2S INSURANCE Case Digests
TOPIC Ascertaining and Controlling Risks - Incontestability AUTHOR Bismanos
CASE TITLE Tan vs. Court of Appeals GR NO L-48049
TICKLER DATE June 29, 1989
DOCTRINE 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.
FACTS
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 was issued effective
November 6, 1973, with petitioners the beneficiaries thereof. On April 26, 1975, Tan died of hepatoma.
Petitioners then filed with respondent company their claim for the proceeds of the life insurance policy.
However, respondent company denied petitioners' claim and rescinded the policy by reason of the alleged
misrepresentation and concealment of material facts made by the deceased in his application for insurance.
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 a complaint against the former with the Office of the Insurance Commissioner.
After hearing the evidence of both parties, the Insurance Commissioner rendered judgment dismissing
petitioners' complaint. The Court of Appeals dismissed the petitioners' appeal.
Petitioner’s Contention:
• 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.
• According to the petitioners, the Insurance Law was amended and the second paragraph of Section 48
was added to prevent the insurance company from exercising a right to rescind after the death of the
insured.
ISSUE/S
Whether or not insurance company had the right to rescind.
RULING/S
YES. 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.
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."
2S [AY 2020-2021]
San Beda University – College of Law
2S INSURANCE Case Digests
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.
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.
Further, the petitioners argue that no evidence was presented to show that the medical terms were
explained in a layman's language to the insured. We agree with the Court of Appeals which ruled: 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 axed his
signature on the application form unless he clearly understood its significance.
There is no strong showing that we should apply the "fine print" or "contract of adhesion" rule in this case.
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.
NOTES
2S [AY 2020-2021]
San Beda University – College of Law
