Insurance

General Concepts

1) Enriquez v. Sun Life Assurance Company of Canada

Facts:

 Joaquin Herrer made application to the Sun Life Assurance Company of Canada through its
office in Manila for a life annuity. Two days later he paid the sum of P6,000 to the manager of
the company's Manila office and was given a receipt.
 The application was immediately forwarded to the head office of the company at Montreal,
Canada. The head office gave notice of acceptance by cable to Manila.
 On December 4, 1917, the policy was issued at Montreal. On December 18, 1917, attorney
Aurelio A. Torres wrote to the Manila office of the company stating that Herrer desired to
withdraw his application.
 The following day the local office replied to Mr. Torres, stating that the policy had been issued,
and called attention to the notification of November 26, 1917. This letter was received by Mr.
Torres on the morning of December 21, 1917. Mr. Herrer died on December 20, 1917
 The chief clerk of the Manila office of the Sun Life Assurance Company of Canada at the time of
the trial testified that he prepared the letter introduced in evidence as Exhibit 3, of date
November 26, 1917, and handed it to the local manager, Mr. E. E. White, for signature.
 The witness admitted on cross-examination that after preparing the letter and giving it to he
manager, he new nothing of what became of it.
 The local manager, Mr. White, testified to having received the cablegram accepting the
application of Mr. Herrer from the home office on November 26, 1917. He said that on the same
day he signed a letter notifying Mr. Herrer of this acceptance. The witness further said that
letters, after being signed, were sent to the chief clerk and placed on the mailing desk for
transmission.
 The witness could not tell if the letter had every actually been placed in the mails.

Issue: 1) whether Herrer received notice of acceptance of his application; 2) determine the law which
should be applied to the facts.

Ruling:

1) The letter of November 26, 1917, notifying Mr. Herrer that his application had been accepted,
was prepared and signed in the local office of the insurance company, was placed in the
ordinary channels for transmission, but as far as we know, was never actually mailed and thus
was never received by the applicant.
2) The law of insurance is consequently now found in the Insurance Act and the Civil Code. The
Civil Code rule, that an acceptance made by letter shall bind the person making the offer only
from the date it came to his knowledge, may not be the best expression of modern commercial
usage. Still it must be admitted that its enforcement avoids uncertainty and tends to security.
Not only this, but in order that the principle may not be taken too lightly, let it be noticed that it
is identical with the principles announced by a considerable number of respectable courts in the
United States. The courts who take this view have expressly held that an acceptance of an offer
of insurance not actually or constructively communicated to the proposer does not make a
contract. Only the mailing of acceptance, it has been said, completes the contract of insurance,
as the locus poenitentiae is ended when the acceptance has passed beyond the control of the
party.

In resume, therefore, the law applicable to the case is found to be the second paragraph of
article 1262 of the Civil Code providing that an acceptance made by letter shall not bind the
person making the offer except from the time it came to his knowledge. The pertinent fact is,
that according to the provisional receipt, three things had to be accomplished by the insurance
company before there was a contract: (1) There had to be a medical examination of the
applicant; (2) there had to be approval of the application by the head office of the company; and
(3) this approval had in some way to be communicated by the company to the applicant. The
further admitted facts are that the head office in Montreal did accept the application, did cable
the Manila office to that effect, did actually issue the policy and did, through its agent in Manila,
actually write the letter of notification and place it in the usual channels for transmission to the
addressee. The fact as to the letter of notification thus fails to concur with the essential
elements of the general rule pertaining to the mailing and delivery of mail matter as announced
by the American courts, namely, when a letter or other mail matter is addressed and mailed
with postage prepaid there is a rebuttable presumption of fact that it was received by the
addressee as soon as it could have been transmitted to him in the ordinary course of the mails.
But if any one of these elemental facts fails to appear, it is fatal to the presumption. For
instance, a letter will not be presumed to have been received by the addressee unless it is
shown that it was deposited in the post-office, properly addressed and stamped.
2) Eternal Gardens Memorial Park Corp. v. The Philippine American Life Insurance Co.

Facts:

 Philamlife entered into an agreement denominated as Creditor Group Life Policy No. P-1920[2]
with petitioner Eternal Gardens Memorial Park Corporation. Under the policy, the clients of
Eternal who purchased burial lots from it on installment basis would be insured by Philamlife.
The amount of insurance coverage depended upon the existing balance of the purchased burial
lots. The policy was to be effective for a period of one year, renewable on a yearly basis.
 Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers,
together with a copy of the application of each purchaser, and the amounts of the respective
unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal complied
by submitting a letter containing a list of insurable balances of its lot buyers for October 1982.
One of those included in the list as new business was a certain John Chuang. His balance of
payments was PhP 100,000. On August 2, 1984, Chuang died.
 Eternal sent a letter dated to Philamlife, which served as an insurance claim for Chuangs death.
Attached to the claim were the following documents: (1) Chuangs Certificate of Death; (2)
Identification Certificate stating that Chuang is a naturalized Filipino Citizen; (3) Certificate of
Claimant; (4) Certificate of Attending Physician; and (5) Assureds Certificate.
 In reply, Philamlife wrote Eternal a letter requiring Eternal to submit the following documents
relative to its insurance claim for Chuangs death: (1) Certificate of Claimant (with form
attached); (2) Assureds Certificate (with form attached); (3) Application for Insurance
accomplished and signed by the insured, Chuang, while still living; and (4) Statement of Account
showing the unpaid balance of Chuang before his death.
 Eternal transmitted the required documents through a letter which was received by Philamlife
 After more than a year, Philamlife had not furnished Eternal with any reply to the latters
insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim for
PhP 100,000
 In response to Eternals demand, Philamlife denied Eternals insurance claim in a letter, (“The
deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens
Memorial Park”, “Since no application had been submitted by the Insured/Assured, prior to his
death, for our approval but was submitted instead on November 15, 1984, after his death, Mr.
John Uy Chuang was not covered under the Policy.”)

Issue: 1) May the inaction of the insurer on the insurance application be considered as approval of the
application; 2) whether Philamlife assumed the risk of loss without approving the application.

Ruling: 1) Yes. The evidence on record supports Eternals position. The fact of the matter is, the letter
dated December 29, 1982, which Philamlife stamped as received, states that the insurance forms for the
attached list of burial lot buyers were attached to the letter. Such stamp of receipt has the effect of
acknowledging receipt of the letter together with the attachments. Such receipt is an admission by
Philamlife against its own interest. The burden of evidence has shifted to Philamlife, which must prove
that the letter did not contain Chuangs insurance application. However, Philamlife failed to do so; thus,
Philamlife is deemed to have received Chuangs insurance application. To reiterate, it was Philamlifes
bounden duty to make sure that before a transmittal letter is stamped as received, the contents of the
letter are correct and accounted for.
2) Yes.

Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy No. P-1920
dated December 10, 1980. In the policy, it is provided that: EFFECTIVE DATE OF BENEFIT. “The insurance
of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured.
However, there shall be no insurance if the application of the Lot Purchaser is not approved by the
Company.”

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

It must be remembered that an insurance contract is a contract of adhesion which must be construed
liberally in favor of the insured and strictly against the insurer in order to safeguard the latter’s interest.

In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above
ruling, stating that: When the terms of insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from non-compliance with his obligation. Being a
contract of adhesion, the terms of an insurance contract are to be construed strictly against the party
which prepared the contract, the insurer. By reason of the exclusive control of the insurance company
over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against
the insurer and liberally in favor of the insured, especially to avoid forfeiture

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

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

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

Facts:

 Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage
with petitioner Philamcare Health Systems, Inc. In the standard application form, he answered
no to the following question: Have you or any of your family members ever consulted or been
treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic
ulcer?
 The application was approved for a period of one year. Accordingly, he was issued Health Care
Agreement. Under the agreement, respondent’s husband was entitled to avail of hospitalization
benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-
patient benefits" such as annual physical examinations, preventive health care and other out-
patient services.
 Upon the termination of the agreement, the same was extended for another year. The amount
of coverage was increased to a maximum sum of P75,000.00 per disability.
 During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila
Medical Center (MMC) for one month beginning March 9, 1990. While her husband was in the
hospital, respondent tried to claim the benefits under the health care agreement. However,
petitioner denied her claim saying that the Health Care Agreement was void. According to
petitioner, there was a concealment regarding Ernani’s medical history. Doctors at the MMC
allegedly discovered at the time of Ernani’s confinement that he was hypertensive, diabetic and
asthmatic, contrary to his answer in the application form. Thus, respondent paid the
hospitalization expenses herself, amounting to about P76,000.00.
 After her husband was discharged from the MMC, he was attended by a physical therapist at
home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties,
however, respondent brought her husband home again. In the morning of April 13, 1990, Ernani
had fever and was feeling very weak. Respondent was constrained to bring him back to the
Chinese General Hospital where he died on the same day.
 Petitioner argues that the agreement grants "living benefits," such as medical check-ups and
hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of
the agreement until its expiration one-year thereafter. Petitioner also points out that only
medical and hospitalization benefits are given under the agreement without any
indemnification, unlike in an insurance contract where the insured is indemnified for his loss.
Moreover, since Health Care Agreements are only for a period of one year, as compared to
insurance contracts which last longer, petitioner argues that the incontestability clause does not
apply, as the same requires an effectivity period of at least two years. Petitioner further argues
that it is not an insurance company, which is governed by the Insurance Commission, but a
Health Maintenance Organization under the authority of the Department of Health.

Issues: 1) WON a health care agreement is not an insurance contract; hence the "incontestability clause"
under the Insurance Code does not apply; 2) WON respondent’s husband concealed a material fact in
his application which will invalidate the agreement; 3) WON the respondent should not be paid since
she was not the legal wife.
Ruling: In the case at bar, the insurable interest of respondent’s husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of non-life insurance,
which is primarily a contract of indemnity.9 Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingent, the health care provider must pay
for the same to the extent agreed upon under the contract.

Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of
persons bearing a similar risk; and

5. In consideration of the insurer’s promise, the insured pays a premium

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future,
which may damnify a person having an insurable interest against him, may be insured against. Every
person has an insurable interest in the life and health of himself.

Section 10 provides: Every person has an insurable interest in the life and health:

(1) of himself, of his spouse and of his children;

(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a
pecuniary interest;

(3) of any person under a legal obligation to him for the payment of money, respecting property or
service, of which death or illness might delay or prevent the performance; and

(4) of any person upon whose life any estate or interest vested in him depends.

2) NO. The answer assailed by petitioner was in response to the question relating to the medical history
of the applicant. This largely depends on opinion rather than fact, especially coming from respondent’s
husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers
made in good faith and without intent to deceive will not avoid a policy even though they are untrue.
“Although false, a representation of the expectation, intention, belief, opinion, or judgment of the
insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its
acceptance at a lower rate of premium, and this is likewise the rule although the statement is material
to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not
justified in relying upon such statement, but is obligated to make further inquiry.”

The fraudulent intent on the part of the insured must be established to warrant rescission of the
insurance contract.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract
of insurance." The right to rescind should be exercised previous to the commencement of an action on
the contract.17 In this case, no rescission was made. Besides, the cancellation of health care agreements
as in insurance policies require the concurrence of the following conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or more of the
grounds mentioned;

3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of
insured, to furnish facts on which cancellation is based.

None of the above pre-conditions was fulfilled in this case.

3) NO. The health care agreement is in the nature of a contract of indemnity. Hence, payment should be
made to the party who incurred the expenses. It is not controverted that respondent paid all the
hospital and medical expenses. She is therefore entitled to reimbursement. The records adequately
prove the expenses incurred by respondent for the deceased’s hospitalization, medication and the
professional fees of the attending physicians
4) Philippine Health Care Providers, Inc. v. CIR

Facts:

 Petitioner is a domestic corporation whose primary purpose is [t]o establish, maintain, conduct
and operate a prepaid group practice health care delivery system or a health maintenance
organization to take care of the sick and disabled persons enrolled in the health care plan and to
provide for the administrative, legal, and financial responsibilities of the organization.
 respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal demand letter and
the corresponding assessment notices demanding the payment of deficiency taxes, including
surcharges and interest, for the taxable years 1996 and 1997 in the total amount of
P224,702,641.18
 The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioners health
care agreement with the members of its health care program pursuant to Section 185 of the
1997 Tax Code
 Petitioner protested the assessment in a letter. As respondent did not act on the protest,
petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of
the deficiency VAT and DST assessments.
 The CTA rendered a decision “PARTIALLY GRANTED. Petitioner is hereby ORDERED to PAY the
deficiency…”, “Accordingly, VAT Ruling No. [231]-88 is declared void and without force and
effect. The 1996 and 1997 deficiency DST assessment against petitioner is hereby CANCELLED
AND SET ASIDE…”
 Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled the
DST assessment. He claimed that petitioners health care agreement was a contract of insurance
subject to DST under Section 185 of the 1997 Tax Code.
 CA rendered its decision. It held that petitioners health care agreement was in the nature of a
non-life insurance contract subject to DST.
 In a decision dated June 12, 2008, the Court denied the petition and affirmed the CAs decision.
We held that petitioners health care agreement during the pertinent period was in the nature of
non-life insurance which is a contract of indemnity, citing Blue Cross Healthcare, Inc. v. Olivares
and Philamcare Health Systems, Inc. v. CA. We also ruled that petitioners contention that it is a
health maintenance organization (HMO) and not an insurance company is irrelevant because
contracts between companies like petitioner and the beneficiaries under their plans are treated
as insurance contracts. Moreover, DST is not a tax on the business transacted but an excise on
the privilege, opportunity or facility offered at exchanges for the transaction of the business.
 Unable to accept our verdict, petitioner filed the present motion for reconsideration and
supplemental motion for reconsideration, asserting the following arguments: (a) The DST under
Section 185 of the National Internal Revenue of 1997 is imposed only on a company engaged in
the business of fidelity bonds and other insurance policies. Petitioner, as an HMO, is a service
provider, not an insurance company; (b) The Court, in dismissing the appeal in CIR v. Philippine
National Bank, affirmed in effect the CAs disposition that health care services are not in the
nature of an insurance business; (c) Section 185 should be strictly construed…
Issues: whether it is an HMO or an insurance company, as this distinction is indispensable in turn to the
issue of whether or not it is liable for DST on its health care agreements.

Ruling: NO.

HEALTH MAINTENANCE ORGANIZATIONS ARE NOT ENGAGED IN THE INSURANCE BUSINESS.

From the language of Section 185, it is evident that two requisites must concur before the DST can
apply, namely: (1) the document must be a policy of insurance or an obligation in the nature of
indemnity and (2) the maker should be transacting the business of accident, fidelity, employers liability,
plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except
life, marine, inland, and fire insurance).

Petitioner is admittedly an HMO. Under RA 7875 (or The National Health Insurance Act of 1995), an
HMO is an entity that provides, offers or arranges for coverage of designated health services needed by
plan members for a fixed prepaid premium.[19] The payments do not vary with the extent, frequency or
type of services provided.

Section 2 (2) of PD[20] 1460 (otherwise known as the Insurance Code) enumerates what constitutes
doing an insurance business or transacting an insurance business:

a) Making or proposing to make, as insurer, any insurance contract; b) Making or proposing to make, as
surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate
business or activity of the surety; c) Doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an insurance business within the meaning of this
Code; d) Doing or proposing to do any business in substance equivalent to any of the foregoing in a
manner designed to evade the provisions of this Code.

In the application of the provisions of this Code, the fact that no profit is derived from the making of
insurance contracts, agreements or transactions or that no separate or direct consideration is received
therefore, shall not be deemed conclusive to show that the making thereof does not constitute the
doing or transacting of an insurance business.

Various courts in the United States, whose jurisprudence has a persuasive effect on our decisions,[21]
have determined that HMOs are not in the insurance business. One test that they have applied is
whether the assumption of risk and indemnification of loss (which are elements of an insurance
business) are the principal object and purpose of the organization or whether they are merely incidental
to its business. If these are the principal objectives, the business is that of insurance. But if they are
merely incidental and service is the principal purpose, then the business is not insurance. Applying the
principal object and purpose test, there is significant American case law supporting the argument that a
corporation (such as an HMO, whether or not organized for profit), whose main object is to provide the
members of a group with health services, is not engaged in the insurance business.

Consequently, the mere presence of risk would be insufficient to override the primary purpose of the
business to provide medical services as needed, with payment made directly to the provider of these
services. In short, even if petitioner assumes the risk of paying the cost of these services even if
significantly more than what the member has prepaid, it nevertheless cannot be considered as being
engaged in the insurance business. By the same token, any indemnification resulting from the payment
for services rendered in case of emergency by non-participating health providers would still be
incidental to petitioners purpose of providing and arranging for health care services and does not
transform it into an insurer. To fulfill its obligations to its members under the agreements, petitioner is
required to set up a system and the facilities for the delivery of such medical services. This indubitably
shows that indemnification is not its sole object.

Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is evident
from the fact that it is not supervised by the Insurance Commission but by the Department of Health

A HEALTH CARE AGREEMENT IS NOT AN INSURANCE CONTRACT CONTEMPLATED UNDER SECTION 185
OF THE NIRC OF 1997

Section 185 states that DST is imposed on all policies of insurance or obligations of the nature of
indemnity for loss, damage, or liability.

Section 185. “Stamp tax on fidelity bonds and other insurance policies. On all policies of insurance or
bonds or obligations of the nature of indemnity for loss, damage, or liability…”

In construing this provision, we should be guided by the principle that tax statutes are strictly construed
against the taxing authority.[38] This is because taxation is a destructive power which interferes with the
personal and property rights of the people and takes from them a portion of their property for the
support of the government.[39] Hence, tax laws may not be extended by implication beyond the clear
import of their language, nor their operation enlarged so as to embrace matters not specifically
provided

Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where the following elements concur:

1) The insured has an insurable interest; 2) The insured is subject to a risk of loss by the happening of
the designed peril; 3) The insurer assumes the risk; 4) Such assumption of risk is part of a general
scheme to distribute actual losses among a large group of persons bearing a similar risk and 5) In
consideration of the insurers promise, the insured pays a premium.

The Agreements between petitioner and members did no possess all the elements.

First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a contract
contains all the elements of an insurance contract, if its primary purpose is the rendering of service, it is
not a contract of insurance

Second. Not all the necessary elements of a contract of insurance are present in petitioners agreements.
To begin with, there is no loss, damage or liability on the part of the member that should be indemnified
by petitioner as an HMO. Under the agreement, the member pays petitioner a predetermined
consideration in exchange for the hospital, medical and professional services rendered by the
petitioners physician or affiliated physician to him. In case of availment by a member of the benefits
under the agreement, petitioner does not reimburse or indemnify the member as the latter does not
pay any third party. Instead, it is the petitioner who pays the participating physicians and other health
care providers for the services rendered at pre-agreed rates. The member does not make any such
payment.
Third. According to the agreement, a member can take advantage of the bulk of the benefits anytime,
e.g. laboratory services, x-ray, routine annual physical examination and consultations, vaccine
administration as well as family planning counseling, even in the absence of any peril, loss or damage on
his or her part.

Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives care from a
non-participating physician or hospital. However, this is only a very minor part of the list of services
available. The assumption of the expense by petitioner is not confined to the happening of a
contingency but includes incidents even in the absence of illness or injury.

Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true that risk alone
is sufficient to establish it. Almost anyone who undertakes a contractual obligation always bears a
certain degree of financial risk. Consequently, there is a need to distinguish prepaid service contracts
(like those of petitioner) from the usual insurance contracts.
5) Fortune Insurance and Surety Co, Inc. v. CA

Facts:

 This case began with the filing with the (RTC) of Makati, by private respondent Producers Bank
of the Philippines (Producers) against petitioner Fortune Insurance and Surety Co., Inc. (Fortune)
of a complaint for recovery of the sum of P725,000.00 under the policy issued by Fortune. The
sum was allegedly lost during a robbery of Producer's armored vehicle while it was in transit to
transfer the money from its Pasay City Branch to its head office in Makati
 The plaintiff was insured by the defendants and an insurance policy was issued.
 An armored car of the plaintiff, while in the process of transferring cash in the sum of
P725,000.00 under the custody of its teller was robbed of the said cash. The robbery took place
while the armored car was traveling along Taft Avenue in Pasay City
 The said armored car was driven by Benjamin Magalong de Vera, escorted by Security Guard
Saturnino Atiga Rosete. Driver Magalong was assigned by PRC Management Systems with the
plaintiff by virtue of an Agreement
 The Security Guard Atiga was assigned by Unicorn Security Services, Inc. with the plaintiff by
virtue of a contract of Security Service
 After an investigation conducted by the Pasay police authorities, the driver Magalong and guard
Atiga were charged, together with Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe,
with violation of Anti-Highway Robbery Law.
 Demands were made by the plaintiff upon the defendant to pay the amount of the loss of
P725,000.00, but the latter refused to pay as the loss is excluded from the coverage of the
insurance policy
 General exception clause, “(b) any loss caused by any dishonest, fraudulent or criminal act of
the insured or any officer, employee, partner, director, trustee or authorized representative of
the Insured whether acting alone or in conjunction with others.”
 The plaintiff opposes the contention of the defendant and contends that Atiga and Magalong
are not its "officer, employee, . . . trustee or authorized representative . . . at the time of the
robbery
 The RTC and CA ruled that Magalong and Atiga were not employees or representatives of
Producers

Issue: whether the petitioner is liable under the Money, Security, and Payroll Robbery policy it issued to
the private respondent or whether recovery thereunder is precluded under the general exceptions
clause thereof

Ruling:

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. Section 174 of the Insurance Code provides:

Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap,
excluding certain types of loss which by law or custom are considered as falling exclusively within the
scope of insurance such as fire or marine. It includes, but is not limited to, employer's liability insurance,
public liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft
insurance, personal accident and health insurance as written by non-life insurance companies, and other
substantially similar kinds of insurance.

It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud
the insurer — the moral hazard — is so great that insurers have found it necessary to fill up their policies
with countless restrictions, many designed to reduce this hazard. Seldom does the insurer assume the
risk of all losses due to the hazards insured against." 10 Persons frequently excluded under such
provisions are those in the insured's service and employment. 11 The purpose of the exception is to
guard against liability should the theft be committed by one having unrestricted access to the property.
12 In such cases, the terms specifying the excluded classes are to be given their meaning as understood
in common speech. 13 The terms "service" and "employment" are generally associated with the idea of
selection, control, and compensation

A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against
the insurer, 15 or it should be construed liberally in favor of the insured and strictly against the insurer.
16 Limitations of liability should be regarded with extreme jealousy and must be construed in such a
way, as to preclude the insurer from non-compliance with its obligation. 17 It goes without saying then
that if the terms of the contract are clear and unambiguous, there is no room for construction and such
terms cannot be enlarged or diminished by judicial construction

An insurance contract is a contract of indemnity upon the terms and conditions specified therein. 19 It is
settled that the terms of the policy constitute the measure of the insurer's liability. 20 In the absence of
statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit
their liability and to impose whatever conditions they deem best upon their obligations not inconsistent
with public policy.

It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from
protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons granted or
having unrestricted access to Producers' money or payroll. When it used then the term "employee," it
must have had in mind any person who qualifies as such as generally and universally understood, or
jurisprudentially established in the light of the four standards in the determination of the employer-
employee relationship, 21 or as statutorily declared even in a limited sense as in the case of Article 106
of the Labor Code which considers the employees under a "labor-only" contract as employees of the
party employing them and not of the party who supplied them to the employer.

Even granting for the sake of argument that these contracts were not "labor-only" contracts, and PRC
Management Systems and Unicorn 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 "authorized representatives" who served as such with its
teller Maribeth Alampay. Howsoever viewed, Producers entrusted the three with the specific duty to
safely transfer the money to its head office, with Alampay to be responsible for its custody in transit;
Magalong to drive the armored vehicle which would carry the money; and Atiga to provide the needed
security for the money, the vehicle, and his two other companions. In short, for these particular tasks,
the three acted as agents of Producers. A "representative" is defined as one who represents or stands in
the place of another; one who represents others or another in a special capacity, as an agent, and is
interchangeable with "agent."
6) Sun Insurance office v. CA

Facts:

 The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of
P200,000.00. Two months later, he was dead with a bullet wound in his head. As beneficiary, his
wife Nerissa Lim sought payment on the policy but her claim was rejected. The petitioner agreed
that there was no suicide. It argued, however that there was no accident either.
 Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on October 6,
1982, at about 10 o'clock in the evening, after his mother's birthday party. According to
Nalagon, Lim was in a happy mood (but not drunk) and was playing with his handgun, from
which he had previously removed the magazine. As she watched television, he stood in front of
her and pointed the gun at her. She pushed it aside and said it might he loaded. He assured her
it was not and then pointed it to his temple. The next moment there was an explosion and Lim
slumped to the floor. He was dead before he fell.
 The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was sustained.
2 The petitioner was sentenced to pay her P200,000.00, representing the face value of the
policy, with interest at the legal rate; P10,000.00 as moral damages; P5,000.00 as exemplary
damages; P5,000.00 as actual and compensatory damages; and P5,000.00 as attorney's fees,
plus the costs of the suit. This decision was affirmed on appeal, and the motion for
reconsideration was denied. 3 The petitioner then came to this Court to fault the Court of
Appeals for approving the payment of the claim and the award of damages.

Issue: 1) WON what happened to Lim was an accident; 2) WON petitioner's claim is barred citing the
four exceptions i.e. suicide

Ruling: Yes. An accident is an event which happens without any human agency or, if happening through
human agency, an event which, under the circumstances, is unusual to and not expected by the person
to whom it happens. It has also been defined as an injury which happens by reason of some violence or
casualty to the injured without his design, consent, or voluntary co-operation

In light of these definitions, the Court is convinced that the incident that resulted in Lim's death was
indeed an accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, 6 says that
"there is no accident when a deliberate act is performed unless some additional, unexpected,
independent and unforeseen happening occurs which produces or brings about their injury or death."
There was such a happening. This was the firing of the gun, which was the additional unexpected and
independent and unforeseen occurrence that led to the insured person's death.

2) Lim was unquestionably negligent and that negligence cost him his own life. But it should not prevent
his widow from recovering from the insurance policy he obtained precisely against accident. There is
nothing in the policy that relieves the insurer of the responsibility to pay the indemnity 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 exceptions expressly made in the contract to relieve the insurer from
liability, and none of these exceptions is applicable in the case at bar. It bears noting that insurance
contracts are as a rule supposed to be interpreted liberally in favor of the assured. There is no reason to
deviate from this rule, especially in view of the circumstances of this case as above analyzed.
7) Tiu v. Arriesgado

Facts:

 At about 10:00 p.m. of March 15, 1987, the cargo truck marked Condor Hollow Blocks and
General Merchandise bearing plate number GBP-675 was loaded with firewood in Bogo, Cebu
and left for Cebu City. Upon reaching Sitio Aggies, Poblacion, Compostela, Cebu, just 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 it vulcanized
at a nearby shop, about 700 meters away. Pedrano left his helper, Jose Mitante, Jr. to keep
watch over the stalled vehicle, and instructed the latter to place a spare tire six fathoms away[4]
behind the stalled truck to serve as a warning for oncoming vehicles. The trucks tail lights were
also left on. It was about 12:00 a.m., March 16, 1987.
 At about 4:45 a.m., D Rough Riders passenger bus with plate number PBP-724 driven by Virgilio
Te Laspias was cruising along the national highway of Sitio Aggies, Poblacion, Compostela, Cebu.
The passenger bus was also bound for Cebu City, and had come from Maya, Daanbantayan,
Cebu. Among its passengers were the Spouses Pedro A. Arriesgado and Felisa Pepito Arriesgado,
who were seated at the right side of the bus, about three (3) or four (4) places from the front
seat.
 As the bus was approaching the bridge, Laspias saw the stalled truck, which was then about 25
meters away. He applied the breaks and tried to swerve to the left to avoid hitting the truck. But
it was too late; the bus rammed into the trucks left rear. The impact damaged the right side of
the bus and left several passengers injured. Pedro Arriesgado lost consciousness and suffered a
fracture in his right colles. His wife, Felisa, was brought to the Danao City Hospital. She was later
transferred to the Southern Island Medical Center where she died shortly thereafter
 Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of carriage,
damages and attorneys fees before the RTC of Cebu City, against the petitioners, D Rough Riders
bus operator William Tiu and his driver, Virgilio Te Laspias on May 27, 1987. The respondent
alleged that the passenger bus in question was cruising at a fast and high speed along the
national road, and that petitioner Laspias did not take precautionary measures to avoid the
accident.
 The petitioners, for their part, filed a Third-Party Complaint against the following: respondent
Philippine Phoenix Surety and Insurance, Inc. (PPSII), petitioner Tius insurer; respondent
Benjamin Condor, the registered owner of the cargo truck; and respondent Sergio Pedrano, the
driver of the truck. They alleged that petitioner Laspias was negotiating the uphill climb along
the national highway of Sitio Aggies, Poblacion, Compostela, in a moderate and normal speed. It
was further alleged that the truck was parked in a slanted manner, its rear portion almost in the
middle of the highway, and that no early warning device was displayed. Petitioner Laspias
promptly applied the brakes and swerved to the left to avoid hitting the truck head-on, but
despite his efforts to avoid damage to property and physical injuries on the passengers, the right
side portion of the bus hit the cargo trucks left rear.
 The respondent PPSII, for its part, admitted that it had an existing contract with petitioner Tiu,
but averred that it had already attended to and settled the claims of those who were injured
during the incident. It could not accede to the claim of respondent Arriesgado, as such claim was
way beyond the scheduled indemnity as contained in the contract of insurance
Issues: 1) WON Petitioner Laspias was Negligent; 2) What is the liability of PPSII?

Ruling:

1) Yes. both the trial court and the appellate court, that the D Rough Rider bus driven by petitioner
Laspias was traveling at a fast pace. Since he saw the stalled truck at a distance of 25 meters, petitioner
Laspias had more than enough time to swerve to his left to avoid hitting it; that is, if the speed of the
bus was only 40 to 50 kilometers per hour as he claimed. By his own admission, he had just passed a
bridge and was traversing the highway of Compostela, Cebu at a speed of 40 to 50 kilometers per hour
before the collision occurred. The maximum speed allowed by law on a bridge is only 30 kilometers per
hour. And, as correctly pointed out by the trial court, petitioner Laspias also violated Section 35
(Restrictions as to speed) of the Land Transportation and Traffic Code, Republic Act No. 4136. Under
Article 2185 of the Civil Code, a person driving a vehicle is presumed negligent if at the time of the
mishap, he was violating any traffic regulation

a) Petitioner Tiu failed to overcome the presumption of negligence against him as one engaged in the
business of common carriage; b) The Doctrine of Last Clear Chance Is Inapplicable in the Case at Bar.
The principle of last clear chance is inapplicable in the instant case, as it only applies in a suit between
the owners and drivers of two colliding vehicles. It does not arise where a passenger demands
responsibility from the carrier to enforce its contractual obligations, for it would be inequitable to
exempt the negligent driver and its owner on the ground that the other driver was likewise guilty of
negligence; c) Respondents Pedrano and Condor were likewise Negligent. respondent Pedrano was also
negligent in leaving the truck parked askew without any warning lights or reflector devices to alert
oncoming vehicles, and that such failure created the presumption of negligence on the part of his
employer, respondent Condor, in supervising his employees properly and adequately.

2) Considering the admissions made by respondent PPSII, the existence of the insurance contract and
the salient terms thereof cannot be dispatched. It must be noted that after filing its answer, respondent
PPSII no longer objected to the presentation of evidence by respondent Arriesgado and the insured
petitioner Tiu. Even in its Memorandum56 before the Court, respondent PPSII admitted the existence of
the contract.

As can be gleaned from the Certificate of Cover, such insurance contract was issued pursuant to the
Compulsory Motor Vehicle Liability Insurance Law. It was expressly provided therein that the limit of the
insurers liability for each person was P12,000, while the limit per accident was pegged at P50,000. An
insurer in an indemnity contract for third party liability is directly liable to the injured party up to the
extent specified in the agreement but it cannot be held solidarily liable beyond that amount.58 The
respondent PPSII could not then just deny petitioner Tius claim; it should have paid P12,000 for the
death of Felisa Arriesgado,59 and respondent Arriesgados hospitalization expenses of P1,113.80, which
the trial court found to have been duly supported by receipts. The total amount of the claims, even
when added to that of the other injured passengers which the respondent PPSII claimed to have
settled,60 would not exceed the P50,000 limit under the insurance agreement. Indeed, the nature of
Compulsory Motor Vehicle Liability Insurance is such that it is primarily intended to provide
compensation for the death or bodily injuries suffered by innocent third parties or passengers as a result
of the negligent operation and use of motor vehicles. The victims and/or their dependents are assured
of immediate financial assistance, regardless of the financial capacity of motor vehicle owners
8) Vda. De Maglana v. Consolacion

Facts:

 Lope Maglana was an employee of the Bureau of Customs whose work station was at Lasa
Davao City. On December 20, 1978, early morning, Lope Maglana was on his way to his work
station, driving a motorcycle owned by the Bureau of Customs. At Km. 7, Lanang, he met an
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 owned by defendant Destrajo. From the investigation
conducted by the traffic investigator, the PUJ jeep was overtaking another passenger jeep that
was going towards the city poblacion. While overtaking, the PUJ jeep of defendant Destrajo
running abreast with the overtaken jeep, bumped the motorcycle driven by the deceased who
was going towards the direction of Lasa, Davao City. The point of impact was on the lane of the
motorcycle and the deceased was thrown from the road and met his untimely death.
 he heirs of Lope Maglana, Sr., here petitioners, filed an action for damages and attorney's fees
against operator Patricio Destrajo and the Afisco Insurance Corporation (AFISCO for brevity)
before the then Court of First Instance of Davao, Branch II. An information for homicide thru
reckless imprudence was also filed against Pepito Into.
 The lower court rendered a decision finding that Destrajo had not exercised sufficient diligence
as the operator of the jeepney.
 Petitioners filed a motion for the reconsideration of the second paragraph of the dispositive
portion of the decision contending that AFISCO should not merely be held secondarily liable
because the Insurance Code provides that the insurer's liability is "direct and primary and/or
jointly and severally with the operator of the vehicle, although only up to the extent of the
insurance coverage." 4 Hence, they argued that the P20,000.00 coverage of the insurance policy
issued by AFISCO, should have been awarded in their favor.
 AFISCO argued that since the Insurance Code does not expressly provide for a solidary
obligation, the presumption is that the obligation is joint.
 The lower court denied the motion for reconsideration ruling that since the insurance contract
"is in the nature of suretyship, then the liability of the insurer is secondary only up to the extent
of the insurance coverage."
 Petitioners filed a second motion for reconsideration reiterating that the liability of the insurer is
direct, primary and solidary with the jeepney operator because the petitioners became direct
beneficiaries under the provision of the policy which, in effect, is a stipulation pour autrui

Issue: WON the liability of the insurer is direct, primary and solidary with the jeepney operator
Ruling: Yes. The particular provision of the insurance policy on which petitioners base their claim is as
follows:Sec. 1 — LIABILITY TO THE PUBLIC

1.The Company will, subject to the Limits of Liability, pay all sums necessary to discharge liability of the
insured in respect of

(a) death of or bodily injury to any THIRD PARTY

(b). . . .

2.. . . .

3. In the event of the death of any person entitled to indemnity under this Policy, the Company will, in
respect of the liability incurred to such person indemnify his personal representatives in terms of, and
subject to the terms and conditions hereof.

The above-quoted provision leads to no other conclusion but that AFISCO can be held directly liable by
petitioners.

As this Court ruled in Shafer vs. Judge, RTC of Olongapo City, Br. 75, "[w]here an insurance policy insures
directly against liability, the insurer's liability accrues immediately upon the occurrence of the injury or
even upon which the liability depends, and does not depend on the recovery of judgment by the injured
party against the insured.

However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo. In Malayan Insurance
Co., Inc. v. Court of Appeals, 10 this Court had the opportunity to resolve the issue as to the nature of
the liability of the insurer and the insured vis-a-vis the third party injured in an accident. We
categorically ruled thus: While it is true that where the insurance contract provides for indemnity
against liability to third persons, such third persons can directly sue the insurer, however, the direct
liability of the insurer under indemnity contracts against third party liability does not mean that the
insurer can be held solidarily liable with the insured and/or the other parties found at fault. The liability
of the insurer is based on contract; that of the insured is based on tort.

petitioners herein cannot validly claim that AFISCO, whose liability under the insurance policy is also
P20,000.00, can be held solidarily liable with Destrajo for the total amount of P53,901.70 in accordance
with the decision of the lower court. Since under both the law and the insurance policy, AFISCO's liability
is only up to P20,000.00, the second paragraph of the dispositive portion of the decision in question may
have unwittingly sown confusion among the petitioners and their counsel. What should have been
clearly stressed as to leave no room for doubt was the liability of AFISCO under the explicit terms of the
insurance contract.

We conclude that the liability of AFISCO based on the insurance contract is direct, but not solidary with
that of Destrajo which is based on Article 2180 of the Civil Code. 12 As such, petitioners have the option
either to claim the P15,000 from AFISCO and the balance from Destrajo or enforce the entire judgment
from Destrajo subject to reimbursement from AFISCO to the extent of the insurance coverage.
9) Villacorta v. Insurance Commission

Facts:

 Complainant [petitioner] was the owner of a Colt Lancer, Model 1976, insured with respondent
company under Private Car Policy No for P35,000.00 — Own Damage; P30,000.00 — Theft; and
P30,000.00 — Third Party Liability, effective May 16, 1977 to May 16, 1978. On May 9, 1978, the
vehicle was brought to the Sunday Machine Works, Inc., for general check-up and repairs. On
May 11, 1978, while it was in the custody of the Sunday Machine Works, the car was allegedly
taken by six (6) persons and driven out to Montalban, Rizal. While travelling along Mabini St.,
Sitio Palyasan, Barrio Burgos, going North at Montalban, Rizal, the car figured in an accident,
hitting and bumping a gravel and sand truck parked at the right side of the road going south. As
a consequence, the gravel and sand truck veered to the right side of the pavement going south
and the car veered to the right side of the pavement going north. The driver, Benito Mabasa,
and one of the passengers died and the other four sustained physical injuries. The car, as well,
suffered extensive damage. Complainant, thereafter, filed a claim for total loss with the
respondent company but claim was denied. Hence, complainant, was compelled to institute the
present action.
 The comprehensive motor car insurance policy for P35,000.00 issued by respondent Empire
Insurance Company admittedly undertook to indemnify the petitioner-insured against loss or
damage to the car (a) by accidental collision or overturning, or collision or overturning
consequent upon mechanical breakdown or consequent upon wear and tear; (b) by fire,
external explosion, self-ignition or lightning or burglary, housebreaking or theft; and (c) by
malicious act.
 Respondent insurance commission, however, dismissed petitioner's complaint for recovery of
the total loss of the vehicle against private respondent, sustaining respondent insurer's
contention that the accident did not fall within the provisions of the policy either for the Own
Damage or Theft coverage, invoking the policy provision on "Authorized Driver" clause
 Respondent commission upheld private respondent's contention on the "Authorized Driver"
clause in this wise: "It must be observed that under the above-quoted provisions, the policy
limits the use of the insured vehicle to two (2) persons only, namely: the insured himself or any
person on his (insured's) permission. Under the second category, it is to be noted that the words
"any person' is qualified by the phrase. “on the insured's order or with his permission.' It is
therefore clear that if the person driving is other than the insured, he must have been duly
authorized by the insured, to drive the vehicle to make the insurance company liable for the
driver's negligence. Complainant admitted that she did not know the person who drove her
vehicle at the time of the accident, much less consented to the use of the same”
 Respondent commission likewise upheld private respondent's assertion that the car was not
stolen and therefore not covered by the Theft clause, ruling that "The element of 'taking' in
Article 308 of the Revised Penal Code means that the act of depriving another of the possession
and dominion of a movable thing is coupled ... with the intention. at the time of the 'taking', of
withholding it with the character of permanency. there must have been shown a felonious
intent upon the part of the taker of the car, and the intent must be an intent permanently to
deprive the insured of his car," and that "Such was not the case in this instance.
Issue: WON the respondent commission's dismissal of the complaint is contrary to law

Ruling: Yes.

First, The main purpose of the "authorized driver" clause, as may be seen from its text, supra, is that a
person other than the insured owner, who drives the car on the insured's order, such as his regular
driver, or with his permission, such as a friend or member of the 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.

A car owner who entrusts his car to an established car service and repair shop necessarily entrusts his
car key to the shop owner and employees who are presumed to have the insured's permission to drive
the car for legitimate purposes of checking or road-testing the car. The mere happenstance that the
employee(s) of the shop owner diverts the use of the car to his own illicit or unauthorized purpose in
violation of the trust reposed in the shop by the insured car owner does not mean that the "authorized
driver" clause has been violated such as to bar recovery, provided that such employee is duly qualified
to drive under a valid driver's license.

The situation is no different from the regular or family driver, who instead of carrying out the owner's
order to fetch the children from school takes out his girl friend instead for a joy ride and instead wrecks
the car. There is no question of his being an "authorized driver" which allows recovery of the loss
although his trip was for a personal or illicit purpose without the owner's authorization.

Secondly, and independently of the foregoing (since when a car is unlawfully taken, it is the theft clause,
not the "authorized driver" clause, that applies), where a car is admittedly as in this case unlawfully and
wrongfully taken by some people, be they employees of the car shop or not to whom it had been
entrusted, and taken on a long trip to Montalban without the owner's consent or knowledge, such
taking constitutes or partakes of the nature of theft as defined in Article 308 of the Revised Penal Code,
viz. "Who are liable for theft. — Theft is committed by any person who, with intent to gain but without
violence against or intimidation of persons nor force upon things, shall take personal property of
another without the latter's consent," for purposes of recovering the loss under the policy in question.
10) Palermo v. Pyramid Insurance Co.

Facts:

 insured, appellee Andrew Palermo, filed a complaint in the CFI of Negros Occidental against
Pyramid Insurance Co., Inc., for payment of his claim under a Private Car Comprehensive Policy
issued by the defendant.
 appellant Pyramid Insurance Co., Inc., alleged that it disallowed the claim because at the time of
the accident, the insured was driving his car with an expired driver's license.
 after having purchased a brand new Nissan Cedric de Luxe Sedan car bearing Motor No. 087797
from the Ng Sam Bok Motors Co. in Bacolod City, plaintiff insured the same with the defendant
insurance company against any loss or damage for P 20,000.00 and against third party liability
for P 10,000.00. Plaintiff paid the defendant P 361.34 premium for one year for which defendant
issued Private Car Comprehensive Policy
 The automobile was, however, mortgaged by the plaintiff with the vendor, Ng Sam Bok Motors
Co., to secure the payment of the balance of the purchase price, which explains why the
registration certificate in the name of the plaintiff remains in the hands of the mortgagee, Ng
Sam Bok Motors Co.
 While driving the automobile in question, the plaintiff met a violent accident. The La Carlota City
fire engine crashed head on, and as a consequence, the plaintiff sustained physical injuries, his
father, Cesar Palermo, who was with am in the car at the time was likewise seriously injured and
died shortly thereafter, and the car in question was totally wrecked
 The insurance policy, Private Car Comprehensive Policy, grants an option unto the defendant, in
case of accident either to indemnify the plaintiff for loss or damage to the car in cash or to
replace the damaged car. The defendant, however, refused to take either of the above-
mentioned alternatives for the 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 license.
 Appellant alleges that the trial court erred in interpreting the following provision of the Private
Car Comprehensive Policy: AUTHORIZED DRIVER: Any of the following: (a)The Insured; (b) Any
person driving on the Insured's order or with his permission. Provided that the person driving is
permitted in accordance with the licensing or other laws or regulations to drive the Motor
Vehicle and is not disqualified from driving such motor vehicle by order of a Court of law or by
reason of any enactment or regulation in that behalf.

Issue: the only question involved is the interpretation of the provision of the insurance contract
regarding the "authorized driver" of the insured motor vehicle.

Ruling: There is no merit in the appellant's allegation that the plaintiff was not authorized to drive the
insured motor vehicle because his driver's license had expired.

The driver of the insured motor vehicle at the time of the accident was, the insured himself, hence an
"authorized driver" under the policy. While the Motor Vehicle Law prohibits a person from operating a
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 insured, is not a bar to recovery under the insurance contract.
The requirement that the driver be "permitted in accordance with the licensing or other laws or
regulations to drive the Motor Vehicle and is not disqualified from driving such motor vehicle by order of
a Court of Law or by reason of any enactment or regulation in that behalf," applies only when the driver"
is driving on the insured's order or with his permission." It does not apply when the person driving is the
insured himself.
11) Summit Guaranty & Insurance Co, Inc. v. Insurance Commissioner Arnaldo

Facts:

 As a result of a vehicular accident that happened on November 26,1976 whereby a Ford Pick-up
with Plate No. UC-5925 Phil. '76 owned by Marcos Olaso was bumped by a cargo truck with
Plate No. OY-783 then owned by Alberto Floralde, FGU insurance corporation FGU by reason of
Motor Vehicle Insurance Policy No. IC-VF-07185 paid Olaso the sum of P 2,817.50 as its share in
the repair cost of the said Ford Pick-up.
 Having thus been subrogated to the rights and causes of action of said Olaso in the said amount
FGU formally demanded payment of said amount from Floralde and attempted to verify
Floralde's insurance carrier. Floralde failed to reveal his insurance carrier. In the early part of
1978 FGU was able to ascertain the Identity of Floralde's insurance carrier to be the Summit
Guaranty and Insurance Company, Inc. (Summit).
 FGU wrote to the insurance commissioner requesting for a conference with Summit and
demanded from Summit through counsel the payment of the damages sustained by the car of
Olaso but to no avail. Hence FGU filed IC Case No. 825 in the Insurance Commissioner's Office
against Summit for recovery of said amount.
 A motion to dismiss the complaint was filed by Summit on May 30,1978 on the ground of
prescription under Section 384 of PD No. 612.
 Summit filed the herein petition for certiorari and prohibition with restraining order in this Court
alleging that respondent commissioner acted without or in excess of jurisdiction or with grave
abuse of discretion in denying the aforesaid motion for reconsideration when it has been shown
that the action has already prescribed so petitioner sought an order to restrain the respondent
commissioner from further proceeding in the case during the pendency of the petition.

Issue: WON the action has already prescribed.

Ruling:

A) The court finds that the petition should be dismissed for lack of merit. The questioned orders of the
respondent Commissioner of June 19,1978 and June 28,1978 deferring the consideration of the
petitioner's motion to dismiss the complaint until after the hearing on the merits of the case are
supported by the provision of Section 3, Rule 16 of the Rules of Court that such hearing and
determination of the motion may be deferred "until the trial if the ground alleged therein does not
appear to be indubitable." Obviously, the respondent commissioner had doubts from the mere
allegations of the motion to dismiss. Considering such doubt the deferment was proper and may be
considered as a provisional denial of the motion to dismiss.

B) In the cases of Summit Guaranty & Insurance Co., Inc. vs. The Hon. Jose C. de Guzman, etc., et al., G.R.
No. 50997, Summit Guaranty & Insurance Co., Inc. vs. The Hon. Gregoria C. Arnaldo, etc., G.R. No. L-
48679, and Summit Guaranty & Insurance Co., Inc. vs. The Hon. Ramon B. Jabson etc., G.R. No. L-48758,
which were jointly decided by this Court on June 30,1987, wherein the petitioner in the present case
was also the petitioner in said cases, the Court had occasion to interpret the aforesaid provision of
Section 384 of the Insurance Code in this manner: Legislative intent must be ascertained from a
consideration of the statute as a whole. The particular words, clauses and phrases should not be studied
as detached and isolated expressions, but the whole and every part of the statute must be considered in
fixing the meaning of any of its parts and in order to produce a harmonious whole. A statute must be so
construed as to harmonize and give effect to all its provisions whenever possible.

Sec. 384. Any person having any claim upon the policy issued pursuant to this chapter shall, without any
unnecessary delay, present to the insurance company concerned a written notice of claim setting forth
the amount of his loss, and/or the nature, extent and duration of the injuries sustained as certified by a
duly licensed physician. Notice of claim must be filed within six months from date of the accident,
otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or injury
must be brought, in proper cases, with the Commissioner or the Courts within one year from date of
accident, otherwise, the claimant's right of action shall prescribe.

In the present case, it is not denied that an extrajudicial demand for payment was made by respondent
FGU on petitioner but petitioner failed to respond to the same. Nevertheless the complaint was filed
even before a denial of the claim was made by petitioner. For all legal purposes, the one-year
prescriptive period provided for in Section 384 of the Insurance Code has not begun to run. The cause of
action arises only and starts to run upon the denial of the claim by the insurance company.
12) Gutierrez v. Capital Insurance & Surety Co, Inc

Facts:

 Capital Insurance & Surety Co., Inc. insured on December 7, 1961 for one year the jeepney of
Agapito Gutierrez against passenger and third-party liability. The passenger liability would not
exceed P5,000 for any one person
 The policy provides in item 13 that the authorized driver must be the holder of a valid and
subsisting professional driver's license. "A driver with an expired Traffic Violation Receipt or
expired Temporary Operator's Permit is not considered an authorized driver"
 Item 13 is part of the "declarations" which formed part of the policy and had a promissory
nature and effect and constituted "the basis of the policy"
 the insured jeepney figured in an accident at Buendia Avenue, Makati, Rizal. As a result, a
passenger named Agatonico Ballega fell off the vehicle and died
 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 the license. Instead, he had a carbon copy of a traffic
violation report (summons) issued by a policeman on February 22, 1962, with the notation that
he had committed the violation: "Inattentive to driving
 The same TVR, which served as a receipt for his license, required him to report to Branch 8 of
the traffic court at the corner of Arroceros and Concepcion Streets, Manila at nine o'clock in the
morning of March 2, 1962. The TVR would "serve as a temporary operator's permit for 15 days
from receipt hereof" (p. 100, Record on Appeal). It is indisputable that at the time of the
accident (May 29, 1962), Ventura was holding an "expired Temporary Operator's Permit."
 Gutierrez paid P4,000 to the passenger's widow, Rosalina Abanes Vda. de Ballega, by reason of
her husband's death

Issue: whether an insurance covers a jeepney whose driver's traffic violation report or temporary
operator's permit had already expired.

Ruling: We hold that paragraph 13 of the policy, already cited, is decisive and controlling in this case. It
plainly provides, and we repeat, that "a driver with an expired Traffic Violation Receipt or expired
Temporary Operator's permit is not considered an authorized driver within the meaning" of the policy.
Obviously, Ventura was not an authorized driver. His temporary operator's permit had expired. The
expiration bars recovery under the policy.

In liability insurance, "the parties are bound by the terms of the policy and the right of insured to
recover is governed thereby"

But the instant case deals with an insurance policy which definitively fixed the meaning of "authorized
driver". That stipulation cannot be disregarded or rendered meaningless. It is binding on the insured.

It means that to be entitled to recovery the insured should see to it that his driver is authorized as
envisaged in paragraph 13 of the policy which is the law between the parties. The rights of the parties
flow from the insurance contract