Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 113899 October 13, 1999

GREAT PACIFIC LIFE ASSURANCE CORP., petitioner,

vs.
COURT OF APPEALS AND MEDARDA V. LEUTERIO, respondents.

QUISUMBING, J.:

This petition for review, under Rule 45 of the Rules of Court, assails the Decision   dated May 17,
1

1993, of the Court of Appeals and its Resolution   dated January 4, 1994 in CA-G.R. CV No. 18341.
2

The appellate court affirmed in toto the judgment of the Misamis Oriental Regional Trial Court,
Branch 18, in an insurance claim filed by private respondent against Great Pacific Life Assurance
Co. The dispositive portion of the trial court's decision reads:

WHEREFORE, judgment is rendered adjudging the defendant GREAT PACIFIC

LIFE ASSURANCE CORPORATION as insurer under its Group policy No. G-1907,
in relation to Certification B-18558 liable and ordered to pay to the DEVELOPMENT
BANK OF THE PHILIPPINES as creditor of the insured Dr. Wilfredo Leuterio, the
amount of EIGHTY SIX THOUSAND TWO HUNDRED PESOS (P86,200.00);
dismissing the claims for damages, attorney's fees and litigation expenses in the
complaint and counterclaim, with costs against the defendant and dismissing the
complaint in respect to the plaintiffs, other than the widow-beneficiary, for lack of
cause of action.  3

The facts, as found by the Court of Appeals, are as follows:

A contract of group life insurance was executed between petitioner Great Pacific Life
Assurance Corporation (hereinafter Grepalife) and Development Bank of the Philippines (hereinafter
DBP). Grepalife
agreed to insure the lives of eligible housing
loan mortgagors of DBP.

On November 11, 1983, Dr.

Wilfredo Leuterio, a physician and a
housing debtor of DBP applied for membership in the group
life insurance plan. In an application form, Dr. Leuterio answered questions concerning
his health condition as follows:

7. Have you ever had, or consulted, a physician for a heart condition,

high blood pressure, cancer, diabetes, lung; kidney or stomach
disorder or any other physical impairment?
 Answer: No. If so give details _____________.

8. Are you now, to the best of your knowledge, in good health?

Answer: [x] Yes [ ] NO. 

4

On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance

coverage
of Dr. Leuterio, to the extent of his DBP mortgage indebtedness
amounting to eighty-six thousand, two hundred (P86,200.00)
pesos. 1âwphi1.nêt

On August 6, 1984, Dr. Leuterio died due to "massive cerebral

hemorrhage." Consequently, DBP submitted a death claim to Grepalife.
Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he
applied for an insurance coverage on November 15, 1983. Grepalife insisted that Dr.
Leuterio did not disclose he had been suffering from hypertension, which caused his
death. Allegedly, such non-disclosure constituted concealment that justified
the denial of the claim.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a
complaint with the Regional Trial Court of Misamis Oriental, Branch 18, against Grepalife for
"Specific Performance with Damages."    5

During the trial, Dr. Hernando Mejia, who issued the death certificate, was called to testify. Dr.
Mejia's findings, based partly from the information given by the respondent widow, stated that Dr.
Leuterio complained of headaches presumably due to high blood pressure. The inference was not
conclusive because Dr. Leuterio was not autopsied, hence, other causes were not ruled out.

On February 22, 1988, the

trial court rendered a decision in favor of
respondent widow and against Grepalife. On May 17, 1993, the Court of Appeals
sustained the trial court's decision. Hence, the present petition. Petitioners interposed the
following assigned errors:

1. THE LOWER COURT ERRED IN HOLDING DEFENDANT-

APPELLANT LIABLE TO THE DEVELOPMENT BANK OF THE
PHILIPPINES (DBP) WHICH IS NOT A PARTY TO THE CASE FOR
PAYMENT OF THE PROCEEDS OF A MORTGAGE REDEMPTION
INSURANCE ON THE LIFE OF PLAINTIFF'S HUSBAND
WILFREDO LEUTERIO ONE OF ITS LOAN BORROWERS,
INSTEAD OF DISMISSING THE CASE AGAINST DEFENDANT-
APPELLANT [Petitioner Grepalife] FOR LACK OF CAUSE OF
ACTION.
 2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE
FOR WANT OF JURISDICTION OVER THE SUBJECT OR NATURE
OF THE ACTION AND OVER THE PERSON OF THE DEFENDANT.

3. THE LOWER COURT ERRED IN ORDERING DEFENDANT-

APPELLANT TO PAY TO DBP THE AMOUNT OF P86,200.00 IN
THE ABSENCE OF ANY EVIDENCE TO SHOW HOW MUCH WAS
THE ACTUAL AMOUNT PAYABLE TO DBP IN ACCORDANCE
WITH ITS GROUP INSURANCE CONTRACT WITH DEFENDANT-
APPELLANT.

4. THE LOWER COURT ERRED IN HOLDING THAT THERE WAS

NO CONCEALMENT OF MATERIAL INFORMATION ON THE PART
OF WILFREDO LEUTERIO IN HIS APPLICATION FOR
MEMBERSHIP IN THE GROUP LIFE INSURANCE PLAN
BETWEEN DEFENDANT-APPELLANT OF THE INSURANCE
CLAIM ARISING FROM THE DEATH OF WILFREDO LEUTERIO.  6

Synthesized below are the assigned errors for our resolution:

1. Whether the Court of Appeals erred in holding petitioner liable to

DBP as beneficiary in a group life insurance contract from a
complaint filed by the widow of the decedent/mortgagor?

2. Whether the Court of Appeals erred in not finding that Dr. Leuterio
concealed that he had hypertension, which would vitiate the
insurance contract?

3. Whether the Court of Appeals erred in holding Grepalife liable in

the amount of eighty six thousand, two hundred (P86,200.00) pesos
without proof of the actual outstanding mortgage payable by the
mortgagor to DBP.

Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not
the real
party in interest, hence the trial court acquired no jurisdiction over the
case. It argues that when the Court of Appeals affirmed the trial court's judgment, Grepalife was
held liable to pay the proceeds of insurance contract in favor of DBP, the indispensable party who
was not joined in the suit.

insurable interest in
To resolve the issue, we must consider the
mortgaged properties and the parties to this type of
contract. The rationale of a group insurance policy of mortgagors, otherwise known as the
"mortgage redemption insurance," is a device for the protection of both the
mortgagee and the mortgagor.

On the part of the mortgagee (BANK), it has to enter into such form of contract so that in the event of
the unexpected demise of the mortgagor (DEBTOR) during the subsistence of the mortgage
 the proceeds from such insurance will be applied to
contract,
the payment of the mortgage debt, thereby relieving the heirs of the
mortgagor from paying the obligation.    7

In a similar vein, ample protection is given to the mortgagor under such a concept so that in
the event of death; the mortgage obligation will be extinguished by the application of the insurance
proceeds to the mortgage indebtedness.   Consequently, where the mortgagor pays the insurance
8

premium under the group insurance policy, making the loss payable to the mortgagee, the insurance
is on the mortgagor's interest, and the mortgagor continues to be a party to the contract. In this type
simply an appointee of the
of policy insurance, the mortgagee is
insurance fund, such loss-payable clause does not
make the mortgagee a party to the contract. 9
Sec. 8 of the Insurance Code provides:

Unless the policy provides, where a mortgagor of property effects insurance in his
own name providing that the loss shall be payable to the mortgagee, or assigns a
policy of insurance to a mortgagee, the insurance is deemed to be upon the interest
of the mortgagor, who does not cease to be a party to the original contract, and any
act of his, prior to the loss, which would otherwise avoid the insurance, will have the
same effect, although the property is in the hands of the mortgagee, but any act
which, under the contract of insurance, is to be performed by the mortgagor, may be
performed by the mortgagee therein named, with the same effect as if it had been
performed by the mortgagor.

The insured private respondent did not cede to the mortgagee all his rights or interests in the
insurance, the policy stating that: "In
the event of the debtor's death before his
indebtedness with the Creditor [DBP] shall have been fully paid,
an amount to pay the outstanding indebtedness shall first be paid
to the creditor and the balance of sum assured, if there is any,
shall then be paid to the beneficiary/ies designated by the
debtor."   When DBP submitted the insurance claim against petitioner, the latter denied payment
10

thereof, interposing the defense of concealment committed by the insured. Thereafter, DBP
collected the debt from the mortgagor and took the necessary action of foreclosure on the residential
lot of private respondent.   In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co.   we held:
11 12

Insured, being the person with whom the contract was made, is primarily the proper
person to bring suit thereon. * * * Subject to some exceptions, insured may thus sue,
although the policy is taken wholly or in part for the benefit of another person named
or unnamed, and although it is expressly made payable to another as his interest
may appear or otherwise. * * * Although a policy issued to a mortgagor is taken out
for the benefit of the mortgagee and is made payable to him, yet the mortgagor may
sue thereon in his own name, especially where the mortgagee's interest is less than
the full amount recoverable under the policy, * * *.
 And in volume 33, page 82, of the same work, we read the following:

Insured may be regarded as the real party in interest, although he has assigned the
policy for the purpose of collection, or has assigned as collateral security any
judgment he may obtain.  13

And since a policy of insurance upon life or health may pass by

transfer, will or succession to any person, whether he has an
insurable interest or not, and such person may recover it whatever
the insured might have recovered, 14 the widow of the decedent Dr.
Leuterio may file the suit against the insurer, Grepalife.
The second assigned error refers to an alleged concealment that the petitioner interposed as its
defense to annul the insurance contract. Petitioner contends that Dr. Leuterio failed to disclose that
he had hypertension, which might have caused his death. Concealment exists where the assured
had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that
he should communicate it to the assured, but he designedly and intentionally withholds the same.  15

Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as
supported by the information given by the widow of the decedent. Grepalife asserts that Dr. Mejia's
technical diagnosis of the cause of death of Dr. Leuterio was a duly documented hospital record, and
that the widow's declaration that her husband had "possible hypertension several years ago" should
not be considered as hearsay, but as part of res gestae.

medical findings were not conclusive

On the contrary the
because Dr. Mejia did not conduct an autopsy on the
body of the decedent. As the attending physician, Dr. Mejia stated that he had no
knowledge of Dr. Leuterio's any previous hospital confinement.   Dr. Leuterio's death certificate
16

stated that hypertension was only "the possible cause of death." The private respondent's statement,
as to the medical history of her husband, was due to her unreliable recollection of events. Hence, the
statement of the physician was properly considered by the trial court as hearsay.

The question of whether there was concealment was aptly answered by the appellate court, thus:

The insured, Dr. Leuterio, had answered in his insurance application that he was in
good health and that he had not consulted a doctor or any of the enumerated
ailments, including hypertension; when he died the attending physician had certified
in the death certificate that the former died of cerebral hemorrhage, probably
secondary to hypertension. From this report, the appellant insurance company
refused to pay the insurance claim. Appellant alleged that the insured had concealed
the fact that he had hypertension.

Contrary to appellant's allegations, there was no sufficient proof that the insured had
suffered from hypertension. Aside from the statement of the insured's widow who
was not even sure if the medicines taken by Dr. Leuterio were for hypertension, the
appellant had not proven nor produced any witness who could attest to Dr. Leuterio's
medical history . . .
 xxx xxx xxx

Appellant insurance company had failed to establish that there was concealment
made by the insured, hence, it cannot refuse payment of the claim.  17

The fraudulent intent on the part of the insured must be

established to entitle the insurer to rescind the contract.   18

Misrepresentation as a defense of the insurer to avoid liability is an

affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the insurer .    19

In the case at bar, the petitioner failed to clearly and satisfactorily establish its
defense, and is therefore liable to pay the proceeds of the insurance. 1âwphi1.nêt

And that brings us to the last point in the review of the case at bar. Petitioner claims that there was
no evidence as to the amount of Dr. Leuterio's outstanding indebtedness to DBP at the time of the
mortgagor's death. Hence, for private respondent's failure to establish the same, the action for
specific performance should be dismissed. Petitioner's claim is without merit. A life insurance policy
is a valued policy.   Unless
the interest of a person insured is
20

susceptible of exact pecuniary measurement, the measure of

indemnity under a policy of insurance upon life or health is
the sum fixed in the policy.   The mortgagor paid the premium according to the
21

coverage of his insurance, which states that:

The policy states that upon receipt of due proof of the Debtor's death during the
terms of this insurance, a death benefit in the amount of P86,200.00 shall be paid.

In the event of the debtor's death before his indebtedness with the creditor shall have
been fully paid, an amount to pay the outstanding indebtedness shall first be paid to
the Creditor and the balance of the Sum Assured, if there is any shall then be paid to
the beneficiary/ies designated by the debtor."   (Emphasis omitted)
22

However, we noted that the Court of Appeals' decision was promulgated on May 17, 1993. In private
respondent's memorandum, she states that DBP foreclosed in 1995 their residential lot, in
satisfaction of mortgagor's outstanding loan. Considering this supervening event, the insurance
proceeds shall inure to the benefit of the heirs of the deceased person or his beneficiaries. Equity
dictates that DBP should not unjustly enrich itself at the expense of another (Nemo cum alterius
detrimenio protest). Hence, it cannot collect the insurance proceeds, after it already foreclosed on
the mortgage. The proceeds now rightly belong to Dr. Leuterio's heirs represented by his widow,
herein private respondent Medarda Leuterio.

WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the Court of Appeals
in CA-G.R. CV 18341 is AFFIRMED with MODIFICATION that
the petitioner is
ORDERED to pay the insurance proceeds amounting to Eighty-
six thousand, two hundred (P86,200.00) pesos to the heirs of the insured,
Dr. Wilfredo Leuterio (deceased), upon presentation of proof of prior settlement of mortgagor's
indebtedness to Development Bank of the Philippines. Costs against petitioner. 1âwphi1.nêt

SO ORDERED.