Insurance Case #018 Great Pacific Life Assurance Corporation vs.

CA
and Medarda v. Leuterio
G.R. No. 113899; 13 October 1999
Topic: Mortgage redemption insurance; concealment
Ponente: Quisumbing, J.
Doctrine: Section 8 of the Insurance Code of the Philippines provides:
Unless the policy otherwise 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.

In the event of the debtors 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, then to his beneficiaries.
The fraudulent intent on the part of the insured must first be established
before rescission of the contract.
Facts:
1. A contract of group life insurance was executed between Great Pacific
Life Assurance Corporation (Grepalife) and Development Bank of the
Philippines (DBP).
2. Grepalife agreed to insure the life of eligible housing loan mortgagors
of DBP.
3. 11 November 1983- Dr. Wilfredo Leuterio, physician and housing
debtor of DBP applied for membership in the group life insurance plan.
He said in his application that he has no diabetes, heart condition, high
blood pressure etc. and he is in good health to the best of his
knowledge.
4. 15 November 1983- Grepalife issued an insurance coverage to Dr.
Leuterio worth P86,200.00.
5. 6 August 1984- Dr. Leuterio died due to massive cerebral
hemorrhage
6. DBP submitted a death claim to Grepalife. Grepalife denied because
according to them, Dr. Leuterio did not disclose that he had been
suffering from hypertension which is the cause of his death.
7. 20 October 1980- Dr. Leuterios widow, Medarda V. Leuterio, filed a
complaint with RTC of Misamis Oriental for Specific Performance with
Damages

8. During trial, Dr. Hernando Mejia, the physician who issued Dr.
Leuterios death certificate was called to testify. He said that Dr.
Leuterio has been complaining 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.
9. 22 February 1988- RTC ruled in favor of Dr. Leuterios widow. CA
sustained RTC decision on 17 May 1993. Hence this case.
Issues:
1. Is Grepalife liable to DBP as beneficiary in a group life insurance
contract?
2. Did Dr. Leuterio, concealed that he had hypertension?
3. Is Grepalife liable in the amount of P86,200.00 without proof of the
actual outstanding mortgage payable by the mortgagor to DBP?
Ruling:
1. Yes. Group insurance policy of mortgagors or mortgage redemption
insurance is to protect both mortgagee and mortgagor. On the part of
the mortgagee, it has to enter into such form contract so that in the
event of the unexpected demise of the mortgagor, proceeds from
insurance will be applied to the payment of the mortgage debt. For
mortgagors ample protection, in the event of his/her death, the
mortgage obligation will be extinguished by the application of the
insurance proceeds to the mortgage indebtedness. Since Dr. Leuterio
is a debtor/mortgagor of DBP/mortgagee who entered into a
group insurance policy with Grepalife, then DBP is a
beneficiary. It is also cited in Gonzales vs. Yek Tong Lin and as stated
in Section 8 of the Insurance Code of the Philippines.
2. No, there is no concealment of hypertension on the part of Dr. Leuterio
because Dr. Mejias statement is not conclusive since Dr. Leuterio was
not autopsied and there are other possible causes of death aside from
hypertension. The fraudulent intent on the part of the insured
must first be established before rescission of the contract.
3. Yes. A life insurance policy is a valued policy. Unless the interest of a
person insured is susceptible of exact pecuniary measurement, the
measure of indemnity under policy of insurance upon life or health is
the sum fixed in the policy. The mortgagor paid the premium
according to the coverage of his insurance. In the event of the debtors
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.
DBP foreclosed one of Dr. Leuterios lots to satisfy the
mortgage. Hence, the insurance proceeds shall inure to the
benefit of the heirs of the deceased person or his beneficiaries.

Dispositive: Wherefore, the petition is hereby DENIED. The Decision and

Resolution of the Court of Appeals in CA-GR.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 mortgagors indebtedness to Development Bank
of the Philippines. Cost against petitioner.