Eternal Gardens Memorial Park Corporation v Philamlife (Insurance)

G.R. No. 166245             April 9, 2008

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

FACTS:

Philamlife) entered into an agreement denominated as Creditor Group Life Policy No. P-19202 with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal who purchased burial lots from it on installment basis would be insured by Philamlife. The amount of insurance coverage depended upon the existing balance of the purchased burial lots.

Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy of the application of each purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal complied by submitting a letter dated December 29, 1982,4 containing a list of insurable balances of its lot buyers for October 1982. One of those included in the list as "new business" was a certain John Chuang. His balance of payments was PhP 100,000. On August 2, 1984, Chuang died.

Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance claim for Chuang's death.

After more than a year, 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, 1986.8

In response to Eternal's demand, Philamlife denied Eternal's insurance claim in a letter dated May 20, 1986. Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC).

DECISION OF LOWER COURTS:

(1) RTC : in favor of Eternal. due to Philamlife's inaction from the submission of the requirements of the group insurance on December 29, 1982 to Chuang's death on August 2, 1984, as well as Philamlife's acceptance of the premiums during the same period, Philamlife was deemed to have approved Chuang's application. The RTC said that since the contract is a group life insurance, once proof of death is submitted, payment must follow.

(2) CA : in favor of Philamlife. there being no application form, Chuang was not covered by Philamlife's insurance.

ISSUE:

May the inaction of the insurer on the insurance application be considered as 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. The first sentence appears to state that the insurance coverage of the clients of Eternal already became effective upon contracting a loan with Eternal while the second sentence appears to require Philamlife to approve the insurance contract before the same can become effective.

It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly against the insurer in order to safeguard the latter's interest. 

The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received, states that the insurance forms for the attached list of burial lot buyers were attached to the letter. Such stamp of receipt has the effect of acknowledging receipt of the letter together with the attachments. Such receipt is an admission by Philamlife against its own interest.13 The burden of evidence has shifted to Philamlife, which must prove that the letter did not contain Chuang's insurance application. However, Philamlife failed to do so; thus, Philamlife is deemed to have received Chuang's insurance application.

the seemingly conflicting provisions must be harmonized to mean that upon a party's purchase of a memorial lot on installment from Eternal, an insurance contract covering the lot purchaser is created and the same is effective, valid, and binding until terminated by Philamlife by disapproving the insurance application. The second sentence of Creditor Group Life Policy No. P-1920 on the Effective Date of Benefit is in the nature of a resolutory condition which would lead to the cessation of the insurance contract. 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.