CASE DIGESTS

FOR
INSURANCE LAW

SUBMITTED BY:
CLASS 4-E, SCHOOL YEAR 2019-2020
SAN BEDA UNIVERSITY, COLLEGE OF LAW

SUBMITTED TO:
ATTY. TIMOTEO B. AQUINO
 Henson, Jr. vs. UCPB General Insurance Co., Inc.
G.R. No. 223134; August 14, 2019

RIGHT OF SUBROGATION

FACTS:
National Arts Studio and Color Lab (NASCL)leased a portion of the ground floor and the
entire second floor of the building owned by Henson. NASCL made renovation with the building’s
piping assembly which resulted to a water leak on May 9, 2006 in the building that caused damage
to Copylandia’s equipment. The equipment were insured with UCPB. On November 2, 2006, the
parties settled for the amount of P1.3M. This resulted in UCPB’s subrogation to the rights of
Copylandia over all claims and demands arising from the said incident. On May 20,2010, UCPB,
as subrogee, demanded from NASCL for the payment of the claim, but to no avail. UCPB field a
complaint for damages against NASCL.

Sometime in 2010, Henson transferred the ownership of the building to Citrinne Holdings,
Inc. (CHI) where he is a stockholder and President. On October 6, 2011, UCPB filed an amended
complaint impleading CHI as a party-defendant. On April 21, 2014, UCPB files a motion to implead
Henson instead of CHI as party-defendant. CHI opposed the motion on the ground of prescription,
arguing that since UCPB’s cause of action is based on quasi-delict, it must be brought within 4
years from its accrual on May 9, 2006, barring UCPB from proceeding against CHI.

ISSUE:
Does the cause of action of UCPB prescribe in 4 years?

HELD:
No. Applying the August 15, 2013 case of Vector Shipping Corp. v. American Home
(Vector) where the Supreme Court ruled that where an insurance company has been subrogated
to the rights of the insured against the wrongdoer, the insurer’s cause of action shall be based
upon an obligation created by law under Article 1144 of the Civil Code which provides that such
action shall be brought within 10 years from the time the cause of action accrues – upon payment
of the insurance claim by the insurer.

In this case, the damage happened on May 9, 2006, the rights of Copylandia were
transferred to UCPB on November 2, 2006, the demand was made on May 20, 2010 and
thereafter filed it complaint. Thus, it is still within the 10-year prescriptive period as explained in
the Vector case.

However, the SC in the case at bar, explained that the Court in the Vector case failed to
discern that no new obligation was created between the insurer and the insured for the reason
that the subrogee only steps into the shoes of the subrogor; hence, the subrogee-insurer only
assumes the rights of the subrogor-insured based on the latter’s original obligation with the debtor.
It is the subrogation of rights between the insurer and insured which arose from the time the
former paid indemnity therefor. The accrual of the cause of action between the debtor and the
creditor did not change because no new obligation was created. The cause of action therefore
accrued at the time the original obligation was breached. It just so happened that the right of
action of the subrogor-insured has been assumed by the subrogee-insured. In which case, the
prescriptive period of actions based on a quasi-delict shall be 4 years from the time the tort is
committed against the insured by the wrongdoer.
 The Court’s abandonment of the Vector ruling should be prospective in application for the
reason that judicial decision applying or interpreting the laws or the Constitution, until reversed,
shall form part of the legal system of the Philippines. Based on the guidelines provided by this
Court, cases filed by the subrogee-insurer during the applicability of the Vector ruling (from
vector’s finality on August 15, 2013 up until the finality of this decision), the prescriptive period is
10 years from the time of payment by the insurer to the insured, which gave rise to an obligation
created by law. Since the Vector doctrine was prevailing at this time, the issues of prescription
must be resolved under Vector’s parameters.

Hence, as the amended complaint was filed on April 21, 2014, which is within the 10 years
from the time UCPB indemnified Copylandia for its loss (November 2, 2006), the case cannot be
said to have prescribed under Vector.

Philam Insurance Co., Inc. vs.

Parc Chateau Condominium Unit Owners Association, Inc.
G.R. No. 201116; March 04, 2019

PREMIUM

FACTS:
Philam was selected by the Parc Association's board of directors to provide the insurance
requirements of the condominium. After Philam appraised the condominium, it issued Fire and
Lightning Insurance Policy and Comprehensive General Liability Insurance Policy. The parties
negotiated for a 90-day payment term of the insurance premium. This payment term was
embodied in a Jumbo Risk Provision, which provided that the premium installment payments were
due on November 30, 2003, December 30, 2003, and January 30, 2004, and that if any of the
scheduled payments are not received in full on or before said dates, the insurance shall be
deemed to have ceased at 4 p.m. of such date, and the policy shall automatically become void
and ineffective.

Parc Association's board of directors found the terms unacceptable and did not pursue
the transaction. Since no premiums were paid, Philam made oral and written demands upon Parc
Association. Philam filed a complaint against Parc Association and Colet for recovery of
P363,215.21 unpaid premium, plus attorney's fees and costs of suit.

ISSUE:
Whether or not Philam has a right to recover the unpaid premium based on void and
ineffective insurance policies

HELD:
No. In Section 77 of the Insurance Code, the general rule is that no insurance contract
issued by an insurance company is valid and binding unless and until the premium has been paid.
Although there are exceptions laid down in UCPB General Insurance Co. vs. Masagana Telamart,
Inc., none of these exceptions were applicable to the case at hand.

The first exception is in Section 77 of the Insurance Code, that is, "in the case of a life or
an industrial life policy whenever the grace period provision applies." This does not apply to this
case because the policies involved here are fire and comprehensive general liability insurance.
 The second exception is in Section 78 of the Insurance Code, which states that "an
acknowledgment in a policy or contract of insurance or the receipt of premium is conclusive
evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation
therein that it shall not be binding until the premium is actually paid.” It is not applicable because
there was no acknowledgment of receipt of premium in the policy or insurance contract, and in
fact, no premium was ever paid.

The third exception is taken from the case of Makati Tuscany Condominium Corporation
vs. Court of Appeals, that is, if the parties agreed to the payment of premium in installment and
partial payment has been made at the time of loss. Here, the parties agreed to a payment by
installment, but no actual payment was made. Thus, the third exception has no application in this
case.

The Makati Tuscany case also provided the fourth exception, that is, if the insurer has
granted the insured a credit term for the payment of the premium, then the general rule may not
apply. Philam argues that the 90-day payment term is a credit extension. However, the Jumbo
Risk Provision is clear that failure to pay each installment on the due date automatically voids the
insurance policy. Here, Parc Association did not pay any premium, which resulted in a void
insurance policy. Hence, the fourth exception finds no application.

After establishing that none of the exceptions are applicable, the general rule applies, that
is, no insurance contract or policy is valid and binding unless and until the premium has been
paid. Since Parc Association did not pay any premium, then there was no insurance contract to
speak of. Therefore, Philam cannot collect P3 63,215.21 unpaid premiums of void insurance
policies.

Keihin-Everett Forwarding Co., Inc. vs. Tokio Marine Malayan Insurance Co., Inc. and
Sunfreight Forwarders & Customs Brokerage, Inc.
G.R. No. 212107; January 28, 2019

RIGHT OF SUBROGATION

FACTS:
Honda Trading Philippines ordered some 80 bundles of Aluminum Alloy Ingots from PT
Molten Indonesia. Honda insured the entire shipment with Tokio Marine & Nichido Fire Insurance
Co., Inc. (TMNFIC) Honda Trading also engaged the services of Keihin-Everett (Everett) to clear
and withdraw the cargo from the pier and to transport and deliver the same to its warehouse in
Laguna. Meanwhile, Everett had an Accreditation Agreement with Sunfreight Forwarders
whereby the latter undertook to render common carrier services for the former and to transport
inland goods within the Philippines. En route to the Honda’s warehouse, the one of the trucks
carrying the containers was hijacked.

Tokio Marine Malayan Insurance Co., Inc. (Tokio Marine) paid Honda the entire amount
under the insurance policy. Tokio Marine subsequently filed a case for Damages in the RTC
against Everett as Tokio Marine claimed that it had been subrogated to all the rights and causes
of action of Honda. In response, Everett impleaded Sunfreight and imputed upon the latter the
sole liability as Sunfreight has the custody of the goods while in transit. The RTC held Sunfreight
solidarily liable with Everett to pay Tokio Marine. Everett was given a right of reimbursement
against Sunfreight in the event Everett pays to Tokio Marine.
 On appeal, the CA held that since Sunfreight does not have contractual relations with
Hinda, it cannot be held solidarily liable under the contract. But, Everett has right of reimbursement
against Sunfreight for whatever amount it was held liable to Tokio Marine. Dissatisfied, Everett
filed this Appeal by Certiorari.

ISSUE:
Whether or not the Tokio Marine had been subrogated to all the rights and causes of action
of Honda Trading.

HELD:
Yes, Tokio Marine has been subrogated to all the rights and causes of action of Honda
Trading. Since the insurance claim for the loss sustained by the insured shipment was paid by
Tokio Marine as proven by the Subrogation Receipt – showing the amount paid and the
acceptance made by Honda Trading, it is inevitable that it is entitled, as a matter of course, to
exercise its legal right to subrogation as provided under Article 2207 of the Civil Code as follows:

Art. 2207. If the plaintiffs property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the wrong
or breach of contract complained of, the insurance company shall be subrogated
to the rights of the insured against the wrongdoer or the person who has violated
the contract. 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.

It must be stressed that the Subrogation Receipt only proves the fact of payment. This fact
of payment grants Tokio Marine subrogatory right which enables it to exercise legal remedies that
would otherwise be available to Honda Trading as owner of the hijacked cargoes as against the
common carrier (Keihin-Everett). In other words, the right of subrogation accrues simply upon
payment by the insurance company of the insurance claim.

Industrial Personnel and Management Services, Inc. vs.

Country Bankers Insurance Corporation
G.R. No. 194126; October 17, 2018

NOTICE OF LOSS

FACTS:
In 2000, Industrial Personnel and Management Services, Inc. (IPAMS) began recruiting
registered nurses for work deployment in the United States of America (U.S.). It takes eighteen
(18) to twenty-four (24) months for the entire immigration process to complete. As the process
requires huge amounts of money, such amounts are advanced to the nurse applicants.

By reason of the advances made to the nurse applicants, the latter were required to post
surety bond. The purpose of the bond is to guarantee that the nurses will comply with the
immigration process, complete the required documents, and pass all the qualifying examinations
for the issuance of immigration visa.

The Country Bankers Insurance Corporation (Country Bankers) and IPAMS agreed to
provide bonds for the said nurses. Under the agreement of IPAMS and Country Bankers, the latter
will provide surety bonds and the premiums therefor were paid by IPAMS on behalf of the nurse
applicants.

Subsequently, on February 1 2002, a Memorandum of Agreement (MOA) was executed

by the said parties on which stipulated the various requirements for collecting claims from Country
Bankers, namely:

B. REQUIREMENTS FOR CLAIM

Requirements are as follows:
SURETY BOND:
A. 1st demand letter requiring his/her to submit complete documents.
B. 2nd Demand letter (follow up of above).
C. Affidavit stating reason of any violation to be executed by responsible officer of
Recruitment Agency;
D. Statement of Account (detailed expenses).
E. Transmittal Claim Letter.

On the basis of the MOA, IPAMS submitted its claims under the surety bonds issued by
Country Bankers. For its part, Country Bankers, upon receipt of the documents enumerated under
the MOA, paid the claims to IPAMS. According to IPAMS, starting 2004, some of its claims were
not anymore settled by Country Bankers.

In 2004, Country Bankers was not able to pay six (6) claims of IPAMS. The claims were
not denied by Country Bankers, which instead asked for time within which to pay the claims, as it
alleged to be cash strapped at that time. Thereafter, the number of unpaid claims increased. By
February 16, 2007, the total amount of unpaid claims was P11,309,411.56.

IPAMS took the matter up with the General Manager of Country Bankers, Mr. Ignacio Ong
(Ong). In response, Country Bankers, through its letter dated November 14, 2005 signed by Mr.
Ong, acknowledged the obligations of Country Bankers, apologized for the delay in the payment
of claims, and proposed to amortize the settlement of claims by paying a semi-monthly amount
of P850,000.00. In addition, Country Bankers promised to pay future claims within a ninety (90)-
day period. That commitment made by Country Bankers was not fulfilled and IPAMS had to deal
with Country Bankers' new General Manager, Ms. Tess Valeriano (Valeriano). Ms. Valeriano
assured IPAMS that the obligations of Country Bankers would be paid promptly.

However, the counsel of Country Bankers, Atty. Marisol Caleja, started to oppose the
payment of claims and insisted on the production of official receipts of IPAMS on the expenses it
incurred for the application of nurses. IPAMS opposed this, saying that the Country Bankers'
insistence on the production of official receipts was contrary to, and not contemplated in, the MOA
and was an impossible condition considering that the U.S. authorities did not issue official
receipts. In lieu of official receipts, IPAMS submitted statements of accounts, as provided in the
MOA.

Due to the unwillingness of Country Bankers to settle the claims of IPAMS, the latter
sought the intervention of the Insurance Commission (IC), through a letter complaint.

Country Bankers on the other hand alleged that until the third quarter of 2006, it never
received any complaint from IPAMS. Due to remarkable high loss ratio of IPAMS, the latter's
accounts were evaluated and audited by the Country Bankers. The IPAMS was informed of the
same problem. Instead of complying with the requirements for claim processes, IPAMS insisted
that the supporting documents cannot be produced.

The parties went to a series of conferences to settle the differences but to no avail. The
IC therefore ordered the parties to submit their respective Position Papers.

The Claims Division of the IC issued a Resolution declaring that there is no ground for the
refusal of Country Bank to pay the claims of IPAMS. It further stated that the failure to settle the
claim after having entered into an Agreement with the complainant, IPAMS, demonstrates
respondent's bad faith in the fulfillment of their obligation. Country Bankers made an appeal before
the Department of Finance (DOF) but said agency affirmed the IC’s order. The subsequent appeal
to the Office of the President (OP) affirmed the DOF’s ruling. However, the Court of Appeals
reversed and set aside the aforementioned rulings.

ISSUE:
Is there any justification for respondent Country Banker to deny the payment of claims
presented by petitioner IPAMS based on the lack of official receipts?

HELD:
No. The Court finds that, by stipulation of petitioner IPAMS and respondent Country
Bankers in their MOA, the parties waived the requirement of actually proving the expenses
incurred by petitioner IPAMS through the submission of official receipts and other documentary
evidence. Thus, respondent Country Bankers was not justified in denying the payment of claims
presented by petitioner IPAMS based on the lack of official receipts.

Under the Insurance Code, all defects in the proof of loss, which the insured might remedy,
are waived as grounds for objection when the insurer omits to specify to him without unnecessary
delay.

The subject agreement of the parties indubitably contemplates a surety agreement, which
is governed mainly by the Insurance Code, considering that a contract of suretyship shall be
deemed an insurance contract within the contemplation of the Insurance Code if made by a surety
which is doing an insurance business. In this case, the surety, i.e., respondent Country Bankers,
is admittedly an insurance company engaged in the business of insurance. In fact, the CA itself
in its assailed Decision mentioned that a contract of suretyship is defined and covered by
the Insurance Code.

Moreover, the Insurance Code specifically provides applicable provisions on suretyship,

stating that pertinent provisions of the Civil Code shall only apply suppletorily whenever
necessary in interpreting the provisions of a contract of suretyship. Jurisprudence also holds that
a specific law should prevail over a law of general character.

Hence, in the resolution of the instant case, the CA erred in not considering the applicable
provisions under the Insurance Code on the required proof of loss and when such requirement is
waivable.

Therefore, Section 92 of the Insurance Code must be taken into consideration. The said
provision states that all defects in the proof of loss, which the insured might remedy, are waived
as grounds for objection when the insurer omits to specify to him without unnecessary delay. It is
the duty of the insurer to indicate the defects on the proofs of loss given, so that the deficiencies
may be supplied by the insured. When the insurer recognizes his liability to pay the claim, there
is waiver by the insurer of any defect in the proof of loss.

In the instant case, it must be emphasized that respondent Country Bankers, through its
General Manager, Mr. Ong, issued a letter dated November 14, 2005 which readily acknowledged
the obligations of Country Bankers under the surety agreement, apologized for the delay in the
payment of claims, and proposed to amortize the settlement of claims by paying a semi-monthly
amount of P850,000.00. In addition, Country Bankers promised to pay future claims within a 90-
day period.

It bears stressing that respondent Country Bankers, after undergoing an evaluation of the
total number of claims of petitioner IPAMS, undertook the settlement of such claims
even WITHOUT the submission of official receipts.

In fact, respondent Country Bankers raised up the issue on the missing official receipts and
other evidence to prove the expenses incurred by petitioner IPAMS only when the latter requested
the intervention of the IC in 2007. If respondent Country Bankers truly believed that the
submission of official receipts was critical in providing proof as to petitioner IPAMS' claims, then
it would have raised the issue on the lack of official receipts at the earliest possible opportunity.
This only shows that the argument of respondent Country Bankers on the lack of official receipts
was a mere afterthought to evade its obligation to pay the claims presented by petitioner IPAMS.

While not denying the existence of the said letter, respondent Country Bankers attempts to
downplay it by arguing that the claims covered by the letter and the claims raised by petitioner
IPAMS before the IC are different and distinct from each other. Such argument deserves scant
consideration.

While the claims in the said letter may be different from the specific claims presented before
the IC, both sets of claims were similarly made under the same suretyship agreement between
the parties. Thus, the fact still remains that respondent Country Bankers had previously
acknowledged the validity of a set of claims under a surety bond within the purview of the
Requirements for Claim Clause despite the lack of official receipts and other pieces of evidence
aside from the required documents enumerated in the MOA. To be sure, it must also be pointed
out that the representations of respondent Country Bankers in the said letter likewise refer to
future and similar claims of petitioner IPAMS. Hence, respondent Country Bankers' attempt to
downplay the ramifications of its letter dated November 14, 2005 is puerile.

Also, it must be emphasized that the IC, after holding a series of conferences between the
parties and after the assessment of the respective position papers and evidence from both parties,
made the factual finding in its Resolution dated June 26, 2007 that respondent Country Bankers
committed certain acts constituting a waiver of its right to require the presentation of additional
documents to prove the expenses incurred by petitioner IPAMS, such as the issuance of the letter
dated November 14, 2005 and the acceptance by respondent Country Bankers of reimbursement
from the nurse applicants of petitioner IPAMS on the basis of the Statements of Accounts
presented, even without any official receipt attached. In fact, the records show that respondent
Country Bankers does not deny the fact that it accepted the reimbursements from the nurse
applicants based on the Statements of Accounts of petitioner IPAMS.

Furthermore, the DOF likewise factually determined that respondent Country Bankers,
through its new General Manager, Ms. Valeriano, had assured IPAMS that the obligations of
Country Bankers would be paid promptly, again, even without the submission of official receipts
and other pieces of evidence. The DOF similarly found that the proposal by respondent Country
Bankers to amortize the settlement of petitioner IPAMS' claims by paying the latter the semi-
monthly amount of P850,000.00 and respondent Country Bankers' acceptance of
reimbursements from the nurse-applicants based on the mere Statements of Accounts submitted
by petitioner IPAMS are tantamount to an acknowledgment on the part of respondent Country
Bankers of its liability for claims under the surety bonds.

Moreover, the OP also factually found that respondent Country Bankers "knew as a matter
of IPAMS' regular course of business that these covered transactions are generally not issued
official receipts by US government and its agencies and the US based professional organizations
and institutions involved to complete the requirements for the issuance of an immigrant visa."

These factual findings of three separate administrative agencies, which were not at all
reversed or refuted by the CA in its assailed Decision, should not be perturbed by the Court
without any compelling countervailing reason.

Accordingly, under Section 92 of the Insurance Code, the failure to attach official receipts
and other documents evidencing the expenses incurred by petitioner IPAMS, even assuming that
it can be considered a defect on the required proof of loss, is therefore considered waived as
ground for objecting the claims of petitioner IPAMS.

The Insular Assurance Co., Ltd. vs. The Heirs of Jose H. Alvarez
G.R. No. 207526; October 03, 2018

CONCEALMENT, REPRESENTATION

FACTS:
Alvarez applied for and was granted a housing loan by. This loan was secured by a
promissory note, a real estate mortgage over the lot, and a mortgage redemption insurance taken
on the life of Alvarez with UnionBank as beneficiary. Alvarez was among the mortgagors included
in the list of qualified debtors covered by the Group Mortgage Redemption Insurance that
UnionBank had with Insular Life.

Alvarez died and subsequently, UnionBank filed with Insular Life a death claim under
Alvarez's name pursuant to the Group Mortgage Redemption Insurance. Insular Life denied the
claim after determining that Alvarez was not eligible for coverage as he was supposedly more
than 60 years old at the time of his loan's approval.

With the claim's denial, the monthly amortizations of the loan stood unpaid. Subsequently,
the lot was foreclosed and sold at a public auction with UnionBank as the highest bidder. The
Heirs of Alvarez filed a complaint for specific performance to demand against Insular Life to fulfill
its obligation as an insurer under the Group Mortgage Redemption Insurance, and for nullification
of foreclosure against UnionBank.

Both Court of Appeals and Regional Trial Court ruled in favor of the Heirs of Alvarez. They
noted that the errors assigned by Insular Life and UnionBank boiled down to the issue of whether
or not Alvarez was guilty of fraudulent misrepresentation as to warrant the rescission of the Group
Mortgage Redemption Insurance obtained by UnionBank on Alvarez's life. Insular Life only relied
on Alvarez's Health Statement Form where he wrote "1942" as his birth year. However, this form
alone was insufficient to prove that he fraudulently intended to misrepresent his age. It noted that
aside from the Health Statement Form, Alvarez had to fill out an application for insurance. This
application would have supported the conclusion that he consistently wrote "1942" in all the
documents that he had submitted to UnionBank. However, the records made no reference to this
document.

ISSUE:
Whether or not The Insular Life Assurance Co., Ltd. is obliged to pay UnionBank the
balance of Alvarez's loan given the claim that he lied about his age at the time of the approval of
his loan

HELD:
Citing Section 27 of the Insurance Code, however, Insular Life asserts that in cases of
rescission due to concealment, i.e., when a party "neglect[s] to communicate that which [he or
she] knows and ought to communicate," proof of fraudulent intent is not necessary. Section 27 of
the Insurance Code reads:

“A concealment whether intentional or unintentional entitles the injured

party to rescind a contract of insurance.”

While Insular Life correctly reads Section 27 as making no distinction between intentional
and unintentional concealment, it erroneously pleads Section 27 as the proper statutory anchor
of this case. The Insurance Code distinguishes representations from concealments. What this
case involves, instead, is an allegedly false representation. Section 44 of the Insurance Code
states, "A representation is to be deemed false when the facts fail to correspond with its assertions
or stipulations." If indeed Alvarez misdeclared his age such that his assertion fails to correspond
with his factual age, he made a false representation, not a concealment.

In relation to Section 44, Section 45 of the Insurance Code reads:

“If a representation is false in a material point, whether affirmative or

promissory, the injured party is entitled to rescind the contract from the time when
the representation becomes false.”

Not being similarly qualified as rescission under Section 27, rescission under Section 45
remains subject to the basic precept of fraud having to be proven by clear and convincing
evidence. Consistent with the requirement of clear and convincing evidence, it was Insular Life's
burden to establish the merits of its own case. At bar, Insular Life basically relied on the Health
Statement form personally accomplished by Jose Alvarez wherein he wrote that his birth year
was 1942. The Court, however posited that Alvarez must have accomplished and submitted many
other documents when he applied for the housing loan and executed supporting instruments like
the promissory note, real estate mortgage, andGroup Mortgage Redemption Insurance. A design
to defraud would have demanded his consistency. He needed to maintain appearances across
all documents.

However, the best that Insular Life could come up with before the Regional Trial Court and
the Court of Appeals was a single document. The Court of Appeals was straightforward, i.e., the
most basic document that Alvarez accomplished in relation to Insular Life must have been an
insurance application form.

Strangely, Insular Life failed to adduce even this document — a piece of evidence that
was not only commonsensical, but also one which has always been in its possession and
disposal. Insular Life had all the opportunity to demonstrate Alvarez's pattern of consistently
indicating erroneous entries for his age. All it needed to do was to inventory the documents
submitted by Alvarez and note the statements he made concerning his age. This was not a
cumbersome task, yet it failed at it. Its failure to discharge its burden of proving must thwart its
plea for relief from this Court.

Enriquez vs. The Mercantile Insurance Co., Inc.

G.R. No.210950; August 15, 2018

SURETYSHIP AGREEMENT; INDEMNITY AGREEMENT

FACTS:
Enriquez filed a Complaint for Replevin against Wilfred Asuten (Asuten) before the
Regional Trial Court of Angeles City, Pampanga, for the recovery of her Toyota Hi-Ace van valued
at P300,000.00. Asuten allegedly refused to return her van. Enriquez applied for a replevin bond
from Mercantile Insurance. On February 24, 2003, Mercantile Insurance issued Bond No. 138 for
P600,000.00, which had a period of one (1) year or until February 24, 2004. Enriquez also
executed an indemnity agreement with Mercantile Insurance, where she agreed to indemnify the
latter "for all damages, payments, advances, losses, costs, taxes, penalties, charges, attorney's
fees and expenses of whatever kind and nature" that it would incur as surety of the replevin bond.
The Complaint was dismissed without prejudice due to Enriquez's continued failure to present
evidence. The Regional Trial Court found that Enriquez surrendered the van to the Bank of the
Philippine Islands, San Fernando Branch but did not comply when ordered to return it to the
sheriff. She also did not comply with prior court orders to prove payment of her premiums on the
replevin bond or to post a new bond. Thus, the Regional Trial Court declared Bond No. 138
forfeited. Mercantile Insurance was given 10 days to produce the van or to show cause why
judgment should not be rendered against it for the amount of the bond. The Regional Trial Court
directed Mercantile Insurance to pay Asuten the amount of P600,000.00. Mercantile Insurance
wrote to Enriquez requesting the remittance of P600,000.00 to be paid on the replevin bond. Due
to Enriquez's failure to remit the amount, Mercantile Insurance paid Asuten P600,000.00 on
September 3, 2004, in compliance with the Regional Trial Court July 12, 2004 Order. It was also
constrained to file a collection suit against Enriquez with the Regional Trial Court of Manila. The
Regional Trial Court ruled in favor of Mercantile Insurance. It found that non-payment of the
premiums did not cause the replevin bond to expire. Thus, Enriquez was still liable for the
reimbursement made by the surety on the bond.

ISSUES:
1. Whether or not the SURETY is still liable under the Indemnity contract despite allegations
that it ceased to be in force and effect because of the alleged expiration of the replevin bond?
2. Whether the principal was still liable to pay to replevin bond or the amount of the van?

Decision/Held:
1. Yes. The indemnity agreement was still in force despite the expiration of the replevin bond
on February 24, 2004. Consequently, the SURETY is not released from his obligation to
pay. Consequently, the SURETY may ask for reimbursement from the principal.

When Replevin is sought for as a provisional remedy, a party may apply for an order for
the delivery of the property before the commencement of the action or at any time before an
answer is filed. Rule 60 of the Rules of Court outlines the procedure for the application of a writ of
replevin. Rule 60, Section 2 requires that the party seeking the issuance of the writ must first file
the required affidavit and a bond in an amount that is double the value of the property. The
applicant must also give a bond, executed to the adverse party in double the value of the property
as stated in the affidavit aforementioned, for the return of the property to the adverse party if such
return be adjudged, and for the payment to the adverse party of such sum as he may recover
from the applicant in the action.

Once the affidavit is filed and the bond is approved by the court, the court issues an order
and a writ of seizure requiring the sheriff to take the property into his or her custody. If there is no
further objection to the bond filed within five (5) days from the taking of the property, the sheriff
shall deliver it to the applicant. The contested property remains in the applicant's custody until
the court determines, after a trial on the Issues, which among the parties has the right of
possession.

There was no trial on the merits. The Regional Trial Court's dismissal for failure to
prosecute was a dismissal without prejudice to re-filing. In this particular instance, any writ of
seizure, being merely ancillary to the main action, becomes functus oficio. The parties returned
to the status quo as if no case for replevin had been filed. Thus, upon the dismissal of the case,
it was imperative for petitioner to return the van to Asuten.

Thus, to forfeit the replevin bond, it is required that first, a judgment on the merits in the
defendant's favor be made, and second, an application by the defendant for damages is made.

Neither circumstance appears in this case. When petitioner failed to produce the van,
equity demanded that Asuten be awarded only an amount equal to the value of the van. The
Regional Trial Court would have erred in ordering the forfeiture of the entire bond in Asuten's
favor, considering that there was no trial on the merits or an application by Asuten for damages.
However, in the case at bar, the RTC ordered payment on the bond, and since the petitioner did
not appeal the judgment, respondent was, thus, constrained to follow the Regional Trial Court's
directive to pay Asuten the full amount of the bond.

2. Yes. The principal eventually became liable on the replevin bond. Basic is the principle
that "a contract is law between the parties "for as long as it is "not contrary to law, morals, good
customs, public order, or public policy."

In Verendia v. Court of Appeals, “Basically a contract of indemnity, an insurance contract

is the law between the parties. Its terms and conditions constitute the measure of the insurer's
liability and compliance therewith is a condition precedent to the insured's right to recovery from
the insurer. As it is also a contract of adhesion, an insurance contract should be liberally construed
in favor of the insured and strictly against the insurer company which usually prepares it.”

Respondent, however, does not seek to recover an amount which exceeds the amount of
the bond or any "damages, payments, advances, losses, costs, taxes, penalties, charges,
attorney's fees and expenses of whatever kind and nature," all of which it could have sought under
the Indemnity Agreement. It only seeks to recover from petitioner the amount of the bond, or
P600,000.00, which it paid pursuant to the order of the Regional Trial Court. Since the Petitioner
did not appeal the order, the judgment attained finality.

Thus, the Regional Trial Court forfeited the replevin bond which she had filed because she
refused to return the property. She is now made liable for the replevin bond because she
failed to appeal its forfeiture.
 Steamship Mutual Underwriting Association (Bermuda) Limited vs. Sulpicio Lines, Inc.
G.R. No. 196072; September 20, 2017

PERFECTION; INSURANCE POLICY

FACTS:
Steamship was a Bermuda-based Protection and Indemnity Club. Sulpicio insured its fleet
of inter-island vessels with Steamship for Protection & Indemnity risks. One of these vessels was
the M/V Princess of the World, evidenced by a Certificate of Entry and Acceptance issued by
Steamship.

On July 7, 2005, M/V Princess of the World was gutted by fire, accidental in nature, while
on voyage from Iloilo to Zamboanga City, resulting in total loss of its cargoes. Sulpicio claimed
indemnity from Steamship under the Protection & Indemnity insurance policy but the latter denied
the claim and subsequently rescinded the insurance coverage of Sulpicio's other vessels on the
ground of gross negligence on the part of the insured.

On June 28, 2007, Sulpicio filed a Complaint with the RTC of Makati against Steamship.
Steamship filed its Motion to Dismiss and/or to Refer Case to Arbitration pursuant to Republic Act
No. 9285, or the Alternative Dispute Resolution Act of 2004 (ADR Law), and to Rule 47 of the
2005/2006 Club Rules, which supposedly provided for arbitration in London of disputes between
Steamship and its members. The RTC denied the motions to dismiss. It held that "arbitration did
not appear to be the most prudent action, . . . considering that the other defendants . . . had
already filed their respective answers." Steamship filed its Motion for Reconsideration, but it was
likewise denied.

Steamship assailed trial court orders before the CA through a Rule 65 Petition, The CA
dismissed the petition as it found no grave abuse of discretion on the part of the trial court in
denying Steamship's Motion to Dismiss and/or to Refer Case to Arbitration or any convincing
evidence to show that a valid arbitration agreement existed between the parties. Steamship's
Motion for Reconsideration of this Decision was likewise denied. Hence, this petition.

ISSUE:
Is there a valid and binding arbitration agreement between the insurer and the insured?

HELD:
Yes. There exists a valid and binding arbitration agreement incorporated in the insurance
policy by reference.

The contract between Sulpicio and Steamship is more than a contract of insurance
between a marine insurer and a shipowner. By entering its vessels in Steamship, Sulpicio not
only obtains insurance coverage for its vessels but also becomes a member of Steamship. A
protection and indemnity club is a mutual insurance association, which is a cooperative enterprise
where the members are both the insurer and insured.

A shipowner wishing to enter its fleet of vessels to Steamship must fill in an application for
entry form that is signed by the shipowner or its authorized representative. Steamship then issues
a Certificate of Entry and Acceptance of the vessels, showing its acceptance of the entry. Thus,
a contract of insurance is perfected between the parties upon Steamship's issuance of the
Certificate of Entry and Acceptance.

A contract of insurance, like other contracts, must be assented to by both parties either in
person or by their agents. So long as an application for insurance has not been either accepted
or rejected, it is merely an offer or proposal to make a contract.

The Insurance Code defines an insurance policy as "the written instrument in which a
contract of insurance is set forth." Any rider, clause, warranty, or endorsement attached and
referred to in the policy by its descriptive title or name is considered part of this policy or contract
of insurance and binds the insured. There is nothing in the law that prohibits the parties of an
insurance contract from agreeing to other terms and conditions that would govern their
relationship, in which case the general rules of the Civil Code regulating contracts will apply.

The Certificate of Entry and Acceptance plainly provides that the protection and indemnity
coverage would be to the extent specified and in accordance with the Act, the By-Laws, and the
Rules of the Club in force at the time of the coverage. M/V Princess of the World was insured
from February 20, 2005 to February 20, 2006. Hence, the 2005/2006 Club Rules apply. Sulpicio's
acceptance of the Certificate of Entry and Acceptance manifests its acquiescence to all its
provisions. Its acceptance, likewise, operated as an acceptance of the entire provisions of the
Club Rules.

Under Rule 47 of the 2005/2006 Club Rules, any dispute concerning the insurance
afforded by Steamship must first be brought by a claiming member to the Directors for
adjudication. If this member disagrees with the decision of the Director, the dispute must be
referred to arbitration in London. Despite the member's disagreement, the Managers of
Steamship may refer the dispute to arbitration without adjudication of the Directors. This
procedure must be complied with before the member can pursue legal proceedings against
Steamship.

There is no ambiguity in the terms and clauses of the Certificate of Entry Acceptance. The
incorporation of the Club Rules in the insurance policy is without any qualification. This includes
the arbitration clause even if not particularly stipulated.

Equitable Insurance Corporation vs. Transmodal International, Inc.

G.R. No. 223592; August 07, 2017

RIGHT OF SUBROGATION; EVIDENCE

FACTS:
Sytengco Enterprises Corporation (Sytengco) hired respondent Transmodal
International, Inc. (Transmodal) to clear from the customs authorities and withdraw, transport,
and deliver to its warehouse, cargoes consisting of 200 cartons of gum Arabic with a total weight
of 5,000 kilograms valued at US21,750.00. Respondent delivered them to Sytengco's
warehouse. A survey was conducted by Elite Surveyors, it was found that 187 cartons had
water marks and the contents of the 13 wet cartons were partly hardened. In its final report Elite
Surveyor fixed the computed loss payable at P728,712.00 after adjustment of 50% loss
allowance. Thus, Sytengco demanded from transmodal as compensation of total loss of the
shipment. The petitioner Equitable Insurance, as insurer of the cargoes paid such claim.
Sytengco then signed a subrogation receipt and loss receipt in favor of petitioner Equitable
Insurance. As such, petitioner Equitable Insurance demanded from respondent Transmodal
reimbursement of the payment given to Sytengco. As such, petitioner filed a complaint for
damages invoking its right as subrogee after paying Sytengco's insurance claim and averred
that respondent Transmodal's fault and gross negligence were the causes of the damages
sustained by Sytengco's shipment. Respondent Transmodal denied knowledge of an insurance
policy and claimed that petitioner Equitable Insurance has no cause of action against it because
the damages to the cargoes were not due to its fault or gross negligence.

ISSUE:
1. WON in an action involving insurance claims filed by insurance companies as subrogees,
should the insurance policy be presented in evidence?
2. WON the petitioner may claim against the Transmodal as a subrogee?

Held:
1. Yes. As a general rule, the marine insurance policy needs to be presented in evidence
before the insurer may recover the insured value of the lost/damaged cargo in the exercise of
its subrogatory right. The presentation of the contract constitutive of the insurance relationship
between the consignee and insurer is critical because it is the legal basis of the latter's right to
subrogation (Asian Terminals, Inc. v. First Lepanto-Taisho Insurance Corporation).
Nevertheless, the rule is not inflexible. In certain instances, the Court has admitted exceptions
by declaring that a marine insurance policy is dispensable evidence in reimbursement claims
instituted by the insurer. For one, in case of subrogation, the subrogation receipt may be
presented, which, by itself, has been held sufficient to establish not only the relationship between
the insurer and consignee, but also the amount paid to settle the insurance claim. GEN KAILANGAN
ONE EXCEPTION
SUBTOGATION RECEIPT
2. Yes, it was well established that petitioner has right to step into the shoes of the insured
who has direct cause of action against herein respondent on account of the damages sustained
by the cargoes, “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.” Petitioner was able to
present as evidence the marine open policy that vested upon it, its right as subrogee.

Subrogation is designed to promote and to accomplish justice and is the mode which
equity adopts to compel the ultimate payment of a debt by one who injustice, equity and good
conscience ought to pay.

Thus, the Equitable Insurance Corporation has the right to claim against the Transmodal
as subrogee.

Medicard Philippines, Inc. vs. Commissioner of Internal Revenue

G.R. No. 222743; April 5, 2017

HEALTH MAINTENANCE ORGANIZATIONS ENGAGED IN THE BUSINESS OF INSURANCE

FACTS:
MEDICARD is a Health Maintenance Organization (HMO) that provides prepaid health
and medical insurance coverage to its clients. 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 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.

According to the CIR, the taxable base of HMOs for VAT purposes is its gross receipts
without any deduction under Section 4.108.3(k) of Revenue Regulation (RR) No. 16-2005.
Citing Commissioner of Internal Revenue v. Philippine Health Care Providers, Inc., the CIR
argued that since MEDICARD. does not actually provide medical and/or hospital services, but
merely arranges for the same, its services are not VAT exempt.

MEDICARD argued that: (1) the services it render is not limited merely to arranging for the
provision of medical and/or hospital services by hospitals and/or clinics but include actual and
direct rendition of medical and laboratory services; in fact, its 2006 audited balance sheet shows
that it owns x-ray and laboratory facilities which it used in providing medical and laboratory
services to its members; (2) out of the ₱l .9 Billion membership fees, ₱319 Million was received
from clients that are registered with the Philippine Export Zone Authority (PEZA) and/or Bureau
of Investments; (3) the processing fees amounting to ₱l 1.5 Million should be excluded from gross
receipts because P5.6 Million of which represent advances for professional fees due from clients
which were paid by MEDICARD while the remainder was already previously subjected to VAT;
(4) the professional fees in the amount of Pl 1 Million should also be excluded because it
represents the amount of medical services actually and directly rendered by MEDICARD and/or
its subsidiary company; and (5) even assuming that it is liable to pay for the VAT, the 12% VAT
rate should not be applied on the entire amount but only for the period when the 12% VAT rate
was already in effect, i.e., on February 1, 2006. It should not also be held liable for surcharge and
deficiency interest because it did not pass on the VAT to its members.

ISSUE:
Whether the amounts that medicard earmarked and eventually paid to the medical service
providers should still form part of its gross receipts for vat purposes.

HELD:
The amounts earmarked and eventually paid by MEDICARD to the medical service
providers do not form part of gross receipts for VAT purposes.

MEDICARD explains that its business as an HMO involves two different although
interrelated contracts. One is between a corporate client and MEDICARD, with the corporate
client's employees being considered as MEDICARD members; and the other is between the
health care institutions/healthcare professionals and MED ICARD.

Under the first, MEDICARD undertakes to make arrangements with healthcare

institutions/healthcare professionals for the coverage of MEDICARD members under specific
health related services for a specified period of time in exchange for payment of a more or less
fixed membership fee. Under its contract with its corporate clients, MEDICARD expressly provides
that 20% of the membership fees per individual, regardless of the amount involved, already
includes the VAT of 10%/20% excluding the remaining 80o/o because MED ICARD would
earmark this latter portion for medical utilization of its members. Lastly, MEDICARD also assails
CIR's inclusion in its gross receipts of its earnings from medical services which it actually and
directly rendered to its members.

Since an HMO like MEDICARD is primarily engaged in arranging for coverage or

designated managed care services that are needed by plan holders/members for fixed prepaid
membership fees and for a specified period of time, then MEDICARD is principally engaged in
the sale of services.

The CTA en banc overlooked that the definition of gross receipts under. RR No. 16-2005
merely presumed that the amount received by an HMO as membership fee is the HMO's
compensation for their services. As a mere presumption, an HMO is, thus, allowed to establish
that a portion of the amount it received as membership fee does NOT actually compensate it but
some other person, which in this case are the medical service providers themselves. It is a well-
settled principle of legal hermeneutics that words of a statute will be interpreted in their natural,
plain and ordinary acceptation and signification, unless it is evident that the legislature intended
a technical or special legal meaning to those words. The Court cannot read the word "presumed"
in any other way.

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

Court adopted the principal object and purpose object in determining whether the
MEDICARD therein is engaged in the business of insurance and therefore liable for
documentary stamp tax. The Court held therein that an HMO engaged in preventive, diagnostic
and curative medical services is not engaged in the business of an insurance, thus:

To summarize, the distinctive features of the cooperative are the rendering of service, its
extension, the bringing of physician and patient together, the preventive features, the
regularization of service as well as payment, the substantial reduction in cost by quantity
purchasing in short, getting the medical job done and paid for; not, except incidentally to
these features, the indemnification for cost after .the services is rendered. Except the last,
these are not distinctive or generally characteristic of the insurance arrangement. There is,
therefore, a substantial difference between contracting in this way for the rendering of service,
even on the contingency that it be needed, and contracting merely to stand its cost when or after
it is rendered.)

In sum, the Court said that the main difference between an HMO arid an insurance
company is that HMOs undertake to provide or arrange for the provision of medical services
through participating physicians while insurance companies simply undertake to indemnify the
insured for medical expenses incurred up to a pre-agreed limit. In the present case, the VAT is a
tax on the value added by the performance of the service by the taxpayer. It is, thus, this service
and the value charged thereof by the taxpayer that is taxable under the NIRC

Gaisano vs. Development Insurance and Surety Corp.

G.R. No. 190702; February 27, 2017

PREMIUM/BINDING INSURANCE CONTRACTS

FACTS:
Respondent issued a comprehensive commercial vehicle policy to petitioner over the 1992
Mitsubishi Montero (vehicle) owned by petitioner for a period of one year commencing on
September 27, 1996.

Petitioner’s company, Noah’s Ark, issued a Far East Bank check dated September 27,
1996 payable to Trans-Pacific on the same day. The check represents payment for the insurance
policies, with P55,620.60 for the premium and other charges over the vehicle. However, nobody
from Trans-Pacific picked up the check that day (September 27) because its president and
general manager was celebrating his birthday. It informed Noah’s Ark that its messenger would
get the check the next day.

In the evening of September 27, 1996, while under the official custody of Noah’s Ark
marketing manager Pacquing as a service company vehicle, the vehicle was stolen in the vicinity
of SM Megamall.

Oblivious of the incident, Trans-Pacific picked up the check the next day, September 28.
It issued an official receipt, acknowledging the receipt of the premium and other charges over the
vehicle. The check was deposited with Metrobank for encashment on October 1, 1996.

On the same date, petitioner was informed of the vehicle’s loss. Thereafter, petitioner filed
a claim with respondent for the insurance proceeds of P1,500,000.00. After investigation,
respondent denied petitioner’s claim on the ground that there was no insurance contract.

Petitioner filed a complaint to collect the insurance proceeds from respondent. Hence
petitioner filed this petition.

ISSUE:
Whether or not there is a binding insurance contract between petitioner and respondent.

HELD:
The insurance contract is not binding. Insurance is a contract whereby one undertakes for
a consideration to indemnify another against loss, damage or liability arising from an unknown or
contingent event. Just like any other contract, it requires a cause or consideration. The
consideration is the premium, which must be paid at the time and in the way and manner specified
in the policy. If not so paid, the policy will lapse and be forfeited by its own terms.

The law, however, limits the parties’ autonomy as to when payment of premium may be
made for the contract to take effect. The general rule in insurance laws is that unless the premium
is paid, the insurance policy is not valid and binding.

Section 77 of the Insurance Code provides:

Sec. 77. An insurer is entitled to payment of the premium as soon as the

thing insured is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof has
been paid, except in the case of a life or an industrial life policy whenever the grace
period provision applies.

Here, there is no dispute that the check was delivered to and was accepted by
respondent’s agent, Trans-Pacific, only on September 28, 1996. No payment of premium had
thus been made at the time of the loss of the vehicle on September 27, 1996.

Thus, at the time of loss, there was no payment of premium yet to make the insurance
policy effective
 Communication and Informations Systems vs. Mark Sensing Australia Pty. Ltd.
G.R. No. 192150; January 25, 2017

REINSURANCE

FACTS:
Communication and Information Systems Corporation (CISC) and Mark Sensing Australia
Pty. Ltd. (MSAPL) entered into a Memorandum of Agreement (MOA) whereby MSAPL appointed
CISC as "the exclusive AGENT of [MSAPL] to PCSO during the [lifetime] of the recently concluded
MOA entered into between [MSAPL], PCSO and other parties." The recent agreement referred to
in the MOA is the thermal paper and bet slip supply contract between the PCSO, MSAPL, and
three other suppliers, namely Lamco Paper, Consolidated Paper and Trojan Computer Forms. As
consideration for CISC's services, MSAPL agreed to pay CISC a commission of 24.5% of future
gross sales to PCSO, exclusive of duties and taxes, for six years.

After initially complying with its obligation under the MOA, MSAPL stopped remitting
commissions to CISC during the second quarter of 2004. As a result, CISC filed a complaint
before the RTC for specific performance against MSAPL, MSPI, Atty. Ofelia Cajigal, and PCSO.
CISC prayed that private respondents be ordered to comply with its obligations under the MOA.
It also asked the RTC to issue a writ of preliminary mandatory injunction and/or writ of attachment.

RTC granted CISC's application for issuance of a writ of preliminary attachment, stating
that "the non-payment of the agreed commission constitutes fraud on the part of the defendant
MSAPL in their performance of their obligation to the plaintiff." The RTC found that MSAPL is a
foreign corporation based in Australia, and its Philippine subsidiary, MSPI, has no other asset
except for its collectibles from PCSO. Thus, the RTC concluded that CISC may be left without
any security if ever MSAPL is found liable. But the RTC limited the attachment to P4,861,312.00,
which is the amount stated in the complaint, instead of the amount sought to be attached by CISC,
i.e., P113,197,309.10.The RTC explained that it "will have to await the Supreme Court judgment
over the issue of whether [it] has jurisdiction on the amounts in the excess of the amount prayed
for by the plaintiff in their complaint" since MSAPL appealed the adverse judgment in CA-G.R. SP
No. 96620 to us. We later denied MSAPL's petition for review assailing the CA Decision

CISC posted a bond in the amount of P113,197,309.10 through Plaridel Surety and
Insurance Company in favor of MSAPL then MSAPL filed a motion to determine the sufficiency
of the bond because of questions regarding the financial capacity of Plaridel. But before the RTC
could act on this motion, MSAPL, apparently getting hold of Plaridel's latest financial statements,
moved to recall and set aside the approval of the attachment bond on the ground that Plaridel
had no capacity to underwrite the bond pursuant to Section 215 of the old Insurance Code
because its net worth was only P214,820,566.00 and could therefore only underwrite up to
P42,964,113.20. RTC denied MSAPL's motion, finding that although Plaridel cannot underwrite
the bond by itself, the amount covered by the attachment bond "was likewise re¬insured to sixteen
other insurance companies." However, "for the best interest of both parties," the RTC ordered
Plaridel to submit proof that the amount of P95,819,770.91 was reinsured. Plaridel submitted its
compliance attaching therein the reinsurance contracts. MSAPL, MSPI and Atty. Ofelia Cajigal
filed a petition for certiorari . CA held that the RTC exceeded its authority when it "ordered the
issuance of the writ [of preliminary attachment] despite a dearth of evidence to clearly establish
[CISC's] entitlement thereto, let alone the latter's failure to comply with all requirements therefor."
Noting that the posting of the attachment bond is a jurisdictional requirement, the CA concluded
that since Plaridel's capacity for single risk coverage is limited to 20% of its net worth, or
P57,866,599.80, the RTC "should have set aside the second writ outright for non-compliance with
Sections 3 and 4 of Rule 57." Hence this petition.

ISSUE:
Can the courts may approve an attachment bond which has been reinsured as to the
excess of the issuer's statutory retention limit?

HELD:
No. Section 215 of the old Insurance Code, the law in force at the time Plaridel issued the
attachment bond, limits the amount of risk that insurance companies can retain to a maximum of
20% of its net worth. However, in computing the retention limit, risks that have been ceded to
authorized reinsurers are ipso jure deducted. In mathematical terms, the amount of retained risk
is computed by deducting ceded/reinsured risk from insurable risk. If the resulting amount is below
20% of the insurer's net worth, then the retention limit is not breached. In this case, both the RTC
and CA determined that, based on Plaridel's financial statement that was attached to its certificate
of authority issued by the Insurance Commission, its net worth is P289,332,999.00. Plaridel's
retention limit is therefore P57,866,599.80, which is below the Pl13,197,309.10 face value of the
attachment bond. However, it only retained an insurable risk of P17,377,938.19 because the
remaining amount of P98,819,770.91 was ceded to 16 other insurance companies. Thus, the risk
retained by Plaridel is actually P40 Million below its maximum retention limit. Therefore, the
approval of the attachment bond by the RTC was in order.

In cancelling Plaridel's insurance bond, the CA also found that because the reinsurance
contracts were issued in favor of Plaridel, and not MSAPL, these failed to comply with the
requirement of Section 4, Rule 57 of the Rules of Court requiring the bond to be executed to the
adverse party. This led the CA to conclude that "the bond has been improperly and insufficiently
posted." We reverse the CA and so hold that the reinsurance contracts were correctly issued in
favor of Plaridel. A contract of reinsurance is one by which an insurer (the "direct insurer" or
"cedant") procures a third person (the "reinsurer") to insure him against loss or liability by reason
of such original insurance. It is a separate and distinct arrangement from the original contract of
insurance, whose contracted risk is insured in the reinsurance agreement. The reinsurer's
contractual relationship is with the direct insurer, not the original insured, and the latter has no
interest in and is generally not privy to the contract of reinsurance. Put simply, reinsurance is the
"insurance of an insurance." By its nature, reinsurance contracts are issued in favor of the direct
insurer because the subject of such contracts is the direct insurer's risk-in this case, Plaridel's
contingent liability to MSAPL and not the risk assumed under the original policy. The requirement
under Section 4, Rule 57 of the Rules of Court that the applicant's bond be executed to the
adverse party necessarily pertains only to the attachment bond itself and not to any underlying
reinsurance contract. With or without reinsurance, the obligation of the surety to the party against
whom the writ of attachment is issued remains the same.

Malayan Insurance Co. vs. Lin

G.R. No. 207277; January 16, 2017

COMMISSIONER; NATURE OF CASES IN IC

FACTS:
Emma Lin owned six warehouses in Plaridel, Bulacan. The five warehouses were gutted
by fire. A Fire Clearance Certification was issued by the Bureau of Fire Protection after having
determined that the cause of fire was accidental. Despite this, Malayan denied Lin’s insurance
claim based on the findings of the forensic investigators hired by Malayan that the fire was caused
by arson and not accidental. She sought assistance from the Insurance Commission (IC) and
after meeting among the parties, IC recommended that Malayan pay Lin’s insurance claim.
Despite such recommendation, Malayan refused to pay Lin’s insurance claim.

Lin filed a civil case praying that Malayan pay her insurance claim plus interest.
Subsequently, she filed before the IC an administrative case against Malayan alleging that
Malayan should be liable for unfair claim settlement practice under Section 241 in relation to
Section 247 of the Insurance Code due to unjustified refusal to settle her claim. Malayan filed a
Motion to Dismiss the Civil Case based on Forum Shopping.

ISSUE:
Whether or not there was willful and deliberate forum shopping despite the fact that the
civil case and the administrative case both seek the payment of the same fire insurance claim.

HELD:
No. The settled rule is that criminal and civil cases are altogether different from
administrative matters, such that the disposition in the first two will not inevitably govern the third
and vice versa." The findings of the trial court will not necessarily foreclose the administrative
case before the IC, or vice versa. Causes of action in the civil case are predicated on the insurers'
refusal to pay her fire insurance claims despite notice, proofs of losses and other supporting
documents. The principal issue then that must be resolved by the trial court is whether or not
petitioner is entitled to the payment of her insurance claims and damages. The matter of whether
or not there is unreasonable delay or denial of the claims is merely an incident to be resolved by
the trial court, necessary to ascertain petitioner's right to claim damages, as prescribed by Section
244 of the Insurance Code.

On the other hand, the core, if not the sole bone of contention in the administrative case,
is the issue of whether or not there was unreasonable delay or denial of the claims of petitioner,
and if in the affirmative, whether or not that would justify the suspension or revocation of the
insurers' licenses.

Moreover, in Civil Case No. Q-95-23135, petitioner must establish her case by
a preponderance of evidence, or simply put, such evidence that is of greater weight, or more
convincing than that which is offered in opposition to it. In Adm. Case No. RD-156, the degree of
proof required of petitioner to establish her claim is substantial evidence, which has been defined
as that amount of relevant evidence that a reasonable mind might accept as adequate to justify
the conclusion.

In addition, the procedure to be followed by the trial court is governed by the Rules of
Court, while the [IC] has its own set of rules and it is not bound by the rigidities of technical rules
of procedure. These two bodies conduct independent means of ascertaining the ultimate facts of
their respective cases that will serve as basis for their respective decisions.
 Insular Life Assurance Company vs. Paz Y. Khu, Felipe Y. Khu Jr., Frederick Y. Khu
G.R. No. 195176; April 18, 2016

CHARACTERISTICS/NATURE OF INSURANCE CONTRACTS; INCONTESTABILITY;

STRICT CONSTRUCTION AGAINST THE INSURER

FACTS:
Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular Life. Felipe did
not declare any illness or adverse medical condition. Insular Life thereafter issued him a policy
with a face value of Php 1 million. This took effect on June 22, 1997. Felipe’s policy lapsed due
to nonpayment of the premium covering the period from June 22, 1999 to June 23, 2000.

On Sept. 7, 1999, Felipe applied for the reinstatement of his policy and paid Php 25,020.00
as premium. The new policy had identical information as to that of the original policy. Insular Life
advised Felipe that his application for reinstatement may only be considered if he agreed to certain
conditions such as payment of additional premium and the cancellation of the riders pertaining to
premium waiver and accidental death benefits, wherein Felipe agreed to those terms. The
following changes were made on the policy effective June 22, 1999

Felipe paid the annual premiums for the years 2000 to 2002. On Sept. 22, 2001, Felipe
died. The respondents filed with Insular Life a claim for the benefits under the reinstated policy.
But it was denied by Insular, and it rescinded the policy because of concealment and
misrepresentation by Felipe. The respondents instituted an action for specific performance with
damages.

ISSUE:
Is the reinstated life insurance policy already considered incontestable at the time of
Felipe’s death?

HELD:
Yes. The Insurance Code pertinently provides under Section 48 that whenever a right to
rescind a contract of insurance is given to the insurer by any provision of this chapter, such right
must be exercised previous to the commencement of an action on the contract. After a policy of
life insurance made payable on the death of the insured shall have been in force during the lifetime
of the insured for a period of two years from the date of its issue or of its last reinstatement, the
insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent
concealment or misrepresentation of the insured or his agent. The insurance contract is
considered to have been reinstated on June 22, 1999. The reinstatement of an insurance contract
should be reckoned from the date when the same was approved by the insurer. The date of last
reinstatement mentioned in Sec. 48 of the Insurance Code pertains to the date that the insurer
approved the application for reinstatement. Therefore, the insurance contract was deemed to be
reinstated on June 22, 1999 and considered as incontestable at the time of Felipe’s death on
Sept. 22, 2001.
 Sun Life of Canada (Philippines), Inc. vs. Ma. Daisy S. Sibya, et al.
G.R. No. 211212; June 08, 2016

DEVICES USED FOR ASCERTAINING AND CONTROLLING RISK AND LOSS;

CONCEALMENT; REPRESENTATION; INCONTESTABILITY CLAUSE

FACTS:
Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life insurance with Sun Life. In his
Application for Insurance, he indicated that he had sought advice for kidney problems. On
February 5, 2001, Sun Life approved Atty. Jesus Jr.'s application and issued an Insurance Policy.
The policy indicated the respondents as beneficiaries and entitles them to a death benefit of
P1,000,000.00 should Atty. Jesus Jr. dies on or before February 5, 2021, or a sum of money if
Atty. Jesus Jr. is still living on the endowment date.

On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound. Ma. Daisy the filed
a claim with Sun Life to seek the death benefits indicated in his insurance policy. However, Sun
Life denied the claim on the ground that the details on Atty. Jesus Jr.'s medical history were not
disclosed in his application. Sun Life tendered a check representing the refund of the premiums
paid by Atty. Jesus Jr.

Sun Life filed a Complaint for Rescission before the RTC and prayed for judicial
confirmation of Atty. Jesus Jr.'s rescission of insurance policy. Sun Life alleged that Atty. Jesus
Jr. did not disclose in his insurance application his previous medical treatment at the National
Kidney Transplant Institute. According to Sun Life, the undisclosed fact suggested that the insured
was in "renal failure" and at a high risk medical condition. Consequently, had it known such fact,
it would not have issued the insurance policy.

The respondents claimed that Atty. Jesus Jr. did not commit misrepresentation in his
application for insurance. They averred that Atty. Jesus Jr. was in good faith when he signed the
insurance application and even authorized Sun Life to inquire further into his medical history for
verification purposes.

The RTC held that Atty. Jesus Jr. did not commit material concealment and
misrepresentation when he applied for life insurance with Sun Life. It observed that given the
disclosures and the waiver and authorization to investigate executed by Atty. Jesus Jr. to Sun
Life, the latter had all the means of ascertaining the facts allegedly concealed by the applicant.
On appeal, the CA affirmed the RTC decision in ordering Sun Life to pay death benefits and
damages in favor of the respondents.

ISSUES:
1. May Sunlife rescind the insurance policy of Atty. Jesus, Jr.?
2. Was there concealment or misrepresentation when Atty. Jesus Jr. submitted his insurance
application with Sun Life?

HELD:
1. No. Sunlife may no longer rescind the insurance policy in question.

Under Section 48 of the ICP, an insurer is given two years - from the effectivity of a life
insurance contract and while the insured is alive - to discover or prove that the policy is void ab
initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured
or his agent. After the two-year period lapses, or when the insured dies within the period,
the insurer must make good on the policy, even though the policy was obtained by fraud,
concealment, or misrepresentation. This is not to say that insurance fraud must be rewarded,
but that insurers who recklessly and indiscriminately solicit and obtain business must be
penalized, for such recklessness and lack of discrimination ultimately work to the detriment
of bona fide takers of insurance and the public in general.23 (Manila Bankers Life Insurance
Corporation v. Aban)

In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Thus, it
has two years from its issuance, to investigate and verify whether the policy was obtained by
fraud, concealment, or misrepresentation. Upon the death of Atty. Jesus Jr., however, on May 11,
2001, or a mere three months from the issuance of the policy, Sun Life loses its right to rescind
the policy. As discussed in Manila Bankers, the death of the insured within the two-year period
will render the right of the insurer to rescind the policy nugatory. As such, the incontestability
period will now set in.

2. There was no concealment or misrepresentation on the part of Atty. Jesus Jr. committed
concealment and misrepresentation.

Atty. Jesus Jr. admitted in his application his medical treatment for kidney ailment.
Moreover, he executed an authorization in favor of Sun Life to conduct investigation in reference
with his medical history. Given the express language of the Authorization, it cannot be said that
Atty. Jesus Jr. concealed his medical history since Sun Life had the means of ascertaining Atty.
Jesus Jr.'s medical record.

With regard to the allegations of misrepresentation, it should be noted that Atty. Jesus Jr.
was not a medical doctor, and his answer "no recurrence" may be construed as an honest opinion.
Where matters of opinion or judgment are called for, answers made in good faith and without
intent to deceive will not avoid a policy even though they are untrue.

The intent to defraud on the part of the insured must be ascertained to merit rescission of
the insurance contract. Concealment as a defense for the 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 the present case, Sun Life failed to clearly and satisfactorily establish its allegations,
and is therefore liable to pay the proceeds of the insurance.

Bank of the Philippine Islands and FGU Insurance Corporation vs. Yolanda Laingo
G.R. No. 205206; March 16, 2016

FILING OF CLAIM

FACTS:
Rheozel Laingo, son of respondent Yolanda Laingo, opened a Platinum 2-in-1 Savings
and Insurance account with petitioner BPI. The Platinum 2-in-1 Savings and Insurance account
is a savings account where depositors are automatically covered by an insurance policy against
disability and death issued by petitioner FGU Insurance Corporation (now know as BPI/MS
Insurance Corporation). Rhoezel’s beneficiary is Laingo. Rhoezel died due to a vehicular
accident. Laingo instructed the family’s personal secretary Alice Torbanos to go to BPI and insure
about the savings account of Rhoezel to be used for the latter’s burial and funeral expenses. BPI
granted the withdrawal worth P995,000.00. 2 years later, Rheozel’s sister Rhealyn found the
Personal Accident Insurance Coverage Certificate issued by FGU Insurance. Laingo sent 2 letters
requesting them to process her claim as beneficiary of the policy, FGU Insurance denied the same
stating that she should have filed the claim within 3 months from the death of Rheozel as required
by Par. 15 of the Personal Accident Insurance Coverage Certificate.

Laingo filed a Complaint for Specific Performance with Damages and Attorney’s Fees with
the RTC against herein petitioner. RTC ruled in favor of BPI. On appeal, CA reversed the ruling
stating that Laingo could not be expected to do an obligation which she did not know existed.

ISSUE:
Whether Laingo, named beneficiary and who had no knowledge of the existence of the
insurance contract, is bound by the 3 month deadline for filing a written notice of claim upon the
death of the insured.

HELD:
BPI offered a deposit savings account with life and disability insurance coverage to its
customers called the Platinum 2-in-1 Savings and Insurance account. This was a marketing
strategy promoted by BPI in order to entice customers to invest their money with the added benefit
of an insurance policy. As the main proponent of the 2-in-1 deposit account, BPI tied up with its
affiliate, FGU Insurance, as its partner. BPI acted as agent of FGU Insurance with respect to the
insurance feature of its own marketed product. Under the law, an agent is one who binds himself
to render some service or to do something in representation of another. BPI, as agent of FGU
Insurance, had the primary responsibility to ensure that the 2-in-1 account be reasonably carried
out with full disclosure to the parties concerned, particularly the beneficiaries. Thus, it was
incumbent upon BPI to give proper notice of the existence of the insurance coverage and the
stipulation in the insurance contract for filing a claim to Laingo, as Rheozel's beneficiary, upon the
latter's death.

BPI had been informed of Rheozel's death by the latter's family when they claimed for the
money in Rheozel’s savings account to be used for the funeral and burial expenses. Rheozel’s
death was also published in a newspaper being a prominent figure, and an employee of the bank
went to the funeral of Rheozel. There is a rationale in the contract of agency, which flows from
the "doctrine of representation," that notice to the agent is notice to the principal. Since BPI is the
agent of FGU Insurance, then such notice of death to BPI is considered as notice to FGU
Insurance as well. In short, there was timely notice of Rheozel's death given to FGU Insurance
within three months from Rheozel's death as required by the insurance company. BPI, as agent
of FGU Insurance, fell short in notifying Laingo of the existence of the insurance policy, Laingo
had no means to ascertain that she was entitled to the insurance claim. It would be unfair for
Laingo to shoulder the burden of loss when BPI was remiss in its duty to properly notify her that
she was a beneficiary.

Paramount Life & General Insurance Corp. vs. Castro

G.R. No. 195728; April 19, 2016

MORTGAGE REDEMPTION INSURANCE

FACTS:
Virgilio Castro, husband and father of the respondents - obtained a housing loan from the
PPSBI in the amount of P1.5 million. PPSBI required Virgilio to apply for a mortgage redemption
insurance (MRI) from Paramount to cover the loan. In his application for the said insurance policy,
Virgilio named Cherry and Glenn as beneficiaries. Paramount issued the policy in his favor,
subject to the terms and conditions of Group Master Policy of PPSBI.

Virgilio then died of septic shock. Consequently, a claim was filed for death benefits under
the individual insurance coverage issued under the group policy. Paramount however denied the
claim, on the ground of the failure of Virgilio to disclose material information, or material
concealment or misrepresentation by answering "no" to questions on whether he had any adverse
health history and whether he had sought medical advice or consultation concerning it. Paramount
prayed that the policy covering the individual insurance of Virgilio be declared null and void by
reason of material concealment and misrepresentation.

ISSUES:
Whether the CA erred in remanding the case to the RTC for the admission of the Third-
Party Complaint against PPSBI in the nullification case instituted by Paramount since they
theorized that by virtue of the death of Virgilio and the mandate of the group insurance policy in
relation to his individual insurance policy, the PPSBI stepped into the shoes of Cherry and Glenn
by virtue of the Mortgage Redemption Insurance.

HELD:
No.

The soundness of admitting a third-party complaint hinges on causal connection between

the claim of the plaintiff in his complaint and a claim for contribution, indemnity or other relief of
the defendant against the third-party defendant.

In this case, the Castro’s stand to incur a bad debt to the PPSBI - the exact event that is
insured against by Group Master Policy - in the event that Paramount succeeds in nullifying
Virgilio's Individual Insurance Certificate.

The CA correctly ruled that to admit the Castro’s Third-Party Complaint, in which they can
assert against the PPSBI an independent claim they would otherwise assert in another action,
would prevent multiplicity of suits. Considering also that the original case from which these
present Petitions arose has not yet been resolved, the Court deems it proper to have all the parties
air all their possible grievances in the original case still pending with the RTC.

Capital Insurance and Surety Co., Inc vs. Del Monte Motor Works
G.R. No. 159979; December 09, 2015

SECURITY DEPOSIT

FACTS:
Respondent sued Vilfran Liner, Inc., Hilaria F. Villegas and Maura F. Villegas in the (RTC)
to recover the unpaid billings. The RTC, to which the case was assigned, issued the writ of
preliminary attachment, which the sheriff served on the defendants, resulting in the levy of 10
buses and three parcels of land belonging to the defendants. The sheriff also sent notices of
garnishment of the defendants' funds.
 The levy and garnishment prompted defendant Maura F. Villegas to file an Extremely
Urgent Motion to Discharge Upon Filing of a Counterbond, attaching thereto CISCO Bond. The
RTC approved the counterbond and discharged the writ of preliminary attachment.

RTC rendered its decision in favor of the respondent. To enforce the decision against the
counterbond the respondent moved for execution. The RTC granted the motion, over the
petitioner's opposition. Serving the writ of execution, the sheriff levied against the petitioner's
personal properties, the sheriff also served a notice of garnishment against the security deposit
of the petitioner in the Insurance Commission.

The sheriff served a copy of the resolution on the then Insurance Commissioner Edgardo
T. Malinis, with the request for him to release the security deposit. However, Insurance
Commissioner Malinis turned down the request to release, citing Section 203 of the Insurance
Code, which expressly provided that the security deposit was exempt from execution.

ISSUE:
Whether or not the security deposit is subject to levy or execution.

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

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, as 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 securities of the insurer
held on deposit under this section or held on deposit pursuant to the
requirement of the Commissioner.

The forthright text of provision indicates that the security deposit is exempt from levy by a
judgment creditor or any other claimant. This exemption has been recognized in several rulings,
particularly in Republic v. Del Monte Motors, Inc. the prequel case for this ruling, where the Court
has ruled:

x x x As worded, the law expressly and clearly states that the security
deposit shall be (1) answerable for all the obligations of the depositing insurer
under its insurance contracts; (2) at all times free from any liens or encumbrance;
and (3) exempt from levy by any claimant.

To be sure, CISCO, though presently under conservatorship, has valid

outstanding policies. Its policy holders have a right under the law to be equally
 protected by its security deposit. To allow the garnishment of that deposit would
impair the fund,by decreasing it to less than the percentage of paid-up capital that
the law requires to be maintained. Further, this move would create, in favor of
respondent, a preference of credit over the other policy holders and beneficiaries.

Republic v. Del Monte Motors, Inc. also spelled out the purpose for the enactment of
Section 203 of the Insurance Code, to wit:

Basic is the statutory construction rule that provisions of a statute should

be construed in accordance with the purpose for which it was enacted. That is, the
securities are held as a contingency fund to answer for the claims against the
insurance company by all its policy holders and their beneficiaries. This step is
taken in the event that the company becomes insolvent or otherwise unable to
satisfy the claims against it. Thus, a single claimant may not lay stake on the
securities to the exclusion of all others. The other parties may have their own
claims against the insurance company under other insurance contracts it has
entered into.

What right, if any, did the respondent have in the petitioner's security deposit?

According to Republic v. Del Monte Motors, Inc. the right to claim against the security
deposit is dependent on the solvency of the insurance company, and is subject to all other
obligations of the insurance company arising from its insurance contracts. Accordingly, the
respondent's interest in the security deposit could only be inchoate or a mere expectancy, and
thus had no attribute as property.

Loadstar Shipping Company, Incorporated and Loadstar International Shipping

Company, Incorporated vs. Malayan Insurance Company, Incorporated
G.R. No. 185565; November 26, 2014

RIGHT OF SUBROGATION

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. Copper concentrates were loaded in 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.

M/V "Bobcat" sailed from Poro Point, San Fernando, La Union bound for Isabel, Leyte.
During the sail, a crack on starboard side of the main deck caused seawater to enter and wet the
cargo inside Cargo Hold No. 2. The contaminated copper concentrates were rejected by PASAR.
PASAR then sent a formal notice of claim in the amount of [P]37,477,361.31 to Loadstar Shipping.
Malayan paid PASAR the amount of [P]32,351,102.32 on the basis of the recommendation of the
surveyor.

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. 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%.

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. Malayan instituted with RTC a complaint for damages. RTC
ruled in favor of Loadstar. On appeal, the CA reversed.

ISSUE:
Is Malayan, by virtue of its payment to PASAR, entitled to automatic right of recovery by
virtue of subrogation?

HELD:
No, Malayan is not entitled to automatic recovery by virtue of subrogation.

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 "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 wrong doer or the person who has violated the contract. xxx"

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."

"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.

PASAR and Malayan never proved the actual damages sustained by PASAR. It is a flawed
notion to merely accept that the salvage value of the goods is US$90,000.00, since the price was
arbitrarily fixed between PASAR and Malayan.

"The burden of proof is on the party who would be defeated if no evidence would be
presented on either side. The burden is to establish one’s case by a preponderance of evidence
which means that the evidence, as a whole, adduced by one side, is superior to that of the other.
Actual damages are not presumed. The claimant must prove the actual amount of loss with a
reasonable degree of certainty premised upon competent proof and on the best evidence
obtainable. Specific facts that could afford a basis for measuring whatever compensatory or actual
damages are borne must be pointed out. Actual damages cannot be anchored on mere surmises,
speculations or conjectures."

Hence, petition is granted. The decision of the CA is reversed and set aside. The decision
of the RTC is reinstated.

Sun Life of Canada vs. Sandra Tan Kit

G.R. NO. 183272; October 15, 2014

PREMIUM (INTEREST RATE ON REFUND OF PREMIUMS)

FACTS:
Respondent Tan Kit is the widow and designated beneficiary of Norberto Tan Kit
(Norberto), whose application for a life insurance policy, was granted by petitioner on October 28,
1999. On February 19, 2001, or within the two-year contestability period, Norberto died.
Consequently, Tan Kit filed a claim under the subject policy. Petitioner denied Tan Kit’s claim on
account of Norberto’s concealment of material information in his insurance application. Petitioner
opined that its liability is limited to the refund of all the premiums paid. Accordingly, it enclosed in
the said letter a check for P13,080.93 representing the premium refund.

Tan Kit refused to accept the check and insisted on the payment of the insurance
proceeds. Petitioner filed a Complaint for Rescission of Insurance Contract before the RTC which
ruled in her favor. The CA reversed the RTC ruling and ruled that petitioner pay Tan Kit the
premiums paid with 12% interest per annum from the time of insured’s death until fully paid.

ISSUE:
Whether petitioner is liable to pay interest on the premium to be refunded to respondents.

HELD:
No, petitioner is not liable to pay interest on the premium to be refunded as he was neither
in delay nor was it remiss in complying with its obligation in cases of cancellation of health care
insurance.

There are two types of interest – monetary and compensatory. Monetary interest refers to
the compensation set by the parties for the use or forbearance of money. On the other hand,
compensatory interest refers to the penalty or indemnity for damages imposed by law or by the
courts. The interest imposed by the CA is not monetary interest because aside from the fact that
there is no use or forbearance of money involved in this case, the subject interest was not one
which was agreed upon by the parties in writing. In this case, it is undisputed that simultaneous
to its giving of notice to respondents that it was rescinding the policy due to concealment,
petitioner tendered the refund of premium by attaching to the said notice a check representing
the amount of refund. However, respondents refused to accept the same since they were seeking
for the release of the proceeds of the policy. Moreover, we find that petitioner did not incur delay
or unjustifiably deny the claim.

Based on the foregoing, petitioner properly complied with its obligation under the law and
contract. Hence, it should not be made liable to pay compensatory interest.
 Alvarez II vs. Sun Life of Canada
G.R. NO. 206674; September 29, 2014

CONCEALMENT; INCONTESTABILITY CLAUSE

FACTS:
On December 1, 2003, respondent Sun Life of Canada (Philippines), Inc. issued Life
Insurance Policy to petitioner Erlinda V. Alvarez II covering the life of her mother Erlinda V.
Alvarez, the insured, with a face value of P500,000.00 payable upon the death of said insured.
On April 27, 2005, the insured passed away. Thereafter, respondent sent petitioner a letter
requiring the submission of documents to facilitate her claim under the policy, one of which was
an authorization of any physician who has attended to the insured to give the respondent details
on the prior medical history thereof. Discovering several medical conditions which pre-dated the
application for the policy, respondent sent petitioner another letter declaring the policy void and
denying petitioner's claim therefrom. Specifically, it discovered that in 2003, the insured sought
consultations with the following: (1) University of Santo Tomas (USD Hospital, which found her to
be suffering from stable angina, atherosclerosis, and lateral wall ischemia; and (2) AIM Imaging
Medical Services, which likewise found her to be suffering from lateral wall ischemia. Respondent
refused to pay for the proceeds of the policy. Hence, petitioner filed a breach of contract with the
RTC. RTC ruled in favor of the petitioner. CA reversed RTC’s ruling holding that petitioner
concealed material facts and that the respondent is not barred by the incontestability clause.

ISSUES:
1. Is the petitioner guilty of concealment of material facts?
2. Is the respondent barred by the incontestability clause in rescinding the contract of
insurance?

HELD:
1. Yes, the petitioner is guilty of concealment.

Section 27 of the Insurance Code provides that a concealment, whether intentional or

unintentional, entitles the injured party to rescind a contract of insurance. Concealment, according
to the same Code, is a neglect to communicate that which a party knows and ought to
communicate. A party to an insurance contract, therefore, is obliged to communicate all facts
within his knowledge which are material to the same, to be determined by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in forming
his estimate of the disadvantages of the proposed contract, or in making his inquiries.

In the case at hand, it is undisputed that prior to the approval of the insured's insurance
policy and during the stage of her application, she did not disclose the fact that she consulted with
the UST Hospital and the AIM Imaging Medical Services which diagnosed her to be suffering from
stable angina, atherosclerosis, and lateral wall ischemia.

2. No, the respondent is not barred by the incontestability clause.

Section 48(2) of the Insurance Code provides that after a policy of life insurance made
payable on the death of the insured shall have been in force during the lifetime of the insured for
a period of two (2) years from the date of its issue or of its last reinstatement, the insurer cannot
prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.
 The insured herein died on April 27, 2005 while the insurance policy was issued on
December 1, 2003. Hence, since the incontestability period of two years had not yet set in,
respondent was not barred from rescinding the contract on the ground of concealment or
misrepresentation, receipt of premium payments from petitioner, notwithstanding.

H.H. Hollero Construction, Inc. vs.

Government Service Insurance System and Pool of Machinery Insurers
G.R. No. 152334; September 24, 2014

PERIOD OF PRESCRIPTION

FACTS:
In 1988, the GSIS and petitioner entered into a Project Agreement (Agreement) whereby
the latter undertook the development of a GSIS housing project known as Modesta Village Section
B (Project). Petitioner obligated itself to insure the Project, including all the improvements, upon
the execution of the Agreement under a Contractors’ All Risks (CAR) Insurance with the GSIS
General Insurance Department for an amount equal to its cost or sound value, which shall not be
subject to any automatic annual reduction. Pursuant to its undertaking, petitioner secured policies
for land development and for the construction of twenty (20) housing units. In turn, the GSIS
reinsured the land development with respondent Pool of Machinery Insurers (Pool). Under both
policies, it was provided that: (a) there must be prior notice of claim for loss, damage or liability
within fourteen (14) days from the occurrence of the loss or damage; (b) all benefits thereunder
shall be forfeited if no action is instituted within twelve(12) months after the rejection of the claim
for loss, damage or liability; and (c) if the sum insured is found to be less than the amount required
to be insured, the amount recoverable shall be reduced to such proportion before taking into
account the deductibles stated in the schedule (average clause provision).

During the construction, three (3) typhoons hit the country, namely, Typhoon Biring,
Typhoon Huaning, and Typhoon Saling, which caused considerable damage to the Project.
Accordingly, petitioner filed several claims for indemnity with the GSIS on June 30, 1988, August
25, 1988, and October 18, 1989, respectively. In a letter dated April 26, 1990, the GSIS rejected
petitioner’s indemnity claims for the damages wrought by Typhoons Biring and Huaning, finding
that no amount is recoverable pursuant to the average clause provision under the policies. In a
letter dated June 21, 1990, the GSIS similarly rejected petitioner’s indemnity claim for damages
wrought by Typhoon Saling on a "no loss" basis, it appearing from its records that the policies
were not renewed before the onset of the said typhoon. In a letter dated April 18, 1991, petitioner
impugned the rejection of its claims for damages/loss on account of Typhoon Saling, and
reiterated its demand for the settlement of its claims.

On September 27, 1991, petitioner filed a complaint for sum of money and damages
before the RTC, which was opposed by the GSIS through a Motion to Dismiss on the ground that
the causes of action stated therein are barred by the twelve-month limitation provided under the
policies, i.e., the complaint was filed more than one(1) year from the rejection of the indemnity
claims. The RTC denied the said motion; hence, the GSIS filed its answer with counterclaims for
litigation expenses, attorney’s fees, and exemplary damages. Subsequently, the GSIS filed a third
party complaint for indemnification against Pool, the reinsurer. In its judgment, the RTC granted
petitioner’s indemnity claims.

Dissatisfied, the GSIS elevated the matter to the CA, which set aside and reversed the
RTC judgment, thereby dismissing the complaint. It ruled that the complaint filed on September
27, 1991 was barred by prescription, having been commenced beyond the twelve-month limitation
provided under the policies, reckoned from the final rejection of the indemnity claims on April 26,
1990 and June 21, 1990.

ISSUE:
Did the CA commit reversible error in dismissing the complaint on the ground of
prescription?

HELD:
NO. The CA did not err in dismissing the complaint for sum of money and damages under
the insurance policies on the ground of prescription.

Contracts of insurance, like other contracts, are to be construed according to the sense
and meaning of the terms which the parties themselves have used. If such terms are clear and
unambiguous, they must be taken and understood in their plain, ordinary, and popular sense.

In this case, Section 10 of the General Conditions of the subject policies commonly read:
“If a claim is in any respect fraudulent, or if any false declaration is made or used in support
thereof, or if any fraudulent means or devices are used by the Insured or anyone acting on his
behalf to obtain any benefit under this Policy, or if a claim is made and rejected and no action or
suit is commenced within twelve months after such rejection or, in case of arbitration taking place
as provided herein, within twelve months after the Arbitrator or Arbitrators or Umpire have made
their award, all benefit under this Policy shall be forfeited.

A perusal of the letter dated April 26, 1990 shows that the GSIS denied petitioner’s
indemnity claims wrought by Typhoons Biring and Huaning, it appearing that no amount was
recoverable under the policies. While the GSIS gave petitioner the opportunity to dispute its
findings, neither of the parties pursued any further action on the matter; this logically shows that
they deemed the said letter as a rejection of the claims. Lest it cause any confusion, the statement
in that letter pertaining to any queries petitioner may have on the denial should be construed, at
best, as a form of notice to the former that it had the opportunity to seek reconsideration of the
GSIS’s rejection. Surely, petitioner cannot construe the said letter to be a mere "tentative
resolution." In fact, despite its disavowals, petitioner admitted in its pleadings that the GSIS indeed
denied its claim through the aforementioned letter.

This, it is clear that petitioner's causes of action for indemnity respectively accrued from
its receipt of the letters dated April 26, 1990 and June 21, 1990, or the date the GSIS rejected its
claims in the first instance. Consequently, given that it allowed more than twelve (12) months to
lapse before filing the necessary complaint before the RTC on September 27, 1991, its causes of
action had already prescribed.

People's Trans-East Asia Insurance Corporation, a.k.a. People's General Insurance

Corporation vs. Doctors of New Millennium Holdings, Inc.
G.R. No. 172404; August 13, 2014

SURETY

FACTS:
Doctors of New Millennium Holdings, Inc. is a domestic corporation comprised of about 80
doctors. It entered into a construction and development agreement (signed agreement) with
Million State Development Corporation, a contractor, for the construction of a 200-bed capacity
hospital.

According to the terms of the signed agreement, Doctors of New Millennium obliged itself
to pay ₱10,000,000.00 to Million State Development at the time of the signing of the agreement
to commence the construction of the hospital. Million State Development was to shoulder 95% of
the project cost and committed itself to secure ₱385,000,000.00 within 25 banking days from
Doctors of New Millennium’s initial payment, part of which was to be used for the purchase of the
lot where the hospital was to be constructed.

As part of the conditions prior to the initial payment, Million State Development submitted
a surety bond of ₱10,000,000.00 to Doctors of New Millennium. The surety bond was issued by
People’s Trans-East Asia Insurance Corporation, now known as People’s General Insurance
Corporation. Doctors of New Millennium, on the other hand, made the initial payment of
₱10,000,000.00.

Million State Development, however, failed to comply with its obligation to Doctors of New
Millenium. As a result, Doctors of New Millennium sent a demand letter to People’s General
Insurance for the return of its initial payment of ₱10,000,000.00, in accordance with its surety
bond.

The surety claim was denied on the ground that the guarantee only extended to "the full
and faithful construction of a First Class 200 hospital bed building" and not to "the ‘funding’ of the
construction of the hospital. Petitioner alleged that without its knowledge and consent, Doctors of
New Millennium and Million State Development substantially altered the conditions of the draft
agreement by inserting the clause” or the Project Owner’s waiver," which appeared in the signed
agreement. It explains that under the draft agreement, Million State Development "must hurdle
certain stringent requirements" before the ₱10,000,000.00 initial payment could be released to it.
It added that the clause "effectively deprived [it] of the opportunity to objectively assess the real
risk of its undertaking and fix the reasonable rate of premium thereon." This, it argues, constituted
an implied novation, which should automatically relieve it from its undertaking as a surety as it
makes its obligation more onerous

On the other hand, Doctors of New Millennium, testified that the surety bond was entered
into to protect the release of the ₱10,000,000.00 initial mobilization fund. It added that there was
no novation since the draft agreement was not yet a valid and binding contract between it and
Million State Development. It alleged that Million State Development entered into a surety
agreement with People’s General Insurance on the basis of the draft agreement without its
knowledge.

ISSUE:
Is the disputed clause material to the respondent’s undertaking to guarantee Millions State
Development’s initial payment?

HELD:
No. The disputed clause is not material for the respondent to be liable on its undertaking
to guarantee MSD’s initial payment.

Sec. 176 of the Insurance Code provides that the liability of the surety or sureties shall be
joint and several with the obligor and shall be limited to the amount of the bond. It is determined
strictly by the terms of the contract of suretyship in relation to the principal contract between the
obligor and the obligee.

In the case given, Million State Development’s obligations under the contract subsist
regardless of whether respondent waives the conditions for the release of the initial payment. Its
obligation upon the release of the initial payment was for it to "make available the funds
constituting the Balance Payment in the amount of PhP 385,000,000 within 25 banking days from
payment by the Project Owner of the Initial Payment. It is this performance of this obligation that
the surety primarily guarantees.

Petitioner cannot feign ignorance of Million State Development’s obligation to provide the
funds for the balance since this provision was present in both the draft agreement and the signed
agreement. Since Million State Development failed to fulfill its obligation, the surety becomes
jointly and severally liable for the amount of the bond.

Fortune Medicare, Inc. vs. David Reobert Amorin

G.R. No. 195827; March 12, 2014

NON-LIFE INSURANCE; CONTRACT OF ADHESION; INTERPRETATION

FACTS:
Amorin was a cardholder/member of Fortune. The terms of his medical coverage were
provided in a Health Care Contract executed by Fortune Care and the House of Representatives,
where Amorin was a permanent employee.

While on vacation in Honolulu, Hawaii, Amorin underwent an emergency surgery –

appendectomy, causing him to incur professional and hospitalization expenses of US$7,242.35
and US$1,777.79, respectively. He attempted to recover from Fortune Care the full amount but
the company merely approved a reimbursement of ₱12,151.36, an amount that was based on the
average cost of appendectomy, net of medicare deduction, if the procedure were performed in an
accredited hospital in Metro Manila. Amorin received under protest the approved amount, but
asked for its adjustment to cover the total amount of professional fees which he had paid, and
eighty percent (80%) of the approved standard charges based on "American standard",
considering that the emergency procedure occurred in the U.S.A. To support his claim, Amorin
cited Section 3, Article V on Benefits and Coverages of the Health Care Contract:

A. EMERGENCY CARE IN ACCREDITED HOSPITAL. Whether as an in-patient

or out-patient, the member shall be entitled to full coverage under the benefits
provisions of the Contract at any Fortune Care accredited hospitals subject only to
the pertinent provision of Article VII (Exclusions/Limitations) hereof. For
emergency care attended by non-affiliated physician (MSU), the member shall be
reimbursed 80% of the professional fee which should have been paid, had the
member been treated by an affiliated physician. The availment of emergency care
from an unaffiliated physician shall not invalidate or diminish any claim if it shall be
shown to have been reasonably impossible to obtain such emergency care from
an affiliated physician.

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, Fortune Care 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 nonaccredited 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. x x x

Fortune Care denied Amorin’s request. It argued that the Health Care Contract did not
cover hospitalization costs and professional fees incurred in foreign countries, as the contract’s
operation was confined to Philippine territory. Further, it argued that its liability to Amorin was
extinguished upon the latter’s acceptance from the company of the amount of ₱12,151.36. Hence,
this case.

RTC: Dismissed Amorin’s complaint. Taking the contract as a whole, the RTC is
convinced that the parties intended to use the Philippine standard as basis. Dissatisfied, Amorin
appealed the RTC decision to the CA.

CA: Granted the appeal. In so ruling, the appellate court pointed out that, first, health care
agreements such as the subject Health Care Contract, being like insurance contracts, must be
liberally construed in favor of the subscriber. In case its provisions are doubtful or reasonably
susceptible of two interpretations, the construction conferring coverage is to be adopted and
exclusionary clauses of doubtful import should be strictly construed against the provider. Second,
the CA explained that there was nothing under Article V of the Health Care Contract which
provided that the Philippine standard should be used even in the event of an emergency
confinement in a foreign territory.

Fortune Care’s motion for reconsideration was denied in a Resolution. Hence, the filing of
the present petition for review on certiorari.

ISSUE:
WON CA erred in ruling that the phrase "approved standard charges" is subject to
interpretation

HELD:
NO. The Court finds no cogent reason to disturb the CA’s finding.

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

As may be gleaned from the Health Care Contract, the parties 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" was vague and ambiguous, as it could be susceptible of different
meanings. Plainly, the term "standard charges" could be read as referring to the "hospitalization
costs and professional fees" which were specifically cited as compensable even when incurred in
a foreign country. Contrary to Fortune Care’s argument, from nowhere in the Health Care Contract
could it be reasonably deduced that these "standard charges" referred to the "Philippine
standard", or that cost which would have been incurred if the medical services were performed in
an accredited hospital situated in the Philippines. The parties to the Health Care Contract made
a clear distinction between emergency care in an accredited hospital, and that obtained from a
non-accredited hospital. The limitation on payment based on "Philippine standard" for services of
accredited physicians was expressly made applicable only in the case of an emergency care in
an accredited hospital.

The proper interpretation of the phrase "standard charges" could instead be correlated
with and reasonably inferred from the other provisions of Section 3(B), considering that Amorin’s
case fell under the second case, i.e., emergency care in a non-accredited hospital. Rather than a
determination of Philippine or American standards, the first part of the provision speaks of the full
reimbursement of "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"
within the Philippines. Thus, for emergency care in non-accredited hospitals, this cited clause
declared the standard in the determination of the amount to be paid, without any reference to and
regardless of the amounts that would have been payable if the treatment was done by an affiliated
physician or in an affiliated hospital. For treatments in foreign territories, the only qualification was
only as to the percentage, or 80% of that payable for treatments performed in non-accredited
hospital.

All told, in the absence of any qualifying word that clearly limited Fortune Care's liability to
costs that are applicable in the Philippines, the amount payable by Fortune Care should not be
limited to the cost of treatment in the Philippines, as to do so would result in the clear disadvantage
of its member. If, as Fortune Care argued, the premium and other charges in the Health Care
Contract were merely computed on assumption and risk under Philippine cost and, that the
American cost standard or any foreign country's cost was never considered, such limitations
should have been distinctly specified and clearly reflected in the extent of coverage which the
company voluntarily assumed.

Settled is the rule that ambiguities in a contract are interpreted against the party that
caused the ambiguity. "Any ambiguity in a contract whose terms are susceptible of different
interpretations must be read against the party who drafted it.
 Mitsubishi Motors Philippines Salaried Employees Union (MMPSEU) vs.
Mitsubishi Motors Philippines Corporation
G.R. No. 175773; June 17, 2013

NON-LIFE INSURANCE CONTRACT

FACTS:
The Collective Bargaining Agreement (CBA) of the parties in this case provides that the
company shoulder the hospitalization expenses of the dependents of covered employees subject
to certain limitations and restrictions. Accordingly, covered employees pay part of the
hospitalization insurance premium through monthly salary deduction while the company, upon
hospitalization of the covered employees’ dependents, shall pay the hospitalization expenses
incurred for the same.

The conflict arose when a portion of the hospitalization expenses of the covered
employees’ dependents were paid/shouldered by the dependent’s own health insurance. While
the company refused to pay the portion of the hospital expenses already shouldered by the
dependents’ own health insurance, the union insists that the covered employees are entitled to
the whole and undiminished amount of said hospital expenses.

By this Petition for Review on Certiorari, petitioner Mitsubishi Motors Philippines Salaried
Employees Union (MMPSEU) assails the Decision and Resolution of the Court of Appeals (CA)
which reversed and set aside the Voluntary Arbitrator’s Decision and declared respondent
Mitsubishi Motors Philippines Corporation (MMPC) to be under no legal obligation to pay its
covered employees’ dependents’ hospitalization expenses which were already shouldered by
other health insurance companies.

ISSUE:
Whether or not recovery from both the CBA and separate health cards is not prohibited in
the absence of any specific provision in the CBA

HELD:
The conditions set forth in the CBA provision indicate an intention to limit MMPC’s
liability only to actual expenses incurred by the employees dependents, that is, excluding
the amounts paid by dependents’ other health insurance providers. The Voluntary Arbitrator
ruled that the CBA has no express provision barring claims for hospitalization expenses already
paid by other insurers. Hence, the covered employees can recover from both. The conditions
set forth in the CBA implied an intention of the parties to limit MMPC’s liability only to the extent
of the expenses actually incurred by their dependents which excludes the amounts shouldered
by other health insurance companies. The condition that payment should be direct to the hospital
and doctor implies that MMPC is only liable to pay medical expenses shouldered by the
employees’ dependents. It follows that MMPC’s liability is limited, that is, it does not include the
amounts paid by other health insurance providers. This condition is obviously intended to thwart
not only fraudulent claims but also double claims for the same loss of the dependents of covered
employees. Consequently, MMPSEU cannot rely on the rule that a contract of insurance is to be
liberally construed in favor of the insured. Neither can it rely on the theory that any doubt must be
resolved in favor of labor.
 To allow reimbursement of amounts paid under other insurance policies shall
constitute double recovery which is not sanctioned by law. Being a non-life insurance
contract and essentially a contract of indemnity, the CBA provision obligates MMPC to indemnify
the covered employees’ medical expenses incurred by their dependents but only up to the extent
of the expenses actually incurred. This is consistent with the principle of indemnity which
proscribes the insured from recovering greater than the loss. Indeed, to profit from a loss will lead
to unjust enrichment and therefore should not be countenanced. As aptly ruled by the CA, to
grant the claims of MMPSEU will permit possible abuse by employees.

Vector Shipping Corporation, Fransisco Soriano vs.

American Home Assurance Company, Sulpicio Lines, Inc.
G.R. No. 159213; July 03, 2013

RIGHT TO SUBROGATION

FACTS:
Vector was the operator of the motor tanker M/T Vector, while Soriano was the registered
owner of the M/T Vector. Caltex entered into a contract of affreightment with Vector for the
transport of Caltex’s petroleum cargo through the M/T Vector. Caltex insured the petroleum cargo
with respondent for P7,455,421.08 under a Marine Open Policy. In the evening of 20 December
1987, the M/T Vector and the M/V Doña Paz, the latter a vessel owned and operated by Sulpicio
Lines, Inc., collided in the open sea which led to the sinking of both vessels. The entire petroleum
cargo of Caltex on board the M/T Vector perished. On 12 July 1988, respondent indemnified
Caltex for the loss of the petroleum cargo in the full amount of P7,455,421.08. On March 5, 1992,
respondent filed a complaint (civil case) against Vector, Soriano, and Sulpicio Lines, Inc. to
recover the full amount of P7,455,421.08 it paid to Caltex.

RTC dismissed the civil case on the ground of prescription. RTC ruled further that since
an action based on quasi-delict must be commenced within four years from the day the quasi-
delict occurred. The tort complained of in this case occurred on 20 December 1987. The action
arising therefrom would under the law prescribe, unless interrupted, on 20 December 1991. The
CA reversed the RTC and ruled that Vector and Soriano are solidarily liable to respondent to for
reimbursement of the amount paid to Caltex. The CA ruled that what existed between Caltex and
M/T Vector is culpa contractual based on a Contract of Affreightment or a charter party, and
;since actions arising from written contracts must be brought within 10 years from the time the
right of action accrued, the action has not yet prescribed. It ruled that Article 2207 of the Civil
Code on subrogation is explicit that if the plaintiff’s property has been insured, and he has received
indemnity from the insurance company for the injury or loss the insurance company should be
subrogated to the rights of the insured against the wrongdoer or the person who has violated the
contract. Undoubtedly, the herein appellant has the rights of a subrogee to recover from
M/T Vector what it has paid by way of indemnity to Caltex.

ISSUE:
Whether or not the action of the respondent was already barred by prescription

HELD:
NO, the action is not yet barred by prescription.

While the SC agreed with the CA that the action has not yet prescribed, it ruled that the
cause of action was not based on a written contract Contract of Affreightment but upon an
obligation created by law. It came under Article 1144 (2) of the Civil Code. This is because
the subrogation of respondent to the rights of Caltex as the insured was by virtue of the express
provision of law embodied in Article 2207 of the Civil Code and as a consequence, payment by
the insurer to the assured operates as an equitable assignment to the former of all remedies which
the latter may have against the third party whose negligence or wrongful act caused the loss. 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.

Considering that the cause of action accrued as of the time respondent actually
indemnified on July 12, 1988, the action was not yet barred by the time of the filing of its complaint
on March 5, 1992, which was well within the 10-year period prescribed by Article 1144 of the Civil
Code.

Asian Terminals, Inc. vs. Philam Insurance Co., Inc.

G.R. No. 181319; July 24, 2013

RIGHT OF SUBROGATION

FACTS:
Nichimen Corporation shipped to Universal Motors Corporation (Universal Motors) 219
packages containing 120 units of brand new Nissan Pickup Truck Double Cab 4x2 model, without
engine, tires and batteries, on board the vessel S/S "Calayan Iris" from Japan to Manila. The
shipment, which had a declared value of US$81,368 or ₱29,400,000, was insured with Philam
against all risks. The carrying vessel arrived at the port of Manila on April 20, 1995, and when the
shipment was unloaded by the staff of ATI, it was found that the package marked as 03-245-
42K/1 was in bad order. On August 4, 1995, Universal Motors filed a formal claim for damages in
the amount of ₱643,963.84 against Westwind, ATI (Shipper) and R.F. Revilla Customs Brokerage
(Broker), Inc. When Universal Motors’ demands remained unheeded, it sought reparation from
and was compensated in the sum of ₱633,957.15 by Philam. Accordingly, Universal Motors
issued a Subrogation Receipt dated November 15, 1995 in favor of Philam. On January 18, 1996,
Philam, as subrogee of Universal Motors, filed a Complaint13 for damages against Westwind, ATI
and R.F. Revilla Customs Brokerage, Inc. before the RTC of Makati City, Branch 148.

ISSUE:
Whether or not subrogation took place upon mere payment by the insurer of the claim of
the insured.

HELD:
Yes, subrogation took place upon mere payment by the insurer of the claim of the insured.

The right of subrogation accrues simply upon payment by the insurance company of the
insurance claim. We have held that payment by the insurer to the insured operates as an equitable
assignment to the insurer of all the remedies that the insured may have against the third party
whose negligence or wrongful act caused the loss. The right of subrogation is not dependent
upon, nor does it grow out of, any privity of contract. It accrues simply upon payment by the
insurance company of the insurance claim. The doctrine of subrogation has its roots in equity. It
is designed to promote and accomplish justice; and is the mode that equity adopts to compel the
ultimate payment of a debt by one who, in justice, equity, and good conscience, ought to pay.
 Manila Bankers Life Insurance Corporation vs. Aban
G.R. No. 175666; July 29, 2013

INCONTESTABILITY CLAUSE

FACTS:
Delia Sotero (Sotero) took out a life insurance policy from Petitioner, designating her
niece, Respondent Aban, as her beneficiary. Petitioner issued the policy with a face value of
₱100,000.00, in Sotero’s favor. When, the insurance policy had been in force for more than 2
years and 7 months, Sotero died. Respondent filed a claim for the insurance proceeds.

Petitioner conducted an investigation, and found out that the policy was obtained by fraud
since Sotero did not personally apply for insurance and that Respondent was the one who filed
the insurance application, and fraudulently designated herself as the beneficiary. Because of this,
petitioner denied respondent’s claim and refunded the premiums paid on the policy.

Petitioner filed a civil case for rescission and/or annulment of the policy with the Makati
RTC on the ground that the policy was obtained by fraud, concealment and/or misrepresentation
which renders it voidable. Respondent filed a Motion to Dismiss claiming that petitioner’s cause
of action was barred by prescription. The Makati RTC issued granted respondent’s Motion to
Dismiss finding that Sotero, and not respondent, was the one who procured the insurance.
Petitioner moved for reconsideration, but was denied. Petitioner filed an appeal with the CA. The
CA dismissed the appeal. Petitioner moved for reconsideration, but the CA denied the same.

ISSUES:
Whether the rescission of the insurance policy after the lapse of 2 years and 7 months is
proper?

HELD:
NO. Section 48 of the Insurance Code provides that an insurer is given two years – from
the effectivity of a life insurance contract and while the insured is alive – to discover or prove that
the policy is void ab initio or is rescindible by reason of the fraudulent concealment or
misrepresentation of the insured or his agent. After the two-year period lapses, or when the
insured dies within the period, the insurer must make good on the policy, even though the policy
was obtained by fraud, concealment, or misrepresentation.

Section 48 prevents a situation where the insurer knowingly continues to accept annual
premium payments on life insurance, only to later on deny a claim on the policy on specious
claims of fraudulent concealment and misrepresentation, such as what obtains in the instant case.
For nearly three years, petitioner collected the premiums and devoted the same to its own profit.
It cannot now deny the claim when it is called to account. Section 48 must be applied to it with full
force and effect.

The "incontestability clause" is a provision in law that after a policy of life insurance made
payable on the death of the insured shall have been in force during the lifetime of the insured for
a period of two (2) years from the date of its issue or of its last reinstatement, the insurer cannot
prove that the policy is void ab initio or is rescindible by reason of fraudulent concealment or
misrepresentation of the insured or his agent.

The purpose of the law is to give protection to the insured or his beneficiary by limiting the
rescinding of the contract of insurance on the ground of fraudulent concealment or
misrepresentation to a period of only two (2) years from the issuance of the policy or its last
reinstatement.

Malayan Insurance Company, Inc. vs. PAP Co., Ltd.

G.R. No. 200784; August 7, 2013

DEVICES USED FOR ASCERTAINING AND CONTROLLING RISK AND LOSS

FACTS:
Malayan issued a Fire Insurance Policy to PAP Co. for the latter’s machineries and
equipment located at Sanyo Bldg. in PEZA, Rosario, Cavite. The insurance was procured by PAP
Co. for RCBC, the mortgagee of the insured machineries and equipment. Prior to the expiration
of the insurance coverage, PAP Co. renewed the policy. On October 12, 1997 and during the
subsistence of the renewal policy, the insured machineries and equipment were totally lost by fire.
Hence, PAP Co. filed a fire insurance claim with Malayan but the latter denied the claim upon the
ground that at the time of the loss, the insured machineries and equipment were transferred by
PAP Co. to a location different from that indicated in the policy. The insured machineries were
transferred in September 1996 from the Sanyo Bldg. to Pace Pacific Bldg. which was also in
PEZA. PAP Co. argued that Malayan cannot avoid liability as it was informed of the transfer by
RCBC, the party duty-bound to relay such information.

ISSUE:
Did PAP commit concealment, misrepresentation and breach of an affirmative warranty
under the renewal policy when it transferred the location of the insured properties without
informing Malayan?

HELD:
Yes. The transfer of the location of the subject properties without notice and without
Malayan’s consent, PAP clearly committed concealment, misrepresentation and a breach of a
material warranty. Section 26 of the Insurance Code provides that “a neglect to communicate that
which a party knows and ought to communicate, is called a concealment.” Under Section 27 of
the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance."
Moreover, under Section 168 of the Insurance Code, it provides that “an alteration in the use or
condition of a thing insured from that to which it is limited by the policy made without the consent
of the insurer, by means within the control of the insured, and increasing the risks, entitles an
insurer to rescind a contract of fire insurance”. In the case at bench, all these circumstances are
present. It was clearly established that the renewal policy stipulated that the insured properties
were located at the Sanyo factory, that PAP removed the properties without the consent of
Malayan, and that the alteration of the location increased the risk of loss.

Alpha Insurance and Surety Co. vs. Castor

G.R. No. 198174; September 2, 2013

EXCLUSIONS IN THE INSURANCE CONTRACT; NON-LIABILITY OF THE INSURANCE

COMPANY

FACTS:
Respondent Arsenia Castor entered in a contract of insurance with petitioner Alpha
Insurance and Surety Co. to insure her motor vehicle, a Toyota Revo DLX DSL, under Motor Car
Policy No. MAND/CV-00186. The contract obligates Alpha to pay Castor P630,000.00 in case of
loss or damage to the said vehicle during the period covered, which is from Feb. 26 2007 until
Feb. 26, 2008. On April 16, 2007, Castor instructed her driver, Jose Joel Lanuza, to bring the said
vehicle to an auto-shop for tune-up. Lanuza, however, did not return with the said vehicle,
prompting Castor to search its whereabouts, but to no avail. Castor then reported the incident
with the police authorities. She also notified Alpha with the loss and thus demanded payment.
Alpha rejected her claim, arguing that under their contract, any damage caused by the insured,
any member of her family, or any person employed by the insured, the insurer will not be liable;
here, since she employed Lanuza as her driver—thus her employee--she cannot claim from them.
Seeing that her claims remain inheeded, she filed a Complaint for Sum of Money with Damages
against Alpha. The RTC- Quezon City ruled in her favor. The CA affirmed the RTC ruling. Hence,
this Petition.

ISSUE:
Should Alpha pay the insurance proceeds to Arsenia Castor?

HELD:
YES. True, it is a basic rule in the interpretation of contracts that the terms of a contract
are to be construed according to the sense and meaning of the terms which the parties thereto
have used. In the case of property insurance policies, the evident intention of the contracting
parties, i.e., the insurer and the assured, determine the import of the various terms and provisions
embodied in the policy. However, when the terms of the insurance policy are ambiguous,
equivocal or uncertain, such that the parties themselves disagree about the meaning of particular
provisions, the policy will be construed by the courts liberally in favor of the assured and strictly
against the insurer. Lastly, a contract of insurance is a contract of adhesion. So, when the terms
of the 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. Theft perpetrated by a
driver of the insured is not an exception to the coverage from the insurance policy subject of this
case. This is evident from the very provision of Section III – "Loss or Damage." The insurance
company, subject to the limits of liability, is obligated to indemnify the insured against theft. Said
provision does not qualify as to who would commit the theft. Thus, even if the same is committed
by the driver of the insured, there being no categorical declaration of exception, the same must
be covered. Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the
insurance policy under paragraph 4 of "Exceptions to Section III," since the same refers only to
"malicious damage," or more specifically, "injury" to the motor vehicle caused by a person under
the insured’s service. Paragraph 4 clearly does not contemplate "loss of property," as what
happened in the instant case.

First Lepanto-Taisho Insurance Corporation vs. Chevron Philippines, Inc.

G.R. No. 177839; January 18, 2012

SURETYSHIP

FACTS:
Fumitechniks, distributor of respondent Chevron, had applied for and was issued Surety
Bond by petitioner First Lepanto-Taisho for the amount of P15,700,000.00. As stated in the
attached rider, the bond was in compliance with the requirement for the grant of a credit line with
the respondent "to guarantee payment/remittance of the cost of fuel products withdrawn within
the stipulated time in accordance with the terms and conditions of the agreement."
Fumitechniks defaulted on its obligation. Respondent notified petitioner of Fumitechniks' unpaid
purchases. A letter was also sent to Fumitechniks demanding that the latter submit to petitioner a
copy of the agreement secured by the Bond, together with copies of documents such as delivery
receipts. Fumitechniks informed petitioner that it cannot submit the requested agreement since
no such agreement was executed between Fumitechniks and respondent. Consequently,
petitioner advised respondent of the non-existence of the principal agreement as confirmed by
Fumitechniks. Petitioner explained that being an accessory contract, the bond cannot exist
without a principal agreement as it is essential that the copy of the basic contract be submitted to
the proposed surety for the appreciation of the extent of the obligation to be covered by the bond
applied for.

Respondent formally demanded from petitioner the payment of its claim under the surety
bond. However, petitioner merely reiterated its position, hence, respondent sued petitioner for
payment. Respondent stated that a careful reading of the surety contract shows that there is no
such requirement of submission of the written credit agreement for the bond's effectivity.

The RTC ruled that since the surety bond is a mere accessory contract, the bond cannot
stand in the absence of the written agreement secured thereby. On appeal, this was reversed
was the CA, which ruled that petitioner cannot insist on the submission of a written agreement to
be attached to the surety bond considering that respondent was not aware of such requirement
and unwritten company policy.

ISSUE:
Whether or not a surety is liable to the creditor in the absence of a written contract with
the principal

HELD:
No, a surety is not liable to the creditor in the absence of a written contract with the
principal. The extent of a surety's liability is determined by the language of the suretyship contract
or bond itself. It cannot be extended by implication, beyond the terms of the contract. Section 176
of the Insurance Code is clear that a surety contract should be read and interpreted together with
the contract entered into between the creditor and the principal because it is determined strictly
by the terms of the suretyship contract in relation to the principal contract.

A reading of the Surety Bond shows that it secures the payment of purchases on credit by
Fumitechniks in accordance with the terms and conditions of the "agreement" it entered into with
respondent. The word "agreement" has reference to the distributorship agreement, the principal
contract and by implication included the credit agreement mentioned in the rider. However, it
turned out that respondent has executed written agreements only with its direct customers but
not distributors like Fumitechniks and it also never relayed the terms and conditions of its
distributorship agreement to the petitioner after the delivery of the bond.

Since a surety contract is merely a collateral one, its basis is the principal contract or
undertaking which it secures. Necessarily, the stipulations in such principal agreement must at
least be communicated or made known to the surety. In this case, the bond expressly guarantees
the payment of respondent's fuel products withdrawn by Fumitechniks in accordance with the
terms and conditions of their agreement. The bond specifically makes reference to a written
agreement. Having accepted the bond, respondent as creditor must be held bound by the recital
in the surety bond that the terms and conditions of its distributorship contract be reduced in writing
or at the very least communicated in writing to the surety. Hence, in this case, the surety is not
liable.

Florendo vs. Philam Plans

G.R. No. 186983; February 22, 2012

DEVICES USED FOR ASCERTAINING AND CONTROLLING RISK AND LOSS;

CONCEALMENT

FACTS:
Manuel Florendo filed an application for comprehensive pension plan with respondent
Philam Plans, Inc. after some convincing by respondent Perla Abcede. The plan had a pre-need
price of ₱997,050.00, payable in 10 years, and had a maturity value of ₱2,890,000.00 after 20
years. Aside from pension benefits, the comprehensive pension plan also provided life insurance
coverage to Florendo. This was covered by a Group Master Policy that Philam Life issued to
Philam Plans. Under the master policy, Philam Life was to automatically provide life insurance
coverage, including accidental death, to all who signed up for Philam Plans’ comprehensive
pension plan. If the plan holder died before the maturity of the plan, his beneficiary was to instead
receive the proceeds of the life insurance, equivalent to the pre-need price. Further, the life
insurance was to take care of any unpaid premium until the pension plan matured, entitling the
beneficiary to the maturity value of the pension plan.

Philam Plans then issued the Pension Plan Agreement to Manuel with Lourdes, his wife,
as beneficiary. Eleven months later, Manuel died of blood poisoning. Subsequently, Lourdes filed
a claim with Philam Plans for the payment of the benefits under her husband’s plan. Philam Plans
denied her claim because they found out that Manuel was on maintenance medicine for his heart
and had an implanted pacemaker. Further, he suffered from diabetes mellitus and was taking
insulin. Lourdes renewed her demand but it was still rejected by Philam Plans. Thus, she filed an
action against Philam Palns before the RTC. The RTC rendered judgment in favor of Lourdes.
The CA reversed the RTC decision. Hence, this appeal.

ISSUES:
1. Whether or not the CA erred in finding Manuel guilty of concealing his illness when he kept
blank and did not answer questions in his pension plan application regarding the ailments he
suffered from;
2. Whether or not the CA erred in holding that Manuel was bound by the failure of
respondents Perla and Ma. Celeste to declare the condition of Manuel’s health in the pension
plan application; and
3. Whether or not the CA erred in finding that Philam Plans’ approval of Manuel’s pension
plan application and acceptance of his premium payments precluded it from denying Lourdes’
claim.

HELD:
1. Since Manuel signed the application without filling in the details regarding his continuing
treatments for heart condition and diabetes, the assumption is that he has never been treated for
the said illnesses in the last five years preceding his application. This is implicit from the phrase
"If your answer to any of the statements above (specifically, the statement: I have never been
treated for heart condition or diabetes) reveal otherwise, please give details in the space provided
for." But this is untrue since he had been on "Coumadin," a treatment for venous thrombosis, and
insulin, a drug used in the treatment of diabetes mellitus, at that time. Lourdes insists that Manuel
had concealed nothing since Perla, the soliciting agent, knew that Manuel had a pacemaker
implanted on his chest in the 70s or about 20 years before he signed up for the pension plan. But
by its tenor, the responsibility for preparing the application belonged to Manuel. Nothing in it
implies that someone else may provide the information that Philam Plans needed. Manuel cannot
sign the application and disown the responsibility for having it filled up. That Manuel still had his
pacemaker when he applied for a pension plan in October 1997 is an admission that he remained
under treatment for irregular heartbeat within five years preceding that application.

Besides, as already stated, Manuel had been taking medicine for his heart condition and
diabetes when he submitted his pension plan application. These clearly fell within the five-year
period. More, even if Perla’s knowledge of Manuel’s pacemaker may be applied to Philam Plans
under the theory of imputed knowledge, it is not claimed that Perla was aware of his two other
afflictions that needed medical treatments. Pursuant to Section 27 of the Insurance Code,
Manuel’s concealment entitles Philam Plans to rescind its contract of insurance with him.

2. Manuel forgot that in signing the pension plan application, he certified that he wrote all the
information stated in it or had someone do it under his direction. As the Court said in New Life
Enterprises v. Court of Appeals: It may be true that x x x insured persons may accept policies
without reading them, and that this is not negligence per se. But, this is not without any exception.
It is and was incumbent upon petitioner Sy to read the insurance contracts, and this can be
reasonably expected of him considering that he has been a businessman since 1965 and the
contract concerns indemnity in case of loss in his money-making trade of which important
consideration he could not have been unaware as it was precisely the reason for his procuring
the same. The same may be said of Manuel, a civil engineer and manager of a construction
company. He could be expected to know that one must read every document, especially if it
creates rights and obligations affecting him, before signing the same. Manuel is not unschooled
that the Court must come to his succor. It could reasonably be expected that he would not trifle
with something that would provide additional financial security to him and to his wife in his twilight
years.

3. The Court cannot agree. The comprehensive pension plan that Philam Plans issued
contains a one-year incontestability period. The above incontestability clause precludes the
insurer from disowning liability under the policy it issued on the ground of concealment or
misrepresentation regarding the health of the insured after a year of its issuance. Since Manuel
died on the eleventh month following the issuance of his plan, the one year incontestability period
has not yet set in. Consequently, Philam Plans was not barred from questioning Lourdes’
entitlement to the benefits of her husband’s pension plan.

Malayan Insurance vs. Philippines First Insurance

G.R. No. 184300; July 11, 2012

DOUBLE INSURANCE; LIABILITY

FACTS:
In 1993, Wyeth procured Marine Policy from respondent Philippines First Insurance Co.,
Inc. to secure its interest over its own products. Philippines First thereby insured Wyeth’s
nutritional, pharmaceutical and other products usual or incidental to the insured’s business while
the same were being transported or shipped in the Philippines. Wyeth executed its annual
contract of carriage with Reputable Forwarder Services, Inc. requiring also Reputable to secure
an insurance policy on Wyeth’s goods. Reputable signed a Special Risk Insurance Policy with
petitioner Malayan. During the effectivity of the Marine Policy and SR Policy, Reputable received
from Wyeth 1,000 boxes of Promil infant formula worth P2,357,582.70 to be delivered by
Reputable to Mercury Drug Corporation in Libis, Quezon City. Unfortunately, the truck carrying
Wyeth’s products was hijacked by about 10 armed men. Philippines First, after due investigation
and adjustment, and pursuant to the Marine Policy, paid Wyeth the indemnity. Philippines First
then demanded reimbursement from Reputable, having been subrogated to the rights of Wyeth
by virtue of the payment. Philippines First instituted an action for sum of money against Reputable.
Reputable impleaded Malayan as third-party defendant in an effort to collect the amount covered
in the SR Policy. Malayan argued that inasmuch as there was already a marine policy issued by
Philippines First securing the same subject matter against loss and that since the monetary
coverage/value of the Marine Policy is more than enough to indemnify the hijacked cargo,
Philippines First alone must bear the loss.

ISSUES:
1. Is there a double insurance?
2. Is Reputable solidarily liable with Malayan?

HELD:
1. No. Section 93 of the Insurance Code, double insurance exists where the same person is
insured by several insurers separately in respect to the same subject and interest. The requisites
in order for double insurance to arise are as follows: 1. The person insured is the same; 2. Two
or more insurers insuring separately; 3. There is identity of subject matter; 4. There is identity of
interest insured; and 5. There is identity of the risk or peril insured against. In the present case,
while it is true that the Marine Policy and the SR Policy were both issued over the same subject
matter, i.e. goods belonging to Wyeth, and both covered the same peril insured against, it is,
however, beyond cavil that the said policies were issued to two different persons or entities. The
interest of Wyeth over the property subject matter of both insurance contracts is also different and
distinct from that of Reputable’s. The policy issued by Philippines First was in consideration of the
legal and/or equitable interest of Wyeth over its own goods. On the other hand, what was issued
by Malayan to Reputable was over the latter’s insurable interest over the safety of the goods,
which may become the basis of the latter’s liability in case of loss or damage to the property and
falls within the contemplation of Section 15 of the Insurance Code. Therefore, even though the
two concerned insurance policies were issued over the same goods and cover the same risk,
there arises no double insurance since they were issued to two different persons/entities having
distinct insurable interests. Necessarily, over insurance by double insurance cannot likewise exist.

2. No. Where the insurance contract provides for indemnity against liability to third persons,
the liability of the insurer is direct and such third persons can directly sue the insurer. The direct
liability of the insurer under indemnity contracts against third-party liability does not mean,
however, that the insurer can be held solidarily liable with the insured and/or the other parties
found at fault, since they are being held liable under different obligations. The liability of the
insured carrier or vehicle owner is based on tort, in accordance with the provisions of the Civil
Code; while that of the insurer arises from contract, particularly, the insurance policy: Suffice it to
say that Malayan's and Reputable's respective liabilities arose from different obligations -
Malayan's is based on the SR Policy while Reputable's is based on the contract of carriage.
 United Merchants Corporations vs. Country Bankers Insurance Corporation
G.R. No. 198588; July 11, 2012

RISKS INSURED AGAINST

FACTS:
Petitioner, United Merchants Corporation (UMC) is engaged in the business of selling
Christmas lights. It leased a warehouse in Quezon City where its products are assembled and
stored. On September 6, 1995, UMC insured its stocks of Christmas lights against fire for P15
million, with respondent, Country Bankers Insurance Corp. (CBIC). The policy was valid until
September 6, 1996. On May 7, 1996, UMC and CBIC executed and Endorsement and Fire Invoice
receipts to form part of the Insurance Policy to insure the stocks against additional perils
(Typhoon, flood, earthquake, etc.). The sum was increased to P50 million valid until January 10,
1997.

On July 3 1996, a fire gutted UMC’s warehouse and an investigation was conducted. On
July 6, UMC submitted its Sworn Statement of Formal Claim, with proof of its loss, and demanded
at least 50% payment of its claim from CBIC. On February 1997, CBIC rejected UMC claim due
to breach of Condition no. 15 of the policy which states that if a claim is fraudulent, any declaration
made is false, or if the loss or damage be occasioned by willful acts, all the benefits under the
policy shall be forfeited. Hence, UMC filed a complaint against CBIC with RTC Manila. CBIC
contended UMC’s claim was tainted with fraud. RTC ruled in favor of UMC as the claim of fraud
was not proved by clear and convincing evidence. On appeal, the CA reversed the decision and
ruled that CBIC’s claim is void and found that the fire was intentional considering the wide array
of evidence.

ISSUE:
Is UMC entitled to claim from CBIC the full coverage of its insurance policy?

HELD:
NO, UMC is not entitled to claim the full coverage of its insurance policy.

In insurance cases, once an insured makes out a prima facie case in its favor, the burden
of evidence shifts to the insurer to controvert the insured’s prima facie case. In this case, UMC
established a prima facie case against CBIC. CBIC does not dispute that UMC s stocks in trade
were insured against fire and that the warehouse was gutted by fire. However, since CBIC alleged
an excepted risk, then the burden of evidence shifted to CBIC to prove such exception. An insurer
who seeks to defeat a claim because of an exception or limitation in the policy has the burden of
establishing that the loss comes within the purview of the exception or limitation.

In the present case, CBIC failed to discharge its burden of establishing that the damage
or loss was caused by arson. CBIC’s evidence did not prove that the fire was intentionally caused
by the insured. However, CBIC’s failure to prove arson does not mean that it also failed to prove
fraud. Thus, on the allegation of fraud, SC affirmed the findings of CA. As proof of its loss of stocks
in trade UMC submitted its Sworn Statement of Formal Claim together with several documents,
however, the charges for assembling the Christmas lights and delivery receipts could not support
its insurance claim. It has long been settled that a false and material statement made with intent
to deceive or defraud voids an insurance policy.

Considering all the circumstances, the inevitable conclusion was that UMC padded its
claim and was guilty of fraud, and violated Condition No. 15 of the Insurance Policy. Thus, UMC
forfeited whatever benefits it may be entitled under the Insurance Policy, including its insurance
claim.

Paramount Insurance Corp. vs. Remondeulaz

G.R. No. 173773; November 28, 2012

COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE

FACTS:
On May 26, 1994, respondents Yves and Maria Teresa Remondeulaz insured their car to
petitioner Paramount Insurance Corporation under comprehensive motor vehicle insurance policy
for one year. During the effectively of the insurance, respondents’ car was unlawfully taken. Upon
knowledge thereof, they immediately reported the theft to the police. In their complaint sheet,
respondents alleged that a certain Ricardo Sales took possession of the subject vehicle to add
accessories and improvements thereon, however, Sales failed to return the subject vehicle within
the agreed three-day period. Respondents also notified petitioner to claim for the reimbursement
of their lost vehicle. However, petitioner refused to pay by reason that the loss was not a peril
covered by the policy. Petitioner argued that the car cannot be classified as stolen as respondents
entrusted the possession thereof to another person. Due to petitioner’s refusal, respondent
spouses filed this case.

ISSUES:
Whether or not the loss of respondents’ vehicle falls within the concept of the "theft
clause" under the insurance policy?

HELD:
Yes. In People v. Bustinera, this Court had the occasion to interpret the "theft clause" of
an insurance policy. In this case, the Court explained that when one takes the motor vehicle of
another without the latter’s consent even if the motor vehicle is later returned, there is theft – there
being intent to gain as the use of the thing unlawfully taken constitutes gain. In addition, in Santos
vs People, the Court stated that there may be theft even if the accused has possession of the
property. This is when the guilty party was entrusted only with the material or physical (natural)
or de facto possession of the thing, his misappropriation of the same constitutes theft.

In the instant case, Sales did not have juridical possession over the vehicle because he
was only entrusted with its possession to the extent that Sales will introduce repairs and
improvements thereon, and not to permanently deprive them of possession thereof. Since, theft
can also be committed through misappropriation, then the fact that Sales failed to return the
subject vehicle to respondents constitutes Qualified Theft. Hence, respondents’’ car is undeniably
covered by a Comprehensive Motor Vehicle Insurance Policy that allows for recovery in cases of
theft, petitioner is liable under the policy for the loss of respondents’ vehicle under the "theft
clause."
 New World International Development (Phils) Inc. vs.
Nyk-Filjapan Shipping Corporation, et al.
G.R. No. 174241; August 24, 2011

ALL-RISK POLICY; CLAIMS SETTLEMENT

FACTS:
Petitioner New World International Development Philppines (New World) bought from
DMT (DMT) Corporation through its agent, Advatech Industries (Advatech) three emergency
generators worth US$721,000. DNT shipped the same from the United States where it is loaded
on a vessel owned and operated by NYK Fil-Japan Shipping Corporation (NYK) for delivery to
petitioner in Manila. It was transshipped in Hong Kong on another vessel owned by NYK, which
subsequently encountered a typhoon while on its way to Manila. The Manila South Harbor
Arrastre received the shipment and upon inspection, found external damages on two of the
generator sets. This was confirmed by another inspection with petitioner’s insurer, Seaboard-
Eastern Insurance (Seaboard)

Since seaboard covered the goods with a marine insurance policy, New World sent a
formal claim dated November 16, 1993. Replying on February 14, 1994, Seaboard required
petitioner to submit an itemized list of the damaged units, parts and accessories. New World
insisted that this is not necessary as the insurance policy did not require such. With this, Seaboard
refused to process the claim.

New World filed an action for specific performance and damages before the RTC. The
latter ruled that Seaboard cannot be faulted for denying the claim against it since New World
refused to submit the itemized lisrt that Seaboard needed in assessing the damage. Likewise, the
belated filing of the complaint prejudiced Seaboard’s right to pursue a claim in the event of
subrogation.

ISSUES:
1. Is the requirement of an itemized list of the damaged units reasonable pursuant to the
marine insurance in question?
2. Is Seaboard justified in refusing to settle the claim of New World under the Insurance
policy?

HELD:
1. No. The marine open policy that Seaboard issued to new World was an all-risk policy.
Such a policy insured against all causes of conceivable loss or damage except when otherwise
excluded or when the loss or damage was due to fraud or intentional misconduct committed by
the insured. The policy covered all losses during the voyage whether or not arising from a marine
peril. New World already complied with such requirement by submitting, among others, copies of
the Bill of Lading, Damage Report, Consumption Report from Customs Examiner, among others.
Seaboard cannot pretend that the above documents are inadequate since they were precisely
the documents listed in its insurance policy. Being a contract of adhesion, an insurance policy is
construed strongly against the insurer who prepared it.

2. No. Seaboard made an unreasonable demand for an itemized list of the damaged units,
parts, and accessories, with corresponding values when it appeared settled that New World’s loss
was total and when the insurance policy did not require the production of such a list in the event
of a claim.
 Section 241 of the Insurance Code provides that no insurance company doing business
in the Philippines shall refuse without just cause to pay or settle claims arising under coverages
provided by its policies. And, under Section 243, the insurer has 30 days after proof of loss is
received and ascertainment of the loss or damage within which to pay the claim. If such
ascertainment is not had within 60 days from receipt of evidence of loss, the insurer has 90 days
to pay or settle the claim. And, in case the insurer refuses or fails to pay within the prescribed
time, the insured shall be entitled to interest on the proceeds of the policy for the duration of delay
at the rate of twice the ceiling prescribed by the Monetary Board.

Notably, Seaboard already incurred delay when it failed to settle petitioner New World’s
claim as Section 243 required. Under Section 244, a prima facie evidence of unreasonable delay
in payment of the claim is created by the failure of the insurer to pay the claim within the time fixed
in Section 243.Consequently, Seaboard should pay interest on the proceeds of the policy for the
duration of the delay until the claim is fully satisfied at the rate of twice the ceiling prescribed by
the Monetary Board. The term "ceiling prescribed by the Monetary Board" means the legal rate
of interest of 12% per annum provided in Central Bank Circular 416, pursuant to Presidential
Decree 116. Section 244 of the Insurance Code also provides for an award of attorney’s fees and
other expenses incurred by the assured due to the unreasonable withholding of payment of his
claim.

Country Bankers Insurance Corporation vs. Antonio Lagman

G.R. No. 165487; July 13, 2011

SURETY

FACTS:
Nelson Santos applied for a license with the National Food Authority (NFA) to engage in
the business of storing palay in his warehouse at Barangay Malacampa, Camiling, Tarlac. Under
Act No. 3893 or the General Bonded Warehouse Act, as amended, the approval for said license
was conditioned upon posting of a cash bond, a bond secured by real estate, or a bond signed
by a duly authorized bonding company.

Accordingly, Country Bankers Insurance Corporation issued Warehouse Bond No. 03304
and Warehouse Bond No. 02355 (1989 Bonds) through its agent, Antonio Lagman (Lagman).
Santos was the bond principal, Lagman was the surety and the Republic of the Philippines,
through the NFA was the obligee. In consideration of these issuances, corresponding Indemnity
Agreements were executed by Santos, as bond principal, together with Ban Lee Lim Santos (Ban
Lee Lim), Rhosemelita Reguine (Reguine) and Lagman, as co-signors. The latter bound
themselves jointly and severally liable to Country Bankers for any damages, prejudice, losses,
costs, payments, advances and expenses of whatever kind and nature, including attorney’s fees
and legal costs, which it may sustain as a consequence of the said bond.

Santos then secured a loan using his warehouse receipts as collateral. When the loan
matured, Santos defaulted in his payment. The sacks of palay covered by the warehouse receipts
were no longer found in the bonded warehouse. By virtue of the surety bonds, Country Bankers
was compelled to pay.

After payment, Country Bankers filed a complaint for a sum of money before the Regional
Trial Court (RTC) of Manila. In his Answer, Lagman alleged that the 1989 Bonds were valid only
for 1 year from the date of their issuance, as evidenced by receipts; that the bonds were never
renewed and revived by payment of premiums; that on November 5, 1990, Country Bankers
issued Warehouse Bond No. 03515 (1990 Bond) which was also valid for one year and that no
Indemnity Agreement was executed for the purpose; and that the 1990 Bond supersedes,
cancels, and renders no force and effect the 1989 Bonds.

The bond principals, Santos and Ban Lee Lim, were not served with summons because
they could no longer be found. The case was eventually dismissed against them without
prejudice. The other co-signor, Reguine, was declared in default for failure to file her answer.

On September 21, 1998, the trial court rendered judgment declaring Reguine and Lagman
jointly and severally liable to pay Country Bankers. Lagman then filed an appeal to the Court of
Appeals which then rendered the assailed decision reversing and setting aside the Decision of
the RTC and ordering the dismissal of the complaint filed against Lagman saying that 1990 Bond
superseded the 1989 Bonds after which, Country Bankers expectedly assailed the decision of CA
to Supreme Court for review on certiorari.

ISSUE:
Whether or not the 1990 bond novates the 1989 bonds as what CA ruled wherein Lagman
cannot be held liable because he was not a signatory of 1990 bond.

HELD:
NO, Section 177 of the Insurance Code expresses that “surety is entitled to payment of
the premium as soon as the contract of suretyship or bond is perfected and delivered to the
obligor. No contract of suretyship or bonding shall be valid and binding unless and until the
premium therefor has been paid, except where the obligee has accepted the bond, in which
case the bond becomes valid and enforceable irrespective of whether or not the premium
has been paid by the obligor to the surety”

Therefore, if the Principal shall well and truly deliver to the depositors PALAY received by
him for STORAGE at any time that demand therefore is made, or shall pay the market value
therefore in case he is unable to return the same, then this obligation shall be null and void;
otherwise it shall remain in full force and effect and may be enforced in the manner provided by
said Act No. 3893 as amended by Republic Act No. 247 and P.D. No. 4. This bond shall remain
in force until cancelled by the Administrator of National Food Authority.

In case of a continuing bond, the obligor shall pay the subsequent annual premium as it
falls due until the contract of suretyship is cancelled by the obligee or by the Commissioner or by
a court of competent jurisdiction, as the case may be.

By law and by the specific contract involved in this case, the effectivity of the bond required
for the obtention of a license to engage in the business of receiving rice for storage is determined
not alone by the payment of premiums but principally by the Administrator of the NFA. From
beginning to end, the Administrator’s brief is the enabling or disabling document.

The 1989 bonds may be cancelled only by the obligee, which is the NFA, by the
Insurance Commissioner, and by the court. Lagman therefore is bound by the Indemnity
Agreements in the 1989 bonds which is still in force and not cancelled by the 1990 bond. The
Supreme Court GRANTED petition of Country Bankers and SET ASIDE the decision of Court of
Appeals thereby REINSTATING the RTC’s decision.
 The Heirs of George Y. Poe vs. Malayan Insurance Company, Inc.
G.R. No. 156302; April 7, 2009

JOINT AND SOLIDARY LIABILITY OF INSURERS UNDER THIRD-PARTY LIABILITY

INSURANCE

FACTS:
While waiting for a ride to work, George Y. Poe was run over by a ten-wheeler Isuzu hauler
truck owned by Rhoda Santos and then driven by Willie Labrador. The truck was insured with
respondent Malayan Insurance Company, Inc. (MICI). To seek redress for George’s untimely
death, petitioner heirs filed with the RTC a complaint for damages against Rhoda and respondent
MICI. The RTC rendered a decision holding them jointly and solidarily liable for damages to
petitioners. Respondent MICI’s notice of appeal was denied by the RTC on the ground that it was
filed out of time. Upon petition for certiorari, the CA recalled said denial and directed the lower
court to approve respondent’s notice of appeal. Hence, this petition.

ISSUE:
Should respondent MICI, as insurer of the truck, be held solidarily liable with its owner for
damages awarded to petitioners?

HELD:
Yes, respondent MICI can be held jointly and severally liable with truck owner Rhoda
Santos for the damages awarded to petitioners. It is settled that where the insurance contract
provides for indemnity against liability to third persons, the liability of the insurer is direct and such
third persons can directly sue the insurer. The direct liability of the insurer under indemnity
contracts against third party liability does not mean, however, that the insurer can be held
solidarily liable with the insured and/or the other parties found at fault, since they are being held
liable under different obligations. The liability of the insured carrier or vehicle owner is based on
tort, in accordance with the provisions of the Civil Code; while that of the insurer arises from
contract, particularly, the insurance policy. The third-party liability of the insurer is only up to the
extent of the insurance policy and that required by law; and it cannot be held solidarily liable for
anything beyond that amount. Any award beyond the insurance coverage would already be the
sole liability of the insured and/or the other parties at fault.

For this rule to apply, however, the insurer must be able to sufficiently establish its limited
liability under its insurance policy. The insurance policy between Rhoda and respondent MICI,
covering the truck involved in the accident which killed George, was never presented. Without the
presentation of the insurance policy, the Court cannot determine the existence of any limitation
on the liability of respondent MICI under said policy, and the extent or amount of such limitation.
Thus, the Court could only conclude that respondent MICI had agreed to fully indemnify third-
party liabilities. Consequently, there is no more difference in the amounts of damages which
petitioners can recover from Rhoda or respondent MICI; petitioners can recover the said amounts
in full from either of them, thus, making their liabilities solidary or joint and several.
 Heirs of Loreto C. Maramag vs. Maramag
G.R. No. 181132; June 5, 2009

PARTIES/BENEFICIARY; POLICY

FACTS:
Petitioners were the legitimate wife and children of Loreto Maramag. Respondent Eva De
Guzman Maramag was a concubine of Loreto and a suspect in the killing of the latter, while
respondents Odessa, Karl Brian and Trisha Angellie were the illegitimate children of Loreto with
Eva.

The petition alleged the following: (1) since Eva was a concubine and a suspect in the
killing of Loreto, she is disqualified to receive any proceeds from insurance policy of Loreto from
Insular and Grepalife and (2) the illegitimate children are only entitled to one-half of the legitime
of the legitimate children, and thus, the proceeds released to the said children were inofficious
and should be reduced.

In the Answer of Insular, it admitted that Loreto misrepresented Eva as his legitimate wife
and the respondent children as his legitimate children. When it ascertained that Eva was not the
legal wife, it disqualified her as beneficiary and divided the proceeds among the respondent
children as the remaining designated beneficiaries. On the other hand, Grepalife alleged that Eva
was not designated as an insurance policy beneficiary. Both Insular and Grepalife countered that
the insurance proceeds belong exclusively to the designated beneficiaries in the policies, and not
to the heirs of the insured.

ISSUES:
1. Who are entitled to the proceeds of the insurance?
2. Are the legitimate family entitled to the proceeds of the insurance for the concubine?

HELD:
1. The respondent children (Odessa, Karl Brian and Trisha Angellie) are entitled to the
proceeds of the insurance.

It is very clear under Section 53 of the Insurance Code of the Philippines that the insurance
proceeds shall be applied exclusively to the proper interest of the person in whose name or whose
benefit it is made, unless otherwise specified in the policy. Since the respondents are the ones
named as the primary beneficiary in the insurances taken by the deceased, the insurance
proceeds shall exclusively paid to them. The plaintiffs cannot invoke the law on donations or rules
on testamentary succession in order to defeat the rights of the respondent. The beneficiary in a
contract of insurance is not the donee spoken in the law of donation. Also, the rules on
testamentary succession cannot apply, for the insurance indemnity does not partake of a
donation. As such, the insurance indemnity cannot be considered as an evidence of the
inheritance which can be subject to collation.

Thus, the respondent children are entitled to the proceeds of the insurance.

2. No, petitioners are not entitled.

Section 53 of the Insurance Code of the Philippines provides that the insurance proceeds
shall be applied exclusively to the proper interest of the person in whose name or for whose
benefit it is made unless otherwise specified in the policy.
 Pursuant thereo, it is obvious that the only persons entitled to claim the insurance
proceeds are either the insure, if still alive; or the beneficiary, if the insured is already deceased,
upon the maturity of the policy. The exception to this rule is a situation where the insurance
contract was intended to benefit third persons who are not parties to the same in the form of
favorable stipulations.

In the present case, the revocation of Eva as a beneficiary in one policy and her
disqualification as such in another are of no moment considering that the designation of the
illegitimate children as beneficiaries in Loreto’s insurance policies remains valid. Because no legal
proscription exists in naming as beneficiaries the children of illicit relationships by the insured, the
shares of Eva in the insurance proceeds, whether forfeited by the court in view of the prohibition
on donations under Article 739 of the Civil Code or by the insurers themselves for reasons based
on the insurance contracts, must be awarded to the said illegitimate children, the designated
beneficiaries, to the exclusion of petitioners. It is only in cases where the insured has not
designated any beneficiary, or when the designated beneficiary is disqualified by law to receive
the proceeds, that the insurance policy proceeds shall redound to the benefit of the estate of the
insured.

Hence, petitioners are third parties to the insurance contracts with Insular and Grepalife
and thus, not entitled to the proceeds thereof.

Violeta R. Lalican vs. The Insular Life Assurance Company Limited, as represented by
the President Vicente R. Avilon
G.R. No. 183526; August 25, 2009

REINSTATEMENT OF POLICY

FACTS:
Eulogio Lalican, the husband of petitioner Violeta, applied for an insurance policy with
Insular Life. Insular Life, through its agent Malaluan issued in favor of Eulogio Policy No. 9011992.
Violeta was named as the primary beneficiary.

Under the Policy terms, Eulogio was to pay the premiums on a quarterly basis until the
end of the 20-year period of the policy. There was likewise a grace period of 31 days for the
payment of each premium subsequent to the first. If any premium was not paid on or before the
due date, the policy would be in default, and if the premium remained unpaid until the end of the
grace period, the policy would automatically lapse and become void.

Eulogio paid the premiums but he failed to pay the premium due even after the lapse of
the grace period. The Policy lapsed and became void. He later on submitted an Application for
Reinstatement together with the premium due. Insular Life notified Eulogio that that his Application
for Reinstatement could not be fully processed because he left unpaid the overdue interest. Thus,
Insular Life instructed Eulogio to pay the amount of interest and to file another application for
reinstatement. Eulogio went to Malaluan’s house to submit the second Application for
Reinstatement including the amount representing payments for the overdue interests. However,
it was her husband who received the second Application for Reinstatement and issued a receipt
for the amount Eulogio deposited. On the same day, Eulogio died of cardio-respiratory arrest
secondary to electrocution. Without knowing of Eulogio’s death, Malaluan forwarded the second
Application for Reinstatement to the Insular Life Regional Office.
 Violeta filed with Insular Life a claim for payment of the full proceeds of the policy. The
company informed Violeta that her claim could not be granted since at the time of her husband’s
death, the policy had already lapsed and Eulogio failed to reinstate the same. Further, the insurer
mentioned that the policy would only be considered reinstated upon approval of the application
during the applicant’s “lifetime and good health.”

ISSUE:
Whether or not Eulogio was able to reinstate the insurance policy before his death.

HELD:
No. To reinstate a policy means to restore the same to premium-paying status after it has
been permitted to lapse. Both the Policy Contract and the Application for Reinstatement provide
for specific conditions for the reinstatement of a lapsed policy.

The Policy Contract between Eulogio and Insular Life identified the following conditions
for reinstatement should the policy lapse:

10. REINSTATEMENT
You may reinstate this policy at any time within three years after it lapsed if the
following conditions are met: (1) the policy has not been surrendered for its cash
value or the period of extension as a term insurance has not expired; (2) evidence
of insurability satisfactory to [Insular Life] is furnished; (3) overdue premiums are
paid with compound interest at a rate not exceeding that which would have been
applicable to said premium and indebtedness in the policy years prior to
reinstatement; and (4) indebtedness which existed at the time of lapsation is paid
or renewed.

Additional conditions for reinstatement of a lapsed policy were stated in the

Application for Reinstatement which Eulogio signed and submitted, to wit:

I/We agree that said Policy shall not be considered reinstated until this application
is approved by the Company during my/our lifetime and good health and until all
other Company requirements for the reinstatement of said Policy are fully satisfied.

I/We further agree that any payment made or to be made in connection with this
application shall be considered as deposit only and shall not bind the Company
until this application is finally approved by the Company during my/our lifetime and
good health. If this application is disapproved, I/We also agree to accept the refund
of all payments made in connection herewith, without interest, and to surrender the
receipts for such payment.

In the instant case, Eulogio’s death rendered impossible full compliance with the
conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed to
file his Application for Reinstatement and deposit the amount for payment of his overdue
premiums and interests thereon with Malaluan; but Policy No. 9011992 could only be considered
reinstated after the Application for Reinstatement had been processed and approved by Insular
Life during Eulogio’s lifetime and good health.

The Court agrees with the RTC that the conditions for reinstatement under the Policy
Contract and Application for Reinstatement were written in clear and simple language, which
could not admit of any meaning or interpretation other than those that they so obviously embody.
A construction in favor of the insured is not called for, as there is no ambiguity in the said
provisions in the first place. The words thereof are clear, unequivocal, and simple enough so as
to preclude any mistake in the appreciation of the same.

Violeta did not adduce any evidence that Eulogio might have failed to fully understand the
import and meaning of the provisions of his Policy Contract and/or Application for Reinstatement,
both of which he voluntarily signed. While it is a cardinal principle of insurance law that a policy
or contract of insurance is to be construed liberally in favor of the insured and strictly as against
the insurer company, yet, contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms, which the parties themselves have used. If
such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary
and popular sense.

Eastern Shipping Lines, Inc. vs. Prudential Guarantee and Assurance, Inc.
G.R. No. 174116; September 11, 2009

MARINE INSURANCE, SUBROGATION

FACTS:
On November 8, 1995, fifty-six cases of completely knock-down auto parts of Nissan
motor vehicle (cargoes) were loaded on board M/V Apollo Tujuh (carrier) at Nagoya, Japan, to be
shipped to Manila. The shipment was consigned to Nissan Motor Philippines, Inc. (Nissan) and
was covered by Bill of Lading No. NMA-1. The carrier was owned and operated by petitioner
Eastern Shipping Lines, Inc.

On November 16, 1995, the carrier arrived at the port of Manila. On November 22, 1995,
the shipment was then discharged from the vessel onto the custody of the arrastre operator, Asian
Terminals, Inc. (ATI), complete and in good condition, except for four cases.

On November 24 to 28, 1995, the shipment was withdrawn by Seafront Customs and
Brokerage from the pier and delivered to the warehouse of Nissan in Quezon City.

A survey of the shipment was then conducted by Tan-Gaute Adjustment Company, Inc.
(surveyor) at Nissan's warehouse. On January 16, 1996, the surveyor submitted its report7 with a
finding that there were "short (missing)" items in Cases Nos. 10/A26/T3K and 10/A26/7K and
"broken/scratched" and "broken" items in Case No. 10/A26/70K"; and that "(i)n (its) opinion, the
"shortage and damage sustained by the shipment were due to pilferage and improper handling,
respectively while in the custody of the vessel and/or Arrastre Contractors."

As a result, Nissan demanded the sum of P1,047,298.34 representing the cost of the
damages sustained by the shipment from petitioner, the owner of the vessel, and ATI,
the arrastre operator. However, the demands were not heeded.

On August 21, 1996, as insurer of the shipment against all risks per Marine Open Policy
No. 86-168 and Marine Cargo Risk Note No. 3921/95, respondent Prudential Guarantee and
Assurance Inc. paid Nissan the sum of P1,047,298.34.

On October 1, 1996, respondent sued petitioner and ATI for reimbursement of the amount
it paid to Nissan before the Regional Trial Court (RTC) of Makati City, Branch 148, docketed as
Civil Case No. 96-1665, entitled Prudential Guarantee and Assurance, Inc. v. Eastern Shipping
Lines, Inc. Respondent claimed that it was subrogated to the rights of Nissan by virtue of said
payment.

On June 21, 1999, the RTC ruled in favor of Prudential. On Appeal, Ca affirmed with
modification but only as to amount of claims to be paid by Eastern Shipping Lines.

CA relying on Delsan Transport Lines, Inc. v. Court of Appeals, ruled that the right of
subrogation accrues upon payment by the insurance company of the insurance claim and that
the presentation of the insurance policy is not indispensable before the appellee may recover in
the exercise of its subrogatory right. Hence, this petition.

ISSUE:
Whether the two documents (marine cargo risk note and a subrogation receipt), without
the Marine Insurance Policy, are sufficient to prove respondent's right of subrogation.

HELD:
NO. Before anything else, it must be emphasized that a marine risk note is not an
insurance policy. It is only an acknowledgment or declaration of the insurer confirming the specific
shipment covered by its marine open policy, the evaluation of the cargo and the chargeable
premium. In International Container Terminal Services, Inc. v. FGU Insurance Corporation
(International), the nature of a marine cargo risk note was explained, thus:

x x x It is the marine open policy which is the main insurance contract. In

other words, the marine open policy is the blanket insurance to be undertaken by
FGU on all goods to be shipped by RAGC during the existence of the contract,
while the marine risk note specifies the particular goods/shipment insured by
FGU on that specific transaction, including the sum insured, the shipment
particulars as well as the premium paid for such shipment. x x x.

It is undisputed that the cargoes were already on board the carrier as early as November
8, 1995 and that the same arrived at the port of Manila on November 16, 1995. It is, however,
very apparent that the Marine Cargo Risk Note was issued only on November 16, 1995. The
same, therefore, should have raised a red flag, as it would be impossible to know whether said
goods were actually insured while the same were in transit from Japan to Manila.

Likewise, the date of the issuance of the Marine Risk Note also caught the attention of
petitioner. In petitioner's Comment/Opposition to the formal offer of evidence before the RTC,
petitioner made the following manifestations, to wit:

Exhibit "B," Marine Cargo Risk Note No. 39821 dated November 16,
1995 is being objected to for being irrelevant and immaterial as it was
executed on November 16, 1995. The cargoes arrived in Manila on November
16, 1995. This means that the cargoes are not specifically covered by any
particular insurance at the time of transit. The alleged Marine Open Policy was
not presented. Marine Open Policy may be subject to Institute Cargo Clauses
which may require arbitration prior to the filing of an action in court.

Based on the forgoing, it is already evident why herein petition is meritorious. The Marine
Risk Note relied upon by respondent as the basis for its claim for subrogation is insufficient to
prove said claim.
 Without the marine insurance policy, it would be impossible for this Court to know the
following: first, the specifics of the "Institute Cargo Clauses A and other terms and conditions per
Marine Open Policy-86-168" as alluded to in the Marine Risk Note; second, if the said terms and
conditions were actually complied with before respondent paid Nissan's claim.

Applying Section 7, Rule 9 of the 1997 Rules of Civil Procedure, since respondent alluded
to an actionable document in its complaint, the contract of insurance between it and Nissan, as
integral to its cause of action against petitioner, the Marine Insurance Policy should have been
attached to the Complaint.

In conclusion, this Court rules that based on the applicable jurisprudence, because of the
inadequacy of the Marine Cargo Risk Note for the reasons already stated, it was incumbent on
respondent to present in evidence the Marine Insurance Policy, and having failed in doing so, its
claim of subrogation must necessarily fail.

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

G.R. No. 167330; June 12, 2008

HEALTH CARE AGREEMENT, NON-LIFE INSURANCE

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 sent petitioner a formal demand
letter and the corresponding assessment notices demanding the payment of deficiency taxes,
including surcharges and interest, for the taxable years 1996 and 1997 in the total amount
of P224,702,641.18. Petitioner protested the assessment in a letter dated February 23, 2000.

ISSUE:
Is A Health Care Agreement In The Nature Of An Insurance Contract And Therefore
Subject To The Documentary Stamp Tax (Dst) Imposed Under Section 185 Of Republic Act 8424
(Tax Code Of 1997)?

HELD:
Yes. The DST is levied on the exercise by persons of certain privileges conferred by law
for the creation, revision, or termination of specific legal relationships through the execution of
specific instruments.It is an excise upon the privilege, opportunity, or facility offered at exchanges
for the transaction of the business. In particular, the DST under Section 185 of the 1997 Tax
Code is imposed on the privilege of making or renewing any policy of insurance (except
life, marine, inland and fire insurance), bond or obligation in the nature of indemnity for loss,
damage, or liability.
 Under the law, a contract of insurance is an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or
contingent event.The event insured against must be designated in the contract and must either
be unknown or contingent. Petitioner's health care agreement is primarily a contract of indemnity.
Contrary to petitioner's claim, its health care agreement is not a contract for the provision of
medical services. Petitioner does not actually provide medical or hospital services but merely
arranges for the same and pays for them up to the stipulated maximum amount of coverage. It is
also incorrect to say that the health care agreement is not based on loss or damage because,
under the said agreement, petitioner assumes the liability and indemnifies its member for hospital,
medical and related expenses (such as professional fees of physicians). The term "loss or
damage" is broad enough to cover the monetary expense or liability a member will incur in case
of illness or injury. Under the health care agreement, the rendition of hospital, medical and
professional services to the member in case of sickness, injury or emergency or his availment of
so-called "out-patient services" (including physical examination, x-ray and laboratory tests,
medical consultations, vaccine administration and family planning counseling) is the contingent
event which gives rise to liability on the part of the member. In case of exposure of the member
to liability, he would be entitled to indemnification by petitioner.

The expenses to be incurred by each member cannot be predicted beforehand, if they can
be predicted at all. Petitioner assumes the risk of paying for the costs of the services even if they
are significantly and substantially more than what the member has "prepaid." Petitioner does not
bear the costs alone but distributes or spreads them out among a large group of persons bearing
a similar risk, that is, among all the other members of the health care program. This is insurance.
Similarly, the insurable interest of every member of petitioner's health care program in obtaining
the health care agreement is his own health. Under the agreement, petitioner is bound to
indemnify any member who incurs hospital, medical or any other expense arising from sickness,
injury or other stipulated contingency to the extent agreed upon under the contract.

Keppel Cebu Shipyard, Inc. vs. Pioneer Insurance and Surety Corp.
G.R. Nos. 180880-81; September 25, 2009

SUBROGATION

FACTS:
WG&A Jebsens Shipmanagement (WG&A), owner/operator of M/V “SUPERFERRY 3”
and Keppel Cebu Shipyard, Inc. (KCSI) entered into an agreement that the Drydocking and Repair
of the above-named vessel ordered by the Owner’s Authorized Representative shall be carried
out under the Keppel Cebu Shipyard Standard Conditions of Contract for Ship repair, guidelines
and regulations on safety and security issued by Keppel Cebu Shipyard.

In the course of its repair, M/V “Superferry 3” was gutted by fire. Claiming that the extent
of the damage was pervasive, WG&A declared the vessel’s damage as a “total constructive loss”
and, hence, filed an insurance claim with Pioneer.

Pioneer paid the insurance claim of WG&A, which in turn, executed a Loss and
Subrogation Receipt in favor of Pioneer. Pioneer tried to collect from KCSI, but the latter denied
any responsibility for the loss of the subject vessel. As KCSI continuously refused to pay despite
repeated demands, Pioneer, filed a Request for Arbitration before the Construction Industry
Arbitration Commission (CIAC) seeking for payment of U.S.$8,472,581.78 equivalent to
P360,000,000 plus interest, among others.
 The CIAC rendered its Decision declaring both WG&A and KCSI guilty of negligence, the
CIAC ordered KCSI to pay Pioneer the amount of P25,000,000.00, with interest. Both KCSI and
Pioneer appealed to the CA. The cases were consolidated in the CA, which rendered a decision
dismissing Pioneer’s claims in its entirety. Pioneer, filed a motion for reconsideration, which was
partially granted by the CA, and held that KCSI was equally negligent and ordered the same to
pay P25,000,000, without legal interest. Hence, this petition.

ISSUE:
Is Pioneer entitled to subrogation to the rights of WG&A to claim the amount of loss? If
proper, to what extent can subrogation be made?

HELD:
Yes. Subrogation is proper in this case.

Considering the extent of damage from the fire, WG&A opted to abandon the ship and
claimed the value of its policies. Pioneer, finding the claim compensable, paid the claim, with
WG&A issuing a Loss and Subrogation Receipt evidencing receipt of the payment of the
insurance proceeds from Pioneer. The Loss and Subrogation Receipt issued by WG&A to Pioneer
is the best evidence of payment of the insurance proceeds to the former, and no controverting
evidence was presented by KCSI to rebut the presumed authority of the signatory to receive such
payment.

On the matter of subrogation, Article 2207 of the Civil Code provides: “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.”

Subrogation is the substitution of one person by 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 principle covers a situation wherein an insurer has
paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the
insured against a third party with respect to any loss covered by the policy. It contemplates full
substitution such that it places the party subrogated in the shoes of the creditor, and he may use
all means that the creditor could employ to enforce payment.

We have held that payment by the insurer to the insured operates as an equitable
assignment to the insurer of all the remedies that the insured may have against the third party
whose negligence or wrongful act caused the loss. The right of subrogation is not dependent
upon, nor does it grow out of, any privity of contract. It accrues simply upon payment by the
insurance company of the insurance claim.

Moreover, the Court cannot accept KCSI's insistence on upholding the validity of Clause
20, which provides that the limit of its liability is only up to P50,000,000.00; nor of Clause 22(a),
that KCSI stands as a co-assured in the insurance policies, as found in the Shiprepair Agreement.

It was established during arbitration that WG&A did not voluntarily and expressly agree to
these provisions. Engr. Elvin F. Bello, WG&A's fleet manager, testified that he did not sign the
fine-print portion of the Shiprepair Agreement where Clauses 20 and 22(a) were found, because
he did not want WG&A to be bound by them. However, considering that it was only KCSI that had
shipyard facilities large enough to accommodate the dry docking and repair of big vessels owned
by WG&A, such as M/V "Superferry 3," in Cebu, he had to sign the front portion of the Shiprepair
Agreement; otherwise, the vessel would not be accepted for dry docking.

Indeed, the assailed clauses amount to a contract of adhesion imposed on WG&A on a

"take-it-or-leave-it" basis. A contract of adhesion is so-called because its terms are prepared by
only one party, while the other party merely affixes his signature signifying his adhesion thereto.
Although not invalid, per se, a contract of adhesion is void when the weaker party is imposed
upon in dealing with the dominant bargaining party, and its option is reduced to the alternative of
"taking it or leaving it," completely depriving such party of the opportunity to bargain on equal
footing.

Clause 20 is also a void and ineffectual waiver of the right of WG&A to be compensated
for the full insured value of the vessel or, at the very least, for its actual market value. The norm
is that a waiver must not only be voluntary, but must have been made knowingly, intelligently, and
with sufficient awareness of the relevant circumstances and likely consequences. There must be
persuasive evidence to show an actual intention to relinquish the right. This has not been
demonstrated in this case.

Likewise, Clause 20 is a stipulation that may be considered contrary to public policy. To

allow KCSI to limit its liability to only P50,000,000.00, notwithstanding the fact that there was a
constructive total loss in the amount of P360,000,000.00, would sanction the exercise of a degree
of diligence short of what is ordinarily required. It would not be difficult for a negligent party to
escape liability by the simple expedient of paying an amount very much lower than the actual
damage or loss sustained by the other.

Along the same vein, Clause 22(a) cannot be upheld. The intention of the parties to make
each other a co-assured under an insurance policy is to be gleaned principally from the insurance
contract or policy itself and not from any other contract or agreement, because the insurance
policy denominates the assured and the beneficiaries of the insurance contract. Undeniably, the
hull and machinery insurance procured by WG&A from Pioneer named only the former as the
assured. There was no manifest intention on the part of WG&A to constitute KCSI as a co-assured
under the policies. To have deemed KCSI as a co-assured under the policies would have had the
effect of nullifying any claim of WG&A from Pioneer for any loss or damage caused by the
negligence of KCSI.

Nevertheless, we concur with the position of KCSI that the salvage value of the damaged
M/V "Superferry 3" should be taken into account in the grant of any award. Not considering this
salvage value in the award would amount to unjust enrichment on the part of Pioneer.

Accordingly, KCSI is ordered to pay Pioneer the amount of P360,000,000.00 less

P30,252,648.09, equivalent to the salvage value recovered by Pioneer from M/V "Superferry 3,"
or the net total amount of P329,747,351.91, with six percent (6%) interest per annum reckoned
from the time the Request for Arbitration was filed until this Decision becomes final and executory,
plus twelve percent (12%) interest per annum on the said amount or any balance thereof from the
finality of the Decision until the same will have been fully paid.
 Blue Cross Health Care, Inc. vs. Neomi Olivares et al.
G.R. No. 169737; February 12, 2008

PRE-EXISTING CONDITION

FACTS:
Neomi T. Olivares applied for a health care program with petitioner Blue Cross Health
Care, Inc., a health maintenance firm. For the period October 16, 2002 to October 15, 2003, she
paid the amount of P11,117. The application was approved, and, in the agreement, it includes
ailmemts due to “pre -existing condition” were excluded from the coverage. After the effectivity of
her health insurance, she suffered a stroke and was admitted at a hospital. When she requested
Blue Cross to pay her medical expenses, the latter refused due to the pending submission of a
certificate from her attending physician, Dr. Edmundo Saniel, that the stroke suffered was not
caused by a pre-existing condition.

She was discharged from the hospital on December 3, 2002. On December 5, 2002, she
demanded that petitioner pay her medical bill. When petitioner still refused, she and her husband
were constrained to settle the bill.They thereafter filed a complaint for collection of sum of money
against petitioner. Petitioner, the health care company rebutted by saying that the physician
didn’t disclose the condition due to the patient’s invocation of the doctor-client privilege.

ISSUE:
WON petitioner was able to prove that respondent Neomi's stroke was caused by a pre-
existing condition and therefore was excluded from the coverage of the health care agreement.

HELD:
No. a health care agreement is in the nature of a non-life insurance. It is an established
rule in insurance contracts that when their terms contain limitations on liability, they should be
construed strictly against the insurer. These are contracts of adhesion the terms of which must
be interpreted and enforced stringently against the insurer which prepared the contract. This
doctrine is equally applicable to health care agreements (Philamcare Health Systems, Inc. v. CA).

The agreement defined a pre-existing condition as:

“a disability which existed before the commencement date of membership
whose natural history can be clinically determined, whether or not the Member was
aware of such illness or condition. Such conditions also include disabilities existing
prior to reinstatement date in the case of lapse of an Agreement.” Under this
provision, disabilities which existed before the commencement of the agreement
are excluded from its coverage if they become manifest within one year from its
effectivity.

Petitioners still averred that the non-disclosure of the pre-existing condition made a
presumption in its favor. Respondents still maintained that the petitioner had the duty to prove its
accusation.

Petitioner never presented evidence to prove its presumption that the Doctor’s report
would work against Neomi. They only perceived that the invocation of the privilege made the
report adverse to Neomi and such was a disreputable presumption. They should have made an
independent assessment of Neomi’s condition when it failed to obtain the report. They shouldn’t
have waited for the attending physician’s report to come out.
 Section 3 (e), Rule 131 of the Rules of Court states:
Rule 131, Sec. 3. Disputable presumptions. ― The following presumptions
are satisfactory if uncontradicted, but may be contradicted and overcome by other
evidence:
(e) That evidence willfully suppressed would be adverse if produced.

The exception on presenting evidence applies when the suppression is an exercise of a

privilege. Hence, Neomi had the privilege not to present the Doctor’s report under the doctor-
client privilege.

Eternal Gardens Memorial Park Corp. vs. Philippine American Life

G.R. No. 1166205; April 9, 2008

PERFECTED INSURANCE CONTRACT

FACTS:
On December 10, 1980, respondent Philippine American Life Insurance Company
(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. The policy was to be effective for a period of one year, renewable on a
yearly basis.

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, 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, 1984 to Philamlife, which served as an insurance
claim for Chuang’s deat. 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.

In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter

dated May 20, 1986, a portion of which reads:

The deceased was 59 years old when he entered into Contract #9558 and
9529 with Eternal Gardens Memorial Park in October 1982 for the total maximum
insurable amount of P100,000.00 each. No application for Group Insurance was
submitted in our office prior to his death on August 2, 1984.

In accordance with our Creditor’s Group Life Policy No. P-1920, under
Evidence of Insurability provision, "a declaration of good health shall be required
for all Lot Purchasers as party of the application." We cite further the provision on
Effective Date of Coverage under the policy which states that "there shall be no
insurance if the application is not approved by the Company." Since no application
had been submitted by the Insured/Assured, prior to his death, for our approval but
 was submitted instead on November 15, 1984, after his death, Mr. John Uy
Chuang was not covered under the Policy. We wish to point out that Eternal
Gardens being the Assured was a party to the Contract and was therefore aware
of these pertinent provisions.

With regard to our acceptance of premiums, these do not connote our

approval per se of the insurance coverage but are held by us in trust for the payor
until the prerequisites for insurance coverage shall have been met. We will
however, return all the premiums.

ISSUE:
Whether or not there was an existing Insurance Contact

HELD:
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. 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.

In the present case, the number of copies of the insurance application that Chuang
executed is not at issue, neither is whether the insurance application presented by Eternal has
been falsified. Thus, the inconsistencies pointed out by Philamlife are minor and do not affect the
credibility of Eternal’s witnesses.

However, the question arises as to whether Philamlife assumed the risk of loss without
approving the application.

This question must be answered in the affirmative.

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. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held
that:
Indemnity and liability insurance policies are construed in accordance with the
general rule of resolving any ambiguity therein in favor of the insured, where the
 contract or policy is prepared by the insurer. A contract of insurance, being a
contract of adhesion, par excellence, any ambiguity therein should be
resolved against the insurer; in other words, it 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.

Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated
December 10, 1980, must be construed in favor of the insured and in favor of the effectivity of the
insurance contract.

On the other hand, 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.

As a final note, to characterize the insurer and the insured as contracting parties on equal
footing is inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast
amounts of experience in the industry purposefully used to its advantage. More often than not,
insurance contracts are contracts of adhesion containing technical terms and conditions of the
industry, confusing if at all understandable to laypersons, that are imposed on those who wish to
avail of insurance. As such, insurance contracts are imbued with public interest that must be
considered whenever the rights and obligations of the insurer and the insured are to be delineated.
Hence, in order to protect the interest of insurance applicants, insurance companies must be
obligated to act with haste upon insurance applications, to either deny or approve the same, or
otherwise be bound to honor the application as a valid, binding, and effective insurance contract.