1 INSURANCE BATCH 1
RAFAEL ENRIQUEZ vs. SUN LIFE ASSURANCE COMPANY OF CANADA Our deduction from the evidence on this issue must be that the letter of November 26, 1917,
This is an action brought by the plaintiff ad administrator of the estate of the late Joaquin Ma.
Herrer to recover from the defendant life insurance company the sum of pesos 6,000 paid by
the deceased for a life annuity. The trial court gave judgment for the defendant. Plaintiff
appeals.
The undisputed facts are these: On September 24, 1917, Joaquin Herrer made application to
the Sun Life Assurance Company of Canada through its office in Manila for a life annuity. Two
days later he paid the sum of P6,000 to the manager of the company's Manila office and was
given a receipt reading as follows:
MANILA, I. F., 26 de septiembre, 1917. PROVISIONAL RECEIPT Pesos 6,000
Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como prima dela Renta
Vitalicia solicitada por dicho Don Joaquin Herrer hoy, sujeta al examen medico y aprobacion
de la Oficina Central de la Compaia.
The application was immediately forwarded to the head office of the company at Montreal,
Canada. On November 26, 1917, the head office gave notice of acceptance by cable to
Manila. (Whether on the same day the cable was received notice was sent by the Manila
office of Herrer that the application had been accepted, is a disputed point, which will be
discussed later.) On December 4, 1917, the policy was issued at Montreal. On December 18,
1917, attorney Aurelio A. Torres wrote to the Manila office of the company stating that Herrer
desired to withdraw his application. The following day the local office replied to Mr. Torres,
stating that the policy had been issued, and called attention to the notification of November
26, 1917. This letter was received by Mr. Torres on the morning of December 21, 1917. Mr.
Herrer died on December 20, 1917.
As above suggested, the issue of fact raised by the evidence is whether Herrer received
notice of acceptance of his application. To resolve this question, we propose to go directly to
the evidence of record.
The chief clerk of the Manila office of the Sun Life Assurance Company of Canada at the time
of the trial testified that he prepared the letter introduced in evidence as Exhibit 3, of date
November 26, 1917, and handed it to the local manager, Mr. E. E. White, for signature. The
witness admitted on cross-examination that after preparing the letter and giving it to he
manager, he new nothing of what became of it. The local manager, Mr. White, testified to
having received the cablegram accepting the application of Mr. Herrer from the home office
on November 26, 1917. He said that on the same day he signed a letter notifying Mr. Herrer
of this acceptance. The witness further said that letters, after being signed, were sent to the
chief clerk and placed on the mailing desk for transmission. The witness could not tell if the
letter had every actually been placed in the mails. Mr. Tuason, who was the chief clerk, on
November 26, 1917, was not called as a witness. For the defense, attorney Manuel Torres
testified to having prepared the will of Joaquin Ma. Herrer, that on this occasion, Mr. Herrer
mentioned his application for a life annuity, and that he said that the only document relating to
the transaction in his possession was the provisional receipt. Rafael Enriquez, the
administrator of the estate, testified that he had gone through the effects of the deceased and
had found no letter of notification from the insurance company to Mr. Herrer.
notifying Mr. Herrer that his application had been accepted, was prepared and signed in the
local office of the insurance company, was placed in the ordinary channels for transmission,
but as far as we know, was never actually mailed and thus was never received by the
applicant.
Not forgetting our conclusion of fact, it next becomes necessary to determine the law which
should be applied to the facts. In order to reach our legal goal, the obvious signposts along
the way must be noticed.
Until quite recently, all of the provisions concerning life insurance in the Philippines were
found in the Code of Commerce and the Civil Code. In the Code of the Commerce, there
formerly existed Title VIII of Book III and Section III of Title III of Book III, which dealt with
insurance contracts. In the Civil Code there formerly existed and presumably still exist,
Chapters II and IV, entitled insurance contracts and life annuities, respectively, of Title XII of
Book IV. On the after July 1, 1915, there was, however, in force the Insurance Act. No. 2427.
Chapter IV of this Act concerns life and health insurance. The Act expressly repealed Title VIII
of Book II and Section III of Title III of Book III of the code of Commerce. The law of insurance
is consequently now found in the Insurance Act and the Civil Code.
While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the
methods to be followed in order that there may be a contract of insurance. On the other hand,
the Civil Code, in article 1802, not only describes a contact of life annuity markedly similar to
the one we are considering, but in two other articles, gives strong clues as to the proper
disposition of the case. For instance, article 16 of the Civil Code provides that "In matters
which are governed by special laws, any deficiency of the latter shall be supplied by the
provisions of this Code." On the supposition, therefore, which is incontestable, that the special
law on the subject of insurance is deficient in enunciating the principles governing
acceptance, the subject-matter of the Civil code, if there be any, would be controlling. In the
Civil Code is found article 1262 providing that "Consent is shown by the concurrence of offer
and acceptance with respect to the thing and the consideration which are to constitute the
contract. An acceptance made by letter shall not bind the person making the offer except from
the time it came to his knowledge. The contract, in such case, is presumed to have been
entered into at the place where the offer was made." This latter article is in opposition to the
provisions of article 54 of the Code of Commerce.
If no mistake has been made in announcing the successive steps by which we reach a
conclusion, then the only duty remaining is for the court to apply the law as it is found. The
legislature in its wisdom having enacted a new law on insurance, and expressly repealed the
provisions in the Code of Commerce on the same subject, and having thus left a void in the
commercial law, it would seem logical to make use of the only pertinent provision of law found
in the Civil code, closely related to the chapter concerning life annuities.
The Civil Code rule, that an acceptance made by letter shall bind the person making the offer
only from the date it came to his knowledge, may not be the best expression of modern
commercial usage. Still it must be admitted that its enforcement avoids uncertainty and tends
to security. Not only this, but in order that the principle may not be taken too lightly, let it be
noticed that it is identical with the principles announced by a considerable number of
respectable courts in the United States. The courts who take this view have expressly held
that an acceptance of an offer of insurance not actually or constructively communicated to the
proposer does not make a contract. Only the mailing of acceptance, it has been said,
2 INSURANCE BATCH 1
completes the contract of insurance, as the locus poenitentiae is ended when the acceptance
has passed beyond the control of the party.
In resume, therefore, the law applicable to the case is found to be the second paragraph of
article 1262 of the Civil Code providing that an acceptance made by letter shall not bind the
person making the offer except from the time it came to his knowledge. The pertinent fact is,
that according to the provisional receipt, three things had to be accomplished by the
insurance company before there was a contract: (1) There had to be a medical examination
of the applicant; (2) there had to be approval of the application by the head office of the
company; and (3) this approval had in some way to be communicated by the company to the
applicant. The further admitted facts are that the head office in Montreal did accept the
application, did cable the Manila office to that effect, did actually issue the policy and did,
through its agent in Manila, actually write the letter of notification and place it in the usual
channels for transmission to the addressee. The fact as to the letter of notification thus fails to
concur with the essential elements of the general rule pertaining to the mailing and delivery of
mail matter as announced by the American courts, namely, when a letter or other mail matter
is addressed and mailed with postage prepaid there is a rebuttable presumption of fact that it
was received by the addressee as soon as it could have been transmitted to him in the
ordinary course of the mails. But if any one of these elemental facts fails to appear, it is fatal
to the presumption. For instance, a letter will not be presumed to have been received by the
addressee unless it is shown that it was deposited in the post-office, properly addressed and
stamped. (See 22 C.J., 96, and 49 L. R. A. [N. S.], pp. 458, et seq., notes.)
We hold that the contract for a life annuity in the case at bar was not perfected because it has
not been proved satisfactorily that the acceptance of the application ever came to the
knowledge of the applicant.lawph!l.net
Judgment is reversed, and the plaintiff shall have and recover from the defendant the sum of
P6,000 with legal interest from November 20, 1918, until paid, without special finding as to
costs in either instance. So ordered.
RAFAEL ENRIQUEZ vs. SUN LIFE ASSURANCE COMPANY OF CANADA
FACTS: On September 24, 1917, Joaquin Herrer made application to the Sun Life Assurance
Company of Canada through its office in Manila for a life annuity. Two days later he paid the
sum of P6,000 to the manager of the company's Manila office and was given a provisional
receipt.
The application was forwarded to the head office of the company at Montreal, Canada and on
November 26, 1917 a notice of acceptance was sent by cable to Manila. (There is no
evidence however, whether on the same day the cable was received notice was sent by the
Manila office of Herrer that the application had been accepted)
On December 4, 1917, the policy was issued. On December 18, 1917, Herrer communicated
his desire to withdraw his application through his lawyer. The local office replied to Mr. Torres,
stating that the policy had been issued, and called attention to the notification of November
26, 1917. The reply was received by Herrer's council a day after the latter died.
Plaintiff ad administrator of the estate of the late Joaquin Ma. Herrer to recover from the
defendant life insurance company the sum of pesos 6,000 paid by the deceased for a life
annuity. The trial court gave judgment for the defendant.
ISSUE: Whether or not the insurance contract between Sun Life and Herrer has been
perfected
RULING: No, the contract for a life annuity in the case at bar was not perfected because it
has not been proved satisfactorily that the acceptance of the application ever came to the
knowledge of the applicant.
An acceptance of an offer of insurance not actually or constructively communicated to the
proposer does not make a contract. Only the mailing of acceptance, it has been said,
completes the contract of insurance, as the locus poenitentiae is ended when the acceptance
has passed beyond the control of the party.
An acceptance made by letter shall not bind the person making the offer except from the time
it came to his knowledge (Civil Code Art. 1262). When a letter or other mail matter is
addressed and mailed with postage prepaid there is a rebuttable presumption of fact that it
was received by the addressee as soon as it could have been transmitted to him in the
ordinary course of the mails. But if any one of these elemental facts fails to appear, it is fatal
to the presumption. A letter will not be presumed to have been received by the addressee
unless it is shown that it was deposited in the post-office, properly addressed and stamped.
ETERNAL GARDENS MEMORIAL PARK VS PHILIPPINE AMERICAN LIFE INSURANCE
The Case
Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set
aside the November 26, 2004 Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No.
57810 is the query: May the inaction of the insurer on the insurance application be considered
as approval of the application?
The Facts
On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife)
entered into an agreement denominated as Creditor Group Life Policy No. P-1920 [2] with
petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients
of Eternal who purchased burial lots from it on installment basis would be insured by
Philamlife. The amount of insurance coverage depended upon the existing balance of the
purchased burial lots. The policy was to be effective for a period of one year, renewable on a
yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years
of age, is indebted to the Assured for the unpaid balance of his loan with the
Assured, and is accepted for Life Insurance coverage by the Company on its
effective date is eligible for insurance under the Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of insurance up to
P50,000.00. However, a declaration of good health shall be required for all Lot
Purchasers as part of the application. The Company reserves the right to require
further evidence of insurability satisfactory to the Company in respect of the
following:
1. Any amount of insurance in excess of P50,000.00.
3 INSURANCE BATCH 1
2. Any lot purchaser who is more than 55 years of age.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot Purchaser at any time shall be the
amount of the unpaid balance of his loan (including arrears up to but not
exceeding 2 months) as reported by the Assured to the Company or the sum of
P100,000.00, whichever is smaller. Such benefit shall be paid to the Assured if
the Lot Purchaser dies while insured under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he
contracts a loan with the Assured. However, there shall be no insurance if the
application of the Lot Purchaser is not approved by the Company.[3]
Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers,
together with a copy of the application of each purchaser, and the amounts of the respective
unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal
complied by submitting a letter dated December 29, 1982, [4] containing a list of insurable
balances of its lot buyers for October 1982. One of those included in the list as new business
was a certain John Chuang. His balance of payments was PhP 100,000. On August 2, 1984,
Chuang died.
Eternal sent a letter dated August 20, 1984[5] to Philamlife, which served as an insurance
claim for Chuangs death. Attached to the claim were the following documents: (1) Chuangs
Certificate of Death; (2) Identification Certificate stating that Chuang is a naturalized Filipino
Citizen; (3) Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assureds
Certificate.
In reply, Philamlife wrote Eternal a letter on November 12, 1984, [6] requiring Eternal to submit
the following documents relative to its insurance claim for Chuangs death: (1) Certificate of
Claimant (with form attached); (2) Assureds Certificate (with form attached); (3) Application for
Insurance accomplished and signed by the insured, Chuang, while still living; and (4)
Statement of Account showing the unpaid balance of Chuang before his death.
Eternal transmitted the required documents through a letter dated November 14, 1984,
[7]
which was received by Philamlife on November 15, 1984.
After more than a year, Philamlife had not furnished Eternal with any reply to the
latters insurance claim. This prompted Eternal to demand from Philamlife the payment of the
claim for PhP 100,000 on April 25, 1986.[8]
In response to Eternals demand, Philamlife denied Eternals insurance claim in a
letter dated May 20, 1986,[9] a portion of which reads:
The deceased was 59 years old when he entered into Contract #9558 and 9529
with Eternal Gardens Memorial Park in October 1982 for the total maximum
insurable amount of P100,000.00 each. No application for Group Insurance was
submitted in our office prior to his death on August 2, 1984.
In accordance with our Creditors Group Life Policy No. P-1920, under Evidence of
Insurability provision, a declaration of good health shall be required for all Lot
Purchasers as party of the application. We cite further the provision on Effective
Date of Coverage under the policy which states that there shall be no insurance if
the application is not approved by the Company. Since no application had been
submitted by the Insured/Assured, prior to his death, for our approval but was
submitted instead on November 15, 1984, after his death, Mr. John Uy Chuang
was not covered under the Policy. We wish to point out that Eternal Gardens being
the Assured was a party to the Contract and was therefore aware of these
pertinent provisions.
With regard to our acceptance of premiums, these do not connote our approval
per se of the insurance coverage but are held by us in trust for the payor until the
prerequisites for insurance coverage shall have been met. We will however, return
all the premiums which have been paid in behalf of John Uy Chuang.
Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a
sum of money against Philamlife, docketed as Civil Case No. 14736. The trial court decided in
favor of Eternal, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
Plaintiff ETERNAL, against Defendant PHILAMLIFE, ordering the Defendant
PHILAMLIFE, to pay the sum of P100,000.00, representing the proceeds of the
Policy of John Uy Chuang, plus legal rate of interest, until fully paid; and, to pay
the sum of P10,000.00 as attorneys fees. SO ORDERED.
The RTC found that Eternal submitted Chuangs application for insurance which he
accomplished before his death, as testified to by Eternals witness and evidenced by the letter
dated December 29, 1982, stating, among others: Encl: Phil-Am Life Insurance Application
Forms & Cert.[10] It further ruled that due to Philamlifes inaction from the submission of the
requirements of the group insurance on December 29, 1982 to Chuangs death on August 2,
1984, as well as Philamlifes acceptance of the premiums during the same period, Philamlife
was deemed to have approved Chuangs application. The RTC said that since the contract is
a group life insurance, once proof of death is submitted, payment must follow.
Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No.
57810 is REVERSED and SET ASIDE, and the complaint is DISMISSED. No
costs. SO ORDERED.[11]
The CA based its Decision on the factual finding that Chuangs application was not enclosed
in Eternals letter dated December 29, 1982. It further ruled that the non-accomplishment of
the submitted application form violated Section 26 of the Insurance Code. Thus, the CA
concluded, there being no application form, Chuang was not covered by Philamlifes
insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of substance, not
therefore determined by this Honorable Court, or has decided it in a way not in
accord with law or with the applicable jurisprudence, in holding that:
I. The application for insurance was not duly submitted to respondent
PhilamLife before the death of John Chuang;
II. There was no valid insurance coverage; and
III. Reversing and setting aside the Decision of the Regional Trial Court
dated May 29, 1996.
The Courts Ruling
As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised
before the CA and first level courts, considering their findings of facts are conclusive and
binding on this Court. However, such rule is subject to exceptions, as enunciated
in Sampayan v. Court of Appeals:
4 INSURANCE BATCH 1
(1) when the findings are grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of facts are
conflicting; (6) when in making its findings the [CA] went beyond the issues of the
case, or its findings are contrary to the admissions of both the appellant and the
appellee; (7) when the findings [of the CA] are contrary to the trial court; (8)
when the findings are conclusions without citation of specific evidence on which
they are based; (9) when the facts set forth in the petition as well as in the
petitioners main and reply briefs are not disputed by the respondent; (10) when
the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by the parties, which, if
properly considered, would justify a different conclusion.[12] (Emphasis supplied.)
In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court
may review them.
Eternal claims that the evidence that it presented before the trial court supports its contention
that it submitted a copy of the insurance application of Chuang before his death. In Eternals
letter dated December 29, 1982, a list of insurable interests of buyers for October 1982 was
attached, including Chuang in the list of new businesses. Eternal added it was noted at the
bottom of said letter that the corresponding Phil-Am Life Insurance Application Forms & Cert.
were enclosed in the letter that was apparently received by Philamlife on January 15, 1983.
Finally, Eternal alleged that it provided a copy of the insurance application which was signed
by Chuang himself and executed before his death.
On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient,
arguing that Eternal must present evidence showing that Philamlife received a copy of
Chuangs insurance application.
The evidence on record supports Eternals position.
The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as
received, states that the insurance forms for the attached list of burial lot buyers were
attached to the letter. Such stamp of receipt has the effect of acknowledging receipt of the
letter together with the attachments. Such receipt is an admission by Philamlife against its
own interest.[13] The burden of evidence has shifted to Philamlife, which must prove that the
letter did not contain Chuangs insurance application. However, Philamlife failed to do so;
thus, Philamlife is deemed to have received Chuangs insurance application.
To reiterate, it was Philamlifes bounden duty to make sure that before a transmittal letter is
stamped as received, the contents of the letter are correct and accounted for.
Philamlifes allegation that Eternals witnesses ran out of credibility and reliability due to
inconsistencies is groundless. The trial court is in the best position to determine the reliability
and credibility of the witnesses, because it has the opportunity to observe firsthand the
witnesses demeanor, conduct, and attitude. Findings of the trial court on such matters are
binding and conclusive on the appellate court, unless some facts or circumstances of weight
and substance have been overlooked, misapprehended, or misinterpreted, [14] that, if
considered, might affect the result of the case.[15]
An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals
no overlooked facts of substance and value.
Philamlife primarily claims that Eternal did not even know where the original insurance
application of Chuang was, as shown by the testimony of Edilberto Mendoza:
Atty. Arevalo:
Q Where is the original of the application form which is required in case of new
coverage?
[Mendoza:]
A It is [a] standard operating procedure for the new client to fill up two copies of
this form and the original of this is submitted to Philamlife together with the
monthly remittances and the second copy is remained or retained with the
marketing department of Eternal Gardens.
Atty. Miranda:
We move to strike out the answer as it is not responsive as counsel is merely
asking for the location and does not [ask] for the number of copy.
Atty. Arevalo:
Q Where is the original?
[Mendoza:]
A As far as I remember I do not know where the original but when I submitted
with that payment together with the new clients all the originals I see to it before I
sign the transmittal letter the originals are attached therein.[16]
In other words, the witness admitted not knowing where the original insurance
application was, but believed that the application was transmitted to Philamlife as an
attachment to a transmittal letter.
As to the seeming inconsistencies between the testimony of Manuel Cortez on
whether one or two insurance application forms were accomplished and the testimony of
Mendoza on who actually filled out the application form, these are minor inconsistencies that
do not affect the credibility of the witnesses. Thus, we ruled in People v. Paredes that minor
inconsistencies are too trivial to affect the credibility of witnesses, and these may even serve
to strengthen their credibility as these negate any suspicion that the testimonies have been
rehearsed.[17]
In the present case, the number of copies of the insurance application that Chuang executed
is not at issue, neither is whether the insurance application presented by Eternal has been
falsified. Thus, the inconsistencies pointed out by Philamlife are minor and do not affect the
credibility of Eternals witnesses.
However, the question arises as to whether Philamlife assumed the risk of loss without
approving the application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor
Group Life Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date
he contracts a loan with the Assured. However, there shall be no
insurance if the application of the Lot Purchaser is not approved by the
Company.
5 INSURANCE BATCH 1
An examination of the above provision would show ambiguity between its two sentences. The
first sentence appears to state that the insurance coverage of the clients of Eternal already
became effective upon contracting a loan with Eternal while the second sentence appears to
require Philamlife to approve the insurance contract before the same can become effective.
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 latters 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 noncompliance with
its obligations[19]
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.[20]
Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920
dated December 10, 1980, must be construed in favor of the insured and in favor of the
effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions must be harmonized to
mean that upon a partys purchase of a memorial lot on installment from Eternal, an insurance
contract covering the lot purchaser is created and the same is effective, valid, and binding
until terminated by Philamlife by disapproving the insurance application. The second
sentence of Creditor Group Life Policy No. P-1920 on the Effective Date of Benefit is in the
nature of a resolutory condition which would lead to the cessation of the insurance contract.
Moreover, the mere inaction of the insurer on the insurance application must not work to
prejudice the insured; it cannot be interpreted as a termination of the insurance contract. The
termination of the insurance contract by the insurer must be explicit and unambiguous.
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.[21]
WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV
No. 57810 is REVERSED and SET ASIDE. The May 29, 1996 Decision of the Makati City
RTC, Branch 138 is MODIFIED. Philamlife is hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life
Insurance Policy of Chuang;
(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000
from the time of extra-judicial demand by Eternal until Philamlifes receipt of the May 29, 1996
RTC Decision on June 17, 1996;
(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP
100,000 from June 17, 1996 until full payment of this award; and
(4) To pay Eternal attorneys fees in the amount of PhP 10,000. No costs. SO ORDERED.
ETERNAL GARDENS MEMORIAL PARK CORPORATION vs. THE PHILIPPINE
AMERICAN LIFE INSURANCE COMPANY
FACTS: Philamlife) entered into an agreement denominated as Creditor Group Life Policy
No. P-19202 with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the
policy, the clients of Eternal who purchased burial lots from it on installment basis would be
insured by Philamlife. The amount of insurance coverage depended upon the existing
balance of the purchased burial lots.
Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers,
together with a copy of the application of each purchaser, and the amounts of the respective
unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal
complied by submitting a letter dated December 29, 1982,4 containing a list of insurable
balances of its lot buyers for October 1982. One of those included in the list as "new
business" was a certain John Chuang. His balance of payments was PhP 100,000. On
August 2, 1984, Chuang died. Eternal sent a letter dated August 20, 19845 to Philamlife,
which served as an insurance claim for Chuang's death.After more than a year, Philamlife had
not furnished Eternal with any reply to the latter's insurance claim. This prompted Eternal to
demand from Philamlife the payment of the claim for PhP 100,000 on April 25, 1986.8
In response to Eternal's demand, Philamlife denied Eternal's insurance claim in a letter dated
May 20, 1986. Consequently, Eternal filed a case before the Makati City Regional Trial Court
(RTC).
DECISION OF LOWER COURTS:
(1) RTC : in favor of Eternal. due to Philamlife's inaction from the submission of the
requirements of the group insurance on December 29, 1982 to Chuang's death on August 2,
1984, as well as Philamlife's acceptance of the premiums during the same period, Philamlife
was deemed to have approved Chuang's application. The RTC said that since the contract is
a group life insurance, once proof of death is submitted, payment must follow.
(2) CA : in favor of Philamlife. there being no application form, Chuang was not covered by
Philamlife's insurance.
ISSUE: May the inaction of the insurer on the insurance application be considered as
approval of the application?
RULING: YES As earlier stated, Philamlife and Eternal entered into an agreement
denominated as Creditor Group Life Policy No. P-1920 dated December 10, 1980. In the
policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
6 INSURANCE BATCH 1
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan
with the Assured. However, there shall be no insurance if the application of the Lot Purchaser
is not approved by the Company.
An examination of the above provision would show ambiguity between its two sentences. The
first sentence appears to state that the insurance coverage of the clients of Eternal already
became effective upon contracting a loan with Eternal while the second sentence appears to
require Philamlife to approve the insurance contract before the same can become effective.
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.
The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as
received, states that the insurance forms for the attached list of burial lot buyers were
attached to the letter. Such stamp of receipt has the effect of acknowledging receipt of the
letter together with the attachments. Such receipt is an admission by Philamlife against its
own interest.13 The burden of evidence has shifted to Philamlife, which must prove that the
letter did not contain Chuang's insurance application. However, Philamlife failed to do so;
thus, Philamlife is deemed to have received Chuang's insurance application.
the seemingly conflicting provisions must be harmonized to mean that upon a party's
purchase of a memorial lot on installment from Eternal, an insurance contract covering the lot
purchaser is created and the same is effective, valid, and binding until terminated by
Philamlife by disapproving the insurance application. The second sentence of Creditor Group
Life Policy No. P-1920 on the Effective Date of Benefit is in the nature of a resolutory
condition which would lead to the cessation of the insurance contract. Moreover, the mere
inaction of the insurer on the insurance application must not work to prejudice the insured; it
cannot be interpreted as a termination of the insurance contract. The termination of the
insurance contract by the insurer must be explicit and unambiguous.
PHILAMCARE HEALTH SYSTEMS, INC. vs. COURT OF APPEALS
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care
coverage with petitioner Philamcare Health Systems, Inc. In the standard application form, he
answered no to the following question:
Have you or any of your family members ever consulted or been treated for high blood
pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give
details).[1]
The application was approved for a period of one year from March 1, 1988 to March 1,
1989. Accordingly, he was issued Health Care Agreement No. P010194.Under the
agreement, respondents husband was entitled to avail of hospitalization benefits, whether
ordinary or emergency, listed therein. He was also entitled to avail of out-patient benefits such
as annual physical examinations, preventive health care and other out-patient services.
Upon the termination of the agreement, the same was extended for another year from
March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990.The amount of
coverage was increased to a maximum sum of P75,000.00 per disability.[2]
During the period of his coverage, Ernani suffered a heart attack and was confined at
the Manila Medical Center (MMC) for one month beginning March 9, 1990. While her
husband was in the hospital, respondent tried to claim the benefits under the health care
agreement. However, petitioner denied her claim saying that the Health Care Agreement was
void. According to petitioner, there was a concealment regarding Ernanis medical
history. Doctors at the MMC allegedly discovered at the time of Ernanis confinement that he
was hypertensive, diabetic and asthmatic, contrary to his answer in the application
form. Thus, respondent paid the hospitalization expenses herself, amounting to about
P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical
therapist at home. Later, he was admitted at the Chinese General Hospital. Due to financial
difficulties, however, respondent brought her husband home again. In the morning of April 13,
1990, Ernani had fever and was feeling very weak.Respondent was constrained to bring him
back to the Chinese General Hospital where he died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch
44, an action for damages against petitioner and its president, Dr. Benito Reverente, which
was docketed as Civil Case No. 90-53795. She asked for reimbursement of her expenses
plus moral damages and attorneys fees. After trial, the lower court ruled against
petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff
Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani
Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who
paid the same;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;
4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit. SO ORDERED.[3]
On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all
awards for damages and absolved petitioner Reverente. [4] Petitioners motion for
reconsideration was denied.[5] Hence, petitioner brought the instant petition for review, raising
the primary argument that a health care agreement is not an insurance contract; hence the
incontestability clause under the Insurance Code[6] does not apply.
Petitioner argues that the agreement grants living benefits, such as medical check-ups
and hospitalization which a member may immediately enjoy so long as he is alive upon
effectivity of the agreement until its expiration one-year thereafter. Petitioner also points out
that only medical and hospitalization benefits are given under the agreement without any
indemnification, unlike in an insurance contract where the insured is indemnified for his
loss. Moreover, since Health Care Agreements are only for a period of one year, as compared
to insurance contracts which last longer,[7] petitioner argues that the incontestability clause
does not apply, as the same requires an effectivity period of at least two years. Petitioner
7 INSURANCE BATCH 1
further argues that it is not an insurance company, which is governed by the Insurance
Commission, but a Health Maintenance Organization under the authority of the Department of
Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. An insurance contract exists where the
following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated
peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk; and
[8]
5. In consideration of the insurers promise, the insured pays a premium.
Section 3 of the Insurance Code states that any contingent or unknown event, whether
past or future, which may damnify a person having an insurable interest against him, may be
insured against. Every person has an insurable interest in the life and health of
himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in
whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money, respecting
property or service, of which death or illness might delay or prevent the
performance; and
(4) of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of respondents husband in obtaining the health
care agreement was his own health. The health care agreement was in the nature of non-life
insurance, which is primarily a contract of indemnity.[9] Once the member incurs hospital,
medical or any other expense arising from sickness, injury or other stipulated contingent, the
health care provider must pay for the same to the extent agreed upon under the contract.
Petitioner argues that respondents husband concealed a material fact in his
application. It appears that in the application for health coverage, petitioners required
respondents husband to sign an express authorization for any person, organization or entity
that has any record or knowledge of his health to furnish any and all information relative to
any hospitalization, consultation, treatment or any other medical advice or examination.
[10]
Specifically, the Health Care Agreement signed by respondents husband states:
We hereby declare and agree that all statement and answers contained herein and in any
addendum annexed to this application are full, complete and true and bind all parties in
interest under the Agreement herein applied for, that there shall be no contract of health care
coverage unless and until an Agreement is issued on this application and the full Membership
Fee according to the mode of payment applied for is actually paid during the lifetime and
good health of proposed Members; that no information acquired by any Representative of
PhilamCare shall be binding upon PhilamCare unless set out in writing in the application; that
any physician is, by these presents, expressly authorized to disclose or give testimony at
anytime relative to any information acquired by him in his professional capacity upon any
question affecting the eligibility for health care coverage of the Proposed Members and that
the acceptance of any Agreement issued on this application shall be a ratification of any
correction in or addition to this application as stated in the space for Home Office
Endorsement.
In addition to the above condition, petitioner additionally required the applicant for
authorization to inquire about the applicants medical history, thus:
I hereby authorize any person, organization, or entity that has any record or knowledge of my
health and/or that of __________ to give to the PhilamCare Health Systems, Inc. any and all
information relative to any hospitalization, consultation, treatment or any other medical advice
or examination. This authorization is in connection with the application for health care
coverage only. A photographic copy of this authorization shall be as valid as the original.
[12]
(Underscoring ours)
Petitioner cannot rely on the stipulation regarding Invalidation of agreement which reads:
Failure to disclose or misrepresentation of any material information by the member in the
application or medical examination, whether intentional or unintentional, shall automatically
invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to
return of all Membership Fees paid. An undisclosed or misrepresented information is deemed
material if its revelation would have resulted in the declination of the applicant by Philamcare
or the assessment of a higher Membership Fee for the benefit or benefits applied for.
The answer assailed by petitioner was in response to the question relating to the medical
history of the applicant. This largely depends on opinion rather than fact, especially coming
from respondents husband who was not a medical doctor. 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.[14] Thus, (A)lthough false, a representation of the
expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if
there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower
rate of premium, and this is likewise the rule although the statement is material to the risk, if
the statement is obviously of the foregoing character, since in such case the insurer is not
justified in relying upon such statement, but is obligated to make further inquiry. There is a
clear distinction between such a case and one in which the insured is fraudulently and
intentionally states to be true, as a matter of expectation or belief, that which he then knows,
8 INSURANCE BATCH 1
to be actually untrue, or the impossibility of which is shown by the facts within his knowledge,
since in such case the intent to deceive the insurer is obvious and amounts to actual fraud.[15]
The fraudulent intent on the part of the insured must be established to warrant rescission of
the insurance contract.[16] Concealment as a defense for the health care provider or insurer to
avoid liability is an affirmative defense and the duty to establish such defense by satisfactory
and convincing evidence rests upon the provider or insurer. In any case, with or without the
authority to investigate, petitioner is liable for claims made under the contract. Having
assumed a responsibility under the agreement, petitioner is bound to answer the same to the
extent agreed upon. In the end, the liability of the health care provider attaches once the
member is hospitalized for the disease or injury covered by the agreement or whenever he
avails of the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, a concealment entitles the injured party to rescind a
contract of insurance. The right to rescind should be exercised previous to the
commencement of an action on the contract.[17] In this case, no rescission was
made. Besides, the cancellation of health care agreements as in insurance policies require
the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or more of
the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon
request of insured, to furnish facts on which cancellation is based.[18]
None of the above pre-conditions was fulfilled in this case. 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.[19] 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.[20] 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.[21]This is equally applicable to Health Care Agreements. The phraseology used in
medical or hospital service contracts, such as the one at bar, must be liberally construed in
favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the
construction conferring coverage is to be adopted, and exclusionary clauses of doubtful
import should be strictly construed against the provider.[22]
Anent the incontestability of the membership of respondents husband, we quote with approval
the following findings of the trial court:
(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems
Inc. had twelve months from the date of issuance of the Agreement within which to contest
the membership of the patient if he had previous ailment of asthma, and six months from the
issuance of the agreement if the patient was sick of diabetes or hypertension. The periods
having expired, the defense of concealment or misrepresentation no longer lie.[23]
Finally, petitioner alleges that respondent was not the legal wife of the deceased
member considering that at the time of their marriage, the deceased was previously married
to another woman who was still alive. The health care agreement is in the nature of a contract
of indemnity. Hence, payment should be made to the party who incurred the expenses. It is
not controverted that respondent paid all the hospital and medical expenses. She is therefore
entitled to reimbursement. The records adequately prove the expenses incurred by
respondent for the deceaseds hospitalization, medication and the professional fees of the
attending physicians.[24]
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the
Court of Appeals dated December 14, 1995 is AFFIRMED. SO ORDERED.
PHILAMCARE VS CA
Facts: Ernani Trinos applied for a health care coverage with Philam. He answered no to a
question asking if he or his family members were treated to heart trouble, asthma, diabetes,
etc.
The application was approved for 1 year. He was also given hospitalization benefits and out-
patient benefits. After the period expired, he was given an expanded coverage for Php
75,000. During the period, he suffered from heart attack and was confined at MMC. The wife
tried to claim the benefits but the petitioner denied it saying that he concealed his medical
history by answering no to the aforementioned question. She had to pay for the hospital bills
amounting to 76,000. Her husband subsequently passed away. She filed a case in the
trial court for the collection of the amount plus damages. She was awarded 76,000 for the
bills and 40,000 for damages. The CA affirmed but deleted awards for damages. Hence, this
appeal.
Issue: WON a health care agreement is not an insurance contract; hence the incontestability
clause under the Insurance Code does not apply
Held: No. Petition dismissed.
Ratio: Petitioner claimed that it granted benefits only when the insured is alive during the
one-year duration. It contended that there was no indemnification unlike in insurance
contracts. It supported this claim by saying that it is a health maintenance organization
covered by the DOH and not the Insurance Commission. Lastly, it claimed that the
Incontestability clause didnt apply because two-year and not one-year effectivity periods
were required.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event.
Section 3 states: every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children.
In this case, the husbands health was the insurable interest. The health care agreement was
in the nature of non-life insurance, which is primarily a contract of indemnity. The provider
must pay for the medical expenses resulting from sickness or injury.
While petitioner contended that the husband concealed materialfact of his sickness, the
contract stated that:
9 INSURANCE BATCH 1
that any physician is, by these presents, expressly authorized to disclose or give testimony at
anytime relative to any information acquired by him in his professional capacity upon any
question affecting the eligibility for health care coverage of the Proposed Members.
This meant that the petitioners required him to sign authorization to furnish reports about his
medical condition. The contract also authorized Philam to inquire directly to his medical
history.
Hence, the contention of concealment isnt valid.
They cant also invoke the Invalidation of agreement clause where failure of the insured to
disclose information was a grounds for revocation simply because the answer assailed by the
company was the heart condition question based on the insureds opinion. He wasnt a
medical doctor, so he cant accurately gauge his condition.
Henrick v Fire- in such case the insurer is not justified in relying upon such statement, but is
obligated to make further inquiry.
Fraudulent intent must be proven to rescind the contract. This was incumbent upon the
provider.
Having assumed a responsibility under the agreement, petitioner is bound to answer the
same to the extent agreed upon. In the end, the liability of the health care provider attaches
once the member is hospitalized for the disease or injury covered by the agreement or
whenever he avails of the covered benefits which he has prepaid.
Section 27 of the Insurance Code- a concealment entitles the injured party to rescind a
contract of insurance.
As to cancellation procedure- Cancellation requires certain conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or
more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the
policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and
upon request of insured, to furnish facts on which cancellation is based
None were fulfilled by the provider.
As to incontestability- The trial court said that under the title Claim procedures of expenses,
the defendant Philamcare Health Systems Inc. had twelve months from the date of issuance
of the Agreement within which to contest the membership of the patient if he had previous
ailment of asthma, and six months from the issuance of the agreement if the patient was sick
of diabetes or hypertension. The periods having expired, the defense of concealment or
misrepresentation no longer lie.