INSURANCE – Concealment, Representation, Warranties: Risk management Devices and Recission of Insurance Contracts

Thereunder; Representation; Incontestability in Life Insurance; Defenses not Barred by Incontestable Clause.
Tan v. CA o Approved 2 months later (6 Nov 1973); Petitioners are the
G.R No. L-48049, 29 June 1989, Guttierez, J. beneficiaries thereof.
 26 Apr 1975: Tan Lee Siong died of Hepatoma
Petitioners: EMILIO TAN, JUANITO TAN, ALBERTO TAN  Petitioners filed to claim the benefits of the policy; However, the
AND ARTURO TAN Respondent Philam Life denied such claim.
Respondents: CA, and Philippine American Life Insurance (Philam Life) o Philam claims that the Insured concealed material facts which
gives Philam a ground to rescind the policy;
Summary of the Facts: o CONCEALMENT: Tan Lee Siong was actually consulting with
Tan Lee Siong took out insurance for P80,000. He died a year and 5 months after doctors and was being treated for hypertension, diabetes, and
the issuance of the policy. Petitioners, his children, filed a claim for benefits from the liver disorders.
insurance company, but they denied such claim and rescinded the insurance policy o Philam refunded all of the paid premiums.
on the ground that the insured made fraudulent misrepresentations and concealed  Aggrieved, Petitioners filed a complaint with the Insurance Commissioner.
material facts. In this case, the insured did not disclose that he was undergoing o Insurance Commissioner dismissed their complaint.
treatment for Diabetes, Hypertension, and Liver Disease. Petitioners assail this  CA affirmed the insurance commissioner and dismissed the appeal;
recission, arguing that recission should be done within the lifetime of the insured.  HENCE, this present petition.
 Petitioner’s Arguments:
The SC rules against the petitioners. They rule that the phrase “during the insured’s o Recission should be done within the lifetime of the insured within 2
lifetime” in Sec. 48(2) only means that the insurance policy no longer has effect after years (from the institution of the insurance policy) and before the
the death of the insured. Thus, the 2-year period (from the date of the issuance of action to claim the benefits is filed.
the policy) to contest any concealment or misrepresentation still persists even after o This argument relies on Sec. 48 (2) of the Insurance Code.
the death of the insured; to rule otherwise would lead to an incongruous situation o That the insured was subjected to the “whirlwind” of insurance
disadvantageous to the insurer. salesmen and was merely induced to enter into a contract of
insurance;
Provisions applicable:  thus, it would be unjust to disallow the collection of the
Insurance Code, Sec 48. benefits.
Whenever a right to rescind a contract of insurance is given to the insurer by any o The insurance policy was not explained in layman’s terms;
provision of this chapter, such right must be exercised previous to the o Medical examination must be conducted before the insurance
commencement of an action on the contract. policy is issued.
 Whatever imperfection in the policy is waved by
After a policy of life insurance made payable on the death of the insured shall have ratification by the insurer.
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 ISSUES/RATIOS:
ab initio or is rescindable by reason of the fraudulent concealment or W/N Respondents have a right to rescind the insurance contract after the
misrepresentation of the insured or his agent. death of the insured? YES
 Sec. 48(2) precludes the insurer from raising issues of false representations
Relevant info on the topic:
or concealment of material facts if the policy has been in effect for at least 2
The non-contestability clause in Sec. 48(2) provides that an insurance company is years during the insured’s lifetime.
barred from rescinding the insurance policy on the grounds of misrepresentation or o The phrase “during the insured’s lifetime” merely means that the
concealment of material facts after 2 years from the date of the issuance of the insurance policy is no longer in force after the insured has died;
policy or its latest reinstatement. This period does not extinguish after death; thus, if o Key phrase: “for a period of two years” (the source of the dispute)
a person who took out insurance on his life then dies right after, his beneficiaries
 Sec. 48(2)’s “non-contestability” clause is the legislative’s answer to the so-
cannot claim benefits if the insured made concealments or misrepresenations of
called “whirlwind” of insurance salesmen.
material facts.
o Insurance salesmen are extremely persistent in getting one to
avail of insurance;
Full FACTS:
 23 Sept 1973: Tan Lee Siong, father of herein petitioners, applied for life
insurance in the amount of P80,000.00 with Respondent Philam Life.
INSURANCE – Concealment, Representation, Warranties: Risk management Devices and Recission of Insurance Contracts
Thereunder; Representation; Incontestability in Life Insurance; Defenses not Barred by Incontestable Clause.
o in other words, they may themselves ask the insured to make
misrepresentations/ concealments about material facts1
o Then, later down the line, the insurance company would rescind
the policy on the basis of such misrepresentations/ concealments.
o To counter such injustice, the “non-contestability” clause provided
that after 2 years of the insurance policy being in effect,
misrepresentations or concealments of material facts could no
longer be contested.
 As the policy has only been in effect for a period of 1 year and 5 months
(23 Sept 1973 – 26 Apr 1975), Respondents are not barred from voiding the
insurance policy on account of the fraudulent misrepresentations/
concealments.
o To this effect, Respondents also returned all paid premiums.
 Petitioner’s argument would result in an incongruous situation
o The insured would still be allowed to collect premiums, with
fraudulent misrepresentations being made, within the 2-year
period to contest such fraud.
o This injustice would occur just because the insured died right after
he took out the insurance policy.

OTHER ISSUES
W/N The insurance policy should have been explained to the insurer in
layman’s terms? NO
 Tan Lee Siong’s signature on the policy implies that he read and
understood the terms of the insurance policy.
o As he was a businessman, it is assumed that he would not sign
anything without understanding its contents;
o The law presumes that a person intends the consequences of his
actions and takes ordinary care of his concerns.
 Neither should the “contract of adhesion” or “fine print” rules be applied in
this case.
o No showing that parts of the contract were printed in such a way
as to conceal their importance to the applicant (e.g. some parts
were not printed in a smaller font than others)
 Absent any evidence, the legal presumption is that the deceased knew and
understood the terms of the insurance policy.
o Burden of proof is now on those who allege otherwise (Here, the
Petitioners), and they have failed to discharge such burden.

Ruling: CA is AFFIRMED; Petition is DISMISSED.

1 Digester’s note