TITLE VI – THE POLICY
323 SCRA 613 (2000) Facts:
On Sept. 25, 2965, Lee Su Guat, widow, 61 years old and illiterate who spoke only Chinese, applied for life insurance for 60T with Philamlife. The application was in two parts, both in English. The second part dealt with her state of health. Her answers having shown that she was health, Philamlife issued her a policy effective Oct. 23, 1965 with her nephew Vicente Tang as beneficiary.
On Nov. 15, 1965, Lee again applied for additional insurance of her life for 40T. Since it was only recent from the time she first applied, no further medical exam was made but she accomplished Part 1 (which certified the truthfulness of statements made in Part. 2)
The policy was again approved. On Apri 20 1966, Lee Su Guat died of Lung cancer.
Tang claimed the amount o 100T but Philamlife refused to pay on the ground that the insured was guilty of concealment and misrepresentation.
Both trial court and CA ruled that Lee was guilty of concealment.
Tang’s position, however, is that because Lee was illiterate and spoke only Chinese, she could not be held guilty of concealment of her health history because the application for insurance was English, and the insurer has not proven that the terms thereof had been fully explained to her as provided by Art. 1332 of CC.
Issue: WON Art. 1332 applies. Held: NO.
Art. 1332 is NOT applicable. Under said article, the obligation to show that the terms of the contract had been fully explained to the party who is unable to read or understand the language of the contract, when fraud or mistake is alleged, devolves on the party seeking to enforce it. Here, the insurance company is NOT seeking to enforce the contract; on the contrary, it is seeking to avoid its performance.
It is petitioner who is seeking to enforce it, even as fraud or mistake is NOT alleged. Accordingly, Philamlife was under no obligation to prove that the terms of the insurance contract were fully explained to the other party. Even if we were to say that the insurer is the one seeking the performance of the cont contracts by avoiding paying the claim, it has to be noted as above stated that there has been NO imputation of mistake of fraud by the illiterate insured whose personality is represented by her beneficiary. In sum, Art. 1332 is inapplicable, and considering the findings of both the trial court and the CA as to the Concealment of Lee, the SC affirms their decisions.
Concurring: J., Antonio
In a contract of insurance, each party must communicate to the other, in good faith, all facts within his knowledge which are material to the contract, and which the other has no means of ascertaining. As a general rule, the failure by the insured to disclose conditions affecting the risk of which he is aware makes the contract voidable at the option of the insurer.
The reason for this rule is that insurance policies are traditionally contracts uberrimae fidei, which means “most abundant good faith”, “absolute and perfect candor or openness and honesty,” “absence of any concealment or deception however slight.” Here the CA found that the insured deliberately concealed material facts about her physical condition and history and/or concealed with whoever assisted her in relaying false information to the medical examiner. Certainly, the petitioner cannot assume inconsistent positions by attempting to enforce the contract of insurance for the purpose of collecting the proceeds of the policy and at the same time nullify the contract by claiming that it was executed through fraud or mistake. NOTE: Art. 1332: When one of the parties is unable to read or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to him.
(78) Perez v. CA
323 SCRA 613 (2000) Facts:
In October 1987, an agent of Lifeman, Rodolfo Lalog, visited Perez in Quezon and convinced him to apply for additional insurance coverage of P50,000.00, to avail of the ongoing promotional discount of P400.00 if the premium were paid annually.
Primitivo B. Perez accomplished an application form for the additional insurance coverage. Virginia A. Perez, his wife, paid P2,075.00 to Lalog. The receipt issued by Lalog indicated the amount received was a "deposit."
Unfortunately, Lalog lost the application form accomplished by Perez and so on October 28, 1987, he asked the latter to fill up another application form. On November 1, 1987, Perez was made to undergo the required medical examination, which he passed.
Lalog forwarded the application for additional insurance of Perez, together with all its supporting papers, to the office of BF Lifeman Insurance Corporationn in Quezon which office was supposed to forward the papers to the Manila office.
On November 25, 1987, Perez died while he was riding a banca which capsized during a storm.
At the time of his death, his application papers for the additional insurance were still with the Quezon office. Lalog testified that when he went to follow up the papers, he found them still in the Quezon office and so he personally brought the papers to the Manila office of BF Lifeman Insurance Corporation. It was only on November 27, 1987 that said papers were received in Manila. Without knowing that Perez died on November 25, 1987, BF Lifeman Insurance Corporation approved the application and issued the corresponding policy for the P50,000.00 on December 2, 1987
Virginia went to Manila to claim the benefits under the insurance policies of the deceased. She was paid P40,000.00 under the first insurance policy for P20,000.00 (double indemnity in case of accident) but the insurance company refused to pay the claim under the additional policy coverage of P50,000.00, the proceeds of which amount to P150,000.00 in view of a triple indemnity rider on the insurance policy. In its letter of January 29, 1988 to Virginia A. Perez, the insurance company maintained that the
insurance for P50,000.00 had not been perfected at the time of the death of Primitivo Perez. Consequently, the insurance company refunded the amount of P2,075.00 which Virginia Perez had paid
Lifeman filed for the rescission and the declaration of nullity. Perez, on the other hand, averred that the deceased had fulfilled all his prestations under the contract and all the elements of a valid contract are present. RTC ruled in favor of Perez. CA reversed.
Issue: WON there was a perfected additional insurance contract. Held: The contract was not perfected.
Insurance is a contract whereby, for a stipulated consideration, one party undertakes to compensate the other for loss on a specified subject by specified perils. A contract, on the other hand, is a meeting of the minds between two persons whereby one binds himself, with respect to the other to give something or to render some service.
Consent must be manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. When Primitivo filed an application for insurance, paid P2,075.00 and submitted the results of his medical examination, his application was subject to the acceptance of private respondent BF Lifeman Insurance Corporation. The perfection of the contract of insurance between the deceased and respondent corporation was further conditioned upon compliance with the following requisites stated in the application form:
"there shall be no contract of insurance unless and until a policy is issued on this application and that the said policy shall not take effect until the premium has been paid and the policy delivered to and accepted by me/us in person while I/We, am/are in good health."
The assent of private respondent BF Lifeman Insurance Corporation therefore was not given when it merely received the application form and all the requisite supporting papers of the applicant. Its assent was given when it issues a corresponding policy to the applicant. Under the abovementioned provision, it is only when the applicant pays the premium and receives and accepts the policy while he is in good health that the contract of insurance is deemed to have been perfected.
It is not disputed, however, that when Primitivo died on November 25, 1987, his application papers for additional insurance coverage were still with the branch office of respondent corporation in Gumaca and it was only two days later, or on November 27, 1987, when Lalog personally delivered the application papers to
the head office in Manila. Consequently, there was absolutely no way the acceptance of the application could have been communicated to the applicant for the latter to accept inasmuch as the applicant at the time was already dead.
(79) CIR v. Lincoln Phil Life 379 SCRA 423 (2002) Facts:
In the years prior to 1984, Lincoln issued a special kind of life insurance policy known as the "Junior Estate Builder Policy," the distinguishing feature of which is a clause providing for an automatic increase in the amount of life insurance coverage upon attainment of a certain age by the insured without the need of issuing a new policy. The clause was to take effect in the year 1984.
Documentary stamp taxes due on the policy were paid to the petitioner only on the initial sum assured.
Subsequently, petitioner issued deficiency documentary stamps tax assessment for the year 1984, corresponding to the amount of automatic increase of the sum assured on the policy issued by respondent.
Lincoln questioned the deficiency assessments and sought their cancellation in a petition filed in the Court of Tax Appeals. CTA found no basis for the assessment. CA affirmed.Issue: WON the automatic increase of the sum assured on the policy is taxable. Held: YES.
CIR claims that the "automatic increase clause" in the subject insurance policy is separate and distinct from the main agreement and involves another transaction; and that, while no new policy was issued, the original policy was essentially re-issued when the additional obligation was assumed upon the effectivity of this "automatic increase clause" in 1984; hence, a deficiency assessment based on the additional insurance not covered in the main policy is in order. The SC agreed with this contention.
The subject insurance policy at the time it was issued contained an "automatic increase clause." Although the clause was to take effect only in 1984, it was written into the policy at the time of its issuance. The distinctive feature of the "junior estate builder policy" called the "automatic increase clause" already formed part and parcel of the insurance contract, hence, there was no need for an execution of a separate agreement for the increase in the coverage that took effect in 1984 when the assured reached a certain age.
It is clear from Section 173 of the NIRC that the payment of documentary stamp taxes is done at the time the act is done or transaction had and the tax base for the computation of documentary stamp taxes on life insurance policies under Section 183 of NIRC is the amount fixed in policy, unless the interest of a person insured is susceptible of exact pecuniary measurement.
Logically, we believe that the amount fixed in the policy is the figure written on its face and whatever increases will take effect in the future by reason of the "automatic increase clause" embodied in the policy without the need of another contract.
Here, although the automatic increase in the amount of life insurance coverage was to take effect later on, the date of its effectivity, as well as the amount of the increase, was already definite at the time of the issuance of the policy. Thus, the amount insured by the policy at the time of its issuance necessarily included the additional sum covered by the automatic increase clause because it was already determinable at the time the transaction was entered into and formed part of the policy.
The "automatic increase clause" in the policy is in the nature of a conditional obligation under Article 1181, 8 by which the increase of the insurance coverage shall depend upon the happening of the event which constitutes the obligation. In the instant case, the additional insurance that took effect in 1984 was an obligation subject to a suspensive obligation, 9 but still a part of the insurance sold to which private respondent was liable for the payment of the documentary stamp tax.
Section 51. A policy of insurance must specify: