G.R. No. 175666; July 29, 2013
MANILA BANKERS LIFE INSURANCE CORPORATION, Petitioner, vs. CRESENCIA P. ABAN, Respondent.

FACTS

On July 3, 1993, Delia Sotero applied for a life insurance policy from Manila Bankers Life Insurance Corporation (Bankers Life), designating her niece, Cresencia P. Aban, as the beneficiary. The policy was issued on August 30, 1993, after a medical examination and premium payment. Sotero died on April 10, 1996, more than two years and seven months after the policy’s issuance. Aban filed a claim for the insurance proceeds. Bankers Life, after investigation, denied the claim on April 16, 1997, alleging fraud, concealment, and misrepresentation. It asserted that Sotero was illiterate, sickly, financially incapable of paying premiums, did not personally sign the application, and that Aban herself filed the application and paid the premiums.
On April 24, 1997, Bankers Life filed a civil case for rescission and/or annulment of the policy. Aban moved to dismiss, arguing the action was barred by prescription under Section 48 of the Insurance Code (the incontestability clause). The Regional Trial Court granted the motion to dismiss, ruling that since the policy had been in force for over two years, Bankers Life was barred from contesting it. The Court of Appeals affirmed this dismissal.

ISSUE

Whether the Court of Appeals erred in dismissing the complaint on the ground of prescription under Section 48 of the Insurance Code, despite petitioner’s allegation that the policy was void ab initio for lack of insurable interest because the beneficiary allegedly procured it.

RULING

The Supreme Court denied the petition and affirmed the lower courts’ rulings. The legal logic centers on the application and purpose of Section 48 of the Insurance Code, known as the incontestability clause. This provision states that after a life insurance policy has been in force during the insured’s lifetime for two years from its issue, the insurer cannot prove the policy is void ab initio or rescindible due to fraudulent concealment or misrepresentation.
The Court held that this two-year period is a statutory period of limitation. It is designed to compel insurers to diligently investigate the insurability of applicants within that timeframe. Once the period lapses, the insurer is barred from disputing the policy’s validity based on pre-existing fraud or misrepresentation. The defense that the policy is void ab initio, such as for alleged lack of insurable interest due to the beneficiary’s procurement, is precisely the type of challenge Section 48 seeks to foreclose after the incontestability period. The law aims to protect the insured and beneficiaries from belated repudiation of policies after premiums have been paid for years, ensuring stability in insurance contracts. Since Sotero’s policy was incontestable for over two years at her death, Bankers Life’s action was correctly barred. The Court emphasized that insurance contracts are contracts of adhesion interpreted liberally in favor of the insured and strictly against the insurer.