Key Takeaway: The Importance of Insurable Interest and Burden of Proof in Life Insurance Claims

Susan Co Dela Fuente v. Fortune Life Insurance Co., Inc., G.R. No. 224863, December 02, 2020

Imagine investing millions in a business venture, only to face the sudden death of your business partner. The life insurance policy you thought would secure your investment is now contested, leaving you in a legal battle over whether the death was accidental or suicide. This is the reality Susan Co Dela Fuente faced, highlighting the critical importance of understanding insurable interest and the burden of proof in life insurance claims.

Susan Co Dela Fuente invested in Reuben Protacio’s lending business and was named the beneficiary of his life insurance policy. When Reuben died from a gunshot wound, the insurance company, Fortune Life Insurance Co., Inc., denied her claim, alleging suicide. The case traversed through different court levels, ultimately reaching the Supreme Court, which ruled in Susan’s favor. This case underscores the complexities of life insurance policies and the necessity of proving insurable interest and the cause of death.

Legal Context: Understanding Insurable Interest and Burden of Proof

In the realm of life insurance, the concept of insurable interest is pivotal. It is a legal requirement that ensures the policy is taken out in good faith, preventing speculative or wagering contracts. The Philippine Insurance Code, under Section 3, mandates that for a contract of insurance to be valid, the beneficiary must have an insurable interest in the insured’s life. This interest can be established if the beneficiary stands to benefit from the insured’s continued life or suffer a loss upon their death.

Section 10 of the same Code specifies that a person has an insurable interest in the life of someone who owes them money, as their death might delay or prevent the performance of this obligation. In Susan’s case, her insurable interest stemmed from her financial investment in Reuben’s business.

Additionally, the burden of proof in life insurance claims is crucial. When an insurer denies a claim based on an exclusion, such as suicide, they must prove that the cause of death falls under the policy’s exclusions. The Supreme Court has established that the burden lies with the insurer to demonstrate that the death was due to an excluded risk.

For instance, in United Merchants Corp. v. Country Bankers Insurance Corp., the Court ruled that the insurer must establish that the loss falls within the policy’s exceptions or limitations. This principle was directly applied in Susan’s case, where Fortune Life Insurance had to prove Reuben’s death was a suicide to deny the claim.

Case Breakdown: From Investment to Supreme Court Ruling

Susan Co Dela Fuente’s journey began with her investments in Reuben Protacio’s lending business. She invested a total of P16 million, with P4 million invested before the insurance policy took effect and P12 million afterward. Reuben named Susan as the beneficiary of his life insurance policy worth P15 million, intending it as collateral for his debt.

Tragedy struck when Reuben died from a gunshot wound shortly after the policy’s issuance. Susan claimed the insurance proceeds, but Fortune Life Insurance denied her claim, asserting that Reuben’s death was a suicide based on statements from Reuben’s brother, Randolph, and a forensic pathologist, Dr. Fortun.

The case proceeded through the Regional Trial Court (RTC), which ruled in Susan’s favor, ordering Fortune Life Insurance to pay her the full policy amount. However, the Court of Appeals (CA) overturned this decision, finding that Reuben’s death was a suicide and thus not covered by the policy.

Susan appealed to the Supreme Court, which scrutinized the evidence and testimonies. The Court found that Fortune Life Insurance failed to prove by preponderance of evidence that Reuben’s death was a suicide. The testimony of Dr. Pagayatan, who relayed Randolph’s statement, was deemed inadmissible as it did not qualify as res gestae, an exception to the hearsay rule.

The Supreme Court also questioned the credibility of Dr. Fortun’s testimony, as she did not perform an autopsy on Reuben and relied solely on documentary evidence. In contrast, the Court gave more weight to the findings of Dr. Nulud, who conducted the autopsy and concluded that the gunshot wound was not self-inflicted.

Ultimately, the Supreme Court ruled that Susan was entitled to the insurance proceeds up to the extent of Reuben’s outstanding obligation, which amounted to P14 million after deducting P2 million she received from another party.

Here are key quotes from the Supreme Court’s reasoning:

• “The burden of proving an excepted risk or condition that negates liability lies on the insurer and not on the beneficiary.”
• “Dr. Pagayatan’s testimony on the statement Randolph allegedly gave moments after Reuben was brought to the hospital is inadmissible.”
• “Susan is entitled to the value of Reuben’s outstanding obligation.”

Practical Implications: Navigating Life Insurance Claims

The ruling in Susan Co Dela Fuente’s case has significant implications for future life insurance claims. It reinforces the principle that insurers must substantiate their claims of excluded risks, such as suicide, with solid evidence. Policyholders and beneficiaries should be aware of their rights and the importance of documenting their insurable interest.

For businesses and individuals, this case underscores the need to carefully review insurance policies and understand the terms regarding insurable interest and exclusions. It is advisable to maintain clear records of any financial transactions or agreements that establish insurable interest, as these can be crucial in disputes.

Key Lessons:

• Ensure you have a documented insurable interest in the insured’s life.
• Understand the burden of proof lies with the insurer to prove excluded risks.
• Keep detailed records of any financial transactions related to the insured.

Frequently Asked Questions

What is insurable interest in life insurance?

Insurable interest is a legal requirement that the beneficiary must have a financial or emotional stake in the insured’s life, ensuring the policy is taken out in good faith and not for speculative purposes.

Who has the burden of proof in life insurance claims?

The insurer bears the burden of proving that the cause of death falls under an excluded risk, such as suicide, to deny a claim.

Can a creditor be named as a beneficiary in a life insurance policy?

Yes, a creditor can be named as a beneficiary if the insured has a legal obligation to the creditor, and the policy can be used as collateral for the debt.

What happens if the insured’s death is ruled as suicide?

If the insured’s death is ruled as suicide within the policy’s exclusion period, the insurer may deny the claim or refund the premiums paid, depending on the policy’s terms.

How can I ensure my life insurance claim is not denied?

To ensure your claim is not denied, maintain clear records of your insurable interest, understand the policy’s terms, and be prepared to contest any denial based on insufficient evidence from the insurer.

ASG Law specializes in insurance law. Contact us or email hello@asglawpartners.com to schedule a consultation.