Great Pacific Life Assurance Corp. vs. Court of Appeals

In mortgage redemption insurance, the mortgagor (or the mortgagor's heirs) remains a party to the insurance contract and is a real party in interest who may sue the insurer, notwithstanding a loss-payable clause in favor of the mortgagee. The Court also held that to rescind an insurance contract for concealment, the insurer must establish fraudulent intent by clear and convincing evidence; absent such proof, the insurer is liable on the valued policy. Finally, where the mortgagee has foreclosed on the mortgaged property, equity prohibits the mortgagee from collecting the insurance proceeds, which instead inure to the heirs of the insured.

Grepalife and DBP executed a contract of group life insurance covering eligible housing loan mortgagors of DBP. Dr. Wilfredo Leuterio, a physician and housing debtor of DBP, applied for membership in the group life insurance plan on November 11, 1983, declaring that he was in good health and had not consulted a physician for any listed ailments, including hypertension. Grepalife issued Certificate No. B-18558, insuring Dr. Leuterio to the extent of his DBP mortgage indebtedness of P86,200. On August 6, 1984, Dr. Leuterio died of "massive cerebral hemorrhage." DBP submitted a death claim to Grepalife, which denied the claim on the ground that Dr. Leuterio had concealed his hypertension.

• The Group Insurance Contract: Grepalife and DBP entered into a group life insurance agreement to insure eligible housing loan mortgagors. Dr. Wilfredo Leuterio applied for membership on November 11, 1983, answering "No" to whether he had consulted a physician for hypertension and marking "Yes" to being in good health. On November 15, 1983, Grepalife issued the certificate covering his mortgage indebtedness of P86,200. The policy provided that upon the debtor's death, an amount to pay the outstanding indebtedness would first be paid to DBP, and any balance would be paid to the designated beneficiaries.
• Death and Denial of Claim: On August 6, 1984, Dr. Leuterio died due to "massive cerebral hemorrhage." DBP submitted a death claim to Grepalife. Grepalife denied the claim, asserting that Dr. Leuterio had concealed his hypertension, which caused his death.
• The Trial Evidence: During trial, Dr. Hernando Mejia, who issued the death certificate, testified that his findings were based partly on information from the widow and stated that hypertension was only the "possible cause of death." No autopsy was conducted, and Dr. Mejia had no knowledge of any previous hospital confinement of Dr. Leuterio. The widow's statement regarding her husband's medical history was based on unreliable recollection.
• Foreclosure by DBP: After Grepalife denied the claim, DBP collected the debt from the mortgagor and foreclosed on the residential lot of the widow in 1995.

• Petitioner maintained that the widow was not the real party in interest and that the trial court lacked jurisdiction because DBP, the designated beneficiary and indispensable party, was not joined in the suit.
• Petitioner argued that Dr. Leuterio concealed his hypertension, a material fact that vitiated the insurance contract and justified the denial of the claim.
• Petitioner contended that there was no evidence of the actual outstanding mortgage payable to DBP, warranting the dismissal of the specific performance claim.

• Respondent countered that the widow, as heir of the insured, was a real party in interest authorized to sue on the policy.
• Respondent argued that no concealment existed because the insurer failed to present conclusive proof that Dr. Leuterio suffered from hypertension prior to his application.
• Respondent asserted that because DBP had foreclosed on the mortgaged property, the insurance proceeds should inure to the heirs to prevent unjust enrichment by DBP.

• Procedural Issues:
  • Whether the Court of Appeals erred in holding the petitioner liable to DBP as beneficiary from a complaint filed by the widow, rather than dismissing for lack of cause of action and jurisdiction over an indispensable party.
• Substantive Issues:
  • Whether Dr. Leuterio concealed his hypertension, which would vitiate the insurance contract.
  • Whether the Court of Appeals erred in holding Grepalife liable for P86,200 without proof of the actual outstanding mortgage payable to DBP, and who is entitled to the proceeds given DBP's foreclosure.

• Procedural:
  • The Court held that the widow was a real party in interest. In mortgage redemption insurance, the insurance is on the mortgagor's interest, and the mortgagee is merely an appointee of the insurance fund. The mortgagor does not cease to be a party to the contract and may sue on the policy, especially where the mortgagee's interest is less than the full amount. Pursuant to Section 181 of the Insurance Code, a life insurance policy may pass by succession to any person who may recover whatever the insured might have recovered; thus, the widow could file the suit.
• Substantive:
  • The Court found no concealment. To rescind an insurance contract for concealment, the insurer must establish fraudulent intent by clear and convincing evidence. Petitioner's evidence was inconclusive because no autopsy was performed and hypertension was listed only as a "possible cause." The widow's statement was based on unreliable recollection and constituted hearsay.
  • Regarding the amount of liability, the Court held that a life insurance policy is a valued policy under Section 183 of the Insurance Code; thus, the measure of indemnity is the sum fixed in the policy (P86,200), requiring no proof of the actual outstanding mortgage.
  • Because DBP had already foreclosed on the property, equity dictated that DBP should not unjustly enrich itself by collecting the insurance proceeds. Accordingly, the proceeds rightly belonged to the heirs of the deceased.

• Mortgage Redemption Insurance — A group insurance policy of mortgagors is a device for the protection of both the mortgagee and the mortgagor. Where the mortgagor pays the premium and the loss is payable to the mortgagee, the insurance is on the mortgagor's interest, and the mortgagee is simply an appointee of the insurance fund. The mortgagor does not cease to be a party to the original contract and may sue thereon.
• Concealment in Insurance Contracts — Concealment exists where the assured had knowledge of a fact material to the risk and designedly and intentionally withholds it. Fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. Misrepresentation is an affirmative defense, and the duty to establish it by satisfactory and convincing evidence rests upon the insurer.
• Valued Policy in Life Insurance — Unless the interest of a person insured is susceptible of exact pecuniary measurement, the measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy.
• Unjust Enrichment — A mortgagee that has foreclosed on the mortgaged property cannot also collect the insurance proceeds, as equity dictates that it should not unjustly enrich itself at the expense of another (Nemo cum alterius detrimenio protest).

• "The rationale of a group insurance policy of mortgagors, otherwise known as the 'mortgage redemption insurance,' is a device for the protection of both the mortgagee and the mortgagor."
• "Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that he should communicate it to the assured, but he designedly and intentionally withholds the same."
• "The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract."
• "Equity dictates that DBP should not unjustly enrich itself at the expense of another (Nemo cum alterius detrimenio protest). Hence, it cannot collect the insurance proceeds, after it already foreclosed on the mortgage."

• Serrano vs. Court of Appeals, 130 SCRA 327 (1984) — Cited as controlling precedent for the rationale of mortgage redemption insurance as a device protecting both the mortgagee and the mortgagor.
• Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co., 55 Phil. 386 (1930) — Followed for the principle that the insured is primarily the proper person to bring suit on the contract, even if the policy is taken out for the benefit of a mortgagee and made payable to them.
• Argente vs. West Coast Life Insurance Co., 51 Phil. 725 (1928) — Cited for the definition of concealment under the Insurance Code.
• Ng Gan Zee vs. Asian Crusader Life Assurance Corp, 122 SCRA 461 (1983) — Followed for the rule that fraudulent intent must be established to rescind an insurance contract, and that misrepresentation is an affirmative defense requiring satisfactory and convincing evidence from the insurer.

• Section 8, Insurance Code — Provides that where a mortgagor effects insurance in his own name making the loss payable to the mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not cease to be a party to the original contract. Applied to determine that the mortgagor retained the right to sue on the policy.
• Section 26, Insurance Code — Defines concealment as a neglect to communicate that which a party knows and ought to communicate. Applied to evaluate the insured's alleged failure to disclose hypertension.
• Section 181, Insurance Code — States that a life or health insurance policy may pass by transfer, will, or succession to any person, whether they have an insurable interest or not, and such person may recover whatever the insured might have recovered. Applied to establish the widow's standing as a real party in interest.
• Section 183, Insurance Code — Provides that unless the interest is susceptible of exact pecuniary measurement, the measure of indemnity under a life or health policy is the sum fixed in the policy. Applied to hold the insurer liable for the full P86,200 without requiring proof of the exact outstanding mortgage debt.

Mendoza, Buena, and De Leon, Jr., JJ., concurred. Bellosillo, J., was on official leave.