SECOND DIVISION

[G.R. No. 113899. October 13, 1999.]

GREAT PACIFIC LIFE ASSURANCE CORP. , petitioner, vs.

COURT OF APPEALS AND MEDARDA V. LEUTERIO ,
respondents.

GA Fortun & Associates for petitioner.

Noel S. Beja for private respondent.

SYNOPSIS

This is a petition for review under Rule 45 of the Rules of Court, assailing
the decision and resolution of the Court of Appeals dated May 17, 1994 and
January 4, 1994, respectively, in CA G.R. CV No. 18341. The appellate court
affirmed in toto the judgment of the Regional Trial Court of Misamis Oriental in
an insurance claim filed by private respondent against Great Pacific Life
Assurance Co.
The Supreme Court found the petition not meritorious. Contrary to
petitioner'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 petitioner had not proven nor produced any witness who
could attest to Dr. Leuterio's medical history. Clearly, it had failed to establish
that there was concealment made by the insured, hence it cannot refuse
payment of the claim.

SYLLABUS

1. COMMERCIAL LAW; INSURANCE; MORTGAGE REDEMPTION

INSURANCE; RATIONALE. — 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, it has to enter into such form of contract so that in the event
of the unexpected demise of the mortgagor during the subsistence of the
mortgage contract, the proceeds from such insurance will be applied to the
payment of the mortgage debt, thereby relieving the heirs of the mortgagor
from paying the obligation. 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 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 of policy
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 insurance, the mortgagee is simply an appointee of the insurance fund, such
loss-payable clause does not make the mortgagee a party to the contract.
2. ID.; ID.; ID.; INSURED MAY BE REGARDED AS REAL PARTY IN
INTEREST, ALTHOUGH HE HAS ASSIGNED THE POLICY FOR PURPOSE OF
COLLECTION, OR HAS ASSIGNED AS COLLATERAL SECURITY ANY JUDGMENT HE
MAY OBTAIN. — 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 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: "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." 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, the widow of the decedent Dr. Leuterio may file the suit against the
insurer, Grepalife.

3. ID.; ID.; ID.; FRAUDULENT INTENT ON THE PART OF THE INSURED

MUST BE ESTABLISHED TO ENTITLE THE INSURER TO RESCIND THE CONTRACT.
— 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
for 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 . . . Appellant insurance
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 company had failed to establish that there was concealment made by the
insured, hence, it cannot refuse payment of the claim." The fraudulent intent
on the part of the insured must be established to entitle the insurer to rescind
the contract. 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. 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.

DECISION

QUISUMBING, J : p

This petition for review, under Rule 45 of the Rules of Court, assails the
Decision 1 dated May 17, 1993, of the Court of Appeals and its Resolution 2
dated January 4, 1994 in CA-G.R. CV No. 18341. 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: cdphil

"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: cdtai

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?
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 Answer: [ x ] Yes [ ] No." 4 cda

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.

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. cdtai

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. dctai

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
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 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. prcd

To resolve the issue, we must consider the insurable interest in

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, it has to enter into such form
of contract so that in the event of the unexpected demise of the mortgagor
during the subsistence of the mortgage contract, the proceeds from such
insurance will be applied to 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. 8
Consequently, where the mortgagor pays the insurance 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 of policy insurance, the mortgagee is simply
an appointee of the insurance fund, such loss-payable clause does not make
the mortgagee a party to the contract. 9

Section 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
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 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." prcd

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." 10 When DBP submitted the
insurance claim against petitioner, the latter denied payment 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. 11 In Gonzales La O vs.
Yek Tong Lin Fire & Marine Ins. Co. 12 we held:
"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 Cdpr

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
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 widow's declaration that her husband had "possible hypertension several years
ago" should not be considered as hearsay, but as part of res gestae.
On the contrary the medical findings were not conclusive 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. 16 Dr. Leuterio's death certificate 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. cdtai

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." 17prcd

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.

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. 20 Unless the interest of a person insured is
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. 21 The
mortgagor paid the premium according to the coverage of his insurance, which
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 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. cda

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." 22 (Emphasis omitted)

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. LLjur

SO ORDERED.
Mendoza, Buena and De Leon Jr., JJ., concur.
Bellosillo, J., is on official leave.

Footnotes
1. Rollo , pp. 36-42.
2. Id. at 44.
3. Id. at 36.
4. Id. at 37.
5. Civil Case 10788.
6. Rollo , pp. 18-19.
7. Serrano vs. Court of Appeals, 130 SCRA 327, 335 (1984).
8. Ibid.
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 9. 43 Am Jur 2d, Insurance Section 766; citing Hill vs. International Indem. Co.
116 Kan 109, 225 P 1056, 38 ALR 362.
10. Rollo , p. 12.
11. Id. at 180.
12. 55 Phil. 386 (1930), citing Corpus Juris, volume 26 pages 483 et seq.

13. Id. at 391, citing Corpus Juris, volume 26 pages 483 at seq.
14. Section 181, Philippine Insurance Code.
15. Argente vs. West Coast Life Insurance Co., 51 Phil. 725, 731 (1928). Section
26, Philippine Insurance Code. — A neglect to communicate that which a
party knows and ought to communicate is called a concealment.

16. Rollo , p. 40.

17. Id. at 39-40.
18. Ng Gan Zee vs. Asian Crusader Life Assurance Corp , 122 SCRA 461, 466
(1983)
19. Ibid.
20. Third Edition, Lohel A. Martirez, Philippine Insurance Code Annotated, p.
380, citing Belvin vs. Connecticut Mutual Life Ins., 23 Comm. 244.
21. Section 183. Philippine Insurance Code.
22. Rollo , p. 12.

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