FACTS:

Respondent Philippine American Life Insurance Company (Philamlife) entered into a Creditor Group Life Policy No. P-1920 with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, Philamlife would provide insurance coverage to the clients of Eternal who purchased burial lots from it on an installment basis. The coverage amount would depend on the unpaid balance of the purchased burial lots. The policy required the submission of a list of new lot purchasers to Philamlife, along with their applications and respective unpaid balances.

In 1982, Eternal submitted a list of insurable balances of lot buyers, including John Chuang, who had a payment balance of PhP 100,000. Chuang died in 1984, and Eternal submitted an insurance claim for his death to Philamlife. However, Philamlife did not respond to the claim for over a year. Eternal then demanded the payment of the claim, but Philamlife denied it, stating that no application for group insurance was submitted before Chuang's death. Philamlife argued that the premiums received were held in trust until the necessary prerequisites for insurance coverage were met.

Eternal filed a case against Philamlife before the Makati City Regional Trial Court (RTC), seeking the payment of the insurance claim. The RTC ruled in favor of Eternal, stating that Philamlife's inaction and acceptance of premiums amounted to approval of Chuang's application. Philamlife appealed to the Court of Appeals (CA), which reversed the RTC's decision, finding that Chuang's application was not enclosed in Eternal's submission. The CA concluded that without the application form, Chuang was not covered by the insurance.

Eternal filed a petition for review with the Supreme Court, arguing that the CA erred in concluding that the application was not submitted before Chuang's death, that there was no valid insurance coverage, and in reversing the RTC's decision.

ISSUES:

1. May the inaction of the insurer on the insurance application be considered as approval of the application?

RULING:

1. Yes, the inaction of the insurer, Philamlife, on the insurance application, combined with the ambiguities in the policy, must be construed in favor of the insured. Thus, Philamlife's inaction is deemed as approval of the insurance application.

PRINCIPLES:

• Insurance contracts are contracts of adhesion and must be interpreted liberally in favor of the insured and strictly against the insurer.

• Any ambiguity in the terms of the insurance contract must be resolved in favor of the insured.

• The insurer must act with haste upon insurance applications, and mere inaction should not work to prejudice the insured.

• Termination or disapproval of insurance coverage must be explicit and unambiguous.

• Public interest considerations in insurance contracts necessitate protecting the rights of the insured, often laypersons, against the more experienced and knowledgeable insurers.