G.R. No. 166245, 9 April 2008

FACTS:

Respondent Philamlife entered into an agreement denominated as Creditor Group Life Policy 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.
The relevant provision of the policy is:
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.
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, 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.
In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter a portion of which reads:
The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens Memorial Park in October 1982 for the total maximum insurable amount of P100,000.00 each.No application for Group Insurance was submitted in our office prior to his death on August 2, 1984
Eternal filed a case with the RTC for a sum of money against Philamlife, which decided in favor of Eternal, ordering Philamlife to pay the former 100K representing the proceeds of the policy.
CA reversed. Hence this petition.

ISSUE:

WON Philamlife should pay the 100K insurance proceeds

HELD:

petition granted.
YES. An examination of the provision of the POLICY under effective date of benefit, 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.
On the other hand, 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 the Creditor Group Life Policy 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.

*Case digest by Kharla Angelique B. Ko-Tubat, LLB-4, Andres Bonifacio Law School, SY 2018-2019