Case Digest: Eternal Gardens Memorial Park vs. Philam Life

ETERNAL GARDENS MEMORIAL PARK CORPORATION vs. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY

G.R. No. 166245 09 April 2008

Facts:

Respondent Philamlife entered into an agreement denominated as Creditor Group Life Policy with petitioner. Under the policy, the clients of Eternal who purchased burial lots from it on installment basis would be insured by Philamlife. Among those insured was John Chuang who died with a balance of payments pf PhP100,000.00. More than a year after complying with the required documents, Philamlife had not furnished Eternal with any reply to the latter’s insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000 on April 25, 1986. Only then did Philamlife respond that the deceased was not covered by the Policy.

The RTC said that since the contract is a group life insurance, once proof of death is submitted, payment must follow. The CA ruled that the non-accomplishment of the submitted application form violated Section 26 of the Insurance Code. Thus, the CA concluded, there being no application form, Chuang was not covered by Philamlifes insurance.

Issue: May the inaction of the insurer on the insurance application be considered approval of the application?

Ruling:

Yes. As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that:

 

EFFECTIVE DATE OF BENEFIT.

 

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved by the Company.

 

An examination of the above provision would show ambiguity between its two sentences.   A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer. Moreover, the mere inaction of the insurer on the insurance application must not work to prejudice the insured; it cannot be interpreted as a termination of the insurance contract. The termination of the insurance contract by the insurer must be explicit and unambiguous.