PHILIPPINE HEALTH CARE PRODUCTS
VS.
COMMISSIONER OF INTERNAL REVENUE
RESOLUTION (September 18, 2009)
Facts:
CIR sent a formal demand letter and assessment notices
demanding the petitioner to pay its tax deficiency from
1996 to 1997, including the documentary stamp tax
(DST), amounting ₱224,702,641.18.
Petitioner protested but CIR did not act it, so petitioner
filed a PETITION FOR REVIEW before the CTA, seeking
the cancellation of tax deficiency and DST assessment.
CTA cancelled the DST but ordered the petitioner to pay
its VAT deficiency.
On appeal, CA ruled that petitioner’s health care
agreement was in the nature of a NON-LIFE INSURANCE,
hence, subject to DST, pursuant to Tax Code.
Petitioner contends that they are health maintenance
organization (HMO) and not an insurance company,
hence, they are not subject to pay DST.
SC’s decision on Petition for Review, ruled against the
petitioner and states that indeed the health care
agreement of petitioner was in the nature of non-life
insurance, that it is irrelevant to claim that they are
HMO, because the contracts between the petitioner
and its beneficiaries under their plan are treated as
insurance contracts.
Petitioner filed Motion for Reconsideration, they
contend that DST tax as per Tax Code was imposed only
to business of fidelity bonds and other insurance
policies, that petitioner being an HMO, not an insurance
company is not subject to DST tax.
Issue: WON petitioner is engaged in an insurance
business.
Ruling: NO, HMO are not engaged in the insurance
business, that HMO provided health services needed by
plan members for a fixed prepaid premium.
Section 2 (2) of 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.
SC consulted US jurisprudence with regard HMOs,
considering that our Insurance Law was based from
California and New York laws, that the construction of
the courts in the US with regard insurance, is deemed
adopted with our insurance laws.
That to determine whether an HMO is an insurance, the
test PRINCIPAL-OBJECT-AND-PURPOSE-TEST may be
applied. If the assumption of risk and indemnification
of loss are principal object and purpose of the
organization, then they are engaged in insurance
business, considering that this are elements of an
insurance business, but if it is merely incidental to the
business, then it is not.
In the case of the petitioner, their principal object and
purpose is to provide health care services, like
preventive, diagnostic and curative medical services,
that indemnity is merely incidental with their purpose.
In fact, as much as possible, they are trying to avoid or
minimize indemnity or assumption of risk to their plan
members.
In addition, HMO is supervised by DOH and not by the
Insurance Commission.
The court uses US jurisprudence, and therein it ruled
that HMO’s are not insurance
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.31
NOTE: (footnote 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.

UCPB GENERAL INSURANCE CO., INC.,

vs.
MASAGANA TELAMART, INC.
(Dissenting opinion of J. Vitug)

Essential characteristic of an insurance is its being

synallagmatic, highly reciprocal contract where the
rights and obligations of the parties correlate and
mutually correspond. The insurer assumes the risk of
loss which an insured might suffer in consideration of
premium payments under a risk-distributing device.

PHILAMCARE HEALTH SYSTEMS, INC.
vs.
COURT OF APPEALS and JULITA TRINOS
Facts:
Private respondent, Julita, filed an action for damages
against petitioner, asking for reimbursement of her
husband’s medical and hospital expenses.
Julita alleged that, Ernani, her deceased husband,
applied and acquired Health Care coverage from the
petitioner, that under the said agreement, Ernani is
entitled to avail hospitalization benefits, whether
ordinary or emergency, he was also entitled to avail of
“out-patient benefits” such as annual physical
examination.
That during the period of coverage, her husband
suffered heart attack and confined at the hospital, with
that, Julita tries to claim benefits under the health care
agreement, but this was denied by petitioner, for the
reason that the Agreement is void, because Ernani
concealed his medical history. Ernani was discharged
but again admitted to hospital, but due to financial
difficulties Julita brought her husband home despite his
sickness, later on, Ernani died.
RTC ruled against the petitioner and ordered to
reimburse medical and hospital coverage of Ernani.
CA affirmed the decision of RTC, hence, petitioner
appeal with SC, arguing that their health care
agreement is not an insurance contract, hence, the
incontestability clause under Insurance Code does not
apply.
by happening of designated peril, (3) insurer assumes
the risk, (4) that such assumption of risk is part of
general scheme to distribute actual losses, and (5) the
insured will pay a premium. It further provides that
every person has an insurable interest in the health and
life of himself and that contingent or unknown event,
whether past or future, which may damnify a person
having an insurable interest against him, may be insured
against. In this case, the insurable interest of Ernani in
obtaining the health care agreement was his own
health, and that such agreement was in the nature of
NON-LIFE INSURANCE, which primarily a contract of
indemnify, that once a member incurs hospital or any
other medical expenses or other stipulated contingent,
the health care provider must pay for the same to the
extent agreed upon under the contract.
Second, as to the contention of concealment. It was not
properly proved by petitioner, considering that
fraudulent on the part of the insured must be
established to warrant rescission of the contract. In
addition, the agreement is a contract of adhesion, it is
strictly construed against the party who prepared it, the
petitioner.
Finally, petitioner alleges that Julita was not the legal
wife of Ernani, hence, not entitled to reimbursement. SC
states that health care agreement is in the nature of
contract of indemnity, hence, payment should be made
to the one who shouldered the expenses, and in this
cse, it is not controverted that Julita was the one who
paid the hospital and medical expenses of Ernani,
therefore, she is entitled to be reimbursed.

Issue: WON petitioner is liable to reimburse Julita.

Ruling: YES, SC affirmed the decision of CA.

First, the health care agreement of petitioner and

Ernani is an insurance contract, contrary to the claim of
petitioner.

Insurance Code provides that insurance contract exist

when the following elements concur: (1) insured has
insurable interest, (2) insured is subject to a risk of loss
 adverse to her considering that she invoked patient-
physician confidentiality. But Neomi’s invocation of the
said privilege is justified since it was a privilege
communication between the physician and patient.
BLUE CROSS HEALTH CARE, INC.,
vs. Since petitioner has the burden of proving exception to
NEOMI* and DANILO OLIVARES liability, it should have made its own assessment to
determine whether the stroke of Neomi was due to pre-
Facts: existing condition and not just relied to speculation.
Spouses Olivares filed a complaint for collection of sum
of money against petitioner before MeTC.

Spouses Olivares alleged that Neomi Olivares, the wife,

applied for a health care program with petitioner, a
health care maintenance firm, for period of Oct. 2002,
to Oct. 2003, that in the said agreement, it states that
ailments due to pre-existing conditions were excluded
from the coverage.

Thereafter, barely 38 days after acquiring the health

insurance, Neomi suffered stroke and was admitted to
the hospital, with that she requested petitioner to pay
her medical and hospital bill, but petitioner refused, for
the reason that they are waiting for the report of
Neomi’s physician, to determine whether the stroke she
suffered was caused or not by pre-existing condition,
but Neomi invoked patient-physician confidentiality.
Spouses Olivares were constrained to settle the bill.

MeTC dismissed the complaint for lack of cause of

action, but RTC reversed it and ruled that petitioner has
the burden to prove that the stroke suffered by Neomi
was due to her pre-existing condition and therefore,
excluded from coverage, this was affirmed by CA.

Issue: WON petitioner has the burden of prove.

Ruling: YES, SC affirmed the decision of CA.

Health care agreement is in the nature of non-life

insurance, and that it is an established rule in insurance
contracts that when there is term that contains
limitation on liability, it should be construed strictly
against the insurer, this doctrine is applicable to health
care agreements.

Petitioner never presented any evidence to prove that

the stroke suffered by Neomi was due to her pre-
existing condition, but petitioner merely relied on the
speculation that the report of Neomi’s physician is
 that they are HMO, because the contracts between the
petitioner and its beneficiaries under their plan are
treated as insurance contracts.

PHILIPPINE HEALTH CARE PROVIDERS, INC.,

vs.
COMMISSIONER OF INTERNAL REVENUE
(June 12, 2008)

Facts:
CIR sent a formal demand letter and assessment notices
demanding the petitioner to pay its tax deficiency from
1996 to 1997, including the documentary stamp tax
(DST), amounting ₱224,702,641.18.

Petitioner protested but CIR did not act it, so petitioner

filed a PETITION FOR REVIEW before the CTA, seeking
the cancellation of tax deficiency and DST assessment.

CTA cancelled the DST but ordered the petitioner to pay

its VAT deficiency.

On appeal, CA ruled that petitioner’s health care

agreement was in the nature of a NON-LIFE INSURANCE,
hence, subject to DST, pursuant to Tax Code.

Petitioner contends that they are health maintenance

organization (HMO) and not an insurance company,
hence, they are not subject to pay DST.

Issue: WON petitioner is engaged in an insurance

business.

Ruling: YES, SC affirmed CA’s decision and ordered the

petitioner to pay VAT and DST tax.

Petitioner’s health care agreement is a contract of

indemnity, hence, an insurance contract. Petitioner
does not actually provide medical services but merely
arranges for the same and pays for them up to the
stipulated amount of coverage.

That under the health agreement, the rendition of

hospital, medical and professional services to the
member in case of sickness, injury or emergency or his
availment of out-patient services is the contingent
event which give rise to liability on the part of the
insurer.

SC ruled against the petitioner and states that indeed

the health care agreement of petitioner was in the
nature of non-life insurance, that it is irrelevant to claim

CEBU SHIPYARD vs. WILLIAM LINES and PRUDENTIAL
GUARANTEE, 306 SCRA 762 (1999)
Facts:
Cebu Shipyard is a domestic corp engaged in the
business of dry-docking and repairing of marine vessels,
while private respo, Prudential Guarantee, is also a
domestic corp is in the non-life insurance business.
William Lines is in the shipping business and owner of
M/V Manila City, and this vessel was insured with
Prudential for 45M for hull and machinery. Cebu
Shipyard was also insured by Prudential for third party
liability under Shiprepairer’s Legal Liability Insurance
Policy amounting to 10M.
That M/V Manila City was undergoing dry-docking and
repairs within the premises of Cebu Shipyard, then
when it was transferred to docking quay, it caught fire
and sank, resulting to its total loss.
With that William Lines filed a complaint for damages
against Cebu Shipyard alleging that the loss of M/V
Manila City was due to the negligence of Cebu Shipyard.
The complaint was amended, and Prudential was
impleaded and subrogated, considering that Prudential
already paid 45M, the value of hull and machinery
insurance on M/V Manila City.
RTC – ruled against Cebu Shipyard and ordered them to
pay Prudential the amount of 45M, with interest. This
was affirmed by the CA.
On appeal, Cebu Shipyard contends that there can be
no right of subrogation considering that Cebu Shipyard
is deemed to be as co-assured under the subject
insurance policy, pursuant to Clause 20 of the Work
Order. (20 The insurance on the vessel should be maintained by
the customer and/or owner of the vessel during the period the
contract is in effect.)
Cebu Shipyard further argued that assuming they are
negligent, they are only liable to William Lines 1M
pursuant to the stipulation in the Contract or Work
Order, where its liability is limited.
Issue: WON the subrogation of Prudential to William
Lines is proper.
Ruling: YES, the subrogation of Prudential to William
Lines is proper.
Clause 20 of Work Order asserted by Cebu Shipyard
categorically states that it requires William Lines to
maintain insurance on the vessel during the period of
dry-docking repair, coincidentally, such stipulation
works to the benefits of Cebu Shipyard as the ship
repairer, however, this does not mean that Cebu
Shipyard automatically make it as co-assured of
William Lines.
That if the intention of the parties is to make Cebu
Shipyard as co-assured under the insurance policy, it
must be gleaned principally from the insurance policy
itself and not from any other contract or agreement
because the insurance policy denominates the assured
and the beneficiaries of the insurance.
In this case, there was NO MANIFESTATION OF ANY
INTENTION OF WILLIAM LINES TO CONSTITUTE CEBU
SHIPYARD AS A CO-ASSURED. It is fundamental rule that
when the terms of the contract are clear its stipulations
are controlling. Thus, when the insurance policy
involved named only William Lines as the assured, the
claim of Cebu Shipyard that it is a co-assured in
UNFOUNDED.
In addition, if Cebu Shipyard were deemed a co-assured
udder the policy, it would nullify any claims of William
Lines from Prudential for any loss or damage caused by
Cebu Shipyard, this kind of arrangement is prejudicial to
shipowner because any claim for loss or damage under
the policy would be invalidate, hence, it is impossible
for the William Lines to have this kind of intention with
their policy.
NO SHIPOWNER WOULD AGREE TO MAKE A
SHIPREPAIRER A CO-ASSURED UNDER SUCH INSURANCE
POLICY, BECAUSE ANY CLAIM FOR LOSS OR DAMAGE
UNDER THE POLICY WOULD BE INVALIDATED.
As to the limited liability, the Court struck down this
limitation. While the stipulations and clauses of the
contracts are usually binding where no ambiguity exists,
the Court struck down this limitation for being
UNCONSCIONABLE, the disparity between the value of
the vessel that repaired by Cebu Shipyard and the
amount it limited its liability were too great to be Quezon City Insurance to indemnify DMTC sum of
enforced. 50,090 with legal interest thereon.

On appeal, First Quezon City Insurance assailed CA’s

interpretation to the provision of the insurance contract
with regard the limit of insurer’s liability.

Issue: WON First Quezon City Insurance is liable to

FIRST QUEZON CITY INSURANCE V. CA and DE DIOS
MARIKINA TRANSPORTATION CO.,
218 SCRA 526 (FEB. 8, 1993)
Facts:
Plaintiff Del Rosario filed a complaint (for damages)
against DMTC and its driver, Agpalo, and DMTC filed
third-party complaint against First Quezon City
Insurance.
The incident transpired herein was, Del Rosario after
sending off certain seamen at MIA, he proceeded to bus
stop, then he approached a bus bound to QC. The bus
was slowing down with all its doors wide open, and
several passengers were crawling trying to aboard the
bus, Del Rosario was the last one to board the bus. That
while Del Rosario was still on the bus door’s handle, the
bus suddenly moved fast, causing Del Rosario to lost his
balance and fell from the bus, and he was dragged by
the bus for 2 seconds, until the passengers shouted at
the bus driver, Agpalo. Agpalo stopped the bus, and
upon knowing what happened, he left the bus and the
injured Del Rosario.
indemnify 50,090 to DMTC.
Ruling: NO. SC modified the CA’s ruling and ordered the
insurance company to indemnify DMTC amounting to
12,000 only.
The Court states that the provision of the insurance
contract categorically states that the insurance
company will be liable to damages arising from death or
bodily injury at maximum limit of 12,000 per passenger
and maximum liability per accident at 50,000 regardless
of the number of passengers killed or injured.
In this case, since only 1 suffered injury, hence,
insurance company is only liable to indemnify 12,000 to
DMTC and not the maximum limit of 50,000. DMTC may
not recover from the insurance company more than
12,000 per passenger killed or injured or 50,000 per
accident even if under the court, the erring bus
operator will have to pay more than 12,000 to each
inured passenger.

The accident caused Del Rosario 2 major surgeries

(because of extensively lacerated leg), hospital bills
amounting to 69,444.41, he was confined at the
hospital for 40 days, and unearned salaries amounting
to 7,500.00. His employer shouldered the medical
expenses, but it was charged to his salary, as monthly
deductions.

Lower court ordered DMTC to pay Del Rosario sum of

76,944.41 as actual and compensatory damages, 15,000
as moral and exemplary damages and 33,641.50 as atty
fees as well as cost of suit, ordered First Quezon City
Insurance Co., to indemnify DMTC in the sum of 12,000
with interest.

DMTC appealed, CA modified the LC’s decision: ordering

DMTC to pay atty fee amounting to 5,000, while First

SUN INSURANCE V. CA, 195 SCRA 193 (MARCH 31,
1991)
Facts:
Nov. 20, 1985 – Tan (private respondent) filed a Civil
Case against Sun Insurance to compel the said insurance
company to indemnify them.
Tan alleged that he took property insurance policy from
Sun Insurance for 300,000, to cover his interest in the
electrical supply store of his brother (Aug. 15, 1983).
Then 4 days after issuance of the policy, the building
was burned including the insured store.
On Aug. 20, 1983, Tan filed his claim for fire loss with
Sun Insurance, but this was denied through letter on
Feb. 29, 1984.
On April 3, 1984, Tan wrote the Sun Insurance seeking
for reconsideration of the denial of his claim, then on
Oct. 11, 1985, Sun Insurance responded to Tan’s letter
for reconsideration, denying his claim. With that, Tan
filed a case against Sun Insurance before RTC.
Sun Insurance filed motion to dismiss the Civil Case on
the ground that the action had already prescribed.
RTC – denied the motion and MR of Sun Insurance.
CA – ruled in favour of Tan and ruled that lower court
may continue until its final termination, MR was also
denied.
Issue: WON the action of Tan had already prescribed.
Ruling: YES. SC set aside the decision of CA and
dismissed the Civil Case filed by Tan before the RTC.
Insurance is to be construed liberally in favour of the
insured and strictly against the insurer company, but
the contracts of insurance, like other contracts, are to
be construed according to the sense and meaning of the
terms which the parties themselves used, that if the
terms are clear and unambiguous, they must be taken
and understood in their plain, ordinary and popular
sense.
In this case, the Condition 27 of the Insurance Policy
categorically states that if a claim be made and rejected,
and no action or suit was commenced either in
Insurance Commission or in any court within 12 months
from the receipt of notice of such rejection, the claim
shall for all purposes be deemed to have been
abandoned and shall not be recoverable. This must be
taken in its plain and ordinary sense, in this case, Tan
admitted that he received the copy of letter of rejection
on April 2, 1984, thus, the 12 month prescriptive period
started to run from the said date.
The Court laid down the rationale for the necessity of
bringing suits against the Insurer within 1 year from the
rejection of the claim in Ang vs. Fulton Fire Insurance
Co., that the one-year prescriptive period is not merely
a procedural requirement but an important matter
essential to a prompt settlement of claims against
insurance companies while the evidence as to the origin
and cause of destruction have not yet disappeared.
As to the question: When does the cause of action
accrue?
The Court states that the cause of action in an insurance
contract does not accrue until the insured’s claim if
finally rejected by the insurer. That the rejection
referred to should be construed as the rejection, in the
first instance, for if what is being referred to is a
reiterated rejection conveyed in a resolution of a
petition for reconsideration, such should have been
expressly stipulated. Though the Court use the phrase
“final rejection”, it cannot be taken to mean the
rejection of a petition for reconsideration, because such
was not clearly the meaning contemplated by the Court.

FORTUNE INSURANCE. V. CA and PRODUCERS BANK
244 SCRA 308 (MAY 23, 1995)
Facts:
Producers Bank filed with RTC a complaint for recovery
of sum of money amounting of 725K against Fortune
Insurance.
Producers Bank (private respo) was insured by Fortune
Insurance. Then the armored car of Producers Bank
while transferring cash in the amount of 725K, under
the custody of Pasay Branch Teller (Alampay), driven by
Magalong and escorted by Security Guard Atiga, was
robbed, while the said car was travelling along Taft
Avenue.
The driver, Magalong, was assigned by PRC
Management System while Security Guard Atiga, was
assigned by Unicorn Security Services, after
investigation, they were charged with violation of Anti-
Highway Robbery Law.
With that Producers Bank demanded the Fortune
Insurance to pay the amount 725K, but the insurance
company refuses and contends that such loss is
excluded from the coverage of the insurance policy,
specifically stated in General Exceptions, Sec. (b), to wit:
The company shall not be liable under this policy in report
of… (b) any loss caused by any dishonest, fraudulent or
criminal act of the insured or any officer, employee,
partner, director, trustee or authorized representative of
the Insured whether acting alone or in conjunction with
others.
Producers Bank contends that Magalong and Atiga were
not their employee, officer nor authorized
representative, hence, Fortune Insurance is liable.
RTC – ruled in favour of Producers Bank, and agreed
that Magalong and Atiga were not employees or
representative of the bank, considering that Producers
Bank did not selected Magalong and Atiga, they were
merely offered to them by PRC Management and
Unicorn Security. This was affirmed by the CA.
Issue: WON Fortune Insurance is liable to indemnify the
loss of Producers Bank.
Ruling: NO, Fortune is exempted from liability under the
general exceptions clause of the insurance policy.
The insurance policy entered into by the parties is a theft or
robbery insurance policy which is in the form of casualty
insurance, these kind of insurance is governed by the general
provisions applicable to all types of insurance. Outside of
these, the rights and obligations of the parties must be
determined by the terms of their contract, taking into
consideration the purpose and must always in accordance
with general principles of insurance law.
Rules in construction a contract of insurance (contract
of adhesion):
- any ambiguity therein should be resolved
against the insurer, or it should be construed
liberally in favor of the insured and strictly
against the insurer and
- limitations of liability should be regarded with
extreme jealousy and must be construed in such
a way, as to preclude the insurer from non-
compliance with its obligation,
- if the terms of the contract are clear and
unambiguous, there is no room for construction
and such terms cannot be enlarged or
diminished by judicial construction.
In this case, the general exception clause in insurance
policy issued by Fortune Insurance to Producers Bank,
insurance company clearly intended to exclude and
exempt from the protection and coverage of losses
arising from dishonest, fraudulent, or criminal acts of
persons granted or having unrestricted access to
Producer’s money or payroll, such as the employee, or
authorized representative.
That the term employee herein is the person generally
and universally understood, or jurisprudentially
established in the light of 4 standards in the
determination of er-ee relationship, or statutorily
declared even in limited sense as in the case of labor-
only contract (employees of the party employing them
and not of the party who supplied them to the
employer).
Fortune claims that Producer’s contract wit PRC and
Unicorn are labor only contract, hence, Producer Bank is
the employer of Magalong and Atiga.
The Court further states that, even if the contracts of
Producers to PRC and Unicorn are not labor-only
contract, still, Magalong and Atiga can be qualified as
“authorized representative” of Producers Bank, either
way, Fortune Insurance is exempted from the liability.
MALAYAN INSURANCE CORPORATION vs. COURT OF
APPEALS and TKC MARKETING CORPORATION
(March 20, 1997)
Facts:
TTKC Marketing was the owner /consignee of 3,189.171
metric tons of soya bean which was loaded the M/V Al
Kazeimah from Brazil to Manila, this cargo was insured
by Malayan Insurance amounting to P18,986,902.45
and P1,195,005.45.
However, while the vessel was in South Africa, it was
stranded there because civil authorities arrested and
detained it because of lawsuit regarding the ownership
and possession of the soya.
TKC consulted Malayan on the recovery of the amount,
but Malayan claimed that it was not covered by the
policy. Later on, the cargo was sold in South Africa,
amounting to P10,304,231.75 due to its perishable
nature, with that TKC wanted Malayan Insurance to
shoulder the remaining value of the cargo, more or less
10M (9,879,928.89), but Malayan refused to pay and
contends that arrest of the vessel was not covered by
the policy. Hence, TKC filed a complaint for damages
against Malayan, praying that Malayan be compelled to
indemnify them with moral and exemplary damages.
TKC contends that the term arrest should be strictly
construed against Malayan, considering that they are
the author of the policies, any ambiguity must be
construed against the insurance company, insurance
being a contract of adhesion.
Issue: WON Malayan is liable to pay TKC.
Ruling: YES,
Insurance policies are construed in resolving any
ambiguity in favour of the insured, where the contract is
prepared by the insurer, contract of insurance, being a
contract of adhesion, should be CONSTRUED LIBERALLY
IN FAVOR OF THE INSURED AND STRICTLY AGAINST THE
INSURER. Limitations of liability should be regarded with
extreme jealousy and must be construed in such a way
as to preclude the insurer from noncompliance with its
obligations.
Insurance contract should be interpreted as to carry out
the purpose for which the parties entered into the
contract, which is, to insure against the risk of loss or
damage to the goods. That if marine insurance realy
desires to limit or restrict the operation of the general
provisions of its contract by special proviso, exception
or exemption, IT SHOULD BE EXPRESSLY STIPULATED, in
clear and unmistakable language.
The Court agreed with CA that incorporation of
subsection 1.1 of Sec. 1 of the Institute War Clause, the
arrest caused by ordinary judicial process is deemed
included among the covered risks.

RTC – ruled in favour of TKC and required Malayan to

pay, this was affirmed by the CA.

On appeal, Malayan argued that the term arrest by civil

authority is NOT compensable since the term arrest
refers to political or executive acts and does not include
the loss caused by ordinary judicial process.
 prepared the contract, the Western Guaranty in this
case.

In this case, the Schedule of Indemnities averred by

Western Guaranty does not purport to restrict the kinds
of damages that may be awarded against Western once
liability has arisen, apparently, Sec. 1 of the policy
mentioned about quantitative limitation, 50K per
person per accident, hence, ALL KINDS OF DAMAGES
ALLOWABLE BY LAW, actual or compensatory damges
and other, MAY BE AWARDED BY THE COURT AGAINST
THE INSURER.

Schedule of Indemnities was not intended to be an

enumeration, much less a closed enumeration, of the
WESTERN GUARANTY CORPORATION vs. CA, specific kinds of damages which may be awarded under
RODRIGUEZ, and DE DIOS TRANSPORTATION CO., INC the Master Policy Western has issued.
(July 20, 1990)

Facts:

Rodriguez (private respo) while on her way to work was

struck by De Dios passenger bus (owned by private
respo De Dios Transpo), the bus disregarded the stop
signal given by traffic enforcer. The De Dios bus was
insured by Western Guaranty Corp. As a result of the
said accident, Rodriguez’s face was permanently
disfigured causing her anxiety and moral distress.

Rodriguez filed complaint for damages against De Dios

Transpo and Walter (driver of the bus), in turn, De Dios
filed third-party complaint against Western Guaranty.

RTC – ruled in favour of Rodriguez, and ordered De Dios

or Western to pay her: 2,776 as actual damages, 1,500
for loss of earning, 10,000 as moral damages and 10,000
as atty. Fees (not more than 50K). This was affirmed by
the CA.

On appeal, Western Guaranty argued that they cannot

be held liable for loss of earnings, moral damages ad
attys fees since these items are not among those
included in the Schedule of Indemnities.

Issue: WON Western Guaranty is liable for loss of

earnings, moral damages ad attys fees.

Ruling: YES, the award is proper.

Insurance contract is a contract of adhesion, hence, it

should be construed strictly against the party who
 In this case, under the hemp warranty, it listed articles
prohibited to be stored in the warehouses, gasoline is
not specifically listed as one of the prohibited articles,
but the Law Union relied only on the term “OILS”.

Law Union, as insurance company, has the exclusive

control over the terms of the contract, considering that
the insurance contract is a contract of adhesion, IT
MUST BE STRICTLY CONSTRUED AGAINST THE INSURER
AND LIBERALLY IN FAVOR OF THE INSURED.

The Court states that the clause relied by Law Union

QUA CHEE GAN vs. LAW UNION AND ROCK INSURANCE
CO., LTD., represented by its agent, WARNER, BARNES
AND CO., LTD., (Dec. 17, 1995)
Facts:
Qua Chee Gan owned 4 bodegas in Albay used for the
storage of stocks of copra and hemp, the bodegas and
contents thereof were insured by Law Union and Rock
Insurance, and the loss made payable to PNB as
mortgagee of the hemp and copra.
which speaks of OILS, must be interpreted as ordinary
oils, meaning the lubricants and not the gasoline or
kerosene. If the insurance company really intended to
to rely upon such condition or limitation, they could
have been plainly expressed it in the policy.
Moreover, the gasoline stored in Bodega no. 2 was
incidental to the business of Qua, it is well settled rule
that keeping inflammable oils (or gasoline) on the
premises though prohibited does not void the policy if
keeping such is an incidental to the business of the
insured. In addition, it is undisputed that Bodega no. 2
was not burned.

A fire broke out causing the destruction of bodegas 1, 2

and 4, including the merchandise stored therein. Qua
informed the Law Union, the latter refused to pay
contending that Qua violated the warranties and
conditions of the policy.

Law Union acting as private prosecutor, Qua and his

brother were indicted for crime of arson, claiming that
they set the warehouse into fire, in order for them to
collect insurance, but they were acquitted.

Qua filed an action before the CFI seeking to recover the

loss amounting to P370,000, against Law Union. CFI
ruled in favour of Qua.

On appeal, Law Union contends that Qua violated the

prohibited clause in hemp warranty, in storing gasoline
in the Bodega 2.

Issue: WON Qua may recover from Law Union and Rock
Insurance.

Ruling: YES,

ARMANDO GEAGONIA vs. CA and COUNTRY BANKERS
INSURANCE CORPORATION (Feb. 6, 1995)
Facts:
Geagonia (petitioner) is the owner of the Norman’s
Mart (RTW’s for men and women) located in public
market of San Francisco, Agusan Del Sur, he obtained
fire insurance policy from Country Bankers Insurance
Corp. (private respo) amounting to 100K for his stock-in-
trade
Under the said policy, Condition 3, the insured shall give
notice to the company of any insurance or insurances
already affected, or which may be subsequently be
effected, covering any of the properties.
Fire broke out at the public market, Geagonia’s stock-in-
trade were completely destroyed prompting him to file
with Insurance Commission a claim under the insurance
policy to Country Bankers.
Country Bankers denied the claim of Geagonia
contending that the stock-in-trade were likewise
covered by fire insurance policies issued by Phil. First
Insurance Co (PFIC), with that Geagonia violated
Condition 3 of their policy.
Insurance Commission – ruled that Geagonia did not
violate the Condition 3 since he had no knowledge of
the existence of the two fire insurance policies, that it
was Cebu Tesing Textiles which procured the said
insurance policies without informing him.
CA – reversed the decision of Insurance Commission, CA
found out the Geagonia already know about the
policies, based on a letter.
Issue: WON Geagonia may recover from Country
Bankers.
Ruling: YES, SC set aside the decision of CA and
reinstated the decision of Insurance Commission.
Provisions, conditions or exceptions in insurance policy
which tend to work as forfeiture of insurance policies
should be construed strictly against the insurance
company, and most favourably to the insured.
Condition 3 in this case is not totally free from
ambiguity and analysed by the Court: that the said
condition applies to double insurance only and that the
nullity of the policy shall only be to the extent exceeding
200K of total policies obtained.
In this case, there is NO DOUBLE INSURANCE
considering that there are separate insurable interest
over the property (insurable interest of mortgagor and
mortgagee on the mortgaged property are distinct and
separate). In addition, the purpose of the Country
Bankers Insurance in stipulating Condition 3 is to avoid
over-insurance, and they are amenable to pay co-
insurer’s liability not exceeding 200K. The Country
Bankers Insurance is liable to indemnify Geagonia 100K.
 Issue: WON there is a breach of policy, particularly the
“Other Insurance Clause”.

Ruling: YES, SC affirmed the decision of CA.

The term of the contract is clear and unambiguous,

under the ‘Other Insurance Clause’, the insured is
specifically required to disclose to the insurer any other
insurance and its particulars which he may have
effected on the same subject matter.

The coverage by other insurance or co-insurance

effected or subsequently arranged by New Life or Julian
were neither disclosed nor stated in the policies of the 3
insurance companies, this warrants the forfeiture of all
the benefits under the policies, considering that it is a
blatant violation or breach of Condition3.
NEW LIFE ENTERPRISES and JULIAN SY vs. CA,
The contention of Julian that the 3 companies are sister
EQUITABLE INSURANCE CORPORATION, RELIANCE
companies are unfounded, he merely based this
SURETY AND INSURANCE CO., INC. and WESTERN
conclusion because the 3 companies are using same
GUARANTY CORPORATION
agent.
(March 31, 1992)
When the words of the document are clear and plain
Facts:
and understandably by ordinary reader, THERE IS
Julian Sy and Jose Sy formed a business partnership ABSOLUTELY NO ROOM FOR INTERPRETATION OR
named as New Life Enterprises, engaged in sale of CONSTRUCTION ANY MORE. Moreover, obligations
construction materials. Julian insured the stocks in trade arising from contracts have the force of law between
of New Life with three insurance companies, namely: the contracting parties and should be complied with in
good faith.
- Western Guaranty Corp. issued Fire Insurance
Policy amounting to 350K;
- Reliance Surety and Insurance Co. also issued
Fire Insurance Policy in the amount of 300K, and
an additional insurance amounting to 700K; and
- Equitable Insurance Co. issued Fire Insurance
Policy amounting to 200K.

Then building of New Life Enterp was gutted by fire, but

the stocks in the said building were insured against fire
amounting to 1,550,000, with that Julian went to the
agent of Reliance Insurance to file his claim, he testified
that the 3 insurance companies are sister companies.
The three insurance companies denied the claim of
Julian for the same reason, breach of policy conditions.

With that Julian, in behalf of New Life filed a civil action

against the three companies before the RTC.

RTC – ruled in favor of New Life and ordered the 3

companies to pay the former.

CA – reversed the decision of RTC.

 HAND SHOULD BE CONSIDERED AS A LOSS THEREOF,
hence, a mere fracture or other temporary disability is
not covered by the policies, recovery is unwarranted. Ty
suffered physical injuries that cause temporary total
disability of Ty’s left hand, no amputation, hence, he
cannot recover to the insurance companies.

DIOSDADO C. TY vs. FIRST NATIONAL SURETY &

ASSURANCE CO., INC. (April 29, 1961)

Facts:

Ty (plaintiff) employed as operator mechanic foreman in

the Broadway Cotton Factory, insured himself in 18 local
insurance companies, among which being the 8 named
defendants herein. The insurance companies issued to
him personal accident policies.

Fire broke out in the Factory causing Ty to suffer injury,

his left hand was injured by heavy object, with that, he
filed a claim with the insurance companies (defendants
herein) to indemnify him, but all of them denied such
claim, for the reason that there being no severance or
amputation of the left hand suffered by Ty.

The policies states that partial disability such as loss of

hand shall mean the loss by amputation through the
bones of the wrist.

Ty filed complaints against the insurance companies,

but the Court dismissed his complaint.

Issue: WON Ty may recover on the insurance policies

issued to him for the injury suffered by his left hand.

Ruling: NO, the Court affirmed the decision of lower

court.

The agreement contained in the insurance policies is the

law between the parties, when the terms of the policies
are clear, express and specific, there is no room for
construction but it should be applied.

In this case, the policies by the defendant’s insurance

companies are clear that ONLY AMPUTATION OF THE
 express terms, terms which the insured accepted or
adhered to and which is the law between the parties.

MISAMIS LUMBER CORPORATION vs. CAPITAL

INSURANCE and SURETY CO., INC.
(May 20, 1966)

Facts:

Misamis Lumber Corp (plaintiff) insured its Ford Falcon

motor car for the amount of 14K with Capital Insurance
(defendant), the policy states that if the car is to be
repaired by third party, the insurer shall only be liable
for 150.

The said car broke when it hit a hollow blocks lying

alongside the water hole, which the driver did not see
because the oncoming car did not dim its light. The car
was towed and repaired by Morosi Motors with total
cost of 302.27.

Misamis filed it claim to Capital Insurance but the

insurance company refused to pay the total cost but
only 150, with that, Misamis filed complaint with CFI.

CFI ruled in favor of Misamis and ordered the Capital

Insurance to pay the total cost considering that it is not
unreasonable or excessive.

Issue: WON Capital Insurance is liable for the total cost

of repair.

Ruling: NO.

The paragraph 4 of the policy categorically states that

the repair liability of Capital Insurance is limited to 150,
this is controlling, being the actual contract, expressly
and plainly provided for in the policy.

Insurance contact may rather be onerous or one-sided

but that in itself does not justify the abrogation of its
 In this case, the policy categorically placed Perla
Compania’s liability for all damages arising out of death
or bodily injury sustained by one person as a result of
one accident at 12K, it is pursuant to the minimum fixed
by law (PD612, which was retained by PD 1460,
Insurance Code of 1978).

Although Cayas was able to prove that the total loss she
suffered was 44K, however, it is erroneous to compel
Perla Compania to pay 50K the maximum liability per
accident stipulated, considering that the contract
between the contracting parties clearly states that the
liability of Perla Compania in an accident of one person
is 12k only. Insurance indemnity cannot be used by
claimant or victim as an instrument to enrich himself by
reason of the accident.
PERLA COMPANIA DE SEGUROS, INC. vs. CA and
MILAGROS CAYAS (May 28, 1990)

Facts:

Cayas (private respo) was the registered owner of

Mazda bus, and it was insured by Perla Compania
(petitioner), the policy states that:

- Insurance company liability is 12K per person

but will not exceed to 50K per accident.

The said bus involved in an accident causing several

injuries, and one of the injured passenger is Edgardo.
Edgardo sued Cayas for damages, and the Court therein
ruled in favor of Edgardo and ordered Cayas to pay the
former total amount of 32K.

With that Cayas filed complaint against Perla Compania

praying that the latter be compelled to compensate
Cayas.

RTC ruled in favor of Cayas and ordered Perla Compania

to pay Cayas sum of 50K under its maximum liability
provided in the insurance policy, this was affirmed by
the CA.

Issue: WON Perla Compania is liable to Cayas 50K under

the maximum liability stipulated in the policy.

Ruling: NO, SC modified the decision of CA and ordered

Perla Compania to pay Cayas the amount of 12K plus
legal interest.

It is fundamental principle that contracts are respected

as the law between the contracting parties and it should
be respected and applied, particularly if it is clear and
free from ambiguity.
 apitong logs or the 1,208 pieces. The fact that the logs
were loaded to different barges does not make the
contract several or divisible, the logs in the different
barges were not valued separately nor insured
separately. In fact, ONE PREMIUM WAS PAID FOR THE
ENTIRE SHIPMENT, making for only one cause or
consideration. Therefore, the insurance contract is
considered indivisible.

The policy only provides total loss, it is not the case in

this, only 497 of logs were loss, hence, Oriental
Assurance is absolved from the liability.

ORIENTAL ASSURANCE CORP vs. CA AND PANAMA

SAW MILL CO., INC (August 9, 1991)

Facts:

Panama Saw Mill (private respo) bought in Palawa,

1,208 pieces of apitong logs and this was insured by
Oriental Assurance against loss for 1M.

The said logs were loaded on 2 barges, and this were

towed by MT Seminole, during the voyage, the barge
was damaged resulting to the loss of 497 pieces of logs,
with that Panama demanded Oriental Assurance to pay
for the loss but the latter refused for the reason that the
contracted liability was for TOTAL LOSS ONLY.

Panama filed damages against Oriental Assurance

before the RTC.

RTC – decided in favor of Panama and ordered Oriental

Assurance to pay Panama amounting to 415K with 12%
interest rate per annum. This was affirmed by CA.

Both lower court liberally construed the policy in order

to avoid denial of substantial justice.

Issue: WON Oriental Assurance can be held liable.

Ruling: NO, SC set aside the decision of CA and absolved

Oriental Assurance.

There is no liability attaches considering that the terms

of the contract constitute the measure of the insurer
liability and compliance therewith is a condition
precedent to the insured’s right to recovery from the
insurer. To determine whether a contract is entire or
severable is a question of intention to be determined by
the language employed by the parties.

In this case, the policy provides that the matter insured

was the ENTIRE SHIPMENT of 2,000 cubic meters of