Sun Life of Canada (Philippines), Inc. vs. Sibya

When an insured dies within the two-year contestability period, the insurer is absolutely bound to pay the policy proceeds even if the policy was obtained through fraudulent concealment or misrepresentation, as the death triggers the incontestability clause under Section 48 of the Insurance Code; moreover, concealment is an affirmative defense which the insurer must prove by satisfactory and convincing evidence, and the failure to disclose subsequent medical treatments does not constitute fraudulent concealment where the insured disclosed prior treatment for the same condition and authorized the insurer to investigate.

Atty. Jesus Sibya, Jr. applied for life insurance with Sun Life of Canada (Philippines), Inc. on January 10, 2001. In his application, he disclosed that he had undergone lithotripsy for kidney stones in 1987 at the National Kidney Institute under Dr. Jesus Benjamin Mendoza, but indicated "no recurrence." Sun Life approved the application and issued Policy No. 031097335 on February 5, 2001, naming respondents as beneficiaries entitled to ₱1,000,000.00 in death benefits. Atty. Jesus Jr. died from a gunshot wound on May 11, 2001, merely three months after the policy issuance.

• The Insurance Application: On January 10, 2001, Atty. Jesus Sibya, Jr. applied for life insurance with Sun Life. In the application, he disclosed that he had sought advice for kidney problems and specified: "Last 1987, had undergone lithotripsy due to kidney stone under Dr. Jesus Benjamin Mendoza at National Kidney Institute, discharged after 3 days, no recurrence as claimed." He also executed an authorization allowing Sun Life to investigate his medical history.

• Policy Issuance and Death: Sun Life approved the application on February 5, 2001, and issued Policy No. 031097335, naming respondents as beneficiaries for a ₱1,000,000.00 death benefit. On May 11, 2001, Atty. Jesus Jr. died from a gunshot wound in San Joaquin, Iloilo, three months after the policy took effect.

• Claim and Denial: Ma. Daisy filed a Claimant's Statement with Sun Life to seek death benefits. In a letter dated August 27, 2001, Sun Life denied the claim, alleging that Atty. Jesus Jr. failed to disclose medical treatments at the National Kidney Transplant Institute in May and August 1994, which would have indicated renal failure and high risk. Sun Life tendered a check representing the refund of premiums paid.

• Rescission Complaint: Sun Life instituted a Complaint for Rescission before the RTC, alleging that the undisclosed 1994 treatments indicated renal failure and that had it known such fact, it would not have issued the policy.

• Defense: Respondents countered that Atty. Jesus Jr. acted in good faith, disclosed his 1987 kidney treatment, and authorized Sun Life to verify his medical records. They characterized the rescission action as a ploy to avoid payment.

• Fraudulent Concealment: Sun Life maintained that Atty. Jesus Jr. committed material concealment by failing to disclose his 1994 medical treatments at the National Kidney Transplant Institute, which allegedly indicated renal failure and materially affected the risk assessment.

• Rescission: Petitioner argued that the non-disclosure of the 1994 treatments warranted rescission of the insurance contract ab initio, as the true state of the insured's health would have prevented the issuance of the policy.

• Good Faith Disclosure: Respondents countered that Atty. Jesus Jr. disclosed his prior kidney ailment and treatment in 1987 and executed a waiver and authorization for Sun Life to investigate his medical history, giving the insurer adequate means to ascertain the facts.

• Incontestability: Respondents argued that under Section 48 of the Insurance Code, the death of the insured within the two-year contestability period rendered the policy incontestable and obligated Sun Life to pay the proceeds regardless of any alleged concealment.

• Honest Opinion: Respondents maintained that Atty. Jesus Jr.'s statement of "no recurrence" was an honest opinion made in good faith by a non-medical professional, not a fraudulent misrepresentation of fact.

• Incontestability Clause: Whether the insurer is liable to pay death benefits when the insured died within the two-year contestability period despite allegations of fraudulent concealment or misrepresentation.

• Concealment and Misrepresentation: Whether the insured committed fraudulent concealment or misrepresentation warranting rescission of the policy.

• Incontestability Clause: The insurer is bound to pay the death benefits. Under Section 48 of the Insurance Code, an insurer is given two years from the effectivity of a life insurance contract to discover or prove that the policy is void ab initio or rescindible by reason of fraudulent concealment or misrepresentation. However, if the insured dies within this two-year period, the insurer must make good on the policy even if it was obtained by fraud, concealment, or misrepresentation. The death of Atty. Jesus Jr. on May 11, 2001—three months after the February 5, 2001 policy issuance—triggered the incontestability period, rendering Sun Life's right to rescind nugatory.

• Concealment and Misrepresentation: No fraudulent concealment or misrepresentation was established. Atty. Jesus Jr. disclosed his 1987 kidney treatment and executed an express authorization allowing Sun Life to obtain information on his medical history. The statement "no recurrence" constituted an honest opinion by a layperson, not a fraudulent assertion of fact. Concealment being an affirmative defense, Sun Life failed to discharge its burden of proving fraudulent intent by satisfactory and convincing evidence.

• Incontestability Clause (Section 48, Insurance Code) — An insurer has two years from the effectivity of a life insurance contract to contest the policy on grounds of concealment or misrepresentation while the insured is alive. Once the insured dies within this period, the insurer becomes absolutely liable to pay the proceeds regardless of any fraudulent inducement, penalizing insurers who recklessly solicit business without proper investigation and protecting bona fide beneficiaries.

• Concealment as Affirmative Defense — The insurer bears the burden of proving fraudulent concealment by satisfactory and convincing evidence; mere allegations of non-disclosure or incomplete disclosure are insufficient to avoid liability where the insured has provided authorization for investigation and disclosed prior related conditions.

• Opinion vs. Fact in Representations — Where matters of medical judgment or opinion are involved, answers made by a non-medical professional in good faith and without intent to deceive will not avoid a policy even if subsequently proven untrue.

• "Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured... After the two-year period lapses, or when the insured dies within the period, the insurer must make good on the policy, even though the policy was obtained by fraud, concealment, or misrepresentation."

• "This is not to say that insurance fraud must be rewarded, but that insurers who recklessly and indiscriminately solicit and obtain business must be penalized, for such recklessness and lack of discrimination ultimately work to the detriment of bona fide takers of insurance and the public in general."

• "Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue."

• Manila Bankers Life Insurance Corporation v. Aban, 715 Phil. 404 (2013) — Controlling precedent establishing that death of the insured within the two-year contestability period renders the policy incontestable and obligates the insurer to pay regardless of fraud or concealment; cited as the primary basis for the ruling on the incontestability clause.

• Philamcare Health Systems, Inc. v. CA, 429 Phil. 82 (2002) — Cited for the principle that concealment is an affirmative defense requiring proof by satisfactory and convincing evidence.

• Spouses Bernales v. Heirs of Julian Sambaan, 624 Phil. 88 (2010) — Cited for the rule that factual findings of lower courts are entitled to great weight and respect on appeal when supported by substantial evidence.

• Section 48, Presidential Decree No. 612 (Insurance Code) — Establishes the two-year contestability period for life insurance policies and the absolute obligation of the insurer to pay if the insured dies within said period, notwithstanding any concealment or misrepresentation.

• Sections 241 and 242, Presidential Decree No. 612 (Insurance Code) — Provisions governing unfair claim settlement practices and the time limits for payment of insurance proceeds; the Court noted that the Court of Appeals had absolved Sun Life of liability under these provisions.

Velasco, Jr. (Chairperson), and Perez, JJ.