SECOND DIVISION
G.R. No. 195176, April 18, 2016
THE INSULAR LIFE ASSURANCE COMPANY, LTD., Petitioner, v. PAZ Y. KHU, FELIPE Y. KHU, JR., AND FREDERICK Y. KHU, Respondents.
D E C I S I O N
DEL CASTILLO, J.:
The date of last reinstatement mentioned in Section 48 of the Insurance Code pertains to the date that the insurer approved' the application for reinstatement. However, in light of the ambiguity in the insurance documents to this case, this Court adopts the interpretation favorable to the insured in determining the date when the reinstatement was approved.
Assailed in this Petition for Review on Certiorari1 are the June 24, 2010 Decision2 of the Court of Appeals (CA), which dismissed the Petition in CA-GR. CV No. 81730, and its December 13, 2010 Resolution,3 which denied the petitioner Insular Life Assurance Company Ltd.'s (Insular Life) motion for partial reconsideration.4
Factual Antecedents
On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy 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 Policy Number A000015683 with a face value of PI million. This took effect on June 22, 1997.5
On June 23, 1999, Felipe's policy lapsed due to non-payment of the premium covering the period from June 22, 1999 to June 23, 2000.6
On September 7, 1999, Felipe applied for the reinstatement of his policy and paid P25,020.00 as premium. Except for the change in his occupation of being self-employed to being the Municipal Mayor of Binuangan, Misamis Oriental, all the other information submitted by Felipe in his application for reinstatement was virtually identical to those mentioned in his original policy.7
On October 12, 1999, Insular Life advised Felipe that his application for reinstatement may only be considered if he agreed to certain conditions such as payment of additional premium and the cancellation of the riders pertaining to premium waiver and accidental death benefits. Felipe agreed to these conditions8 and on December 27, 1999 paid the agreed additional premium of P3,054.50.9
On January 7, 2000, Insular Life issued Endorsement No. PN-A000015683, which reads:
chanRoblesvirtualLawlibrary
This certifies that as agreed by the Insured, the reinstatement of this policy has been approved by the Company on the understanding that the following changes are made on the policy effective June 22, 1999:On June 23, 2000, Felipe paid the annual premium in the amount of P28,000.00 covering the period from June 22, 2000 to June 22, 2001. And on July 2, 2001, he also paid the same amount as annual premium covering the period from June 22,2001 to June 21, 2002.11
1. The EXTRA PREMIUM is imposed; and
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY (WPD) rider originally attached to and forming parts of this policy [are] deleted.
In consequence thereof, the premium rates on this policy are adjusted to P28,000.00 annually, P14,843.00 semi-annually and P7,557.00 quarterly, Philippine currency.10ChanRoblesVirtualawlibrary
Immediate cause: a. End stage renal failure, Hepatic failureOn October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. .and Frederick Y. Khu (collectively, Felipe's beneficiaries or respondents) filed with Insular Life a claim for benefit under the reinstated policy. This claim was denied. Instead, Insular Life advised Felipe's beneficiaries that it had decided to rescind the reinstated policy on the grounds of concealment and misrepresentation by Felipe.
Antecedent cause: b. Congestive heart failure, Diffuse myocardial ischemia.
Underlying cause: c. Diabetes Neuropathy, Alcoholism, and Pneumonia.12ChanRoblesVirtualawlibrary
WHEREFORE, in view of the foregoing, plaintiffs having substantiated [their] claim by preponderance of evidence, judgment is hereby rendered in their 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 date of demand until it is fully paid representing the face value of Plan Diamond Jubilee No. PN-A000015683 issued to insured the late Felipe N. Khu[,] Sr; the sum of P20.000.00 as moral damages; P30,000.00 as attorney's fees; P10,000.00 as litigation expenses.In ordering Insular Life to pay Felipe's beneficiaries, the RTC agreed with the latter's claim that the insurance policy was reinstated on June 22, 1999. The RTC cited the ruling in Malayan Insurance Corporation v. Court of Appeals17 that any ambiguity in a contract of insurance should be resolved strictly against the insurer upon the principle that an insurance contract is a contract of adhesion.18 The RTC also held that the reinstated insurance policy had already become incontestable by the time of Felipe's death on September 22, 2001 since more than two years had already lapsed from the date of the policy's reinstatement on June 22, 1999. The RTC noted that' since it was Insular Life itself that supplied all the pertinent forms relative to the reinstated policy, then it is barred from taking advantage of any ambiguity/obscurity perceived therein particularly as regards the date when the reinstated insurance policy became effective.
SO ORDERED.16ChanRoblesVirtualawlibrary
WHEREFORE, the appeal is DISMISSED. The assailed Judgment of the lower court is AFFIRMED with the MODIFICATION that the award of moral damages, attorney's fees and litigation expenses [is] DELETED.The CA upheld the RTC's ruling on the non-contestability of the reinstated insurance policy on the date the insured died. It declared that contrary to Insular Life's contention, there in fact exists a genuine ambiguity or obscurity in the language of the two documents prepared by Insular Life itself, viz., Felipe's Letter of Acceptance and Insular Life's Endorsement; that given the obscurity/ambiguity in the language of these two documents, the construction/interpretation that favors the insured's right to recover should be adopted; and that in keeping with this principle, the insurance policy in dispute must be deemed reinstated as of June 22, 1999.21
SO ORDERED.20ChanRoblesVirtualawlibrary
Sec. 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.The rationale for this provision was discussed by the Court in Manila Bankers Life Insurance Corporation v. Aban,29
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.
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 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.In Lalican v. The Insular Life Assurance Company, Limited,30 which coincidentally also involves the herein petitioner, it was there held that the 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 stressed that:
x x x x
The Court therefore agrees fully with the appellate court's pronouncement that-
x x x x
'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 beneficiary to recover under the policy.
At least two (2) years from the issuance of the policy or its last reinstatement, the beneficiary is given the stability to recover under the policy when the insured dies. The provision also makes clear when the two-year period should commence in case the policy should lapse and is reinstated, that is, from the date of the last reinstatement'.
To reinstate a policy means to restore the same to premium-paying status after it has been permitted to lapse. x x xThus, it is settled that the reinstatement of an insurance policy should be reckoned from the date when the same was approved by the insurer.
x x x x
In the instant case, Eulogio's death rendered impossible full compliance with the conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed to file his Application for Reinstatement and deposit the amount for payment of his overdue premiums and interests thereon with Malaluan; but Policy No. 9011992 could only be considered reinstated after the Application for Reinstatement had been processed and approved by Insular Life during Eulogio's lifetime and good health.31ChanRoblesVirtualawlibrary
After Felipe accomplished this form, Insular Life, through its Regional Administrative Manager, Jesse James R. Toyhorada, issued an Endorsement33 dated January 7, 2000. For emphasis, the Endorsement is again quoted as follows:LETTER OF ACCEPTANCE Place: Cag. De [O]ro City
The Insular Life Assurance Co., Ltd.
P.O. Box 128, MANILA
Policy No. A000015683
Gentlemen:
Thru your Reinstatement Section, I/WE learned that this policy may be 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; effective June 22,1999 [ ] Accept the rating on the WPD at ____ at standard rates; the ABD at ____ the standard rates; the SAR at P ____ annually perthousand of Insurance; [xx] Accept the cancellation of the Premium waiver & Accidental death benefit. [ ]
I am/we are agreeable to the above condition/s. Please proceed with the reinstatement of the policy.
Very truly yours,
Felipe N. Khu, Sr.
Based on the foregoing, we find that the CA did not commit any error in holding that the subject insurance policy be considered as reinstated on June 22, 1999. This finding 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.34ENDORSEMENT
PN-A000015683
This certifies that as agreed to by the Insured, the reinstatement of this policy has been approved by the Company on the understanding that the following changes are made on the policy effective June 22, 1999:
1. The EXTRA PREMIUM is imposed; and
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY (WPD) rider originally attached to and forming parts of this policy is deleted.
In consequence thereof, the PREMIUM RATES on this policy are adjusted to [P]28,000.00 annuallly, [P]14,843.00 semi-annually and [P]7,557.00 quarterly, Philippine Currency.
Cagayan de Oro City, 07 January 2000.
RCV/(Signed) Authorized Signature
The Court discerns a genuine ambiguity or obscurity in the language of the two documents.In Eternal Gardens Memorial Park Corporation v. The Philippine American Life Insurance Company,36 we ruled in favor of the insured and in favor of the erfectivity of the insurance contract in the midst of ambiguity in the insurance contract provisions. We held that:
In the Letter of Acceptance, Khu declared that he was accepting "the imposition of an extra/additional x x x premium of P5.00 a year per thousand of insurance; effective June 22, 1999". It is true that the phrase as used in this particular paragraph does not refer explicitly to the effectivity of the reinstatement. But the Court notes that the reinstatement was conditioned upon the payment of additional premium not only prospectively, that is, to 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 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 June 22, 1999. At the very least, this circumstance has engendered a true lacuna.
hi the Endorsement, the obscurity is patent. In the first sentence of the Endorsement, it is not entirely clear whether the phrase "effective 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."
The court below is correct. Given the obscurity of the language, the construction favorable to the insured will be adopted by the courts.
Accordingly, the subject policy is deemed reinstated as of June 22, 1999. Thus, the period of contestability has lapsed.35ChanRoblesVirtualawlibrary
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: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.
chanRoblesvirtualLawlibraryIndemnity 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 noncompliance with its obligations.x x x x
As a final 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 effective insurance contract.37ChanRoblesVirtualawlibrary
Endnotes:
1Rollo, pp. 28-69.
2 Id. at 70-82; penned by Associate Justice Romuio V. Borja and concurred in by Associate Justices Edgardo T. Lloren and Ramon Paul L. Hernando.
3 Id. at 83-84.
4 Id. at 442-461.
5 Id. at 71.
6 Id.
7 Id
8 Id. at unpaginated before p. 72.
9 Id. at 72.
10 Records, p. 80.
11Rollo, p. 72.
12 Id. at 72-73.
13 Id. at 70 and 73.
14 Id. at unpaginated before p. 74.
15 Id. at 277-297; penned by Judge Downey C. Valdevilla.
16 Id. at 296-297.
17 336 Phil. 977 (1997).
18 Id. at 989.
19Rollo, p. 70-82.
20 Id. at 81-82.
21 Id. at 80-81.
22 Id. at 442-461.
23 Id. at 83-84.
24 Id. at 583.cralawred
25 Id. at 581-582.
26 Id. at 592.cralawred
27 Id. at 611.
28 Id. at 607.
29 GR. No. 175666, July 29, 2013, 702 SCRA 417, 427-429.
30 613 Phil. 518 (2009).
31 Id. at 535-537.
32 Records, p. 85, dorsal side.
33 Id. at 80.
34 CIVIL CODE OF THE PHILIPPINES, Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.
35Rollo, pp. 80-81.
36 574 Phil. 161 (2008).
37 Id. at 172-174.