Philippine Health Care v CIR G.R. No.

167330
September 18, 2009
J. Corona

Facts:
Philippine Health Cares objectives were:
"[t]o 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.
It lost the case in 2004 when it was made to pay over 100 million in VAT deficiencies. At the time the
MFR was filed, it was able to avail of tax amnesty under RA 9840 by paying 5 percent of the tax or 5
million pesos.
Petitioner passed an MFR but the CA denied. Hence, this case.

Issue:
Was petitioner, as an HMO, engaged in the business of insurance during the pertinent taxable years,
and was thus liable for DST?

Held: No. Mfr granted. CIR must desist from collecting tax.

Ratio:
Section 185 of the NIRC . Stamp tax on fidelity bonds and other insurance policies. On all policies
of insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability made or
renewed by any person, association or company or corporation transacting the business of accident,
fidelity, employers liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other
branch of insurance (except life, marine, inland, and fire insurance).
Two requisites must concur before the DST can apply, namely: (1) the document must be a policy of
insurance or an obligation in the nature of indemnity and (2) the maker should be transacting the
business of accident, fidelity, employers liability, plate, glass, steam boiler, burglar, elevator,
automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance).
Under RA 7875, an HMO is "an entity that provides, offers or arranges for coverage of designated
health services needed by plan members for a fixed prepaid premium."
Various courts in the United States have determined that HMOs are not in the insurance business.
One test that they have applied is whether the assumption of risk and indemnification of loss 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 such is
incidental and service is the principal purpose, then the business is not insurance.
Applying the "principal object and purpose test," there is significant American case law supporting
the argument that a corporation, whose main object is to provide the members of a group with health
services, is not engaged in the insurance business.
For the purpose of determining what "doing an insurance business" means, we have to scrutinize the
operations of the business as a whole. This is of course only prudent and appropriate, taking into
account laws applicable to those in the insurance business.
Petitioner, as an HMO, is not part of the insurance industry. This is evident from the fact that it is not
supervised by the Insurance Commission but by the Department of Health. In fact, in a letter dated
September 3, 2000, the Insurance Commissioner confirmed that petitioner is not engaged in the
insurance business.
As to whether the business is covered by the DST, we can see that while the contract did contains
all the elements of an insurance contract, as stated in Sec 2., Par 1 of the Insurance Code, the
primary purpose of the company is to render service. The primary purpose of the parties in making
the contract may negate the existence of an insurance contract.
Also, there is no loss, damage or liability on the part of the member that should be indemnified by
petitioner as an HMO. Under the agreement, the member pays petitioner a predetermined
consideration in exchange for the hospital, medical and professional services rendered by the
petitioners physician or affiliated physician to him.
In other words, there is nothing in petitioner's agreements that gives rise to a monetary liability on
the part of the member to any third party-provider of medical services which might in turn necessitate
indemnification from petitioner. The terms "indemnify" or "indemnity" presume that a liability or claim
has already been incurred. There is no indemnity precisely because the member merely avails of
medical services to be paid or already paid in advance at a pre-agreed price under the agreements.
Also, a member can take advantage of the bulk of the benefits anytime, e.g. laboratory services, x-
ray, routine annualphysical examination and consultations, vaccine administration as well as family
planning counseling, even in the absence of any peril, loss or damage on his or her part.
Petitioner is obliged to reimburse the member who receives care from a non-participating physician
or hospital. However, this is only a very minor part of the list of services available. The assumption of
the expense by petitioner is not confined to the happening of a contingency but includes incidents
even in the absence of illness or injury.
Consequently, there is a need to distinguish prepaid service contracts (like those of petitioner) from
the usual insurance contracts.
However, assuming that petitioners commitment to provide medical services to its members can be
construed as an acceptance of the risk that it will shell out more than the prepaid fees, it still will not
qualify as an insurance contract because petitioners objective is to provide medical services at
reduced cost, not to distribute risk like an insurer.
If it had been the intent of the legislature to impose DST on health care agreements, it could have
done so in clear and categorical terms. It had many opportunities to do so. But it did not. The fact
that the NIRC contained no specific provision on the DST liability of health care agreements of
HMOs at a time they were already known as such, belies any legislative intent to impose it on them.
As a matter of fact, petitioner was assessed its DST liability only on January 27, 2000, after more
than a decade in the business as an HMO.
In view of petitioners availment of the benefits of [RA 9840], and without conceding the merits of this
case as discussed above, respondent concedes that such tax amnesty extinguishes the tax liabilities
of petitioner.
21 Our Insurance Code was based on California and New York laws. When a statute has been
adopted from some other state or country and said statute has previously been construed by the
courts of such state or country, the statute is deemed to have been adopted with the construction
given.

n 1988, Ernani Trinos applied for a health care insurance under the Philamcare Health
Systems, Inc. He was asked if he was ever treated for high blood, heart trouble, diabetes,
cancer, liver disease, asthma, or peptic ulcer; he answered no. His application was
approved and it was effective for one year. His coverage was subsequently renewed twice
for one year each. While the coverage was still in force in 1990, Ernani suffered a heart
attack for which he was hospitalized. The cost of the hospitalization amounted to
P76,000.00. Julita Trinos, wife of Ernani, filed a claim before Philamcare for the latter to pay
the hospitalization cost. Philamcare refused to pay as it alleged that Ernani failed to disclose
the fact that he was diabetic, hypertensive, and asthmatic. Julita ended up paying the
hospital expenses. Ernani eventually died. In July 1990, Julita sued Philamcare for
damages. Philamcare alleged that the health coverage is not an insurance contract; that the
concealment made by Ernani voided the agreement.
ISSUE: Whether or not Philamcare can avoid the health coverage agreement.
HELD: No. The health coverage agreement (health care agreement) entered upon by
Ernani with Philamcare is a non-life insurance contract and is covered by the Insurance
Law. It is primarily a contract of indemnity. 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. There is no
concealment on the part of Ernani. He answered the question with good faith. He was not a
medical doctor hence his statement in answering the question asked of him when he was
applying is an opinion rather than a fact. Answers made in good faith will not void the policy.
Further, Philamcare, in believing there was concealment, should have taken the necessary
steps to void the health coverage agreement prior to the filing of the suit by Julita.
Philamcare never gave notice to Julita of the fact that they are voiding the agreement.
Therefore, Philamcare should pay the expenses paid by Julita.

nsurance Case Digest: Eternal Gardens

Memorial Park Corp. V. Philippine American
Life Insurance Corp. (2008)
G.R. No. 166245 April 9, 2008

Lessons Applicable: Exception to Perfection (Insurance)

FACTS:

December 10, 1980: Philippine American Life Insurance Company (Philamlife)

entered into an agreement denominated as Creditor Group Life Policy No. P-
19202 with Eternal Gardens Memorial Park Corporation (Eternal)
Under the policy (renewable annually), the clients of Eternal who purchased
burial lots from it on installment basis would be insured by Philamlife
amount of insurance coverage depended 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
August 2, 1984, Chuang died with a balance of 100,000 php
April 25, 1986: Philamlife had not furnished Eternal with any reply on its
insurance claim so its demanded its claim
According to Philam Life, 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 are only in trust for and not a sign of approval.
RTC: favored Eternal
CA: Reversed RTC
ISSUE: W/N Philam's inaction or non-approval meant the perfection of the insurance
contract.

HELD: YES. CA reversed

construed in favor of the insured and in favor of the effectivity of the insurance
contract
Upon a partys purchase of a memorial lot on installment from Eternal, an
insurance contract covering the lot purchaser is created and the same is
effective, valid, and binding until terminated by Philamlife by disapproving the
insurance application
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
87 Phil. 248 Commercial Law Insurance Code Parties to an Insurance Contract
Insurance Contract in Times of War
There are two cases consolidated here. First is that of Arcadio Constantino who
acquired a life insurance from Asia Life Insurance Company in September 1941. He
paid the first premium which was good until September 1942. War broke out and he
was not able to pay the second and subsequent premiums. He died in 1944. His
beneficiary was Paz Lopez De Constantino.
The second case was that of Tomas Ruiz who acquired his life insurance from Asia
Life in August 1938. He has been paying his premium religiously but due to the war,
he was not able to pay his subsequent premiums in 1942. He died in 1945. His
beneficiary was Agustina Peralta.
The beneficiaries from both insurance policies filed their claims when the war is over.
They point out that the obligation of the insured to pay premiums was excused
(suspended) during the war owing to impossibility of performance, and that
consequently no unfavorable consequences should follow from such failure (New
York Rule).
Asia Life argued that the nonpayment of premiums cancelled the insurance policy.
An insurance contract is one in which time is material and of the essence. Non-
payment at the day involves absolute forfeiture if such be the terms of the contract
(United States Rule).
ISSUE: Whether or not the beneficiaries are entitled to the claims.
HELD: No. The Supreme Court adopts the United States Rule. It should be noted
that the parties contracted not only for peacetime conditions but also for times of
 war, because the policies contained provisions applicable expressly to wartime days.
The logical inference, therefore, is that the parties contemplated uninterrupted
operation of the contract even if armed conflict should ensue.
G.R. No. L-2294 May 25, 1951
FILIPINAS COMPAIA DE SEGUROS, petitioner,
vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.
Ramirez and Ortigas for petitioner.
Ewald Huenefeld for respondent.
Facts:

Christern obtained from Filipinas a fire insurance policy of P1000,000, covering merchandise
contained in a building located at Binondo. During the Japanese military occupation, the building and
insured merchandise were burned. The respondent its claim under the policy. The total loss suffered
by the respondent was fixed at P92,650.
The petitioner refused to pay the claim on the ground that the policy in favor of the respondent had
ceased to be in force on the date the U.S. declared war on Germany with the respondent
Corporation being controlled by German subjects and the petitioner being a company under
American jurisdiction (though organized by Philippine laws) when the policy was issued on October
1, 1941. The petitioner, however, paid to the respondent the sum of P92,650 on April 19, 1943 under
orders from the military government.
The insurer filed for a suit to recover the sum. The contention was that the policy ceased to be
effective because of the outbreak of the war and that the payment made by the petitioner to the
respondent corporation during the Japanese military occupation was under pressure.
The tiral and the appellate courts dismissed the action. The Court of Appeals claimed that a
corporation is a citizen of the country or state by and under the laws of which it was created or
organized.
Hence this appeal.

Issue: Whether the policy in question became null and void upon the declaration of war

Held: Yes. Petition granted.

Ratio:
The majority of the stockholders of the respondent corporation were German subjects. The
respondent became an enemy corporation upon the outbreak of the war. The English and American
cases relied upon by the Court of Appeals have lost their force in view of the latest decision of the
Supreme Court of the United States in Clark vs. Uebersee Finanz Korporation where the controls
test has been adopted.
Measures of blocking foreign funds, the so called freezing regulations, and other administrative
practice in the treatment of foreign-owned property in the United States allowed to large degree the
determination of enemy interest in domestic corporations and thus the application of the control test.
In Clark vs. Uebersee, the court held that The property of all foreigninterest was placed within the
reach of the vesting power (of the Alien Property Custodian) not to appropriate friendly or neutral
assets but to reach enemy interest which masqueraded under those innocent fronts. . . . The power
of seizure and vesting was extended to all property of any foreign country or national so that no
innocent appearing device could become a Trojan horse.
The Philippine Insurance Law states that anyone except a public enemy may be insured. It stands
to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public
enemy.
All individuals therefore, who compose the belligerent powers, exist, as to each other, in a state of
utter exclusion, and are public enemies.
Vance- In the case of an ordinary fire policy, which grants insurance only from year, or for some
other specified term it is plain that when the parties become alien enemies, the contractual tie is
broken and the contractual rights of the parties, so far as not vested, are lost.
The respondent having become an enemy corporation on December 10, 1941, the insurance policy
issued in its favor on October 1, 1941, by the petitioner had ceased to be valid and enforceable, and
since the insured goods were burned after December 10, 1941, and during the war, the respondent
was not entitled to any indemnity under said policy from the petitioner. The premium must be
returned for the sake of justice.
It results that the petitioner is entitled to recover the indemnity paid. However, the petitioner will be
entitled to recover only the equivalent of P92,650 paid on April 19, 1943.

DECISION
G.R. No. 113899 October 13, 1999
GREAT PACIFIC LIFE ASSURANCE CORP., petitioner,
vs.
COURT OF APPEALS AND MEDARDA V. LEUTERIO, respondents.
There was an existing group life insurance executed between Great Pacific Life
Assurance (Grepalife) and the Development Bank of the Philippines (DBP).
Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP. In
November 1983, Wilfredo Leuterio, mortgagor of DBP applied to be a member of the
group life insurance. He filled out a form where he indicated he never consulted any
physician regarding any illness (heart condition etc) and that he is in good health. He
was eventually included in the group life insurance and he was covered for the
amount of his indebtedness (P86,200.00).
In August 1984, Wilfredo died. DBP submitted a death claim but it was denied by
Grepalife as it insisted that Wilfredo actually concealed that he was suffering from
hypertension at the time of his insurance application. Grepalife relied on the
statement made by the doctor who issued Wilfredos death certificate wherein it was
stated that Wilfredos immediate cause of death was massive cerebral hemorrhage
secondary to hypertension or hypertension as a possible cause of death.
Since Grepalife refused to pay the insurance claim filed by DBP, Medarda Leuterio
(widow) sued Grepalife. Grepalife assailed the suit and insisted that Medarda is not
a proper party in interest. The lower court ruled in favor of Medarda and the court
ordered Grepalife to pay the amount of the insurance to DBP. The Court of Appeals
affirmed this decision in 1993. Grepalife appealed to the Supreme Court. In 1995,
pending resolution of the case in the SC, DBP foreclosed the property of Medarda.
ISSUE: Whether or not Grepalife is liable to pay the insurance claim.
HELD: Yes. Grepalife is liable to pay the insurance claim. Medarda is a proper party
in interest (note that it was Wilfredo who has been paying the premium, as the
insured, he is the real party in interest and this status was transferred to his widow).
The group life insurance or mortgage redemption insurance provides that DBP as
the mortgagee is merely an assignee of Wilfredo; and that in the event of Wilfredos
death before his indebtedness to DBP is paid, proceeds from the insurance shall first
be applied to the sum of the balance insured. But this does not cease Wilfredo to be
a party to the insurance contract.
Grepalife failed to prove that Wilfredo concealed that he was suffering from
hypertension at the time of his application. The doctors finding as to the cause of
death is not conclusive because no autopsy was conducted. The doctor who issued
the death certificate has no knowledge of Wilfredos hospital confinement [if there
 are any]. The fraudulent intent on the part of the insured must be established to
entitle the insurer to rescind the contract. Misrepresentation as a defense of the
insurer to avoid liability is an affirmative defense and the duty to establish such
defense by satisfactory and convincing evidence rests upon the insurer.
Grepalife must however pay the claim to Medarda considering that DBP already
foreclosed the property.

Lessons Applicable: To whom insurance proceeds payable (Insurance)

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: W/N 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.
GR: 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.
EX: 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