Facts:

1. Tan Lee Siong was issued a policy by Philamlife on Nov. 6, 1973. He stated in the
application form that he has no health issues whatsoever. He was subsequently issued a
life insurance policy in the amount of P80,000.00. He listed his sons as beneficiaries
(Emilio Tan et al).

2. On Aprl 26, 1975, Tan died of hepatoma. His sons filed an insurance claim but
PHILAMLIFE wrote the beneficiaries in Sep. 1975 denying their claim and rescinding the
contract on the ground of misrepresentation. Philamlife alleged that Tan Lee Siong
concealed the fact that he was hypertensive, diabetic, and was suffering from hepatoma
at the time of his application for the insurance.

3. The beneficiaries averred that PHILAMLIFE can no longer rescind the insurance contract
because the insured is already dead. They invoke Section 48 of the Insurance Code which
they interpreted to mean that an insurer can only rescind an insurance contract during the
lifetime of the insured; and that such rescission should be done within two years prior to
the filing of a suit involving the insurance. They contend that Philamlife can no longer
rescind the contract on the ground of misrepresentation as rescission must allegedly be
done “during the lifetime of the insured” within two years and prior to the commencement
of the action

Issue: Whether or not Philamlife can rescind the contract.

Held:

1. YES.

2. Law: Insurance Code

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 rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.”

3. 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.

4. The policy was in force for only one year and 5 months when Tan Lee Siong died. This
means that PHILAMLIFE can still contest and rescind the policy issued by reason of the
misrepresentation made by Tan Lee Siong.
5. Further, because of Tan Lee Siong’s statement that he does not have any health issues,
the insurance company was misled into believing that he was healthy and so it did not
deem a medical checkup to be necessary and that ultimately led to the issuance of the life
insurance policy.

6. The phrase “during the lifetime” found in Sec. 48 simply means that the policy is no longer
in force after the insured has died. The key phrase in the second paragraph is “for a period
of two years”.

7. The period to consider in a life insurance poiicy is “two years” from the date of issue or of
the last reinstatement. So if for example the policy was issued/reinstated on Jan 1, 2000,
the insurer can still exercise his right to rescind up to Jan. 1, 2003 or two years from the
date of issue/reinstatement, REGARDLESS of whether the insured died before or after
Jan. 1, 2003.