Eternal Gardens Memorial Park V

Eternal Gardens Memorial Park v. Phil. American Life Insurance, Inc.
, 9 April 2008
Facts: On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife)
entered into an agreement denominated as Creditor Group Life Policy No. P-1920 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 policy was to be effective for a period
of one year, renewable on a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is indebted to the
Assured for the unpaid balance of his loan with the Assured, and is accepted for Life Insurance coverage
by the Company on its effective date is eligible for insurance under the Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of insurance up to P50,000.00. However, a

declaration of good health shall be required for all Lot Purchasers as part of the application. The Company
reserves the right to require further evidence of insurability satisfactory to the Company in respect of the
following:
1. Any amount of insurance in excess of P50,000.00.
2. Any lot purchaser who is more than 55 years of age.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the unpaid balance of
his loan (including arrears up to but not exceeding 2 months) as reported by the Assured to the Company
or the sum of P100,000.00, whichever is smaller. Such benefit shall be paid to the Assured if the Lot
Purchaser dies while insured under the Policy.
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 PhP100,000. On
August 2, 1984, Chuang died. Eternal sent a letter dated August 20, 1984 to Philamlife, which served as an
insurance claim for Chuang’s death. Attached to the claim were the following documents: (1) Chuang’s
Certificate of Death; (2) Identification Certificate stating that Chuang is a naturalized Filipino Citizen; (3)
Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assured’s Certificate.
In reply, Philamlife wrote Eternal a letter on November 12, 1984, requiring Eternal to submit the following
documents relative to its insurance claim for Chuang’s death: (1) Certificate of Claimant (with form
attached); (2) Assured’s Certificate (with form attached); (3) Application for Insurance accomplished and
signed by the insured, Chuang, while still living; and (4) Statement of Account showing the unpaid balance
of Chuang before his death. Eternal transmitted the required documents through a letter dated November
14, 1984, which was received by Philamlife on November 15, 1984. 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 PhP100,000 on April 25, 1986.
The trial court decided in favor of Eternal. Philamlife appealed to the CA, which the decision of the trial
court is REVERSED and SET ASIDE, and the complaint is DISMISSED
Petitioner Argument (won) : Eternal

claims that the evidence that it presented
before the trial court supports its contention that it submitted a copy of
the insurance application
of Chuang before his death.
Respondent Argument (lost) : Philamlife

claims that the evidence presented by
Eternal is insufficient, arguing that Eternal must present evidence
showing that Philamlife received a copy of Chuang's insurance
application.
ISSUE: WON THE INSURER IS LIABLE.
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. IcDESA
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.
Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any
ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract
of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved
against the insurer; in other words, it should be construed liberally in favor of the insured and strictly
against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed
in such a way as to preclude the insurer from noncompliance with its obligations. (Emphasis supplied.)
TECcHA
In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above
ruling, stating that:
When the terms of insurance contract contain limitations on liability, courts should construe them in such a
way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the
terms of an insurance contract are to be construed strictly against the party which prepared the contract,
the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology
of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of
the insured, especially to avoid forfeiture.
Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10,
1980, must be construed in favor of the insured and in favor of the effectivity of the insurance contract.
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 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.
As a final note, to characterize the insurer and the insured as contracting parties on equal footing is
inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts of experience
in the industry purposefully used to its advantage. More often than not, insurance contracts are contracts of
adhesion containing technical terms and conditions of the industry, confusing if at all understandable to
laypersons, that are imposed on those who wish to avail of insurance. As such, insurance contracts are
imbued with public interest that must be considered whenever the rights and obligations of the insurer and
the insured are to be delineated. Hence, in order to protect the interest of insurance applicants, insurance
companies must be obligated to act with haste upon insurance applications, to either deny or approve the
same, or otherwise be bound to honor the application as a valid, binding, and effective insurance contract.

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Eternal Gardens Memorial Park v. Phil. American Life Insurance, Inc.

The relevant provisions of the policy are:

No medical examination shall be required for amounts of insurance up to P50,000.00. However, a

1. Any amount of insurance in excess of P50,000.00.

2. Any lot purchaser who is more than 55 years of age.

LIFE INSURANCE BENEFIT.

EFFECTIVE DATE OF BENEFIT.

Petitioner Argument (won) : Eternal

Respondent Argument (lost) : Philamlife

ISSUE: WON THE INSURER IS LIABLE.

EFFECTIVE DATE OF BENEFIT.

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