SERAFIN P. LOPEZ, JR., PETITIONER, VS. GOVERNMENT SERVICE INSURANCE SYSTEM, REPRESENTED BY ITS PRESIDENT AND GENERAL MANAGER, ROLANDO L. MACASAET, RESPONDENT.

Lopez versus Government Service Insurance System

The Case

This is a petition for review on certiorari brought by Serafin P. Lopez, Junior against the Government Service Insurance System, or GSIS, to reverse the denial of his claim for maturity benefits under his Life Endowment Policy. The case matters because it settles a question every government lawyer should know: when a member separates from government service, does his compulsory life insurance automatically ripen into an optional policy, or must he do something to keep it alive? The Court answers that separation terminates the compulsory coverage, that conversion requires an affirmative act and payment of premiums, and that the right to convert must be exercised within a reasonable time, failing which laches bars the claim.

Procedural History

Lopez first applied for the maturity benefit at the GSIS Bacolod Branch Office, which denied the application and advised him to claim instead the cash surrender value of the policy as of his last day of service. He sought reconsideration twice, and both were denied. His petition was then endorsed to the Office of the Vice President of the Visayas Operations Group, which likewise affirmed the denial. Lopez appealed to the Committee on Claims, which denied the claim, holding that the policy had already been terminated by his separation in 2002 and remained terminated despite his re-entry in 2012. He then brought his petition to the GSIS Board of Trustees, which denied it and affirmed the Committee on Claims. From there, Lopez filed a petition for review under Rule 43 of the Rules of Court before the Court of Appeals, which denied the petition and affirmed the GSIS ruling. Still dissatisfied, Lopez filed the present petition for review on certiorari under Rule 45 of the Rules of Court before the Supreme Court.

Facts

Lopez entered government service on July 1, 1994 as Clerk I at the Provincial Treasurer's Office of Negros Occidental. He was issued a Life Endowment Policy, with maturity date on July 1, 2017. On May 8, 2002, he left government service without applying for any GSIS benefit. On September 1, 2012, he returned to government service as Legal Officer II in the City Government of Escalante, Negros Occidental, and was issued a new Enhanced Life Policy.

On July 14, 2017, Lopez applied for the maturity benefit under the old policy. The GSIS Bacolod denied the application, citing a Board Resolution providing that a member separated from the service for any reason other than dismissal for cause or total permanent disability ceases to be a life insurance member as of the date of separation, and advised him to apply for the cash surrender value instead. Lopez argued that the Board Resolution could not apply to a policy issued in 1994, before the Resolution took effect.

The denial was affirmed at every level. The Committee on Claims held that the policy itself gave Lopez two options upon separation: to terminate the insurance and collect its cash value, or to convert it into an optional insurance and pay the corresponding premiums. He availed of neither. The GSIS Board of Trustees added that Lopez asserted the option to convert only in 2017, fifteen years after separation, and only after his claim was denied, which was not a reasonable time.

Issues

• Whether or not Lopez is entitled to the maturity benefits under his Life Endowment Policy.
• Whether or not the compulsory life insurance is automatically converted into an optional life insurance upon the member's separation from government service.
• Whether or not Lopez is barred by laches from exercising the option to convert his policy fifteen years after his separation.

Applicable Provisions

Section 21 of Presidential Decree No. 1146, the Revised Government Service Insurance Act of 1977, provides:

SECTION 21. Compulsory Life Insurance. — Subject to the rules and regulations prescribed by the GSIS, all employees shall be compulsorily covered with life insurance which shall automatically take effect as follows: (1) for those employed after this Act, their insurance shall take effect on the date of their employment; (2) for those whose insurance matured and not renewed prior to this Act, their insurance shall be deemed renewed on the day following the effectivity of this Act; (3) for those whose insurance will mature or will expire after this Act, their insurance shall be deemed renewed on the day following or expiry date of their previous insurance; (4) for those without any life insurance as of the effectivity of this Act, their insurance shall take effect on the day following said effectivity.

This is the source of the compulsory coverage that Lopez held, and the Court applies it together with the rules on what happens upon separation.

Section 8, paragraph b of Rule VII of the Implementing Rules and Regulations of Presidential Decree No. 1146 provides:

SEC. 8. Transfer/Separation. — (b) A member who is separated from the service for any reason other than dismissal for cause or total and permanent disability after having been insured for at least one year, shall have the following options: (1) to terminate his insurance and collect its cash value; or (2) to convert his insurance into an optional insurance and pay the premiums as determined by the GSIS.

These are the very options written into Lopez's policy, and the Court holds that they must be exercised, not merely held.

Section 7 of Rule VIII of the same Implementing Rules provides:

SEC. 7. Payment of Premiums. — (a) Premium on optional life insurance shall be paid monthly in advance during the life of the policy either directly by the insured or through salary deduction or in such other manner as may be allowed by the GSIS; (b) When any premium remains unpaid after its due date, a grace period of 31 days without interest shall be allowed during which time the policy shall remain in force, but if the policy shall become a claim within said grace period, the unpaid premiums shall be deducted from the proceeds thereof. After the end of the grace period and the premiums due remain unpaid, the policy will automatically lapse and become void without the necessity of notice from the GSIS.

This shows that optional insurance lives only on premiums, which Lopez never paid.

Section 11 of Rule VIII of the same Implementing Rules provides:

SEC. 11. Reinstatement of Lapsed Policy — A lapsed policy may be reinstated upon submission of satisfactory proofs of insurability and the payment of at least the difference between the cash value of the policy at the time of the reinstatement and the total premium indebtedness.

The Court cites this to show that even a lapsed policy has a path back, but only upon proof of insurability and payment, which Lopez never undertook.

Ruling

On the first issue, the Court denies the petition. Although Republic Act No. 8291 repealed inconsistent laws, its repealing clause preserves rights already vested, so Presidential Decree No. 1146 governs the policy. Under that law and its Implementing Rules, the primary effect of separation is termination of the compulsory insurance and entitlement to accrued benefits. The policy is a contract and the law is deemed written into it, so its terms bind Lopez.

On the second issue, the Court holds that conversion is never automatic. The separated employee must signify the intention to convert and pay the premiums. The Court construes the silence of the law on the period for conversion in favor of the insured, allowing conversion after separation, with arrears deductible from the benefits. But this liberality has a limit.

On the third issue, the Court holds that the right to convert must be exercised within a reasonable period, and that Lopez is barred by laches. All four elements concur: the GSIS issued the policy and Lopez's separation gave rise to the right; Lopez waited about fifteen years, with presumed knowledge of the option; the GSIS had no notice he would still assert it; and granting the claim would prejudice the GSIS, which never received premiums. Fifteen years is not a reasonable period. His return to service in 2012 did not revive the old policy, for nothing in the law provides for reinstatement of a lapsed compulsory insurance upon re-entry, and he was in fact issued a new policy.

Doctrine

First, compulsory life insurance terminates upon separation from government service for any reason other than dismissal for cause or total and permanent disability. Second, the separated member has two options: to terminate the insurance and collect its cash value, or to convert it into an optional insurance and pay the premiums as determined by the GSIS. Third, conversion is not automatic; it requires an affirmative act of conversion and payment of premiums. Fourth, the right to convert must be exercised within a reasonable period after separation, and delay of about fifteen years constitutes laches. Fifth, a member who fails to convert may still claim the cash surrender value as of the last day of service. Sixth, re-entry into government service does not reinstate the lapsed compulsory policy.

Disposition

The petition was denied and the decision of the Court of Appeals was affirmed; Lopez may claim only the cash surrender value of the policy as of his last day of service.

Remember This

Memorize this line: separation terminates compulsory life insurance, and conversion to optional insurance requires an affirmative act, payment of premiums, and timely exercise within a reasonable period, or laches will bar it. Examiners use this case to test the interplay of vested rights under a repealing clause, the contract of adhesion rule in insurance, and the elements of laches.