Origin and Growth of Insurance – Real and Hypothecary Nature of Maritime Law; Doctrine of

Limited Liability

Philippine Shipping Co. v. Garcia

G.R. No. L-1600
June 1, 1906

FACTS:

Philippine Shipping Company sued Vergara for the loss of Steamship "Ntra. Sra. de
Lourdes" as a result of the collision with the Steamship "Navarra" of Garcia.

It was found that the "Navarra" was responsible for the collision. The claim of the
Philippine Shipping is that the defendant should pay P18,000.00, the value of the "Navarra" at
the time of its loss, in accordance with the provision of Article 837 of the Code of Commerce, and
that it was immaterial that the "Navarro" had been entirely lost provided the value could be
ascertained since the extent of liability of the owner of the colliding vessel resulting from the
collision is to be determined by its value.

ISSUE:

Will the action for damages prosper?

RULING:

No, because the vessel having been entirely lost, any liability from the said maritime
collision has also been extinguished.

The "real" nature of the maritime law is manifested by these two rules: (1) the limitation
of the liability of the agents to the actual value of the vessel and the freight money, and (2) the
right to retain the cargo and the embargo and detention of the vessel even cases where the
ordinary civil law would not allow more than a personal action against the debtor or person liable.

As applied in the facts of the case, the liability of defendants is just coextensive with the
actual value of the vessel. Since the vessel was completely lost and destroyed, obligation has
been extinguished too.

The Code of Commerce makes agent and shipowner liable to the extent of the value of
the vessel. While defendant is liable for the indemnification to which the plaintiff is entitled by
reason of the collision, he is not anymore required to pay such indemnification of the reason
that the obligation thus incurred has been extinguished on account of the loss of the thing bound
for the payment thereof.
Origin and Growth of Insurance – Real and Hypothecary Nature of Maritime Law; Doctrine of
Limited Liability

Abueg v. San Diego

G.R. No. L-773
December 17, 1946

FACTS:

Bartolome San Diego, the appellant, was the owner of the motor ships San Diego
II and Bartolome S.

Dionisia Abueg is the widow of the deceased, Amado Nuñez, who was a machinist on
board the M/S San Diego II belonging to the defendant-appellant. Plaintiff-appellee, Marciana S.
de Salvacion, is the widow of the deceased, Victoriano Salvacion, who was a machinist on board
the M/S Bartolome S also belonging to the defendant-appellant and plaintiff-appellee, Rosario R.
Oching is the widow of Francisco Oching who was a captain or patron of the defendant-
appellant's M/S Bartolome S.

The M/S San Diego II and the M/S Bartolome, while engaged in fishing operations around
Mindoro Island were caught by a typhoon as a consequence of which they were sunk and totally
lost. Amado Nuñez, Victoriano Salvacion and Francisco Oching while acting in their capacities
perished in the shipwreck.

Counsel for the appellant cited article 587 of the Code of Commerce which provides that
if the vessel together with all her tackle and freight money earned during the voyage are
abandoned, the agent's liability to third persons for tortious acts of the captain in the care of the
goods which the ship carried is extinguished; article 837 of the same code which provides that in
cases of collision, the ship owners' liability is limited to the value of the vessel with all her
equipment and freight earned during the voyage; and article 643 of the same Code which
provides that if the vessel and freight are totally lost, the agent's liability for wages of the crew is
extinguished. From these premises counsel draw the conclusion that appellant's liability, as
owner of the two motor ships lost or sunk as a result of the typhoon, was extinguished.

ISSUE:

Should appellant Bartolome San Diego be exempted from liability under the Workmen’s
Compensation Act arising from the death of the husbands of the petitioners?

RULING:

No. Workmen's Compensation Act which seeks to improve, and aims at the amelioration
of, the condition of labourers and employees. It is a liability created by a statute to compensate
employees and labourers in cases of injury received by or inflicted upon them, while engaged in
the performance of their work or employment, or the heirs and dependents and labourers and
employees in the event of death caused by their employment. Such compensation has nothing
to do with the provisions of the Code of Commerce regarding maritime commerce.

In this case, the ship-owner was liable to pay compensation provided for in the
Workmen's Compensation Act, notwithstanding the fact that the motorboat was totally lost.

If an accident is compensable under the Workmen's Compensation Act, it must be

compensated even when the workman's right is not recognized by or is in conflict with other
provisions of the Civil Code or the Code of Commerce. The reason behind this principle is that the
Workmen's Compensation Act was enacted by the Legislature in abrogation of the other existing
laws.
Origin and Growth of Insurance – Real and Hypothecary Nature of Maritime Law; Doctrine of
Limited Liability

Yangco v. Laserna et al.

G.R. No. L-47447-47449
October 29, 1941

FACTS:

In 1927, the steamer SS Negros, owned by Teodoro Yangco, left the port of Romblon on
its return trip to Manila. Before sailing, the captain was aware and was also advised by the
passengers that Typhoon signal no. 2 was up. The boat was overloaded as indicated by the load-
line. The passengers, numbering 180, were overcrowded as the vessel’s capacity is only 123
passengers. After 2 hours of sailing, the boat encountered strong winds and rough seas between
the islands of Banton and Simara. While in the act of maneuvering, the vessel was caught sidewise
by a big wave which caused it to capsize and sink. Many of the passengers, including Casiana
Laserna, died on the mishap.

ISSUE:

Should Yangco, notwithstanding the total loss of the vessel as a result of the negligence
of its captain, be properly held liable in damages for the consequent death of its passengers?

RULING:

No. Article 587 of the Code of Commerce accords a ship-owner or agent the right of
abandonment; and by necessary implication, his liability is confined to that which he is entitled
as of right to abandon which is the vessel with all her equipment and the freight it may have
earned during the voyage.

If the ship-owner or agent may in any way be held civilly liable at all for injury to or death
of passengers arising from the negligence of the captain in cases of collisions or shipwrecks, his
liability is merely co-extensive with his interest in the vessel such that a total loss thereof results
in its extinction. Assuming that petitioner is liable for a breach of contract of carriage, the
exclusively real and hypothecary nature of maritime law operates to limit such liability to the
value of the vessel, or to the insurance thereon, if any. In the instant case it does not appear that
the vessel was insured.

Whether the abandonment of the vessel sought by the petitioner in the instant case was
in accordance with law of not, is immaterial. The vessel having totally perished, any act of
abandonment would be an idle ceremony.
Origin and Growth of Insurance – Real and Hypothecary Nature of Maritime Law; Doctrine of
Limited Liability

Manila. Steamship Co. v. Insa Abdul-Haman

G.R. No. L-9534
September 29, 1956

FACTS:

Insa Abdulhaman, together with his wife and five children, boarded M/L “Consuelo V” in
Zamboanga City. The said ship collided with M/S “Bowline Knot” which was navigating from
Marijoboc towards Zamboanga. “Consuelo V” capsized and as a result of which nine
(9) passengers were dead and missing and all the cargoes carried on said boat. Among the
dead passengers found were Insa’s children.

The Court held the owners of both vessels solidarily liable to plaintiff for damages caused
to the latter under Article 827 of the Code of Commerce but exempted defendant Lim Hong To
from liability due to the sinking and total loss of his vessel, “Consuelo V”. Manila Steamship,
owner of the Bowline Knot, was ordered to pay all of plaintiff’s damages.

Petitioner pleads that it is exempt from any liability under Article 1903 of the Civil Code
because it had exercised the diligence of a good father of a family in the selection of its
employees, particularly the officer in command of the M/S “Bowline Knot”.

ISSUES:

1. Should Manila Steamship Co. be exonerated from liability?

2. Was the Court correct in absolving Lim Hong To from any liability? And if not, can he
invoke limited liability?

RULINGS:

1. No. The defense of due diligence is untenable. The present case involves tortious conduct
resulting in a maritime collision; hence, the liability of the ship owner is governed by the
provisions of the Code of Commerce and not by the Civil Code. It is proven that the agents and
employees, through whose negligence the explosion and fire in question occurred, were agents,
employees and mandatories of Manila Steamship. Where the vessel is one of freight, a public
concern or public utility, its owner or agents is liable for the tortious acts of his agents. Hence if
the defense of due diligence would be accepted as exempting the ship owner from any liability
for their faults, this would render nugatory the solidary liability established by Article 827 of the
Code of Commerce.

2. No. Lim Hong To should have been held liable as owner of M/L “Consuelo V” for allowing
the master of the vessel and the engineer to launch said vessel without license. Lim Hong
To deliberately increased the risk to which the passengers and shippers of cargo aboard the
"Consuelo V" would be subjected.

As to the application of limited liability, the international rule states that the right of
abandonment of vessels, as a legal limitation of a ship owner's liability, does not apply to
cases where the injury or the average is due to ship owner's own fault. Hence, the liability of said
respondent cannot be the identical to that of a ship owner who bears in mind the safety of the
passengers and cargo by employing duly licensed officers. To hold Lim Hong To may limit his
liability to the value of his vessels is to erase all difference between compliance with law and the
deliberate disregard thereof.
Origin and Growth of Insurance – Real and Hypothecary Nature of Maritime Law; Doctrine of
Limited Liability

Chua Yek Hong v. Intermediate Appellate Court

G.R. No. 74811
September 30, 1988

FACTS:

Petitioner is a duly licensed copra dealer based at Puerta Galera, Oriental Mindoro, while
private respondents are the owners of the vessel, "M/V Luzviminda I," a common carrier engaged
in coastwise trade from the different ports of Oriental Mindoro to the Port of Manila.

In October 1977, petitioner loaded 1,000 sacks of copra, valued at P101,227.40, on board
the vessel "M/V Luzviminda I" for shipment from Puerta Galera, Oriental Mindoro, to Manila.
Said cargo, however, did not reach Manila because somewhere between Cape Santiago and
Calatagan, Batangas, the vessel capsized and sank with all its cargo.

On 30 March 1979, petitioner instituted before the then Court of First Instance of Oriental
Mindoro, a Complaint for damages based on breach of contract of carriage against private
respondents.

In their Answer, private respondents averred that even assuming that the alleged cargo
was truly loaded aboard their vessel, their liability had been extinguished by reason of the total
loss of said vessel.

ISSUE:

Can we apply the doctrine of limited liability in this case?

RULING:

Yes. Article 587 of the Code of Commerce provides that the ship agent shall also be civilly
liable for the indemnities in favor of third persons which may arise from the conduct of the
captain in the care of the goods which he loaded on the vessel; but he may exempt himself
therefrom by abandoning the vessel with all the equipments and the freight it may have earned
during the voyage.

However, under the same Article, this direct liability is moderated and limited by the ship
agent's or ship owner's right of abandonment of the vessel and earned freight. This expresses the
universal principle of limited liability under maritime law. The most fundamental effect of
abandonment is the cessation of the responsibility of the ship agent/owner.
 In other words, the ship owner's or agent's liability is merely co-extensive with his interest
in the vessel such that a total loss thereof results in its extinction. "No vessel, no liability"
expresses in a nutshell the limited liability rule. The total destruction of the vessel extinguishes
maritime liens as there is no longer any res to which it can attach.

The limited liability rule, however, is not without exceptions, namely: (1) where the injury
or death to a passenger is due either to the fault of the ship owner, or to the concurring
negligence of the ship owner and the captain; (2) where the vessel is insured; and (3) in
workmen's compensation claims. In this case, there is nothing in the records to show that the
loss of the cargo was due to the fault of the private respondent as shipowners, or to their
concurrent negligence with the captain of the vessel.

In sum, it will have to be held that since the ship agent's or ship owner's liability is merely
co-extensive with his interest in the vessel such that a total loss thereof results in its extinction,
and none of the exceptions to the rule on limited liability being present, the liability of private
respondents for the loss of the cargo of copra must be deemed to have been extinguished. There
is no showing that the vessel was insured in this case.
Origin and Growth of Insurance – Real and Hypothecary Nature of Maritime Law; Doctrine of
Limited Liability

Heirs of Amparo De Los Santos v. CA

G.R. No. L-51165
June 21, 1990

FACTS:

Amparo de los Santos died together with her children aboard the vessel M/V ‘Mindoro’
when it sank due to typhoon ‘Welming.’ The husband of Amparo who survived the ordeal filed a
complaint for damages against Compania Maritima (owner of the vessel) alleging negligence on
the part of the vessel. The Board of Marine Inquiry found that the captain and some officers of
the crew negligent in operating the vessel and imposed upon them a suspension and/or
revocation of their license certificates. This decision, however, cannot be executed against the
captain who perished with the vessel.

Compania Maritima asserts that no negligence was established and it did not have any
information about typhoon 'Welming' until after the boat was already at sea. In fact, the
shipowners and their officers took all the necessary precautions in operating the vessel. The loss
of lives as a result of the drowning of some passengers was due to force majeure because of the
strong typhoon.

CA ruled that while there was concurring negligence on the part of the captain which must
be imputable to Maritima, it cannot be held liable in damages based on the principle of limited
liability of the shipowner or ship agent under Article 587 of the Code of Commerce. Under this
provision, a shipowner or agent has the right of abandonment; and by necessary implication, his
liability is confined to that which he is entitled as of right to abandon-"the vessel with all her
equipments and the freight it may have earned during the voyage"

ISSUE:

Is Maritima liable for damages?

RULING:

Yes. Article 587 speaks only of situations where the fault or negligence is committed solely
by the captain. In cases where the shipowner is likewise to be blamed, Article 587 does not apply.
Such a situation will be covered by the provisions of the New Civil Code on Common Carriers.

Owing to the nature of their business and for reasons of public policy, common carriers
are tasked to observe extraordinary diligence in the vigilance over the goods and for the safety
of its passengers (Article 1733, New Civil Code). Further, they are bound to carry the passengers
safely as far as human care and foresight can provide, using the utmost diligence of very cautious
persons, with a due regard for all the circumstances (Article 1755, New Civil Code). Whenever
death or injury to a passenger occurs, common carriers are presumed to have been at fault or to
have acted negligently unless they prove that they observed extraordinary diligence as
prescribed by Articles 1733 and 1755 (Article 1756, New Civil Code).

The claim that Maritima was unaware of the typhoon is improbable since the Weather
Bureau issued 17 warnings on shipping companies three days before the sinking of the vessel.
Further, in the captain’s radiogram one day before the sinking, he stated the he was ‘still
observing the weather,’ implicitly suggesting that he had known even before departure of the
unusual weather condition.

If the captain knew of the typhoon beforehand, it is inconceivable for Maritima to be

totally in the dark of 'Welming.' In allowing the ship to depart late from Manila despite the
typhoon advisories, Maritima displayed lack of foresight and minimum concern for the safety of
its passengers taking into account the surrounding circumstances of the case. It shared equal
liability with captain for negligence.
Origin and Growth of Insurance – Real and Hypothecary Nature of Maritime Law; Doctrine of
Limited Liability

Aboitiz Shipping Corporation v. New India Assurance Company

G.R. No. 156978
May 2, 2006

FACTS:

Societe Francaise Des Colloides loaded a cargo of textiles and auxiliary chemicals from
France on board a vessel owned by Franco-Belgian Services, Inc. The cargo was consigned to
General Textile, Inc., in Manila and insured by respondent New India Assurance Company, Ltd.
While in Hong Kong, the cargo was transferred to M/V P. Aboitiz for transshipment to Manila.

Before departing, the vessel was advised that it was safe to travel to its destination. But
while at sea, the vessel received a report of a typhoon moving within its general path. To avoid
the typhoon, the vessel changed its course. However, it was still at the fringe of the typhoon
when its hull leaked. On October 31, 1980, the vessel sank, but the captain and his crew were
saved.

In 1980, the captain of M/V P. Aboitiz filed his marine protest. Thereafter, petitioner
notified the consignee, General Textile, of the total loss of the vessel and all of its cargoes.
General Textile lodged a claim with respondent for the amount of its loss. Respondent paid
General Textile and was subrogated to the rights of the latter.

Respondent hired a surveyor, Perfect, Lambert and Company. In its report, it was
concluded that the cause was the flooding of the holds brought about by the vessel’s
questionable seaworthiness. Thus, respondent filed a complaint for damages against petitioner
alleging that the proximate cause of the loss of the shipment was the fault or negligence of the
master and crew of the vessel, its unseaworthiness, and the failure of defendants therein to
exercise extraordinary diligence in the transport of the goods. He also added that there was
breach of their contract of carriage.

Petitioner raised the defense that the ship was seaworthy. It alleged that the sinking of
M/V P. Aboitiz was due to an unforeseen event and without fault or negligence on its part. It also
alleged that in accordance with the real and hypothecary nature of maritime law, the sinking of
M/V P. Aboitiz extinguished its liability on the loss of the cargoes.

Meanwhile, the Board of Marine Inquiry/BMI conducted its own investigation to

determine whether the captain and crew were administratively liable. It exonerated the captain
and crew of any administrative liability; and declared the vessel seaworthy and concluded that
the sinking was due to the vessel’s exposure to the approaching typhoon.
ISSUE:

Is the limited liability doctrine, which limits respondent’s award of damages to its pro-rata
share in the insurance proceeds, applies in this case?

RULING:

No. As ruled in the case of Monarch Insurance Co. Inc. v. Court of Appeals, an exception
to the limited liability doctrine is when the damage is due to the fault of the shipowner or to the
concurrent negligence of the shipowner and the captain. In which case, the shipowner shall be
liable to the full-extent of the damage.

In this case, petitioner has the burden of showing that it exercised extraordinary diligence
in the transport of the goods it had on board in order to invoke the limited liability doctrine. To
limit its liability to the amount of the insurance proceeds, petitioner has the burden of proving
that the unseaworthiness of its vessel was not due to its fault or negligence. Considering the
evidence presented and the circumstances obtaining in this case, the court found that petitioner
failed to discharge this burden. It initially attributed the sinking to the typhoon and relied on the
BMI findings that it was not at fault. However, both the trial and the appellate courts, in this case,
found that the sinking was not due to the typhoon but to its unseaworthiness. Evidence on record
showed that the weather was moderate when the vessel sank. These factual findings of the Court
of Appeals, affirming those of the trial court are not to be disturbed on appeal, but must be
accorded great weight. These findings are conclusive not only on the parties but on this Court as
well.

The findings of the BMI are not deemed always binding on the courts. Besides,
exoneration of the vessel’s officers and crew by the BMI merely concerns their respective
administrative liabilities. It does not in any way operate to absolve the common carrier from its
civil liabilities arising from its failure to exercise extraordinary diligence, the determination of
which properly belongs to the courts.

Where the shipowner fails to overcome the presumption of negligence, the doctrine of
limited liability cannot be applied.
Growth of Insurance in the Philippines

The Insular Life Assurance Co. Ltd. v. Serafin Feliciano

G.R. No. L-47593
September 13, 1941

FACTS:

Evaristo Feliciano filed an application for insurance with Insular Life upon the solicitation
of one of its agents. Two insurance policies to the aggregate amount of P25,000 were issued to
him. Feliciano died on September 29, 1935. The defendant company refused to pay on the
ground that the policies were fraudulently obtained, the insured having given false answers and
statements in the application as well as in the medical report.

The lower court rendered judgment in favor of the plaintiffs. The lower court found that
at the time Feliciano filed his application and at the time he was subjected to physical
examination by the medical examiner of the petitioner, he was already suffering from
tuberculosis. Such fact appeared during the medical exam, but the examiner and the company’s
agent ignored it. The lower court also found that Feliciano was made to sign the application and
the examiner's report in blank, and that afterwards the blank spaces therein were filled in by the
agent and the medical examiner, who made it appear therein that Feliciano was a fit subject for
insurance. Moreover, neither the insured nor any member of his family concealed the real state
of health of the insured.

On appeal, this finding of facts of the lower court was sustained by the Court of Appeals.

ISSUE:

Is Insular Life Assurance bound by its agent’s acts?

RULING:

Yes. The demand for economic security, the growing need for social stability, and the
clamour for protection against the hazards of cruel-crippling calamities and sudden economic
shocks, have made insurance one of the felt necessities of modern life. Insurance companies
send detailed instructions to their agents to solicit and procure applications. All transactions are
generally done through these agents. Agents act as the general representatives of the insurance
companies. As a general rule, the acts of the agents are the acts of the principal.

In this case, it was the insurer who gave the agent authority to deal with the applicant. It
was the one who selected the agent, thus implying that the insured could put his trust on him. It
was the one who drafted and accepted the policy and consummated the contract. It seems
reasonable that as between the two of them, the one who employed and gave character to the
third person as its agent should be the one to bear the loss.
Laws Governing Insurance – Insurance Code of the Philippines (R.A. 10607); Civil Code of the
Philippines (Articles 739, 2011, 2012, 2021 to 2027, 2186, and 2207)

Gercio v. Sun Life Assurance of Canada

G.R. No. 23703
September 28, 1925

FACTS:

On January 29, 1910, the Sun Life Assurance Co. of Canada issued insurance policy on the
life of Hilario Gercio. The policy was what is known as a twenty-year endowment policy. By its
terms, the insurance company agreed to insure the life of Hilario Gercio for the sum of P/2,000,
to be paid him on February 1, 1930, or if the insured should die before said date, then to his wife,
Mrs. Andrea Zialcita, should she survive him; otherwise to the executors, administrators, or
assigns of the insured. The policy did not include any provision reserving to the insured the right
to change the beneficiary.

On the date the policy was issued, Andrea Zialcita was the lawful wife of Hilario Gercio.
Towards the end of the year 1919, she was convicted of the crime of adultery. On September 4,
1920, a decree of divorce was issued.

On March 4, 1922, Hilario Gercio formally notified the Sun Life Assurance Co. of Canada
that he had revoked his donation in favor of Andrea Zialcita, and that he had designated in her
stead his present wife, Adela Garcia de Gercio, as the beneficiary of the policy. Gercio requested
the insurance company to eliminate Andrea Zialcita as beneficiary which the insurance company
has refused to do.

ISSUE:

Should the provisions of the Code of Commerce and the Civil Code in force in 1910, or the
provisions of the Insurance Act now in force, or the general principles of law, guide the court in
its decision?

RULING:

It should be noted that the insurance policy was taken out in 1910, that the Insurance
Act. No. 2427, became effective in 1914, and that the effort to change the beneficiary was made
in 1922.

Both the Code of Commerce and the Insurance Act were held to have no provision either
permitting or prohibition the insured to change the beneficiary. Meanwhile, the application of
Civil Code provisions was deemed problematic in light of characterizing an insurance policy as a
donation, which by virtue of Article 1344, is prohibited between spouses. Therefore, the
deficiencies in the law will have to be supplemented by the general principles prevailing on the
subject. In light of this, the Court cited a handful of US cases. Generally, these cases ruled along
the line that the beneficiary acquires a vested interest in the policy from the moment of its
inception and such property right cannot be impaired by any action of the insured unless such
right has been expressly reserved him/her in the stipulations of the insurance policy.

In the instant case, the wife had an insurable interest in the life of her husband upon the
issuance of the policy and has acquired an absolute vested interest therein. Since the policy
contained no provision authorizing a change of beneficiary without the beneficiary’s consent, the
insured cannot make such a change. The Court accordingly held that the life insurance policy of
the husband made payable to his former wife as beneficiary is the separate property of the
beneficiary and beyond the control of the husband. As the divorce merely dissolved
the community property, and in the absence of a statute to the contrary, the subsequent divorce
does not destroy the wife’s rights under the policy.
Laws Governing Insurance – Insurance Code of the Philippines (R.A. 10607); Civil Code of the
Philippines (Articles 739, 2011, 2012, 2021 to 2027, 2186, and 2207)

Ang Giok Chip v. Springfield Fire and Marine Insurance Company

G.R. No. L-33637
December 31, 1931

FACTS:

Ang Giok Chip, insured against fire his warehouse in the amount of P10,000, taken out
with the Springfield Fire & Marine Insurance Company. The warehouse was destroyed by fire on
January 11, 1928, while the policy issued by the latter company was in force.

Significant provision, by way of rider, is warranty F fixing the amount of hazardous goods
which might be stored in the insured building. The provision goes:

WARRANTY F

It is hereby declared and agreed that during the currency of this policy no hazardous
goods be stored in the Building to which this insurance applies or in any building communicating
therewith, provided, always, however, that the Insured be permitted to stored a small quantity
of the hazardous goods specified below, but not exceeding in all 3 per cent of the total value of
the whole of the goods or merchandise contained in said warehouse, viz; . . . .

Issue:

Is Warranty F valid and binding warranty despite it being a mere rider?

Ruling:

Yes, the Warranty is valid because riders in insurance policies are also valid and binding.

Section 65 of the Insurance Act and its counterpart, section 265 of the Civil Code of
California, will bear analysis as tested by reason and authority. The law says that every express
warranty must be "contained in the policy itself." The word "contained," according to the
dictionaries, means "included," inclosed," "embraced," "comprehended," etc. When, therefore,
the courts speak of a rider attached to the policy, and thus "embodied" therein, or of a warranty
"incorporated" in the policy, it is believed that the phrase "contained in the policy itself" must
necessarily include such rider and warranty.

In other words, the rider, warranty F, is contained in the policy itself, because by the
contract of insurance agreed to by the parties it is made to form a part of the same, but is not
another instrument signed by the insured and referred to in the policy as forming a part of it. It
being part of the policy, the same is valid and binding.
Laws Governing Insurance – Insurance Code of the Philippines (R.A. 10607); Civil Code of the
Philippines (Articles 739, 2011, 2012, 2021 to 2027, 2186, and 2207)

Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue

G.R. No. 167330
September 18, 2009

FACTS:

Petitioner 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.

Respondent sent petitioner a formal demand letter and the corresponding assessment
notices demanding the payment of deficiency taxes (VAT and Documentary Stamp Tax), including
surcharges and interest, for the taxable years 1996 and 1997 in the total amount of
₱224,702,641.18. Petitioner protested the assessment. As respondent did not act on the protest,
petitioner filed a petition for review in the Court of Tax Appeals seeking the cancellation of the
deficiency VAT and DST assessments.

The CTA rendered a decision, ordering petitioner to pay the deficiency Vat but the
deficiency assessment against petitioner is hereby cancelled and set aside. Respondent is
ordered to desist from collecting the said DST deficiency tax.

Respondent appealed to the CA insofar as CTA cancelled the DST assessment. It claimed
that petitioner’s health care agreement was a contract of insurance subject to DST under Section
185 of the 1997 Tax Code.

The CA rendered its decision. It held that petitioner’s health care agreement was in the
nature of a non-life insurance contract subject to DST. Therefore, Petitioner is ordered to pay
Documentary Stamp Tax.

Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this
case.

ISSUES:

1. Is petitioner, as a Health Maintenance Organization, engaged In the Insurance Business?

2. Does the petitioner entered into an insurance contract?
RULINGS:

1. No. Section 2 (2) of PD 1460 (otherwise known as the Insurance Code) 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 suretyship 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 therefore, shall not be deemed conclusive to show that the making
thereof does not constitute the doing or transacting of an insurance 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. A substantial portion of petitioner’s
services covers preventive and diagnostic medical services intended to keep members from
developing medical conditions or diseases. As an HMO, it is its obligation to maintain the good
health of its members. Accordingly, its health care programs are designed to prevent or to
minimize the possibility of any assumption of risk on its part. Thus, its undertaking under its
agreements is not to indemnify its members against any loss or damage arising from a medical
condition but, on the contrary, to provide the health and medical services needed to prevent
such loss or damage. Therefore, since it substantially provides health care services rather than
insurance services, it cannot be considered as being in the insurance business.

2. No. 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: a) The insured has an insurable interest; b) The insured is subject to
a risk of loss by the happening of the designed peril; c) The insurer assumes the risk; d) 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 e) In consideration of the insurer’s promise, the insured pays a
premium. The agreements between petitioner and its members do not possess all these
elements. First, its primary purpose is to provide health care services rather than insurance
services Second. Not all the necessary elements of a contract of insurance are present in
petitioner’s agreements. To begin with, there is no loss, damage or liability on the part of the
member that should be indemnified by petitioner as an HMO. There is nothing in petitioner's
agreements that give 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.
Third, according to the agreement, a member can take advantage of the bulk of the benefits
anytime even in the absence of any peril, loss or damage on his or her part. Fourth, in case of
emergency, 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. Fifth, indeed,
petitioner, as an HMO, undertakes a business risk when it offers to provide health services: the
risk that it might fail to earn a reasonable return on its investment. In sum, an examination of
petitioner’s agreements with its members leads us to conclude that it is not an insurance contract
within the context of our Insurance Code. Hence, the Supreme Court reversed and set aside CA’s
decision and cancelled the deficiency DST assessment against petitioner.
Laws Governing Insurance – Insurance Code of the Philippines (R.A. 10607); Civil Code of the
Philippines (Articles 739, 2011, 2012, 2021 to 2027, 2186, and 2207)

Fortune Medicare v. Amorin

G.R. No. 195872
March 12, 2014

FACTS:

David Amorin was a cardholder of Fortune Medicare, a corporation engaged in providing

health maintenance services to its members. While on vacation in Honolulu, Hawaii, United
States of America (U.S.A.) in May 1999, Amorin underwent appendectomy causing him to incur
professional and hospitalization expenses of US$7,242.35 and US$1,777.79, respectively. He
attempted to recover from Fortune Care the full amount thereof upon his return to Manila, but
the company merely approved a reimbursement of ₱12,151.36, an amount that was based on
the average cost of appendectomy, net of medicare deduction, if the procedure were performed
in an accredited hospital in Metro Manila. Amorin received under protest the approved amount,
but asked for its adjustment to cover the total amount of professional fees which he had paid,
and eighty percent (80%) of the approved standard charges based on "American standard",
considering that the emergency procedure occurred in the U.S.A.

ISSUE:

Should Fortune Medicare liability be limited to the costs applicable in the Philippines?

RULING:

No. For purposes of determining the liability of a health care provider to its members, a
health care agreement is in the nature of non-life insurance, which 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. It is an established rule in insurance contracts that when
their terms contain limitations on liability, they should be construed strictly against the insurer.
These are contracts of adhesion the terms of which must be interpreted and enforced stringently
against the insurer which prepared the contract. This doctrine is equally applicable to health care
agreements. Limitations of liability on the part of the insurer or health care provider must be
construed in such a way as to preclude it from evading its obligations. Accordingly, they should
be scrutinized by the courts with "extreme jealousy" and care and with a jaundiced eye.

In the absence of any qualifying word that clearly limited Fortune Care's liability to costs
that are applicable in the Philippines, the amount payable by Fortune Care should not be limited
to the cost of treatment in the Philippines, as to do so would result in the clear disadvantage of
its member.
The Insurance Commission – Jurisdiction of the Insurance Commission; Administrative and
Adjudicatory Powers

Almendras Mining Corp. v. Office of the Insurance Commission

G.R. No. 72878
April 15, 1988

FACTS:

Marine cargo vessel LCT "Don Paulo," was forced ground somewhere after having been
hit by strong winds and waves brought about by a typhoon. Almendras, owner of the vessel, filed
the corresponding Marine Protest and notified the vessel's insurer, private respondent Bankers,
of its intention to file a provisional claim for indemnity for damages sustained by the vessel.

Salvage operations on the LCT "Don Paulo" then commenced and repair work on the same
was subsequently performed. But delay overtook the repair work. Despite this, Almendras filed
with the office of the Insurance Commission an administrative complaint against Bankers. At the
initial, Bankers agreed to replace the four (4) damaged engines of the LCT "Don Paulo" with one
(1) brand new engine and three (3) reconditioned engines.

Petitioner, however, demanded instead cash settlement of its insurance claim. Based on
the meeting held before the Insurance Commissioner, the parties agreed that the sole issue for
resolution as the revocation or suspension of the certificate of Bankers to engage in the insurance
business. The Insurance Commissioner ordered the dismissal of Almendras’ complaint in its
Resolution.

ISSUE:

Was the Commission’s Resolution issued in the performance of its administrative and
regulatory duties?

RULING:

Yes. The provisions of the Insurance Code clearly indicate that the Office of the Insurance
Commission is an administrative agency vested with regulatory power as well as
with adjudicatory authority. It has the authority to issue, or refuse issuance of, a Certificate of
Authority to a person or entity desirous of engaging in insurance business in the Philippines, and
to revoke or suspend such Certificate of Authority upon a finding of the existence of statutory
grounds for such revocation or suspension. Except as otherwise specified, decisions made by the
Commissioner shall be appealable to the Secretary of Finance.

The Court observes, however, that both parties had agreed to submit the case for
resolution on the sole issue of whether or not revocation or suspension of private respondent
Bankers' Certificate of Authority to engage in insurance business was justified. The scope of the
issues involved having been so limited the Insurance Commissioner was left with the task of
determining whether or not private respondent Bankers was guilty of an act or acts constituting
a statutory ground for revocation or suspension of its Certificate of Authority. Clearly, therefore,
the Insurance Commissioner's disputed Resolution and Order was issued in the performance of
administrative and regulatory duties and function and should have been appealed by petitioner
to the Office of the Secretary of Finance.
The Insurance Commission – Jurisdiction of the Insurance Commission; Administrative and
Adjudicatory Powers

Philippine American Life Insurance Company v. Hon. Armando Ansaldo

G.R. No. 76452
July 26, 1994

FACTS:

Ramon M. Paterno sent a letter-complaint to the Insurance Commissioner alleging certain

problems encountered by agents, supervisors, managers and public consumers of the Philamlife
as a result of certain practices by said company.

The complaint prays that provisions on charges and fees stated in the Contract of Agency
executed between Philamlife and its agents, as well as the implementing provisions as published
in the agents' handbook, agency bulletins and circulars, be declared as null and void.

Manuel Ortega, Philamlife's Senior Assistant Vice-President and Executive Assistant to the
President, asked that the Commissioner first rule on the questions of the jurisdiction of the
Insurance Commissioner over the subject matter of the letters-complaint and the legal standing
of Paterno.

Insurance Commissioner set the case for hearing and sent subpoena to the officers of
Philamlife. Ortega filed a motion to quash the subpoena alleging that the Insurance
Commissioner has no jurisdiction over the subject matter of the case and that no complaint
sufficient in form and content was filed.

The commissioner denied the motion to quash. Hence this petition.

ISSUE:

Is the resolution of the legality of the Contract of Agency within the jurisdiction of the
Insurance Commissioner?

RULING:

No. The Insurance Code does not have provisions governing the relations between
insurance companies and their agents. It follows that the Insurance Commissioner cannot, in the
exercise of its quasi-judicial powers, assume jurisdiction over controversies between the
insurance companies and their agents.

An insurance company may have two classes of agents who sell its insurance policies: (1)
salaried employees who keep definite hours and work under the control and supervision of the
company; and (2) registered representatives, who work on commission basis.
 Under the first category, the relationship between the insurance company and its agents
is governed by the Contract of Employment and the provisions of the Labor Code, while under
the second category, the same is governed by the Contract of Agency and the provisions of the
Civil Code on the Agency. Disputes involving the latter are cognizable by the regular courts.
The Insurance Commission – Jurisdiction of the Insurance Commission; Administrative and
Adjudicatory Powers

Republic v. Del Monte Motors, Inc.

G.R. No. 156956
October 9, 2006

FACTS:

The RTC found Vilfran Liner, Inc., Hilaria Villegas and Maura Villegas jointly and severally
liable to pay Del Monte Motors, Inc., for the balance of their service contracts. The trial court
further ordered the execution of the Decision against the counterbond posted by Vilfran Liner
and issued by Capital Insurance and Surety Co., Inc. (CISCO).

The RTC granted the Motion for Execution of Del Monte and issued the corresponding
Writ. Armed with this Writ, Sheriff Manuel S. Paguyo proceeded to levy on the properties of
CISCO. He also issued a Notice of Garnishment on several depository banks of the insurance
company. Moreover, he served a similar notice on the Insurance Commission, so as to enforce
the Writ on the security deposit filed by CISCO with the Commission in accordance with Section
203 of the Insurance Code. The RTC found the Notice of Garnishment as valid.

Insurance Commissioner Eduardo T. Malinis refused to release the security deposit of

CISCO believing that the funds were exempt from execution as provided by law. He was cited in
contempt of court.

ISSUE:

Is the actions of the Insurance Commissioner in accordance with law?

RULING:

Yes. The regulatory powers of the commissioner includes the power to (1) issue (or to
refuse to issue) certificates of authority to persons or entities desiring to engage in insurance
business in the Philippines; (2) revoke or suspend these certificates of authority upon finding
grounds for the revocation or suspension; (3) impose upon insurance companies, their directors
and/or officers and/or agents appropriate penalties -- fines, suspension or removal from office -
- for failing to comply with the Code or with any of the commissioners orders, instructions,
regulations or rulings, or for otherwise conducting business in an unsafe or unsound manner.

Also contained within his regulatory responsibilities is the duty to hold the security
deposits under Sections 191 and 203 of the Code, for the benefit and security of all policy
holders.
 Undeniably, the insurance commissioner has been given a wide latitude of discretion to
regulate the insurance industry so as to protect the insuring public. The law specifically confers
custody over the securities upon the commissioner, with whom these investments are required
to be deposited. An implied trust is created by the law for the benefit of all claimants under
subsisting insurance contracts issued by the insurance company.

As the officer vested with custody of the security deposit, the insurance commissioner is
in the best position to determine if and when it may be released without prejudicing the rights
of other policy holders. Before allowing the withdrawal or the release of the deposit, the
commissioner must be satisfied that the conditions contemplated by the law are met and all
policy holders protected.

Believing that the funds were exempt from execution as provided by law, the
Commissioner sought to protect other policy holders. His interpretation of the provisions of the
law carries great weight and consideration, as he is the head of a specialized body tasked with
the regulation of insurance matters and primarily charged with the implementation of the
Insurance Code.

Clearly, then, the trial court erred in issuing the Writ of Garnishment against the security
deposit of CISCO. It follows that without the issuance of a valid order, the insurance
commissioner could not have been in contempt of court.
The Insurance Commission – Jurisdiction of the Insurance Commission; Administrative and
Adjudicatory Powers

Malayan Insurance Co., Inc. et al v. Emma Concepcion L. Lin

G.R. No. 207277
January 16, 2017

FACTS:

On January 4, 2010, respondent Lin filed a complaint for Collection of Sum of Money with
Damages against the petitioners and RCBC. In her complaint, it is alleged that various loans from
RCBC secured by 6 clustered warehouses were insured with Malayan against fire. On February
24, 2008, the 5 warehouses were gutted by fire. The Bureau of Fire Protection issued a Fire
Clearance Certification that the cause of fire was accidental. However, Malayan denied her
insurance claim on the ground that the cause of fire was arson. Lin averred that RCBC refused to
go after Malayan for the payment of loan though the mortgaged properties were already lost.

On June 17, 2010, Lin filed before the Insurance Commission an administrative case
against Malayan. Lin claimed that since it had been conclusively found that the cause of the fire
was accidental, the sole issue to be resolved is whether Malayan should be held liable for unfair
claim settlement practice under Sec. 241 in relation to Sec. 247 of the Insurance Code due to the
unjustified refusal to settle her claim, and consequently, Malayan’s license to operate as a non-
life insurance company should be suspended or revoked until it fully complies with the IC
resolution ordering it to consider the BFP’s findings.

Malayan filed a motion to dismiss the civil case based on forum shopping. It held that the
administrative case was instituted to prompt or incite the insurance commission into ordering
Malayan to pay her insurance claim.

ISSUE:

May the administrative case proceed alongside with the Civil Case?

RULING:

Yes. The settled rule is that criminal and civil cases are altogether different from
administrative matters, such that the disposition in the first two will not inevitably govern the
third and vice versa. In the context of this case, matters handled by the Insurance Commission
are delineated as either regulatory or adjudicatory, both of which have distinct characteristics,
as postulated in Almendras Mining Corporation v. Office of the Insurance Commission which
ruled that the provisions of the Insurance Code/ PD No. 1460 as amended, clearly indicate that
the Office of the Insurance Commission is an administrative agency vested with regulatory power
as well as with adjudicatory authority. The adjudicatory authority of the Insurance Commissioner
is generally described in Section 416 of the Insurance Code, as amended, which states that the
Commissioner shall have the power to adjudicate claims and complaints involving any loss,
damage or liability for which an insurer may be answerable under any kind of policy or contract
of insurance, or for which such insurer may be liable under a contract of suretyship, or for which
a reinsurer may be sued under any contract or reinsurance it may have entered into, or for which
a mutual benefit association may be held liable under the membership certificates it has issued
to its members, where the amount of any such loss, damage or liability, excluding interests, cost
and attorney’s fees, being claimed or sued upon any kind of insurance, bond, reinsurance
contract, or membership certificate does not exceed in any single claim one hundred thousand
pesos. The authority to adjudicate granted to the Commissioner under this section shall be
concurrent with that of the civil courts, but the filing of a complaint with the Commissioner shall
preclude the civil courts from taking cognizance of a suit involving the same subject matter.

In the case of Go v. Office of the Ombudsman, it was decided that the findings of the trial
court will not necessarily foreclose the administrative case before the Insurance Commission, or
vice versa. True, the parties are the same, and both actions are predicated on the same set of
facts, and will require identical evidence. But the issues to be resolved, the quantum of evidence,
the procedure to be followed and the reliefs to be adjudged by these two bodies are different.

Petitioner's causes of action in the Civil Case are predicated on the insurers' refusal to pay
her fire insurance claims despite notice, proofs of losses and other supporting documents. On
the other hand, the core contention in the Administrative Case, is the issue of whether or not
there was unreasonable delay or denial of the claims of petitioner, and if in the affirmative,
whether or not that would justify the suspension or revocation of the insurers' licenses.

Moreover, in the Civil Case, petitioner must establish her case by a preponderance of
evidence while in Administrative Case, the degree of proof required of petitioner to establish her
claim is substantial evidence.

Besides, the procedure to be followed by the trial court is governed by the Rules of Court,
while the Insurance Commission has its own set of rules and it is not bound by the rigidities of
technical rules of procedure. These two bodies conduct independent means of ascertaining the
ultimate facts of their respective cases that will serve as basis for their respective decisions.

While the possibility that these two bodies will come up with conflicting resolutions on
the same issue is not far-fetched, the finding or conclusion of one would not necessarily be
binding on the other given the difference in the issues involved, the quantum of evidence
required and the procedure to be followed. Moreover, public interest and public policy demand
the speedy and inexpensive disposition of administrative cases. Hence, The Administrative Case
may proceed alongside with the Civil Case.
The Insurance Commission - Powers of the Insurance Commissioner

Finman General Assurance Corp. v. Inocencio

G.R. No. 90273-75
November 15, 1989

FACTS:

Pan Pacific Overseas Recruiting Services, Inc. is a private, fee-charging, recruitment and
employment agency. In accordance with requirements of POEA, Pan Pacific posted a surety bond
issued by petitioner Finman General Assurance Corporation and was granted a license to operate
by the POEA.

Private respondents filed with the POEA separate complaints against Pan Pacific for
violation of Articles 32 and 34 (a) of the Labor Code. The complainants alleged that Pan Pacific
charged and collected such fees from them but did not secure employment for them. The POEA
Administrator motu proprio impleaded petitioner Finman as party respondent in its capacity as
surety for Pan Pacific.

The petitioner argued that the POEA had no authority to implead petitioner in the
proceedings commenced by private respondents.

The POEA Administrator ruled in favor of the respondents. On appeal, the Secretary of
Labor upheld the POEA Order appealed from and denied the appeal for lack of merit.

ISSUES:

1. Is Finman General Assurance Corp. solidarily liable with Pan Pacific?

2. Is the liability of Finman under its own bond must be determined and enforced, not by
the POEA or the Secretary of Labor, but rather by the Insurance Commission or by the regular
courts?

RULINGS:

1. Yes. Under Section 176 of the Insurance Code the liability of a surety in a surety bond is
joint and several with the principal obligor.

In this case, Petitioner's bond was posted by Pan Pacific in compliance with the
requirements of Article 31 of the Labor Code. Section 4, Rule II, Book I of the POEA Rules and
Regulations provides that the bonds shall answer for all valid and legal claims arising from
violations of the conditions for the grant and use of the license or authority and contracts of
employment. The bonds shall likewise guarantee compliance with the provisions of the Labor
Code and its implementing rules and regulations relating to recruitment and placement, the rules
of the Administration and relevant issuances of the Ministry and all liabilities which the
Administration may impose.

Therefore, Finman General Assurance Corp. is solidarily liable with Pan Pacific.

2. No. Article 31 of the Labor Code provides that the Secretary of Labor shall have the
exclusive power to determine, decide, order or direct payment from, or application of, the cash
or surety bond for any claim or injury covered and guaranteed by the bonds.

In this case, to compel the POEA and private respondents the beneficiaries of Finman's
bond-to go to the Insurance Commissioner or to a regular court of law to enforce that bond,
would be to collide with the public policy which requires prompt resolution of claims against
private recruitment and placement agencies.

Clearly that public policy will be effectively negated if POEA and the Department of Labor
and Employment were held powerless to compel a surety company to make good on its solidary
undertaking in the same quasi-judicial proceeding where the liability of the principal obligor, the
recruitment or employment agency, is determined and fixed and where the surety is given
reasonable opportunity to present any defenses it or the principal obligor may be entitled to set
up.