G.R. No. L-28866. March 17, 1972.
Fe de Joya Landicho, et al. vs. Government Service Insurance System.

FACTS

The GSIS issued an optional additional life insurance policy to civil engineer Flaviano Landicho. The policy’s standard conditions stated premiums were payable at GSIS offices and that the policy would not be in force unless premiums were paid on time. However, in his signed application, Landicho specifically authorized, under paragraph 7(c), the salary-deducting officer of his office (the Bureau of Public Works) through the GSIS to deduct the monthly premiums from his salary starting May 1964. Paragraph 7(d) further stipulated that failure to make such salary deductions would not make the policy lapse, but the premiums would be considered an indebtedness he bound himself to pay. Landicho died in an airplane crash on June 29, 1966. No premium had ever been physically paid or deducted from his salary. His heirs claimed the double indemnity benefit. GSIS denied the claim, asserting the policy never took effect under paragraph 7(e) of the same application, which stated the policy would be effective on the first day of the month following payment of the first premium.

ISSUE

Whether the insurance policy was in force despite the non-payment of any premium.

RULING

Yes, the policy was in force. The Court ruled in favor of the heirs. The contractual provisions created an ambiguity. Paragraph 7(e) made effectiveness contingent on premium payment, but paragraphs 7(c) and (d) established a specific salary deduction scheme and expressly stated that failure to deduct would not cause a lapse, creating only a debt. These clauses must be reconciled as part of the entire contract. The ambiguity is resolved against the GSIS, which prepared the contract, and in favor of the insured, pursuant to Article 1377 of the Civil Code and the rule of contra proferentem in insurance contracts. This interpretation is bolstered by two key facts: first, the GSIS never advised the Bureau of Public Works’ collecting officer to effect the salary deduction it was authorized to make, and this omission should not benefit GSIS. Second, GSIS had impliedly led the insured to believe the policy was active by paying him dividends corresponding to it, which would have reasonably assured him of its validity. Therefore, the policy was effective, and the premium arrears constituted merely a collectible debt from the estate, not a ground to nullify the coverage. The trial court’s decision ordering GSIS to pay the claim was affirmed.