Topic: Contract of Insurance (Section 2)

Mayer Steel Pipe Corp. vs. Court of Appeals

G.R. No. 124050 (June 19, 1997)
Facts:
Hongkong Government Supplies Department contracted petitioner Mayer
Steel Pipe Corp. to manufacture and supply various steel pipes and fittings
from August to October 1983, Mayer shipped the said items to Hong Kong.
Prior to shipment the items were insured against all risks with respondent
South Sea Surety and Insurance Co. and Charter Insurance Corp for
$212,772.09 with South Sea and $149,470 with Charter.
Petitioners jointly appointed Industrial Inspection Intl as 3rd party inspector
to examine the items to see if they were in accordance with the contract.
They certified it as such prior to shipment. However, when the goods
reached Hong Kong it was revealed that a substantial portion was damaged.
Petitioners now claim for damages against the respondents for indemnity
under the insurance contract.
Respondents paid part of the petitioners demand but declined the rest
claiming that the insurance surveyors report allegedly showed that the
damage was a factory defect and hence not covered by the insurance
policies.
The lower court ruled in favor of the petitioner finding the damage not
caused by manufacturing defects. It also noted that the insurance contract
insured against all risks or all causes of conceivable loss or damage save
those caused by fraud or intentional misconduct. The Court of Appeals found
the all risks provision covered the damage endured but set aside the
decision because the complaint had been bared by prescription. Sec 3(6) of
the COGSA specifically bared it because it had been more than 1 year since
the damage had been done before the demand was made.
Issue:
Whether or not the action is barred by prescription.

Held:
Section 3 (6) of the Carriage of Goods by Sea Act states that the carrier and
the ship shall be discharged from all liability for loss or damage to the goods
if no suit is filed within one year after delivery of the goods or the date when
they should have been delivered. Under this provision, only the carriers
liability is extinguished if no suit is brought within one year. But the liability
of the insurer is not extinguished because the insurers liability is based not
on the contract of carriage but on the contract of insurance.
An insurance contract is a contract whereby one party, for a consideration
known as the premium, agrees to indemnify another for loss or damage
which he may suffer from a specified peril. An all risks insurance policy
covers all kinds of loss other than those due to willful and fraudulent act of
the insured. Thus, when private respondents issued the all risks policies to
Mayer, they bound themselves to indemnify the latter in case of loss or
damage to the goods insured. Such obligation prescribes in ten years, in
accordance with Article 1144 of the New Civil Code.
Topic: Doing or Transacting an Insurance Business (Section 2, no.2)
Philippine Health Care Providers, Inc. vs. Commissioner of Internal
Revenue
(G.R. No. 167330; September 18, 2009)
Facts:
Philippine Health Care Providers, Inc. is a domestic corporation whose
primary purpose is "to establish, maintain, conduct and operate a prepaid
group practice health care delivery system or a health maintenance
organization to take care of the sick and disabled persons enrolled in the
health care plan and to provide for the administrative, legal, and financial
responsibilities of the organization."
Individuals enrolled in its health care programs pay an annual membership
fee and are entitled to various preventive, diagnostic and curative medical
services provided by its duly licensed physicians, specialists and other
professional technical staff participating in the group practice health delivery
system at a hospital or clinic owned, operated or accredited by it.

On January 27, 2000, Commissioner of Internal Revenue (CIR) sent

petitioner a formal demand letter and the corresponding assessment notices
demanding the payment of deficiency taxes, including surcharges and
interest, for the taxable years 1996 and 1997 in the total amount of P224,
702, 641.18. Petitioner protested the assessment in a letter dated February
23, 2000, however CIR did not act on the protest, so petitioner filed a
petition for review in the Court of Tax Appeals (CTA) seeking the cancellation
of the deficiency VAT and DST assessments. CTA partially granted such
petition, it ordered petitioner to pay VAT but cancelled the DST assessment.
Respondent appealed the CTA decision; it claimed that the health care
agreement was a contract of insurance subject to DST under Section 185 of
the 1997 Tax Code. The Court of Appeals granted the Petition for Review,
and ruled that the health care agreement was in the nature of a non-life
insurance contract subject to DST.
Issue:
Whether or not the Philippine Health Care Providers, Inc (HMO) was engaged
in the business of insurance during the pertinent taxable years
Held:
NO. Sec. 2 (2) of PD 1460 enumerates what constitutes "doing an insurance
business" or "transacting an insurance business":
(a) making or proposing to make, as insurer, any insurance contract;
(b) making or proposing to make, as surety, any contract of surety-ship as a
vocation and not as merely incidental to any other legitimate business or
activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the
meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of
the foregoing in a manner designed to evade the provisions of this Code.

In the application of the provisions of this Code the fact that no profit is
derived from the making of insurance contracts, agreements or transactions
or that no separate or direct consideration is received therefor, shall not be
deemed conclusive to show that the making thereof does not constitute the
doing or transacting of an insurance business.
One test in determining whether HMOs are not in the insurance business is
whether the assumption risk and indemnification of loss (which are elements
of an insurance business) are the principal object and purpose of the
organization or whether they are merely incidental to its business. If these
are the principal objectives, the business is that of insurance. But if they are
merely incidental and service is the principal purpose, then the business is
not insurance.
Topic: Contract of Adhesion or Fine Print Rule
Eternal Gardens Memorial Park Corp. vs. Phil. American Life
Insurance Corp.
(G.R. No. 166245; April 09, 2008)
Facts:
On December 10, 1980 the Philippine American Life Insurance Company
entered into an agreement denominated as Creditor Group Life Policy
Number P-19202 with Eternal Gardens Memorial Park Corporation. Under
the policy which is renewable annually, the clients of Eternal who purchased
burial lots from it on installment basis would be insured by Philamlife. The
amount of insurance coverage depends upon the existing balance. Eternal
complied by submitting a letter dated December 29, 1982, a list of insurable
balances of its lot buyers for October 1982 which includes John Chuang
which was stamped as received by Philam Life.
On August 2, 1984, Chuang died with a balance of P 100,000. While on April
25, 1986 Philamlife had not furnished Eternal with any reply on its insurance
claim so the latter demanded its claim.
According to Philamlife, since the application was submitted only on
November 15, 1984, after his death, Mr. John Uy Chuang was not covered

under the Policy since his application was not approved. Moreover, the
acceptance of the premiums is only in trust for and not a sign of approval.
Eternal filed a case for a sum of money against Philamlife. The RTC found
that Eternal submitted Chuangs application for insurance which he
accomplished before his death. It further ruled that due to Philamlifes
inaction from the submission of requirements of the group insurance until
Chuangs death, it was deemed to have approved the latters application.
CA reversed the ruling of the RTC it ruled that Chuangs application was not
enclosed in Eternals letter dated December 29, 1982, that the nonaccomplishment of submitted application form violated Sec. 26 of the
Insurance Code. Thus, there being no application form, Chuang was not
covered by Philamlifes insurance.
Issue:
Whether or not Philamlife assumed the risk of loss without approving the
application.
Held:
Yes, the policy entered into provides that The insurance of any eligible Lot
Purchaser shall be effective on the date he contracts a loan with the
Assured. However, there shall be no in insurance if the application of the Lot
Purchaser is not approved by the Company.
An examination of the above provision reveals that in the first sentence
insurance coverage is effective on the date the contract is entered into;
however in the second sentence such insurance contract is effective upon
approval.
It was ruled that, an insurance contract is a contract of adhesion which must
be construed liberally in favor of the insured and strictly against the insurer
in order to safeguard the latters interest. Thus, in Malayan Insurance Corp.
vs. CA it was ruled that a contract of insurance, being a contract of
adhesion, any ambiguity therein should be resolved against the insurer.
Limitations of liability should be regarded with extreme jealousy and must be

construed in such a way as to preclude insurer from noncompliance with its

obligations. Moreover, the mere inaction of the insurer on the insurance
application must not work to prejudice the insured. The termination of the
insurance contract by the insurer must be explicit and unambiguous.
Topic: Contract of Adhesion or Fine Print Rule
Western Guaranty Corp. vs. Court of Appeals
(G.R. No. 91666 July 20, 1990)
Facts:
While crossing an Airport Road on a pedestrian lane Prescilla E. Rodriguez
was struck by a De Dios passenger bus owned by respondent De Dios
Transportation Co., Inc. driven by Walter Saga y Aspero. The bus driver
disregarded the stop signal given by the traffic police causing Priscilla thrown
to the ground, hitting her forehead. She was hospitalized and her face was
permanently disfigured causing her serious anxiety and moral distress. The
bus was insured with Western Guaranty Corp. which provides in the policy a
protection against third party liability.
Prescilla Rodriguez filed a complaint for damages before the Regional Trial
Court against De Dios and Walter Saga, De Dios transportation in turn filed a
case against insurance carrier- Western Guaranty Corp. The trial court
rendered decision in favor of Prescilla Rodriguez. On appeal, the Court of
Appeals affirmed in toto the decision of the trial court. Petitioner Western
Guaranty Petition for Review alleging that the Court of Appeals erred in
holding petitioner liable to pay beyond the limit set forth in the Schedule of
Indemnities.
Issue:
Whether or not Western Guaranty Corp. is liable.
Held:
Yes, Western Guaranty Corp., is liable. The Schedule of Indemnities does not
purport to limit, or to enumerate exhaustively, the species of bodily injury
occurrence of which generate liability for petitioner Western. A car accident

may, for instance, result in injury to internal organs of a passenger or third

party, without any accompanying amputation or loss of an external member.
But such internal injuries are surely covered by Section 1 of the Master
Policy, since they certainly constitute bodily injuries.
Contrary to Petitioners contention that its liability is limited to the
enumeration set forth in the Policy, it was ruled that the schedule was
merely meant to set limits to the amounts the movant would we liable for in
cases of death, bodily injuries of, professional services and hospital charges,
for services rendered to traffic accident victims, and not necessarily exclude
claims against the insurance policy for other kinds of damages.
Contractual limitations of liability found in insurance contracts should be
regarded by courts with a jaundiced eye and extreme care and should be so
construed as to preclude the insurer from evading compliance with its just
obligations. Finally, an insurance contract is a contract of adhesion. The rule
is well entrenched in our jurisprudence that the terms of such contract are to
be construed strictly against the party which prepared the contract, which in
this case happens to be petitioner Western.
Topic: Parties in Insurance Contract Insures and Insured (Section
6)
Great Pacific Life vs. Court of Appeals
(G.R. No. L-31845 April 30, 1979)
Facts:
Great Pacific Life Assurance Corporation (Grepalife) executed a contract of
group life insurance with Development Bank of the Philippines (DBP) wherein
Grepalife agreed to insure the lives of eligible housing loan mortgagors of
DBP. One such loan mortgagor is Dr. Wilfredo Leuterio. In an application
form, Dr. Leuterio answered questions concerning his test, attesting among
others that he does not have any heart conditions and that he is in good
health to the best of his knowledge. However, after about a year, Dr. Leuterio
died due to massive cerebral hemorrhage. When DBP submitted a death
claim to Grepalife, the latter denied the claim, alleging that Dr. Leuterio did
not disclose he had been suffering from hypertension, which caused his

death. Allegedly, such non-disclosure constituted concealment that justified

the denial of the claim. Such denial prompted Medarda V. Leuterio, the
widow of the late Dr. Leuterio filed a complaint against Grepalife for Specific
Performance with Damages. Both the trial court and the Court of Appeals
found in favor of the widow and ordered Grepalife to pay DBP.
Issue:
Whether or not the CA erred in holding Grepalife liable to DBP as beneficiary
in a group life insurance contract from a complaint filed by the widow of the
decedent/mortgagor.
Held:
The rationale of a group of insurance policy of mortgagors, otherwise known
as the mortgage redemption insurance, is a device for the protection of
both the mortgagee and the mortgagor. On the part of the mortgagee, it has
to enter into such form of contract so that in the event of the unexpected
demise of the mortgagor during the subsistence of the mortgage contract,
the proceeds from such insurance will be applied to the payment of the
mortgage debt, thereby relieving the heirs of the mortgagor from paying the
obligation. In a similar vein, ample protection is given to the mortgagor
under such a concept so that in the event of death, the mortgage obligation
will be extinguished by the application of the insurance proceeds to the
mortgage indebtedness. In this type of policy insurance, the mortgagee is
simply an appointee of the insurance fund. Such loss-payable clause does
not make the mortgagee a party to the contract.
The insured, being the person with whom the contract was made, is
primarily the proper person to bring suit thereon. Subject to some
exceptions, insured may thus sue, although the policy is taken wholly or in
part for the benefit of another person named or unnamed, and although it is
expressly made payable to another as his interest may appear or otherwise.
Although a policy issued to a mortgagor is taken out for the benefit of the
mortgagee and is made payable to him, yet the mortgagor may sue thereon
in his own name, especially when the mortgagees interest is less than the
full amount recoverable under the policy. Further, Insured may be regarded
as the real party in interest, although he has assigned the policy for the

purpose of collection, or has assigned as collateral security any judgment he

may obtain.
Topic: Interpretation of Contract of Insurance
Rizal Surety vs. Court of Appeals
(G.R. No. 112360 July 18, 2000)
Facts:
Rizal Surety & Insurance Company issued a fire insurance policy in favor of
Trans world Knitting Mills, Inc. The subject policy covered four-span building
and contained that Rizal Surety is responsible in case of loss whilst
contained and/or stored during the currency of this Policy in the premises
occupied by them forming part of the buildings situated within own
Compound.
On Jan. 12, 1981, fire broke out in the compound, razing the middle portion
of its four-span building and partly gutting the left and right sections thereof.
A two-storey building (behind said four-span building) where fun and
amusement machines and spare parts were stored, was also destroyed by
the fire.
Issue:
Whether or not Rizal Surety is liable for loss of the two-storey building
considering that the fire insurance policy sued upon covered only the
contents of the four-span building.
Held:
Both the trial court and the CA found that the so-called annex as not an
annex building but an integral and inseparable part of the four-span building
described in the policy and consequently, the machines and spare parts
stored therein were covered by the fire insurance in dispute.
So also, considering that the two-storey building aforementioned was
already existing when subject fire insurance policy contract was entered into
on Jan. 12, 1981, having been constructed some time in 1978, petitioner

should have specifically excluded the said two-storey building from the
coverage of the fire insurance if minded to exclude the same but if did not,
and instead, went on to provide that such fire insurance policy covers the
products, raw materials and supplies stored within the premises of
Transworld which was an integral part of the four-span building occupied by
Transworld, knowing fully well the existence of such building adjoining and
intercommunicating with the right section of the four-span building.
Also, in case of doubt in the stipulation as to the coverage of the fire
insurance policy, under Art. 1377 of the New Civil Code, the doubt should be
resolved against the Rizal Surety, whose layer or managers drafted the fire
insurance policy contract under scrutiny.
In Landicho vs. Government Service Insurance System, the Court ruled that
the terms in an insurance policy, which are ambiguous, equivocal or
uncertain x x x are to be construed strictly and most strongly against the
insurer, and liberally in favor of the insured so as to effect the dominant
purpose of indemnity or payment to the insured, especially where forfeiture
is involved, and the reason for this is that the insured usually has no voice in
the selection or arrangement of the words employed and that the language
of the contract is selected with great care and deliberation by experts and
legal advisers employed by, and acting exclusively in the interest of, the
insurance company.
Topic: Interpretation of Insurance Contracts
American Home Assurance vs. Tantuco
(G.R. No. 138941 October 8, 2001)
Facts:
Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling
and refining industry. It owns two oil mills which were separately covered by
fire insurance policies issued by petitioner American Home Assurance Co.,
Philippine Branch.
The first oil mill was insured for P3, 000,000.00 under Policy No. 3067432324-3 for the period March 1, 1991 to 1992. The new oil mill was
insured forP6, 000,000.00 under Policy No. 306-7432321-9 for the same

term. Official receipts indicating payment for the full amount of the premium
were issued by the petitioner's agent. A fire that broke out in the early
morning of September 30, 1991 gutted and consumed the new oil mill.
Respondent immediately notified the petitioner of the incident but petitioner
rejected respondent's claim for the insurance proceeds on the ground that
no policy was issued by it covering the burned oil mill. It stated that the
description of the insured establishment referred to another building thus:
"Our policy nos. 306-7432321-9 (Ps 6M) and 306-7432324-4 (Ps 3M) extend
insurance coverage to your oil mill under Building No. 5, whilst the affected
oil mill was under Building No. 14. "
Issue:
Whether or not the Court of Appeals erred in its legal interpretation of 'Fire
Extinguishing Appliances Warranty' of the policy.
Held:
In construing the words used descriptive of a building insured, the greatest
liberality is shown by the courts in giving effect to the insurance. In view of
the custom of insurance agents to examine buildings before writing policies
upon them, and since a mistake as to the identity and character of the
building is extremely unlikely, the courts are inclined to consider that the
policy of insurance covers any building which the parties manifestly intended
to insure, however inaccurate the description may be.
Notwithstanding, therefore, the mis-description in the policy, it is beyond
dispute, to our mind, that what the parties manifestly intended to insure was
the new oil mill. If the parties really intended to protect the first oil mill, then
there is no need to specify it as new.
In determining what the parties intended, the courts will read and construe
the policy as a whole and if possible, give effect to all the parts of the
contract, keeping in mind always, however, the prime rule that in the event
of doubt, this doubt is to be resolved against the insurer. In determining the
intent of the parties to the contract, the courts will consider the purpose and
object of the contract.
Topic: Interpretation of Insurance Contracts

Pan Malayan Insurance vs. Court of Appeals

(G.R. No. 81026 April 3, 1990)
Facts:
Petitioner Pan Malayan Insurance was an insurer of the car of CANLUBANG
AUTOMOTIVE RESOURCE CORP. which was bumped and damaged by the
private respondent through its negligent driver. Petitioner Pan Malayan paid
the amount of insurance to the insured. Subrogated on the rights of the
insured, petitioner demand payment from the private respondent who
refused to pay the claim of the petitioner.
Petitioner filed a complaint against private respondent before the RTC.
Private respondent filed a motion to dismiss arguing that payment under the
"own damage" clause of the insurance policy precluded subrogation under
Article 2207 of the Civil Code, since indemnification thereunder was made on
the assumption that there was no wrongdoer or no third party at fault. The
RTC dismissed the complaint as well as the motion for reconsideration and
this was affirmed by the CA.
Issue:
Whether or not, the petitioner is allowed to recover the amount of insurance
it had paid to the insured from private respondent.
Held:
According to the Supreme Court, Art. 2207 of the Civil Code states that If
the plaintiffs property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or
breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person
who has violated the contract. This was founded on the well-settled principle
of subrogation.
If the insured property is destroyed or damaged through the fault or
negligence of a party other than the assured, the insurer, upon payment to
the assured, will be subrogated to the rights of the assured to recover from

the wrongdoer to the extent that the insurer has been obligated to pay.
Payment by the insurer to the assured operates as an equitable assignment
to the former of all remedies which the latter may have against the third
party whose negligence or wrongful act caused the loss.
Topic: Aleatory Insurance
Malayan Insurance Co., Inc. (MICO) vs. Arnaldo & Pinca
(G.R. No. L-67835 October 12, 1987)
Facts:
Coronacion Pinca insured her property for Php 14,000 with Malayan
Insurance Company (MICO) for the period July 22, 1981 to July 22, 1982.
On October 15, 1981, MICO cancelled the policy for non-payment. On
December 24, 1981, Domingo Adora, the agent accepted Pinca's payment
and remitted to MICO. On January 18, 1982, Pinca's property was
completely burned. She then demanded from MICO for payment of the
insured but the latter declined on the ground that the policy had been
cancelled due to non-payment. Pinca went to the Insurance Commission, she
was ultimately sustained by the public respondent, thus, a petition was filed
before the SC.
Issue:
Whether or not MICO should be held liable to pay for the insured property.
Held:
MICO's acknowledgment of Adora as its agent defeats its contention that he
was not authorized to receive the premium payment on its behalf. It is
clearly provided in Section 306 of the Insurance Code that: Sec. 306. xxx
xxx xxx Any insurance company which delivers to an insurance agent or
insurance broker a policy or contract of insurance shall be deemed to have
authorized such agent or broker to receive on its behalf payment of any
premium which is due on such policy or contract of insurance at the time of
its issuance or delivery or which becomes due thereon.
And it is a well-known principle under the law of agency that. Payment to an
agent having authority to receive or collect payment is equivalent to

payment to the principal himself; such payment is complete when the

money delivered is into the agent's hands and is a discharge of the
indebtedness owing to the principal. The SC denied the petition and affirmed
the decision of the Insurance Commission
Topic: Contract is considered a risk-distributing device
Tibay, et. al vs. Court of Appeals
(G.R. No. 119655 May 24, 1995)
Facts:
In January 22 1987, the Petitioner Violeta Tibay (and Nicolas Roralso)
obtained a fire insurance policy for their 2-storey from the Private
Respondent Fortune Life Insurance Co. The said policy covers the period
from January 23, 1987 until January 23, 1988 or one year for P600, 000 and
at the agreed premium of P2, 983.50. On January 23 or the next day,
petitioner made a partial payment of the premium with P600. Unfortunately,
on March 8 1987, the said building was burned to the ground. It was only
two days after the fire that Petitioner Violeta advanced the full payment of
the policy premium which was accepted by the insurer. On this same day,
petitioner likewise filed the claim that was then referred to the insurer's
adjuster. Investigation of the cause of fire commenced and the petitioner
submitted the required proof of loss.
Despite that, the private respondent Fortune refused to pay the insurance
claim saying it as not liable due to the non-payment by petitioner of the full
amount of the premium as stated in the policy. The petitioner then brought
the matter to the Insurance Commission but nothing good came out. Hence
this case filed. The trial court rule in favor of the petitioner. Upon appeal, the
Court of Appeals reversed the lower court's decision and held that Fortune is
not liable but ordered it to return the premium paid with interest to the
petitioner. Hence, this petition for review.

Issue:

Whether or not the partial payment of the premium rendered the insurance
policy ineffective?
Held:
YES. Insurance is a contract whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown
or contingent event. The consideration is the premium, which must be paid
at the time, way and manner as stated in the policy, and if not so paid as in
this case, the policy is therefore forfeited by its own terms. In this case, the
policy taken out by the petitioner provides for payment of premium in full.
Since the petitioner only made partial payment with the remaining balance
paid only after the fire or peril insured against has occurred, the insurance
contract therefore did not take effect barring the insured from claiming or
collecting from the loss of her building.
Under Section 77 of the Insurance Code (Philippine), it provides therein that
"An insurer is entitled to payment of the premium as soon as the thing
insured is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies." Herein case, the controversy is
on the payment of the premium. It cannot be disputed that premium is the
elixir vitae of the insurance business because the insurer is required by law
to maintain a reserve fund to meet its contingent obligations to the public.
Due to this, it is imperative that the premium is paid fully and promptly. To
allow the possibility of paying the premium even after the peril has ensued
will surely undermine the foundation of the insurance business.

Topic: Uberrima Fides (perfect good faith)

Fieldmens Insurance Co. Inc. v Court of Appeals

(G.R. No. L-24833 September 23, 1968)
Facts:
Petitioner was not allowed to escape liability under a common carrier
insurance policy on the pretext that what was insured, not once but twice,
was a private vehicle and not a common carrier, the policy being issued upon
the insistence of its agent who discounted fears of the insured that his
privately owned vehicle might not fall within its terms, the insured moreover
being a man of scant education, finishing only the first grade. So it was
held in a decision of the lower court thereafter affirmed by the Court of
Appeals.
Issue:
Whether or not petitioner insurance company is liable to pay the insurance
claim of private respondents, notwithstanding that the insured vehicle is a
private jeepney but enrolled in a common carrier insurance policy.
Held:
Yes. Where inequitable conduct is shown by an insurance firm, it is
estopped from enforcing forfeitures in its favor, in order to forestall fraud or
imposition on the insured. An estoppel is primarily based on the doctrine of
good faith and the avoidance of harm that will befall the innocent party due
to its injurious reliance.
Moreover, taking into account the well-known rule that ambiguities or
obscurities must be strictly interpreted against the party that caused them.
The contract of insurance is one of perfect good faith not for the insured
alone, but equally so for the insurer, in fact, it is more so for the latter, since
its dominant bargaining position carries with it stricter responsibility.

Topic: Contract of Indemnity

White Gold Marine Services vs. Pioneer Insurance

(G.R. No. 154514 July 28 2005)
Facts:
Petitioner White Gold bought a protection and indemnity coverage for its
ships from Steamship Mutual through Respondent Pioneer. Certificates and
receipts thus were given. However, Petitioner failed to fulfill its payments
thus Steamship refused to renew its coverage. Steamship then filed for
collection against Petitioner for recovery of unpaid balance. Thereafter,
Petitioner also filed a complaint against Steamship and Respondent before
the Insurance Commission for violations (186,187 for Steamship and
299,300,301 in relation to 302 and 303 for Respondent) of the Insurance
Code-license requirements as an Insurance company for the former and as
insurance agent for the latter. Said commission dismissed the complaint
which decision was affirmed by the CA.
Issue:
Whether or not Steamship Mutual is a Protection and Indemnity Club
engaged in the insurance business in the Philippines
Held:
Steamship Mutual as a P & I Club is a mutual insurance company engaged in
the marine insurance business. An insurance contract is a contract of
indemnity. This means that one party undertakes for a consideration to
indemnify another party against loss, damage, or liability arising from an
unknown or contingent event. While to determine if a contract is an
insurance contract we can look at the nature of the promise, the act to be
performed, exact nature of the agreement in view of the entire occurrence,
contingency or circumstance where the performance is mandated. The label
is not controlling. While under Section 2(2) of the Insurance Code the phrase
doing an insurance business constitutes the following: 1) making or
proposing to make, as insurer, any insurance contract; 2) making or
proposing to make, as surety, any contract of suretyship as a vocation and
not as merely incidental to any other legitimate business or activity of the
surety; 3) doing any kind of business, including a reinsurance business,

specifically recognized as constituting the doing of an insurance business

within the meaning of this code; 4) doing or proposing to do any business in
substance to any of the foregoing in a manner designed to evade the
provision of this code.
Taking all of these in to consideration, Steamship Mutual engaged in marine
insurance business undertook to indemnify Petitioner White Gold against
marine losses as enumerated under sec. 99 of the Insurance Code. It is
immaterial whether profit is derived from making insurance contract and
that no separate or direct consideration is received since these does not
preclude the existence of an insurance business.

Topic: Personal Contract

The Beneficiary. Beneficiary of one who insures his own life.
Insured may designate any person as his beneficiary.
Exception: Persons specified in Article 739, NCC
The Insular Life Assurance Company vs. Ebrado
(G.R. No. L-44059 October 28, 1977)
Facts:
On September 1, 1968, Buenaventura Ebrado issued by the Insular Life
Assurance Policy No 009929 a whole-life plan with a rider for Accidental
Death. Buenaventura designated Carponia Ebrado as the revocable
beneficiary in his policy. He referred her as his wife.
On October 21, 1969, Buenaventura Ebrado died as a result of an accident
when he was hit by a falling tree. Carponia filed with the insurer a claim for
the proceeds of the policy as the designated beneficiary therein. Although
she admits that she and the insured Buenaventura were merely living as
husband and wife without the benefits of marriage. Pascuala de Ebrado, valid
wife, also filed her claim as the widow of the deceased insured.
Issue:

Whether or not a common-law wife named as beneficiary in the life

insurance policy of legally married man claim the proceeds thereof in case of
death of the latter?
Held:
In essence, a life insurance is no different from a civil donation insofar as the
beneficiary is concerned. Both are founded upon the same consideration:
liberality. A beneficiary is like a donee because from the premiums of the
policy which the insured pays out of liberality, the beneficiary will receive the
proceeds or profits of said insurance. As a consequence, the proscription in
Article739 of the New Civil Code should equally operate in life insurance
contracts. The mandate of Article 2012 cannot be laid aside: any person who
cannot receive a donation cannot be named a beneficiary in the life
insurance policy of the persons who cannot make the donation.
Note following Articles from the Civil Code:
Article 2011 - "The contract of insurance is governed by special laws. Matters
not expressly provided for in such special laws shall be regulated by this
Code."
Article 2012 - "Any person who in forbidden from receiving any donation
under Article 739 cannot be named beneficiary of a life insurance policy by
the person who cannot be make a donation to him."
Article 739- "The donations shall be void:
Those made between persons who were guilty of adultery or concubinage at
the title of donation.xx
In the case provided to in No.1, the action for declaration of nullity may be
brought by the spouse of the donor or donee; and the guilt of the donee
may be provided by preponderance of evidence in same action."

Topic: Designation of Illegitimate Children

Heirs of Loreto C. Maramag vs. Maramag

(G.R. No. 181132 June 5, 2009)
Facts:
Loreto Maramag designated as beneficiary his concubine Eva de Guzman
Maramag Vicenta Maramag and Odessa, Karl Brian, and Trisha Angelie (heirs
of Loreto Maramag) and his concubine Eva de Guzman Maramag, also
suspected in the killing of Loreto and his illegitimate children are claiming for
his insurance. Vicenta alleges that Eva is disqualified from claiming
RTC: Granted - Civil Code does NOT apply
CA: dismissed the case for lack of jurisdiction for filing beyond reglementary
period
Issue:
Whether or not Eva can claim even though prohibited under the Civil Code
against donation
Held:
YES. Petition is DENIED. Any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a life insurance
policy of the person who cannot make any donation to him
If a concubine is made the beneficiary, it is believed that the insurance
contract will still remain valid, but the indemnity must go to the legal heirs
and not to the concubine, for evidently, what is prohibited under Art. 2012 is
the naming of the improper beneficiary.
SECTION 53. The insurance proceeds shall be applied exclusively to the
proper interest of the person in whose name or for whose benefit it is made
unless otherwise specified in the policy.
The General Rule is only persons entitled to claim the insurance proceeds are
either the insured, if still alive; or the beneficiary, if the insured is already
deceased, upon the maturation of the policy.

Exceptions: situation where the insurance contract was intended to benefit

third persons who are not parties to the same in the form of favorable
stipulations or indemnity.
In such a case, third parties may directly sue and claim from the insurer
It is only in cases where the insured has not designated any beneficiary, or
when the designated beneficiary is disqualified by law to receive the
proceeds, that the insurance policy proceeds shall redound to the benefit of
the estate of the insured

Topic: Insurable Interest Defined

Gaisano Cagayan Inc., vs. Insurance Company of North America
(G.R. No. 147839 June 8, 2006)
Facts:
Intercapitol Marketing Corp. is the maker of Wrangler Blue Jeans while Levi
Strauss Phils. Inc., (LSPI) is the local distributor of products bearing TM
owned by Levi Strauss. IMC and LSPI separately obtained from respondent a
Fire Insurance Policies with book debt endorsements. The insurance policies
provide for coverage on "book debts in connection with ready-made clothing
materials which have been sold or delivered to various customers and
dealers of the Insured anywhere in the Philippines . (Book Debt - unpaid
account still appearing in the Book of Account of the Insured 45 days after
the time of the loss covered under this Policy).
Petitioner is a customer and dealer of the products of IMC and LSPI.
Sometime in February 1991, the Gaisano Superstore Complex was
consumed by fire. Included in the items lost or destroyed in the fire were
stocks of ready-made clothing materials sold and delivered by IMC and LSPI.
Respondent then filed a complaint for damages against petitioner. It alleges
that IMC and LSPI filed with respondent their claims under their respective
fire insurance policies with book debt endorsement. Respondent paid the
claims of IMC and LSPI and by virtue thereof the former was subrogated to
their rights against petitioner. Several demands were made but these went
unheeded.

Petitioner, on the other hand, countered that they cannot be held liable since
the fire the broke out was due to a fortuitous event or force majeure and
that respondent's right of subrogation has no basis inasmuch as there was
no breach of contract committed by it since the loss was due to fire which it
could not prevent or foresee.
RTC- it dismissed the respondents complaint and held that the fire was
purely accidental.
CA set aside the decision of the RTC and held that petitioner should pay to
the respondent
Issue:
Whether or not the insurance in the instant case was one over credit.
Held:
The Court disagrees with petitioner's stand. In this case, the questioned
insurance policies provide coverage for "book debts in connection with
ready-made clothing materials which have been sold or delivered to various
customers and dealers of the Insured anywhere in the Philippines.; and
defined book debts as the "unpaid account still appearing in the Book of
Account of the Insured 45 days after the time of the loss covered under this
Policy."Nowhere is it provided in the questioned insurance policies that the
subject of the insurance is the goods sold and delivered to the customers
and dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that they do
not justify an attempt to read into it any alleged intention of the parties, the
terms are to be understood literally just as they appear on the face of the
contract. Thus, what were insured against were the accounts of IMC and
LSPI with petitioner which remained unpaid 45 days after the loss through
fire, and not the loss or destruction of the goods delivered.
The present case clearly falls under paragraph (1), Article 1504 of the Civil
Code:

ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk
until the ownership therein is transferred to the buyer, but when the
ownership therein is transferred to the buyer the goods are at the buyer's
risk whether actual delivery has been made or not, except that:
Thus, when the seller retains ownership only to insure that the buyer will
pay its debt, the risk of loss is borne by the buyer. Accordingly, petitioner
bears the risk of loss of the goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have an
insurable interest until full payment of the value of the delivered goods.
Unlike the civil law concept of res perit domino, where ownership is the basis
for consideration of who bears the risk of loss, in property insurance, one's
interest is not determined by concept of title, but whether insured has
substantial economic interest in the property.
Therefore, an insurable interest in property does not necessarily imply a
property interest in, or a lien upon, or possession of, the subject matter of
the insurance, and neither the title nor a beneficial interest is requisite to the
existence of such an interest, it is sufficient that the insured is so situated
with reference to the property that he would be liable to loss should it be
injured or destroyed by the peril against which it is insured. Anyone has an
insurable interest in property who derives a benefit from its existence or
would suffer loss from its destruction.
Indeed a vendor or seller retains an insurable interest in the property sold so
long as he has any interest therein, in other words, so long as he would
suffer by its destruction, as where he has a vendor's lien. In this case, the
insurable interest of IMC and LSPI pertain to the unpaid accounts appearing
in their Books of Account 45 days after the time of the loss covered by the
policies.

Topic: Insurable Interest in Life/Health

Hilario Gercio vs. Sun Life Assurance of Canada

(G.R. No. 23703 Spetember 28, 1925)

Facts:
Petitioner Hilario Gercio was married to Andrea Zialcita. He obtained a life
insurance from the respondent designating her wife as the beneficiary.
Towards the end of the year 1919, Zialcita was convicted of the crime of
adultery. Subsequently a decree of divorce was issued which completely
dissolving the bonds of matrimony contracted by Hilario and Zialcita. Hilario
notified respondent that he had revoked his donation in favor of his former
wife, he designated instead her present wife, Adela Garcio de Gercio, as the
new beneficiary.
Respondent refused to change the beneficiary designated in the life
insurance policy of the petitioner. Hence, petitioner filed a complaint for
mandamus to compel the respondent to change the beneficiary in his life
insurance policy.
Issue:
Whether or not the insured can revoke and change the beneficiary in a life
insurance policy considering that his designated beneficiary who is his
former wife committed adultery and their matrimonial bond was already
dissolved by virtue of a divorce.
Held:
Held in the negative.The wife has an insurable interest in the life of her
husband. The beneficiary has an absolute vested interest in the policy from
the date of its issuance and delivery. So when a policy of life insurance is
taken out by the husband in which the wife is named as beneficiary, she has
a subsisting interest in the policy But if the policy contains no provision
authorizing a change of beneficiary without the beneficiary's consent, the
insured cannot make such change. Accordingly, it is held that a life insurance
policy of a husband made payable to the wife as beneficiary, is the separate
property of the beneficiary and beyond the control of the husband.
As to the effect produced by the divorce, the Philippine Divorce Law, Act No.
2710, merely provides in section 9 that the decree of divorce shall dissolve
the community property as soon as such decree becomes final. Unlike the
statutes of a few jurisdictions, there is no provision in the Philippine Law

permitting the beneficiary in a policy for the benefit of the wife of the
husband to be changed after a divorce. It must follow, therefore, in the
absence of a statute to the contrary, that if a policy is taken out upon a
husband's life the wife is named as beneficiary therein, a subsequent divorce
does not destroy her rights under the policy.
We think it cannot be doubted that in the instance of contracts of insurance
with a wife or children, or both, upon their insurable interest in the life of the
husband or father, the latter, while they are living, can exercise no power of
disposition over the same without their consent, nor has he any interest
therein of which he can avail himself; nor upon his death have his personal
representatives or his creditors any interest in the proceeds of such
contracts, which belong to the beneficiaries to whom they are payable.

Topic: Insurable Interest in Property

Filipino Merchants Insurance Co., Inc. vs. Court of Appeals and Choa
Tiek Seng
(G.R. No. 85141 November 28, 1989)
Facts:
Choa Tiek Seng was the consignee of the shipment of fishmeal loaded on
board the vessel SS Bougainville. The shipment was insured with the
petitioner under Cargo Policy No. M-2678 for the sum of P267,653.59 for the
goods described as 600metric tons of fishmean in new gunny bags of 90kilos
each from Bangkok, Thailand to Manila AGAINST ALL RISKS. The goods
arrived at the Manila port and which were unloaded by arrastre contractor E.
Razon Inc. The surveyor ascertained and certified that 105 bags were in bad
order condition as jointly surveyed by the ships agent and the arrastre
contractor.
A formal claim was made by Choa against the petitioner as well as the
vessel. Petitioner refused to pat the claim. Consequently, petitioner brought
a third-party complaint against the vessel and the arrastre contractor.
Trial Court rendered judgment against the petitioner; it ordered to pay
Choa; while third-party defendants were ordered to pay petitioner jointly
and severally.
CA affirmed the trial courts decision

Issue:
Whether or not the CA erred in not holding that Choa had no insurable
interest in the subject cargo, hence the marine insurance policy taken out
was null and void.
Held:
Choa had insurable interest. The very purpose of an "all risks" insurance to
give protection to the insured in those cases where difficulties of logical
explanation or some mystery surround the loss or damage to property. An
"all asks" policy has been evolved to grant greater protection than that
afforded by the "perils clause," in order to assure that no loss can happen
through the incidence of a cause neither insured against nor creating liability
in the ship; it is written against all losses, that is, attributable to external
causes. Generally, the burden of proof is upon the insured to show that a
loss arose from a covered peril, but under an "all risks" policy the burden is
not on the insured to prove the precise cause of loss or damage for which it
seeks compensation.
Coverage under an "all risks" provision of a marine insurance policy creates
a special type of insurance which extends coverage to risks not usually
contemplated and avoids putting upon the insured the burden of establishing
that the loss was due to the peril falling within the policy's coverage; the
insurer can avoid coverage upon demonstrating that a specific provision
expressly excludes the loss from coverage.
In the present case, there being no showing that the loss was caused by any
of the excepted perils, the insurer is liable under the policy.
Contracts of insurance are contracts of indemnity upon the terms and
conditions specified in the policy. The agreement has the force of law
between the parties. The terms of the policy constitute the measure of the
insurer's liability. If such terms are clear and unambiguous, they must be
taken and understood in their plain, ordinary and popular sense. Anent the
issue of insurable interest, we uphold the ruling of the respondent court that
private respondent, as consignee of the goods in transit under an invoice
containing the terms under "C & F Manila," has insurable interest in said
goods. In principle, anyone has an insurable interest in property who derives
a benefit from its existence or would suffer loss from its destruction whether

he has or has not any title in, or lien upon or possession of the property y.
Insurable interest in property may consist in: (a) an existing interest; (b) an
inchoate interest founded on an existing interest; or (c) an expectancy,
coupled with an existing interest in that out of which the expectancy arises.
Herein private respondent, as vendee/consignee of the goods in transit has
such existing interest therein as may be the subject of a valid contract of
insurance. His interest over the goods is based on the perfected contract of
sale. The perfected contract of sale between him and the shipper of the
goods operates to vest in him an equitable title even before delivery or
before be performed the conditions of the sale

Topic: Insurable Interest of Mortgagor and Mortgagee over

Mortgaged property
Rizal Commercial Banking Corp vs. Court of Appeals
(289 SCRA 292; 1998)
Facts:
RCBC Binondo Branch initially granted a credit facility of P30M to Goyu &
Sons, Inc. GOYUs applied again and through Binondo Branch key officer's
Uys and Laos recommendation, RCBCs executive committee increased its
credit facility to P50M to P90M and finally to P117M. As security, GOYU
executed 2 real estate mortgages and 2 chattel mortgages in favor of RCBC.
GOYU obtained in its name 10 insurance policy on the mortgaged properties
from Malayan Insurance Company, Inc. (MICO). In February 1992, he was
issued 8 insurance policies in favor of RCBC.
On April 27, 1992: One of GOYUs factory buildings was burned so he
claimed against MICO for the loss who denied contending that the insurance
policies were either attached pursuant to writs of attachments/garnishments
or that creditors are claiming to have a better right. GOYU filed a complaint
for specific performance and damages at the RTC. RCBC, one of GOYUs
creditors, also filed with MICO its formal claim over the proceeds of the
insurance policies, but said claims were also denied for the same reasons
that MICO denied GOYUs claims

RTC: Confirmed GOYUs other creditors (Urban Bank, Alfredo Sebastian, and
Philippine Trust Company) obtained their writs of attachment covering an
aggregate amount of P14,938,080.23 and ordered that 10 insurance policies
be deposited with the court minus the said amount so MICO deposited
P50,505,594.60.
Another Garnishment of P8,696,838.75 was handed down
RTC: favored GOYU against MICO for the claim, RCBC for damages and to
pay RCBC its loan
CA: Modified by increasing the damages in favor of GOYU
RTC and CA: endorsements do not bear the signature of any officer of GOYU
concluded that the endorsements favoring RCBC as defective.
Issue:
Whether or not RCBC as mortgagee, has any right over the insurance
policies taken by GOYU, the mortgagor, in case of the occurrence of loss
Held:
YES. The mortgagor and a mortgagee have separate and distinct insurable
interests in the same mortgaged property, such that each one of them may
insure the same property for his own sole benefit. Although it appears that
GOYU obtained the subject insurance policies naming itself as the sole
payee, the intentions of the parties as shown by their contemporaneous
acts, must be given due consideration in order to better serve the interest of
justice and equity8 endorsement documents were prepared by Alchester in
favor of RCBC. MICO, a sister company of RCBC. GOYU continued to enjoy
the benefits of the credit facilities extended to it by RCBC. GOYU is at the
very least estopped from assailing their operative effects.
The two courts below erred in failing to see that the promissory notes which
they ruled should be excluded for bearing dates which are after that of the
fire, are mere renewals of previous ones.
RCBC has the right to claim the insurance proceeds, in substitution of the
property lost in the fire. Having assigned its rights, GOYU lost its standing as
the beneficiary of the said insurance policies. Insurance company to be held

liable for unreasonably delaying and withholding payment of insurance

proceeds, the delay must be wanton, oppressive, or malevolent - not shown
Sebastians right as attaching creditor must yield to the preferential rights of
RCBC over the Malayan insurance policies as first mortgagee.

Topic: Delay in Acceptance

Virginia Perez vs. BF Lifeman Insurance

Gr. No. 112329
Facts:
Perez had been insured with the BF Lifeman Insurance Corporation since
1980 for P20,000.00. Sometime in October 1987, an agent of the insurance
corporation, Rodolfo Lalog, visited Perez in Guinayangan, Quezon and
convinced him to apply for additional insurance coverage of P50, 000.00, to
avail of the ongoing promotional discount of P400.00 if the premium were
paid annually. Primitivo B. Perez accomplished an application form for the
additional insurance coverage of P50, 000.00. On the same day, petitioner
Virginia A. Perez, Primitivo's wife, paid P2, 075.00 to Lalog. The receipt
issued by Lalog indicated the amount received was a "deposit."1
Unfortunately, Lalog lost the application form accomplished by Perez; he
asked the latter to fill up another application form. Pursuant to the
established procedure of the company, Lalog forwarded the application for
additional insurance of Perez, together with all its supporting papers, to the
office of BF Lifeman Insurance Corporation at Gumaca, Quezon which office
was supposed to forward the papers to the Manila office. Perez died in an
accident. He was riding in a banca which capsized during a storm. It was
only on November 27, 1987 that said papers were received in Manila.
Without knowing that Perez died on November 25, 1987, BF Lifeman
Insurance Corporation approved the application and issued the
corresponding policy for the P50, 000.00 on December 2, 1987.4
Petitioner Virginia Perez went to Manila to claim the benefits under the
insurance policies of the deceased, but the insurance company refused to
pay the claim on the ground that the insurance for P50, 000.00 had not been
perfected at the time of the death of Primitivo Perez.

Issue:
Whether or not the contract of insurance between insurance company and
Primitivo Perez has been perfected.
Ruling:
The petition is bereft of merit. Consent must be manifested by the meeting
of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the acceptance
absolute.
When Primitivo filed an application for insurance, paid P2, 075.00 and
submitted the results of his medical examination, his application was subject
to the acceptance of private respondent BF Lifeman Insurance Corporation.
The perfection of the contract of insurance between the deceased and
respondent corporation was further conditioned upon compliance with the
following requisites stated in the application form:
There shall be no contract of insurance unless and until a policy is issued on
this application and that the said policy shall not take effect until the
premium has been paid and the policy delivered to and accepted by me/us in
person while I/We, am/are in good health.9
The assent of private respondent BF Lifeman Insurance Corporation
therefore was not given when it merely received the application form and all
the requisite supporting papers of the applicant. Its assent was given when it
issues a corresponding policy to the applicant. Under the abovementioned
provision, it is only when the applicant pays the premium and receives and
accepts the policy while he is in good health that the contract of insurance is
deemed to have been perfected.
It is not disputed, however, that when Primitivo died on November 25, 1987,
his application papers for additional insurance coverage were still with the
branch office of respondent corporation in Gumaca and it was only two days
later, or on November 27, 1987, when Lalog personally delivered the
application papers to the head office in Manila. Consequently, there was
absolutely no way the acceptance of the application could have been
communicated to the applicant for the latter to accept inasmuch as the

applicant at the time was already dead. In the case of Enriquez vs. Sun Life
Assurance Co. of Canada,10 recovery on the life insurance of the deceased
was disallowed on the ground that the contract for annuity was not perfected
since it had not been proved satisfactorily that the acceptance of the
application ever reached the knowledge of the applicant.
A contract of insurance, like other contracts, must be assented to by both
parties either in person or by their agents. So long as an application for
insurance has not been either accepted or rejected, it is merely an offer or
proposal to make a contract. The contract, to be binding from the date of
application, must have been a completed contract, one that leaves nothing
to be done, nothing to be completed, nothing to be passed upon, or
determined, before it shall take effect. There can be no contract of insurance
unless the minds of the parties have met in agreement.

Topic: Reinstatement of a Lapsed Policy of Life Insurance

Rufino D. Andres vs. The Crown Life Insurance

Gr. No. L 10874
Facts:
In 1952, Rufino D. Andres filed a complaint in the Court of First Instance of
Ilocos Norte against the Crown Life Insurance Company for the recovery of
the amount of P5,000, as the face value of a joint 20-year endowment
insurance policy issued in favor of the plaintiff Rufino D. Andres and his wife
Severa G. Andres on the 13th of February, 1950, by said insurance company.
On Jun 7, 1951, Rufino Andres presented his death claim as survivorbeneficiary of the deceased Severa G. Andres, who died May 3, 1951.
Payment having been denied by the insurance company on April 20, 1952,
this case was instituted.
Defendant Company filed its answer in due time disclaiming liability and
setting forth the special defense that the aforementioned policy had already
lapsed.

On August 5, 1954, Judge Julio Villamor rendered decision absolving the

defendant from any liability on the ground that the policy having lapsed, it
was not reinstated at the time the plaintiff's wife died. Not satisfied with the
decision, plaintiff appealed to the Court of Appeals, but the appeal was later
certified to this Court, for there is no question of fact involved therein.
Issue:
Whether or not there was a perfected contract of reinstatement after the
policy lapsed due to non-payment of premiums.
Ruling:
No. As stated by the lower court, the conditions set forth in the policy for
reinstatement are the following: (a) application shall be made within three
years from the date of lapse; (b) there should be a production of evidence of
the good health of the insured: (c) if the rate of premium depends upon the
age of the Beneficiary, there should likewise be a production of evidence of
his or her good health; (d) there should be presented such other evidence of
insurability at the date of application for reinstatement; (e) there should be
no change which has taken place in such good health and insurability
subsequent to the date of such application and before the policy is
reinstated; and (f) all overdue premiums and other indebtedness in respect
of the policy, together with interest at six per cent, compounded annually,
should first be paid.
The plaintiff-appellant did not comply with the last condition; for he only paid
P100 (on account of the over-due semi-annual premium of P165.15) on
February 20, 1951, before his wife's death and, despite the Company's
reminders on April 14 and 27, he remitted the balance of P65 on May 5,
1951 (received by the Company's agency on May 11), two days after his
wife died. On the face of such facts, the Company had the right to treat the
contract as lapsed and refuse payment of the policy.
We see nothing in these expressions that would indicate an intention on the
insurer's part to waive the full payment of the overdue premium as
prerequisite to the reinstatement of the lapsed policy, considering the well
settled rule that a waiver must be clear and positive, and intent to waive
shown clearly and convincingly. The promise to give plaintiff's case every

consideration does not import any decision to renounce the insurer's rights;
and as to the "working out of an adjustment most beneficial" to the insured,
the proposal is obviously so vague and indefinite as to require further
negotiations between the parties, for their criteria might differ as to what
would be the most beneficial arrangement.
Clearly the Company did not consider the partial payment as sufficient
consideration for the reinstatement. Appellant's failure to remit the balance
before the death of his wife operated to deprive him of any right to waive
the policy and recover the face value thereof.

Part II
A. CONCEALMENT
Topic: Test of Materiality

SUNLIFE ASSURANCE VS. CA;

245 SCRA 268
FACTS:
Bacani procured a life insurance contract for himself from petitioner, Sunlife
Assurance with double indemnity in case of accidental death. The designated
beneficiary was his mother.
Subsequently, Bacani died in a plane crash. Respondent filed a claim with
petitioner, seeking the benefits of the insurance policy taken by her son.
Petitioner conducted an investigation and its findings prompted it to reject
the claim. Petitioner in a letter explained that Bacani did not mention that
two weeks prior to his insurance application he was examined and confined
at the Lung Center of the Philippines, where he was diagnosed for a renal
failure. This prompted the mother of Bacani to file a case with the RTC.
RTC ruled in favor of respondent finding that the facts concealed by the
petitioner were made in good faith and under the belief that they need not
be disclosed. RTC also ruled that the health history of the insured was

immaterial since the insurance policy was a non-medical. On appeal, the

CA affirmed the decision of the trial court finding that the cause of death was
unrelated to the facts concealed by the insured.
ISSUE:
Whether or not the concealment made by Bacani warranted the rejection of
the insurance claim.
RULING:
SC reversed the decision made by the CA and held that the recession of the
insurance contract was proper. Section 26 of The Insurance Code is explicit
in requiring a party to a contract of insurance to communicate to the other,
in good faith, all facts within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has no
means of ascertaining. Said Section provides:
A neglect to communicate that which a party knows and ought to
communicate, is called concealment. Materiality is to be determined not by
the event, but solely by the probable and reasonable influence of the facts
upon the party to whom communication is due, in forming his estimate of
the disadvantages of the proposed contract or in making his inquiries (The
Insurance Code, Sec. 31).
The terms of the contract are clear. The insured is specifically required to
disclose to the insurer matters relating to his health.
The information which the insured failed to disclose were material and
relevant to the approval and issuance of the insurance policy. The matters
concealed would have definitely affected petitioner's action on his
application, either by approving it with the corresponding adjustment for a
higher premium or rejecting the same. Moreover, a disclosure may have
warranted a medical examination of the insured by petitioner in order for it
to reasonably assess the risk involved in accepting the application.
Thus, "goad faith" is no defense in concealment. The insured's failure to
disclose the fact that he was hospitalized for two weeks prior to filing his
application for insurance, raises grave doubts about his bonafides. It appears
that such concealment was deliberate on his part.

Anent the finding that the facts concealed had no bearing to the cause of
death of the insured, it is well settled that the insured need not die of the
disease he had failed to disclose to the insurer. It is sufficient that his nondisclosure misled the insurer in forming his estimates of the risks of the
proposed insurance policy or in making inquiries (Henson v. The Philippine
American Life Insurance Co., 56 O.G. No. 48 [1960]). PETITION GRANTED.

Topic: Test of Materiality

PHILAMCARE HEALTH SYSTEM VS. CA AND JULITA TRINOS

G.R. NO. 125678, 18 MARCH 2002
FACTS:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a
health care coverage with petitioner Philamcare Health Systems, Inc. In the
standard application form, he answered no to the following question:
Have you or any of your family members ever consulted or been treated for
high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or
peptic ulcer? (If Yes, give details). he answered NO.
The application was approved for a period of one year from March 1, 1988 to
March 1, 1989. Under the agreement, respondents husband was entitled to
avail of hospitalization benefits, whether ordinary or emergency, listed
therein. He was also entitled to avail of out-patient benefits such as
annual physical examinations, preventive health care and other out-patient
services.
Upon the termination of the agreement, the same was extended for another
year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June
1, 1990. The amount of coverage was increased to a maximum sum of
P75,000.00 per disability.
After her husband was discharged from the MMC, he was attended by a
physical therapist at home. Later, he was admitted at the Chinese General
Hospital. Due to financial difficulties, however, respondent brought her

husband home again. In the morning of April 13, 1990, Ernani had fever
and was feeling very weak. Respondent was constrained to bring him back
to the Chinese General Hospital where he died on the same day.
Respondent then instituted an action for damages with the RTC and prayed
for reimbursement of all expenses made. After trial, the lower court ruled
against petitioners. On appeal, the Court of Appeals affirmed the decision of
the trial court but deleted all awards for damages and absolved petitioner
Reverente. Petitioners motion for reconsideration was denied.
ISSUE:
Whether or not the health care agreement is an insurance contract? Whether
or not there was concealment.
RULING:
The Supreme Court held that the health agreement is an insurance contract.
Section 2 (1) of the Insurance Code defines a contract of insurance as an
agreement whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent
event. An insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the
designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk; and
5. In consideration of the insurers promise, the insured pays a premium.
Section 3 of the Insurance Code states that any contingent or unknown
event, whether past or future, which may damnify a person having an
insurable interest against him, may be insured against. Every person has an
insurable interest in the life and health of himself. Section 10 provides:

Every person has an insurable interest in the life and health:

(1)

of himself, of his spouse and of his children;

(2) of any person on whom he depends wholly or in part for education or

support, or in whom he has a pecuniary interest;
(3)
of any person under a legal obligation to him for the payment of
money, respecting property or service, of which death or illness might delay
or prevent the performance; and
(4)
of any person upon whose life any estate or interest vested in him
depends.
In the case at bar, the insurable interest of respondents husband in
obtaining the health care agreement was his own health. The health care
agreement was in the nature of non-life insurance, which is primarily a
contract of indemnity.[9] Once the member incurs hospital, medical or any
other expense arising from sickness, injury or other stipulated contingent,
the health care provider must pay for the same to the extent agreed upon
under the contract.
On the second issue, the SC held that petitioner cannot rely on the
stipulation regarding Invalidation of agreement.
The answer assailed by petitioner was in response to the question relating to
the medical history of the applicant. This largely depends on opinion rather
than fact, especially coming from respondents husband who was not a
medical doctor. Where matters of opinion or judgment are called for,
answers made in good faith and without intent to deceive will not avoid a
policy even though they are untrue. Thus,
(A)lthough false, a representation of the expectation, intention, belief,
opinion, or judgment of the insured will not avoid the policy if there is no
actual fraud in inducing the acceptance of the risk, or its acceptance at a
lower rate of premium, and this is likewise the rule although the statement is
material to the risk, if the statement is obviously of the foregoing character,
since in such case the insurer is not justified in relying upon such statement,
but is obligated to make further inquiry. There is a clear distinction between
such a case and one in which the insured is fraudulently and intentionally

states to be true, as a matter of expectation or belief, that which he then

knows, to be actually untrue, or the impossibility of which is shown by the
facts within his knowledge, since in such case the intent to deceive the
insurer is obvious and amounts to actual fraud.
The fraudulent intent on the part of the insured must be established to
warrant rescission of the insurance contract. Concealment as a defense for
the health care provider or insurer to avoid liability is an affirmative defense
and the duty to establish such defense by satisfactory and convincing
evidence rests upon the provider or insurer. In any case, with or without the
authority to investigate, petitioner is liable for claims made under the
contract. Having assumed a responsibility under the agreement, petitioner
is bound to answer the same to the extent agreed upon. In the end, the
liability of the health care provider attaches once the member is hospitalized
for the disease or injury covered by the agreement or whenever he avails of
the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, a concealment entitles the injured
party to rescind a contract of insurance. The right to rescind should be
exercised previous to the commencement of an action on the contract. In
this case, no rescission was made. Besides, the cancellation of health care
agreements as in insurance policies require the concurrence of the following
conditions:
1.

Prior notice of cancellation to insured;

2.
Notice must be based on the occurrence after effective date of the
policy of one or more of the grounds mentioned;
3.
Must be in writing, mailed or delivered to the insured at the address
shown in the policy;
4.
Must state the grounds relied upon provided in Section 64 of the
Insurance Code and upon request of insured, to furnish facts on which
cancellation is based.
None of the above pre-conditions was fulfilled in this case. When the terms
of insurance contract contain limitations on liability, courts should construe
them in such a way as to preclude the insurer from non-compliance with his

obligation. Being a contract of adhesion, the terms of an insurance contract

are to be construed strictly against the party which prepared the contract
the insurer. By reason of the exclusive control of the insurance company over
the terms and phraseology of the insurance contract, ambiguity must be
strictly interpreted against the insurer and liberally in favor of the insured,
especially to avoid forfeiture. This is equally applicable to Health Care
Agreements. The phraseology used in medical or hospital service contracts,
such as the one at bar, must be liberally construed in favor of the subscriber,
and if doubtful or reasonably susceptible of two interpretations the
construction conferring coverage is to be adopted, and exclusionary clauses
of doubtful import should be strictly construed against the provider. The
petition was denied.

Topic: Waiver & Estoppel

EDILLION VS. MANILA BANKERS LIFE;

117 SCRA 187 (1982)
FACTS:
Sometime in April 1969, Carmen O, Lapuz applied Manila Bankers for
insurance coverage against accident and injuries. She filled up the blank
application form given to her and filed the same with the respondent
insurance corporation. In the said application form she gave the date of her
birth as July 11, 1904. On the same date, she paid the sum of P20.00
representing the premium for which she was issued the corresponding
receipt signed by an authorized agent of Manila Bankers. Upon the filing and
the payment of the premium, the respondent insurance corporation issued to
Carmen O. Lapuz its Certificate of Insurance. The policy was to be effective
for a period of 90 days. During the effectivity of the certificate of insurance
Carmen Lapuz died on a vehicular accident in the North Diversion Road. On
June 7, 1969, petitioner Regina L. Edillon, a sister of the insured and who
was the named beneficiary in the policy, filed her claim for the proceeds of
the insurance, submitting all the necessary papers and other requisites.
However, her claim was denied by the respondent corporation hence her
filing of complaint in the Court of First Instance of Rizal on August 27, 1969.

The respondent insurance corporation asserts that since Carmen Lapuz was
over 60 years of age the policy in question was null and void because there
is a provision in the certificate of insurance excluding its liability to pay
claims under the policy in behalf of persons who are under the age of sixteen
(16) years of age or over the age of sixty (60) years. The trial court
dismissed the complaint. Hence, this petition.
ISSUE:
Whether or not the acceptance by the private respondent insurance
corporation of the premium and the issuance of the corresponding certificate
of insurance should be deemed a waiver of the exclusionary condition of
overage stated in the said certificate of insurance
RULING:
The age of the insured Carmen 0. Lapuz was not concealed to the insurance
company. Her application for insurance coverage which was on a printed
form furnished by private respondent and which contained very few items of
information clearly indicated her age of the time of filing the same to be
almost 65 years of age. Despite such information which could hardly be
overlooked in the application form, considering its prominence thereon and
its materiality to the coverage applied for, the respondent insurance
corporation received her payment of premium and issued the corresponding
certificate of insurance without question.
The accident which resulted in the death of the insured, a risk covered by
the policy, occurred on May 31, 1969 or FORTY-FIVE (45) DAYS after the
insurance coverage was applied for. There was sufficient time for the private
respondent to process the application and to notice that the applicant was
over 60 years of age and thereby cancel the policy on that ground if it was
minded to do so. If the private respondent failed to act, it is either because it
was willing to waive such disqualification; or, through the negligence or
incompetence of its employees for which it has only itself to blame, it simply
overlooked such fact.
Under the circumstances, the insurance corporation is already deemed in
estoppel. Its inaction to revoke the policy despite a departure from the

exclusionary condition contained in the said policy constituted a waiver of

such condition.

Topic: Warranties Effect of Breach of warranty (Section 74-76)

PERLA CIA DE SEGUROS INC. VS. CA;

208 SCRA 487
FACTS:
On December 24, 1981, private respondents spouses Herminio and Evelyn
Lim executed a promissory note in favor Supercars, Inc. payable in monthly
installments according to the schedule of payment indicated in said note,
and secured by a chattel mortgage over a brand new red Ford Laser 1300
5DR Hatchback 1981 model with motorwhich is registered under the name of
private respondent Herminio Lim and insured with the petitioner Perla
Compania de Seguros, Inc. (Perla for brevity).
On the same date, Supercars, Inc., with notice to private respondents
spouses, assigned to petitioner FCP Credit Corporation (FCP for brevity) its
rights, title and interest on said promissory note and chattel mortgage as
shown by the Deed of Assignment.
At around 2:30 P.M. of November 9, 1982, said vehicle was carnapped.
Private respondent, immediately called up the Anti-Carnapping Unit of the
Philippine Constabulary to report said incident and thereafter, went to the
nearest police substation at Araneta, Cubao to make a police report.On
November 11, 1982, private respondent filed a claim for loss with the
petitioner Perla but said claim was denied on November 18, 1982 10 on the
ground that Evelyn Lim, who was using the vehicle before it was carnapped,
was in possession of an expired driver's license at the time of the loss of said
vehicle which is in violation of the authorized driver clause of the insurance
policy.
On July 25, 1983, petitioner FCP filed a complaint against private
respondents, who in turn filed an amended third party complaint against

petitioner Perla on December 8, 1983. After trial on the merits, the trial
court rendered a decision in favor of defendants.
Not satisfied with said decision, private respondents appealed the same to
the Court of Appeals, which reversed said decision.
After petitioners' separate motions for reconsideration were denied by the
Court of Appeals in its resolution of December 10, 1990, petitioners filed
these separate petitions for review on certiorari.
ISSUE:
Whether or not Perla is liable despite the alleged violation of the authorized
driver clause in the insurance contract
RULING:
The Supreme Court finds no merit in Perlas petition.
The comprehensive motor car insurance policy issued by petitioner Perla
undertook to indemnify the private respondents against loss or damage to
the car (a) by accidental collision or overturning, or collision or overturning
consequent upon mechanical breakdown or consequent upon wear and tear;
(b) by fire, external explosion, self-ignition or lightning or burglary,
housebreaking or theft; and (c) by malicious act. 14
Where a car is admittedly, as in this case, unlawfully and wrongfully taken
without the owner's consent or knowledge, such taking constitutes theft,
and, therefore, it is the "THEFT"' clause, and not the "AUTHORIZED DRIVER"
clause that should apply.
It is worthy to note that there is no causal connection between the
possession of a valid driver's license and the loss of a vehicle. To rule
otherwise would render car insurance practically a sham since an insurance
company can easily escape liability by citing restrictions which are not
applicable or germane to the claim, thereby reducing indemnity to a shadow.
SC however find the petition of FCP meritorious.

This Court agrees with petitioner FCP that private respondents are not
relieved of their obligation to pay the former the installments due on the
promissory note on account of the loss of the automobile. The chattel
mortgage constituted over the automobile is merely an accessory contract to
the promissory note. Being the principal contract, the promissory note is
unaffected by whatever befalls the subject matter of the accessory contract.
Therefore, the unpaid balance on the promissory note should be paid, and
not just the installments due and payable before the automobile was
carnapped, as erronously held by the Court of Appeals.
However, this does not mean that private respondents are bound to pay the
interest, litigation expenses and attorney's fees stipulated in the promissory
note. Because of the peculiar relationship between the three contracts in this
case, i.e., the promissory note, the chattel mortgage contract and the
insurance policy, this Court is compelled to construe all three contracts as
intimately interrelated to each other, despite the fact that at first glance
there is no relationship whatsoever between the parties thereto.
Because petitioner Perla had unreasonably denied their valid claim, private
respondents should not be made to pay the interest, liquidated damages and
attorney's fees as stipulated in the promissory note. As mentioned above,
the contract of indemnity was procured to insure the return of the money
loaned from petitioner FCP, and the unjustified refusal of petitioner Perla to
recognize the valid claim of the private respondents should not in any way
prejudice the latter.
Private respondents cannot be said to have unduly enriched themselves at
the expense of petitioner FCP since they will be required to pay the latter the
unpaid balance of its obligation under the promissory note. The decision of
the CA was MODIFIED.

Topic: Exceptions

COUNTRY BANKERS INSURANCE VS. LIANGA BAY

G.R. NO. 136914, 25 JANUARY 2002

FACTS:
Country Bankers Insurance Corporation (CBIC) is a domestic corporation
principally engaged in the insurance business wherein it undertakes, for a
consideration, to indemnify another against loss, damage or liability from an
unknown or contingent event including fire while Lianga Baya and
Community Multi-purpose Cooperative Inc. (LBCMCI) is a duly registered
cooperative judicially declared insolvent and represented by the elected
assignee, Cornelio Jamero.
It appears that sometime in 1989, the CBIC and LBCMCI entered into a
contract of fire insurance. Under Fire Insurance Policy F-1397, CBIC insured
LBCMCI's stocks-in-trade against fire loss, damage or liability during the
period starting from 20 June 1989 at 4:00 p.m. to 20 June 1990 at 4:00
p.m., for the sum of P200,000.00. On 1 July 1989, at or about 12:40 a.m.,
LBCMCI's building located at Barangay Diatagon, Lianga, Surigao del Sur
was gutted by fire and reduced to ashes, resulting in the total loss of
LBCMCI's stocks-in-trade, pieces of furniture and fixtures, equipments and
records.
Due to the loss, LBCMCI filed an insurance claim with CBIC under its Fire
Insurance Policy F-1397, submitting: (a) the Spot Report of Pfc. Arturo V.
Juarbal, INP Investigator, dated 1 July 1989; (b) the Sworn Statement of
Jose Lomocso; and (c) the Sworn Statement of Ernesto Urbiztondo. CBIC,
however, denied the insurance claim on the ground that, based on the
submitted documents, the building was set on fire by 2 NPA rebels who
wanted to obtain canned goods, rice and medicines as provisions for their
comrades in the forest, and that such loss was an excepted risk under
paragraph 6 of the policy conditions of Fire Insurance Policy F-1397, which
provides that
"This insurance does not cover any loss or damage occasioned by or through
or in consequence, directly or indirectly, of any of the following occurrences,
namely: xxx (d) Mutiny, riot, military or popular uprising, insurrection,
rebellion, revolution, military or usurped power. Any loss or damage
happening during the existence of abnormal conditions (whether physical or
otherwise) which are occasioned by or through or in consequence, directly or
indirectly, of any of said occurrences shall be deemed to be loss or damage
which is not covered by this insurance, except to the extent that the Insured

shall prove that such loss or damage happened independently of the

existence of such abnormal conditions."
Finding the denial of its claim unacceptable, LBCMCI then instituted in the
trial court the complaint for recovery of "loss, damage or liability" against
CBIC. In due time, the trial court rendered its Decision dated 26 December
1991 in favor of LBCMCI, ordering CBIC to pay LBCMCI to fully pay the
insurance claim for the loss LBCMCI sustained as a result of the fire under its
Fire Insurance Policy F-1397 in its full face value of P200,000.00 with
interest of 12% per annum from date of filing of the complaint until the
same is fully paid; to pay as and in the concept of actual or compensatory
damages in the total sum of P50,000.00; to pay as and in the concept of
exemplary damages in the total sum of P50,000.00; to pay in the concept of
litigation expenses the sum of P5,000.00; to pay by way of reimbursement
the attorney's fees in the sum of P10,000.00; and to pay the costs of the
suit.
CBIC interposed an appeal to the Court of Appeals. On 29 December 1998,
the appellate court affirmed the challenged decision of the trial court in its
entirety. CBIC filed the petition for review on certiorari.
ISSUE:
Whether the burden of proof in this case is upon the insurer.
RULING:
YES. CBIC does not dispute that LBCMCI's stocks-in-trade were insured
against fire loss, damage or liability under Fire Insurance Policy F-1397 and
that LBCMCI lost its stocks-in-trade in a fire that occurred on 1 July 1989,
within the duration of said fire insurance. CBIC, however, posits the view
that the cause of the loss was an excepted risk under the terms of the fire
insurance policy. Where a risk is excepted by the terms of a policy which
insures against other perils or hazards, loss from such a risk constitutes a
defense which the insurer may urge, since it has not assumed that risk, and
from this it follows that an insurer seeking to defeat a claim because of an
exception or limitation in the policy has the burden of proving that the loss
comes within the purview of the exception or limitation set up. If a proof is
made of a loss apparently within a contract of insurance, the burden is upon

the insurer to prove that the loss arose from a cause of loss which is
excepted or for which it is not liable, or from a cause which limits its liability.
Stated elsewise, since CBIC in this case is defending on the ground of noncoverage and relying upon an exemption or exception clause in the fire
insurance policy, it has the burden of proving the facts upon which such
excepted risk is based, by a preponderance of evidence. But CBIC failed to
do so. CBIC relies on the Sworn Statements of Jose Lomocso and Ernesto
Urbiztondo as well as on the Spot Report of Pfc. Arturo V. Juarbal dated 1
July 1989. The Sworn Statements of Jose Lomocso and Ernesto Urbiztondo
are inadmissible in evidence, for being hearsay, inasmuch as they did not
take the witness stand and could not therefore be cross-examined. CBIC's
evidence to prove its defense is sadly wanting and thus, gives rise to its
liability to LBCMCI under Fire Insurance Policy F-1397.