G.R. No. L-10791; August 18, 1958
ELENA SOTTO VDA. DE MARALAG, ET AL., plaintiffs-appellees, vs. GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellant.

FACTS

On July 1, 1951, the Government Service Insurance System (GSIS) issued Insurance Policy No. T-11039 on the life of Dalmacio C. Maralag, a Manila Railroad Company employee, for P4,275, with plaintiffs as beneficiaries. The insured paid all his premiums, and the policy was in force when he died on January 23, 1953. GSIS paid only P2,137.50, leaving a balance of P2,101.02, and refused to pay the remainder. GSIS’s defense was that the Manila Railroad Company had failed to pay its share of the insurance premiums for its employees, totaling P185,973.21 from July 1, 1951. Citing Section 9 of Republic Act No. 728 , which authorizes the GSIS Board to readjust benefits if an employer fails to pay its share, and Board Resolution No. 355 (which provided for reducing death benefits to one-half in such cases), GSIS adjusted the benefit payable to one-half of the policy amount. The lower court ruled in favor of the plaintiffs, ordering GSIS to pay the balance.

ISSUE

Whether the GSIS Board of Trustees, under Section 9 of Republic Act No. 728 and its Resolution No. 355, can validly readjust (reduce to one-half) the life insurance benefits payable to the beneficiaries of a deceased employee due to the employer’s failure to pay its share of the premiums.

RULING

No. The Supreme Court affirmed the lower court’s decision, ordering GSIS to pay the plaintiffs the balance of P2,101.02 with legal interest. The authority granted to the GSIS Board by Section 9 of Republic Act No. 728 to make readjustments applies only to “benefits payable to an employee,” such as retirement benefits, and not to benefits payable to the heirs or beneficiaries of a deceased employee. This interpretation was previously established in Sayson v. Government Service Insurance System, which involved identical facts (an employee of the same railroad company who paid all premiums, but whose death benefit was halved by GSIS due to employer default) and whose decision was affirmed by the Supreme Court. The Court further held that, on equitable grounds, beneficiaries should not be penalized for the employer’s default when the insured employee had fully paid his premiums. The GSIS is not left without recourse, as it may recover the unpaid premiums from the defaulting employer (Manila Railroad Company) through judicial suit or the administrative process provided under Section 9 of Republic Act No. 728 , which authorizes the withholding of the employer’s revenues to satisfy such obligations. The decision is without prejudice to any action GSIS may take against the Manila Railroad Company for reimbursement.