Topic: Incontestability Clause

Florendo v. Philam Plans

FACTS:
Manuel Florendo filed an application for comprehensive pension plan with respondent Philam
Plans, Inc. (Philam Plans) Manuel signed the application and left to Perla the task of supplying
the information needed in the application. Respondent Ma. Celeste Abcede, Perla’s daughter,
signed the application as sales counselor. Philam Plans issued Pension Plan Agreement
toManuel, with petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel
paidhis quarterly premiums. Eleven months later, Manuel died of blood poisoning.
Subsequently,Lourdes filed a claim with Philam Plans for the payment of the benefits under her
husband’s plan but Philam Plans declined her claim prompting her to file the present action
against the pension plan company before the Regional Trial Court (RTC) of Quezon City and
ruled in favor of Ma. Lourdes. However, the Court of Appeals then reversed the RTC decision.
Hence this appeal.

ISSUE:
Whether or not Ma. Lourdes could claim benefits as the beneficiary of her husband under the
insurance plan despite consideration that her husband Manuel concealed the true condition of
his health.

RULING:
The Supreme Court answers this to the negative and AFFIRMED in its entirety the decision of
the Court of Appeals.The comprehensive pension plan that Philam Plans issued contains a one-
year incontestability period. It states:

VIII. INCONTESTABILITY
After this Agreement has remained in force for one (1) year, we can no longer contest for health
reasons any claim for insurance under this Agreement, except for the reason that installment
has not been paid (lapsed), or that you are not insurable at the time you bought thispension
program by reason of age. If this Agreement lapses but is reinstated afterwards, the one (1)
year contestability period shall start again on the date of approval of your request for
reinstatement.The above incontestability clause precludes the insurer from disowning liability
under the policy it issued on the ground of concealment or misrepresentation regarding the
health of the insured after a year of its issuance.Since Manuel died on the eleventh month
following the issuance of his plan, the one year incontestability period has not yet set in.
Consequently, Philam Plans was not barred from questioning Lourdes’ entitlement to the
benefits of her husband’s pension plan.

Topic: Payment of Premium by Installments

UCPB v Masagana G.R. No. 137172. April 4, 2001

Facts:
In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision[1]
of the Court of Appeals, which affirmed with modification the judgment of the trial court (a)
allowing Respondent to consign the sum of P225,753.95 as full payment of the premiums for
the renewal of the five insurance policies on Respondent’s properties; (b) declaring the
replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993; and
(c) ordering Petitioner to pay Respondent P18,645,000.00 as indemnity for the burned
properties covered by the renewal-replacement policies. The modification consisted in the (1)
deletion of the trial court’s declaration that three of the policies were in force from August 1991
to August 1992; and (2) reduction of the award of the attorney’s fees from 25% to 10% of the
total amount due the Respondent.

Masagana obtained from UCPB five (5) insurance policies on its Manila properties. The policies
were effective from May 22, 1991 to May 22, 1992. On June 13, 1992, Masagana’s properties
were razed by fire. On July 13, 1992, plaintiff tendered five checks for P225,753.45 as renewal
premium payments. A receipt was issued. On July 14, 1992, Masagana made its formal
demand for indemnification for the burned insured properties. UCPB then rejected Masagana’s
claims under the argument that the fire took place before the tender of payment. Hence
Masagana filed this case.

The Court of Appeals disagreed with UCPB’s argument that Masagana’s tender of payment of
the premiums on 13 July 1992 did not result in the renewal of the policies, having been made
beyond the effective date of renewal as provided under Policy Condition No. 26, which states:
26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the
policy period mails or delivers to the assured at the address shown in the policy notice of its
intention not to renew the policy or to condition its renewal upon reduction of limits or elimination
of coverages, the assured shall be entitled to renew the policy upon payment of the premium
due on the effective date of renewal.

Both the Court of Appeals and the trial court found that sufficient proof exists that Masagana,
which had procured insurance coverage from UCPB for a number of years, had been granted a
60 to 90-day credit term for the renewal of the policies. Such a practice had existed up to the
time the claims were filed. Most of the premiums have been paid for more than 60 days after
the issuance.

Also, no timely notice of non-renewal was made by UCPB. The Supreme Court ruled against
UCPB in the first case on the issue of whether the fire insurance policies issued by petitioner to
the respondent covering the period from May 22, 1991 to May 22, 1992 had been extended or
renewed by an implied credit arrangement though actual payment of premium was tendered on
a later date and after the occurrence of the risk insured against. UCPB filed a motion for
reconsideration.
The Supreme Court, upon observing the facts, affirmed that there was no valid notice of non-
renewal of the policies in question, as there is no proof at all that the notice sent by ordinary
mail was received by Masagana. Also, the premiums were paid within the grace period.

Issue: Whether Section 77 of the Insurance Code of 1978 must be strictly applied to Petitioner’s
advantage despite its practice of granting a 60- to 90-day credit term for the payment of
premiums.

Held:

No. Petition denied.

Ratio:
Section 77 of the Insurance Code provides: No policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof has been paid…
An exception to this section is Section 78 which provides: Any acknowledgment in a policy or
contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as
to make the policy binding, notwithstanding any stipulation therein that it shall not be binding
until premium is actually paid.

Makati Tuscany v Court of Appeals- Section 77 may not apply if the parties have agreed to the
payment in installments of the premium and partial payment has been made at the time of loss.
Section 78 allows waiver by the insurer of the condition of prepayment and makes the policy
binding despite the fact that premium is actually unpaid. Section 77 does not expressly prohibit
an agreement granting credit extension. At the very least, both parties should be deemed in
estoppel to question the arrangement they have voluntarily accepted.

The Tuscany case has provided another exception to Section 77 that the insurer may grant
credit extension for the payment of the premium. If the insurer has granted the insured a credit
term for the payment of the premium and loss occurs before the expiration of the term, recovery
on the policy should be allowed even though the premium is paid after the loss but within the
credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to
provide a credit term within which to pay the premiums. That agreement is not against the law,
morals, good customs, public order or public policy. The agreement binds the parties.
It would be unjust if recovery on the policy would not be permitted against Petitioner, which had
consistently granted a 60- to 90-day credit term for the payment of premiums. Estoppel bars it
from taking refuge since Masagana relied in good faith on such practice. Estoppel then is the
fifth exception.

Topic: Concealment

Sun Life v. CA - Concealment in Insurance

245 SCRA 268 (1995)

Facts:

> On April 15, 1986, Bacani procured a life insurance contract for himself from Sun Life. He
was issued a life insurance policy with double indemnity in case of accidental death. The
designated beneficiary was his mother, Bernarda.

> On June 26, 1987, the insured died in a plane crash. Bernarda Bacani filed a claim with Sun
Life, seeking the benefits of the insurance. Sun Life conducted an investigation and its findings
prompted it to reject the claim.

> Sun Life discovered that 2 weeks prior to his application, Bacani was examined and confined
at the Lung Center of the Philippines, where he was diagnosed for renal failure. During his
confinement, the deceased was subjected to urinalysis, ultra-sonography and hematology tests.
He did not reveal such fact in his application.

> In its letter, Sun Life informed Berarda, that the insured did not disclosed material facts
relevant to the issuance of the policy, thus rendering the contract of insurance voidable. A check
representing the total premiums paid in the amount of P10,172.00 was attached to said letter.

> Bernarda and her husband, filed an action for specific performance against Sun Life. RTC
ruled for Bernarda holding that the facts concealed by the insured were made in good faith and
under the belief that they need not be disclosed. Moreover, it held that the health history of the
insured was immaterial since the insurance policy was "non-medical." CA affirmed.
Issue:

Whether or not the beneficiary can claim despite the concealment.

Held:

NO

Section 26 of the Insurance Code is explicit in requiring a party to a contract of insurance to

communicate to the other, in good faith, all facts within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has no means of
ascertaining.

Materiality is to be determined not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom communication is due, in forming his estimate of
the disadvantages of the proposed contract or in making his inquiries (The Insurance Code, Sec
31)

The terms of the contract are clear. The insured is specifically required to disclose to the insurer
matters relating to his health. The information which the insured failed to disclose were material
and relevant to the approval and the issuance of the insurance policy. The matters concealed
would have definitely affected petitioner's action on his application, either by approving it with
the corresponding adjustment for a higher premium or rejecting the same. Moreover, a
disclosure may have warranted a medical examination of the insured by petitioner in order for it
to reasonably assess the risk involved in accepting the application.

Thus, "good faith" is no defense in concealment. The insured's failure to disclose the fact that he
was hospitalized for two weeks prior to filing his application for insurance, raises grave doubts
about his bonafides. It appears that such concealment was deliberate on his part.