Commercial Law

Tan Chay Heng vs The West Coast Life Insurance Company

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G.R. No. L-27541 – 51 Phil. 80 – Mercantile Law – Insurance Law – Representation – Rescission of an Insurance Contract

In April 1925, West Coast Life Insurance Company (West Coast) accepted and issued a temporary life insurance policy (pending further review) to Tan Ceang. The life insurance was for P10,000.00 and the premium paid therefor was P936.00. The beneficiary listed in the policy was Tan Chay Heng. In May 1925, Tan Ceang died. Tan Chay Heng filed an insurance claim which was denied by West Coast. Tan Chay Heng sued West Coast. West Coast averred, in its ANSWER that Tan Chay Heng, in connivance with others made Tan Ceang to enter into an insurance policy and name Tan Chay Heng as the beneficiary; that Tan Ceang was induced to lie on the application form about his health and life conditions (he was made to account that he was not addicted to opium, morphine, and cocaine when in fact he was); that Tan Chay Heng was a gang leader involved in the racket of fraudulent insurance schemes; that by reason of these fraud and machinations, the insurance policy West Coast issued is void; that West Coast seeks to avoid the insurance policy. Tan Chay Heng filed a reply as it claimed that West Coast’s ANSWER is a cross-complaint and the facts contained therein was not sufficient as a defense. The lower court directed West Coast to amend its ANSWER which West Coast duly excepted from and so the lower court ruled in favor of Tan Chay Heng. The lower court further ruled that under Section 47 of [the old] Insurance Law, if an insurer (West Coast) has the right to rescind a contract of insurance, it must do so before a suit is brought against the insurer on the said contract.

ISSUE: Whether or not Section 47 is applicable in the case at bar.

HELD: No. West Coast was not seeking for the rescission of the insurance contract. In fact, West Coast avers that there was no insurance contract at all because the temporary insurance issued in favor of Tan Ceang was void. For West Coast, it was void ab initio because of the fraudulent circumstances attending to it. Therefore, it cannot be subject to rescission. The Supreme Court however remanded the case to the lower court to determine the material allegations made by West Coast against Tan Chay Heng.

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