Eternal Gardens Memorial Park Corporation vs The insurer; in other words, it should be construed

Philippine American Life Insurance Company (GR
166245 April 9, 2008)
Topic: Contract of Adhesion or Fine Print Rule
FACTS: Respondent Philamlife entered into an agreement
denominated as Creditor Group Life Policy with petitioner
Eternal Gardens Memorial Park Corporation (Eternal).
Under the policy, the clients of Eternal who purchased burial
lots from it on installment basis would be insured by
Philamlife. Among those insured was John Chuang who died
with a balance of payments pf PhP100,000.00. More than a
year after complying with the required documents,
Philamlife had not furnished Eternal with any reply to the
latter’s insurance claim. This prompted Eternal to demand
from Philamlife the payment of the claim for PhP 100,000.
Philamlife responded that the deceased was not covered by
the Policy. The RTC said that since the contract is a group
life insurance, once proof of death is submitted, payment
must follow. The CA ruled that the non-accomplishment of
the submitted application form violated Section 26 of the
Insurance Code. Thus, the CA concluded, there being no
application form, Chuang was not covered by Philamlifes
insurance.
ISSUE: WON the inaction of the insurer on the insurance
application be considered approval of the application?
RULING: Yes. As earlier stated, Philamlife and Eternal
entered into an agreement denominated as Creditor Group
Life Policy No. P-1920 dated December 10, 1980. In the
policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall
be effective on the date he contracts a loan with
the Assured. However, there shall be no insurance
if the application of the Lot Purchaser is not
approved by the Company.
liberally in favor of the insured and strictly against
the insurer. Limitations of liability should be
regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer
from noncompliance with its obligations.
In the more recent case of Philamcare Health Systems, Inc.
v. Court of Appeals, we reiterated the above ruling, stating
that:
When the terms of insurance contract contain
limitations on liability, courts should construe
them in such a way as to preclude the insurer from
non-compliance with his obligation. Being a
contract of adhesion, the terms of an insurance
contract are to be construed strictly against the
party which prepared the contract, the insurer. By
reason of the exclusive control of the insurance
company over the terms and phraseology of the
insurance contract, ambiguity must be strictly
interpreted against the insurer and liberally in
favor of the insured, especially to avoid forfeiture
Insurance contracts are contracts of adhesion containing
technical terms and conditions of the industry, confusing if
at all understandable to laypersons, that are imposed on those
who wish to avail of insurance. As such, insurance contracts
are imbued with public interest that must be considered
whenever the rights and obligations of the insurer and the
insured are to be delineated. Hence, in order to protect the
interest of insurance applicants, insurance companies must
be obligated to act with haste upon insurance applications,
to either deny or approve the same, or otherwise be bound to
honor the application as a valid, binding, and effective
insurance contract

An examination of the above provision would show

ambiguity between its two sentences. The first sentence
appears to state that the insurance coverage of the clients of
Eternal already became effective upon contracting a loan
with Eternal while the second sentence appears to require
Philamlife to approve the insurance contract before the same
can become effective.

It must be remembered that an insurance contract is a

contract of adhesion which must be construed liberally in
favor of the insured and strictly against the insurer in order
to safeguard the latter’s interest. In Malayan Insurance
Corporation v. Court of Appeals, this Court held that:

Indemnity and liability insurance policies are

construed in accordance with the general rule of
resolving any ambiguity therein in favor of the
insured, where the contract or policy is prepared
by the insurer. A contract of insurance, being a
contract of adhesion, par excellence, any
ambiguity therein should be resolved against the