ABOITIZ SHIPPING CORPORATION V.

INSURANCE COMPANY OF NORTH AMERICA, JUNE 8,

2008

FACTS:
 June 20, 1993: MSAS Cargo International Limited and/or Associated and/or Subsidiary
Companies (MSAS) procured an "all-risk"  marine insurance policy from ICNA UK Limited
of London for wooden work tools and workbenches purchased by consignee Science
Teaching Improvement Project (STIP), Ecotech Center, Sudlon Lahug, Cebu City.  
 July 26, 1993: the cargo was received by Aboitiz Shipping Corporation (Aboitiz) through
its duly authorized booking representative, Aboitiz Transport System
 August 1, 1993: container van was loaded on board MV Super Concarrier I
 The vessel left Manila en route to Cebu City
 August 3, 1993: shipment arrived in Cebu City 
 August 5, 1993: Stripping Report, checker noted that the crates were slightly broken or
cracked at the bottom
 August 11, 1993: cargo was withdrawn by the representative of the consignee, Science
Teaching Improvement Project (STIP) and delivered to Don Bosco Technical High School,
Punta Princesa, Cebu City
 August 13, 1993: Mayo B. Perez, Head of Aboitiz received a call from the receiver Mr.
Bernhard Willig that the cargo sustained water damage so he checked the other cargo
but they were dry
 In a letter dated August 15, 1993, Willig informed Aboitiz that the damage was caused by
water entering through the broken bottom parts of the crate 
 Consignee filed a claim against ICNA 
 CAC reported to ICNA that the shipment was placed outside the warehouse when it was
delivered on July 26, 1993 and it was only  on July 31, 1993 when the shipment was
stuffed inside another container van for shipment to Cebu.  Weather report shows that
the heavy rains on July 28 and 29, 1993 caused the damages. 
 Aboitiz refused to settle the claim
 ICNA paid the amount of P280,176.92 to consignee and a subrogation receipt was duly
signed by Willig.  
 ICNA then advised Aboitiz of the receipt signed in its favor but received no reply so it
filed for collection at the RTC. 
 RTC: against ICNA - subrogation Form is self-serving and has no probative value since
Wellig was not presented to the witness stand
 CA: reversed RTC ruling - right of subrogation accrues simply upon payment by the
insurance company of the insurance claim even assuming that it is an unlicensed foreign
corporation
ISSUE: W/N ICNA can claim under the right of subrogation

HELD: YES. CA affirmed.

 Only when that foreign corporation is "transacting" or "doing business" in the country will
a license be necessary before it can institute suits.  It may, however, bring suits on
isolated business transactions, which is not prohibited under Philippine law
 The policy benefits any subsequent assignee, or holder, including the consignee, who may
file claims on behalf of the assured.
 This right of subrogation, however, has its limitations. 
 First, both the insurer and the consignee are bound by the contractual stipulations
under the bill of lading
 Second, the insurer can be subrogated only to the rights as the insured may have
against the wrongdoer. If by its own acts after receiving payment from the insurer,
the insured releases the wrongdoer who caused the loss from liability, the insurer
loses its claim against the latter.
 The call was made 2 from delivery, a reasonable period considering that the goods could
not have corroded instantly overnight such that it could only have sustained the damage
during transit.
 the shipment delivered to the consignee sustained water damage. We agree with the
findings of the CA that petitioner failed to overturn this presumption

Sec. 57 of the Insurance Code: A policy may be so framed that it will inure to the benefit of
whomsoever, during the continuance of the risk, may become the owner of the interest insured.

Art. 2207 of the Civil Code: If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to
recover the deficiency from the person causing the loss or injury.

WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED.

Loadstar Shipping Co., Inc. v. Malayan Insurance Co, Inc.,
G.R. No. 185565, Nov. 26, 2014

FACTS: Loadstar International Shipping, Inc. (Loadstar Shipping) and Philippine Associated

Smelting and Refining Corporation (PASAR) entered into a Contract of Affreightment for domestic
bulk transport of the latter’s copper concentrates for a period of one year from November 1, 1998
to October 31, 1999. The contract was extended up to the end of October 2000.

On September 10, 2000, 5,065.47 wet metric tons (WMT) of copper concentrates were loaded in
Cargo Hold. Nos. 1 and 2 of MV “Bobcat”, a marine vessel owned by Loadstar International
Shipping Co., Inc. (Loadstar International) and operated by Loadstar Shipping under a charter
party agreement. The shipper and consignee under the Bill of Lading are Philex Mining
Corporation (Philex) and PASAR, respectively. The cargo was insured with Malayan Insurance
Company, Inc. (Malayan) under Open Policy No. M/OP/2000/001-582. P & I Association is the
third party liability insurer of Loadstar Shipping.

On said date (September 10, 2000), MV “Bobcat” sailed from Poro Point, San Fernando, La Union
bound for Isabel, Leyte. On September 12, 2000, while in the vicinity of Cresta de Gallo, the
vessel’s chief officer on routine inspection found a crack on starboard side of the main deck
which caused seawater to enter and wet the cargo inside Cargo Hold No. 2 forward/aft. The
cracks at the top deck starboard side of Cargo Hold No. 2, measuring 1.21 meters long x 0.39
meters wide, and at top deck aft section starboard side on other point, measuring 0.82 meters
long x 0.32 meters wide, were welded.

Immediately after the vessel arrived at Isabel, Leyte anchorage area, on September 13, 2000,
PASAR and Philex’s representatives boarded and inspected the vessel and undertook sampling of
the copper concentrates. In its preliminary report dated September 15, 2000, the Elite Adjusters
and Surveyor, Inc. (Elite Surveyor) confirmed that samples of copper concentrates from Cargo
Hold No. 2 were contaminated by seawater. Consequently, PASAR rejected 750 MT of the 2,300
MT cargo discharged from Cargo Hold No. 2.

On November 6, 2000, PASAR sent a formal notice of claim in the amount of [P]37,477,361.31 to
Loadstar Shipping. In its final report dated November 16, 2000, Elite Surveyor recommended
payment to the assured the amount of [P]32,351,102.32 as adjusted. On the basis of such
recommendation, Malayan paid PASAR the amount of [P]32,351,102.32.

Meanwhile, on November 24, 2000, Malayan wrote Loadstar Shipping informing the latter of a
prospective buyer for the damaged copper concentrates and the opportunity to nominate/refer
other salvage buyers to PASAR. On November 29, 2000, Malayan wrote Loadstar Shipping
informing the latter of the acceptance of PASAR’s proposal to take the damaged copper
concentrates at a residual value of US$90,000.00. On December 9, 2000, Loadstar Shipping wrote
Malayan requesting for the reversal of its decision to accept PASAR’s proposal and the conduct of
a public bidding to allow Loadstar Shipping to match or top PASAR’s bid by 10%.

On January 23, 2001, PASAR signed a subrogation receipt in favor of Malayan. To recover the
amount paid and in the exercise of its right of subrogation, Malayan demanded reimbursement
from Loadstar Shipping, which refused to comply. Consequently, on September 19, 2001, Malayan
instituted with the RTC a complaint for damages. The complaint was later amended to include
Loadstar International as party defendant.

ISSUE: WON THE INSURER IS VALIDLY SUBROGATED TO THE RIGHTS OF THE CONSIGNEE.

HELD: NO. Malayan’s claim against the petitioners is based on subrogation to the rights
possessed by PASAR as consignee of the allegedly damaged goods. The right of subrogation
stems from Article 2207 of the New Civil Code which states:
Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against
the wrongdoer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or injury.

“The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract
or upon written assignment of claim. It accrues simply upon payment of the insurance claim by
the insurer.” The right of subrogation is however, not absolute. “There are a few recognized
exceptions to this rule. For instance, if the assured by his own act releases the wrongdoer or third
party liable for the loss or damage, from liability, the insurer’s right of subrogation is defeated. . . .
Similarly, where the insurer pays the assured the value of the lost goods without notifying the
carrier who has in good faith settled the assured’s claim for loss, the settlement is binding on
both the assured and the insurer, and the latter cannot bring an action against the carrier on his
right of subrogation. . . . And where the insurer pays the assured for a loss which is not a risk
covered by the policy, thereby effecting ‘voluntary payment,’ the former has no right of
subrogation against the third party liable for the loss . . . .”

The rights of a subrogee cannot be superior to the rights possessed by a subrogor. “Subrogation
is the substitution of one person in the place of another with reference to a lawful claim or right,
so that he who is substituted succeeds to the rights of the other in relation to a debt or claim,
including its remedies or securities. The rights to which the subrogee succeeds are the same as,
but not greater than, those of the person for whom he is substituted, that is, he cannot acquire
any claim, security or remedy the subrogor did not have. In other words, a subrogee cannot
succeed to a right not possessed by the subrogor. A subrogee in effect steps into the shoes of
the insured and can recover only if the insured likewise could have recovered.”

Consequently, an insurer indemnifies the insured based on the loss or injury the latter actually
suffered from. If there is no loss or injury, then there is no obligation on the part of the insurer to
indemnify the insured. Should the insurer pay the insured and it turns out that indemnification is
not due, or if due, the amount paid is excessive, the insurer takes the risk of not being able to
seek recompense from the alleged wrongdoer. This is because the supposed subrogor did not
possess the right to be indemnified and therefore, no right to collect is passed on to the
subrogee.

The petition is GRANTED. The Decision dated April 14, 2008 and Resolution dated December 11,
2008 of the Court of Appeals in CA-G.R. CV No. 82758 are hereby REVERSED and SET ASIDE. The
Decision dated March 31, 2004 of the Regional Trial Comi of Manila, Branch 34 in Civil Case No·.
01-101885 is REINSTATED.
Republic vs. Del Monte Motors, Inc.
G.R. No. 156956, October 9, 2006

FACTS: : Respondent filed a Motion to Cite Commissioner Eduardo T. Malinis of the Office of the
Insurance Commission in Contempt of Court because of his failure and refusal to obey the lawful
order of this court embodied in a Resolution... directing him to allow the withdrawal of the
security deposit of Capital Insurance and Surety Co. (CISCO) in the amount of P11,835,375.50 to
be paid to Sheriff Manuel Paguyo in the satisfaction of the Notice of Garnishment pursuant to a
Decision of this Court which has... become final and executory.
On January 15, 2002, RTC rendered a Decision finding the defendants (Vilfran Liner, Inc., Hilaria
Villegas and Maura Villegas) jointly and severally liable to pay Del Monte Motors, Inc. the balance
of Vilfran Liner's service contracts with Del Monte Motors, Inc. and further ordered the execution
of the Decision against the counterbond posted by Vilfran Liner which was issued by Capital
Insurance and Surety Co., Inc. (CISCO). RTC released a motion for execution commanding the
sheriff to levy the amount on the property of CISCO. To satisfy the amount, the Insurance
Commissioner was ordered to withdraw the security deposit filed by CISCO with the Commission
according to Sec 203 of the Insurance Code. Malinis was then ordered by the RTC to withdraw
the security bond of CISCO for the payment of the insurance indemnity won by Del Monte Motor
against Vilfran Liner, the insured. Malinis did not obey the order, so the RTC found him guilty of
indirect contempt. Hence, this Petition for Review under Rule 45 of the ROC.

ISSUE: 1. Whether or not the security deposit held by the Insurance Commissioner pursuant to
Section 203 of the Insurance Code may be levied or garnished in favor of only one insured.

HELD: No. Section 203 of the Insurance Code provides as follows:

Sec. 203. Every domestic insurance company shall, to the extent of an amount equal in value to
twenty-five per centum of the minimum paid-up capital required under section one hundred
eighty-eight, invest its funds only in securities, satisfactory to the Commissioner, consisting of
bonds or other evidences of debt of the Government of the Philippines or its political subdivisions
or instrumentalities, or of government-owned or controlled corporations and entities, including
the Central Bank of the Philippines: Provided, That such investments shall at all times be
maintained free from any lien or encumbrance; and Provided, further, That such securities shall be
deposited with and held by the Commissioner for the faithful performance by the depositing
insurer of all its obligations under its insurance contracts. The provisions of section one hundred
ninety-two shall, so far as practicable, apply to the securities deposited under this section.

Except as otherwise provided in this Code, no judgment creditor or other claimant shall have the
right to levy upon any of the securities of the insurer held on deposit pursuant to the
requirement of the Commissioner.

The Petition is GRANTED and the assailed Order SET ASIDE. No costs.

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 “[t]o establish, maintain,

conduct and operate a prepaid group practice health care delivery system or a health
maintenance organization to take care of the sick and disabled persons enrolled in the health
care plan and to provide for the administrative, legal, and financial responsibilities of the
organization”. Individuals enrolled in its health care programs pay an annual membership fee and
are entitled to various preventive, diagnostic and curative medical services provided by its duly
licensed physicians, specialists and other professional technical staff participating in the group
practice health delivery system at a hospital or clinic owned, operated or accredited by it.
On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal
demand letter and the corresponding assessment notices demanding the payment of deficiency
taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the total amount
of P224,702,641.18. . . .
The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s health care
agreement with the members of its health care program pursuant to Section 185 of the 1997 Tax
Code . . .
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act
on the protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the
cancellation of the deficiency VAT and DST assessments.

ISSUE: Whether or not petitioner, as an HMO, engaged in the business of insurance during the
pertinent taxable years?

HELD: NO. The mere presence of risk would be insufficient to override the primary purpose of the
business to provide medical services as needed, with payment made directly to the provider of
these services. In short, even if petitioner assumes the risk of paying the cost of these services
even if significantly more than what the member has prepaid, it nevertheless cannot be
considered as being engaged in the insurance business.

By the same token, any indemnification resulting from the payment for services rendered in case
of emergency by non-participating health providers would still be incidental to petitioner’s
purpose of providing and arranging for health care services and does not transform it into an
insurer. To fulfill its obligations to its members under the agreements, petitioner is required to set
up a system and the facilities for the delivery of such medical services. This indubitably shows that
indemnification is not its sole object.

In fact, 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.

Overall, petitioner appears to provide insurance-type benefits to its members (with respect to its
curative medical services), but these are incidental to the principal activity of providing them
medical care. The “insurance-like” aspect of petitioner’s business is miniscule compared to its non-
insurance activities. Therefore, since it substantially provides health care services rather than
insurance services, it cannot be considered as being in the insurance business.
It is important to emphasize that, in adopting the “principal purpose test” used in the above-
quoted U.S. cases, we are not saying that petitioner’s operations are identical in every respect to
those of the HMOs or health providers which were parties to those cases. What we are stating is
that, for the purpose of determining what “doing an insurance business” means, we have to
scrutinize the operations of the business as a whole and not its mere components. This is of
course only prudent and appropriate, taking into account the burdensome and strict laws, rules
and regulations applicable to insurers and other entities engaged in the insurance business.
Moreover, we are also not unmindful that there are other American authorities who have found
particular HMOs to be actually engaged in insurance activities.

Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is
evident from the fact that it is not supervised by the Insurance Commission but by the
Department of Health. In fact, in a letter dated September 3, 2000, the Insurance Commissioner
confirmed that petitioner is not engaged in the insurance business. This determination of the
commissioner must be accorded great weight. It is well-settled that the interpretation of an
administrative agency which is tasked to implement a statute is accorded great respect and
ordinarily controls the interpretation of laws by the courts.

The motion for reconsideration is GRANTED. The August 16, 2004 decision of the Court of
Appeals in CA-G.R. SP No. 70479 is REVERSED and SET ASIDE. The 1996 and 1997 deficiency DST
assessment against petitioner is hereby CANCELLED and SET ASIDE. Respondent is ordered to
desist from collecting the said tax.
Philamcare Health Systems Inc. v. Court of Appeals
G.R. No. 125678, March 18, 2002

FACTS:
Respondent Julita Trinos’ deceased husband, Ernani Trinos applied for a health care coverage with
petitioner Philamcare Health Systems, Inc. In the standard application form, he answered NO to
the following question: Have you or any of your family members ever consulted or been treated
for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer?

The application was approved and extended for 13 months, until June 1, 1990.

During the period of the coverage, Ernani suffered a heart attack resulting in confinement for a
month at the Manila Medical Center (MMC). While her husband was in the hospital, respondent
tried to claim the benefits under the health care agreement. However, petitioner denied her claim
saying that the Health Care Agreement was void on the ground that there was a concealment
regarding Ernani’s medical history.

After his discharge, Ernani was brought again at the Chinese General Hospital where he died.
Julita then filed an action for damages against Philamcare including its President Dr. Benito
Reverente. RTC ruled in favour of Julita, and this was affirmed by the CA except that it deleted
awards for damages and absolved Dr. Reverente.

Issue: WON a health care agreement is not an insurance contract; hence the “incontestability
clause” under the Insurance Code does not apply.

Held: No. Petition dismissed.

Ratio:
Petitioner claimed that it granted benefits only when the insured is alive during the one-year
duration. It contended that there was no indemnification unlike in insurance contracts. It
supported this claim by saying that it is a health maintenance organization covered by the DOH
and not the Insurance Commission. Lastly, it claimed that the Incontestability clause
didn’t apply because two-year and not one-year effectivity periods were required.  

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.”
Section 3 states: every person has an insurable interest in the life and health:
(1)     of himself, of his spouse and of his children.
In this case, the husband’s health was the insurable interest. The health care agreement was in the
nature of non-life insurance, which is primarily a contract of indemnity. The provider must pay for
the medical expenses resulting from sickness or injury.

While petitioner contended that the husband concealed materialfact of his sickness, the contract
stated that:
“that any physician is, by these presents, expressly authorized to disclose or give testimony at
anytime relative to any information acquired by him in his professional capacity upon any
question affecting the eligibility for health care coverage of the Proposed Members.”
This meant that the petitioners required him to sign authorization to furnish reports about his
medical condition. The contract also authorized Philam to inquire directly to his medical history.

Hence, the contention of concealment isn’t valid.

They can’t also invoke the “Invalidation of agreement” clause where failure of the insured to
disclose information was a grounds for revocation simply because the answer assailed by the
company was the heart condition question based on the insured’s opinion. He wasn’t a medical
doctor, so he can’t accurately gauge his condition.
Henrick v Fire-  “in such case the insurer is not justified in relying upon such statement, but is
obligated to make further inquiry.”
Fraudulent intent must be proven to rescind the contract. This was incumbent upon the provider.
“Having assumed a responsibility under the agreement, petitioner is bound to answer the same to
the extent agreed upon.  In the end, the liability of the health care provider attaches once the
member is hospitalized for the disease or injury covered by the agreement or whenever he avails
of the covered benefits which he has prepaid.”

Section 27 of the Insurance Code- “a concealment entitles the injured party to rescind a contract
of insurance.”

As to cancellation procedure- Cancellation requires certain conditions:

1.       Prior notice of cancellation to insured;
2.       Notice must be based on the occurrence after effective date of the policy of one or more
of the grounds mentioned;
3.       Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4.       Must state the grounds relied upon provided in Section 64 of the Insurance Code and
upon request of insured, to furnish facts on which cancellation is based
None were fulfilled by the provider.
As to incontestability- The trial court said that “under the title Claim procedures of expenses, the
defendant Philamcare Health Systems Inc. had twelve months from the date of issuance of the
Agreement within which to contest the membership of the patient if he had
previous ailment of asthma, and six months from the issuance of the agreement if the patient was
sick of diabetes or hypertension. The periods having expired, the defense of concealment or
misrepresentation no longer lie.”

WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court
of Appeals dated December 14, 1995 is AFFIRMED.
Fortune Medicare, Inc. v. Amorin
G.R. No. 195872, March 12, 2014

FACTS: David Robert U. Amorin was a cardholder/member of Fortune Medicare, Inc., a

corporation engaged in providing health maintenance services to its members.  The terms of
Amorin’s medical coverage were provided in a Corporate Health Program Contract.
While on vacation in Honolulu, Hawaii, Amorin underwent an emergency surgery, specifically
appendectomy, at the St. Francis Medical Center, 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 P12,151.36, 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.
To support his claim, Amorin cited Section 3, Article V on Benefits and Coverages of the Health
Care Contract, part of it states:
“Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization
cost including the professional fee (based on the total approved charges) to a member who
receives emergency care in a non-accredited hospital.  The above coverage applies only to
Emergency confinement within Philippine Territory.  However, if the emergency confinement
occurs in a foreign territory, Fortune Care will be obligated to reimburse or pay eighty (80%)
percent of the approved standard charges which shall cover the hospitalization costs and
professional fees.”

ISSUE: Whether or not Fortune Care is liable to pay the total amount of professional fees which
Amorin had paid, and eighty percent (80%) of the approved standard charges based on
“American standard”

RULING: Yes, Fortune Care is liable to the total amount of professional fees which Amorin had
paid, and eighty percent (80%) of the approved standard charges based on “American standard”.

The Supreme Court emphasized that for purposes of determining the liability of a health care
provider to its members, jurisprudence holds that 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.

To aid in the interpretation of health care agreements, the Court laid down the following
guidelines in Philamcare Health Systems v. CA:
When the terms of insurance contract contain limitations on liability, courts should construe them
in such a way as to preclude the insurer from non-compliance with his obligation.  Being a
contract of adhesion, the terms of an insurance contract are to be construed strictly against the
party which prepared the contract – the insurer.

In this case, the Court agrees with the CA that as may be gleaned from the Health Care Contract,
the parties thereto contemplated the possibility of emergency care in a foreign country.  As the
contract recognized Fortune Care’s liability for emergency treatments even in foreign territories, it
expressly limited its liability only insofar as the percentage of hospitalization and professional fees
that must be paid or reimbursed was concerned, pegged at a mere 80% of the approved
standard charges.
The word “standard” as used in the cited stipulation was vague and ambiguous, as it could be
susceptible of different meanings. Settled is the rule that ambiguities in a contract are interpreted
against the party that caused the ambiguity.

WHEREFORE, the petition is DENIED. The Decision dated September 27, 2010 and Resolution
dated February 24, 2011 of the Court of Appeals in CA-G.R. CV No. 87255 are AFFIRMED.
Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue, G.R. No. 167330,
September 18, 2009

FACTS:
Petitioner Philippine Health Care Providers, Inc. is a domestic corporation engaged in providing
the medical services enumerated below to individuals who enter into health care agreements with
it:
– Preventive medical services such as periodic monitoring of health problems, family planning
counseling, consultation and advices on diet, exercise and other healthy habits, and immunization;
– Diagnostic medical services such as routine physical examinations, x-rays, urinalysis, fecalysis,
complete blood count, and the like and
– Curative medical services which pertain to the performing of other remedial and therapeutic
processes in the event of an injury or sickness on the part of the enrolled member.

On January 27, 2000, respondent Commissioner of Internal Revenue (CIR) sent petitioner a formal
demand letter and the corresponding assessment notices demanding the payment of deficiency
taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the total amount
of P224,702,641.18.
The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s health care
agreement with the members of its health care program pursuant to Section 185 of the 1997 Tax
Code
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act
on the protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the
cancellation of the deficiency VAT and DST assessments.

CTA’s decision: Cancelled the DST assessment. Ordered the payment of VAT deficiency.

CIR appealed the decision to the CA contending that petitioner’s health care agreement was a
contract of insurance subject to DST under Section 185 of the 1997 Tax Code.

CA’s decision: The health care agreement was in the nature of a non-life insurance contract
subject to DST.

SC’s decision on Petition for Review: Denied on the ground that petitioner’s health care
agreement during the pertinent period was in the nature of non-life insurance which is a contract
of indemnity, citing Blue Cross Healthcare, Inc. v. Olivares and Philamcare Health Systems, Inc. v.
CA. It ruled that petitioner’s contention that it is a health maintenance organization (HMO) and
not an insurance company is irrelevant because contracts between companies like petitioner and
the beneficiaries under their plans are treated as insurance contracts. Moreover, DST is not a tax
on the business transacted but an excise on the privilege, opportunity or facility offered at
exchanges for the transaction of the business.

Petitioner filed a motion for reconsideration and supplemental motion for reconsideration.

ISSUES:
1. Whether or not petitioner as an HMO is engaged in an insurance business.
2. Whether or not petitioner is liable for the payment of DST on Health Care Agreement of HMOS
in accordance with Section 185.

RULING:
1. No. Health Maintenance Organizations are not engaged in the insurance business. Under RA
7875 (or “The National Health Insurance Act of 1995”), an HMO is an entity that provides, offers
or arranges for coverage of designated health services needed by plan members for a fixed
prepaid premium. To determine whether an HMO is an insurance business or not, one test
– principal object and purpose test – may be applied, that is to determine whether the
assumption of risk and indemnification of loss (which are elements of an insurance business) are
the principal object and purpose of the organization or whether they are merely incidental to its
business. If these are the principal objectives, the business is that of insurance. But if they are
merely incidental and service is the principal purpose, then the business is not insurance. HMO’s
principal object and purpose is service rather than indemnity.
Additionally, petitioner is not supervised by the Insurance Commission but by the Department of
Health.

2. No. Health care agreements are not subject to DST. From the language of Section 185, it is
evident that two requisites must concur before the DST can apply, namely: (1) the document must
be a policy of insurance or an obligation in the nature of indemnity and (2) the maker should be
transacting the business of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar,
elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire
insurance).

Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) – Stamp tax on fidelity
bonds and other insurance policies. – On all policies of insurance or bonds or obligations of the
nature of indemnity for loss, damage, or liability made or renewed by any person, association or
company or corporation transacting the business of accident, fidelity, employer’s liability, plate,
glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life,
marine, inland, and fire insurance), and all bonds, undertakings, or recognizances, conditioned for
the performance of the duties of any office or position, for the doing or not doing of anything
therein specified, and on all obligations guaranteeing the validity or legality of any bond or other
obligations issued by any province, city, municipality, or other public body or organization, and on
all obligations guaranteeing the title to any real estate, or guaranteeing any mercantile credits,
which may be made or renewed by any such person, company or corporation, there shall be
collected a documentary stamp tax of fifty centavos (P0.50) on each four pesos (P4.00), or
fractional part thereof, of the premium charged.

NOTES:
 Even if a contract contains all the elements of an insurance contract, if its primary purpose
is the rendering of service, it is not a contract of insurance.

 Distinctions between a minute resolution and a decision

The constitutional requirement under the first paragraph of Section 14, Article VIII of the
Constitution that the facts and the law on which the judgment is based must be
expressed clearly and distinctly applies only to decisions, not to minute resolutions. A
minute resolution is signed only by the clerk of court by authority of the justices, unlike a
decision. It does not require the certification of the Chief Justice. Moreover, unlike
decisions, minute resolutions are not published in the Philippine Reports. Finally, the
proviso of Section 4(3) of Article VIII speaks of a decision. Indeed, as a rule, this Court lays
down doctrines or principles of law which constitute binding precedent in a decision duly
signed by the members of the Court and certified by the Chief Justice.

WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004 decision of the
Court of Appeals in CA-G.R. SP No. 70479 is REVERSED and SET ASIDE. The 1996 and 1997
deficiency DST assessment against petitioner is hereby CANCELLED and SET ASIDE. Respondent
is ordered to desist from collecting the said tax.
Philamcare Health Systems Inc. v. Court of Appeals, G.R. No. 125678, March 18, 2002

FACTS:
Ernani Trinos applied for a health care coverage with Philamcare Health Systems, Inc. To the
question ‘Have you or any of your family members ever consulted or been treated for high blood
pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer?’, Ernani answered
‘No’. Under the agreement, Ernani is entitled to avail of hospitalization benefits and out-patient
benefits. The coverage was approved for a period of one year from March 1, 1988 to March 1,
1989. The agreement was however extended yearly until June 1, 1990 which increased the amount
of coverage to a maximum sum of P75,000 per disability.
During the period of said coverage, Ernani suffered a heart attack and was confined at the Manila
Medical Center (MMC) for one month. While in the hospital, his wife Julita tried to claim the
benefits under the health care agreement. However, the Philamcare denied her claim alleging that
the agreement was void because Ernani concealed his medical history. Doctors at the MMC
allegedly discovered at the time of Ernani’s confinement that he was hypertensive, diabetic and
asthmatic, contrary to his answer in the application form. Thus, Julita paid for all the
hospitalization expenses.
After Ernani was discharged from the MMC, he was attended by a physical therapist at home.
Later, he was admitted at the Chinese General Hospital. Due to financial difficulties, however,
respondent brought her husband home again. In the morning of April 13, 1990, Ernani had fever
and was feeling very weak. Respondent was constrained to bring him back to the Chinese General
Hospital where he died on the same day.
Julita filed an action for damages and reimbursement of her expenses plus moral damages
attorney’s fees against Philamcare and its president, Dr. Benito Reverente. The Regional Trial court
or Manila rendered judgment in favor of Julita. On appeal, the decision of the trial court was
affirmed but deleted all awards for damages and absolved petitioner Reverente. Hence, this
petition for review raising the primary argument that a health care agreement is not an insurance
contract; hence the “incontestability clause” under the Insurance Code does not apply.

ISSUES:
(1) Whether or not the health care agreement is not an insurance contract
(2) Whether or not there is concealment of material fact made by Ernani

HELD:

(1)YES. Section2 (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.
Section 3 of the Insurance Code states that any contingent or unknown event, whether past or
future, which my damnify a person having an insurable against him, may be insured against. Every
person has an insurable interest in the life and health of himself.
Section 10 provides that every person has an insurable interest in the life and health (1) of
himself, of his spouse and of his children.
The insurable interest of respondent’s husband in obtaining the health care agreement was his
own health. The health care agreement was in the nature of non-life insurance, which is primarily
a contract of indemnity. 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.

(2) NO. The answer assailed by petitioner was in response to the question relating to the medical
history of the applicant. This largely depends on opinion rather than fact, especially coming from
respondent’s husband who was not a medical doctor. Where matters of opinion or judgment are
called for answers made I good faith and without intent to deceive will not avoid a policy even
though they are untrue.
The fraudulent intent on the part of the insured must be established to warrant rescission of the
insurance contract. Concealment as a defense for the health care provider or insurer to avoid
liability is an affirmative defense and the duty to establish such defense by satisfactory and
convincing evidence rests upon the provider or insurer. In any case, with or without the authority
to investigate, petitioner is liable for claims made under the contract. Having assumed a
responsibility under the agreement, petitioner is bound to answer to the extent agreed upon. In
the end, the liability of the health care provider attaches once the member is hospitalized for the
disease or injury covered by the agreement or wherever he avails of the covered benefits which
he has prepaid.
Being a contract of adhesion, the terms of an insurance contract are to be construed strictly
against the party which prepared the contract – the insurer. By reason of the exclusive control of
the insurance company over the terms and phraseology of the insurance contract, ambiguity must
be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid
forfeiture. This is equally applicable to Health Care Agreements.

WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court
of Appeals dated December 14, 1995 is AFFIRMED.
Eternal Gardens Memorial Park Corp. v. The Philippine American Life Insurance Company,
G.R. NO. 166245, April 9, 2008

FACTS: Philamlife entered into an agreement denominated as Creditor Group Life Policy No. P-
19202 with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the
clients of Eternal who purchased burial lots from it on installment basis would be insured by
Philamlife. The amount of insurance coverage depended upon the existing balance of the
purchased burial lots.

Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers,
together with a copy of the application of each purchaser, and the amounts of the respective
unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal complied
by submitting a letter dated December 29, 1982,4 containing a list of insurable balances of its lot
buyers for October 1982. One of those included in the list as "new business" was a certain John
Chuang. His balance of payments was PhP 100,000. On August 2, 1984, Chuang died.

Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance claim for
Chuang's death.
After more than a year, Philamlife had not furnished Eternal with any reply to the latter's
insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim for
PhP 100,000 on April 25, 1986.8

In response to Eternal's demand, Philamlife denied Eternal's insurance claim in a letter dated May
20, 1986. Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC).

DECISION OF LOWER COURTS:

(1) RTC : in favor of Eternal. due to Philamlife's inaction from the submission of the requirements
of the group insurance on December 29, 1982 to Chuang's death on August 2, 1984, as well as
Philamlife's acceptance of the premiums during the same period, Philamlife was deemed to have
approved Chuang's application. The RTC said that since the contract is a group life insurance,
once proof of death is submitted, payment must follow.
(2) CA : in favor of Philamlife. there being no application form, Chuang was not covered by
Philamlife's insurance.

ISSUE:
May the inaction of the insurer on the insurance application be considered as approval of the
application?
RULING:

YES. As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor
Group Life Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that:

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with
the Assured. However, there shall be no insurance if the application of the Lot Purchaser is not
approved by the Company.

An examination of the above provision would show ambiguity between its two sentences. The first
sentence appears to state that the insurance coverage of the clients of Eternal already became
effective upon contracting a loan with Eternal while the second sentence appears to require
Philamlife to approve the insurance contract before the same can become effective.

It must be remembered that an insurance contract is a contract of adhesion which must be

construed liberally in favor of the insured and strictly against the insurer in order to safeguard the
latter's interest. 

The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as
received, states that the insurance forms for the attached list of burial lot buyers were attached to
the letter. Such stamp of receipt has the effect of acknowledging receipt of the letter together
with the attachments. Such receipt is an admission by Philamlife against its own interest.13 The
burden of evidence has shifted to Philamlife, which must prove that the letter did not contain
Chuang's insurance application. However, Philamlife failed to do so; thus, Philamlife is deemed to
have received Chuang's insurance application.

the seemingly conflicting provisions must be harmonized to mean that upon a party's purchase of
a memorial lot on installment from Eternal, an insurance contract covering the lot purchaser is
created and the same is effective, valid, and binding until terminated by Philamlife by
disapproving the insurance application. The second sentence of Creditor Group Life Policy No. P-
1920 on the Effective Date of Benefit is in the nature of a resolutory condition which would lead
to the cessation of the insurance contract. Moreover, the mere inaction of the insurer on the
insurance application must not work to prejudice the insured; it cannot be interpreted as a
termination of the insurance contract. The termination of the insurance contract by the insurer
must be explicit and unambiguous

WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No.
57810 is REVERSED and SET ASIDE. The May 29, 1996 Decision of the Makati City RTC, Branch
138 is MODIFIED. Philamlife is hereby ORDERED:

(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life
Insurance Policy of Chuang;

(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000
from the time of extra-judicial demand by Eternal until Philamlife’s receipt of the May 29,
1996 RTC Decision on June 17, 1996;

(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP
100,000 from June 17, 1996 until full payment of this award; and
(4) To pay Eternal attorney’s fees in the amount of PhP 10,000.
Filipinas Compaña De Seguros vs. Christern, Huenefeld And Co., Inc., G.R.No. L-2294, May 25,
1951

Christern, Huenefeld and Company - a German company

Filipinas Compañia - an American controlled company

Facts: On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after
payment of corresponding premium, obtained from the petitioner ,Filipinas Cia. de Seguros, fire
policy No. 29333 in the sum of P1000,000, covering merchandise contained in a building located
at No. 711 Roman Street, Binondo Manila. On February 27, 1942, or during the Japanese military
occupation, the building and insured merchandise were burned. In due time the respondent
submitted to the petitioner its claim under the policy. The salvage goods were sold at public
auction and, after deducting their value, the total loss suffered by the respondent was fixed at
P92,650. The petitioner refused to pay the claim on the ground that the policy in favor of the
respondent had ceased to be in force on the date the United States declared war against
Germany, the respondent Corporation (though organized under and by virtue of the laws of the
Philippines) being controlled by the German subjects and the petitioner being a company under
American jurisdiction when said policy was issued on October 1, 1941. The petitioner, however, in
pursuance of the order of the Director of Bureau of Financing, Philippine Executive Commission,
dated April 9, 1943, paid to the respondent the sum of P92,650 on April 19, 1943.

The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the
purpose of recovering from the respondent the sum of P92,650 above mentioned. The theory of
the petitioner is that the insured merchandise were burned up after the policy issued in 1941 in
favor of the respondent corporation has ceased to be effective because of the outbreak of the
war between the United States and Germany on December 10, 1941, and that the payment made
by the petitioner to the respondent corporation during the Japanese military occupation was
under pressure. After trial, the Court of First Instance of Manila dismissed the action without
pronouncement as to costs. Upon appeal to the Court of Appeals, the judgment of the Court of
First Instance of Manila was affirmed, with costs. The case is now before us on appeal
by certiorari from the decision of the Court of Appeals.

The Court of Appeals overruled the contention of the petitioner that the respondent corporation
became an enemy when the United States declared war against Germany, relying on English and
American cases which held that a corporation is a citizen of the country or state by and under the
laws of which it was created or organized. It rejected the theory that nationality of private
corporation is determine by the character or citizenship of its controlling stockholders.
Issue: Whether or not Christern, Huenefeld and Co is entitled to receive the proceeds from the
insurance claim.

Ruling: NO. There is no question that majority of the stockholders of Christern were German
subjects. This being so, Christern became an enemy corporation upon the outbreak of the war
between the United States and Germany. The Philippine Insurance Law (Act No. 2427, as
amended,) in Section 8, provides that “anyone except a public enemy may be insured.” It stands
to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public
enemy.

The Court of Appeals ruled that a private corporation is a citizen of the country or state by and
under the laws of which it was created or organized. It rejected the theory that nationality of a
private corporation is determined by the character or citizenship of its controlling stockholders.

The respondent having become an enemy corporation on December 10, 1941, the insurance
policy issued in its favor on October 1, 1941, by the petitioner had ceased to be valid and
enforceable, and since the insured goods were burned after December 10, 1941, and during the
war, the respondent was not entitled to any indemnity under said policy from the petitioner.
However, elementary rules of justice (in the absence of specific provision in the Insurance Law)
require that the premium paid by the respondent for the period covered by its policy from
December 11, 1941, should be returned by the petitioner

Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered
to pay to the petitioner the sum of P77,208.33, Philippine currency, less the amount of the
premium, in Philippine currency, that should be returned by the petitioner for the unexpired term
of the policy in question, beginning December 11, 1941. Without costs. So ordered.
Constantino v. Asia Life Insurance Company, G.R. No. 1669, August 31, 1950

Facts:

Case 1:
The life of Arcadio Constantino was insured with Asia Life Insurance Company (Asia) for a term of
20 years with Paz Lopez de Constantino as beneficiary. The first premium covered the period up
to September 26, 1942. After the first premium, no further premiums were paid. The insured died
on September 22, 1944.
Asia Life Insurance Company, being an American Corp., had to close its branch office in Manila by
reason of the Japanese occupation, i.e. from January 2, 1942, until the year 1945.

Case 2:
Spouses Tomas Ruiz and Agustina Peralta. Their premium were initially annually but subsequently
changed to quarterly.  The last quarterly premium was delivered on on November 18, 1941 and it
covered the period until January 31, 1942. Upon the Japanese occupation, the insurer and insured
were not able to deal with each other
Because the insured had borrowed on the policy P234.00 in January, 1941, the cash surrender
value of the policy was sufficient to maintain the policy in force only up to September 7,
1942. Tomas Ruiz died on February 16, 1945 with Agustina Peralta as  beneficiary. Her demand
for payment was refused on the ground of non-payment of the premiums.

Plaintiffs: As beneficiaries, they are entitled to receive the proceeds of the policies minus all sums
due for premiums in arrears. The non-payment of the premiums was caused by the closing of
Asia's offices in Manila during the Japanese occupation and the impossible circumstances created
by war.

Defendant on the other hand asserts that the policies had lapsed for non-payment of premiums,
in accordance with the contract of the parties and the law applicable to the situation.

lower court: absolved Asia. Hence, this petition.

ISSUE: W/N the insurers still have a right to claim.

HELD: YES. lower court affirmed.

 it would seem that pursuant to the express terms of the policy, non-payment of premium
produces its avoidance
 Forfeitures of insurance policies are not favored, but courts cannot for that reason alone
refuse to enforce an insurance contract according to its meaning.
 Nevertheless, inasmuch as the non-payment of premium was the consequence of war, it
should be excused and should not cause the forfeiture of the policy
 3 Rules in case of war:
 Connecticut Rule
 2 elements in the consideration for which the annual premium is paid:
 mere protection for the year
 privilege of renewing the contract for each succeeding year by
paying the premium for that year at the time agreed upon
 payment of premiums is a condition precedent, the non-performance
would be illegal necessarily defeats the right to renew the contract
 New York Rule - greatly followed by a number of cases
  war between states in which the parties reside merely suspends the
contracts of the life insurance, and that, upon tender of all premiums due
by the insured or his representatives after the war has terminated, the
contract revives and becomes fully operative
 United States Rule
 contract is not merely suspended, but is abrogated by reason of non-
payments is peculiarly of the essence of the contract
 it would be unjust to allow the insurer to retain the reserve value of the
policy, which is the excess of the premiums paid over the actual risk
carried during the years when the policy had been in force
 The business of insurance is founded on the law of average; that of life insurance
eminently so
 contract of insurance is sui generis
 Whether the insured will continue it or not is optional with him. There being no
obligation to pay for the premium, they did not constitute a debt.
 It should be noted that the parties contracted not only for peacetime conditions but also
for times of war, because the policies contained provisions applicable expressly to wartime
days. The logical inference, therefore, is that the parties contemplated uninterrupted
operation of the contract even if armed conflict should ensue.
 the fundamental character of the undertaking to pay premiums and the high importance
of the defense of non-payment thereof, was specifically recognized
 adopt the United States Rule: first policy had no reserve value, and that the equitable
values of the second had been practically returned to the insured in the form of loan and
advance for premium

For all the foregoing, the lower court's decision absolving the defendant from all liability on the
policies in question, is hereby affirmed, without costs.
Great Pacific Life Assurance v. Court of Appeals, G.R. No. 113899, October 13, 1999

FACTS: A contract of group life insurance was executed between petitioner Grepalife and DBP.
Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP (Developmental
Bank of the Philippines)
Leuterio, a physician and a housing debtor of DBP applied for membership in the group life
insurance plan. In an application form,. Leuterio answered questions concerning his health
condition as follows:

7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer,
diabetes, lung; kidney or stomach disorder or any other physical impairment?
Answer:  No. If so give details _____________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [x] Yes [ ] NO.

Grepalife then issued a Certificate, as insurance coverage of  Leuterio, to the extent of his DBP
mortgage indebtedness amounting to P86,200.00
Later, Leuterio died due to “massive cerebral hemorrhage.” Consequently, DBP submitted a death
claim to Grepalife. Grepalife denied the claim alleging that. Leuterio was not physically healthy
when he applied for an insurance coverage. Grepalife insisted that Leuterio did not disclose he
had been suffering from hypertension, which caused his death. Allegedly, such non-disclosure
constituted concealment that justified the denial of the claim.
Tthe widow of the. Leuterio, respondent Medarda, filed a complaint with the RTC, against
Grepalife for “Specific Performance with Damages.” During the trial, Dr. Mejia, who issued the
death certificate, was called to testify. Dr. Mejia’s findings, based partly from the information given
by the respondent widow, stated that Leuterio complained of headaches presumably due to high
blood pressure. The inference was not conclusive because Leuterio was not autopsied, hence,
other causes were not ruled out.
The trial court rendered a decision in favor of respondent widow and against Grepalife. The CA
sustained the trial court’s decision. Hence, the present petition.

ISSUE:
 
1. who is the proper party to bring the suit, the widow or the mortgagee (DBP)?
 
2. WON there was concealment as to justify Grepalife’s non-payment of the insurance proceeds
 
HELD: Petition denied
 
WIDOW. Where the mortgagor pays the insurance premium under the group insurance policy,
making the loans payable to the mortgagee, the insurance is on the mortgagor’s interest
(because (a) the proceeds will be applied to the payment of mortgage debt, thereby relieving
the heirs of mortgagor from paying the obligation; and (b) in the event of death, the mortgage
obligation will be extinguished by the application of insurance proceeds to mortgage
indebtedness), and the mortgagor continues to be a party to the contract. In this type of
policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-
payable clause does not make the mortgagee a party to the contract.

And since a policy of insurance upon life or health may pass by transfer, will or succession to any
person, whether he has an insurable interest or not, and such person may recover it whatever the
incurred might have recovered, the widow of Dr. Leuterio may file the suit against the insurer
Grepalife.
 
To resolve the issue, we must consider the insurable interest in mortgaged properties and the
parties to this type of contract.
 
The rationale of a group insurance policy of mortgagors, otherwise known as the “mortgage
redemption insurance,” is a device for the protection of both the mortgagee and the mortgagor.
On the part of the mortgagee, it has to enter into such form of contract so that in the event of
the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the
proceeds from such insurance will be applied to the payment of the mortgage debt, thereby
relieving the heirs of the mortgagor from paying the obligation.  In a similar vein, ample
protection is given to the mortgagor under such a concept so that in the event of death; the
mortgage obligation will be extinguished by the application of the insurance proceeds to the
mortgage indebtedness. Consequently, where the mortgagor pays the insurance premium under
the group insurance policy, making the loss payable to the mortgagee, the insurance is on the
mortgagor’s interest, and the mortgagor continues to be a party to the contract. In this type of
policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable
clause does not make the mortgagee a party to the contract.

Sec. 8 of the Insurance Code provides:

Unless the policy provides, where a mortgagor of property effects insurance in his own name
providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a
mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not
cease to be a party to the original contract, and any act of his, prior to the loss, which would
otherwise avoid the insurance, will have the same effect, although the property is in the hands of
the mortgagee, but any act which, under the contract of insurance, is to be performed by the
mortgagor, may be performed by the mortgagee therein named, with the same effect as if it had
been performed by the mortgagor.
the mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not
make the mortgagee a party to the contract.

The insured private respondent did not cede to the mortgagee all his rights or interests in the
insurance, the policy stating that: “In the event of the debtor’s death before his indebtedness with
the Creditor [DBP] shall have been fully paid, an amount to pay the outstanding indebtedness
shall first be paid to the creditor and the balance of sum assured, if there is any, shall then be
paid to the beneficiary/ies designated by the debtor.” When DBP submitted the insurance claim
against petitioner, the latter denied payment thereof, interposing the defense of concealment
committed by the insured. Thereafter, DBP collected the debt from the mortgagor and took the
necessary action of foreclosure on the residential lot of private respondent.
And since a policy of insurance upon life or health may pass by transfer, will or succession to any
person, whether he has an insurable interest or not, and such person may recover it whatever the
insured might have recovered, 14 the widow of the decedent Dr. Leuterio may file the suit against
the insurer, Grepalife.

2. The second assigned error refers to an alleged concealment that the petitioner interposed as its
defense to annul the insurance contract. Petitioner contends that Dr. Leuterio failed to disclose
that he had hypertension, which might have caused his death. Concealment exists where the
assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing
requires that he should communicate it to the assured, but he designedly and intentionally
withholds the same.
 
Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as
supported by the information given by the widow of the decedent
On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an
autopsy on the body of the decedent. Hence, the statement of the physician was properly
considered by the trial court as hearsay.
The CA’s stand is that contrary to appellant’s allegations, there was no sufficient proof that the
insured had suffered from hypertension.
 
Appellant insurance company had failed to establish that there was concealment made by the
insured, hence, it cannot refuse payment of the claim
 
The fraudulent intent on the part of the insured must be established to entitle the insurer to
rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the insurer. In the case at bar, the petitioner failed to clearly and satisfactorily
establish its defense, and is therefore liable to pay the proceeds of the insurance.
 
And that brings us to the last point in the review of the case at bar. Petitioner claims that there
was no evidence as to the amount of Dr. Leuterio’s outstanding indebtedness to DBP at the time
of the mortgagor’s death. Hence, for private respondent’s failure to establish the same, the action
for specific performance should be dismissed. Petitioner’s claim is without merit. A life insurance
policy is a valued policy.  Unless the interest of a person insured is susceptible of exact pecuniary
measurement, the measure of indemnity under a policy of insurance upon life or health is the
sum fixed in the policy.  The mortgagor paid the premium according to the coverage of his
insurance which states that:
The policy states that upon receipt of due proof of the Debtor’s death during the terms of this
insurance, a death benefit in the amount of P86,200.00 shall be paid.
In the event of the debtor’s death before his indebtedness with the creditor shall have been fully
paid, an amount to pay the outstanding indebtedness shall first be paid to the Creditor and the
balance of the Sum Assured, if there is any shall then be paid to the beneficiary/ies designated by
the debtor.”

However, we noted that the CA  decision was promulgated in 1993. In private respondent’s
memorandum, she states that DBP foreclosed in 1995 their residential lot, in satisfaction of
mortgagor’s outstanding loan. Considering this supervening event, the insurance proceeds shall
inure to the benefit of the heirs of the deceased person or his beneficiaries. Equity dictates that
DBP should not unjustly enrich itself at the expense of another ( Nemo cum alterius detrimenio
protest). Hence, it cannot collect the insurance proceeds, after it already foreclosed on the
mortgage. The proceeds now rightly belong to Leuterio’s heirs represented by his widow.