MANILA BANKERS LIFE INSURANCE CORPORATION, Petitioner, Vs - CRESENCIA P. ABAN, Respondent

MANILA BANKERS LIFE INSURANCE CORPORATION , petitioner, vs . CRESENCIA P. ABAN, respondent.
Incontestability Clause
"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 (2) 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 rescindable by reason of the
fraudulent concealment or misrepresentation of the insured or his agent.
Facts:
When the insurance policy had been in force for more than two years and seven months, Sotero died.
Respondent filed a claim for the insurance proceeds on July 9, 1996. Petitioner conducted an
investigation into the claim, 8 and came out with the following findings: 1. Sotero did not personally
apply for insurance coverage, as she was illiterate; 2. Sotero was sickly since 1990; 3. Sotero did not
have the financial capability to pay the insurance premiums on Insurance Policy No. 747411; 4. Sotero
did not sign the July 3, 1993 application for insurance; [and] 5. Respondent was the one who filed the
insurance application, and . . . designated herself as the beneficiary. For the above reasons, petitioner
denied respondent's claim on April 16, 1997 and refunded the premiums paid on the policy.
Contentions:
The main thesis of the Complaint was that the policy was obtained by fraud, concealment and/or
misrepresentation under the Insurance Code, which thus renders it voidable under Article 1390 of the
Civil Code.
Petitioner argues in its Petition and Reply that Section 48 cannot apply to a case where the beneficiary
under the insurance contract posed as the insured and obtained the policy under fraudulent
circumstances. It adds that respondent, who was merely Sotero's niece, had no insurable interest in the
life of her aunt.
Respondent filed a Motion to Dismiss claiming that petitioner's cause of action was barred by
prescription pursuant to Section 48 of the Insurance Code
petitioner's investigator testified in court, stating among others that the insurance underwriter who
solicited the insurance is a cousin of respondent's husband, Dindo Aban, 15 and that it was the
respondent who paid the annual premiums on the policy
Issue:
Whether the insurance policy was void ab initio due to fraud/concealment.
Ruling:
The Court denies the Petition.
The Court will not depart from the trial and appellate courts' finding that it was Sotero who obtained the
insurance for herself, designating respondent as her beneficiary. Both courts are in accord in this
respect, and the Court is loath to disturb this. While petitioner insists that its independent investigation
on the claim reveals that it was respondent, posing as Sotero, who obtained the insurance, this claim is
no longer feasible in the wake of the courts' finding that it was Sotero who obtained the insurance for
herself.
This finding of fact binds the Court.
Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured. Under
the provision, an insurer is given two years — from the effectivity of a life insurance contract and while
the insured is alive — to discover or 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. After the two-year period
lapses, or when the insured dies within the period, the insurer must make good on the policy, even
though the policy was obtained by fraud, concealment, or misrepresentation. This is not to say that
insurance fraud must be rewarded, but that insurers who recklessly and indiscriminately solicit and
obtain business must be penalized, for such recklessness and lack of discrimination ultimately work to
the detriment of bona fide takers of insurance and the public in general.
Section 48 regulates both the actions of the insurers and prospective takers of life insurance. It gives
insurers enough time to inquire whether the policy was obtained by fraud, concealment, or
misrepresentation; on the other hand, it forewarns scheming individuals that their attempts at
insurance fraud would be timely uncovered — thus deterring them from venturing into such nefarious
enterprise. At the same time, legitimate policy holders are absolutely protected from unwarranted
denial of their claims or delay in the collection of insurance proceeds occasioned by allegations of fraud,
concealment, or misrepresentation by insurers, claims which may no longer be set up after the two-year
period expires as ordained under the law.
Thus, the self-regulating feature of Section 48 lies in the fact that both the insurer and the insured are
given the assurance that any dishonest scheme to obtain life insurance would be exposed, and attempts
at unduly denying a claim would be struck down. Life insurance policies that pass the statutory two-year
period are essentially treated as legitimate and beyond question, and the individuals who wield them
are made secure by the thought that they will be paid promptly upon claim. In this manner, Section 48
contributes to the stability of the insurance industry. Section 48 prevents a situation where the insurer
knowingly continues to accept annual premium payments on life insurance, only to later on deny a claim
on the policy on specious claims of fraudulent concealment and misrepresentation, such as what obtains
in the instant case. Thus, instead of conducting at the first instance an investigation into the
circumstances surrounding the issuance of Insurance Policy No. 747411 which would have timely
exposed the supposed flaws and irregularities attending it as it now professes, petitioner appears to
have turned a blind eye and opted instead to continue collecting the premiums on the policy. For nearly
three years, petitioner collected the premiums and devoted the same to its own profit. It cannot now
deny the claim when it is called to account. Section 48 must be applied to it with full force and effect.
The Court therefore agrees fully with the appellate court's pronouncement that —
[t]he "incontestability clause" is a provision in law that 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
(2) 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 fraudulent concealment or misrepresentation of the insured
or his agent.
The purpose of the law is to give protection to the insured or his beneficiary by limiting the rescinding of
the contract of insurance on the ground of fraudulent concealment or misrepresentation to a period of
only two (2) years from the issuance of the policy or its last reinstatement.
The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or
misrepresentation within a period of two (2) years. It is not fair for the insurer to collect the premiums
as long as the insured is still alive, only to raise the issue of fraudulent concealment or
misrepresentation when the insured dies in order to defeat the right of the beneficiary to recover under
the policy.

MANILA BANKERS LIFE INSURANCE CORPORATION, Petitioner, Vs - CRESENCIA P. ABAN, Respondent

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