60 - Tan v.
CA (1989)
Topic: Rescission of Insurance Contracts - Misrepresentation
Facts:
1. Tan Lee Siong, father of petitioners Emilio, Juanito, Alberto, and Arturo Tan, applied for life
insurance in the amount of P80,000.00 with Philippine American Life Insurance. The policy was
issued on November 6, 1973 and the petitioners were made as beneficiaries.
2. When their father died on April 26, 1975 of hepatoma, the petitioners filed with the company their
claim for the proceeds of the policy. However, in a letter, the company denied the claim by reason
of the alleged misrepresentation and concealment of material facts made by the deceased in his
application. The premiums paid on the policy were refunded.
3. The petitioners filed a complaint before the Insurance Commissioner but it was dismissed. The
Court of Appeals also dismissed their appeal.
4. The petitioners contend that the company no longer had the right to rescind the contract of
insurance as rescission must allegedly be done during the lifetime of the insured within two years
and prior to the commencement of action.
Issue: W/N the insurance company is barred from proving that the policy is void ab initio by reason of
the insured's fraudulent concealment or misrepresentation.
Held/Ratio: The insurance company is not barred from proving that the policy is void ab initio since the
policy was in force for a period less than the two-year limit provided in Section 48 of the Insurance Code.
1. The pertinent section in the Insurance Code provides:
Section 48. Whenever a right to rescind a contract of insurance is given to the insurer by any
provision of this chapter, such right must be exercised previous to the commencement of an
action on the contract.
After a policy of life insurance made payable on the death of the insured shall have been in
force during the lifetime of the insured for a period of two years from the date of its issue or
of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is
rescindable by reason of the fraudulent concealment or misrepresentation of the insured or
his agent.
a. The so-called "incontestability clause" precludes the insurer from raising the defenses of false
representations or concealment of material facts insofar as health and previous diseases are
concerned if the insurance has been in force for at least two years during the insured's
lifetime. The phrase "during the lifetime" found in Section 48 simply means that the policy is
no longer considered in force after the insured has died. The key phrase in the second
paragraph of Section 48 is "for a period of two years."
i. The Court quoted the decision of the Court of Appeals: "The policy was issued on
November 6,1973 and the insured died on April 26,1975. The policy was thus in force
for a period of only one year and five months. Considering that the insured died before
the two-year period had lapsed, respondent company is not, therefore, barred from
proving that the policy is void ab initio by reason of the insured's fraudulent
concealment or misrepresentation. Moreover, respondent company rescinded the
contract of insurance and refunded the premiums paid on September 11, 1975,
previous to the commencement of this action on November 27, 1975."
2. The insurer has two years from the date of issuance of the insurance contract or of its last
reinstatement within which to contest the policy, whether or not, the insured still lives within such
period. After two years, the defenses of concealment or misrepresentation, no matter how patent or
well founded, no longer lie. Congress felt this was a sufficient answer to the various tactics
employed by insurance companies to avoid liability. The petitioners' interpretation would give rise
to the incongruous situation where the beneficiaries of an insured who dies right after taking out
and paying for a life insurance policy, would be allowed to collect on the policy even if the insured
fraudulently concealed material facts.
Robert Beltejar
