THIRD DIVISION

[G.R. No. L-48049. June 29, 1989.]

EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN ,

petitioners, vs. THE COURT OF APPEALS and THE PHILIPPINE
AMERICAN LIFE INSURANCE COMPANY, respondents.

O. F. Santos & P.C. Nolasco for petitioners.

Ferry, De la Rosa and Associates for private respondent.

SYLLABUS

1. MERCANTILE LAW; INSURANCE; INCONTESTABILITY CLAUSE;

CONSTRUED. — 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.
2.
ID.; ID.; ID.; DEFENSE OF CONCEALMENT STILL LIES WITHIN THE
TWO YEAR PERIOD FROM ISSUANCE OF CONTRACT OR LAST
REINSTATEMENT. — 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.
3. REMEDIAL LAW; EVIDENCE; BURDEN OF PROOF; FAILURE ON THE
PART OF PETITIONER TO SHOW THAT FINDINGS OF FACT OF RESPONDENT
COURT ARE NOT BASED ON SUBSTANTIAL EVIDENCE. — We are limited in
this petition to ascertaining whether or not the respondent Court of Appeals
committed reversible error. It is the petitioners' burden to show that the
factual findings of the respondent court are not based on substantial
evidence or that its conclusions are contrary to applicable law and
jurisprudence. They have failed to discharge that burden.

DECISION

GUTIERREZ, JR., J : p

This is a petition for review on certiorari of the Court of Appeals'

decision affirming the decision of the Insurance Commissioner which
dismissed the petitioners' complaint against respondent Philippine American
Life Insurance Company for the recovery of the proceeds from their late
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 father's policy. LLjur

The facts of the case as found by the Court of Appeals are:

"Petitioners appeal from the Decision of the Insurance
Commissioner dismissing herein petitioners' complaint against
respondent Philippine American Life Insurance Company for the
recovery of the proceeds of Policy No. 1082467 in the amount of
P80,000.00.

"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 No.
1082467 was issued effective November 6, 1973, with petitioners the
beneficiaries thereof (Exhibit A).

"On April 26, 1975, Tan Lee Siong died of hepatoma (Exhibit B).
Petitioners then filed with respondent company their claim for the
proceeds of the life insurance policy. However, in a letter dated
September 11, 1975, respondent company 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 (Exhibit 3). 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 on November 27, 1975, a complaint against the former with the
Office of the Insurance Commissioner, docketed as I.C. Case No. 218.
"After hearing the evidence of both parties, the Insurance
Commissioner rendered judgment on August 3, 1977, dismissing
petitioners' complaint." (Rollo, pp. 91-92)

The Court of Appeals dismissed the petitioners' appeal from the

Insurance Commissioner's decision for lack of merit.
Hence, this petition.
The petitioners raise the following issues in their assignment of errors,
to wit:
A. The conclusion in law of respondent Court that respondent
insurer has the right to rescind the policy contract when insured is
already dead is not in accordance with existing law and applicable
jurisprudence.

B. The conclusion in law of respondent Court that respondent

insurer may be allowed to avoid the policy on grounds of concealment
by the deceased assured, is contrary to the provisions of the policy
contract itself, as well as, of applicable legal provisions and established
jurisprudence.

C. The inference of respondent Court that respondent insurer

was misled in issuing the policy are manifestly mistaken and contrary
to admitted evidence. (Rollo, p. 7)

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 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. cdrep

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."

According to the petitioners, the Insurance Law was amended and the
second paragraph of Section 48 added to prevent the insurance company
from exercising a right to rescind after the death of the insured.
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. Moreover,
respondent company rescinded the contract of insurance and refunded
the premiums paid on September 11, 1975, previous to the
commencement of this action on November 27, 1975." (Rollo, pp. 99-
100)

xxx xxx xxx

The petitioners contend that there could have been no concealment or

misrepresentation by their late father because Tan Lee Siong did not have to
buy insurance. He was only pressured by insistent salesmen to do so. The
petitioners state:
"Here then is a case of an assured whose application was
submitted because of repeated visits and solicitations by the insurer's
agent. Assured did not knock at the door of the insurer to buy
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 insurance. He was the object of solicitations and visits.
"Assured was a man of means. He could have obtained a bigger
insurance, not just P80,000.00. If his purpose were to misrepresent and
to conceal his ailments in anticipation of death during the two-year
period, he certainly could have gotten a bigger insurance. He did not.
"Insurer Philamlife could have presented as witness its Medical
Examiner Dr. Urbano Guinto. It was he who accomplished the
application, Part II, medical. Philamlife did not.
"Philamlife could have put to the witness stand its Agent
Bievenido S. Guinto, a relative to Dr. Guinto, Again Philamlife did not."
(pp. 138-139, Rollo)

xxx xxx xxx

"This Honorable Supreme Court has had occasion to denounce
the pressure and practice indulged in by agents in selling insurance. At
one time or another most of us have been subjected to that pressure,
that practice. This court took judicial cognizance of the whirlwind
pressure of insurance selling — especially of the agent's practice of
'supplying the information, preparing and answering the application,
submitting the application to their companies, concluding the
transactions and otherwise smoothing out all difficulties ."

We call attention to what this Honorable Court said in Insular Life

v. Feliciano, et al., 73 Phil. 201; at page 205:

" 'It is of common knowledge that the selling of insurance

today is subjected to the whirlwind pressure of modern
salesmanship.' "

" 'Insurance companies send detailed instructions to their

agents to solicit and procure application.' "

" 'These agents are to be found all over the length and
breadth of the land. They are stimulated to more active efforts by
contests and by the keen competition offered by the other rival
insurance companies.' "

" 'They supply all the information, prepare and answer the
applications, submit the applications to their companies,
conclude the transactions, and otherwise smooth out all
difficulties.' "
" 'The agents in short do what the company set them out to
do.' "
"The Insular Life case was decided some forty years ago when
the pressure of insurance salesmanship was not overwhelming as it is
now; when the population of this country was less than one-fourth of
what it is now; when the insurance companies competing with one
another could be counted by the fingers." (pp. 140-142, Rollo)
xxx xxx xxx

"In the face of all the above, it would be unjust if, having been
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 subjected to the whirlwind pressure of insurance salesmanship this
Court itself has long denounced, the assured who dies within the two-
year period, should stand charged of fraudulent concealment and
misrepresentation." (p. 142, Rollo)

The legislative answer to the arguments posed by the petitioners is the

"incontestability clause" added by the second paragraph of Section 48.
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. LexLib

The petitioners argue that no evidence was presented to show that the
medical terms were explained in a layman's language to the insured. They
state that the insurer should have presented its two medical field examiners
as witnesses. Moreover, the petitioners allege that the policy intends that the
medical examination must be conducted before its issuance otherwise the
insurer "waives whatever imperfection by ratification."
We agree with the Court of Appeals which ruled:
"On the other hand, petitioners argue that no evidence was
presented by respondent company to show that the questions
appearing in Part II of the application for insurance were asked,
explained to and understood by the deceased so as to prove
concealment on his part. The same is not well taken. 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 affixed his signature
on the application form unless he clearly understood its significance.
For, the presumption is that a person intends the ordinary
consequence of his voluntary act and takes ordinary care of his
concerns. [Sec. 5(c) and (d), Rule 131, Rules of Court].

"The evidence for respondent company shows that on

September 19, 1972, the deceased was examined by Dr. Victoriano
Lim and was found to be diabetic and hypertensive; that by January,
1973, the deceased was complaining of progressive weight loss and
abdominal pain and was diagnosed to be suffering from hepatoma,
(t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another physician, Dr.
Wenceslao Vitug, testified that the deceased came to see him on
December 14, 1973 for consultation and claimed to have been diabetic
for five years. (t.s.n., Aug. 23, 1976, p. 5; Exhibit 6) 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 as medically standard (Exhibit 5-C) and dispensing with
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 further medical investigation and examination (Exhibit 5-A). For as long
as no adverse medical history is revealed in the application form, and
applicant for insurance is presumed to be healthy and physically fit and
no further medical investigation or examination is conducted by
respondent company. (t.s.n., April 8, 1976, pp. 6-8)." (Rollo, pp. 96-98)

There is no strong showing that we should apply the "fine print" or

"contract of adhesion" rule in this case. (Sweet Lines, Inc. v. Teves, 83 SCRA
361 [1978]). The petitioners cite: cdphil

"It is a matter of common knowledge that large amounts of

money are collected from ignorant persons by companies and
associations which adopt high sounding titles and print the
amount of benefits they agree to pay in large black-faced type,
following such undertakings by fine print conditions which destroy
the substance of the promise. All provisions, conditions, or
exceptions which in any way tend to work a forfeiture of the policy
should be construed most strongly against those for whose benefit
they are inserted, and most favorably toward those against whom
they are meant to operate. (Trinidad v. Orient Protective
Assurance Assn., 67 Phil. 184)
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. If a warning in bold red letters
or a boxed warning similar to that required for cigarette advertisements by
the Surgeon General of the United States is necessary, that is for Congress
or the Insurance Commission to provide as protection against high pressure
insurance salesmanship. We are limited in this petition to ascertaining
whether or not the respondent Court of Appeals committed reversible error.
It is the petitioners' burden to show that the factual findings of the
respondent court are not based on substantial evidence or that its
conclusions are contrary to applicable law and jurisprudence. They have
failed to discharge that burden.
WHEREFORE, the petition is hereby DENIED for lack of merit. The
questioned decision of the Court of Appeals is AFFIRMED. Cdpr

SO ORDERED.
Fernan (C.J., Chairman), Bidin and Cortes, JJ., concur.
Feliciano, J., took no part.

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