TAN V.

CA

GR NO. 48049 June 29, 1989

FACTS:

On September 23, 1973, Tan Lee Siong, father of herein petitioners, applied for life
insurance in the amount of P80,000 with PHILAM which was approved and with petitioners as
the beneficiaries. On April 26, 1975, Tan Lee Siong died of hepatoma and the petitioners then
claimed the proceeds of the life insurance policy. However, PHILAM denied petitioners’ claim
and rescinded the policy by reason of the alleged misrepresentation and concealment of
material facts made by the deceased Tan Lee Siong in his application for insurance. The
premiums paid on the policy were refunded. The petitioners alleges that PHILAM’s refusal to
pay them the proceeds of the policy was unjustified and unreasonable. They also contend that
PHILAM has no right to rescind the contract of insurance as rescission must allegedly be done
during the lifetime of the insured within 2 years and prior to the commencement of action.

ISSUE: WON the respondent company has the right to rescind the policy when the insured is
already dead

HELD:

Yes. According to Section 48 of Insurance Code, “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 2 years from the date
of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab ignition or is
rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent”.

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 2 years during the insured’s lifetime.
The phrase “during the lifetime” means that the policy is no longer considered in force after the
insured has died. The key phrase in the 2nd par of Sec 48 is “for period of 2 years”.

The policy was in force for a period of only 1 year and 5 months, the insured died before the 2-
year period had lapsed, respondent company is not barred from proving that the policy is void
ab initio by reason of the insured’s fraudulent concealment or misrepresentation. Also, the
evidence of the respondent company shows that the insured was diabetic for 5 years. 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. 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.