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INSURANCE LAW Atty. Sta.

Barbara 1

I. GENERAL CONCEPTS • Rafael Enriquez, the administrator of the estate, testified that he had
gone through the effects of the deceased and had found no letter of
RAFAEL ENRIQUEZ V. SUN LIFE INSURANCE CO. OF notification from the insurance company to Mr. Herrer.
CANADA
GR No. L-15895, November 29, 1920 Issue: whether Herrer received notice of acceptance of his application.

Facts: Held:
• September 24, 1917 - Joaquin Herrer made application to the Sun • Our deduction from the evidence on this issue must be that the letter of
Life Assurance Company of Canada through its office in Manila for November 26, 1917, notifying Mr. Herrer that his application had been
a life annuity. Two days later he paid the sum of P6,000 to the accepted, was prepared and signed in the local office of the insurance
manager of the company's Manila office and was given a receipt company, was placed in the ordinary channels for transmission, but as
• Nov. 26, 1917 - The application was accepted by the head office in far as we know, was never actually mailed and thus was never received
Montereal, Canada by the applicant.
• December 4, 1917 - the policy was issued at Montreal. • the Insurance Act deals with life insurance, it is silent as to the methods
• December 18, 1917 - attorney Aurelio A. Torres wrote to the Manila to be followed in order that there may be a contract of insurance. On the
office of the company stating that Herrer desired to withdraw his other hand, the Civil Code, in article 1802, not only describes a contact
application. of life annuity markedly similar to the one we are considering, but in
• The following day the local office replied to Mr. Torres, stating that two other articles, gives strong clues as to the proper disposition of the
the policy had been issued, and called attention to the notification of case.
November 26, 1917. • article 16 of the Civil Code provides that "In matters which are governed
• This letter was received by Mr. Torres on the morning of December by special laws, any deficiency of the latter shall be supplied by the
21, 1917. provisions of this Code." On the supposition, therefore, which is
incontestable, that the special law on the subject of insurance is deficient
• Mr. Herrer died on December 20, 1917
in enunciating the principles governing acceptance, the subject-matter
• The chief clerk of the Manila office of the Sun Life Assurance of the Civil code, if there be any, would be controlling.
Company of Canada at the time of the trial testified that he prepared
• In the Civil Code is found article 1262 providing that "Consent is shown
the letter introduced in evidence as Exhibit 3, of date November 26,
by the concurrence of offer and acceptance with respect to the thing and
1917, and handed it to the local manager, Mr. E. E. White, for
the consideration which are to constitute the contract. An acceptance
signature afterwhich, he new nothing of what became of it.
made by letter shall not bind the person making the offer except from
• Mr. White admitted having received the cablegram of the the time it came to his knowledge. The contract, in such case, is
application of Herrer, and signed the letter notifying Herrer of this presumed to have been entered into at the place where the offer was
acceptance made." This latter article is in opposition to the provisions of article 54
• The witness further said that letters, after being signed, were sent to of the Code of Commerce
the chief clerk and placed on the mailing desk for transmission. The • The Civil Code rule, that an acceptance made by letter shall bind the
witness could not tell if the letter had every actually been placed in person making the offer only from the date it came to his knowledge,
the mails. may not be the best expression of modern commercial usage. Still it
• Defense attorney testified that in Herrer’s will, he mentioned his must be admitted that its enforcement avoids uncertainty and tends to
application for a life annuity, and that he said that the only document security. Not only this, but in order that the principle may not be taken
relating to the transaction in his possession was the provisional too lightly, let it be noticed that it is identical with the principles
receipt. announced by a considerable number of respectable courts in the United
States. The courts who take this view have expressly held that an

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 2

acceptance of an offer of insurance not actually or constructively • Eternal was required under the policy to submit to Philamlife a list of
communicated to the proposer does not make a contract. Only the all new lot purchasers, together with a copy of the application of each
mailing of acceptance, it has been said, completes the contract of purchaser, and the amounts of the respective unpaid balances of all
insurance, as the locus poenitentiae is ended when the acceptance insured lot purchasers. In relation to the instant petition, Eternal
has passed beyond the control of the party. complied by submitting a letter dated December 29, 1982, containing a
• the law applicable to the case is found to be the second paragraph of list of insurable balances of its lot buyers for October 1982.
article 1262 of the Civil Code providing that an acceptance made by • One of those included in the list as "new business" was a certain John
letter shall not bind the person making the offer except from the time it Chuang. His balance of payments was PhP 100,000. On August 2, 1984,
came to his knowledge. The pertinent fact is, that according to the John Uy Chuang died.
provisional receipt, three things had to be accomplished by the • Eternal sent a letter dated August 20, 19845 to Philamlife, which served
insurance company before there was a contract: (1) There had to be a as an insurance claim for Chuang’s death. Attached to the claim were
medical examination of the applicant; (2) there had to be approval of the the following documents: (1) Chuang’s Certificate of Death; (2)
application by the head office of the company; and (3) this approval had Identification Certificate stating that Chuang is a naturalized Filipino
in some way to be communicated by the company to the applicant. Citizen; (3) Certificate of Claimant; (4) Certificate of Attending
• The fact as to the letter of notification thus fails to concur with the Physician; and (5) Assured’s Certificate.
essential elements of the general rule pertaining to the mailing and • Philamlife demanded more documents which was sent by Eternal. After
delivery of mail matter as announced by the American courts, namely, not hearing from Philamlife, Eternal demanded the payment of the
when a letter or other mail matter is addressed and mailed with postage P100,000.00. Philamlife denied the claim, stating that no application for
prepaid there is a rebuttable presumption of fact that it was received by Group Insurance was submitted to them prior to his death, but was
the addressee as soon as it could have been transmitted to him in the submitted after death on Nov. 15, 1984
ordinary course of the mails. But if any one of these elemental facts fails • RTC Makati ruled in favor of Eternal stating that that due to Philamlife’s
to appear, it is fatal to the presumption. For instance, a letter will not be inaction from the submission of the requirements of the group insurance
presumed to have been received by the addressee unless it is shown that on December 29, 1982 to Chuang’s death on August 2, 1984, as well as
it was deposited in the post-office, properly addressed and stamped. Philamlife’s acceptance of the premiums during the same period,
• We hold that the contract for a life annuity in the case at bar was not Philamlife was deemed to have approved Chuang’s application. The
perfected because it has not been proved satisfactorily that the RTC said that since the contract is a group life insurance, once proof of
acceptance of the application ever came to the knowledge of the death is submitted, payment must follow.
applicant. • CA reversed due to the fact that Chuang’s application was not enclosed
in Eternal’s letter dated December 29, 1982. It further ruled that the non-
accomplishment of the submitted application form violated Section 26
ETERNAL GARDENS MEMORIAL PARK CORPORATION v. of the Insurance Code.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY
G.R. No. 166245 April 9, 2008 Issue:
Facts: 1. WON there was a valid insurance coverage
• PHILAMLIFE entered into an agreement Creditor Group Life Policy 2. WON there is a contract even if the insurance company did not act
No. P-19202 with petitioner Eternal Gardens Memorial Park upon it as soon as it got it
Corporation (Eternal). Under the policy, the clients of Eternal who
purchased burial lots from it on installment basis would be insured by Held:
Philamlife. The amount of insurance coverage depended upon the
existing balance of the purchased burial lots. The policy was to be 1. the factual findings of the RTC were reversed by the CA; thus, this Court
effective for a period of one year, renewable on a yearly basis. may review them.

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 3

• The fact of the matter is, the letter dated December 29, 1982, which contracts are wholly prepared by the insurer with vast amounts of
Philamlife stamped as received, states that the insurance forms for experience in the industry purposefully used to its advantage. More
the attached list of burial lot buyers were attached to the letter. Such often than not, insurance contracts are contracts of adhesion
stamp of receipt has the effect of acknowledging receipt of the letter containing technical terms and conditions of the industry, confusing
together with the attachments. Such receipt is an admission by if at all understandable to laypersons, that are imposed on those who
Philamlife against its own interest. The burden of evidence has wish to avail of insurance. As such, insurance contracts are
shifted to Philamlife, which must prove that the letter did not contain imbued with public interest that must be considered whenever
Chuang’s insurance application. However, Philamlife failed to do the rights and obligations of the insurer and the insured are to
so; thus, Philamlife is deemed to have received Chuang’s insurance be delineated. Hence, in order to protect the interest of insurance
application. applicants, insurance companies must be obligated to act with haste
• Philamlife’s allegation that Eternal’s witnesses ran out of credibility upon insurance applications, to either deny or approve the same, or
and reliability due to inconsistencies is groundless. the witness otherwise be bound to honor the application as a valid, binding, and
admitted not knowing where the original insurance application was, effective insurance contract.
but believed that the application was transmitted to Philamlife as an • REVERSED
attachment to a transmittal letter.
2. YES.
• In the agreement between Philamlife and Eternal, “The insurance of PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT
any eligible Lot Purchaser shall be effective on the date he contracts OF APPEALS and JULITA TRINOS, respondents.
a loan with the Assured. However, there shall be no insurance if the [G.R. No. 125678. March 18, 2002]
application of the Lot Purchaser is not approved by the Company.” Facts:
It is contradictory. • Ernani Trinos, deceased husband of respondent Julita Trinos,
• It must be remembered that an insurance contract is a contract applied for a health care coverage with petitioner Philamcare Health
of adhesion which must be construed liberally in favor of the Systems, Inc. In the standard application form, he answered no to
insured and strictly against the insurer in order to safeguard the the following question:
latter’s interest • Have you or any of your family members ever consulted or been
• Clearly, the vague contractual provision, in Creditor Group Life treated for high blood pressure, heart trouble, diabetes, cancer, liver
Policy No. P-1920 dated December 10, 1980, must be construed in disease, asthma or peptic ulcer? (If Yes, give details)
favor of the insured and in favor of the effectivity of the insurance • The application was approved for a period of one year from March
contract. 1, 1988 to March 1, 1989.Accordingly, he was issued Health Care
• On the other hand, the seemingly conflicting provisions must be Agreement No. P010194. Under the agreement, respondents
harmonized to mean that upon a party’s purchase of a memorial lot husband was entitled to avail of hospitalization benefits, whether
on installment from Eternal, an insurance contract covering the lot ordinary or emergency, listed therein. He was also entitled to avail
purchaser is created and the same is effective, valid, and binding of out-patient benefits such as annual physical examinations,
until terminated by Philamlife by disapproving the insurance preventive health care and other out-patient services.
application. • The same was extended twice to June 1, 1990. The amount of
• mere inaction of the insurer on the insurance application must not coverage was increased to max. P75,000.00 per disability.
work to prejudice the insured; it cannot be interpreted as a • During the period of his coverage, Ernani suffered a heart attack and
termination of the insurance contract. The termination of the was confined at the Manila Medical Center (MMC) for one month
insurance contract by the insurer must be explicit and unambiguous. beginning March 9, 1990. While her husband was in the hospital,
• As a final note, to characterize the insurer and the insured as respondent tried to claim the benefits under the health care
contracting parties on equal footing is inaccurate at best. Insurance agreement but was denied stating that the agreement was void.

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 4

• Doctors at the MMC allegedly discovered at the time of Ernanis (4) of any person upon whose life any estate or interest vested in him
confinement that he was hypertensive, diabetic and asthmatic, depends.
contrary to his answer in the application form. Thus, respondent
paid the hospitalization expenses herself, amounting to about • In the case at bar, the insurable interest of respondents husband
P76,000.00 in obtaining the health care agreement was his own health. The
• After some back and forth to the hospital, and because of financial health care agreement was in the nature of non-life insurance,
difficulty they were unable to confine Ernani. He died. which is primarily a contract of indemnity. Once the member
• Trinos went to the RTC for damages incurs hospital, medical or any other expense arising from
• RTC – in favor of Trinos – actual, moral, exemplary damages and sickness, injury or other stipulated contingent, the health care
attys fees provider must pay for the same to the extent agreed upon under
• CA – affirmed but deleted all awards for damages the contract.
• Petitioner argues that respondents husband concealed a material
Issue: WON CA was correct fact in his application. It appears that in the application for
health coverage, petitioners required respondents husband to
Held: sign an express authorization for any person, organization or
Section 2 (1) of the Insurance Code defines a contract of insurance as an entity that has any record or knowledge of his health to furnish
agreement whereby one undertakes for a consideration to indemnify another any and all information relative to any hospitalization,
against loss, damage or liability arising from an unknown or contingent consultation, treatment or any other medical advice or
event. An insurance contract exists where the following elements concur: examination.
1. The insured has an insurable interest; • The answer assailed by petitioner was in response to the
2. The insured is subject to a risk of loss by the happening of the question relating to the medical history of the applicant. This
designated peril; largely depends on opinion rather than fact, especially coming
3. The insurer assumes the risk; from respondents husband who was not a medical
4. Such assumption of risk is part of a general scheme to distribute doctor. Where matters of opinion or judgment are called for,
actual losses among a large group of persons bearing a similar risk; answers made in good faith and without intent to deceive will
and not avoid a policy even though they are untrue
5. In consideration of the insurers promise, the insured pays a • (A)lthough false, a representation of the expectation, intention,
premium. belief, opinion, or judgment of the insured will not avoid the
policy if there is no actual fraud in inducing the acceptance of
Section 3 of the Insurance Code states that any contingent or unknown event, the risk, or its acceptance at a lower rate of premium, and this
whether past or future, which may idemnify a person having an insurable is likewise the rule although the statement is material to the risk,
interest against him, may be insured against. Every person has an insurable if the statement is obviously of the foregoing character, since in
interest in the life and health of himself. Section 10 provides: such case the insurer is not justified in relying upon such
Every person has an insurable interest in the life and health: statement, but is obligated to make further inquiry. There is a
(1) of himself, of his spouse and of his children; clear distinction between such a case and one in which the
(2) of any person on whom he depends wholly or in part for education insured is fraudulently and intentionally states to be true, as a
or support, or in whom he has a pecuniary interest; matter of expectation or belief, that which he then knows, to be
(3) of any person under a legal obligation to him for the payment of actually untrue, or the impossibility of which is shown by the
money, respecting property or service, of which death or illness facts within his knowledge, since in such case the intent to
might delay or prevent the performance; and deceive the insurer is obvious and amounts to actual fraud

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 5

• The fraudulent intent on the part of the insured must be


established to warrant rescission of the insurance contract.
Concealment as a defense for the health care provider or insurer PHILIPPINE HEALTH CARE PROVIDERS INC. V. CIR
to avoid liability is an affirmative defense and the duty to GR No. 167330, September 18, 2009
establish such defense by satisfactory and convincing evidence Facts:
rests upon the provider or insurer • Philippine Health Care Providers is a domestic corporation whose
• In any case, with or without the authority to investigate, primary purpose is [t]o establish, maintain, conduct and operate a
petitioner is liable for claims made under the contract. Having prepaid group practice health care delivery system or a health
assumed a responsibility under the agreement, petitioner is maintenance organization to take care of the sick and disabled
bound to answer the same to the extent agreed upon. In the end, persons enrolled in the health care plan and to provide for the
the liability of the health care provider attaches once the administrative, legal, and financial responsibilities of the
member is hospitalized for the disease or injury covered by the organization.
agreement or whenever he avails of the covered benefits which • Individuals enrolled in its health care programs pay an annual
he has prepaid. membership fee and are entitled to various preventive, diagnostic
• Under Section 27 of the Insurance Code, a concealment entitles and curative medical services provided by its duly licensed
the injured party to rescind a contract of insurance. The right to physicians, specialists and other professional technical staff
rescind should be exercised previous to the commencement of participating in the group practice health delivery system at a
an action on the contract.[17] In this case, no rescission was hospital or clinic owned, operated or accredited by it.
made. Besides, the cancellation of health care agreements as in • CIR sent a formal demand letter demanding payment of deficiency
insurance policies require the concurrence of the following taxes plus interest and surcharges from 1996-1997 for
conditions: P224,702,641.18 pursuant to Sec. 185 of the 1997 Tax Code
1. Prior notice of cancellation to insured; • Petitioner protested the assessment. CIR did not act on it. Petitioner
2. Notice must be based on the occurrence after effective date of the filed a petition for review in the CTA which partially granted the
policy of one or more of the grounds mentioned; petition. Ordering to desist from the payment of the DST deficiency
3. Must be in writing, mailed or delivered to the insured at the address tax, but pay the VAT
shown in the policy; • Respondent appealed to CA stating that the DST is a contract of
4. Must state the grounds relied upon provided in Section 64 of the
insurance. CA rendered its decision holding that petitioners health
Insurance Code and upon request of insured, to furnish facts on
care agreement was in the nature of a non-life insurance contract
which cancellation is based.[ subject to DST.
• In a decision dated June 12, 2008, the Court denied the petition and
• None of the conditions was fulfilled in this case.
affirmed the CAs decision. We held that petitioners health care
• Petitioner also contends that respondent is not the legal wife having agreement during the pertinent period was in the nature of non-life
at the time of their marriage, the deceased was married to another insurance which is a contract of indemnity,
woman. The health care agreement is in the nature of a contract of
• We also ruled that petitioners contention that it is a health
indemnity. Hence, payment should be made to the party who maintenance organization (HMO) and not an insurance company is
incurred the expenses. It is not controverted that respondent paid all
irrelevant because contracts between companies like petitioner and
the hospital and medical expenses. She is therefore entitled to
the beneficiaries under their plans are treated as insurance
reimbursement. The records adequately prove the expenses incurred contracts. Moreover, DST is not a tax on the business transacted but
by respondent for the deceaseds hospitalization, medication and the an excise on the privilege, opportunity or facility offered at
professional fees of the attending physicians
exchanges for the transaction of the business.
• CA affirmed.
• This is a Motion for Reconsideration

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 6

From the language of Section 185, it is evident that two requisites must
Issue: WON petitioner was an HMO engaged in insurance during the taxable concur before the DST can apply, namely:
year assailed (1) the document must be a policy of insurance or an obligation in the
nature of indemnity and
Held: NO. (2) the maker should be transacting the business of accident, fidelity,
I. employers liability, plate, glass, steam boiler, burglar, elevator, automatic
Nature of petitioner’s business: sprinkler, or other branch of insurance (except life, marine, inland, and fire
It is engaged in preventive, diagnostic, and curative medical services. insurance).
Individuals enrolled in its health care program pay an annual membership fee.
Membership is on a year-to-year basis. To avail of petitioners health care • Petitioner is an HMO. Under RA 7875 (or The National Health Insurance
programs, the individual members are required to sign and execute a standard Act of 1995), an HMO is an entity that provides, offers or arranges for
health care agreement embodying the terms and conditions for the provision coverage of designated health services needed by plan members for a
of the health care services. The same agreement contains the various health fixed prepaid premium.
care services that can be engaged by the enrolled member. Except for the • Citing Sec. 2 of the Insurance Code, and American jurisprudenc, have
curative aspect of the medical service offered, the enrolled member may determined that an HMO is not in the insurance business. One test that
actually make use of the health care services being offered by petitioner at they have applied is whether the assumption of risk and indemnification
any time. of loss (which are elements of an insurance business) are the principal
object and purpose of the organization or whether they are merely
Previous decision: it is irrelevant that petitioner is an HMO and not an incidental to its business. If these are the principal objectives, the business
insurer because its agreements are treated as insurance contracts and the DST is that of insurance. But if they are merely incidental and service is the
is not a tax on the business but an excise on the privilege, opportunity or principal purpose, then the business is not insurance.
facility used in the transaction of the business. • Citing Jordan v. Group Health Association (Am jurisprudence) the Court
of Appeals of the District of Columbia Circuit held that Group Health
Petitioner’s contention: it is of critical importance to characterize the Association should not be considered as engaged in insurance activities
business it is engaged in, that is, to determine whether it is an HMO or an since it was created primarily for the distribution of health care
insurance company, as this distinction is indispensable in turn to the issue of services rather than the assumption of insurance risk.
whether or not it is liable for DST on its health care agreements. Insurance HMO
are concerned primarily, if not cooperative is concerned
SC’s new stand: exclusively, with risk and the principally with getting service
Sec. 185 NIRC 1997: consequences of its descent, not rendered to its members and doing
Section 185. Stamp tax on fidelity bonds and other insurance policies. On with service, or its extension in so at lower prices made possible by
all policies of insurance or bonds or obligations of the nature of indemnity kind, quantity or distribution; with quantity purchasing and economies
for loss, damage, or liability made or renewed by any person, association the unusual occurrence, not the in operation.
or company or corporation transacting the business of accident, fidelity, daily routine of living. Hazard is Its primary purpose is to reduce the
employers liability, plate, glass, steam boiler, burglar, elevator, automatic predominant. cost rather than the risk of medical
sprinkler, or other branch of insurance (except life, marine, inland, and care; to broaden the service to the
fire insurance) … individual in kind and quantity; to
enlarge the number receiving it; to
Applying statcon, Ut magis valeat quam pereat, that is, we choose the regularize it as an everyday incident
interpretation which gives effect to the whole of the statute its every word. of living, like purchasing food and
clothing or oil and gas, rather than

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 7

merely protecting against the


financial loss caused by 2. The insured is subject to a risk of loss by the happening of the
extraordinary and unusual designed peril;
occurrences, such as death, disaster - there is no loss, damage or liability on the part of the member
at sea, fire and tornado that should be indemnified by petitioner as an HMO. Under the
agreement, the member pays petitioner a predetermined
To summarize, the distinctive features of the cooperative are the consideration in exchange for the services
rendering of service, its extension, the bringing of physician and patient
together, the preventive features, the regularization of service as well as 3. The insurer assumes the risk;
payment, the substantial reduction in cost by quantity purchasing in - A member can avail of the services even in the absence of any
short, getting the medical job done and paid for; not, except incidentally peril, loss or damage on his or her part.
to these features, the indemnification for cost after the services is
rendered. Except the last, these are not distinctive or generally 4. Such assumption of risk is part of a general scheme to distribute
characteristic of the insurance arrangement. actual losses among a large group of persons bearing a similar risk
and
obviously it was not the purpose of the insurance statutes to regulate all - In case of emergency, petitioner is obliged to reimburse the
arrangements for assumption or distribution of risk. That view would cause member who receives care from a non-participating physician
them to engulf practically all contracts, particularly conditional sales and or hospital. However, this is only a very minor part of the list of
contingent service agreements. The fallacy is in looking only at the risk services available. The assumption of the expense by petitioner
element, to the exclusion of all others present or their subordination to is not confined to the happening of a contingency but includes
it. The question turns, not on whether risk is involved or assumed, but incidents even in the absence of illness or injury.
on whether that or something else to which it is related in the particular - This is not the focal point of the agreement but an extension of
plan is its principal object purpose the medical services

II. 5. In consideration of the insurers promise, the insured pays a


As an HMO, it is its obligation to maintain the good health of its members. premium.
Accordingly, its health care programs are designed to prevent or to - Although risk is a primary element of an insurance contract, it
minimize the possibility of any assumption of risk on its part. Thus, its is not necessarily true that risk alone is sufficient to establish
undertaking under its agreements is not to indemnify its members against any it. Almost anyone who undertakes a contractual obligation
loss or damage arising from a medical condition but, on the contrary, to always bears a certain degree of financial risk. Consequently,
provide the health and medical services needed to prevent such loss or there is a need to distinguish prepaid service contracts (like
damage. those of petitioner) from the usual insurance contracts.
- INSURANCE RISK: a.k.a. Actuarial risk
Section 185 states that DST is imposed on all policies of insurance or - is the risk that the cost of insurance claims might be higher
obligations of the nature of indemnity for loss, damage, or liability. HMO than the premiums paid. The amount of premium is calculated
not an insurance contract contemplated under Sec. 185 of NIRC 1997. on the basis of assumptions made relative to the insured.
- HMO: assuming that petitioners commitment to provide
Citing Sec 2 of the Insurance Code medical services to its members can be construed as an
1. The insured has an insurable interest; acceptance of the risk that it will shell out more than the prepaid
- even if a contract contains all the elements of an insurance fees, it still will not qualify as an insurance contract because
contract, if its primary purpose is the rendering of service, it is petitioners objective is to provide medical services at reduced
not a contract of insurance cost, not to distribute risk like an insurer.

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 8

• After an investigation conducted by the Pasay police authorities, the


III. driver Magalong and guard Atiga were charged, together with Edelmer
There was no legislative intent to impose DST on Health Care Agreements Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with violation of
of HMO P.D. 532 (Anti-Highway Robbery Law) before the Fiscal of Pasay City.
• Demands were made by the plaintiff upon the defendant to pay the
We can clearly see from these two histories (of the DST on the one hand and amount of the loss of P725,000.00, but the latter refused to pay as the
HMOs on the other) that when the law imposing the DST was first passed, loss is excluded from the coverage of the insurance policy, “(b) any loss
HMOs were yet unknown in the Philippines. However, when the various caused by any dishonest, fraudulent or criminal act of the insured or any
amendments to the DST law were enacted, they were already in existence in officer, employee, partner, director, trustee or authorized
the Philippines and the term had in fact already been defined by RA 7875. If representative of the Insured whether acting alone or in conjunction
it had been the intent of the legislature to impose DST on health care with others. . . .”
agreements, it could have done so in clear and categorical terms. It had many • plaintiff opposes the contention of the defendant and contends that Atiga
opportunities to do so. But it did not. The fact that the NIRC contained no and Magalong are not its "officer, employee, . . . trustee or authorized
specific provision on the DST liability of health care agreements of HMOs at representative . . . at the time of the robbery.
a time they were already known as such, belies any legislative intent to • RTC ruled in favor Producers Bank
impose it on them. As a matter of fact, petitioner was assessed its DST
• CA affirmed
liability only on January 27, 2000, after more than a decade in the
business as an HMO.
Issue: WON CA’s decision is right
NOTE: Petitioner’s tax liability was extinguished by RA 9840 Sec 6(a)
Held:
granting it tax amnesty
MR is granted. • It should be noted that the insurance policy entered into by the parties is
a theft or robbery insurance policy which is a form of casualty insurance.
FORTUNE INSURANCE AND SURETY CO., INC. vs. Section 174 of the Insurance Code provides:
COURT OF APPEALS and PRODUCERS BANK OF THE • Sec. 174. Casualty insurance is insurance covering loss or liability
PHILIPPINES arising from accident or mishap, excluding certain types of loss which
G.R. No. 115278 May 23, 1995 by law or custom are considered as falling exclusively within the scope
Facts: of insurance such as fire or marine. It includes, but is not limited to,
employer's liability insurance, public liability insurance, motor vehicle
• plaintiff was insured by the defendants and an insurance policy was
liability insurance, plate glass insurance, burglary and theft insurance,
issued
personal accident and health insurance as written by non-life insurance
• An armored car of the plaintiff, while in the process of transferring cash companies, and other substantially similar kinds of insurance.
in the sum of P725,000.00 under the custody of its teller, Maribeth
• Except with respect to compulsory motor vehicle liability insurance, the
Alampay, from its Pasay Branch to its Head Office at 8737 Paseo de
Insurance Code contains no other provisions applicable to casualty
Roxas, Makati, Metro Manila on June 29, 1987, was robbed of the said
insurance or to robbery insurance in particular. These contracts are,
cash. The robbery took place while the armored car was traveling along
therefore, governed by the general provisions applicable to all types of
Taft Avenue in Pasay City;
insurance. Outside of these, the rights and obligations of the parties must
• armored car was driven by Benjamin Magalong Y de Vera, escorted by be determined by the terms of their contract, taking into consideration
Security Guard Saturnino Atiga Y Rosete (assigned by Unicorn Security its purpose and always in accordance with the general principles of
Services, Inc.) Driver Magalong was assigned by PRC Management insurance law
Systems
• Persons frequently excluded under such provisions are those in the
insured's service and employment. The purpose of the exception is to

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 9

guard against liability should the theft be committed by one having "authorized representatives" for these particular tasks, the three acted as
unrestricted access to the property. In such cases, the terms specifying agents of Producers. A "representative" is defined as one who represents
the excluded classes are to be given their meaning as understood in or stands in the place of another; one who represents others or another
common speech. The terms "service" and "employment" are generally in a special capacity, as an agent, and is interchangeable with "agent."
associated with the idea of selection, control, and compensation. • In view of the foregoing, Fortune is exempt from liability under the
• A contract of insurance is a contract of adhesion, thus any ambiguity general exceptions clause of the insurance policy. Petition is granted.
therein should be resolved against the insurer, or 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 SUN INSURANCE OFFICE, LTD., vs. CA
must be construed G.R. No. 92383 July 17, 1992
in such a way, as to preclude the insurer from non-compliance with its
obligation. It goes without saying then that if the terms of the contract
are clear and unambiguous, there is no room for construction and such FACTS:
terms cannot be enlarged or diminished by judicial construction.
• An insurance contract is a contract of indemnity upon the terms and • Sun Insurance issued Personal Accident Policy No. 05687 to Felix
conditions specified therein. It is settled that the terms of the policy Lim, Jr. with a face value of P200,000.00. Two months later, he was
constitute the measure of the insurer's liability. In the absence of dead with a bullet wound in his head. As beneficiary, his wife
statutory prohibition to the contrary, insurance companies have the same Nerissa Lim sought payment on the policy but her claim was
rights as individuals to limit their liability and to impose whatever rejected. The petitioner agreed that there was no suicide. It
conditions they deem best upon their obligations not inconsistent with argued, however that there was no accident either.
public policy. • Pilar Nalagon, Lim's secretary, was the only eyewitness to his death
which happened after his mother's birthday party. According to
Another issue: WON Magalong and Atiga are employees/authorized Nalagon, Lim was in a happy mood (but not drunk) and was playing
representatives falling under the general exception clause with his handgun, from which he had previously removed the
• It is clear to us that insofar as Fortune is concerned, it was its intention magazine. As she watched television, he stood in front of her and
to exclude and exempt from protection and coverage losses arising from pointed the gun at her. She pushed it aside and said it might he
dishonest, fraudulent, or criminal acts of persons granted or having loaded. He assured her it was not and then pointed it to his temple.
unrestricted access to Producers' money or payroll. When it used then The next moment there was an explosion and Lim slumped to the
the term "employee," it must have had in mind any person who qualifies floor. He was dead before he fell
as such as generally and universally understood, or jurisprudentially • The widow sued the petitioner in the RTC and was sustained. The
established in the light of the four standards in the determination of the petitioner was sentenced to pay her P200,000.00, representing the
employer-employee relationship, 21 or as statutorily declared even in a face value of the policy together with award of damages. This
limited sense as in the case of Article 106 of the Labor Code which decision was affirmed on appeal, and the motion for reconsideration
considers the employees under a "labor-only" contract as employees of was denied.
the party employing them and not of the party who supplied them to the • The petitioner then came to this Court to fault the Court of Appeals
employer. for approving the payment of the claim and the award of damages.
• But even granting for the sake of argument that these contracts were not
"labor-only" contracts, and PRC Management Systems and Unicorn ISSUE:
Security Services were truly independent contractors, we are satisfied
that Magalong and Atiga were, in respect of the transfer of Producer's
money from its Pasay City branch to its head office in Makati, its 1. WON Lim’s death was an accident

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 10

Accident- happens by chance or fortuitously, without intention or design, and The petitioner maintains that by the mere act of pointing the gun to hip
which is unexpected, unusual, and unforeseen. It is an event that takes place temple, Lim had willfully exposed himself to needless peril and so came
without one's foresight or expectation — an event that proceeds from an under the exception. The theory is that a gun is per se dangerous and
unknown cause, or is an unusual effect of a known case, and therefore not should therefore be handled cautiously in every case.
expected.
However, Lim had removed the magazine from the gun and believed it was
In light of these definitions, the Court is convinced that the incident that no longer dangerous. He expressly assured her that the gun was not loaded.
resulted in Lim's death was indeed an accident. "there is no accident when It is submitted that Lim did not willfully expose himself to needless peril
a deliberate act is performed unless some additional, unexpected, independent when he pointed the gun to his temple because the fact is that he thought it
and unforeseen happening occurs which produces or brings about their injury was not unsafe to do so. The act was precisely intended to assure Nalagon
or death." There was such a happening. This was the firing of the gun, that the gun was indeed harmless.
which was the additional unexpected and independent and unforeseen
occurrence that led to the insured person's death. Lim was unquestionably negligent and that negligence cost him his own
life. But it should not prevent his widow from recovering from the
The petitioner also cites one of the four exceptions provided for in the insurance policy he obtained precisely against accident. There is nothing
insurance contract and contends that the private petitioner's claim is barred in the policy that relieves the insurer of the responsibility to pay the indemnity
by such provision. It is there stated: agreed upon if the insured is shown to have contributed to his own accident.
Indeed, most accidents are caused by negligence. There are only four
The company shall not be liable in respect of exceptions expressly made in the contract to relieve the insurer from
liability, and none of these exceptions is applicable in the case at bar. **
1. Bodily injury
b. consequent upon It bears noting that insurance contracts are as a rule supposed to be interpreted
i) The insured person attempting to commit suicide or liberally in favor of the assured. There is no reason to deviate from this rule,
willfully exposing himself to needless peril except in an especially in view of the circumstances of this case as above analyzed.
attempt to save human life.
Nerissa Lim is not entitled to damages because Sun Insurance acted in good
2. WON Sun Insurance is liable faith when it rejected the Insurance claim. The rejection of Nerissa’s claim
was not raised for the purpose of evading a legitimate obligation.
To repeat, the parties agree that Lim did not commit suicide. Nevertheless,
the petitioner contends that the insured willfully exposed himself to
needless peril and thus removed himself from the coverage of the TIU vs ARRIEGADO
insurance policy.
FACTS:
It should be noted at the outset that suicide and willful exposure to needless
peril are in pari materia because they both signify a disregard for one's life. • Cargo truck marked "Condor Hollow Blocks and General
The only difference is in degree, as suicide imports a positive act of ending Merchandise" was loaded with firewood in Bogo, Cebu and left
such life whereas the second act indicates a reckless risking of it that is almost for Cebu City.
suicidal in intent. • Jjust as the truck passed over a bridge, one of its rear tires
exploded. The driver, Sergio Pedrano, then parked along the right
side of the national highway and removed the damaged tire to have

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 11

it vulcanized at a nearby shop. Pedrano left his helper, Jose • After the parties presented their respective evidence, the trial
Mitante, Jr. to keep watch over the stalled vehicle, and instructed the court ruled in favor of respondent Arriesgado and concluded
latter to place a spare tire six fathoms away behind the stalled truck that petitioner Laspiñas was negligent. After the petitioner’s
to serve as a warning for oncoming vehicles. The truck’s tail lights motion for reconsideration of the said decision was denied, the
were also left on. petitioners elevated the case to the CA contending among others if
• As the D’ Rough Riders passenger driven by Virgilio Te Laspiñas Philippine Phoenix Surety and Insurance Inc. is liable to William
was crossing the bridge, Laspiñas saw the stalled truck, which was Tiu. CA affirmed the trial court’s decision ruling that no evidence
then about 25 meters away. He applied the breaks and tried to was presented against the respondent PPSII, and as such, it
swerve to the left to avoid hitting the truck. But it was too late; the could not be held liable for respondent Arriesgado’s claim, nor
bus rammed into the truck’s left rear. The impact damaged the for contribution, indemnification and/or reimbursement in case
right side of the bus and left several passengers injured. the petitioners were adjudged liable.
Passenger Pedro Arriesgado lost consciousness and suffered a
fracture in his right colles. His wife, Felisa, was brought to the the ISSUE: WON Philippine Phoenix Surety and Insurance liable to
hospital and died shortly thereafter. Arriesgado and Tiu as insurer
• Arriesgado then filed a complaint for breach of contract of
carriage, damages and attorney’s fees before the RTC against the HELD: No.
petitioners. The respondent alleged that the passenger bus in
question was cruising at a fast and high speed along the national
road, and that petitioner Laspiñas did not take precautionary A perusal of the records will show that when the petitioners filed the Third-
measures to avoid the accident. Party Complaint against respondent PPSII, they failed to attach a copy of the
• The petitioners, for their part, filed a Third-Party Complaint terms of the insurance contract itself. Only Certificate of Cover issued in
against the following: respondent Philippine Phoenix Surety and favor of "Mr. William Tiu, was appended to the third-party complaint. The
Insurance, Inc. (PPSII), petitioner Tiu’s insurer; respondent date of issuance, July 22, 1986, the period of insurance, from July 22, 1986
Benjamin Condor, the registered owner of the cargo truck; and to July 22, 1987
respondent Sergio Pedrano, the driver of the truck.
• It was alleged that the driver of the the vehicular accident in In fact, respondent PPSII did not dispute the existence of such contract, and
question, and Benjamin Condor, as the registered owner of the cargo admitted that it was liable thereon. It claimed, however, that it had attended
truck who failed to exercise due diligence in the selection and to and settled the claims of other passengers who were injured during
supervision of third-party defendant Sergio Pedrano, are jointly and the incident. With respect to the claim of plaintiff, herein answering third
severally liable to the third-party plaintiffs for whatever liability that party defendant through its authorized insurance adjuster attended to said
may be adjudged against said third-party plaintiffs or are directly claim. Only that it cannot accede to the demand of said claimant
liable of (sic) the alleged death of plaintiff’s wife considering that the claim was way beyond the scheduled indemnity as
• That the aforesaid passenger bus, owned and operated by William per contract entered into with third party plaintiff William Tiu and
Tiu, is covered by a common carrier liability insurance by Philippine Philippine Phoenix Surety and Insurance, Inc
Phoenix Surety and Insurance, Inc., in favor of William Tiu and that
the said insurance coverage was valid, binding and subsisting Considering the admissions made by respondent PPSII, the existence of the
during the time of the aforementioned incident and that after the insurance contract and the salient terms thereof cannot be dispatched. It
aforesaid alleged incident, third-party plaintiff notified third-party must be noted that after filing its answer, respondent PPSII no longer
defendant Philippine Phoenix Surety and Insurance, Inc., of the objected to the presentation of evidence by respondent Arriesgado and
alleged incident hereto mentioned, but to no avail; the insured petitioner Tiu.

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 12

As can be gleaned from the Certificate of Cover, such insurance contract FACTS:
was issued pursuant to the Compulsory Motor Vehicle Liability
Insurance Law. It was expressly provided therein that the limit of the • Early morning, Lope Maglana while on his way to his work station,
insurer’s liability for each person was ₱12,000, while the limit per driving a motorcycle owned by the Bureau of Customs, met an
accident was pegged at ₱50,000. accident that resulted in his death. He died on the spot. The PUJ jeep
that bumped the deceased was driven by Pepito Into, operated and
An insurer in an indemnity contract for third party liability is directly liable owned by defendant Destrajo.
to the injured party up to the extent specified in the agreement but it • The PUJ jeep was overtaking another passenger jeep that was going
cannot be held solidarily liable beyond that amount. The respondent towards the city poblacion. While overtaking, the PUJ jeep of
PPSII could not then just deny petitioner Tiu’s claim; it should have paid defendant Destrajo running abreast with the overtaken jeep,
₱12,000 for the death of Felisa Arriesgado, and respondent Arriesgado’s bumped the motorcycle driven by the deceased who was thrown
hospitalization expenses of ₱1,113.80, which the trial court found to have from the road and met his untimely death.
been duly supported by receipts. The total amount of the claims, even when • The heirs of Maglana filed an action for damages and attorney's fees
added to that of the other injured passengers which the respondent PPSII against operator Patricio Destrajo and AFISCO. An information for
claimed to have settled,60 would not exceed the ₱50,000 limit under the homicide thru reckless imprudence was also filed against Pepito
insurance agreement. Into.
• During the pendency of the civil case, Into was sentenced to
Indeed, the nature of Compulsory Motor Vehicle Liability Insurance is imprisonment and to indemnify the heirs of Lope Maglana, Sr.
such that it is primarily intended to provide compensation for the death • The lower court rendered a decision finding that Destrajo had not
or bodily injuries suffered by innocent third parties or passengers as a exercised sufficient diligence as the operator of the jeepney. The
result of the negligent operation and use of motor vehicles. The victims defendant insurance company is ordered to reimburse
and/or their dependents are assured of immediate financial assistance, defendant Destrajo whatever amounts the latter shall have paid
regardless of the financial capacity of motor vehicle owners. only up to the extent of its insurance coverage.
• Petitioners filed a motion for the reconsideration of the second
However, although the victim may proceed directly against the insurer for paragraph of the dispositive portion of the decision contending that
indemnity, the third party liability is only up to the extent of the insurance AFISCO should not merely be held secondarily liable because
policy and those required by law. While it is true that where the insurance the Insurance Code provides that the insurer's liability is "direct
contract provides for indemnity against liability to third persons, and such and primary and/or jointly and severally with the operator of
persons can directly sue the insurer, the direct liability of the insurer under the vehicle, although only up to the extent of the insurance
indemnity contracts against third party liability does not mean that the insurer coverage."
can be held liable in solidum with the insured and/or the other parties found • In its comment on the motion for reconsideration, AFISCO argued
at fault. For the liability of the insurer is based on contract; that of the that since the Insurance Code does not expressly provide for a
insured carrier or vehicle owner is based on tort. Obviously, the insurer solidary obligation, the presumption is that the obligation is
could be held liable only up to the extent of what was provided for by the joint.
contract of insurance, in accordance with the CMVLI law. • The lower court denied the motion for reconsideration ruling that
since the insurance contract "is in the nature of suretyship, then the
FIGURACION VDA. DE MAGLANA vs HONORABLE FRANCISCO liability of the insurer is secondary only up to the extent of the
Z. CONSOLACION insurance coverage."
G.R. No. 60506 August 6, 1992

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 13

ISSUE: WON insurance company is directly and solidarily liable with the • The Court then proceeded to distinguish the extent of the liability
negligent operator up to the extent of its insurance coverage. and manner of enforcing the same in ordinary contracts from
that of insurance contracts. While in solidary obligations, the
HELD: creditor may enforce the entire obligation against one of the solidary
debtors, in an insurance contract, the insurer undertakes for a
Sec. 1 — LIABILITY TO THE PUBLIC consideration to indemnify the insured against loss, damage or
liability arising from an unknown or contingent event. Thus,
petitioner therein, which, under the insurance contract is liable only
. The Company will, subject to the Limits of Liability, pay all sums necessary up to P20,000.00, can not be made solidarily liable with the insured
to discharge liability of the insured in respect of for the entire obligation of P29,013.00 otherwise there would result
"an evident breach of the concept of solidary obligation."
a) death of or bodily injury to any THIRD PARTY
The liability of AFISCO based on the insurance contract is direct, but
3. In the event of the death of any person entitled to indemnity under not solidary with that of Destrajo which is based on Article 2180 of the
this Policy, the Company will, in respect of the liability incurred to such Civil Code. As such, petitioners have the option either to claim the P15,000
person indemnify his personal representatives in terms of, and subject to the from AFISCO and the balance from Destrajo or enforce the entire judgment
terms and conditions hereof. 7 from Destrajo subject to reimbursement from AFISCO to the extent of the
insurance coverage.
• The above-quoted provision leads to no other conclusion but that
AFISCO can be held directly liable by petitioners. As this Court JEWEL VILLACORTA vs.THE INSURANCE COMMISSION
ruled in Shafer vs. Judge, RTC of Olongapo City, Br. 75, "[w]here G.R. No. L-54171 October 28, 1980
an insurance policy insures directly against liability, the insurer's
liability accrues immediately upon the occurrence of the injury or
FACTS:
even upon which the liability depends, and does not depend on the
recovery of judgment by the injured party against the insured." The
underlying reason behind the third party liability (TPL) of the • Complainant was the owner of a Colt Lancer, Model 1976, insured
Compulsory Motor Vehicle Liability Insurance is "to protect injured with respondent company
persons against the insolvency of the insured who causes such • The vehicle was brought to the Sunday Machine Works, Inc., for
injury, and to give such injured person a certain beneficial interest general check-up and repairs. On May 11, 1978, while it was in the
in the proceeds of the policy . . ." 9 Since petitioners had received custody of the Sunday Machine Works, the car was allegedly taken
from AFISCO the sum of P5,000.00 under the no-fault clause, by six (6) persons and driven out to Montalban, Rizal.
AFISCO's liability is now limited to P15,000.00. • While travelling, the car figured in an accident, hitting and
• However, the court does not agree that AFISCO is likewise bumping a gravel and sand truck parked at the right side of the road
solidarily liable with Destrajo. going south. As a consequence, the gravel and sand truck veered to
• While it is true that where the insurance contract provides for the right side of the pavement going south and the car veered to the
indemnity against liability to third persons, such third persons can right side of the pavement going north.
directly sue the insurer, however, the direct liability of the insurer • The driver, Benito Mabasa, and one of the passengers died and
under indemnity contracts against third party liability does not the other four sustained physical injuries. The car, as well,
mean that the insurer can be held solidarily liable with the insured suffered extensive damage. Complainant, thereafter, filed a claim
and/or the other parties found at fault. The liability of the insurer is for total loss with the respondent company but claim was denied.
based on contract; that of the insured is based on tort. Hence, complainant, was compelled to institute the present action.

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 14

• Respondent insurance commission, however, invoked the policy on A car owner who entrusts his car to an established car service and repair shop
Authorized Driver clause and dismissed petitioner's complaint necessarily entrusts his car key to the shop owner and employees who
because the accident did not fall within the provisions of the are presumed to have the insured's permission to drive the car for
policy either for the Own Damage or Theft coverage legitimate purposes of checking or road-testing the car. The mere
• Respondent commission upheld private respondent's contention on happenstance that the employee(s) of the shop owner diverts the use of the
the "Authorized Driver" clause in this wise: "It must be observed car to his own illicit or unauthorized purpose in violation of the trust reposed
that under the above-quoted provisions, the policy limits the use of in the shop by the insured car owner does not mean that the "authorized
the insured vehicle to two (2) persons only, namely: the insured driver" clause has been violated such as to bar recovery, provided that such
himself or any person on his (insured's) permission. Under the employee is duly qualified to drive under a valid driver's license.
second category, it is to be noted that the words "any person' is
qualified by the phrase 2. WON the car was not stolen, therefore it should not be covered
• Respondent commission likewise upheld private respondent's by the Theft Clause
assertion that the car was not stolen and therefore not covered
by the Theft clause The Court rejects respondent commission's premise that there must be an
• The fact that the car was taken by one of the residents of the intent on the part of the taker of the car "permanently to deprive the insured
Sunday Machine Works, and the withholding of the same, for a of his car" and that since the taking here was for a "joy ride" and "merely
joy ride should not be construed to mean 'taking' under Art. 308 temporary in nature," a "temporary taking is held not a taking insured
of the Revised Penal Code. If at all there was a 'taking', the same against."
was merely temporary in nature. A temporary taking is held not a
taking insured against The evidence does not warrant respondent commission's findings that it was
o The Court finds respondent commission's dismissal of the a mere "joy ride". From the very investigator's report cited in its
complaint to be contrary to the evidence and the law. comment, 3 the police found from the waist of the car driver Benito Mabasa
Bartolome who smashed the car and was found dead right after the incident
ISSUES: "one cal. 45 Colt. and one apple type grenade," hardly the materials one
would bring along on a "joy ride". Then, again, it is equally evident that the
1. WON authorized driver clause may be properly invoked taking proved to be quite permanent rather than temporary, for the car
was totally smashed in the fatal accident and was never returned in
Court held that is too restrictive and contrary to the established principle that serviceable and useful condition to petitioner-owner.
insurance contracts, being contracts of adhesion where the only participation
of the other party is the signing of his signature or his "adhesion" thereto, Assuming, despite the totally inadequate evidence, that the taking was
"obviously call for greater strictness and vigilance on the part of courts "temporary" and for a "joy ride", the Court sustains as the better view that
of justice with a view of protecting the weaker party from abuse and which holds that when a person, either with the object of going to a certain
imposition, and prevent their becoming traps for the unwary. place, or learning how to drive, or enjoying a free ride, takes possession
of a vehicle belonging to another, without the consent of its owner, he is
The main purpose of the "authorized driver" clause, is that a person other guilty of theft because by taking possession of the personal property
than the insured owner, who drives the car on the insured's order, such as belonging to another and using it, his intent to gain is evident since he
his regular driver, or with his permission, such as a friend or member of the derives therefrom utility, satisfaction, enjoyment and pleasure.
family or the employees of a car service or repair shop must be duly licensed
drivers and have no disqualification to drive a motor vehicle. The insurer must therefore indemnify the petitioner-owner for the total loss
of the insured car in the sum of P35,000.00 under the theft clause of the

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 15

policy, subject to the filing of such claim for reimbursement or payment as it order of a Court of law or by reason of any enactment
may have as subrogee against the Sunday Machine Works, Inc. or regulation in that behalf.

PALERMO vs. PYRAMID INSURANCE CO., INC. Issue: W/N Palermo was entitled to payment of his claim
Facts:
Held: Yes.
- After purchasing Nissan Cedric de Luxe Sedan car from the Ng Sam
Bok Motors Co., Andrew Palermo insured the same with the defendant - There is no merit in the appellant's allegation that the plaintiff was not
against any loss or damage for P 20k and against third party liability authorized to drive the insured motor vehicle because his driver's
for P 10k. Defendant then issued Private Car Comprehensive Policy license had expired. The driver of the insured motor vehicle at the time
No. MV-1251. of the accident was, the insured himself, hence an "authorized driver"
- The automobile was, however, mortgaged by the plaintiff with the under the policy.
vendor, Ng Sam Bok Motors Co., to secure the payment of the balance - While the Motor Vehicle Law prohibits a person from operating a
of the purchase price. motor vehicle on the highway without a license or with an expired
license, an infraction of the Motor Vehicle Law on the part of the
- While driving the automobile, the plaintiff met a violent accident. The
insured, is not a bar to recovery under the insurance contract. It
La Carlota City fire engine crashed head on, and as a consequence, the
plaintiff sustained physical injuries, his father, Cesar Palermo, who however renders him subject to the penal sanctions of the Motor
Vehicle Law.
eventually died while the car was totally wrecked.
- The requirement that the driver be "permitted in accordance with the
- The defendant was immediately notified of the occurrence, and upon
licensing or other laws or regulations to drive the Motor Vehicle and is
its orders.
not disqualified from driving such motor vehicle by order of a Court of
- The insurance policy, grants an option unto the defendant, in case of Law or by reason of any enactment or regulation in that behalf," applies
accident either (1) to indemnify the plaintiff for loss/damage to the car only when the driver" is driving on the insured's order or with his
in cash or (2) to replace the damaged car. The defendant, however, permission." It does not apply when the person driving is the insured
refused to take either of the above-mentioned alternatives for the himself.
reason as alleged, that the insured himself had violated the terms of the
policy when he drove the car in question with an expired driver's
SUMMIT GUARANTY & INSURANCE COMPANY, INC. vs. HON.
license.
ARNALDO
- Andrew Palermo, filed a complaint in the CFI of Negros Occidental Note: Important ang dates, because prescription ang topic.
against Pyramid Insurance Co., Inc. (PICI) for payment of his claim Facts:
Court a quo ordered PICI to pay plaintiff the value of insurance of
- On November 26, 1976, Ford Pick-up owned by Marcos Olaso was
vehicle.
bumped by a cargo truck owned by Alberto Floralde. FGU Insurance
- Appellant alleges that the trial court erred in interpreting the following Corp. by reason of a vehicle insurance paid Olaso P 2,817.50 as its
provision of the Private Car Comprehensive Policy MV-1251: share in the repair cost of vehicle.
AUTHORIZED DRIVER:
- FGU, having been subrogated to rights of Olaso, formally demanded
Any of the following:
payment of said amount from Floralde and attempted to verify
(a) The Insured.
Floralde's insurance carrier however later failed to reveal his insurance
(b) Any person driving on the Insured's order or with his
carrier.
permission. Provided that the person driving is
permitted in accordance with the licensing or other - Then, FGU was able to ascertain the Identity of Floralde's insurance
laws or regulations to drive the Motor Vehicle and is carrier to be Summit. FGU wrote to the insurance commissioner
not disqualified from driving such motor vehicle by requesting for a conference with Summit and demanded from Summit

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 16

through counsel the payment of the damages sustained by the car of Issue: W/N claim was deemed waived for being beyond prescribed
Olaso but to no avail. prescriptive period of Section 384, PD No. 612. (Insurance Code)
- On May 22, 1978, FGU filed a case against Summit for recovery of
said amount Held: No.
- A motion to dismiss was filed by Summit on May 30,1978 on the - Citing Summit Guaranty & Insurance Co., Inc. vs. The Hon. Jose C. de
ground of prescription under Section 384 of PD No. 612. Guzman, etc., et al., Summit Guaranty & Insurance Co., Inc. vs. The
Sec. 384. Any person having any claim upon the policy issued Hon. Gregoria C. Arnaldo, etc., and Summit Guaranty & Insurance
pursuant to this chapter shall, without any unnecessary delay, Co., Inc. vs. The Hon. Ramon B. Jabson etc:
present to the insurance company concerned a written notice of It is very obvious that petitioner company is trying to use Section
claim setting forth the amount of his loss, and/or the nature, extent 384 of the Insurance Code as a cloak to hide itself from its
and duration of the injuries sustained as certified by a duly licensed liabilities. The facts of these cases evidently reflect the deliberate
physician. Notice of claim must be filed within six months from date efforts of petitioner company to prevent the filing of a formal
of the accident, otherwise, the claim shall be deemed waived. Action action against it. Bearing in mind that if it succeeds in doing so
or suit for recovery of damage due to loss or injury must be brought, until one year lapses from the date of the accident it could set up
in proper cases, with the Commissioner or the Courts within one the defense of prescription, petitioner company made private
year from date of accident, otherwise, the claimant's right of action respondents believe that their claims would be settled in order
shall prescribe. that the latter will not find it necessary to immediately bring suit.
- In the motion to dismiss, accordingly, the accident happened on In violation of its duties to adopt and implement reasonable
November 26, 1976 while the complaint was filed on May 22,1978 standards for the prompt investigation of claims and to effectuate
beyond the one-year period from the time of the accident provided for prompt, fair and equitable settlement of claims, and with manifest
by the aforecited provision. bad faith, petitioner company devised means and ways of stalling
- FGU, however, contends that the said one-year prescriptive period the settlement proceedings.
cannot apply to it because it was merely subrogated to the rights of xxx xxx xxx
Olaso; that the prescriptive period of its cause of action is 10 years The one-year period should instead be counted from the date of
being one arising from a written contract; that said provision apply only rejection by the insurer as this is the time when the cause of action
to the claim directly filed by a person against the insurance company accrues. Since in these cases there has yet been no accrual of cause
for the loss he sustained; and that the claim of FGU is one for of action, we hold that prescription has not yet set in.
reimbursement as subrogee of its assured Marcos Olaso against - In the present case, it is not denied that an extrajudicial demand for
petitioner for the third party liability insurance coverage the latter payment was made by respondent FGU on petitioner but petitioner
issued in favor of Floralde. failed to respond to the same. Nevertheless, the complaint was filed
- While, Commissioner in turn argues that the cause of action of FGU even before a denial of the claim was made by petitioner. For all legal
was shown and arose only from the date it paid Olaso for the damages purposes, the one-year prescriptive period provided for in Section 384
suffered and not from the date of the accident; and that the period set of the Insurance Code has not begun to run. The cause of action arises
forth in Section 384 of PD 612 begins to run only from the time the only and starts to run upon the denial of the claim by the insurance
party against whom the right is to be asserted is Identified. In this case company.
FGU was able to Identify petitioner only in 1978 after all efforts were - The court takes note of the dilatory tactics employed by petitioner in
undertaken to verify its Identity. FGU paid Marcos Olaso on Dec. this as in the several cases aforecited to avoid payment of its liabilities.
9,1976. Further, she invites attention to the phrase "in proper cases" in We now put a finis to this case and express extreme disapproval of such
Section 384 of PD 612 and argues that the prescriptive period was actuations of petitioner.
interrupted upon the extrajudicial demand for payment made by FGU
on petitioner

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 17

GUTIERREZ vs. CAPITAL INSURANCE & SURETY CO., INC. - It may be that for purposes of the Motor Vehicle Law the TVR is
Facts: coterminous with the confiscated license. That is why the Acting
- Capital Insurance & Surety Co., Inc. insured for on 12/07/61 for one Administrator of the Motor Vehicles Office and the Manila deputy
year the jeepney of Agapito Gutierrez against passenger and third-party chief of police ventured the opinion that a TVR does not suspend the
liability. The passenger liability would not exceed P5k for any one erring driver's license, that it serves as a temporary license and that it
person may be renewed but should in no case extend beyond the expiration
- The policy provides in item 13 that: the authorized driver must be the date of the original license
holder of a valid and subsisting professional driver's license. "A driver - But the instant case deals with an insurance policy which definitively
with an expired Traffic Violation Receipt or expired Temporary fixed the meaning of "authorized driver". That stipulation cannot be
Operator's Permit is not considered an authorized driver." disregarded or rendered meaningless. It is binding on the insured.
- Item 13 is part of the "declarations" which formed part of the policy - It means that to be entitled to recovery the insured should see to it that
and had a promissory nature and effect and constituted "the basis of the his driver is authorized as envisaged in paragraph 13 of the policy
policy" which is the law between the parties.
- Then, insured jeepney figured in an accident at Buendia Avenue,
Makati, Rizal. As a result, Agatonico Ballega (passenger) fell off the
vehicle and died II. THE PARTIES
- Teofilo Ventura, the jeepney driver, was duly licensed for the years
1962 and 1963. However, at the time of the accident he did not have FILIPINAS COMPANIA DE SEGUROS vs. CHRISTERN,
the license. Instead, he had a carbon copy of a traffic violation report HUENEFELD & CO., INC.
(summons) issued by a policeman on February 22, 1962, with the Facts:
notation that he had committed the violation: "Inattentive to driving.” - On 10/01/41, respondent CHCI after payment of corresponding
- It was stated that the TVR would "serve as a temporary operator's premium, obtained from the petitioner, fire policy No. 29333 in the
permit for 15 days from receipt hereof". It is indisputable that at the sum of P1M, covering merchandise contained in a building located at
time of the accident (May 29, 1962), Ventura was holding an "expired Binondo, Manila.
Temporary Operator's Permit." - During the Japanese military occupation, the building and insured
- Gutierrez paid P4k to the passenger's widow, Rosalina merchandise were burned.
- As Capital Insurance refused to make any reimbursement, he filed an - In due time the respondent submitted to the petitioner its claim under
action for specific performance and damages. the policy. The salvage goods were sold at public auction and, after
deducting their value, the total loss suffered by the respondent was
Issue: W/N respondent is liable to pay the reimbursement fixed at P92,650.
- The petitioner refused to pay the claim on the ground that the policy in
Held: No. favor of the respondent had ceased to be in force on the date the US
- We hold that paragraph 13 of the policy is decisive and controlling in declared war against Germany, the respondent Corporation (though
this case. It plainly provides, and we repeat, that "a driver with an organized under and by virtue of the laws of the Philippines) being
expired Traffic Violation Receipt or expired Temporary Operator's controlled by the German subjects and the petitioner being a company
permit is not considered an authorized driver within the meaning" of under American jurisdiction when said policy was issued.
the policy. Obviously, Ventura was not an authorized driver. His - FCDS, however, in pursuance of the order of the Director of Bureau of
temporary operator's permit had expired. The expiration bars recovery Financing, Philippine Executive Commission, paid the loss at P92,650
under the policy. - An action was then filed for the purpose of recovering from the
- In liability insurance, "the parties are bound by the terms of the policy respondent the sum of P92,650 –– accordingly, the insured
and the right of insured to recover is governed thereby" merchandise were burned up after the policy issued in 1941 in favor of

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 18

the respondent corporation has ceased to be effective because of the GULF RESORTS, INC. v. PHILIPPINE CHARTER INSURANCE
outbreak of the war between the US and Germany, and that the CORPORATION
payment made by the petitioner to the respondent corporation during G.R. No. 15167 May 16, 2005
the Japanese military occupation was under pressure.
- CFI: Dismissed the action without pronouncement as to costs. FACTS:
- CA: Affirmed, with costs –– Overruled the contention of the petitioner • Petitioner is the owner of the Plaza Resort situated at Agoo, La
that the CHCI became an enemy when the US declared war against Union and had its properties in said resort insured originally with
Germany, relying on English and American cases which held that a the American Home Assurance Company (AHAC-AIU). In the first
corporation is a citizen of the country or state by and under the laws of four insurance policies issued by the latter, the risk of loss from the
which it was created or organized. It rejected the theory that nationality earthquake shock was extended only to the two (2) swimming pools
of private corporation is determined by the character or citizenship of (Policy No. 206-4182383-0. Upon expiration, the plaintiff renewed
its controlling stockholders. its policy with AHAC (AIU) for the periof of March 14, 1989 to
March 14, 1990 – adding the following properties, but not limited
Issue: W/N Christern, Huenefeld & Co., Inc. is an enemy corporation and to: (1) the clubhouse, (2) furniture I the clubhouse, (3) a tilter house,
therefore cannot be insured (4) a power house and a (5) house shed.
• Plaintiff agreed to insure with defendant the properties covered by
Held: Yes. (But note “However” clause) AHAC (AIU) Policy No. 206-4568061-9, provided that the policy
- There is no question that majority of the stockholders of the respondent wording and rates in said policy be copied in the policy to be issued
corporation were German subjects. This being so, we have to rule that by defendant; that defendant issued Policy No. 31944 to plaintiff
said respondent became an enemy corporation upon the outbreak of the covering the period of March 14, 1990 to March 14, 1991.
war. • On July 16, 1990, an earthquake struck Central Luzon and Northern
- The Philippine Insurance Law (Act No. 2427, as amended,) in section Luzon and plaintiff’s properties covered by Policy No. 31944,
8, provides that "anyone except a public enemy may be insured." It including the two swimming pools in its Agoo Playa Resort were
stands to reason that an insurance policy ceases to be allowable as soon damaged.
as an insured becomes a public enemy. • After the earthquake, petitioner advised respondent that it would be
- The respondent having become an enemy corporation on December 10, making a claim under its Insurance Policy No. 31944 for damages
1941, the insurance policy issued in its favor on October 1, 1941, by on its properties. Respondent instructed petitioner to file a formal
the petitioner (a Philippine corporation) had ceased to be valid and claim, then assigned the investigation of the claim to an independent
enforceable, and since the insured goods were burned after December claims adjuster, Bayne Adjusters and Surveyors, Inc. On July 30,
10, 1941, and during the war, the respondent was not entitled to any 1990, respondent, through its adjuster, requested petitioner to submit
indemnity under said policy from the petitioner. HOWEVER, various documents in support of its claim. On August 7, 1990,
elementary rules of justice (in the absence of specific provision in the Bayne Adjusters and Surveyors, Inc., through its Vice-President
Insurance Law) require that the premium paid by the respondent for the A.R. de Leon, rendered a preliminary report5 finding extensive
period covered by its policy from December 11, 1941, should be damage caused by the earthquake to the clubhouse and to the two
returned by the petitioner. swimming pools. Mr. de Leon stated that "except for the swimming
- It results that the petitioner is entitled to recover what paid to the pools, all affected items have no coverage for earthquake shocks."
respondent under the circumstances on this case. However, the • On August 11, 1990, petitioner filed its formal demand for
petitioner will be entitled to recover only the equivalent, in actual settlement of the damage to all its properties in the Agoo Playa
Philippines currency of P92,650 paid on April 19, 1943, in accordance Resort. On August 23, 1990, respondent denied petitioner’s claim
with the rate fixed in the Ballantyne scale. on the ground that its insurance policy only afforded earthquake
shock coverage to the two swimming pools of the resort. Petitioner

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 19

and respondent failed to arrive at a settlement. Hence, petitioner Furthermore, petitioner contends that pursuant to the rider attached to the
filed a complaint with the RTC-Pasig praying for payment of policy, titled “Extended Coverage Endorsement (To Include the Perils of
damages. Explosion, Aircraft, Vehicle and Smoke), no qualifications were placed on
• The RTC held that only the two swimming pools were insured the scope of the earthquake shock coverage. Thus, arguing that the policy
against earthquake shock. (Note: A policy of insurance is a contract extended earthquake shock coverage to all of the insured properties.
of adhesion. Hence, where the language used in an insurance
contract or application is such as to create ambiguity, the same It is basic that all the provisions of the insurance policy should be examined
should be resolved against the party responsible therefor.) Because and interpreted in consonance with each other. All its parts are reflective of
it is the finding of the Court as stated in the immediately preceding the true intent of the parties. The policy cannot be construed piecemeal.
paragraph that defendant is liable only for the damage caused to the Certain stipulations cannot be segregated and then made to control; neither
two (2) swimming pools and that defendant has made known to do particular words or phrases necessarily determine its character. Petitioner
plaintiff its willingness and readiness to settle said liability, there is cannot focus on the earthquake shock endorsement to the exclusion of the
no basis for the grant of the other damages prayed for by plaintiff. other provisions. All the provisions and riders, taken and interpreted together,
indubitably show the intention of the parties to extend earthquake shock
ISSUE: WON the CA correctly held that under Insurance Policy No. 31944, coverage to the two swimming pools only.
only the two swimming pools, rather than all the properties covered
thereunder, are insured against the risk of earthquake shock. NOTE: An insurance premium is the consideration paid an insurer for
undertaking to indemnify the insured against a specified peril. In fire,
HELD: NO. casualty, and marine insurance, the premium payable becomes a debt as soon
as the risk attaches. In the subject policy, no premium payments were made
In Insurance Policy No. 31944, four key items are important in the resolution with regard to earthquake shock coverage, except on the two swimming
of the case at bar. pools. This is consistent with the history of petitioner’s previous insurance
First, in the designation of location of risk, only the two swimming pools policies from AHAC-AIU.
were specified as included, viz:
ITEM 3 – 393,000.00 – On the two (2) swimming pools only
(against the peril of earthquake shock only. WHITE GOLD v. PIONEER INSURANCE
Second, under the breakdown for premium payment, it was stated that: G.R. No. 154514 July 28, 2005
PREMIUM RECAPITULATION FACTS:
ITEM NOS. AMOUNT RATES • White Gold Marine Services, Inc. (White Gold) procured a
PREMIUM
protection and indemnity coverage for its vessels from The
xxx Steamship Mutual Underwriting Association (Bermuda) Limited
3 393,000.00 0.100%-E/S (Steamship
393.00 Mutual) through Pioneer Insurance and Surety
Corporation (Pioneer). Subsequently, White Gold was issued a
Third, Policy Condition No. 6 stated: Certificate of Entry and Acceptance. Pioneer also issued receipts
6. This insurance does not cover any loss or damage occasioned by evidencing payments for the coverage. When White Gold failed to
or through or in consequence, directly or indirectly of any of the fully pay its accounts, Steamship Mutual refused to renew the
following occurrences, namely:-- coverage.
(a) Earthquake, volcanic eruption or other convulsion of • Steamship Mutual thereafter filed a case against White Gold for
nature. collection of sum of money to recover the latters unpaid balance.
White Gold on the other hand, filed a complaint before the Insurance
Commission claiming that Steamship Mutual violated Sections 186

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 20

and 187 of the Insurance Code, while Pioneer violated Sections 299, thereof, without first procuring a license so to act from the
300 and 303 in relation to Sections 302 and 303, thereof. Commissioner, . . .
To wit: SEC. 300. Any person who for compensation solicits or
obtains insurance on behalf of any insurance company or
SEC. 186. No person, partnership, or association of persons transmits for a person other than himself an application for
shall transact any insurance business in the Philippines a policy or contract of insurance to or from such company or
except as agent of a person or corporation authorized to do offers or assumes to act in the negotiating of such insurance
the business of insurance in the Philippines, unless possessed shall be an insurance agent within the intent of this section
of the capital and assets required of an insurance and shall thereby become liable to all the duties,
corporation doing the same kind of business in the requirements, liabilities and penalties to which an insurance
Philippines and invested in the same manner; nor unless the agent is subject.
Commissioner shall have granted to him or them a certificate SEC. 301. Any person who for any compensation,
to the effect that he or they have complied with all the commission or other thing of value acts or aids in any manner
provisions of law which an insurance corporation doing in soliciting, negotiating or procuring the making of any
business in the Philippines is required to observe. insurance contract or in placing risk or taking out insurance,
Every person, partnership, or association receiving any such on behalf of an insured other than himself, shall be an
certificate of authority shall be subject to the insurance laws insurance broker within the intent of this Code, and shall
of the Philippines and to the jurisdiction and supervision of thereby become liable to all the duties, requirements,
the Commissioner in the same manner as if an insurance liabilities and penalties to which an insurance broker is
corporation authorized by the laws of the Philippines to subject.
engage in the business of insurance specified in the
certificate.
SEC. 187. No Insurance Company shall transact any • The Insurance Commission dismissed the complaint. It said that
insurance business in the Philippines until after it shall have there was no need for Steamship Mutual to secure a license because
obtained a certificate of authority for that purpose from the it was not engaged in the insurance business. It explained that
Commissioner upon application therefor and payment by the Steamship Mutual was a Protection and Indemnity Club (P & I
company concerned of the fees hereinafter prescribed. Club). Likewise, Pioneer need not obtain another license as
insurance agent and/or a broker for Steamship Mutual because
Steamship Mutual was not engaged in the insurance business.
SEC. 299. No insurance company doing business in the Moreover, Pioneer was already licensed, hence, a separate license
Philippines, nor any agent thereof, shall pay any commission
solely as agent/broker of Steamship Mutual was already
or other compensation to any person for services in obtaining superfluous.
insurance, unless such person shall have first procured from
the Commissioner a license to act as an insurance agent of • The Court of Appeals affirmed the decision of the Insurance
Commissioner. In its decision, the appellate court distinguished
such company or as an insurance broker as hereinafter
provided. between P & I Clubs vis--vis conventional insurance. The appellate
court also held that Pioneer merely acted as a collection agent of
No person shall act as an insurance agent or as an insurance
broker in the solicitation or procurement of applications for Steamship Mutual.
insurance, or receive for services in obtaining insurance, any ISSUE: WON Steamship Mutual, a P & I Club is engaged in the insurance
commission or other compensation from any insurance business in the Philippines.
company doing business in the Philippines or any agent
HELD:

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 21

Section 2(2) of the Insurance Code enumerates what constitutes doing No person shall act as an insurance agent or as an insurance broker
an insurance business or transacting an insurance business. These are: in the solicitation or procurement of applications for insurance, or
receive for services in obtaining insurance, any commission or other
(a) Making or proposing to make, as insurer, any insurance contract; compensation from any insurance company doing business in the
(b) Making, or proposing to make, as surety, any contract of suretyship Philippines or any agent thereof, without first procuring a license so
as a vocation and not as merely incidental to any other legitimate to act from the Commissioner, which must be renewed annually on
business or activity of the surety; the first day of January, or within six months thereafter. . .
(c) Doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an insurance GREAT PACIFIC LIFE ASSURANCE CORP v. COURT OF
business within the meaning of this Code; APPEALS
(d) Doing or proposing to do any business in substance equivalent to G.R. No. 113899 October 13, 1999
any of the foregoing in a manner designed to evade the provisions
of this Code. FACTS:

The same provision also provides, the fact that no profit is derived from • A contract of group life insurance was executed between petitioner
the making of insurance contracts, agreements or transactions, or that no Great Pacific Life Assurance Corporation (hereinafter Grepalife)
separate or direct consideration is received therefor, shall not preclude the and Development Bank of the Philippines (hereinafter
existence of an insurance business. DBP). Grepalife agreed to insure the lives of eligible housing loan
The test to determine if a contract is an insurance contract or not, mortgagors of DBP.
depends on the nature of the promise, the act required to be performed, and • On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a
the exact nature of the agreement in the light of the occurrence, contingency, housing debtor of DBP applied for membership in the group life
or circumstances under which the performance becomes requisite. It is not by insurance plan. In an application form, Dr. Leuterio answered
what it is called. questions concerning his health condition as follows:
Basically, an insurance contract is a contract of indemnity. 7. Have you ever had, or consulted, a physician for a heart
A P & I Club is a form of insurance against third party liability, where the condition, high blood pressure, cancer, diabetes, lung, kidney
third party is anyone other than the P & I Club and the members. By definition or stomach disorder or any other physical impairment?
then, Steamship Mutual as a P & I Club is a mutual insurance association Answer: No. If so give details ___________.
engaged in the marine insurance business. 8. Are you now, to the best of your knowledge, in good health?
Answer: [ x ] Yes [ ] No.
Pioneer is the resident agent of Steamship Mutual as evidenced by the
certificate of registration issued by the Insurance Commission. It has been • On November 15, 1983, Grepalife issued Certificate No. B-18558,
licensed to do or transact insurance business by virtue of the certificate of as insurance coverage of Dr. Leuterio, to the extent of his DBP
authority issued by the same agency. However, a Certification from the mortgage indebtedness amounting to eighty-six thousand, two
Commission states that Pioneer does not have a separate license to be an hundred (P86,200.00) pesos.
agent/broker of Steamship Mutual. • On August 6, 1984, Dr. Leuterio died due to massive cerebral
Although Pioneer is already licensed as an insurance company, it needs hemorrhage. Consequently, DBP submitted a death claim to
a separate license to act as insurance agent for Steamship Mutual. Section 299 Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was
of the Insurance Code clearly states: not physically healthy when he applied for an insurance coverage on
November 15, 1983. Grepalife insisted that Dr. Leuterio did not
SEC. 299 . . . disclose he had been suffering from hypertension, which caused his

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 22

death. Allegedly, such non-disclosure constituted concealment that sue thereon in his own name, especially where the mortgagee’s interest is less
justified the denial of the claim. than the full amount recoverable under the policy. Insured may be regarded
• On October 20, 1986, the widow of the late Dr. Leuterio, respondent as the real party in interest, although he has assigned the policy for the
Medarda V. Leuterio, filed a complaint with the Regional Trial purpose of collection, or has assigned as collateral security any judgment he
Court of Misamis Oriental, Branch 18, against Grepalife for Specific may obtain.
Performance with Damages. During the trial, Dr. Hernando Mejia, And since a policy of insurance upon life or health may pass by transfer, will
who issued the death certificate, was called to testify. Dr. Mejias or succession to any person, whether he has an insurable interest or not, and
findings, based partly from the information given by the respondent such person may recover it whatever the insured might have recovered,[14]
widow, stated that Dr. Leuterio complained of headaches the widow of the decedent Dr. Leuterio may file the suit against the insurer,
presumably due to high blood pressure. The inference was not Grepalife.
conclusive because Dr. Leuterio was not autopsied, hence, other
causes were not ruled out. 2. The medical findings were not conclusive because Dr. Mejia did not
conduct an autopsy on the body of the decedent. Themedical
ISSUES: certificate stated that hypertension was “the possible cause of death.” Hence,
1. WON the CA erred in holding petitioner liable to DBP as the statement of the physician was properly considered by the trial court as
beneficiary In a group life insurance contract from a complaint filed hearsay.
by the widow of the decedent/mortgagor. Contrary to appellant’s allegations, there was no sufficient proof that the
2. WON the CA erred in not finding that Dr. Leuterio concealed that insured had suffered from hypertension. Aside from the statement of the
he had hypertension, which would vitiate the contract. insured’s widow who was not even sure if the medicines taken by Dr.
Leuterio were for hypertension, the appellant had not proven nor produced
HELD: NO to both. any witness who could attest to Dr. Leuterio’s medical history.
1. Petitioner alleges that the complaint was instituted by the widow of Dr. Appellant insurance company had failed to establish that there was
Leuterio, not the real party in interest, hence the trial court acquired no concealment made by the insured, hence, it cannot refuse payment of the
jurisdiction over the case. It argues that when the Court of Appeals affirmed claim.”
the trial court’s judgment, Grepalife was held liable to pay the proceeds of The fraudulent intent on the part of the insured must be established to entitle
insurance contract in favor of DBP, the indispensable party who was not the insurer to rescind the contract. Misrepresentation as a defense of the
joined in the suit. insurer to avoid liability is an affirmative defense and the duty to establish
The insured private respondent did not cede to the mortgagee all his rights or such defense by satisfactory and convincing evidence rests upon the insurer.
interests in the insurance, the policy stating that: “In the event of the debtor’s
death before his indebtedness with the Creditor [DBP] shall have been fully
paid, an amount to pay the outstanding indebtedness shall first be paid to the GEAGONIA v. Court of Appeals, Country Bankers Insurance
creditor and the balance of sum assured, if there is any, shall then be paid to Corporation
the beneficiary/ies designated by the debtor.” When DBP’s claim was denied, G.R. No. 114427 February 6, 1995
it collected the debt from the mortgagor and took the necessary action of
foreclosure on the residential lot of private respondent.
Gonzales vs. Yek Tong Lin- Insured, being the person with whom FACTS: Petitioner is the owner of the Norman’s Mart located in the public
the contract was made, is primarily the proper person to bring suit market of San Francisco, Agusan del Sur. On December 22, 1989, he
thereon. Insured may thus sue, although the policy is taken wholly or in part obtained from the private respondent Fire Insurance Policy No. F-14622 for
for the benefit of another person named or unnamed, and although it is P100,00.00. The period of the policy was from December 22, 1989 to
expressly made payable to another as his interest may appear or December 22, 1990 and covered the following: "Stock-in-trade consisting
otherwise. Although a policy issued to a mortgagor is taken out for the principally of dry goods such as RTW's for men and women wear and other
benefit of the mortgagee and is made payable to him, yet the mortgagor may usual to assured's business."

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 23

The petitioner declared in the policy under the subheading entitled CO- INSURANCE DECLARED: P100,000. — Phils. First
INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer for CEB/F 24758.
P50,000.00. From 1989 to 1990, the petitioner had in his inventory stocks The basis of the private respondent's denial was the petitioner's alleged
amounting to P392,130.50, itemized as follows: violation of Condition 3 of the policy.
Zenco Sales, Inc. P55,698.00
Geagonia then filed a complaint against the private respondent in the
F. Legaspi Gen. Merchandise 86,432.50 Insurance Commission for the recovery of P100,000.00 under fire insurance
policy and damages. He claimed that he knew the existence of the other two
Cebu Tesing Textiles 250,000.00 (on credit) policies. But, he said that he had no knowledge of the provision in the private
————— respondent's policy requiring him to inform it of the prior policies and this
requirement was not mentioned to him by the private respondent's agent.
P392,130.50
The Insurance Commission found that the petitioner did not violate Condition
3 as he had no knowledge of the existence of the two fire insurance policies
The policy contained the following condition: obtained from the PFIC; that it was Cebu Tesing Textiles w/c procured the
3. The insured shall give notice to the Company of any insurance PFIC policies w/o informing him or securing his consent; and that Cebu
or insurances already affected, or which may subsequently be Tesing Textile, as his creditor, had insurable interest on the stocks. The
effected, covering any of the property or properties consisting of Insurance Commission then ordered the respondent company to pay
stocks in trade, goods in process and/or inventories only hereby complainant the sum of P100,000.00 with interest and attorney’s fees.
insured, and unless such notice be given and the particulars of
such insurance or insurances be stated therein or endorsed in this CA reversed the decision of the Insurance Commission because it found that
policy pursuant to Section 50 of the Insurance Code, by or on the petitioner knew of the existence of the two other policies issued by the
behalf of the Company before the occurrence of any loss or PFIC.
damage, all benefits under this policy shall be deemed
forfeited, provided however, that this condition shall not apply ISSUE:
when the total insurance or insurances in force at the time of the 1. WON the petitioner had prior knowledge of the two insurance policies
loss or damage is not more than P200,000.00. issued by the PFIC when he obtained the fire insurance policy from the
On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at private respondent, thereby, for not disclosing such fact, violating Condition
the public market of San Francisco, Agusan del Sur. The petitioner's insured 3 of the policy.
stock-in-trade were completely destroyed prompting him to file with the
private respondent a claim under the policy. On 28 December 1990, the HELD:
private respondent denied the claim because it found that at the time of the YES. The Court agrees with the CA that the petitioner knew of the prior
loss the petitioner's stocks-in-trade were likewise covered by fire insurance policies issued by the PFIC. His letter of 18 January 1991 to the private
policies No. GA-28146 and No. GA-28144, for P100,000.00 each, issued by respondent conclusively proves this knowledge. His testimony to the contrary
the Cebu Branch of the Philippines First Insurance Co., Inc. before the Insurance Commissioner and which the latter relied upon cannot
(hereinafter PFIC). These policies indicate that the insured was "Messrs. prevail over a written admission made ante litem motam. It was, indeed,
Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause incredible that he did not know about the prior policies since these policies
reading: were not new or original. NOTE HOWEVER THAT:
MORTGAGE: Loss, if any shall be payable to Messrs.
Cebu Tesing Textiles, Cebu City as their interest may
In order to constitute a violation, the other insurance must be upon
appear subject to the terms of this policy. CO-
same subject matter, the same interest therein, and the same risk.

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 24

the portion regarding the insured's declaration on the subheading CO-


Condition 3 of the private respondent's Policy No. F-14622 is a INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the sum
condition which is not proscribed by law. Its incorporation in the of P50,000.00. A double insurance exists where the same person is insured
policy is allowed by Section 75 of the Insurance Code Condition 3 by several insurers separately in respect of the same subject and interest. As
of the private respondent's Policy No. F-14622 is a condition which earlier stated, the insurable interests of a mortgagor and a mortgagee on the
is not proscribed by law. Its incorporation in the policy is allowed mortgaged property are distinct and separate. Since the two policies of the
by Section 75 of the Insurance Code. PFIC do not cover the same interest as that covered by the policy of the
private respondent, no double insurance exists. The non-disclosure then of
As to a mortgaged property, the mortgagor and the mortgagee have each an the former policies was not fatal to the petitioner's right to recover on the
independent insurable interest therein and both interests may be one policy, private respondent's policy.
or each may take out a separate policy covering his interest, either at the same Furthermore, by stating within Condition 3 itself that such condition shall not
or at separate times. The mortgagor's insurable interest covers the full value apply if the total insurance in force at the time of loss does not exceed
of the mortgaged property, even though the mortgage debt is equivalent to P200,000.00, the private respondent was amenable to assume a co-insurer's
the full value of the property. The mortgagee's insurable interest is to the liability up to a loss not exceeding P200,000.00. What it had in mind was to
extent of the debt, since the property is relied upon as security thereof, and in discourage over-insurance. Indeed, the rationale behind the incorporation of
insuring he is not insuring the property but his interest or lien thereon. His "other insurance" clause in fire policies is to prevent over-insurance and thus
insurable interest is prima facie the value mortgaged and extends only to the avert the perpetration of fraud. When a property owner obtains insurance
amount of the debt, not exceeding the value of the mortgaged property. Thus, policies from two or more insurers in a total amount that exceeds the
separate insurances covering different insurable interests may be obtained by property's value, the insured may have an inducement to destroy the property
the mortgagor and the mortgagee. for the purpose of collecting the insurance. The public as well as the insurer
is interested in preventing a situation in which a fire would be profitable to
the insured
The fire insurance policies issued by the PFIC name the petitioner as the
assured and contain a mortgage clause which reads: TOPIC: INSURABLE INTEREST OF MORTGAGE
Loss, if any, shall be payable to MESSRS. TESING Palileo v. Cosio
TEXTILES, Cebu City as their interest may appear subject Parties: Cherie Palileo v. Beatriz Cosio
to the terms of this policy. Facts:
This is clearly a simple loss payable clause, not a standard mortgage clause. • Plaintiff filed a complaint against defendant in CFI Manila praying
that:
It is a cardinal rule on insurance that a policy or insurance contract is to be
interpreted liberally in favor of the insured and strictly against the company, (1) the transaction entered into between them on December 18,
the reason being, undoubtedly, to afford the greatest protection which the 1951 be declared as one of loan, and the document executed
insured was endeavoring to secure when he applied for insurance. With this covering the transaction as one of equitable mortgage to secure
principle in mind, we are of the opinion that Condition 3 of the subject policy the payment of said loan;
is not totally free from ambiguity and must, perforce, be meticulously (2) the defendant be ordered to credit to the plaintiff with the
analyzed. Such analysis leads us to conclude that (a) the prohibition applies necessary amount from the sum received by the defendant
only to double insurance, and (b) the nullity of the policy shall only be to the
extent exceeding P200,000.00 of the total policies obtained. from the Associated Insurance & Surety Co., Inc. and to
The first conclusion is supported by the portion of the condition referring to apply the same to the payment of plaintiff's obligation thus
other insurance "covering any of the property or properties consisting of considering it as fully paid; and
stocks in trade, goods in process and/or inventories only hereby insured," and

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 25

(3) the defendant be ordered to pay to plaintiff the difference Issue: Is the trial court justified in considering the obligation of plaintiff fully
between the alleged indebtedness of plaintiff and the sum compensated by the insurance amount and in ordering defendant to refund to
received by defendant from the aforementioned insurance plaintiff the sum of P1,107 representing the difference of the loan of P12,000
company, plus the sum allegedly paid to defendant as interest and the sum of P13,107 collected by said defendant from the insurance
company notwithstanding the fact that it was not proven that the insurance
on the alleged indebtedness. was taken for the benefit of the mortgagor?
• Defendant filed an answer setting up the defense that the transaction
is one of pacto de retro sale (sale with right of repurchase) Held: NO.
• (Procedural facts: Na set na yung date for trial pero postponed parati
tapos hanggang sa di nagpakita si defendant at counsel, nagrender • The rule is that "where a mortgagee, independently of the
ng decision ang court in favor of plaintiff based on the evidence mortgagor, insures the mortgaged property in his own name and for
presented lang. Napalitan yung 1st counsel ni defendant, sabi ni 2nd his own interest, he is entitled to the insurance proceeds in case of
counsel na void daw yung judgment tapos pinapaopen niya ulit yung loss, but in such case, he is not allowed to retain his claim against
case kasi may excusable justification daw bat wala si defendant the mortgagor, but is passed by subrogation to the insurer to the
extent of the money paid."
nung trial)
• "the mortgagee may insure his interest in the property
• Pursuant to their agreement, plaintiff paid to defendant as interest on independently of the mortgagor. In that event, upon the
the loan a total of P2,250.00 corresponding to nine months on the destruction of the property the insurance money paid to the
basis of P250.00 a month, which is more than the maximum interest mortgagee will not inure to the benefit of the mortgagor, and the
authorized by law. To secure the payment of the aforesaid loan, amount due under the mortgage debt remains unchanged. The
defendant required plaintiff to sign a document known as mortgagee, however, is not allowed to retain his claim against the
"Conditional Sale of Residential Building", purporting to convey to mortgagor, but it passes by subrogation to the insurer, to the
extent of the insurance money paid."
defendant, with right to repurchase, a two-story building of strong
• the mortgagee, in case of loss, may only recover upon the policy to
materials belonging to plaintiff. the extent of his credit at the time of the loss. It was declared that
• After the execution of the aforesaid document, defendant insured the mortgaged had no right of action against the mortgagee on the
the building against fire with the Associated Insurance & Surety policy. (San Miguel Brewery vs. Law Union)
Co., Inc. for the sum of P15,000, the insurance policy having been
issued in the name of defendant. The building was partly destroyed III. INSURABLE INTEREST
by fire and, after proper demand, defendant collected from the
insurance company an indemnity of P13,107.00. TOPIC: DISQUALIFICATION OF BENEFICIARY
Insular Life Assurance v. Ebrado
• Plaintiff demanded from defendant that she be credited with the
necessary amount to pay her obligation out of the insurance Facts:
proceeds but defendant refused to do so. • Buenaventura Cristor Ebrado was issued by The Life Assurance
• TRIAL COURT: transaction is an equitable mortgage; ordered the Co., Ltd., Policy No. 009929 on a whole-life for P5,882.00 with a,
defendant to credit the sum of P13,107 received by the defendant rider for Accidental Death for the same amount.
from the Associated Insurance & surety Co., Inc. to the payment of • Buenaventura C. Ebrado designated Carponia T. Ebrado as the
plaintiff's obligation in the sum of P12,000.00 as stated in the revocable beneficiary in his policy. He to her as his wife.
complaint

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 26

• Buenaventura C. Ebrado died as a result when hit by a failing Issue: Can a common-law wife named as beneficiary in the life insurance
branch of a tree policy of a legally married man claim the proceeds thereof in case of death of
the latter?
• As the policy was in force, The Insular Life Assurance Co., Ltd.
Held: NO.
liable to pay the coverage in the total amount of P11,745.73,
representing the face value of the policy in the amount of P5,882.00
• Section 50 of the Insurance Act which provides that "(t)he
plus the additional benefits for accidental death also in the amount insurance shall be applied exclusively to the proper interest of the
of P5,882.00 and the refund of P18.00 paid for the premium due person in whose name it is made". The word "interest" highly
November, 1969, minus the unpaid premiums and interest thereon suggests that the provision refers only to the "insured" and not to the
due for January and February, 1969, in the sum of P36.27. beneficiary, since a contract of insurance is personal in
• Carponia T. Ebrado filed with the insurer a claim for the proceeds character. Otherwise, the prohibitory laws against illicit
of the Policy as the designated beneficiary therein, although she relationships especially on property and descent will be rendered
nugatory, as the same could easily be circumvented by modes of
admits that she and the insured Buenaventura C. Ebrado were insurance. Rather, the general rules of civil law should be applied
merely living as husband and wife without the benefit of marriage. to resolve this void in the Insurance Law
• Pascuala Vda. de Ebrado also filed her claim as the widow of the • Article 2011 of the New Civil Code states: "The contract of
deceased insured. She asserts that she is the one entitled to the insurance is governed by special laws. Matters not expressly
insurance proceeds, not the common-law wife, Carponia T. Ebrado. provided for in such special laws shall be regulated by this Code."
• In doubt as to whom the insurance proceeds shall be paid, the When not otherwise specifically provided for by the Insurance Law,
the contract of life insurance is governed by the general rules of the
insurer, The Insular Life Assurance Co., Ltd. commenced an action civil law regulating contracts.
for Interpleader before the CFI Rizal o And under Article 2012 of the same Code, "any person
• TC: It is patent from the last paragraph of Art. 739 of the Civil Code who is forbidden from receiving any donation under
that a criminal conviction for adultery or concubinage is not Article 739 cannot be named beneficiary of a life
essential in order to establish the disqualification mentioned therein. insurance policy by the person who cannot make a
donation to him.
It is, however, essential that such adultery or concubinage exists
o Common-law spouses are, definitely, barred from
at the time defendant Carponia T. Ebrado was made beneficiary receiving donations from each other. Article 739 of the new
in the policy in question for the disqualification and incapacity Civil Code provides: ñé+.£ªwph!1
to exist and that it is only necessary that such fact be established by
preponderance of evidence in the trial. Since it is agreed in their The following donations shall be void:
stipulation above-quoted that the deceased insured and defendant
Carponia T. Ebrado were living together as husband and wife 1. Those made between persons who were guilty of adultery
without being legally married and that the marriage of the insured or concubinage at the time of donation
with the other defendant Pascuala Vda. de Ebrado was valid and still
existing at the time the insurance in question was purchased there is • In essence, a life insurance policy is no different from a civil
no question that defendant Carponia T. Ebrado is disqualified donation insofar as the beneficiary is concerned. Both are founded
from becoming the beneficiary of the policy in question and as upon the same consideration: liberality. As a consequence, the
such she is not entitled to the proceeds of the insurance upon the proscription in Article 739 of the new Civil Code should equally
death of the insured. operate in life insurance contracts.

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 27

• The mandate of Article 2012 cannot be laid aside: any person who • Defendant's surveyor has conducted a final and detailed survey with
cannot receive a donation cannot be named as beneficiary in the the findings on the extent of shortage or loss on the bad order bags
life insurance policy of the person who cannot make the totalling 227 bags amounting to 12,148 kilos
donation. • Based on said computation the plaintiff made a formal claim against
• There is every reason to hold that the bar in donations between the defendant Filipino Merchants Insurance Company for
legitimate spouses and those between illegitimate ones should be P51,568.62. A formal claim statement was also presented by the
enforced in life insurance policies since the same are based on plaintiff against the vessel but the defendant Filipino Merchants
similar consideration. So long as marriage remains the threshold of Insurance Company refused to pay the claim. Consequently, the
family laws, reason and morality dictate that the impediments plaintiff brought an action
imposed upon married couple should likewise be imposed upon • TC: ordered insurance company to pay. CA affirmed and denied
extra-marital relationship. motion for reconsideration.

TOPIC: KINDS OF INSURABLE INTEREST Issue: WON consignee has an insurable interest in the said goods
Filipino Merchants Insurance Co v. CA, Choa Tiek Seng Held: Yes. Private respondent, as consignee of the goods in transit under an
Insurance Company: Filipino Merchants Insurance Co invoice containing the terms under "C & F Manila," has insurable interest in
Private Respondent/Consignee/Plaintiff in TC: Choa Tiek Seng said goods.
Facts: • Section 13 of the Insurance Code defines insurable interest in
• This is an action (trial court) brought by the consignee (Choa Tiek property as every interest in property, whether real or personal, or
Seng) of the shipment of fishmeal loaded on board the vessel SS any relation thereto, or liability in respect thereof, of such nature that
Bougainville and unloaded at the Port of Manila and seeks to a contemplated peril might directly damnify the insured.
recover from the defendant insurance company the amount of • Insurable interest in property may consist in:
P51,568.62 representing damages to said shipment which has been (a) an existing interest;
insured by the defendant insurance company under Policy No. M- (b) an inchoate interest founded on an existing interest; or
2678. (c) an expectancy, coupled with an existing interest in that out
• in December 1976, plaintiff insured said shipment with defendant of which the expectancy arises
insurance company under said cargo Policy No. M-2678 for the • Herein private respondent, as vendee/consignee of the goods in
sum of P267,653.59 for the goods described as 600 metric tons of transit has such existing interest therein as may be the subject of a
fishmeal in new gunny bags of 90 kilos each from Bangkok, valid contract of insurance. His interest over the goods is based on
Thailand to Manila against all risks under warehouse to warehouse the perfected contract of sale.
terms. • The perfected contract of sale between him and the shipper of the
• Actually, what was imported was 59.940 metric tons not 600 tons at goods operates to vest in him an equitable title even before delivery
$395.42 a ton CNF Manila. The fishmeal in 666 new gunny bags or before be (lawphil typo error ito na di ko gets) performed the
were unloaded from the ship on December 11, 1976 at Manila unto conditions of the sale.
the arrastre contractor E. Razon, Inc. and defendant's surveyor • The contract of shipment, whether under F.O.B., C.I.F., or C. & F.
ascertained and certified that in such discharge 105 bags were in as in this case, is immaterial in the determination of whether the
bad order condition as jointly surveyed by the ship's agent and the vendee has an insurable interest or not in the goods in transit.
arrastre contractor.
HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO
INSURANCE LAW Atty. Sta. Barbara 28

• The perfected contract of sale even without delivery vests in the the insured and the beneficiary have been divorced and where the policy of
vendee an equitable title, an existing interest over the goods insurance does not expressly reserve to the insured the right to change the
sufficient to be the subject of insurance. beneficiary?
Held: NO.
(Intro: this case is novel because this is the first time the court encountered
GERCIO V. SUN LIFE ASSURANCE CANADA such problem. PH laws - Code of Commerce, the Civil Code, or the Insurance
Facts: Act – is deficient to answer the problem. The SC used modern Law of
• Hilario Gercio, the insured, is the plaintiff. The Sun Life Assurance Insurance as found in the United States proper.)
Co. of Canada, the insurer, and Andrea Zialcita, the beneficiary, are • In Yore vs. Booth, the SC of California: .. a person who procures a
the defendants. policy upon his own life, payable to a designated beneficiary,
o The complaint is in the nature of mandamus. Its purpose is although he pays the premiums himself, and keeps the policy in his
to compel the defendant Sun Life Assurance Co. of Canada exclusive possession, has no power to change the beneficiary,
to change the beneficiary in the policy issued by the unless the policy itself, or the charter of the insurance company,
defendant company on the life of the plaintiff Hilario so provides. In policy, although he (beneficiary) has parted with
Gercio, with one Andrea Zialcita as beneficiary. nothing, and is simply the object of another's bounty, has acquired
• On January 29, 1910, the Sun Life Assurance Co. of Canada issued a vested and irrevocable interest in the policy, which he may keep
insurance policy No. 161481 on the life of Hilario Gercio.. By its alive for his own benefit by paying the premiums or assessments if
terms, the insurance company agreed to insure the life of Hilario the person who effected the insurance fails or refuses to do so.
Gercio for the sum of P/2,000, to be paid him on February 1, 1930, • In Central National Bank of Washington City vs. Hume: … It is
or if the insured should die before said date, then to his wife, Mrs. indeed the general rule that a policy, and the money to become due
Andrea Zialcita. The policy did not include any provision reserving under it, belong, the moment it is issued, to the person or persons
to the insured the right to change the beneficiary. named in it as the beneficiary or beneficiaries, and that there is no
power in the person procuring the insurance, by any act of his, by
• On the date the policy was issued, Andrea Zialcita was the lawful deed or by will, to transfer to any other person the interest of the
wife of Hilario Gercio. Towards the end of the year 1919, she was person named.
convicted of the crime of adultery. On September 4, 1920, a decree
of divorce was issued which had the effect of completely dissolving • In re Dreuil & Co. It was held that the wife has a vested interest in
the bonds of matrimony contracted by Hilario Gercio and Andrea the policy, of which she cannot be deprived without her consent.
Zialcita.
• On March 4, 1922, Hilario Gercio formally notified the Sun Life • In Filley vs. Illinois Life Insurance Company , the SC of Kansas:
Assurance Co. of Canada that he had revoked his donation in favor The benefit accruing from a policy of life insurance upon the life of
of Andrea Zialcita, and that he had designated in her stead his a married man, payable upon his death to his wife, naming her, is
present wife, Adela Garcia de Gercio, as the beneficiary of the payable to the surviving beneficiary named, although she may have
policy. Gercio requested the insurance company to eliminate years thereafter secured a divorce from her husband, and he was
Andrea Zialcita as beneficiary. This, the insurance company has thereafter again married to one who sustained the relation of wife to
refused and still refuses to do. him at the time of his death.The rights of a beneficiary in an
ordinary life insurance policy become vested upon the issuance
Issue: whether the insured — the husband — has the power to change the of the policy, and can thereafter, during the life of the
beneficiary — the former wife — and to name instead his actual wife, where beneficiary, be defeated only as provided by the terms of the
policy.
HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO
INSURANCE LAW Atty. Sta. Barbara 29

• On the admitted facts and the authorities supporting the nearly a right, title or interest therein that he will be benefited by
universally accepted principles of insurance, we are irresistibly led its preservation and continued existence or suffer a direct
to the conclusion that the question at issue must be answered in the pecuniary loss from its destruction or injury by the peril
negative. insured against.
o Actual value of each object of the contract would be the
ONG LIM SING v. FEB LEASING & FINANCE CORPORATION result after computing the monthly rentals by multiplying
the said rentals by the number of months specified when
Petitioner: Vicente Ong Lim Sing (Lim) the rentals ought to be paid.
Respondent: FEB Leasing & Finance Corporation (FEB) o Existence in the records of a Deed of Absolute Sale by and
between the same parties, which was an exhibit of the
defendant where the plaintiff sold to the same defendants a
FACTS:
unit of 1995 Mitsubishi L-200 STRADA DC PICK UP and
• March 9, 1995 - FEB entered into a lease of equipment and motor in said Deed, the Court noticed that the same terms as in
vehicles with JVL Food Products (JVL). On the same date, the alleged lease were used in respect to warranty, as well
Vicente Ong Lim Sing, Jr. executed an Individual Guaranty as liability in case of loss and other conditions
Agreementhttp://www.lawphil.net/judjuris/juri2007/jun2007/gr_16 o There is no chattel mortgage on the thing sold. The plaintiff
8115_2007.html - fnt4 with FEB to guarantee the prompt can only recover the unpaid balance of the price because of
performance of the terms and conditions of the lease agreement. the previous payments made by the defendants for the
• Under the contract, JVL was obliged to pay FEB an aggregate gross reasonable use of the units
monthly rental of Php 170, 494.
• CA reversed the decision.
• JVL defaulted in the payment of the monthly rentals. On August 23,
2000, FEB sent a letter to JVL demanding payment of the said ISSUE: WON the Lim has an insurable interest over the property
amount, but to no avail.
• December 6, 2000 - FEB filed a Complaint before RTC Manila for HELD: Yes.
sum of money, damages, and replevin.
• JVL and Lim - admitted the existence of the lease agreement but
• Petitioner’s claim that the real intention of the parties was a contract
asserted that it is in reality a sale of equipment on installment basis,
of sale of personal property on installment basis is more likely a
with FEB acting as the financier. (1) They claimed that this intention
mere afterthought in order to defeat the rights of the respondent.
was apparent from the fact that they were made to believe that when
full payment was effected, a Deed of Sale will be executed by FEB • FEB leased the subject equipment and motor vehicles to JVL in
as vendor in favor of JVL and Lim as vendees. (2) They also consideration of a monthly periodic payment of ₱170,494.00. The
contended that the lease agreement is a contract of adhesion and periodic payment by petitioner is sufficient to amortize at least 70%
should, therefore, be construed in their favor. of the purchase price or acquisition cost of the said movables in
accordance with the Lease Schedules with Delivery and Acceptance
• RTC – ruled in favor of JVL and Lim
Certificates. It is considered as a financial leasing within the purview
o Stressed out the contradictory terms it found in the lease
of RA 8556.
agreement - Section 9– disclaiming warranty, it is stated
o A mode of extending credit through a non-cancelable lease
that the lessor is not the manufacturer nor the latter’s agent
contract under which the lessor purchases or acquires, at
and therefore does not guarantee any feature or aspect of
the instance of the lessee, property in consideration of the
the object of the contract as to its merchantability.
periodic payment by the lessee of a fixed amount of money
o In property insurance against loss or other accidental
sufficient to amortize at least seventy (70%) of the
causes, the assured must have an insurable interest. The test
purchase price or acquisition cost
of insurable interest in property is whether the assured has

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 30

• Section 14 of the lease contract, that the equipment shall be insured legitime of the legitimate children, thus, the proceeds
at the cost and expense of the lessee against loss, damage, or released to Odessa and those to be released to Karl Brian
destruction from fire, theft, accident, or other insurable risk for the and Trisha Angelie were inofficious and should be
full term of the lease, is a binding and valid stipulation. Petitioner, reduced;
as a lessee, has an insurable interest in the equipment and motor o petitioners could not be deprived of their legitimes, which
vehicles leased. should be satisfied first.
o Section 17 of the Insurance Code provides that the measure • A part of the insurance proceeds had already been released in favor
of an insurable interest in property is the extent to which of Odessa, while the rest of the proceeds are to be released in favor
the insured might be damnified by loss or injury thereof. of Karl Brian and Trisha Angelie, both minors, upon the
• Likewise, the stipulation in Section 9.1 of the lease contract that the appointment of their legal guardian.
lessor does not warrant the merchantability of the equipment is a • Insular Life - admitted that Loreto misrepresented Eva as his
valid stipulation. FEB did not assume responsibility as to the quality, legitimate wife and Odessa, Karl Brian, and Trisha Angelie as his
merchantability, or capacity of the equipment. This stipulation legitimate children, and that they filed their claims for the insurance
provides that, in case of defect of any kind that will be found by the proceeds of the insurance policies; that when it ascertained that Eva
lessee in any of the equipment, recourse should be made to the was not the legal wife of Loreto, it disqualified her as a beneficiary
manufacturer. and divided the proceeds among Odessa, Karl Brian, and Trisha
Angelie, as the remaining designated beneficiaries; and that it
HEIRS OF LORETO MARAMAG v. DE GUZMAN-MARAMAG released Odessa’s share as she was of age, but withheld the release
of the shares of minors Karl Brian and Trisha Angelie pending
Petitioners: Heirs of Loreto C. Maramag, represented by surviving spouse submission of letters of guardianship. It was bound to honor the
Vicenta Pangilinan-Maramag insurance policies designating the children of Loreto with Eva as
Respondents: Eva Verna De Guzman-Maramag, Odessa Maramag, Karl beneficiaries pursuant to Section 53 of the Insurance Code.
Brian Maramag, Trisha Angelie Maramag, The Insular Life Assurance • Grepalife - alleged that Eva was not designated as an insurance
Company, Ltd., (Insular Life) and Great Pacific Life Assurance Corporation policy beneficiary; that the claims filed by Odessa, Karl Brian, and
(Grepalife) Trisha Angelie were denied because Loreto was ineligible for
insurance due to a misrepresentation in his application form.
FACTS: • Insular and Grepalife countered that the insurance proceeds
• The case stems from a petition filed against respondents with RTC belong exclusively to the designated beneficiaries in the policies, not
for revocation and/or reduction of insurance proceeds for being void to the estate or to the heirs of the insured.
and/or inofficious, with prayer for a TRO and a writ of preliminary • RTC – dismissed the case as against the illegitimate children but tge
injunction. action shall proceed with respect to Eva, Insular Life and Grepalife.
• The petition alleged that: It is very clear under Sec. 53, the insurance proceeds shall be applied
o petitioners were the legitimate wife and children of Loreto exclusively to the proper interest of the person in whose name or for
Maramag while respondents were Loreto’s illegitimate whose benefit it is made, unless otherwise specified in the policy.
family; Since the defendants are the ones named as the primary beneficiaries
o Eva de Guzman Maramag was a concubine of Loreto and in the insurances (sic) taken by the deceased Loreto C. Maramag and
a suspect in the killing of the latter, thus, she is disqualified there is no showing that herein plaintiffs were also included as
to receive any proceeds from his insurance policies from beneficiary. Neither could the plaintiffs invoked (sic) the law on
Insular Life and Grepalife donations or the rules on testamentary succession. . The rules on
o the illegitimate children of Loreto—Odessa, Karl Brian, testamentary succession cannot apply here, for the insurance
and Trisha Angelie—were entitled only to one-half of the indemnity does not partake of a donation.

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 31

• Insular and Grepalife filed their respective motions for


reconsideration, arguing, in the main, that the petition failed to state FACTS:
a cause of action. The same was granted. Hence this petition. • Intercapitol Marketing Corporation (IMC) is the maker of
Wrangler Blue Jeans. Levi Strauss Phils. Inc. (LSPI) is the local
ISSUE: WON the plaintiffs are entitled to the shares in the insurance distributor of products bearing trademarks owned by Levi Strauss &
proceeds Co.. IMC and LSPI separately obtained from respondent fire
insurance policies with book debt endorsements.
HELD: o The insurance policies provide for coverage on "book debts
• No. Although petitioners are the legitimate heirs of Loreto, they in connection with ready-made clothing materials which
were not named as beneficiaries in the insurance policies issued by have been sold or delivered to various customers and
Insular and Grepalife. dealers of the Insured anywhere in the Philippines."
• SECTION 53. The insurance proceeds shall be applied exclusively o The policies defined book debts as the "unpaid account
to the proper interest of the person in whose name or for whose still appearing in the Book of Account of the Insured 45
benefit it is made unless otherwise specified in the policy. days after the time of the loss covered under this Policy."
• It is obvious that the only persons entitled to claim the insurance • Petitioner is a customer and dealer of the products of IMC and LSPI.
proceeds are either the insured, if still alive; or the beneficiary, if the On February 25, 1991, the Gaisano Superstore Complex in CDO,
insured is already deceased, upon the maturation of the policy. owned by petitioner, was consumed by fire. Included in the items
o Exception: Where the insurance contract was intended to lost or destroyed in the fire were stocks of ready-made clothing
benefit third persons who are not parties to the same in the materials sold and delivered by IMC and LSPI.
form of favorable stipulations or indemnity. In such a case, • February 4, 1992 - respondent filed a complaint for damages against
third parties may directly sue and claim from the insurer. petitioner. It alleges that IMC and LSPI filed with respondent their
• The revocation of Eva as a beneficiary in one policy and her claims under their respective fire insurance policies with book debt
disqualification as such in another are of no moment considering endorsements; that the unpaid accounts of petitioner on the sale and
that the designation of the illegitimate children as beneficiaries in delivery of ready-made clothing materials with IMC was Php
Loreto’s insurance policies remains valid. Because no legal 2,119,205.00 while with LSPI it was Php 535,613.00.
proscription exists in naming as beneficiaries the children of illicit • Petitioner - contends that it could not be held liable because the
relationships by the insured,22 the shares of Eva in the insurance property covered by the insurance policies were destroyed due to
proceeds must be awarded to the illegitimate children. fortuities event or force majeure; that respondent's right of
• Cause of action is the act or omission by which a party violates a subrogation has no basis inasmuch as there was no breach of
right of another. A complaint states a cause of action when it contract committed by it since the loss was due to fire which it could
contains the three (3) elements of a cause of action—(1) the legal not prevent or foresee; that IMC and LSPI never communicated to
right of the plaintiff; (2) the correlative obligation of the defendant; it that they insured their properties; and that it never consented to
and (3) the act or omission of the defendant in violation of the legal paying the claim of the insured.
right. • RTC - rendered its decision dismissing respondent's complaint. It
held that the fire was purely accidental; that the cause of the fire was
not attributable to the negligence of the petitioner; and that since the
GAISANO CAGAYAN INC. v. INSURANCE COMPANY OF sales invoices state that "it is further agreed that merely for purpose
NORTH AMERICA of securing the payment of purchase price, the above-described
merchandise remains the property of the vendor until the purchase
Petitioner: Gaisano Cagayan Inc. price is fully paid", IMC and LSPI retained ownership of the
Respondent: Insurance Company of North America delivered goods and must bear the loss.

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 32

• CA – reversed the decision. Sales invoices are proofs of sale, being insurable interest of IMC and LSPI pertain to the unpaid accounts
detailed statements of the nature, quantity and cost of the thing sold; appearing in their Books of Account 45 days after the time of the
that loss of the goods in the fire must be borne by petitioner, the risk loss covered by the policies.
is borne by the owner of the thing at the time the loss under the • The insurance in this case is not for loss of goods by fire but for
principle of res perit domino; that by subrogation, the insurer has the petitioner's accounts with IMC and LSPI that remained unpaid 45
right to go against petitioner; that, being a fire insurance with book days after the fire.
debt endorsements, what was insured was the vendor's interest as a o Where the obligation consists in the payment of money, the
creditor. failure of the debtor to make the payment even by reason
of a fortuitous event shall not relieve him of his liability.
ISSUE: WON the IMC and LSPI still have an insurable interest over the (the genus of a thing can never perish)
goods • The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.
HELD: • However, there is no proof of full settlement of the insurance claim
• Yes. Indeed, when the terms of the agreement are clear and explicit of LSPI; no subrogation receipt was offered in evidence. Thus, there
that they do not justify an attempt to read into it any alleged intention is no evidence that respondent has been subrogated to any right
of the parties, the terms are to be understood literally just as they which LSPI may have against petitioner. Failure to substantiate the
appear on the face of the contract. Thus, what were insured against claim of subrogation is fatal to petitioner's case for recovery.
were the accounts of IMC and LSPI with petitioner which remained
unpaid 45 days after the loss through fire, and not the loss or
destruction of the goods delivered. RIZAL COMMERCIAL BANKING CORP. v. CA
• IMC and LSPI did not lose complete interest over the goods.
They have an insurable interest until full payment of the value of the Petitioner: RCBC
delivered goods. Unlike the civil law concept of res perit domino, Respondents: CA, Goyu & Sons, Inc.
where ownership is the basis for consideration of who bears the risk
of loss, in property insurance, one's interest is not determined by FACTS:
concept of title, but whether insured has substantial economic • GOYU applied for credit facilities and accommodations with
interest in the property. RCBC at its Binondo Branch. After due evaluation, RCBC Binondo
o Section 13 Insurance Code defines insurable interest as Branch, through its key officers, petitioners Uy Chun Bing and Eli
"every interest in property, whether real or personal, or any D. Lao, recommended GOYU's application for approval by RCBC's
relation thereto, or liability in respect thereof, of such executive committee. A credit facility in the amount of P30 million
nature that a contemplated peril might directly damnify the was initially granted and it was thereafter increased to P117 million.
insured.” • As a security, GOYU executed 2 real estate mortgages and 2 chattel
o Section 14 - an insurable interest in property may consist mortgages in favor of RCBC, registered with Register of Deeds of
in: (a) an existing interest; (b) an inchoate interest founded Valenzuela. Under each of these four mortgage contracts, GOYU
on existing interest; or (c) an expectancy, coupled with an committed itself to insure the mortgaged property with an insurance
existing interest in that out of which the expectancy arises. company approved by RCBC, and subsequently, to endorse and
• It is sufficient that the insured is so situated with reference to the deliver the insurance polices to RCBC. GOYU obtained in its name
property that he would be liable to loss should it be injured or a total of ten insurance policies from Malayan Insurance Co.
destroyed by the peril against which it is insured. Anyone has an (MICO). Alchester Insurance Agency, Inc., the insurance agent
insurable interest in property who derives a benefit from its where GOYU obtained the Malayan insurance policies, issued 9
existence or would suffer loss from its destruction. In this case, the endorsements in favor of RCBC.

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 33

• April 27, 1992 - one of GOYU's factory buildings in Valenzuela was • RCBC, in good faith, relied upon the endorsement documents sent
gutted by fire. Consequently, GOYU submitted its claim for to it as this was only pursuant to the stipulation in the mortgage
indemnity on account of the loss insured against. MICO denied the contracts. We find such reliance to be justified under the
claim on the ground that the insurance policies were either attached circumstances of the case. GOYU failed to seasonably repudiate the
pursuant to writs of attachments/garnishments issued by various authority of the person or persons who prepared such endorsements.
courts or that the insurance proceeds were also claimed by other • The Court is bound to recognize RCBC's right to the proceeds of the
creditors of GOYU alleging better rights to the proceeds than the insurance polices if not for the actual endorsement of the policies, at
insured. RCBC, one of GOYU's creditors, also filed with MICO its least on the basis of the equitable principle of estoppel.
formal claim over the proceeds of the insurance policies, but said o GOYU cannot seek relief under Section 53 of the
claims were also denied Insurance Code which provides that the proceeds of
• RTC - confirmed that GOYU's other creditors, namely, Urban insurance shall exclusively apply to the interest of the
Bank, Alfredo Sebastian, and Philippine Trust Company person in whose name or for whose benefit it is made. The
obtained their respective writs of attachments from various courts, peculiarity of the circumstances obtaining in the instant
covering an aggregate amount of P14,938,080.23. The Court case presents a justification to take exception.
ordered that the proceeds of the ten insurance policies be deposited • The insurance proceeds may, therefore, be exclusively applied to
with the said court minus the aforementioned amount. It rendered RCBC, which under the factual circumstances of the case, is truly
judgment in favor of GOYU. the person or entity for whose benefit the polices were clearly
• CA - modified by increasing the damages in favor of GOYU intended.

ISSUE 1: WON RCBC as mortgagee, has any right over the insurance (Will not discuss this further since the relevant issue was already settled in
policies taken by GOYU, the mortgagor, in case of the occurrence of loss Issue 1)
ISSUE 2: Extent of GOYU's outstanding obligation with RCBC
HELD 1:
• Yes. HELD 2:
• It is settled that a mortgagor and a mortgagee have separated and • Note that one out of the 9 insurance policies was not endorsed.
distinct insurable interests in the same mortgaged property, such that • In this case, to the extent of GOYU's obligation with RCBC, the
each one of them may insure the same property for his own sole interest of GOYU in the subject policies had been transferred to
benefit. RCBC effective as of the time of the endorsement. These policies
• It is to be noted that nine endorsement documents were prepared by may no longer be attached by the other creditors of GOYU. To the
Alchester in favor of RCBC. It is also significant that GOYU extent of GOYU's outstanding obligation with RCBC, all the rest of
voluntarily and purposely took the insurance policies from MICO, a the other insurance policies above-listed which were endorsed to
sister company of RCBC, and not just from any other insurance RCBC, are, therefore, to be released from attachment, garnishment,
company. Alchester would not have found out that the subject pieces and levy by the other creditors of GOYU.
of property were mortgaged to RCBC had not such information been • The two courts below erred in failing to see that the promissory notes
voluntarily disclosed by GOYU itself. Had it not been for GOYU, which they ruled should be excluded for bearing dates which are
Alchester would not have known of GOYU's intention of obtaining after that of the fire, are mere renewals of previous ones. The
insurance coverage in compliance with its undertaking in the proceeds of the loan represented by these promissory notes were
mortgage contracts with RCBC, and verily, Alchester would not admittedly received by GOYU. There is ample factual and legal
have endorsed the policies to RCBC had it not been so directed by basis for giving GOYU's judicial admission of liability in the
GOYU. amount of P116,301,992.60 full force and effect.

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO


INSURANCE LAW Atty. Sta. Barbara 34

• It should, however, be quickly added that whatever amount RCBC


may have recovered from the other insurers of the mortgage
property will, nonetheless, have to be applied as payment against
GOYU's obligation. The net obligation of GOYU, after deductions,
is thus reduced to P107,246,887.90 as of January 21, 1993, with
interest at the respective rates stipulated in each promissory note
from January 21, 1993 until finality of this judgment, and surcharges
at 2% and penalties at 3% from January 21, 1993 to March 9, 1993,
minus payments made by Malayan Insurance Company, Inc. and the
proceeds of the amount deposited with the trial court and its earned
interest.

HN Notes | ANDAL AUREA BACARRO HONRALES JORGIO MATEO PLANILLO