Contesting the Incontestability Clause

The second paragraph of Section 48 of the Insurance Code provides as follows:

“After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two (2) years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent.”

This provision is known as the incontestability clause.  Basically, it means that after a life insurance policy has been in force for two years from its issue or its last reinstatement, the insurer can no longer rescind the policy or refuse payment of the proceeds on the ground that the insured committed concealment or misrepresentation.  The life insurance policy becomes “incontestable.” 

Section 48 gives the insurer the two-year period within which to make the necessary investigation on whether there was concealment or misrepresentation on the part of the insured or his agent and to rescind the policy.  After the two-year period, the insurer is barred from rescinding or refusing to honor the policy, even if the insured was guilty of concealment or misrepresentation.  The law aims to protect the insured or beneficiary against an unjust denial of the claim.  The statute considers the difficulty, after the lapse of two years, on the part of the insured and especially the beneficiary in procuring evidence to disprove or defend against the charge of fraud.

After the lapse of the two-year period, it is clear that incontestability has set in, regardless of whether or not the insured is alive.   The question is what if the insured dies within the two-year period? May the insurer still rescind the policy within such period? 

The issue was squarely raised in the case of Tan v. Court of Appeals, 174 SCRA 403 (1989). A life insurance policy was issued on 6 November 1973. The insured died on 26 April 1975.  On 11 September 1975 or within the contestability period, the insurer rescinded the policy and denied the beneficiary’s claim on the ground of the insured’s concealment and misrepresentation.  The beneficiary contended that the insurance policy can no longer be rescinded under Section 48 because the insured died within the two-year period. The beneficiary argued that the rescission must be done within the two-year period and during the lifetime of the insured, invoking the phrase “during the lifetime of the insured” in Section 48.  In effect, the beneficiary contended that the death of the insured immediately converted the contestable period to an incontestable one. 

The Supreme Court was not persuaded by this argument.  The Court held that the insurer has the entire two-year period to contest the policy, regardless of whether the insured is alive or not during that period.  The Court stated that the phrase “during the lifetime” simply means that the policy is no longer considered in force after the insured has died. The Court stated that to hold otherwise would give rise to the anomalous situation where the beneficiary of an insured who dies right after taking out and paying for a life insurance policy would be allowed to collect on the policy even if the insured fraudulently concealed or misrepresented material facts.

However, in the case of Sun Life of Canada (Phil.), v. Sibya, 793 SCRA 45 (2016), the Supreme Court held that that if the insured dies within the two-year period, the insurer is bound to make good its obligation under the policy regardless of the presence of concealment or misrepresentation. The holding of Sibya clearly runs counter to that of Tan. 

It is submitted that the Tan doctrine is still the controlling case law.  The Constitution provides that no doctrine or principle of law laid down by the Supreme Court in a decision rendered en banc or in division may be modified or reversed except by the Court sitting en banc.  Sibya was rendered by a division of the Court and not en banc.  Hence, the Tan holding should still be followed by our courts in dealing with cases where the insured dies during the contestable period.

-oOo-