G.R. No. 89741 ; March 13, 1991
SUN INSURANCE OFFICE, LTD., petitioner, vs. COURT OF APPEALS and EMILIO TAN, respondents.

FACTS

Private respondent Emilio Tan secured a property insurance policy from petitioner Sun Insurance Office, Ltd. on August 15, 1983. Four days later, the insured property was destroyed by fire. Tan filed a claim, which the insurer formally denied via a letter dated February 29, 1984. On April 3, 1984, Tan sought reconsideration of this denial. The insurer reiterated its denial in a subsequent letter dated May 17, 1985. Tan finally filed a civil action for recovery on November 20, 1985.
Petitioner moved to dismiss the complaint on the ground of prescription, invoking Condition 27 of the insurance policy. This clause required that any action or suit be commenced within twelve (12) months from receipt of notice of the rejection of the claim. Petitioner argued that the 12-month period began to run from Tan’s receipt of the initial denial letter in April 1984, making the November 1985 filing untimely. The Regional Trial Court denied the motion to dismiss, a decision affirmed by the Court of Appeals.

ISSUE

Whether the filing of a motion for reconsideration of the insurer’s denial suspends the running of the 12-month prescriptive period stipulated in the insurance contract.

RULING

No. The Supreme Court reversed the Court of Appeals and ordered the dismissal of the civil case. The prescriptive period commenced from the insured’s receipt of the initial rejection, not from the resolution of a subsequent plea for reconsideration.
The Court applied the fundamental principle that insurance contracts are construed according to the clear and unambiguous terms agreed upon by the parties. Condition 27 of the policy explicitly stated that the 12-month period runs “from receipt of notice of such rejection.” The terms are plain and must be understood in their ordinary sense. The initial letter of February 29, 1984, which unequivocally stated “we are rejecting… liability for the claim,” constituted the operative rejection that triggered the prescriptive period. Tan’s receipt of this notice in April 1984 started the countdown.
The Court rejected the argument that a “final rejection” after a reconsideration plea is required to start the period. To hold otherwise would introduce uncertainty and conflict with the policy behind such clauses, which is to ensure the prompt filing of suits while evidence is still fresh. Allowing reconsideration pleas to suspend the period would necessitate creating new rules on the form and number of such pleas, which the contract did not provide for. The cause of action accrues upon the first instance of rejection, and the insured must commence action within the contractually stipulated period from that date.