PHIL HEALTH CARE PROVIDERS INC V. CIR, G.R.

NO 167330 (2009)
FACTS: Petitioner Philhealth is a domestic corporation whose primary purpose is to establish,
maintain, conduct, and operate and prepaid group practice health care delivery system or a
health maintenance organization (HMO) to take care of the sick and disabled persons enrolled
in the healthcare plan and to provide for the administrative, legal and financial responsibilities of
the organization
1. In January 2000, CIR sent a demand letter for the payment of deficiency taxes for the
taxable years of 1996 and 1997. The deficiency assessment (Documentary Stamp Tax
or DST) was imposed on petitioners health care agreement with the members of its
healthcare program pursuant to Sec 185 of the 1997 Tax Code
2. Philhealth protested the assessment. Since CIR did not act on the protest, Philhealth
filed a petition for review before the CTA seeking the cancellation of the deficiency VAT
and DST assessments
3. CTA held in favor of Philhealth and enjoined CIR from collecting the DST assessment.
4. On appeal, CA reversed the CTA decision and held that petitioners health care
agreement was in the nature of a non-life insurance contract subject to DST
ISSUES:
1. WON Philhealth is an insurance company
2. WON as an HMO, Philhealth was engaged in the business of insurance during the
pertinent taxable years
HELD:
FIRST ISSUE: No. Sec 2(1) Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage, or
liability arising from an unknown or contingent event. An insurance contract exists if the
following elements concur:
(a) The insured has an insurable interest
(b) The insured is subject to a risk of loss by the happening of the designated peril
(c) The insurer assumes the risk
(d) Such assumption of risk is part of a general scheme to distribute actual losses among a
large group of persons bearing a similar risk; and
(e) In consideration of the insurers promise, the insured pays a premium.
Philhealth is not an insurance company for the following reasons:
1. Not all necessary elements of an insurance contract are present in Philhealths
agreements. There is no loss, damage, or liability on the part of the member that should
be indemnified by Philhealth as an HMO
2. Even if a contract contains all the elements of an insurance contract, if its primary
purpose is the rendering of service, it is not a contract of insurance.
3. According to the agreement, a member can take advantage of the bulk of the benefits
anytime, even in the absence of any peril, loss or damage on his part
4. The assumption of the expense is not confined to the happening of contingency but
includes incidents even the in the absence of illness or injury
SECOND ISSUE: No. Sec 2(2) of the Insurance Code enumerated what constitutes doing an
insurance business or transacting an insurance business.
Various courts in the US, whose jurisprudence has a persuasive effect on our decisions, have
determined that HMOs are not in the insurance business. One test that they have applied is
whether the assumption of risk and indemnification of loss are the principal object and purpose

of the organization or whether they are merely incidental to its business. If these are the
principal objectives, the business is that of an insurance. But if they are merely incidental and
service is the principal purpose, then the business is not insurance.
Applying the principal object and purpose test, an HMO, whose main object is to provide the
members of a group with health services, is not engaged in the insurance business.

FILIPINAS CIA DE SEGUROS V. CHRISTERN HUENEFELD & CO, 89 PHIL 54 (1951)

FACTS: Respondent Christern Huenefeld & Co obtained a fire policy from Filipinas Cia de
Seguros in the amount of P1,000,000 covering the merchandize contained in a building in
Binondo
1. In February 1942, during the Japanese occupation, the builder and the insured
merchandise were burned. Respondent then submitted to petitioner its claim under the
policy
2. However, petitioner refused to pay the claim on the account that majority stockholders of
the company were Germans and since the US declared war against Germany,
respondent had become a public enemy
3. Subsequently, the Director of the Bureau of Financing ordered the payment of
respondents claim
ISSUE: WON respondent Christern Huenefeld & Co is entitled to its insurance claim
HELD: No. Since majority of the stockholders of the respondent corporation were Germany
subjects, the respondent became an enemy corporation upon the outbreak of the war between
the US and Germany.
Sec 8 of the Philippine Insurance Law provides that anyone except a public enemy may be
insured. It stands to reason that an insurance policy ceases to be allowable as soon as an
insured becomes a public enemy.
In the case at bar, the respondent having become an enemy corporation on December 10,
1941, the insurance policy issued in its favor on October 1, 1941 by the petitioner had ceased to
be valid and enforceable, and since the insured goods were burned after December 10, 1941
and during the war, the respondent was not entitled to any indemnity under said policy from the
petitioner. However, elementary rules of justice (in the absence of specific provision in the
Insurance Law) require that the premium paid by the respondent for the period covered by its
policy from December 11, 1941, should be returned by the petitioner.

SAN MIGUEL V. LAW UNION ROCK INSURANCE CO, 40 PHIL 674 (1920)
FACTS: Dunn owned a parcel of land which he mortgaged to petitioner San Miguel in order a
secure a debt for P10,000, with the following conditions:
a. Dunn shall insure the property at his own expense in companies to be selected
by San Miguel;
b. San Miguel shall receive the proceeds of the insurance in case of loss, and retain
only such amount as to cover the debt
1. Dunn also authorized San Miguel to effect the insurance itself. Accordingly, Brias (GM of
San Miguel) insured the property with respondent Law Union Rock Insurance to the
extent of P15,000. Brias informed the insurer that his interest in the property was merely
that of a mortgagee
2. Law Union, in turn, insured the property for P7,500 and procured another policy for the
same amount from Filipinas Cia de Seguros. Both policies were under the name of San
Miguel and made no reference to any other interest in the property. The premiums were
paid by San Miguel and charged to Dunn
3. Subsequently, Dunn sold the property to Harding. However, no assignments of the
policies were made, as required by the policies of both insurers
4. The property was subsequently destroyed by fire. Petitioner, as such, filed an action to
recover on the policies. Harding was made a defendant because by virtue of the sale,
he had become the owner of the property
5. The insurance companies argued that they were not liable to Harding and maintained
that they were only liable to San Miguel to the extent of the amount of the credit.
Harding was not entitled to any of the proceeds in excess of the mortgage credit
because he was not privy to the insurance contract
ISSUE: WON the insurance companies are liable to Harding for the balance of the proceeds of
the two policies
HELD: No. Under the Insurance Act, the measure of insurable interest in the property is ht
extent to which the insured might be damnified by the loss or injury thereof. It also provided that
the insurance shall be applied to the proper interest of the person in whose name it is made.
San Miguel, as the mortgagee of the property, had insurable interest therein but it could not, in
any event, recover upon the two companies an amount in excess of the mortgage credit.
Neither Harding nor Dunn could recover from the two policies. With respect to Harding, when he
acquired the property, no change or assignment of the policies had been undertaken. Had the
policies been worded differently so as to protect the owner, Dunn or Harding would have been
entitled to recover from the insurance.
If during the negotiation for the policies, the parties had agreed to cover the owners interest,
and the policies were written in the form in which they were now issued, the court would have
been able to order the contract be reformed to give effect to the intention of the parties. But in
the case at bar, there was no clear proof that the policies failed to reflect the real agreement of
the parties that would justify the reformation of the contracts.

SAURA IMPORT V. PHIL INTERNATIONAL SURETY, 118 PHIL 150 (1963)

FACTS: Saura Import mortgaged a parcel of land with PNB to secure a debt of P27,000. The
mortgage contract provides that Saura Imports shall insure the mortgaged property against fire
and earthquake for an amount satisfactory to the mortgagee
1. Pursuant to the requirement, Saura insured the property with respondent Phil
International Surety for P29,000. The policy states that the proceeds in case of loss shall
be payable to PNB
2. 13 days after the date of issuance of the fire insurance, the insurer cancelled the policy
and sent a notice of cancellation to PNB but not to Saura Imports
3. Subsequently, a fire destroyed the building and its contents. Saura Imports then filed a
claim with the insurer and the mortgagee bank.
4. It was only then that petitioner discovered that the policy had been previously cancelled
by the insurer
5. Upon refusal of the insurer to pay the amount of the insurance, petitioner instituted a civil
action against respondent
6. The trial court ruled in favor respondent insurer and dismissed the case
ISSUE: WON Phil International Surety should be liable to Saura Imports since the former did
not inform Saura Import of the cancellation of the policy
HELD: Yes. It is settled that If a mortgage or lien exists against the property insured, and the
policy contains a clause stating that loss, if any, shall be payable to such mortgagee or the
holder of such lien as interest may appear, notice of cancellation to the mortgagee or lienholder
alone is ineffective as a cancellation of the policy to the owner of the property
In the case at bar, the defendant insurance company, must have realized the paramount
importance of sending a notice of cancellation, when it sent the notice of cancellation of the
policy to the defendant bank (as mortgagee), but not to the insured with which it (insurance
company) had direct dealing. It was the primary duty of the defendant-appellee insurance
company to notify the insured, but it did not.

GREPALIFE V. CA AND LEUTERIO, 316 SCRA 677 (1999)

FACTS: A contract of group life insurance was executed between petitioner Grepalife and DBP.
Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP.
1. Dr. Leuterio was one of the housing debtors of DBP who applied for membership in the
group life insurance plan. In the application form, Dr. Leuterio was asked, among others,
about his health and attested that he did not have any heart conditions and he was, in
his knowledge, in good health
2. Subsequently, Dr. Leuterio died. Consequently, DBP submitted a death claim to
Grepalife but the latter denied the claim, alleging that Dr. Leuterio was not physically
healthy when he applied for an insurance coverage. Grepalife averred that Dr. Leuterio
did not disclose that he had been suffering from hypertension, which caused his death.
3. As such, Dr. Leuterios widow (private respondent) filed a complaint with the RTC
against Grepalife for specific performance with damages. The trial court held in favor of
Leuterio
ISSUE: WON Grepalife is liable to pay the insurance claim.
HELD: Yes.
The rationale of a group insurance policy of mortgagors, otherwise known as the "mortgage
redemption insurance," is a device for the protection of both the mortgagee and the mortgagor.
On the part of the mortgagee, it has to enter into such form of contract so that in the event of the
unexpected demise of the mortgagor during the subsistence of the mortgage contract, the
proceeds from such insurance will be applied to the payment of the mortgage debt, thereby
relieving the heirs of the mortgagor from paying the obligation. In a similar vein, ample
protection is given to the mortgagor under such a concept so that in the event of death; the
mortgage obligation will be extinguished by the application of the insurance proceeds to the
mortgage indebtedness. Consequently, where the mortgagor pays the insurance premium under
the group insurance policy, making the loss payable to the mortgagee, the insurance is on the
mortgagor's interest, and the mortgagor continues to be a party to the contract. In this type of
policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable
clause does not make the mortgagee a party to the contract.
In the case at bar, DBP, as mortgagee, is merely an assignee of Dr. Leuterio; that in the event of
death and before the mortgage is fully paid, the proceeds of the insurance will be payable to
DBP but only to the extent of Dr. Leuterios debt. Since the insurance is on the mortgagors
interest, the mortgagor continues to be a party to the contract.
And since a policy of insrance upon life or health may pass by transfer, will or succession to any
person, whether he has an insurable interest or not, and such person may recover it whatever
the insured might have recovered, the widow of the decedent Dr. Leuterio may file the suit
against the insurer, Grepalife.

GERCIO V. SUN LIFE, 48 PHIL 53 (1925)

FACTS: In January 1910, Sun Life Assurance Co issued a life insurance policy (a 2year endowment policy) in favor of plaintiff Hilario Gercio. The insurance company
agreed to insure the life of Gercio for the sum of P2,000 to be paid on February 1930 or
if the insured should die before the said date, then to his wife, Andrea Zialcita.
1. On the date the policy was issued, Zialcita was the lawful wife of Gercio. In
1919, Zialcita became convicted of adultery. Subsequently, in September 1920, a
divorce decree was issued severing the marital bonds between Gercio and
Zialcita
2. As such, Gercio notified the insurer that he had revoked his donation in favor of
Zialcita and placing in her stead his present wife Adela Garcia de Gercio.
3. However, Sun Life refused to grant Gercios request. Thus, he filed an action to
compel the insurer to change the beneficiary in the policy it issued in favor of
Gercio
4. The trial court held in favor of Gercio and ordered Sun Life to remove Zialcitas
name as beneficiary in the insurance policy
ISSUE: WON Gercio may change the beneficiary in the policy
HELD: No. The wife has an insurable interest in the life of her husband. The
beneficiary has an absolute vested interest in the policy from the date of its issuance
and delivery. So when a policy of life insurance is taken out by the husband in which the
wife is named as beneficiary, she has a subsisting interest in the policy. And this applies
to a policy to which there are attached the incidents of a loan value, cash surrender
value, an automatic extension by premiums paid, and to an endowment policy, as well
as to an ordinary life insurance policy. If the husband wishes to retain to himself the
control and ownership of the policy he may so provide in the policy. But if the
policy contains no provision authorizing a change of beneficiary without the
beneficiary's consent, the insured cannot make such change. Accordingly, it is
held that a life insurance policy of a husband made payable to the wife as
beneficiary, is the separate property of the beneficiary and beyond the control of
the husband.
Philippine Divorce Law, Act No. 2710, merely provides in section 9 that the decree of
divorce shall dissolve the community property as soon as such decree becomes final.
There is no provision in the Philippine Law permitting the beneficiary in a policy for the
benefit of the wife of the husband to be changed after a divorce. It must follow,
therefore, in the absence of a statute to the contrary, that if a policy is taken out
upon a husband's life the wife is named as beneficiary therein, a subsequent
divorce does not destroy her rights under the policy.