11/5/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 174

VOL. 174, JUNE 29, 1989 403

Tan vs. Court of Appeals

*
G.R. No. 48049. June 29, 1989.

EMILIO TAN, JUANITO TAN, ALBERTO TAN and

ARTURO TAN, petitioners, vs. THE COURT OF APPEALS
and THE PHILIPPINE AMERICAN LIFE INSURANCE
COMPANY, respondents.

Commercial Law; Insurance; Essence of the phrase

“Incontestabil-ity clause.”—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.”
Same; Same; Same; Respondent company not barred from
proving that the policy is void ab initio by reason of the insured’s
fraudulent concealment or misrepresentation.—As noted by the
Court of Appeals, to wit: “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company rescinded the contract of insurance and refunded the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.”
Same; Same; Same; Incontestability clause is a sufficient
answer to the various tactics employed by insurance companies to
avoid liability.—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

central.com.ph/sfsreader/session/00000175986cf14db7640e93003600fb002c009e/t/?o=False 1/8
11/5/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 174

_______________

* THIRD DIVISION.

404

404 SUPREME COURT REPORTS ANNOTATED

Tan vs. Court of Appeals

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.

PETITION for certiorari to review the decision of the Court

of Appeals.

The facts are stated in the opinion of the Court.

     O.F. Santos & P.C. Nolasco for petitioners.
          Ferry, De la Rosa and Associates for private
respondent.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the Court of

Appeals’ decision affirming the decision of the Insurance
Commissioner which dismissed the petitioners’ complaint
against respondent Philippine American Life Insurance
Company for the recovery of the proceeds from their late
father’s policy.
The facts of the case as found by the Court of Appeals
are:

“Petitioners appeal from the Decision of the Insurance

Commissioner dismissing herein petitioners’ complaint against
respondent Philippine American Life Insurance Company for the
recovery of the proceeds of Policy No. 1082467 in the amount of
P80,000.00.
“On September 23, 1973, Tan Lee Siong, father of herein
petitioners, applied for life insurance in the amount of P80,000.00
with respondent company. Said application was approved and
Policy No. 1082467 was issued effective November 6, 1973, with
petitioners the beneficiaries thereof (Exhibit A).
“On April 26, 1975, Tan Lee Siong died of hepatoma (Exhibit
B). Petitioners then filed with respondent company their claim for
the proceeds of the life insurance policy. However, in a letter
dated September 11, 1975, respondent company denied
petitioners’ claim and rescinded the policy by reason of the alleged
misrepresentation and concealment of material facts made by the

central.com.ph/sfsreader/session/00000175986cf14db7640e93003600fb002c009e/t/?o=False 2/8
11/5/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 174

deceased Tan Lee Siong in his application for insurance (Exhibit

3). The premiums paid on the policy were thereupon refunded.
“Alleging that respondent company’s refusal to pay them the
proceeds of the policy was unjustified and unreasonable,
petitioners filed on November 27, 1975, a complaint against the
former with the Office of the Insurance Commissioner, docketed
as I.C. Case No. 218.

405

VOL. 174, JUNE 29, 1989 405

Tan vs. Court of Appeals

“After hearing the evidence of both parties, the Insurance

Commissioner rendered judgment on August 9, 1977, dismissing
petitioners’’complaint.” (Rollo, pp. 91-92)

The Court of Appeals dismissed the petitioners’ appeal

from the Insurance Commissioner’s decision for lack of
merit. Hence, this petition.
The petitioners raise the following issues in their
assignment of errors, to wit:

A. The conclusion in law of respondent Court that

respondent insurer has the right to rescind the
policy contract when insured is already dead is not
in accordance with existing law and applicable
jurisprudence.
B. The conclusion in law of respondent Court that
respondent insurer may be allowed to avoid the
policy on grounds of concealment by the deceased
assured, is contrary to the provisions of the policy
contract itself, as well as, of applicable legal
provisions and established jurisprudence.
C. The inference of respondent Court that respondent
insurer was misled in issuing the policy are
manifestly mistaken and contrary to admitted
evidence. (Rollo, p. 7)

The petitioners contend that the respondent 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.
The contention is without merit.
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.

central.com.ph/sfsreader/session/00000175986cf14db7640e93003600fb002c009e/t/?o=False 3/8
11/5/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 174

“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 rescindible by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.”

406

406 SUPREME COURT REPORTS ANNOTATED

Tan vs. Court of Appeals

According to the petitioners, the Insurance Law was

amended and the second paragraph of Section 48 added to
prevent the insurance company from exercising a right to
rescind after the death of the insured.
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.”
As noted by the Court of Appeals, to wit:

“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.” (Rollo, pp. 99-100)
xxx     xxx     xxx

The petitioners contend that there could have been no

concealment or misrepresentation by their late father
because Tan Lee Siong did not have to buy insurance. He
was only pressured by insistent salesmen to do so. The
petitioners state:

“Here then is a case of an assured whose application was

submitted because of repeated visits and solicitations by the
insurer’s agent. Assured did not knock at the door of the insurer
to buy insurance. He was the object of solicitations and visits.
“Assured was a man of means. He could have obtained a bigger
insurance, not just P80,000.00. If his purpose were to
misrepresent and to conceal his ailments in anticipation of death
central.com.ph/sfsreader/session/00000175986cf14db7640e93003600fb002c009e/t/?o=False 4/8
11/5/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 174

during the two-year period, he certainly could have gotten a

bigger insurance. He did not.

407

VOL. 174, JUNE 29, 1989 407

Tan vs. Court of Appeals

“Insurer Philamlife could have presented as witness its

Medical Examiner Dr. Urbano Guinto. It was he who
accomplished the application, Part II, medical. Philamlife did not.
“Philamlife could have put to the witness stand its Agent
Bievenido S. Guinto, a relative to Dr. Guinto, Again Philamlife
did not.” (pp. 138-139, Rollo)
xxx     xxx     xxx
“This Honorable Supreme Court has had occasion to denounce
the pressure and practice indulged in by agents in selling
insurance. At one time or another most of us have been subjected
to that pressure, that practice. This court took judicial cognizance
of the whirlwind pressure of insurance selling—especially of the.
Agent’s practice of ‘supplying the information, preparing and
answering the application, submitting the application to their
companies, concluding the transactions and otherwise smoothing
out all difficulties.”
We call attention to what this Honorable Court said in Insular
Life v. Feliciano, et al., 73 Phil. 201; at page 205:

“‘It is of common knowledge that the selling of insurance today is

subjected to the whirlwind pressure of modern salesmanship.’”
“‘Insurance companies send detailed instructions to their agents to
solicit and procure applications.’”
“‘These agents are to be found all over the length and breadth of the
land. They are stimulated to more active efforts by contests and by the
keen competition offered by the other rival insurance companies.’”
“‘They supply all the information, prepare and answer the applications,
submit the applications to their companies, conclude the transactions, and
otherwise smooth out all difficulties.’”
“‘The agents in short do what the company set them out to do.’”

“The Insular Life case was decided some forty years ago when
the pressure of insurance salesmanship was not overwhelming as
it is now; when the population of this country was less than one-
fourth of what it is now; when the insurance companies competing
with one another could be counted by the fingers.” (pp. 140-142,
Rollo)
xxx     xxx     xxx
“In the face of all the above, it would be unjust if, having been
subjected to the whirlwind pressure of insurance salesmanship
this Court itself has long denounced, the assured who dies within
the two-year period, should stand charged of fraudulent
concealment and

central.com.ph/sfsreader/session/00000175986cf14db7640e93003600fb002c009e/t/?o=False 5/8
11/5/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 174

408

408 SUPREME COURT REPORTS ANNOTATED

Tan vs. Court of Appeals

misrepresentation.” (p. 142, Rollo)

The legislative answer to the arguments posed by the

petitioners is the “incontestability clause” added by the
second paragraph of Section 48.
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.
The petitioners argue that no evidence was presented to
show that the medical terms were explained in a layman’s
language to the insured. They state that the insurer should
have presented its two medical field examiners as
witnesses. Moreover, the petitioners allege that the policy
intends that the medical examination must be conducted
before its issuance otherwise the insurer “waives whatever
imperfection by ratification.”
We agree with the Court of Appeals which ruled:

“On the other hand, petitioners argue that no evidence was

presented by respondent company to show that the questions
appearing in Part II of the application for insurance were asked,
explained to and understood by the deceased so as to prove
concealment on his part. The same is not well taken. The
deceased, by affixing his signature on the application form,
affirmed the correctness of all the entries and answers appearing
therein. It is but to be expected that he, a businessman, would not
have affixed his signature on the application form unless he
clearly understood its significance. For, the presumption is that a
person intends the ordinary consequence of his voluntary act and
takes ordinary care of his concerns. [Sec. 5(c) and (d), Rule 131,
Rules of Court].
“The evidence for respondent company shows that on
September 19, 1972, the deceased was examined by Dr. Victoriano
Lim and was

409

central.com.ph/sfsreader/session/00000175986cf14db7640e93003600fb002c009e/t/?o=False 6/8
11/5/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 174

VOL. 174, JUNE 29, 1989 409

Tan vs. Court of Appeals

found to be diabetic and hypertensive; that by January, 1973, the

deceased was complaining of progressive weight loss and
abdominal pain and was diagnosed to be suffering from
hematoma, (t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another
physician, Dr. Wenceslao Vitug, testified that the deceased came
to see him on December 14, 1973 for consulation and claimed to
have been diabetic for five years, (t.s.n., Aug. 23, 1976, p. 5;
Exhibit 6) Because of the concealment made by the deceased of
his consultations and treatments for hypertension, diabetes and
liver disorders, respondent company was thus misled into
accepting the risk and approving his application as medically
standard (Exhibit 5-C) and dispensing with further medical
investigation and examination (Exhibit 5-A). For as long as no
adverse medical history is revealed in the application form, an
applicant for insurance is presumed to be healthy and physically
fit and no further medical investigation or examination is
conducted by respondent company, (t.s.n., April 8, 1976, pp. 6-8).”
(Rollo, pp. 96-98)
There is no strong showing that we should apply the “fine
print” or ‘contract of adhesion” rule in this case. (Sweet Lines, Inc.
v. Teves, 83 SCRA 361 [1978]). The petitioners cite:
“It is a matter of common knowledge that large amounts of
money are collected from ignorant persons by companies and
associations which adopt high sounding titles and print the
amount of benefits they agree to pay in large black-faced type,
following such undertakings by fine print conditions which
destroy the substance of the promise. All provisions, conditions, or
exceptions which in any way tend to work a forfeiture of the policy
should be construed most strongly against those for whose benefit
they are inserted, and most favorably toward those against whom
they are meant to operate. (Trinidad v. Orient Protective
Assurance Assn., 67 Phil. 184)

There is no showing that the questions in the application

form for insurance regarding the insured’s medical history
are in smaller print than the rest of the printed form or
that they are designed in such a way as to conceal from the
applicant their importance. If a warning in bold red letters
or a boxed warning similar to that required for cigarette
advertisements by the Surgeon General of the United
States is necessary, that is for Congress or the Insurance
Commission to provide as protection against high pressure
insurance salesmanship. We are limited
410

410 SUPREME COURT REPORTS ANNOTATED

Gelmart Industries Philippines, Inc. vs. NLRC

central.com.ph/sfsreader/session/00000175986cf14db7640e93003600fb002c009e/t/?o=False 7/8
11/5/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 174

in this petition to ascertaining whether or not the

respondent Court of Appeals committed reversible error. It
is the petitioners’ burden to show that the factual findings
of the respondent court are not based on substantial
evidence or that its conclusions are contrary to applicable
law and jurisprudence. They have failed to discharge that
burden.
WHEREFORE, the petition is hereby DENIED for lack
of merit. The questioned decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.

          Fernan, (C.J., Chairman), Bidin and Cortes, JJ.,

concur.
          Feliciano, J., I did not participate in the
deliberations.

Petition denied. Decision affirmed.

Notes.—The principle of estoppel is not applicable

where insurance company in accepting premium payment
was not guilty of any inequitable act or representation.
(Stokes vs. Malayan Insurance Co., Inc., 127 SCRA 766.)
A contract of insurance is a contract of indemnity upon
the terms and conditions specified therein. (Stokes vs.
Malayan Insurance Co., Inc., 127 SCRA 766.)

——o0o——

© Copyright 2020 Central Book Supply, Inc. All rights reserved.

central.com.ph/sfsreader/session/00000175986cf14db7640e93003600fb002c009e/t/?o=False 8/8