provisions
of Section 17 of the Insurance Code which provide:jgc:

"Section 17. The measure of an insurable interest in property is the extent to

which the insured might be damnifed by loss of injury thereof." virtua1aw
library

Therefore, respondent CKS cannot, under the Insurance Code — a special law
— be validly a benefciary of the fre insurance policy taken by the petitioner-
spouses over their merchandise. This insurable interest over said
merchandise remains with the insured, the Cha spouses. The automatic
assignment of the policy to CKS under the provision of the lease contract
previously quoted is void for being contrary to law and/or public policy. The
proceeds of the fre insurance policy thus rightfully belong to the spouses Nilo
Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be
compelled to pay the proceeds of the fre insurance policy to a person (CKS)
who has no insurable interest in the property insured.
 INSURANCE| ASSIGN 1|15

2. Sotero was sickly since 1990;

SECOND DIVISION
3. Sotero did not have the fnancial capability to pay the insurance
G.R. No. 175666, July 29, 2013 premiums on Insurance Policy No. 747411;

MANILA BANKERS LIFE INSURANCE CORPORATION, Petitioner,

4. Sotero did not sign the July 3, 1993 application for insurance; 9 [and]
v. CRESENCIA P. ABAN, Respondent.

DECISION 5. Respondent was the one .who fled the insurance application, and x x
x designated herself as the benefciary. 10
DEL CASTILLO, J.:
For the above reasons, petitioner denied respondent's claim on April 16, 1997
and refunded the premiums paid on the policy. 11

The ultimate aim of Section 48 of the Insurance Code is to compel insurers to On April 24, 1997, petitioner fled a civil case for rescission and/or annulment
solicit business from or provide insurance coverage only to legitimate of the policy, which was docketed as Civil Case No. 97-867 and assigned to
and bona fde clients, by requiring them to thoroughly investigate those they Branch 134 of the Makati Regional Trial Court. The main thesis of the
insure within two years from efectivity of the policy and while the insured is Complaint was that the policy was obtained by fraud, concealment and/or
still alive. If they do not, they will be obligated to honor claims on the policies misrepresentation under the Insurance Code, 12 which thus renders it voidable
they issue, regardless of fraud, concealment or misrepresentation. The law under Article 139013 of the Civil Code.
assumes that they will do just that and not sit on their laurels,
indiscriminately soliciting and accepting insurance business from any Tom, Respondent fled a Motion to Dismiss 14 claiming that petitioner's cause of
Dick and Harry. action was barred by prescription pursuant to Section 48 of the Insurance
Code, which provides as follows:
Assailed in this Petition for Review on Certiorari1 are the September 28, 2005 Whenever a right to rescind a contract of insurance is given to the insurer by
Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 62286 and its any provision of this chapter, such right must be exercised previous to the
November 9, 2006 Resolution 3denying the petitioner's Motion for commencement of an action on the contract.
Reconsideration.4
After a policy of life insurance made payable on the death of the insured shall
Factual Antecedents 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
On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from that the policy is void ab initio or is rescindible by reason of the fraudulent
Manila Bankers Life Insurance Corporation (Bankers Life), designating concealment or misrepresentation of the insured or his agent.
respondent Cresencia P. Aban (Aban), her niece, 5 as her benefciary.
During the proceedings on the Motion to Dismiss, petitioner's investigator
Petitioner issued Insurance Policy No. 747411 (the policy), with a face value testifed in court, stating among others that the insurance underwriter who
of P100,000.00, in Sotero's favor on August 30, 1993, after the requisite solicited the insurance is a cousin of respondent's husband, Dindo
medical examination and payment of the insurance premium. 6 Aban,15 and that it was the respondent who paid the annual premiums on the
policy.16
On April 10, 1996,7 when the insurance policy had been in force for more than
two years and seven months, Sotero died. Respondent fled a claim for the Ruling of the Regional Trial Court
insurance proceeds on July 9, 1996. Petitioner conducted an investigation into
the claim,8 and came out with the following fndings:
On December 9, 1997, the trial court issued an Order 17 granting respondent's
Motion to Dismiss, thus:
1. Sotero did not personally apply for insurance coverage, as she was WHEREFORE, defendant CRESENCIA P. ABAN's Motion to Dismiss is hereby
illiterate; granted. Civil Case No. 97-867 is hereby dismissed.
 INSURANCE| ASSIGN 1|16

SO ORDERED. [WHETHER] THE COURT OF APPEALS ERRED IN SUSTAINING THE ORDER OF

THE TRIAL COURT DISMISSING THE COMPLAINT ON THE GROUND OF
In dismissing the case, the trial court found that Sotero, and not respondent, PRESCRIPTION IN CONTRAVENTION (OF) PERTINENT LAWS AND APPLICABLE
was the one who procured the insurance; thus, Sotero could legally take out JURISPRUDENCE.
insurance on her own life and validly designate - as she did — respondent as
the benefciary. It held further that under Section 48, petitioner had only two II
years from the efectivity of the policy to question the same; since the policy
had been in force for more than two years, petitioner is now barred from [WHETHER] THE COURT OF APPEALS ERRED IN SUSTAINING THE APPLICATION
contesting the same or seeking a rescission or annulment thereof. OF THE INCONTESTABILITY PROVISION IN THE INSURANCE CODE BY THE
TRIAL COURT.
Petitioner moved for reconsideration, but in another Order 19 dated October
20, 1998, the trial court stood its ground.
III
Petitioner interposed an appeal with the CA, docketed as CA-G.R. CV No.
[WHETHER] THE COURT OF APPEALS ERRED IN DENYING PETITIONER'S
62286. Petitioner questioned the dismissal of Civil Case No. 97-867, arguing
MOTION FOR RECONSIDERATION.
that the trial court erred in applying Section 48 and declaring that
prescription has set in. It contended that since it was respondent - and not
Petitioner's Arguments
Sotero - who obtained the insurance, the policy issued was rendered void ab
initio for want of insurable interest.
In praying that the CA Decision be reversed and that the case be remanded
to the trial court for the conduct of further proceedings, petitioner argues in
Ruling of the Court of Appeals
its Petition and Reply24 that Section 48 cannot apply to a case where the
benefciary under the insurance contract posed as the insured and obtained
On September 28, 2005, the CA issued the assailed Decision, which contained
the policy under fraudulent circumstances. It adds that respondent, who was
the following decretal portion:
merely Sotero's niece, had no insurable interest in the life of her aunt.
WHEREFORE, in the light of all the foregoing, the instant appeal
is DISMISSED for lack of merit.
Relying on the results of the investigation that it conducted after the claim for
the insurance proceeds was fled, petitioner insists that respondent's claim
SO ORDERED.
was spurious, as it appeared that Sotero did not actually apply for insurance
The CA thus sustained the trial court. Applying Section 48 to petitioner's case, coverage, was unlettered, sickly, and had no visible source of income to pay
the CA held that petitioner may no longer prove that the subject policy was for the insurance premiums; and that respondent was an impostor, posing as
void ab initio or rescindible by reason of fraudulent concealment or Sotero and fraudulently obtaining insurance in the latter's name without her
misrepresentation after the lapse of more than two years from its issuance. It knowledge and consent.
ratiocinated that petitioner was equipped with ample means to determine,
within the frst two years of the policy, whether fraud, concealment or Petitioner adds that Insurance Policy No. 747411 was void ab initio and could
misrepresentation was present when the insurance coverage was obtained. If not have given rise to rights and obligations; as such, the action for the
it failed to do so within the statutory two-year period, then the insured must declaration of its nullity or inexistence does not prescribe. 25
be protected and allowed to claim upon the policy.
Respondent's Arguments
Petitioner moved for reconsideration,21 but the CA denied the same in its
November 9, 2006 Resolution.22 Hence, the present Petition. Respondent, on the other hand, essentially argues in her Comment 26 that the
CA is correct in applying Section 48. She adds that petitioner's new allegation
Issues in its Petition that the policy is void ab initio merits no attention, having failed
to raise the same below, as it had claimed originally that the policy was
Petitioner raises the following issues for resolution: merely voidable.

I On the issue of insurable interest, respondent echoes the CA's

pronouncement that since it was Sotero who obtained the insurance,
insurable interest was present. Under Section 10 of the Insurance Code,

Sotero had insurable interest in her own life, and could validly designate
anyone as her benefciary. Respondent submits that the CA's fndings of fact
leading to such conclusion should be respected.
Our Ruling
The Court denies the Petition.
The Court will not depart from the trial and appellate courts' fnding that it
was Sotero who obtained the insurance for herself, designating respondent as
her benefciary. Both courts are in accord in this respect, and the Court is
loath to disturb this. While petitioner insists that its independent investigation
on the claim reveals that it was respondent, posing as Sotero, who obtained
the insurance, this claim is no longer feasible in the wake of the courts'
fnding that it was Sotero who obtained the insurance for herself. This fnding
of fact binds the Court.
With the above crucial fnding of fact - that it was Sotero who obtained the
insurance for herself - petitioner's case is severely weakened, if not totally
disproved. Allegations of fraud, which are predicated on respondent's alleged
posing as Sotero and forgery of her signature in the insurance application, are
at once belied by the trial and appellate courts' fnding that Sotero herself
took out the insurance for herself. "[Fraudulent intent on the part of the
insured must be established to entitle the insurer to rescind the contract" 27 In
the absence of proof of such fraudulent intent, no right to rescind arises.
Moreover, the results and conclusions arrived at during the investigation
conducted unilaterally by petitioner after the claim was fled may simply be
dismissed as self-serving and may not form the basis of a cause of action
given the existence and application of Section 48, as will be discussed at
length below.
Section 48 serves a noble purpose, as it regulates the actions of both the
insurer and the insured. Under the provision, an insurer is given two years -
from the efectivity of a life insurance contract and while the insured is alive -
to discover or 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. After the two-year period lapses, or when the insured dies within the
period, the insurer must make good on the policy, even though the policy was
obtained by fraud, concealment, or misrepresentation. This is not to say that
insurance fraud must be rewarded, but that insurers who recklessly and
indiscriminately solicit and obtain business must be penalized, for such
recklessness and lack of discrimination ultimately work to the detriment
of bona fde takers of insurance and the public in general.
Section 48 regulates both the actions of the insurers and prospective takers
of life insurance. It gives insurers enough time to inquire whether the policy
was obtained by fraud, concealment, or misrepresentation; on the other
hand, it forewarns scheming individuals that their attempts at insurance fraud
INSURANCE| ASSIGN 1|17
would be timely uncovered - thus deterring them from venturing into such
nefarious enterprise. At the same time, legitimate policy holders are
absolutely protected from unwarranted denial of their claims or delay in the
collection of insurance proceeds occasioned by allegations of fraud,
concealment, or misrepresentation by insurers, claims which may no longer
be set up after the two-year period expires as ordained under the law.
Thus, the self-regulating feature of Section 48 lies in the fact that both the
insurer and the insured are given the assurance that any dishonest scheme
to obtain life insurance would be exposed, and attempts at unduly denying a
claim would be struck down. Life insurance policies that pass the statutory
two-year period are essentially treated as legitimate and beyond question,
and the individuals who wield them are made secure by the thought that they
will be paid promptly upon claim. In this manner, Section 48 contributes to
the stability of the insurance industry.
Section 48 prevents a situation where the insurer knowingly continues to
accept annual premium payments on life insurance, only to later on deny a
claim on the policy on specious claims of fraudulent concealment and
misrepresentation, such as what obtains in the instant case. Thus, instead of
conducting at the frst instance an investigation into the circumstances
surrounding the issuance of insurance Policy No. 747411 which would have
timely exposed the supposed faws and irregularities attending it as it now
professes, petitioner appears to have turned a blind eye and opted instead to
continue collecting the premiums on the policy. For nearly three years,
petitioner collected the premiums and devoted the same to its own proft. It
cannot now deny the claim when it is called to account. Section 48 must be
applied to it with full force and efect.
The Court therefore agrees fully with the appellate court's pronouncement
that -
[t]he "incontestability clause" is a provision in law that 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 (2) 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 fraudulent concealment or
misrepresentation of the insured or his agent.
The purpose of the law is to give protection to the insured or his benefciary
by limiting the rescinding of the contract of insurance on the ground of
fraudulent concealment or misrepresentation to a period of only two (2) years
from the issuance of the policy or its last reinstatement.
The insurer is deemed to have the necessary facilities to discover such
fraudulent concealment or misrepresentation within a period of two (2) years.
It is not fair for the insurer to collect the premiums as long as the insured is
still alive, only to raise the issue of fraudulent concealment or
misrepresentation when the insured dies in order to defeat the right of the
benefciary to recover under the policy.
 INSURANCE| ASSIGN 1|18

insurance agents/salesmen and the insurance policies they issue, then they
At least two (2) years from the issuance of the policy or its last reinstatement, should cease doing business. If they could not properly screen their agents or
the benefciary is given the stability to recover under the policy when the salesmen before taking them in to market their products, or if they do not
insured dies. The provision also makes clear when the two-year period should thoroughly investigate the insurance contracts they enter into with their
commence in case the policy should lapse and is reinstated, that is, from the clients, then they have only themselves to blame. Otherwise said, insurers
date of the last reinstatement. cannot be allowed to collect premiums on insurance policies, use these
amounts collected and invest the same through the years, generating profts
After two years, the defenses of concealment or misrepresentation, no matter and returns therefrom for their own beneft, and thereafter conveniently deny
how patent or well-founded, will no longer lie. insurance claims by questioning the authority or integrity of their own agents
or the insurance policies they issued to their premium-paying clients. This is
Congress felt this was a sufcient answer to the various tactics employed by exactly one of the schemes which Section 48 aims to prevent.
insurance companies to avoid liability.
Insurers may not be allowed to delay the payment of claims by fling frivolous
The so-called "incontestability clause" precludes the insurer from raising the cases in court, hoping that the inevitable may be put of for years - or even
defenses of false representations or concealment of material facts insofar as decades — by the pendency of these unnecessary court cases. In the
health and previous diseases are concerned if the insurance has been in force meantime, they beneft from collecting the interest and/or returns on both
for at least two years during the insured’s lifetime. The phrase "during the the premiums previously paid by the insured and the insurance proceeds
lifetime" found in Section 48 simply means that the policy is no longer which should otherwise go to their benefciaries. The business of insurance is
considered in force after the insured has died. The key phrase in the second a highly regulated commercial activity in the country, 29 and is imbued with
paragraph of Section 48 is "for a period of two years." public interest.30 "[A]n insurance contract is a contract of adhesion which
must be construed liberally in favor of the insured and strictly against the
As borne by the records, the policy was issued on August 30. 1993, the insurer in order to safeguard the [former's] interest." 31
insured died on April 10, 1996, and the claim was denied on April 16, 1997.
The insurance policy was thus in force for a period of 3 years, 7 months, and WHEREFORE, the Petition is DENIED. The assailed September 28, 2005
24 days. Considering that the insured died after the two-year period, the Decision and the November 9, 2006 Resolution of the Court of Appeals in CA-
plaintif-appellant is, therefore, barred from proving that the policy is void ab G.R. CV No. 62286 are AFFIRMED.
initio by reason of the insured fraudulent concealment or misrepresentation
or want of insurable interest on the part of the benefciary, herein defendant- SO ORDERED.
appellee.

Well-settled is the rule that it is the plaintif-appellant's burden to show that

the factual fndings of the trial court are not based on substantial evidence or
that its conclusions are contrary to applicable law and jurisprudence. The
plaintif-appellant failed to discharge that burden.

Petitioner claims that its insurance agent, who solicited the Sotero account,
happens to be the cousin of respondent's husband, and thus insinuates that
both connived to commit insurance fraud. If this were truly the case, then
petitioner would have discovered the scheme earlier if it had in earnest
conducted an investigation into the circumstances surrounding the Sotero
policy. But because it did not and it investigated the Sotero account only after
a claim was fled thereon more than two years later, naturally it was unable
to detect the scheme. For its negligence and inaction, the Court cannot
sympathize with its plight. Instead, its case precisely provides the strong
argument for requiring insurers to diligently conduct investigations on each
policy they issue within the two-year period mandated under Section 48, and
not alter claims for insurance proceeds are fled with them.

Besides, if insurers cannot vouch for the integrity and honesty of their

THIRD DIVISION
G.R. No. 211212, June 08, 2016
SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner, v. MA. DAISY'S.
SIBYA, JESUS MANUEL S. SIBYA III, JAIME LUIS S. SIBYA, AND THE
ESTATE OF THE DECEASED ATTY. JESUS SIBYA, JR., Respondents.
DECISION
REYES, J.:
Before this Court is a petition for review on certiorari1 under Rule 45 of the
Rules of Court seeking to annul and set aside the Decision 2 dated November
18, 2013 and Resolution3 dated February 13, 2014 of the Court of Appeals
(CA) in CA-G.R. CV. No. 93269. In both instances, the CA afrmed the
Decision4 dated March 16, 2009 of the Regional Trial Court (RTC) of Makati
City, Branch 136, in Civil Case No. 01-1506, ordering petitioner Sun Life of
Canada (Philippines), Inc. (Sun Life) to pay Ma. Daisy S. Sibya (Ma. Daisy),
Jesus Manuel S. Sibya III, and Jaime Luis S. Sibya (respondents) the amounts
of P1,000,000.00 as death benefts, P100,000.00 as moral damages,
P100,000.00 as exemplary damages, and P100,000.00 as attorney's fees and
costs of suit. Insofar as the charges for violation of Sections 241 and 242 of
Presidential Decree No. 612, or the Insurance Code of the Philippines,
however, the CA modifed the decision of the RTC and absolved Sun Life
therein.
Statement of Facts of the Case
On January 10, 2001, Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life
insurance with Sun Life. In his Application for Insurance, he indicated that he
had sought advice for kidney problems. 5 Atty. Jesus Jr. indicated the following
in his application:
"Last 1987, had undergone lithotripsy due to kidney stone under Dr. Jesus
Benjamin Mendoza at National Kidney Institute, discharged after 3 days, no
recurrence as claimed."6
On February 5, 2001, Sun Life approved Atty. Jesus Jr.'s application and
issued Insurance Policy No. 031097335. The policy indicated the respondents
as benefciaries and entitles them to a death beneft of P1,000,000.00 should
Atty. Jesus Jr. dies on or before February 5, 2021, or a sum of money if Atty.
Jesus Jr. is still living on the endowment date. 7
On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound in San
Joaquin, Iloilo. As such, Ma. Daisy fled a Claimant's Statement with Sun Life
INSURANCE| ASSIGN 1|19
to seek the death benefts indicated in his insurance policy. 8
In a letter dated August 27, 2001, however, Sun Life denied the claim on the
ground that the details on Atty. Jesus Jr.'s medical history were not disclosed
in his application. Simultaneously, Sun Life tendered a check representing the
refund of the premiums paid by Atty. Jesus Jr. 9
The respondents reiterated their claim against Sun Life thru a letter dated
September 17, 2001. Sun Life, however, refused to heed the respondents'
requests and instead fled a Complaint for Rescission before the RTC and
prayed for judicial confrmation of Atty. Jesus Jr.'s rescission of insurance
policy.10
In its Complaint, Sun Life alleged that Atty. Jesus Jr. did not disclose in his
insurance application his previous medical treatment at the National Kidney
Transplant Institute in May and August of 1994. According to Sun Life, the
undisclosed fact suggested that the insured was in "renal failure" and at a
high risk medical condition. Consequently, had it known such fact, it would
not have issued the insurance policy in favor of Atty. Jesus Jr. 11
For their defense, the respondents claimed that Atty. Jesus Jr. did not commit
misrepresentation in his application for insurance. They averred that Atty.
Jesus Jr. was in good faith when he signed the insurance application and even
authorized Sun Life to inquire further into his medical history for verifcation
purposes. According to them, the complaint is just a ploy to avoid the
payment of insurance claims.12
Ruling of the RTC
On March 16, 2009, the RTC issued its Decision 13 dismissing the complaint for
lack of merit. The RTC held that Sun Life violated Sections 241, paragraph
1(b), (d), and (e)14 and 24215of the Insurance Code when it refused to pay the
rightful claim of the respondents. Moreover, the RTC ordered Sun Life to pay
the amounts of P1,000,000.00 as death benefts, P100,000.00 as moral
damages, P100,000.00 as exemplary damages, and P100,000.00 as
attorney's fees and costs of suit.
The RTC held that Atty. Jesus Jr. did not commit material concealment and
misrepresentation when he applied for life insurance with Sun Life. It
observed that given the disclosures and the waiver and authorization to
investigate executed by Atty. Jesus Jr. to Sun Life, the latter had all the means
of ascertaining the facts allegedly concealed by the applicant. 16
Aggrieved, Sun Life elevated the case to the CA.
Ruling of the CA
On appeal, the CA issued its Decision 17 dated November 18, 2013 afrming
the RTC decision in ordering Sun Life to pay death benefts and damages in

favor of the respondents. The CA, however, modifed the RTC decision by
absolving Sun Life from the charges of violation of Sections 241 and 242 of
the Insurance Code.18
The CA ruled that the evidence on records show that there was no fraudulent
intent on the part of Atty. Jesus Jr. in submitting his insurance application.
Instead, it found that Atty. Jesus Jr. admitted in his application that he had
sought medical treatment for kidney ailment. 19
Sun Life fled a Motion for Partial Reconsideration 20 dated December 11, 2013
but the same was denied in a Resolution 21 dated February 13, 2014.
Undaunted, Sun Life fled an appeal by way of petition for review
on certiorari under Rule 45 of the Rules of Court before this Court.
The Issue
Essentially, the main issue of the instant case is whether or not the CA erred
when it afrmed the RTC decision fnding that there was no concealment or
misrepresentation when Atty. Jesus Jr. submitted his insurance application
with Sun Life.
Ruling of the Court
The petition has no merit.
In Manila Bankers Life Insurance Corporation v. Aban,22 the Court held that if
the insured dies within the two-year contestability period, the insurer is
bound to make good its obligation under the policy, regardless of the
presence or lack of concealment or misrepresentation. The Court held:
Section 48 serves a noble purpose, as it regulates the actions of both the
insurer and the insured. Under the provision, an insurer is given two years -
from the efectivity of a life insurance contract and while the insured is alive -
to discover or 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. After the two-year period lapses, or when the insured dies
within the period, the insurer must make good on the policy, even
though the policy was obtained by fraud, concealment, or
misrepresentation. This is not to say that insurance fraud must be
rewarded, but that insurers who recklessly and indiscriminately solicit and
obtain business must be penalized, for such recklessness and lack of
discrimination ultimately work to the detriment of bona fde takers of
insurance and the public in general.23 (Emphasis ours)
In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5,
2001. Thus, it has two years from its issuance, to investigate and verify
whether the policy was obtained by fraud, concealment, or
misrepresentation. Upon the death of Atty. Jesus Jr., however, on May 11,
INSURANCE| ASSIGN 1|20
2001, or a mere three months from the issuance of the policy, Sun Life loses
its right to rescind the policy. As discussed in Manila Bankers, the death of
the insured within the two-year period will render the right of the insurer to
rescind the policy nugatory. As such, the incontestability period will now set
in.
Assuming, however, for the sake of argument, that the incontestability period
has not yet set in, the Court agrees, nonetheless, with the CA when it held
that Sun Life failed to show that Atty. Jesus Jr. committed concealment and
misrepresentation.
As correctly observed by the CA, Atty. Jesus Jr. admitted in his application his
medical treatment for kidney ailment. Moreover, he executed an
authorization in favor of Sun Life to conduct investigation in reference with
his medical history. The decision in part states:
Records show that in the Application for Insurance, [Atty. Jesus Jr.] admitted
that he had sought medical treatment for kidney ailment. When asked to
provide details on the said medication, [Atty. Jesus Jr.] indicated the following
information: year ("1987"), medical procedure ("undergone lithotripsy due to
kidney stone"), length of confnement ("3 days"), attending physician ("Dr.
Jesus Benjamin Mendoza") and the hospital ("National Kidney Institute").
It appears that [Atty. Jesus Jr.] also signed the Authorization which gave [Sun
Life] the opportunity to obtain information on the facts disclosed by [Atty.
Jesus Jr.] in his insurance application. x x x
x x x x
Given the express language of the Authorization, it cannot be said that [Atty.
Jesus Jr.] concealed his medical history since [Sun Life] had the means of
ascertaining [Atty. Jesus Jr.'s] medical record.
With regard to allegations of misrepresentation, we note that [Atty. Jesus Jr.]
was not a medical doctor, and his answer "no recurrence" may be construed
as an honest opinion. Where matters of opinion or judgment are called for,
answers made in good faith and without intent to deceive will not avoid a
policy even though they are untrue. 24 (Citations omitted and italics in the
original)
Indeed, the intent to defraud on the part of the insured must be ascertained
to merit rescission of the insurance contract. Concealment as a defense for
the insurer to avoid liability is an afrmative defense and the duty to
establish such defense by satisfactory and convincing evidence rests upon
the provider or insurer.25 In the present case, Sun Life failed to clearly and
satisfactorily establish its allegations, and is therefore liable to pay the
proceeds of the insurance.
Moreover, well-settled is the rule that this Court is not a trier of facts. Factual
 INSURANCE| ASSIGN 1|21

fndings of the lower courts are entitled to great weight and respect on
appeal, and in fact accorded fnality when supported by substantial evidence
on the record.26

WHEREFORE, the petition for review is DENIED. The Decision dated

November 18, 2013 and Resolution dated February 13, 2014 of the Court of
Appeals in CA-G.R. CV. No. 93269 are hereby AFFIRMED.

SO ORDERED.

FIRST DIVISION
G.R. No. 152334, September 24, 2014
H.H. HOLLERO CONSTRUCTION, INC., Petitioner, v. GOVERNMENT
SERVICE INSURANCE SYSTEM AND POOL OF MACHINERY
INSURERS, Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated March
13, 2001 and the Resolution 3 dated February 21, 2002 of the Court of Appeals
(CA) in CA-G.R. CV No. 63175, which set aside and reversed the
Judgment4 dated February 3, 1999 of the Regional Trial Court of Quezon City,
Branch 220 (RTC) in Civil Case No. 91-10144, and dismissed petitioner H.H.
Hollero Construction, Inc.’s (petitioner) Complaint for Sum of Money and
Damages under the insurance policies issued by public respondent, the
Government Service Insurance System (GSIS), on the ground of prescription.
The Facts
On April 26, 1988, the GSIS and petitioner entered into a Project Agreement
(Agreement) whereby the latter undertook the development of a GSIS
housing project known as Modesta Village Section B (Project). 5 Petitioner
obligated itself to insure the Project, including all the improvements, upon the
execution of the Agreement under a Contractors’ All Risks (CAR) Insurance
with the GSIS General Insurance Department for an amount equal to its cost
or sound value, which shall not be subject to any automatic annual reduction.
Pursuant to its undertaking, petitioner secured CAR Policy No. 88/085 7 in the
amount of P1,000,000.00 for land development, which was later increased to
P10,000,000.00,8 efective from May 2, 1988 to May 2, 1989. 9 Petitioner
likewise secured CAR Policy No. 88/086 10 in the amount of P1,000,000.00 for
the construction of twenty (20) housing units, which amount was later
increased to P17,750,000.00 11 to cover the construction of another 355 new
units, efective from May 2, 1988 to June 1, 1989. 12 In turn, the GSIS reinsured
CAR Policy No. 88/085 with respondent Pool of Machinery Insurers (Pool).
Under both policies, it was provided that: (a) there must be prior notice of
claim for loss, damage or liability within fourteen (14) days from the
occurrence of the loss or damage; 14 (b) all benefts thereunder shall be
forfeited if no action is instituted within twelve (12) months after the rejection
of the claim for loss, damage or liability; 15 and (c) if the sum insured is found
to be less than the amount required to be insured, the amount recoverable
INSURANCE| ASSIGN 1|22
shall be reduced to such proportion before taking into account the
deductibles stated in the schedule (average clause provision).
During the construction, three (3) typhoons hit the country, namely, Typhoon
Biring from June 1 to June 4, 1988, Typhoon Huaning on July 29, 1988, and
Typhoon Saling on October 11, 1989, which caused considerable damage to
the Project.17 Accordingly, petitioner fled several claims for indemnity with
the GSIS on June 30, 1988, 18 August 25, 1988,19 and October 18,
1989,20 respectively.
In a letter21 dated April 26, 1990, the GSIS rejected petitioner’s indemnity
claims for the damages wrought by Typhoons Biring and Huaning, fnding that
no amount is recoverable pursuant to the average clause provision under the
policies.22 In a letter23 dated June 21, 1990, the GSIS similarly rejected
petitioner’s indemnity claim for damages wrought by Typhoon Saling on a “no
loss” basis, it appearing from its records that the policies were not renewed
before the onset of the said typhoon. 24
In a letter25 dated April 18, 1991, petitioner impugned the rejection of its
claims for damages/loss on account of Typhoon Saling, and reiterated its
demand for the settlement of its claims.
On September 27, 1991, petitioner fled a Complaint 26 for Sum of Money and
Damages before the RTC, docketed as Civil Case No. 91-10144, 27 which was
opposed by the GSIS through a Motion to Dismiss 28 dated October 25, 1991
on the ground that the causes of action stated therein are barred by the
twelve-month limitation provided under the policies, i.e., the complaint was
fled more than one (1) year from the rejection of the indemnity claims. The
RTC, in an Order29 dated May 13, 1993, denied the said motion; hence, the
GSIS fled its answer30 with counterclaims for litigation expenses, attorney’s
fees, and exemplary damages. Subsequently, the GSIS fled a Third Party
Complaint31 for indemnifcation against Pool, the reinsurer.
The RTC Ruling
In a Judgment32 dated February 3, 1999, the RTC granted petitioner’s
indemnity claims. It held that: (a) the average clause provision in the policies
which did not contain the assent or signature of the petitioner cannot limit
the GSIS’ liability, for being inefcacious and contrary to public policy; 33 (b)
petitioner has established that the damages it sustained were due to the peril
insured against;34 and (c) CAR Policy No. 88/086 was deemed renewed when
the GSIS withheld the amount of P35,855.00 corresponding to the premium
payable,35 from the retentions it released to petitioner. 36 The RTC thereby
declared the GSIS liable for petitioner’s indemnity claims for the damages
brought about by the said typhoons, less the stipulated deductions under the
policies, plus 6% legal interest from the dates of extra-judicial demand, as
well as for attorney’s fees and costs of suit. It further dismissed for lack of
merit GSIS’s counterclaim and third party complaint.

Dissatisfed, the GSIS elevated the matter to the CA.
The CA Ruling
In a Decision 38 dated March 13, 2001, the CA set aside and reversed the RTC
Judgment, thereby dismissing the complaint. It ruled that the complaint fled
on September 27, 1991 was barred by prescription, having been commenced
beyond the twelve-month limitation provided under the policies, reckoned
from the fnal rejection of the indemnity claims on April 26, 1990 and June 21,
1990.
The Issue Before the Court
The essential issue for the Court’s resolution is whether or not the CA
committed reversible error in dismissing the complaint on the ground of
prescription.
The Court’s Ruling
The petition lacks merit.
Contracts of insurance, like other contracts, are to be construed according to
the sense and meaning of the terms which the parties themselves have used.
If such terms are clear and unambiguous, they must be taken and understood
in their plain, ordinary, and popular sense.
Section 1040 of the General Conditions of the subject CAR Policies commonly
read:
10. If a claim is in any respect fraudulent, or if any false declaration is made
or used in support thereof, or if any fraudulent means or devices are used by
the Insured or anyone acting on his behalf to obtain any beneft under this
Policy, or if a claim is made and rejected and no action or suit is
commenced within twelve months after such rejection or, in case of
arbitration taking place as provided herein, within twelve months after the
Arbitrator or Arbitrators or Umpire have made their award, all beneft under
this Policy shall be forfeited. (Emphases supplied)
In this relation, case law illumines that the prescriptive period for the
insured’s action for indemnity should be reckoned from the “fnal rejection” of
the claim.41
Here, petitioner insists that the GSIS’s letters dated April 26, 1990 and June
21, 1990 did not amount to a “fnal rejection” of its claims, arguing that they
were mere tentative resolutions pending further action on petitioner’s part or
submission of proof in refutation of the reasons for rejection. 42 Hence, its
causes of action for indemnity did not accrue on those dates.
INSURANCE| ASSIGN 1|23
The Court does not agree.
A perusal of the letter 43 dated April 26, 1990 shows that the GSIS denied
petitioner’s indemnity claims wrought by Typhoons Biring and Huaning, it
appearing that no amount was recoverable under the policies. While the GSIS
gave petitioner the opportunity to dispute its fndings, neither of the parties
pursued any further action on the matter; this logically shows that they
deemed the said letter as a rejection of the claims. Lest it cause any
confusion, the statement in that letter pertaining to any queries petitioner
may have on the denial should be construed, at best, as a form of notice to
the former that it had the opportunity to seek reconsideration of the GSIS’s
rejection. Surely, petitioner cannot construe the said letter to be a mere
“tentative resolution.” In fact, despite its disavowals, petitioner admitted in
its pleadings44 that the GSIS indeed denied its claim through the
aforementioned letter, but tarried in commencing the necessary action in
court.
The same conclusion obtains for the letter 45 dated June 21, 1990 denying
petitioner’s indemnity claim caused by Typhoon Saling on a “no loss” basis
due to the non-renewal of the policies therefor before the onset of the said
typhoon. The fact that petitioner fled a letter 46 of reconsideration therefrom
dated April 18, 1991, considering too the inaction of the GSIS on the same
similarly shows that the June 21, 1990 letter was also a fnal rejection of
petitioner’s indemnity claim.
As correctly observed by the CA, “fnal rejection” simply means denial by the
insurer of the claims of the insured and not the rejection or denial by the
insurer of the insured’s motion or request for reconsideration. 47 The rejection
referred to should be construed as the rejection in the frst instance,48 as
in the two instances above-discussed.
Comparable to the foregoing is the Court’s action in the case of Sun
Insurance Ofce, Ltd. v. CA 49 wherein it debunked “[t]he contention of the
respondents [therein] that the one-year prescriptive period does not start to
run until the petition for reconsideration had been resolved by the insurer,”
holding that such view “runs counter to the declared purpose for requiring
that an action or suit be fled in the Insurance Commission or in a court of
competent jurisdiction from the denial of the claim.” 50 In this regard, the
Court rationalized that “uphold[ing] respondents' contention would contradict
and defeat the very principle which this Court had laid down. Moreover, it can
easily be used by insured persons as a scheme or device to waste time until
any evidence which may be considered against them is
destroyed.”51 Expounding on the matter, the Court had this to say:
The crucial issue in this case is: When does the cause of action accrue?
In support of private respondent’s view, two rulings of this Court have been
 INSURANCE| ASSIGN 1|24

cited, namely, the case of Eagle Star Insurance Co. vs. Chia Yu ([supra note
41]), where the Court held:

The right of the insured to the payment of his loss accrues from the
happening of the loss. However, the cause of action in an insurance contract
does not accrue until the insured’s claim is fnally rejected by the insurer. This
is because before such fnal rejection there is no real necessity for bringing
suit.

and the case of ACCFA vs. Alpha Insurance & Surety Co., Inc. (24 SCRA 151
[1968], holding that:

Since “cause of action” requires as essential elements not only a legal right of
the plaintif and a correlated obligation of the defendant in violation of the
said legal right, the cause of action does not accrue until the party obligated
(surety) refuses, expressly or impliedly, to comply with its duty (in this case
to pay the amount of the bond).”

Indisputably, the above-cited pronouncements of this Court may be taken to

mean that the insured’s cause of action or his right to fle a claim either in the
Insurance Commission or in a court of competent jurisdiction [as in this case]
commences from the time of the denial of his claim by the Insurer, either
expressly or impliedly.

But as pointed out by the petitioner insurance company, the rejection

referred to should be construed as the rejection, in the frst instance, for if
what is being referred to is a reiterated rejection conveyed in a resolution of a
petition for reconsideration, such should have been expressly stipulated. 52

In light of the foregoing, it is thus clear that petitioner’s causes of action for
indemnity respectively accrued from its receipt of the letters dated April 26,
1990 and June 21, 1990, or the date the GSIS rejected its claims in the frst
instance. Consequently, given that it allowed more than twelve (12) months
to lapse before fling the necessary complaint before the RTC on September
27, 1991, its causes of action had already prescribed.

WHEREFORE, the petition is DENIED. The Decision dated March 13, 2001
and the Resolution dated February 21, 2002 of the Court of Appeals (CA) in
CA-G.R. CV No. 63175 are hereby AFFIRMED.

SO ORDERED.