Eternal Gardens vs. PhilAmLife

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.

GR No. 166245
09 April 2008

DOCTRINE:

Since an insurance contract is a contract of adhesion, it must be construed liberally in favor of the insured, and strictly against the insurer, to safeguard the insured’s interest. This is because of the exclusive control of the insurer over the terms and phraseology of the contract, ambiguity must be interpreted against the insurer.

To characterize the insurer and the insured as contracting parties on equal footing is inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts of experience in the industry purposefully used to its advantage. More often than not, 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.

FACTS:

Respondent Philippine American Life Insurance Company (Philamlife) entered into an agreement, “Creditor Group Life Policy” with petitioner Eternal Gardens Memorial Park Corporation wherein clients of Eternal who purchased burial lots on installment basis will be insudered by Philamlife. The policy was for one year, renewable on a yearly basis, with the amount of coverage to depend on the balance of the purchased burial lots

The relevant provisions of the policy are

1. Eligibility – Any lot purchaser who is atleast 18-65 years old who has an unpaid balance with Eternal Gardens, and is accepted for the coverage of the insurance, is eligible for insurance under the Policy
2. Evidence of Insurability – no medical examinations are required for insurance up to P50k; however, a declaration of good health shall be required for all lot purchasers as part of the application; Philamlife may require further evidence of insurablity under the ff

1. Amount of insurance in excess of P50K
2. Any lot purchaser who is more than 55 years old

2. Life Insurance Benefit – the coverage of the insurance of the lot purchaser shall be the unpaid balance of his loan OR P100K, whichever is smaller; such shall be paid to Eternal if the lot purchaser dies while insured under this policy
3. Effective Date of Benefit – the insurance of any eligible lot purchaser shall be effective on the date he contracts a loan w/ Eternal; however, there shall be no insurance if the application is denied by the company

Eternal submitted a list of all new lot purchasers, their application and the amounts of the unpaid balances. One of those included in the list as “new business” was John Chuang, with balance of P100,000. On August 2, 1984, Chuang died. Thus, Eternal claimed from Philamlife for Chuang’s death, as evidenced by (a) death certificate (b) Identification that Chuang is a naturalized PH citizen (c) certificate of claimant (d) certificate of attending physician (e) assured’s certificate

Philamlife required Eternal to submitted additional documents which Eternal complied with. However, after more than one year, Philamlife had not furnished any reply to Eternal, prompting Eternal to demand from Philamlife the claim for P100,000

Philamlife denied Eternal’s claim allegint that deceased Chuang was 59 years old when he entered into a two contract w/ Eternal Gardens for the total insurable amount of P100,000 each; that not application for group insurance was submitted to them prior to Chuang’s death; that under ‘Evidence of Insurability’ provision, a declaration of good health was required; and that since no application was submitted by Eternal for Philamlife’s approval, Chuang was not covered under the policy

Philamlife further replies that even though they accepted premiums, these do not connote approval per se of the coverage and these amounts are held in trust until the prerequisites for insurance coverage are met. They also promised to return the premiums which were paid on behalf of Chuang.

RTC: in favor of Eternal; ordered Eternal to pay P100,000 policy proceeds of Chuang

The RTC found out that Eternal submitted the application to Philamlife; that Philamlife’s inaction from the submission of the group requirements to Chuang’s death, while accepting the premiums they are deemed to have approved the application. Finally, that since the contract is a group-life insurance, once proof of death is submitted, payment must follow

CA: In favor of Philamlife; Eternal’s complaint dismissed

The CA based it’s decision on the fact that Chuang’s application was not enclosed in Eternal’s letter when they submitted the list of lot purchasers to Philamlife; that the non-accomplishment of the submitted application form violated Sec 26 of Insurance Code; thus, since there’s no application form, Chuang is not covered.

ISSUE:

Whether or not Philamlife is liable to pay proceeds to Eternal.

HELD:

YES.

The letter containing the list of lot purchasers (w/c also contains their insurable interest) had the insurance forms attached to it, were stamped as received by Philamlife. Such stamp of receipt had the effect of acknowledging receipt of the letter, along with the attachments. This is an admission by Philamlife against it’s own interest. Thus, the burden now shifts to Philamlife to prove that Chuang’s application is not included. In this case, Philamlife failed to do so, thus, they are deemed to have received the deceased’s insurance application.

Philamlife had the duty to make sure that before a tramsittal letter is stamped as received, the contents of the letter are correct and accounted for.

The fact is, Philamlife assumed the risk of loss without approving the application. The provision on Effective Date of Benefit seems to be ambiguous. 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.

However, since an insurance contract is a contract of adhesion, it must be construed liberally in favor of the insured, and strictly against the insurer, to safeguard the insured’s interest. This is because of the exclusive control of the insurer over the terms and phraseology of the contract, ambiguity must be interpreted against the insurer.

In this case, the vague contractual provision must be construed in favor of Eternal Gardens. To harmonize the provision, such must mean that upon a party’s purchase of a memorial lot on installment from Eternal, an insurance contract covering the lot purchaser is created and the same is effective, valid, and binding until terminated by Philamlife by disapproving the insurance application. Also, the mere inaction of the insurer on the insurance application must not work to prejudice the insured; it cannot be interpreted as a termination of the insurance contract. The termination of the insurance contract by the insurer must be explicit and unambiguous.

To characterize the insurer and the insured as contracting parties on equal footing is inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts of experience in the industry purposefully used to its advantage. More often than not, 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.