I.

Introduction; General Concept of Insurance; Public Interest in intended to answer for the claims of all policy holders in the event that
Insurance Business the depositing insurance company becomes insolvent or otherwise
unable to satisfy their claims.
REPUBLIC v DEL MONTE MOTORS, INC The security deposit must be ratably distributed among all the insured
(G.R. No. 156956, October 9, 2006) who are entitled to their respective shares; it cannot be garnished or
levied upon by a single claimant, to the detriment of the others.
FACTS:
On January 15, 2002, Vilfran Liner lost in a case against Del Monte 2. The Insurance Code has vested the Office of the Insurance
Motors. They were made to pay 11 million pesos for service contracts Commission with both regulatory and adjudicatory authority over
with Del Monte, and such was sourced from the counterbond posted insurance matters. Hence, Insurance Commissioner Malinis’ decision
by Vilfran. It was Capital Insurance and Surety Co., Inc. (CISCO) in refusing to release the security deposit pursuant to the writ of
which issued the counterbond. garnishment should be given respect since he has been given great
discretion to regulate the business to protect the public.
RTC further issued a writ of execution commanding the sheriff to levy Also “An implied trust is created by the law for the benefit of all
the amount on the property of CISCO. To completely satisfy the claimants under subsisting insurance contracts issued by the
amount, the Insurance Commissioner Malinis was also commanded insurance company.” He believed that the security deposit was
to withdraw the security deposit filed by CISCO with the Insurance exempt from execution to protect the policy holders.
Commission according to Sec 203 of the Insurance Code for the The business of insurance is imbued with public interest. It is subject
payment of the insurance indemnity won by Del Monte Motor against to regulation by the State, with respect not only to the relations
Vilfran Liner, the insured. between the insurer and the insured, but also to the internal affairs of
Malinis didn’t obey the order, so the respondent moved to cite him in insurance companies.
contempt of Court.

ISSUE:
1. W/N security deposits made with the Insurance Commission may
be levied and garnished.
2. W/N the Insurance Commissioner has power to withhold the release
of the security deposit.

RULING:
1. NO. As worded in Sec 203, the law expressly & clearly states that
the security deposit shall be (1) answerable for all the obligations of
the depositing insurer under its insurance contracts; (2) at all times
free from any liens or encumbrance; and (3) exempt from levy by any
claimant.

To allow the garnishment of that deposit would impair the fund by

decreasing it to less than the percentage of paid-up capital that the
law requires to be maintained. The securities required by the
Insurance Code to be deposited with the Insurance Commissioner are

INSURANCE DIGESTS I EH 404 1

I. Introduction; General Concept of Insurance; One test that they have applied is whether the assumption of risk and
Insurance v Health Maintenance Organizations (HMO) indemnification of loss (which are elements of an insurance business)
are the principal object and purpose of the organization or whether
PHILIPPINE HEALTH CARE PROVIDERS, INC. v CIR they are merely incidental to its business. If these are the principal
(G.R. No. 167330, September 18, 2009) objectives, the business is that of insurance. But if they are merely
incidental and service is the principal purpose, then the business is
One test that they have applied is whether the assumption of risk and not insurance.
indemnification of loss (which are elements of an insurance business) are the
principal object and purpose of the organization or whether they are merely American courts have pointed out that the main difference between an
incidental to its business. If these are the principal objectives, the business is HMO and an insurance company is that HMOs undertake to provide
that of insurance. But if they are merely incidental and service is the principal
or arrange for the provision of medical services through participating
purpose, then the business is not insurance.
physicians while insurance companies simply undertake to indemnify
FACTS: the insured for medical expenses incurred up to a pre-agreed limit.
Petitioner is a domestic corporation whose primary purpose is "[t]o
establish, maintain, conduct and operate a prepaid group practice In short, even if petitioner assumes the risk of paying the cost of these
health care delivery system or a health maintenance organization to services even if significantly more than what the member has prepaid,
take care of the sick and disabled persons enrolled in the health care it nevertheless cannot be considered as being engaged in the
plan and to provide for the administrative, legal, and financial insurance business.
responsibilities of the organization".
Overall, petitioner appears to provide insurance-type benefits to its
Respondent Commissioner of Internal Revenue [CIR] sent petitioner members (with respect to its curative medical services), but these are
a formal demand letter and the corresponding assessment notices incidental to the principal activity of providing them medical care.
demanding the payment of deficiency taxes, including surcharges and Therefore, since it substantially provides health care services rather
interest. The deficiency [documentary stamp tax (DST)] assessment than insurance services, it cannot be considered as being in the
was imposed on petitioner's health care agreement with the members insurance business.
of its health care program.
In adopting the "principal purpose test" used in the above-quoted U.S.
ISSUE: cases, we are not saying that petitioner's operations are identical in
W/N the contract issued by the HMO is subject to documentary stamp every respect to those of the HMOs or health providers which were
tax for bonds and other insurance contracts? parties to those cases. What we are stating is that, for the purpose of
determining what "doing an insurance business" means, we have to
RULING: scrutinize the operations of the business as a whole and not its mere
NO. Petitioner is admittedly an HMO. Under RA 7875 (or "The National components.
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". The payments do not
vary with the extent, frequency or type of services provided.

INSURANCE DIGESTS I EH 404 2

I. Introduction; 1 No person shall act as an insurance agent or as an insurance broker
in the solicitation or procurement of applications for insurance, or
WHITE GOLD MARINE SERVICES v PIONEER INSURANCE receive for services in obtaining insurance, any commission or other
(G.R No. 154514, July 28, 2005) compensation from any insurance company doing business in the
Philippines or any agent thereof, without first procuring a license so to
FACTS: act from the Commissioner, which must be renewed annually on the
White Gold marine services procured a protection and indemnity first day of January, or within six months thereafter.
coverage for its vessels from Steamship Mutual through Pioneer
Insurance and Surety Corporation. When White Gold failed to fully pay
its accounts, Steamship Mutual refused to renew the coverage.
Steamship Mutual filed a case against White Gold for a collection of
sum of money while White Gold, filed a complaint against Steamship
Mutual saying that the company has not secured a license from the
Insurance Commission despite its engagement in the insurance
business. They contend that Pioneer Insurance needs to procure a
separate licence as an agent of Steamship Mutual.

ISSUES:
1. Is Steamship Mutual engaging in the insurance business in the
Philippines?
2. Does Pioneer Insurance need a separate license as an agent of
Steamship?

RULING:
1. A marine insurance undertakes to indemnify the assured against
marine losses. A mutual insurance company is a cooperative
enterprise where the members are both the insurer and the insured.
In it, members all contribute, by a system of premiums or
assessments, to the creation of a fund from which all losses and
liabilities are paid, and where the profits are divided among
themselves, in proportion to their interest. Steamship Mutual is a P &
I club, which is a form of insurance against third party liability, where
the third party is anyone other than the P & I club and the members.
By definition, Steamship Mutual as a P & I Club is a mutual insurance
association engaged in the marine insurance business.

2. Pioneer Insurance, although an agent of Steamship Mutual, needs

a separate licence pursuant to Section 299 of the Insurance Code that
says:

INSURANCE DIGESTS I EH 404 3

I. Introduction; 2 should be strictly construed against the insured. Verendia failed to live
by the terms of the policy, specifically Section 13 thereof which is
VERENDIA v CA expressed in terms that are clear and unambiguous, that all benefits
(217 SCRA 417) under the policy shall be forfeited “If the claim be in any respect
fraudulent, or if any false declaration be made or used in support
Basically a contract of indemnity, an insurance contract is the law between the thereof, or if any fraudulent means or devises are used by the Insured
parties. Its terms and conditions constitute the measure of the insurer’s liability or anyone acting in his behalf to obtain any benefit under the policy”.
and compliance therewith is a condition precedent to the insured’s right to Verendia, having presented a false declaration to support his claim for
recovery from the insurer. benefits in the form of a fraudulent lease contract, he forfeited all
benefits therein by virtue of Section 13 of the policy in the absence of
FACTS: proof that Fidelity waived such provision.
Fidelity and Surety Insurance Company of the Philippines issued Fire
Insurance Policy No. F- 18876 covering Rafael (Rex) Verendia’s
residential building located at Tulip Drive, Beverly Hills, Antipolo, Rizal
in the amount of P385,000.00. Designated as beneficiary was the
Monte de Piedad & Savings Bank. Verendia also insured the same
building with two other companies, namely, The Country Bankers
Insurance for P56,000.00 under Policy No. PDB-80-1913 and The
Development Insurance for P400,000.00 under Policy No. F-48867.

While the three fire insurance policies were in force, the insured
property was completely destroyed by fire on the early morning of
December 28, 1980. Fidelity was accordingly informed of the loss and
despite demands, refused payment under its policy, thus prompting
Verendia to file a complaint.

Fidelity, among other things, averred that the policy was avoided by
reason of over-insur-ance; that Verendia maliciously represented that
the building at the time of the fire was leased under a contract
executed on June 25, 1980 to a certain Roberto Garcia, when actually
it was a Marcelo Garcia who was the lessee.

ISSUES:
1. W/N the contract of lease submitted by Verendia to support his
claim on the fire insurance policy constitutes a false declaration which
would forfeit his benefits under Section 13 of the policy

RULING:
1. YES. Verendia used a false lease contract to support his claim
under Fire Insurance Policy No. F-18876, the terms of the policy

INSURANCE DIGESTS I EH 404 4

I. Introduction; 3 ". . . contained and/or stored during the currency of this Policy in the
premises occupied by them forming part of the buildings situate (sic)
RIZAL SURETY AND INSURANCE CO. v CA within own Compound . . ."
(336 SCRA 12)
Therefrom, it can be gleaned unerringly that the fire insurance policy
FACTS: in question did not limit its coverage to what were stored in the four-
On March 13, 1980, Rizal Surety & Insurance Company (Rizal span building.
Insurance) issued Fire Insurance Policy No. 45727 in favor of
Transworld Knitting Mills, Inc. (Transworld), initially for One Million In the case under consideration, both the trial court and the Court of
(P1,000,000.00) Pesos and eventually increased to One Million Five Appeals found that the so called "annex" was not an annex building
Hundred Thousand (P1,500,000.00) Pesos, covering the period from but an integral and inseparable part of the four-span building
August 14, 1980 to March 13, 1981. The same pieces of property described in the policy and consequently, the machines and spare
insured with the petitioner were also insured with New India Assurance parts stored therein were covered by the fire insurance in dispute. So
Company, Ltd., (New India). also, considering that the two-storey building aforementioned was
already existing when subject fire insurance policy contract was
On January 12, 1981, fire broke out in the compound of Transworld, entered into on January 12, 1981, having been constructed sometime
razing the middle portion of its four-span building and partly gutting the in 1978, petitioner should have specifically excluded the said two-
left and right sections thereof. A two-storey building (behind said four- storey building from the coverage of the fire insurance if minded to
span building) where fun and amusement machines and spare parts exclude the same but it did not, and instead, went on to provide that
were stored, was also destroyed by the fire. Transworld filed its such fire insurance policy covers the products, raw materials and
insurance claims with Rizal Surety & Insurance Company and New supplies stored within the premises of respondent Transworld which
India Assurance Company but to no avail. was an integral part of the four-span building occupied by Transworld.

Private respondent brought against the said insurance companies an Conformably, it stands to reason that the doubt should be resolved
action for collection of sum of money and damages. Petitioner Rizal against the petitioner, Rizal Surety Insurance Company, whose lawyer
Insurance countered that its fire insurance policy sued upon covered or managers drafted the fire insurance policy contract under scrutiny.
only the contents of the four-span building, which was partly burned, Citing the aforecited provision of law in point, the Court in Landicho
and not the damage caused by the fire on the two-storey annex vs. Government Service Insurance System, ruled:
building.
"This is particularly true as regards insurance policies, in respect of
ISSUE: which it is settled that the 'terms in an insurance policy, which are
W/N the two-storey building was included in the coverage of the ambiguous, equivocal, or uncertain . . . are to be construed strictly and
insurance policy issued by Rizal Surety to Transworld? most strongly against the insurer, and liberally in favor of the insured
so as to effect the dominant purpose of indemnity or payment to the
RULING: insured, especially where forfeiture is involved' (29 Am. Jur., 181), and
YES. Resolution of the issues posited here hinges on the proper the reason for this is that the 'insured usually has no voice in the
interpretation of the stipulation in subject fire insurance policy selection or arrangement of the words employed and that the
regarding its coverage, which reads: language of the contract is selected with great care and deliberation
by experts and legal advisers employed by, and acting exclusively in
the interest of, the insurance company.' (44 C.J.S., p. 1174)."

INSURANCE DIGESTS I EH 404 5

I. Introduction; 4 (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;
PHILAMCARE HEALTH SYSTEMS INC. v CA and
(379 SCRA 356) (5) in consideration of the insurer's promise, the insured pays a
premium.
FACTS:
Ernani Trinos, deceased husband of respondent Julita Trinos, was In the case at bar, the insurable interest of respondent's husband in
issued a Health Care Agreement for a health coverage with petitioner obtaining the health care agreement was his own health. Once the
Philamcare Health Systems Inc. During the period of Ernani’s member incurs hospital, medical or any other expense arising from
coverage, he suffered a heart attack and was confined in the hospital. sickness, injury or other stipulated contingent, the health care provider
Respondent tried to claim the benefits under the health care must pay for the same to the extent agreed upon under the contract.
agreement, but petitioner denied her claim. Petitioner asserted,
among other things, 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. As a
result, respondent wound up paying the hospitalization expenses
herself.

After Ernani’s passing, respondent filed an action for damages against

petitioner and its president, Dr. Reverente. The RTC ruled in favor of
respondent and awarded damages. On appeal, the CA affirmed the
decision of the RTC but deleted all awards for damages and absolved
Reverente. Now comes petitioner raising the primary argument that a
health care agreement is not an insurance contract.

ISSUE:
W/N the health care agreement was an insurance contract.

RULING:
Yes, the health care agreement was an insurance contract. More
particularly, it was one in the nature of a non-life insurance, which is
primarily a contract of indemnity. An insurance contract exists when
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;

INSURANCE DIGESTS I EH 404 6

I. Introduction; 5
RULING:
FORTUNE INSURANCE AND SURETY CO., INC. v CA NO. Fortune is exempt from liability under the general exceptions
(G.R. No. 115278. May 23, 1995) clause.

An insurance contract is a contract of indemnity upon the terms and conditions It should be noted that the insurance policy entered into by the parties
specified therein. It is settled that the terms of the policy constitute the is a theft or robbery insurance policy which is a form of casualty
measure of the insurer's liability. insurance. It has been aptly observed that in burglary, robbery, and
theft insurance, "the opportunity to defraud the insurer — the moral
FACTS: hazard — is so great that insurers have found it necessary to fill up
Producers Bank of the Philippines (Producers) filed a case against their policies with countless restrictions, many designed to reduce this
Fortune Insurance and Surety Co., Inc. (Fortune) for recovery of the hazard. Seldom does the insurer assume the risk of all losses due to
sum of P725,000.00 under the policy issued by Fortune. The sum was the hazards insured against."
allegedly lost during a robbery of Producer’s armored vehicle while it
was in transit. Fortune, in refusing to pay, invokes a provision in their An insurance contract is a contract of indemnity upon the terms and
insurance contract which provides: conditions specified therein. It is settled that the terms of the policy
constitute the measure of the insurer's liability. In the absence of
"GENERAL EXCEPTIONS
statutory prohibition to the contrary, insurance companies have the
The company shall not be liable under this policy in respect of same rights as individuals to limit their liability and to impose whatever
conditions they deem best upon their obligations not inconsistent with
xxx xxx xxx public policy.
(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 However, in this case there is a disagreement between the parties on
whether acting alone or in conjunction with others. . . . " the correct meaning of the terms "employee" and "authorized
representatives." It is clear to us that insofar as Fortune is concerned,
According to Producers, Atiga (Guard) and Magalong (Driver) are not it was its intention to exclude and exempt from protection and
its “officer, employee, … trustee or authorized representative … at the coverage losses arising from dishonest, fraudulent, or criminal acts of
time of the robbery. persons granted or having unrestricted access to Producers' money
or payroll. When it used then the term "employee," it must have had in
RTC ruled in favor of Producers saying that Magalong and Atiga were mind any person who qualifies as such as generally and universally
not employees or representatives of Producers but were merely the understood, or jurisprudentially established in the light of the four
assigned armored car driver and security guard in which the CA standards in the determination of the employer-employee relationship,
affirmed in toto. Hence, a petition for certiorari was filed alleging loss 21 or as statutorily declared even in a limited sense as in the case of
falls within the general exceptions clause of the contract. According to Article 106 of the Labor Code which considers the employees under a
them, there exist an employee-employer relationship between them "labor-only" contract as employees of the party employing them and
and Producers. not of the party who supplied them to the employer. In short, for these
particular tasks, the driver and security guard acted as agents of
ISSUE: Producers. A "representative" is defined as one who represents or
W/N the petitioner is liable under the Money, Security, and Payroll stands in the place of another; one who represents others or another
Robbery policy it issued to the private respondent. in a special capacity, as an agent, and is interchangeable with "agent."

INSURANCE DIGESTS I EH 404 7

I. Introduction; 6
An insurance premium is the consideration paid an insurer for
GULF RESORTS v PHILIPPINE CHARTER INSURANCE undertaking to indemnify the insured against a specified peril. In fire,
CORPORATION casualty, and marine insurance, the premium payable becomes a debt
(G.R. No. 156167, May 16, 2005) as soon as the risk attaches.

FACTS: In the subject policy, no premium payments were made with regard to
Petitioner Gulf Resorts is the owner of Plaza Resort in La Union. The earthquake shock coverage, except on the two swimming pools. There
properties in said resort were insured originally with the American is no mention of any premium payable for the other resort properties
Home Assurance Company (AHAC-AIU). In the first 4 insurance with regard to earthquake shock. This is consistent with the history of
policies extended by AHAC-AIU, the risk of loss was extended only to petitioner's previous insurance policies from AHAC-AIU.
the two swimming pools. Respondent Phil. Charter Insurance agreed
to insure the properties of petitioner provided that the policy wording In sum, there is no ambiguity in the terms of the contract and its riders.
and rates in said policy be copied in the policy to be issued by Petitioner cannot rely on the general rule that insurance contracts are
respondents. The breakdown of premiums shows that plaintiff paid contracts of adhesion which should be liberally construed in favor of
only P393.00 as premium against earthquake shock. the insured and strictly against the insurer company which usually
After an earthquake shook La Union, petitioner filed a claim under prepares it.
Insurance Policy No. 31944 for the damage. The adjuster rendered a
preliminary report finding extensive damage to the clubhouse and the
swimming pools. It further stated that "except for the swimming pools,
all affected items have no coverage for earthquake shocks."

Petitioner’s claims were denied prompting them to file a complaint with

the RTC. The RTC ruled in favor of the respondent holding that the
insurance policy only included the two swimming pools. The CA
affirmed this ruling. Hence, this petition.

ISSUE:
Does the insurance policy extend to “any property insured by this
policy” and must thus cover the damage made to all the properties in
the resort?

RULING:
NO. The insurance policy only includes the two swimming pools.

It is basic that all the provisions of the insurance policy should be

examined and interpreted in consonance with each other. A careful
examination of the premium recapitulation will show that it is the clear
intent of the parties to extend earthquake shock coverage only to the
two swimming pools.

INSURANCE DIGESTS I EH 404 8

I. Introduction; 7 damages petitioner had sustained. Since total damages were valued
by petitioner at P9,486.43 and only P5,000.00 was received by
MANILA MAHOGANY v CA petitioner from respondent, petitioner argues that it was entitled to go
(G.R. No. L-52756, October 12, 1987) after San Miguel Corporation to claim the additional P4,500.00
eventually paid to it by the latter, without having to turn over said
Should the insured, after receiving payment from the insurer, release the amount to respondent.
wrongdoer who caused the loss, the insurer loses his rights against the latter. Respondent’s Answer:
In such a case, the insurer will be entitled to recover from the insured whatever Respondent of course disputes the allegation and states that there
it has paid to the latter, unless the release was made with the consent of the was no qualification to its right of subrogation under the Release of
insurer.
Claim executed by petitioner, the contents of said deed having
expressed all the intents and purposes of the parties.
FACTS:
Petitioner insured its Mercedes Benz 4-door sedan with respondent
ISSUE:
insurance company. The insured vehicle was bumped and damaged
W/N respondent is entitled from recovering the Php 5,000.00 from
by a truck owned by San Miguel Corporation. For the damage caused,
petitioner
respondent paid petitioner five thousand pesos (P5,000.00). Thus,
subrogating respondent to all of petitioner’s right of action against San
RULING:
Miguel Corporation.
Private respondent may recover the sum of P5,000.00 it had earlier
paid to petitioner.
By virtue of the said right of subrogation, respondent demanded
reimbursement from San Miguel Corporation of the amount it had paid
In this case after the petitioner received indemnity from private
petitioner. The claim for reimbursement was however unsuccessful.
respondent, representing the proceeds of the insurance policy it
San Miguel Corporation alleged that it had likewise paid petitioner
obtained from it, the private respondent was automatically subrogated
P4,500.00 for the damages to petitioner's motor vehicle, as evidenced
to petitioner’s right to demand after San Miguel Corporation (the
by a cash voucher and a Release of Claim executed as well by the
wrongdoer). However, when petitioner released San Miguel
General Manager of petitioner discharging San Miguel Corporation.
Corporation from any liability (by virtue of the Release of Claim made
Respondent insurance company thus demanded from petitioner
when San Miguel likewise paid petitioner for the said incident which
reimbursement of the sum of P4,500.00 paid by San Miguel
discharges it from "all actions, claims, demands and rights of action”),
Corporation. Petitioner refused; hence, respondent company filed suit
petitioner's right to retain the sum of P5,000.00 no longer existed,
in the City Court of Manila for the recovery of P4,500.00.
thereby entitling private respondent to recover the same.
City Court of Manila ordered petitioner to pay respondent P4,500.00.
The Court ruled that petitioner by its own acts released San Miguel
Court of First Instance of Manila affirmed the City Court's decision in
Corporation, thereby defeating private respondent’s right of
toto Court of Appeals affirmed with the modification that petitioner
subrogation, the right of action of petitioner against the insurer was
was to pay respondent the total amount of P5,000.00 that it had earlier
also nullified (to be indemnified).
received from the respondent insurance company.

Petitioner’s Contention:
The subrogation in the Release of Claim it executed in favor of
respondent was conditioned on recovery of the total amount of

INSURANCE DIGESTS I EH 404 9

I. Introduction; 8 Trial ensued and ultimately concluded with the petitioner being held
solidarily liable for the loss.
FEDERAL EXPRESS CORP v AMERICAN HOME ASSURANCE
COMPANY & PHIL-AM INSURANCE CO. ISSUE:
(G.R. No. 150094. August 18, 2004.) W/N there was legal subrogation on the part of the Insurance
Company?
Upon payment of an indemnity for the loss of or damage to the insured goods,
the insurers entitlement to subrogation pro tanto -- being of the highest equity RULING:
-- equips it with a cause of action in case of a contractual breach or YES. Upon receipt of the insurance proceeds, Smithkline executed a
negligence. subrogation Receipt in favor of respondents. The latter were thus
authorized to file claims and begin suit against any such carrier,
FACTS: vessel, person, corporation or government. Undeniably, the consignee
In 1994, SMITHKLINE Beecham of Nebraska, USA delivered to had a legal right to receive the goods in the same condition it was
Burlington Air Express, an agent of Federal Express Corporation, a delivered for transport to petitioner. If that right was violated, the
shipment of 109 cartons of veterinary biologicals for delivery to consignee would have a cause of action against the person
consignee SMITHKLINE and French Overseas Company in Makati responsible therefor.
City, Metro Manila.
Upon payment to the consignee of an indemnity for the loss of or
The shipment was covered by Burlington Airway Bill with the words, damage to the insured goods, the insurers entitlement to
REFRIGERATE WHEN NOT IN TRANSIT and PERISHABLE stamp subrogation pro tanto -- being of the highest equity -- equips it with a
marked on its face. That same day, Burlington insured the cargoes in cause of action in case of a contractual breach or negligence. Further,
the amount of $39,339.00 with American Home Assurance Company. the insurers’ subrogatory right to sue for recovery under the bill of
lading in case of loss of or damage to the cargo is jurisprudentially
The following day, Burlington turned over the custody of said cargoes upheld.
to Federal Express which transported the same to Manila.
In the exercise of its subrogatory right, an insurer may proceed against
Twelve (12) days after the cargoes arrived in Manila, a non-licensed an erring carrier. To all intents and purposes, it stands in the place and
customs broker who was assigned by GETC to facilitate the release in substitution of the consignee. A fortiori, both the insurer and the
of the subject cargoes, found out, while he was about to cause the consignee are bound by the contractual stipulations under the bill of
release of the said cargoes, that the same were stored only in a room lading.
with two (2) air conditioners running, to cool the place instead of a
refrigerator. Petition is GRANTED, and the assailed Decision REVERSED insofar
as it pertains to Petitioner Federal Express Corporation.
After examination, it was discovered that the ELISA reading of
vaccinates sera are below the positive reference serum. As a
consequence of the foregoing result of the veterinary biologics test,
SMITHKLINE abandoned the shipment and, declaring total loss for the
unusable shipment. The insurance company paid the loss.

INSURANCE DIGESTS I EH 404 10

I. Introduction; 9 for Php 100,000. In response to Eternal’s demand, Philamlife denied
Eternal’s insurance claim in a letter a portion of which reads:
ETERNAL GARDENS MEMORIAL PARK v PHIL AMERICAN
(G.R. 166245, April 9, 2008) The deceased was 59 years old when he entered into contract #9558 and
9529 with Eternal Gardens Memorial Park in October 1982 for the total
FACTS: maximum insurable amount of P100,000.00 each. No application for group
Respondent Philamlife entered into an agreement denominated as Insurance was submitted in out office prior to his death on August 2, 1984.
Creditor Group Life Policy with petitioner Eternal Gardens Memorial
Park Corporation (Eternal). Under the policy, the clients of Eternal who Eternal filed a case with the RTC for a sum of money against
purchased burial lots from it on installment basis would be insured by Philamlife, which decided in favor of Eternal, ordering Philamlife to pay
Philamlife. The amount of insurance coverage depended upon the the former 100K representing the proceeds of the policy.
existing balance of the purchased burial lots. The relevant provisions CA reversed. Hence this petition.
of the policy are:
ISSUE:
Eligibility W/N Philamlife should pay the 100K insurance proceeds.
Evidence of Insurability
Life Insurance Benefit RULING:
Effective Date of Benefit YES. An examination of the provision of the POLICY under effective
The insurance of any eligible Lot Purchaser shall be effective on the date date of benefit, would show ambiguity between its two sentences.
he contracts a loan with the Assured. However, there shall be no The first sentence appears to state that the insurance coverage of the
insurance if the application of the Lot Purchaser is not approved by the clients of Eternal already became effective upon contracting a loan
Company. with Eternal while the second sentence appears to require Philamlife
to approve the insurance contract before the same can become
Eternal was required under the policy to submit to Philamlife a list of effective.
all new lot purchasers, together with a copy of the application of each
purchaser, and the amounts of the respective unpaid balances of all It must be remembered that an insurance contract is a contract of
insured lot purchasers. Eternal complied by submitting a letter dated adhesion which must be construed liberally in favor of the insured and
December 29, 1982, containing a list of unsurable balances of its lot strictly against the insurer in order to safeguard the latter’s interest. On
buyers for October 1982. One of those included in the list as “new the other hand, the seemingly conflicting provisions must be
business” was a certain John Chuang. His balance of payments was harmonized to mean that upon a party’s purchase of a memorial lot on
100K on August 2, 1984 Chuang died. installment from Eternal, an insurance contract covering the lot
purchaser is created and the same is effective, valid, and binding until
Eternal sent a letter dated to Philamlife which served as an insurance terminated by Philamlife by disapproving the insurance application.
claim for Chuang’s death. Attached to the claim were certain The second sentence of the Creditor Group Life Policy on the Effective
documents. In reply, Philamlife wrote Eternal to submit the additional Date of Benefit is in the nature of a resolutory condition which would
documents relative to its insurance claim for Chuang’s death. Eternal lead to the cessation of the insurance contract. Moreover, the mere
transmitted the required documents through a letter which was inaction of the insurer on the insurance application must not work to
received by Philamlife. After more than a year, Philamlife had not prejudice the insured; it cannot be interpreted as a termination of the
furnished Eternal with any reply to the latter’s insurance claim. This insurance contract. The termination of the insurance contract by the
prompted Eternal to demand from Philamlife the payment of the claim insurer must be explicit and unambiguous.

INSURANCE DIGESTS I EH 404 11

II. Contract of Insurance; 1 ISSUE:
W/N there was a binding insurance contract between petitioner and
JAIME T. GAISANO v DEVELOPMENT INSURANCE AND respondent at the time of loss.
SURETY CORPORATION
(GR No. 190702, February 27, 2017) RULING:
NO, there was no insurance contract binding at the time of loss.
The premium is the source of life of the insurance business.
Just like any other contract, insurance contract requires consideration.
Art 77. No policy or contract of insurance issued by an insurance company is Sec 77 is clear that no policy or contract of insurance issued by
valid or biding unless and until the premium thereof has been paid. insurance company is binding unless and until the premium has been
paid.
Exceptions:
(1) In case of life or industrial life policy, whenever the grace period In an insurance contract, both parties undertake a risk. For the
provision applies (Art 77) insured: the risk of receiving nothing in return in case the contingency
(2) Where the insurer acknowledged in the policy or contract of
does not happen. For the insurer: the risk to undertake to pay the sum
insurance itself the receipt of premium, even if premium has not been
actually paid (Art 78)
agreed upon in case the contingency happens. This risk-distributing
(3) where the parties agreed that premium payment shall be in mechanism operates upon the necessity of premiums. The premium,
installments and partial payment has been made at the time of loss (Makati therefore, is the elixir vitae or the source of life of the insurance
Tuscany Condominium Corp. v. Court of Appeals) business.
(4) where the insurer granted the insured a credit term for the
payment of the premium, and loss occurs before the expiration of the term In the case, no premium was paid yet at the time of the loss. Notice of
(Makati Tuscany Condominium Corp. v. Court of Appeals) the availability of the check, in itself, does not produce the effect of
(5) where the insurer is in estoppel as when it has consistently granted payment of premium. Trans-Pacific could likewise not be considered
a 60 to 90-day credit term for the payment of premiums in delay in accepting the check because petitioner did not protest that
Trans-Pacific would only be able to pick up the check the next day, in
FACTS: fact it allowed them to do so. Although petitioner argues that the
Petitioner insured three of his vehicles with the respondent insurance general rule of Sec 77 does not apply to them, and that the situation
th th
company for a period of one year. The petitioner notified the insurance falls within the ambit of the 4 or 5 exception to the rule on payment
th th
company’s agent, Trans-Pacific Underwriters Agency, that the check of premiums, the SC disagrees. The 4 and 5 exception
for the payment of premiums is ready for pick up on September 27, contemplates a situation where there was consitstent grant of credit
1996. However, due to the birthday of the president of Trans-Pacific, extension or term for the payment by the insurer. Such arrangement
it informed petitioner that no one would be able to pick up the check was not proven in the case as what was agreed was an internal
on the day. arrangement only between the agent and the insured.
SC ruled that petitioner is not entitled to insurance proceeds because
The check was picked up, and issued receipt on September 28 (the
no insurance policy became effective for lack of premium payment at
following day), and encashed on October 1. However, on the evening
the time of loss. However, petitioner is entitled to the return of premium
of September 27 (when the check was not picked up), one of the cars
paid for the lost vehicle under the principle of unjust enrichment. Upon
got stolen. Petitioner filed a claim with the insurance company but the
the time of payment, there no longer was a property to be insured thus
insurance company denied liability arguing that there was still no
insurance company cannot retain the premium.
insurance contract at the time of loss.

INSURANCE DIGESTS I EH 404 12

II. Contract of Insurance; 2 2. The insured is subject to a risk of loss by the happening of the
designed peril;
PHILIPPINE HEALTH CARE PROVIDERS, INC. v CIR 3. The insurer assumes the risk;
(G.R. No. 167330, September 18, 2009) 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
A contract of insurance is defined as an agreement whereby one undertakes and
for a consideration to indemnify another against loss, damage or liability 5. In consideration of the insurer’s promise, the insured pays a
arising from an unknown or contingent event. (Sec. 2 (1), Insurance Code) premium.

FACTS: 1. Not all necessary elements of a contract of insurance are present

Petitioner is a domestic corporation whose primary purpose is "[t]o in PHCPI’s health care agreements.
establish, maintain, conduct and operate a prepaid group practice
health care delivery system or a health maintenance organization to There is no loss, damage or liability on the part of the member that
take care of the sick and disabled persons enrolled in the health care should be indemnified by PHCPI as an HMO. Since under the
plan and to provide for the administrative, legal, and financial agreement, the member pays PHCPI a predetermined consideration
responsibilities of the organization". in exchange for the hospital, medical and professional services
rendered by the petitioner's physician or affiliated physician to him. In
Respondent Commissioner of Internal Revenue [CIR] sent petitioner case of availment by a member of the benefits under the agreement,
a formal demand letter and the corresponding assessment notices PHCPI does not reimburse or indemnify the member as the latter does
demanding the payment of deficiency taxes, including surcharges and not pay any third party. It is the PHCPI who pays the participating
interest. The deficiency [documentary stamp tax (DST)] assessment physicians and other health care providers for the services rendered
was imposed on petitioner's health care agreement with the members at pre-agreed rates,not the member.
of its health care program.
For this reason, there is nothing in petitioner’s agreements that gives
ISSUE: rise to a monetary liability on the part of the member to any third-party
W/N the Healthcare Agreement offered by PHCPI is an insurance provider of medical services which might in turn necessitate
contract indemnification from PHCPI. The terms “indemnify” or “indemnity”
presuppose that a liability or claim has already been incurred. There
RULING: is no indemnity precisely because the member merely avails of
NO, it is not an insurance contract. medical services to be paid or already paid in advance at a pre-agreed
price under the agreements.
Section 2 (1) of the Insurance Code defines a contract of insurance as
an 2. Contrary to an insurance contract, the agreement provides that a
agreement whereby one undertakes for a consideration to indemnify member can take advantage of the bulk of the benefits anytime, even
another against in the absence of any peril, loss or damage on his or her part.
loss, damage or liability arising from an unknown or contingent event.
3. The indemnity of the insured was not the focal point of the
An insurance contract exists where the following elements concur: agreement but the extension of medical services to the member at an
1. The insured has an insurable interest;

INSURANCE DIGESTS I EH 404 13

affordable cost. Hence, it does not partake of the nature of a contract
of insurance.

4. The petitioner, as an HMO, undertakes a risk when it offers to

provide health services. However, 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.

PHCPI, as an HMO, undertakes a business risk when it offers to

provide health services: the risk that it might fail to earn a reasonable
return on its investment. But it is not the risk of the type peculiar only
to insurance companies.

Insurance risk, also known as actuarial risk, is the risk that the cost
of insurance claims might be higher than the premiums paid. The
amount of premium is calculated on the basis of assumptions made
relative to the insured.

However, assuming that petitioner's commitment to provide medical

services to its members can be construed as an acceptance of the risk
that it will shell out more than the prepaid fees, it still will not quality as
an insurance contract because PHCPI’s objective is to provide
medical services at reduced cost, not to distribute risk like an insurer.

5. 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. The primary purpose of
the parties in making the contract may negate the existence of an
insurance contract.

INSURANCE DIGESTS I EH 404 14

II. Contract of Insurance; 3 exceptions like unsuitable packaging, inherent vice, delay in voyage,
or vessels unseaworthiness, among others. But Seaboard had been
NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., v unable to show that New Worlds loss or damage fell within some or
NYK-FILJAPAN SHIPPING CORP. one of the enumerated exceptions.
(G.R. No. 171468, August 24, 2011)
Also, New World complied with the documentary requirements.
FACTS: Seaboard cannot pretend that the documents submitted were
New World bought from DMT Corp. three emergency generator sets inadequate since they were precisely the documents listed in its
worth US$721,500.00. From Wisconsin, USA, the generators were insurance policy. Being a contract of adhesion, an insurance policy is
shipped to LEP by truck to Chicago then by train to Oakland. NYK construed strongly against the insurer who prepared it.
issued a bill of lading declaring that the goods were received in good
condition. NYK unloaded the shipment in HK and transshipped it to its Sec 241 of the Insurance Code provides that no insurance company
owned and operated vessel, ACX Ruby. On its journey to Manila, it doing business in the Philippines shall refuse without just cause to pay
encountered typhoon Kadiang. or settle claims arising under coverages provided by its policies. And
under Sec 243, the insurer has 30 days after proof of loss is received
Marina, the Manila South Harbor arrastre, received the shipment and and ascertainment of the loss or damage within which to pay the claim.
inspected that the two vans bore signs of external damage, while the If such ascertainment is not had within 60 days from receipt of
third van appeared unscathed. The three generator sets were evidence of loss, the insurer has 90 days to pay or settle the claim. In
examined by New World, Federal Builders (the project contractor) and case the insurer refuses or fails to pay within the prescribed time, the
New World’s insurer, Seaboard–Eastern Insurance Company. It insured shall be entitled to interest on the proceeds of the policy for
revealed that all three sets suffered extensive damage and could no the duration of delay at the rate of twice the ceiling prescribed by the
longer be repaired. Monetary Board.

New World demanded recompense for its loss. LEP and NYK denied Notably, Seaboard already incurred delay when it failed to settle New
liability. Since Seaboard covered the goods with a marine insurance World’s claim as required in Sec 243. Under Sec 244, a prima facie
policy, New World sent a formal claim against them. For the evidence of unreasonable delay in payment of the claim is created by
processing of the claim, Seaboard required New World to submit an the failure of the insurer to pay the claim within the time fixed in Sec
itemized list of the damaged units, parts, and accessories, with 243.
corresponding values. New World insisted that the insurance policy
did not include such submission for an insurance claim. Seaboard Seaboard should pay interest on the proceeds of the policy for the
refused to process the claim. New World filed an action for specific duration of the delay until the claim is fully satisfied at the legal rate of
performance and damages. interest of 12% p.a. as provided in Central Bank Circular. Sec 244 also
provides for an award of attorney’s fees and other expenses incurred
RULING: by the assured due to the unreasonable withholding of payment of his
The marine open policy that Seaboard issued to New World was an claim.
all-risk policy. Such a policy insured against all causes of conceivable
loss or damage except when otherwise excluded or when the loss or
damage was due to fraud or intentional misconduct committed by the
insured. The policy covered all losses during the voyage whether or
not arising from a marine peril. The policy enumerated certain

INSURANCE DIGESTS I EH 404 15

II. Contract of Insurance; 4 benefit third persons also or on the insured. And the test applied has
been this: Where the contract provides for indemnity against liability to
TRAVELLERS INSURANCE & SURETY CORPORATION v CA third persons, then third persons to whom the insured is liable can sue
(G.R. No. 82036, May 22, 1997) the insurer. Where the contract is for indemnity against actual loss or
payment, then third persons cannot proceed against the insurer, the
The persons suing under an insurance contract must comply with the contract being solely to reimburse the insured for liability actually
indispensable requirement of filing the written notice of claim within six (6) discharged by him thru payment to third persons, said third persons
months from the date of the accident mandated by Section 384 of the recourse being thus limited to the insured alone.
Insurance Code. Absent such written claim filed by the person suing under an
insurance contract, no cause of action accrues under such insurance contract.
Second, if assuming arguendo that the petitioner issued an insurance
contract, the cause of action against petitioner did not successfully
FACTS:
accrue because he failed to file with petitioner a written notice of claim
In the morning of July 20, 1980, Feliza Vineza de Mendoza, 78 years
within six (6) months from the date of the accident as required by
old while walking along the streets was bumped by a taxi that was
Section 384 of the Insurance Code. was amended by B.P. Blg. 874 to
running fast and was seen was seen sprawled on the pavement by
categorically provide that "action or suit for recovery of damage due to
Rolando Marvilla, Ernesto Lopez and Eulogio Tabalno who also
loss or injury must be brought in proper cases, with the Commissioner
helped and brought her to the hospital. This resulted to her death
or the Courts within one year from denial of the claim, otherwise the
caused by traumatic shock as a result of the severe injuries she
claimant's right of action shall prescribe" [emphasis ours].
sustained.
Thus, Absent such written claim filed by the person suing under an
Her son (respondent) filed a complaint for damages against Armando
insurance contract, no cause of action accrues under such insurance
Abellon as the owner of the Taxi and Rodrigo Dumlao as the driver.
contract, considering that it is the rejection of that claim that triggers
And subsequently, he amended the complaint to include Travellers
the running of the one-year prescriptive period to bring suit in court,
Insurance as the compulsory insurer of the said taxicab.
and there can be no opportunity for the insurer to even reject a claim
if none has been filed in the first place, as in the instant case.
RTC, held Travellers Insurance to be solitarily liable against private
respondent with the taxicab driver and operator. CA affirmed RTC’s
Third, there is a misapplication of law by the trial court. the trial court
decision.
did not distinguish between the private respondent's cause of action
against the owner and the driver of the Lady Love taxicab and his
ISSUE: W/N the trial court’s decision is proper.
cause of action against petitioner. The former is based on torts and
quasi-delicts while the latter is based on contract. While it is true that
RULING: NO
where the insurance contract provides for indemnity against liability to
First, No insurance contract was presented nor a subpoena duces
third persons, such third persons can directly sue the insurer,
tecum is issued to have the insurance produced covering the Lady
however, the direct liability of the insurer under indemnity contracts
Love taxicab that could determine the extent of the liability of the
against third party liability does not mean that the insurer can be held
Insurer and whether the person injured has the right to sue the insurer
solidarily liable with the insured and/or the other parties found at fault.
of the party at fault (insured).
The liability of the insurer is based on contract; that of the insured is
based on tort.
The right of the person injured to sue the insurer of the party at fault
(insured), depends on whether the contract of insurance is intended to

INSURANCE DIGESTS I EH 404 16

And lastly, assuming arguendo that it is the insurer of the Lady Love
taxicab in question, its liability is limited to only P50, 000.00, this being
its standard amount of coverage in vehicle insurance policies. It bears
repeating that no copy of the insurance contract was ever proffered
before the trial court by the private respondent, notwithstanding
knowledge of the fact that the latter's complaint against petitioner is
one under a written contract. Thus, the trial court proceeded to hold
petitioner liable for an award of damages exceeding its limited liability
of P50,000.00. These only shows beyond doubt that the trial court was
under the erroneous presumption that petitioner could be found liable
absent proof of the contract and based merely on the proof of reckless
imprudence on the part of the driver of the Lady Love taxicab that
fatally hit private respondent's mother.

INSURANCE DIGESTS I EH 404 17

II. Contract of Insurance; 5 RULING:
NO, the contract for a life annuity in the case at bar was not perfected
ENRIQUEZ v SUN LIFE ASSURANCE COMPANY OF CANADA because it has not been proved satisfactorily that the acceptance of
(G.R. No. 15895, November 29, 1920) the application ever came to the knowledge of the applicant.

The Civil Code rule, that an acceptance made by letter shall bind the person An acceptance of an offer of insurance not actually or constructively
making the offer only from the date it came to his knowledge, is controlling. communicated to the proposer does not make a contract. Only the
mailing of acceptance, it has been said, completes the contract of
FACTS: insurance, as the locus poenitentiae is ended when the acceptance
On September 24, 1917, Joaquin Herrer made application to the Sun has passed beyond the control of the party.
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 An acceptance made by letter shall not bind the person making the
of the company's Manila office and was given a provisional receipt. offer except from the time it came to his knowledge (Civil Code Art.
1262). When a letter or other mail matter is addressed and mailed with
The application was forwarded to the head office of the company at postage prepaid there is a rebuttable presumption of fact that it was
Montreal, Canada and on November 26, 1917 a notice of acceptance received by the addressee as soon as it could have been transmitted
was sent by cable to Manila. (There is no evidence however, whether to him in the ordinary course of the mails. But if any one of these
on the same day the cable was received notice was sent by the Manila elemental facts fails to appear, it is fatal to the presumption.
office of Herrer that the application had been accepted)
A letter will not be presumed to have been received by the addressee
On December 4, 1917, the policy was issued. On December 18, 1917, unless it is shown that it was deposited in the post-office, properly
Herrer communicated his desire to withdraw his application through addressed and stamped.
his lawyer.

The local office replied to Mr. Torres, stating that the policy had been
issued, and called attention to the notification of November 26, 1917.
The reply was received by Herrer's council a day after the latter died.

Plaintiff administrator of the estate of the deceased, filed an action to

recover from the defendant life insurance company the sum of 6,000
pesos paid by the deceased for a life annuity. The trial court gave
judgment for the defendant.

ISSUE:
Whether or not the insurance contract between Sun Life and Herrer
has been perfected

INSURANCE DIGESTS I EH 404 18

II. Contract of Insurance; 5 applicant was insurable on standard rates; (2) that if the company
does not accept the application and offers to issue a policy for a
GREAT PACIFIC LIFE ASSURANCE CO. v CA different plan, the insurance contract shall not be binding until the
(G.R. Nos. 31845 & 31873, April 30, 1979) applicant accepts the policy offered; otherwise, the deposit shall be
refunded; and (3) that if the applicant is not insurable according to the
Where an agreement is made between the applicant and the agent, no liability standard rates, and the company disapproves the application, the
shall attach until the principal approves the risk and a receipt is given by the insurance applied for shall not be in force at any time, and the premium
agent. The acceptance is merely conditional, and is subordinated to the act of paid shall be returned to the applicant.
the company in approving or rejecting the application. Thus, in life insurance,
a "binding slip" or "binding receipt" does not insure by itself.
The contract of insurance is one of perfect good faith (uberrima fides
meaning good faith; absolute and perfect candor or openness and
FACTS:
honesty; the absence of any concealment or deception, however
Private respondent, a duly authorized agent of Pacific Life, applied for
slight, not for the insured alone but equally so for the insurer.
a 20-year endowment policy on the life of his one-year old daughter,
Concealment is a neglect to communicate that which a party knows
a mongoloid. He did not divulge each physical defect of his daughter.
and ought to communicate. Whether intentional or unintentional the
He paid the premium and was issued a binding deposit receipt.
concealment entitles the insurer to rescind the contract of insurance.
However, despite the branch manager's favorable recommendation,
petitioner disapproved the application, because a 20-year endowment
A contract of insurance, like other contracts, must be assented to by
plan is not available for minors below seven (7) years old. Instead, it
both parties either in person or by their agents. The contract, to be
offered the Juvenile Triple Action Plan. The manager wrote back and
binding from the date of the application, must have been a completed
again strongly recommended the approval of the application. At this
contract, one that leaves nothing to be done, nothing to be completed,
point, the child died of influenza with complication of broncho-
nothing to be passed upon, or determined, before it shall take effect.
pneumonia.
There can be no contract of insurance unless the minds of the parties
have met in agreement.
ISSUE: W/N there is an insurance contract

RULING:
NO. The binding deposit receipt is merely conditional and does not
insure outright.

Where an agreement is made between the applicant and the agent,

no liability shall attach until the principal approves the risk and a
receipt is given by the agent. The acceptance is merely conditional,
and is subordinated to the act of the company in approving or rejecting
the application. Thus, in life insurance, a "binding slip" or "binding
receipt" does not insure by itself.

The binding deposit receipt intended to be merely a provisional or

temporary insurance contract and only upon compliance of the
following conditions: (1) that the company shall be satisfied that the

INSURANCE DIGESTS I EH 404 19

IV. Insurable Interest; 1 burden of proof lies on the party alleging the existence of insurable
interest. Petitioner failed to overcome such burden.
FELIPE v MGM MOTOR TRADING
(G.R. No. 191849, September 23, 2015)

FACTS:
Petitioner purchased a car from MGM Motors (MGM). In purchasing
such, he paid a downpayment of Php200,000 and a reservation fee of
Php5,000. Then the succeeding payments we alleged to be paid in
checks. After such purchase, he registered the car, and have it insured
by Ayala Insurance Corporation (AIC).

One day, petitioner parked the car in a street, and the car was lost. He
then tried to claim for the insurance from AIC, but AIC refused to pay
because the former cannot prove insurable interest over the car.
Petitioner then went to MGM to procure the documents so that he can
prove his insurable interest. MGM failed to render the documents
alleging that petitioner failed to pay. MGM claimed that the agreement
was to pay in lump sum, not installments. Moreover, MGM alleged that
the checks petitioner paid bounced. Thus, the matter was brought to
court.

Upon presentation of evidence, the evidence presented by petitioner

were the receipt of Php200,000 and the testimony of his father. The
evidence proved the payment of such. However, respondents MGM
and AIC filed for demurrer of evidence. It was granted by the judge
because insurable interest was not proved.

ISSUE:
W/N insurable interest was proven.

RULING:
NO. Insurable interest was not proven. What was proven was merely
the payment of the Php200,000. Partial payment is not conclusive as
to the proof of insurable interest is concerned. The payment of
installment basis was not even proven in this case. Moreover, it was
rebutted that MGM presented that the sales invoice indicated was on
Cash on Delivery (COD). In effect, the evidence presented by the
petitioner has failed to substantiate the proof of insurable interest. The

INSURANCE DIGESTS I EH 404 20

IV. Insurable Interest; 2
ISSUE:
RCBC v CA W/N RCBC has a right over the insurance proceeds.
(289 SCRA 292, 1998)
FACTS: RULING:
GOYU applied for credit facilities and accommodations with RCBC. RCBC has a right over the insurance proceeds.
After due evaluation, a credit facility in the amount of P30 million was It is settled that a mortgagor and a mortgagee have separate and
initially granted. Upon GOYU's application increased GOYU's credit distinct insurable interests in the same mortgaged property, such that
facility to P50 million, then to P90 million, and finally to P117 million each one of them may insure the same property for his own sole
As security for its credit facilities with RCBC, GOYU executed two benefit. There is no question that GOYU could insure the mortgaged
REM and two CM in favor of RCBC, which were registered with the property for its own exclusive benefit. In the present case, although it
Registry of Deeds at. Under each of these four mortgage contracts, appears that GOYU obtained the subject insurance policies naming
GOYU committed itself to insure the mortgaged property with an itself as the sole payee, the intentions of the parties as shown by their
insurance company approved by RCBC, and subsequently, to contemporaneous acts, must be given due consideration in order to
endorse and deliver the insurance policies to RCBC. better serve the interest of justice and equity.

GOYU obtained in its name a total of 10 insurance policies from MICO. It is to be noted that 9 endorsement documents were prepared by
In February 1992, Alchester Insurance Agency, Inc., the insurance Alchester in favor of RCBC. The Court is in a quandary how Alchester
agent where GOYU obtained the Malayan insurance policies, issued could arrive at the idea of endorsing any specific insurance policy in
nine endorsements in favor of RCBC seemingly upon instructions of favor of any particular beneficiary or payee other than the insured had
GOYU. not such named payee or beneficiary been specifically disclosed by
the insured itself. It is also significant that GOYU voluntarily and
On April 27, 1992, one of GOYU's factory buildings in Valenzuela was purposely took the insurance policies from MICO, a sister company of
gutted by fire. Consequently, GOYU submitted its claim for indemnity. RCBC, and not just from any other insurance company. Alchester
MICO denied the claim on the ground that the insurance policies were would not have found out that the subject pieces of property were
either attached pursuant to writs of attachments/garnishments issued mortgaged to RCBC had not such information been voluntarily
by various courts or that the insurance proceeds were also claimed by disclosed by GOYU itself. Had it not been for GOYU, Alchester would
other creditors of GOYU alleging better rights to the proceeds than the not have known of GOYU's intention of obtaining insurance coverage
insured. in compliance with its undertaking in the mortgage contracts with
RCBC, and verify, Alchester would not have endorsed the policies to
GOYU filed a complaint for specific performance and RCBC had it not been so directed by GOYU.
damages. RCBC, one of GOYU's creditors, also filed with MICO its
formal claim over the proceeds of the insurance policies, but said On equitable principles, particularly on the ground of estoppel, the
claims were also denied for the same reasons that AGCO denied Court is constrained to rule in favor of mortgagor RCBC. RCBC, in
GOYU's claims. good faith, relied upon the endorsement documents sent to it as this
was only pursuant to the stipulation in the mortgage contracts. We find
However, because the endorsements do not bear the signature of any such reliance to be justified under the circumstances of the case.
officer of GOYU, the trial court, as well as the Court of Appeals, GOYU failed to seasonably repudiate the authority of the person or
concluded that the endorsements are defective and held that RCBC persons who prepared such endorsements. Over and above this,
has no right over the insurance proceeds. GOYU continued, in the meantime, to enjoy the benefits of the credit

INSURANCE DIGESTS I EH 404 21

facilities extended to it by RCBC. After the occurrence of the loss 3. Endorsement documents were prepared by MICO's underwriter,
insured against, it was too late for GOYU to disown the endorsements Alchester Insurance Agency, Inc., and copies thereof were sent to
for any imagined or contrived lack of authority of Alchester to prepare GOYU, MICO and RCBC. GOYU did not assail, until of late, the validity
and issue said endorsements. If there had not been actually an implied of said endorsements.
ratification of said endorsements by virtue of GOYU's inaction in this 4. GOYU continued until the occurrence of the fire, to enjoy the
case, GOYU is at the very least estopped from assailing their benefits of the credit facilities extended by RCBC which was
operative effects. conditioned upon the endorsement of the insurance policies to be
taken by GOYU to cover the mortgaged properties.
To permit GOYU to capitalize on its non-confirmation of these
endorsements while it continued to enjoy the benefits of the credit This Court can not over stress the fact that upon receiving its copies
facilities of RCBC which believed in good faith that there was due of the endorsement documents prepared by Alchester, GOYU, despite
endorsement pursuant to their mortgage contracts, is to countenance the absence written conformity thereto, obviously considered said
grave contravention of public policy, fair dealing, good faith, and endorsement to be sufficient compliance with its obligation under the
justice. Such an unjust situation, the Court cannot sanction. Under the mortgage contracts since RCBC accordingly continued to extend the
peculiar circumstances obtaining in this case, the Court is bound to benefits of its credit facilities and GOYU continued to benefit
recognize RCBC's right to the proceeds of the insurance policies if not therefrom. Just as plain too is the intention of the parties to constitute
for the actual endorsement of the policies, at least on the basis of the RCBC as the beneficiary of the various insurance policies obtained by
equitable principle of estoppel. GOYU. The intention of the parties will have to be given full force and
effect in this particular case. The insurance proceeds may, therefore,
GOYU cannot seek relief under Section 53 of the Insurance Code be exclusively applied to RCBC, which under the factual
which provides that the proceeds of insurance shall exclusively apply circumstances of the case, is truly the person or entity for whose
to the interest of the person in whose name or for whose benefit it is benefit the policies were clearly intended.
made. The peculiarity of the circumstances obtaining in the instant
case presents a justification to take exception to the strict application
of said provision, it having been sufficiently established that it was the
intention of the parties to designate RCBC as the party for whose
benefit the insurance policies were taken out. Consider thus the
following:

1. It is undisputed that the insured pieces of property were the

subject of mortgage contracts entered into between RCBC and GOYU
in consideration of and for securing GOYU's credit facilities from
RCBC. The mortgage contracts contained common provisions
whereby GOYU, as mortgagor, undertook to have the mortgaged
property properly covered against any loss by an insurance company
acceptable to RCBC.
2. GOYU voluntarily procured insurance policies to cover the
mortgaged property from MICO, no less than a sister company of
RCBC and definitely an acceptable insurance company to RCBC.

INSURANCE DIGESTS I EH 404 22

IV. Insurable Interest; 3 delivery. Thus, when the seller retains ownership only to insure that
the buyer will pay its debt, the risk of loss is borne by the
GAISANO CAGAYAN, INC. v INSURANCE COMPANY OF NORTH buyer. Accordingly, petitioner bears the risk of loss of the goods
AMERICA delivered.
(G.R. No. 147839, June 8, 2006)

FACTS:
Petitioner owns a store which offers a variety of goods for sale. Among
their products are jeans and clothes made and distributed by
Intercapitol Marketing Corporation (IMC) and Levi Strauss (Phils.) Inc.
(LSPI) which are the local distributor of products bearing trademarks
owned by Levi Strauss & Co. The controversy arose when a fire gutted
the store owned by petitioner. The fire caused a huge amount of
damage and causing the goods in the building, including those by IMC
and LSPI, to perish. However, IMC and LSPI separately obtained from
respondent fire insurance policies with book debt endorsements which
covers "unpaid account still appearing in the Book of Account of the
Insured 45 days after the time of the loss covered under the Policy.
When the respondent was subrogated to the rights of the insured, it
demanded payment from petitioner for the accounts that remained
unpaid even after the loss. Petitioner argues that IMC bears the risk of
loss because it expressly reserved ownership of the goods by
stipulating in the sales invoices that [i]t is further agreed that merely
for purpose of securing the payment of the purchase price the above
described merchandise remains the property of the vendor until the
purchase price thereof is fully paid.

ISSUE:
Who bears the risk of loss?

RULING:
Petitioner bears the risk of loss. As a general rule, the goods remain
at the seller's risk until the ownership therein is transferred to the
buyer, but when the ownership therein is transferred to the buyer the
goods are at the buyer's risk whether actual delivery has been made
or not. However, where delivery of the goods has been made to the
buyer or to a bailee for the buyer, in pursuance of the contract and
the ownership in the goods has been retained by the seller merely
to secure performance by the buyer of his obligations under the
contract, the goods are at the buyer's risk from the time of such

INSURANCE DIGESTS I EH 404 23

IV. Insurable Interest; 4 minors Karl Brian and Trisha Angelie pending submission of letters of
guardianship.
HEIRS OF LORETO C. MARAMAG, represented by surviving
spouse VICENTA PANGILINAN MARAMAG v EVA VERNA DE Insular alleged that the complaint or petition failed to state a cause of
GUZMAN MARAMAG, ET AL action insofar as it sought to declare as void the designation of Eva as
(G.R. No. 181132. June 5, 2009) bene ciary, because Loreto revoked her designation as such in Policy
No. A001544070 and it disquali ed her in Policy No. A001693029;
FACTS: and insofar as it sought to declare as inof cious the shares of Odessa,
The petition alleged that: Karl Brian, and Trisha Angelie, considering that no settlement of
(1) petitioners were the legitimate wife and children of Loreto's estate had been led nor had the
Loreto Maramag (Loreto), while respondents were Loreto's illegitimate respective shares of the heirs been determined. Insular further
family; claimed that it was bound to honor the insurance policies designating
(2) Eva de Guzman Maramag (Eva) was a concubine of Loreto and a the children of Loreto with Eva as beneficiaries pursuant to Section 53
suspect in the killing of the latter, thus, she is disqualified to receive of the Insurance Code.
any proceeds from his insurance policies from Insular Life Assurance
Company, Ltd. (Insular) and Great Pacific Life Assurance Corporation Grepalife alleged that Eva was not designated as an insurance policy
(Grepalife); beneficiary; that the claims filed by Odessa, Karl Brian, and Trisha
(3) the illegitimate children of Loreto — Odessa, Karl Brian, and Trisha Angelie were denied because Loreto was ineligible for insurance due
Angelie—were entitled only to one-half of the legitime of the legitimate to a misrepresentation in his application form that he was born on
children, thus, the proceeds released to Odessa and those to be December 10, 1936 and, thus, not more than 65 years old when he
released to Karl Brian and Trisha Angelie were inof cious and should signed it in September 2001; that the case was premature, there being
be reduced; no claim led by the legitimate family of Loreto; and that the law on
(4) petitioners could not be deprived of their legitimes, which should succession does not apply where the designation of insurance
be satisfied first. beneficiaries is clear.

Petitioners alleged that part of the insurance proceeds had already As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie
been released in favor of Odessa, while the rest of the proceeds are were not
to be released in favor of Karl Brian and Trisha Angelie, both minors, known to petitioners, summons by publication was resorted to. Still,
upon the appointment of their legal guardian. Petitioners also prayed the illegitimate family of Loreto failed to le their answer. Hence, the
for the total amount of P320,000.00 as actual litigation expenses and trial court, upon motion of petitioners, declared them in default
attorney's fees.
petitioners alleged that the issue raised by Insular and Grepalife was
Insular admitted that Loreto misrepresented Eva as his legitimate wife purely legal — whether the complaint itself was proper or not — and
and Odessa, Karl Brian, and Trisha Angelie as his legitimate children, that the designation of a beneficiary is an act of liberality or a donation
and that they filed their claims for the insurance proceeds of the and,, therefore, subject to the provisions of Articles 752 and 772 of the
insurance policies; that when it ascertained that Eva was not the legal Civil Code.
wife of Loreto, it disqualified her as a beneficiary and divided the
proceeds among Odessa, Karl Brian, and Trisha Angelie, as the In reply, both Insular and Grepalife countered that the insurance
remaining designated beneficiaries; and that it released Odessa's proceeds belong exclusively to the designated beneficiaries in the
share as she was of age, but withheld the release of the shares of policies, not to the estate or to the heirs of the insured. Grepalife also

INSURANCE DIGESTS I EH 404 24

reiterated that it had disqualified Eva as a beneficiary when it favorable judgment in light of Article 2011 of the Civil Code which
ascertained that Loreto was legally married to Vicenta Pangilinan expressly provides that insurance contracts shall be governed by
Maramag. special laws, i.e., the Insurance Code. Section 53 of the Insurance
Code
Insular and Grepalife filed their respective motions for reconsideration,
arguing, in the main, that the petition failed to state a cause of action. Pursuant thereto, it is obvious that the only persons entitled to claim
Insular further averred that the proceeds were divided among the three the insurance proceeds are either the insured, if still alive; or the
children as the remaining named beneficiaries. Grepalife, for its part, beneficiary, if the insured is already deceased, upon the maturation of
also alleged that the premiums paid had already been refunded. the policy. The exception to this rule is a situation where the insurance
contract was intended to bene t third persons who are not parties to
the trial court issued a Resolution, disposing, as follows: the same in the form of favorable stipulations or indemnity. In such a
the Motions for Reconsideration filed by defendants Grepalife and case, third parties may directly sue and claim from the insurer.
Insular Life are hereby GRANTED. Accordingly, the portion of the
Resolution of this Court dated 21 September 2004 which ordered the Petitioners are third parties to the insurance contracts with Insular and
prosecution of the case against defendant Eva Verna De Guzman, Grepalife and, thus, are not entitled to the proceeds thereof.
Grepalife and Insular Life is hereby SET ASIDE, and the case against Accordingly, respondents Insular and Grepalife have no legal
them is hereby ordered DISMISSED. obligation to turn over the insurance proceeds to petitioners.
The revocation of Eva as a beneficiary in one policy and her
ISSUE: disquali cation as such in another are of no moment considering that
Are the members of the legitimate family entitled to the proceeds of the designation of the illegitimate children as beneficiaries in Loreto's
the insurance for the concubine? insurance policies remains valid. Because no legal proscription exists
in naming as bene ciaries the children of illicit relationships by the
RULING: insured, the shares of Eva in the insurance proceeds, whether
it is clear from the petition filed before the trial court that, although forfeited by the court in view of the prohibition on donations under
petitioners are the legitimate heirs of Loreto, they were not named as Article 739 of the Civil Code or by the insurers themselves for reasons
beneficiaries in the insurance policies issued by Insular and Grepalife. based on the insurance contracts, must be awarded to the said
The basis of petitioners' claim is that Eva, being a concubine of Loreto illegitimate children, the designated bene ciaries, to the exclusion of
and a suspect in his murder, is disqualified from being designated as petitioners. It is only in cases where the insured has not designated
beneficiary of the insurance policies, and that Eva's children with any beneficiary, or when the designated beneficiary is disqualified by
Loreto, being illegitimate children, are entitled to a lesser share of the law to receive the proceeds, that the insurance policy proceeds shall
proceeds of the policies. They also argued that pursuant to Section 12 redound to the benefit of the estate of the insured.
of the Insurance Code, Eva’s share in the proceeds should be forfeited
in their favor, the former having brought about the death of Loreto.
Thus, they prayed that the share of Eva and portions of the shares of
Loreto's illegitimate children should be awarded to them, being the
legitimate heirs of Loreto entitled to their respective legitimes.

It is evident from the face of the complaint that petitioners are not
entitled to a

INSURANCE DIGESTS I EH 404 25

IV. Insurable Interest; 5 before he passed away.

VIOLETA R. LALICAN v THE INSULAR LIFE ASSURANCE ISSUES:

COMPANY LIMITED 1. W/N Eulogio has insurable interest over his own life under Policy
(GR No. 183526, August 25, 2009) No 9011992.
2. W/N Eulogio was able to reinstate the lapsed insurance policy on
FACTS: his life before his death.
Eulogio Lalican applied for an insurance polity with Insular Life. The
latter, through its agent, Malaluan, issued in favor of Eulogio Policy No RULING:
9011992 which has a value of P1,500,000.00 naming his wife, Violeta, 1. An insurable interest is one of the most basic and essential
as the primary beneficiary. requirements in an insurance contract. In general, an insurable
interest is that interest which a person is deemed to have in the subject
It was agreed that Eulogio pay premiums on a quarterly basis, until the matter insured, where he has a relation or connection with or concern
end of the 20-year period of the policy. According to the Policy in it, such that the person will derive pecuniary benfit or advantage
Contract, there was a grace period of 31 days. In case of default, and from the preservation of the subject matter insured and will suffer
if the premiums remained unpaid until the end of the grace period, the pecuniary loss or damage from its destruction, termination, or injury
policy would autotmatically lapse and become void. Eulogio failed to by the happening of the event insured against. The existence of an
pay the third installment even after the lapse of the 31-day grace insurable interest gives a person the legal right to insure the subject
period which resulted to the policy becoming void. matter of the policy of insurance. Section 10 of the Insurance
Code indeed provides that every person has an insurable interest in
Eulogio submitted to Insular Life, through Malaluan, an Application for his own life. Section 19 of the same code also states that an interest
Reinstatement. This was however denied for failing to paid the in the life or health of a person insured must exist when the insurance
overdue interest. Eulogio filed a second Application for Reinstatement takes effect, but need not exist thereafter or when the loss occurs.
at the residence of the agent including the amount of the premiums Upon more extensive study of the Petition, it becomes evident that the
due and interests. As Malaluan was not around, her husband received matter of insurable interest is entirely irrelevant in the case at bar. It is
Eulogio’s application and issued a receipt. actually beyond question that while Eulogio was still alive, he had an
insurable interest in his own life, which he did insure under Policy No.
On the same day he submitted his second Application for 9011992.
Reinstatement, Eulogio died. Malaluan forwarded the application to
Insular Life without knowing of Eulogio’s death. However, Insular Life 2. Eulogio's death rendered impossible full compliance with the
no longer acted on it as it was informed of the death. conditions for reinstatement of Policy No. 9011992. True, Eulogio,
before his death, managed to file his Application for Reinstatement
Violeta filed with Insular Life a claim for payment of the full proceeds and deposit the amount for payment of his overdue premiums and
of the policy. The latter, however, did not grant her claim on the ground interests thereon with Malaluan; but Policy No. 9011992 could only be
that at the time of Eulogio’s death, the policy has already lapsed and considered reinstated after the Application for Reinstatement had
the latter failed to reinstate the same. According to the Application for been processed and approved by Insular Life during Eulogio's lifetime
Reinstatement, the policy would only be considered reinstated upon and good health.
approval of the application by Insular Life during the applicant’s
“lifetime and good health.” However, Violeta maintains that Eulogio still Eulogio's death, just hours after filing his Application for Reinstatement
had insurable interest in his own life when he reinstated the policy just and depositing his payment for overdue premiums and interests with

INSURANCE DIGESTS I EH 404 26

Malaluan, does not constitute a special circumstance that can
persuade this Court to already consider Policy No. 9011992
reinstated. Said circumstance cannot override the clear and express
provisions of the Policy Contract and Application for Reinstatement,
and operate to remove the prerogative of Insular Life thereunder to
approve or disapprove the Application for Reinstatement.

INSURANCE DIGESTS I EH 404 27

IV. Insurable Interest; 6 the lessee is not supposed to be the assured as he has no insurable
interest.
ONG LIM SING, JR. v FEB LEASING AND FINANCE
CORPORATION On December 27, 2002, FEB filed its Notice of Appeal. Accordingly,
(G.R. No. 168115, June 8, 2007) on January 17, 2003, the court issued an Order elevating the entire
records of the case to the Court of Appeals. On March 15, 2005, the
Section 17 of the Insurance Code provides that the measure of an insurable Court of Appeals issued its Decision declaring the transaction between
interest in property is the extent to which the insured might be damnified by the parties as a financial lease agreement. The said decision reversed
loss or injury thereof. and set aside the trial court’s decision dated November 22, 2002.
Hence, Lim filed the present Petition for Review on Certiorari.
FACTS:
On March 9, 1995, FEB Leasing and Finance Corporation entered into ISSUE:
a lease of equipment and motor vehicles with JVL Food Products. On W/N petitioner has an insurable interest in the equipment and motor
the same date, Vicente Ong Lim Sing, Jr. executed an Individual vehicles leased.
Guaranty Agreement with FEB to guarantee the prompt and faithful
performance of the terms and conditions of the aforesaid lease RULING:
agreement. Corresponding Lease Schedules with Delivery and YES. The stipulation in Section 14 of the leased contract, that the
Acceptance Certificates over the equipment and motor vehicles equipment shall be insured at the cost and expense of the lessee
formed part of the agreement. Under the contract, JVL was obliged to against loss, damage, or destruction from fire, theft, accident, or other
pay FEB an aggregate gross monthly rental of One Hundred Seventy insurable risk for the full term of the lease, is a binding and valid
Thousand Four Hundred Ninety-Four Pesos (P170,494.00). stipulation.
JVL defaulted in the payment of the monthly rentals. As of July 31, Petitioner, as a lessee, has an insurable interest in the equipment and
2000, the amount in arrears, including the penalty charges and motor vehicles leased.
insurance premiums, amounted to Three Million Four Hundred
Fourteen Thousand Four Hundred Sixty-Eight and 75/100 Pesos Section 17 of the Insurance Code provides that the measure of
(P3,414,468.75). On August 23, 2000, FEB sent a letter to JVL an insurable interest in property is the extent to which the
demanding payment of the said amount. However, JVL failed to pay. insured might be damnified by loss or injury thereof.
On December 6, 2000, FEB filed a Complaint with the Regional Trial
Court of Manila for sum of money, damages, and replevin against JVL, It cannot be denied that JVL will be directly damnified in case of loss,
Lim, and John Doe. damage, or destruction of any of the properties leased.
In an Amended Answer, JVL and Lim admitted the existence of the
lease agreement but asserted that it is in reality a sale of equipment
on instalment basis, with FEB acting as the financier. On November
22, 2002, the trial court ruled in favor of JVL and Lim and stressed the
contradictory terms found in the lease agreement. The trial court
stated, among others, that if JVL and Lim (then defendants) were to
be regarded as only a lessee, logically the lessor who asserts
ownership will be the one directly benefited or injured and therefore

INSURANCE DIGESTS I EH 404 28

V. Premium; 1 surety, an insurer may cancel a policy upon non-payment of the
premium. Said cancellation is binding upon the beneficiary as the right
AFP GENERAL INSURANCE CORP. v MOLINA of a beneficiary is subordinate to that of the insured. Hence, according
(G.R. No. 151133, June 30, 2008) to petitioner, the Court of Appeals committed a reversible error in not
holding that under Section 77 of the Insurance Code, the surety bond
FACTS: between it and Radon Security was not valid and binding for non-
The private respondents are the complainants in a case for illegal payment of premiums, even as against a third person who was
dismissal filed against Radon Security & Allied Services Agency intended to benefit therefrom.
and/or Raquel Aquias and Ever Emporium, Inc. Labor Arbiter ruled
that the private respondents were illegally dismissed and ordered According to the SC, the petitioner's reliance on Sections 64 and 77
Radon Security to pay them separation pay, backwages, and other of the Insurance Code is misplaced. The said provisions refer to
monetary claims. Radon Security appealed the Labor Arbiter's insurance contracts in general. The instant case pertains to a surety
decision to public respondent NLRC and posted a supersedeas bond, bond; thus, the applicable provision of the Insurance Code is Section
issued by herein petitioner AFPGIC as surety. NLRC affirmed with 177, which specifically governs suretyship. It provides that a surety
modification the decision of the Labor Arbiter. By virtue of the writ of bond, once accepted by the obligee becomes valid and enforceable,
execution, the NLRC Sheriff issued a Notice of Garnishment against irrespective of whether or not the premium has been paid by the
the supersedeas bond. obligor. The private respondents, the obligees here, accepted the
bond posted by Radon Security and issued by the petitioner. Hence,
AFPGIC entered the fray by filing before the Labor Arbiter an Omnibus the bond is both valid and enforceable.
Motion to Quash Notice/Writ of Garnishment and to Discharge
AFPGIC's Appeal Bond on the ground that said bond "has been
cancelled and thus non-existent in view of the failure of Radon
Security to pay the yearly premiums." However, both Labor Arbiter and
NLRC denied the motion. In dismissing the appeal of AFPGIC, the
NLRC pointed out that AFPGIC's theory that the bond cannot anymore
be proceeded against for failure of Radon Security to pay the premium
is untenable, considering that the bond is effective until the finality of
the decision. The NLRC stressed that a contrary ruling would allow
respondents to simply stop paying the premium to frustrate
satisfaction of the money judgment.

ISSUE:
W/N the bond was already cancelled for non-payment of premium.

RULING:
NO, the bond remains enforceable and under the jurisdiction of the
NLRC until it is discharged.

The petitioner contends that under Section 64 of the Insurance Code,

which is deemed written into every insurance contract or contract of

INSURANCE DIGESTS I EH 404 29

V. Premium; 2 RULING:

MAKATI TUSCANY CONDOMINIUM CORP. v CA The SC held that the subject policies are valid even if the premiums
(G.R. No. 95546, November 6, 1992) were paid on installments. The records clearly show that petitioner and
private respondent intended subject insurance policies to be binding
FACTS: and effective notwithstanding the staggered payment of the premiums.
Private respondent American Home Assurance Co. (AHAC), The initial insurance contract entered into in 1982 was renewed in
represented by American International Underwriters (Phils.), Inc., 1983, then in 1984. In those three (3) years, the insurer accepted all
issued in favor of petitioner Makati Tuscany Condominium the installment payments. Such acceptance of payments speaks
Corporation (TUSCANY) an insurance policy on the latter's building loudly of the insurer's intention to honor the policies it issued to
and premises. The premium was paid on installments, all of which petitioner. Certainly, basic principles of equity and fairness would not
were accepted by the private respondent. The policy was replaced and allow the insurer to continue collecting and accepting the premiums,
renewed twice. However, on the last renewed policy, petitioner only although paid on installments, and later deny liability on the lame
made two installment payments, but refused to pay the balance of the excuse that the premiums were not prepaid in full.
premium. Consequently, private respondent filed an action to recover
the unpaid balance. Moreover, as correctly observed by the appellate court, where the risk
is entire and the contract is indivisible, the insured is not entitled to a
Petitioner now asserts that its payment by installment of the premiums refund of the premiums paid if the insurer was exposed to the risk
for the insurance policies invalidated said policies because of the insured for any period, however brief or momentary.
provisions of Sec. 77 of the Insurance Code, as amended, and by the
conditions stipulated by the insurer in its receipts, disclaiming liability
for loss occurring before payment of premiums.

It argues that where the premium is not actually paid in full, the policy
would only be effective if there is an acknowledgment in the policy of
the receipt of premium pursuant to Sec. 78 of the Insurance Code. The
absence of an express acknowledgment in the policies of such receipt
of the corresponding premium payments, and petitioner's failure to pay
said premiums on or before the effective dates of said policies
rendered them invalid. Petitioner thus concludes that there cannot be
a perfected contract of insurance upon mere partial payment of the
premiums because under Sec. 77 of the Insurance Code, no contract
of insurance is valid and binding unless the premium thereof has been
paid, notwithstanding any agreement to the contrary. As a
consequence, petitioner seeks a refund of all premium payments
made on the alleged invalid insurance policies.

ISSUE:
W/N payment by installment of the premiums due on an insurance
policy invalidates the contract of insurance.

INSURANCE DIGESTS I EH 404 30

V. Premium; 3 Tuscany case has provided a fourth exception to Section 77, namely,
that the insurer may grant credit extension for the payment of the
UCPB General Insurance Co. Inc. v Masagana Telemart Inc. premium. This simply means that if the insurer has granted the insured
(G.R. No. 137172, April 4, 2001) a credit term for the payment of the premium and loss occurs before
the expiration of the term, recovery on the policy should be allowed
FACTS: even though the premium is paid after the loss but within the credit
Plaintiff obtained from defendant fire insurance policies on its property term.
effective from May 1991 - 1992. On June 1992, plaintiff's properties
were raged by fire. On the same date plaintiff tendered, and defendant Moreover, there is nothing in Section 77 which prohibits the parties in
accepted five checks as renewal premium payments for which a an insurance contract to provide a credit term within which to pay the
receipt was issued. Masagana made a claim which was denied. the premiums. That agreement is not against the law, morals, good
checks were then returned to plaintiff. According to defendant, the customs, public order or public policy. The agreement binds the
claim cannot be entertained for properties were burned before the parties. Article 1306 of the Civil Code provides:
tender of premium.
ARTICLE 1306. The contracting parties may establish such
ISSUE: stipulations clauses, terms and conditions as they may deem
W/N section 77 of the insurance code must be strictly applied to convenient, provided they are not contrary to law, morals, good
petitioner’s advantage despite its practice of granting 60 to 70 day customs, public order, or public policy.
credit term for the payment of its premium
Finally in the instant case, it would be unjust and inequitable if
RULING: recovery on the policy would not be permitted against Petitioner, which
The first exception is provided by Section 77 itself, and that is, in case had consistently granted a 60- to 90-day credit term for the payment
of a life or industrial life policy whenever the grace period provision of premiums despite its full awareness of Section 77. Estoppel bars it
applies. from taking refuge under said Section, since Respondent relied in
good faith on such practice. Estoppel then is the fifth exception to
The second is that covered by Section 78 of the Insurance Code, Section 77.
which provides:
(Note: Because of this case, there are now five exceptions to the
SECTION 78. Any acknowledgment in a policy or contract of premium requirement in Sec. 77: (1) life and industrial life policy
insurance of the receipt of premium is conclusive evidence of its whenever the grace period applies; (2) acknowledgment of receipt; (3)
payment, so far as to make the policy binding, notwithstanding any if parties agreed to payment in installments and partial payment has
stipulation therein that it shall not be binding until premium is actually been paid; (4) if a credit extension has been granted; and (5)
paid. estoppel.)

A third exception was laid down in Makati Tuscany Condominium

Corporation vs. Court of Appeals, wherein we ruled that Section 77
may not apply if the parties have agreed to the payment in installments
of the premium and partial payment has been made at the time of loss.

INSURANCE DIGESTS I EH 404 31

V. Premium; 4 77 of the Insurance Code, which provides that no policy or contract of
insurance issued by an insurance company is valid and binding unless
AMERICAN HOME v CHUA and until the premium thereof has been paid and the case of Arce v.
(G.R. No. 130421, June 28, 1999) Capital Insurance that until the premium is paid there is no insurance.

FACTS: ISSUES:
Chua obtained from American Home a fire insurance covering the 1. Whether there was a valid payment of premium, considering that
stock-in-trade of his business. The insurance was due to expire on respondent’s check was cashed after the occurrence of the fire
March 25, 1990. 2. Whether respondent violated the policy by his submission of
fraudulent documents and non-disclosure of the other existing
On April 5, 1990, Chua issued a check for P2,983.50 to American insurance contracts
Home’s agent, James Uy, as payment for the renewal of the policy. 3. Whether respondent is entitled to the award of damages.
The official receipt was issued on April 10. In turn, the latter gave
a renewal certificate. A new insurance policy was issued where RULING:
petitioner undertook to indemnify respondent for any damage or loss 1. Yes. The trial court found, as affirmed by the Court of Appeals, that
arising from fire up to P200,000 March 20, 1990 to March 25, 1991. there was a valid check payment by respondent to petitioner. The
On April 6, 1990, the business was completely razed by fire. Total court respected this.
loss was estimated between P4,000,000 and
P5,000,000. Respondent filed an insurance claim with petitioner and The renewal certificate issued to respondent contained the
four other co-insurers, namely, Pioneer Insurance, Prudential acknowledgment that premium had been paid.
Guarantee, Filipino Merchants and Domestic Insurance. Petitioner In the instant case, the best evidence of such authority is the fact that
refused to honor the claim hence, the respondent filed an action in the petitioner accepted the check and issued the officialreceipt for the
trial court. payment. It is, as well, bound by its agent’s acknowledgment of
receipt of payment.
American Home claimed there was no existing contract because
respondent did not pay the premium. Even with a contract, they Section 78 of the Insurance Code explicitly provides:
contended that he was ineligible because of his fraudulent tax An acknowledgment in a policy or contract of insurance of the receipt
returns,his failure to establish the actual loss and his failure to notify of premium is conclusive evidence of its payment, so far as to make
to petitioner of any insurance already effected. The trial court ruled in the policy binding, notwithstanding any stipulation therein that it shall
favor of respondent because the respondent paid by way of check a not be binding until the premium is actually paid.
day before the fire occurred and that the other insurance companies
promptly paid the claims. American homes was made to pay 750,000 2. No. Submission of the alleged fraudulent documents pertained to
in damages. respondent’s income tax returns for 1987 to 1989. Respondent,
however, presented a BIR certification that he had paid the proper
The Court of Appeals found that respondent’s claim was substantially taxes for the said years. Since this is a question of fact, the finding is
proved and petitioner’s unjustified refusal to pay the claim entitled conclusive.
respondent to the award of damages.
Ordinarily, where the insurance policy specifies as a condition the
American Home filed the petition reiterating its stand that there was disclosure of existing co-insurers, non-disclosure is a violation that
no existing insurance contract between the parties. It invoked Section entitles the insurer to avoid the policy. The purpose for the inclusion

INSURANCE DIGESTS I EH 404 32

of this clause is to prevent an increase in the moral hazard. The
relevant provision is Section 75, which provides that:

A policy may declare that a violation of specified provisions thereof

shall avoid it, otherwise the breach of an immaterial provision does not
avoid the policy.

Respondent acquired several co-insurers and he failed to disclose this

information to petitioner. Nonetheless, petitioner is estopped from
invoking this argument due to the loss adjuster’s admission of previous
knowledge of the co-insurers.

It cannot be said that petitioner was deceived by respondent by the

latter’s non-disclosure of the other insurance contracts when petitioner
actually had prior knowledge thereof. The loss adjuster, being an
employee of petitioner, is deemed a representative of the latter whose
awareness of the other insurance contracts binds petitioner.

3. Yes. Petitioner is liable to pay the loss. But there is merit in

petitioner’s grievance against the damages and attorney’s fees
awarded. There was no basis for an award for loss of profit. This
cannot be shouldered by petitioner whose obligation is limited to the
object of insurance.

There was no fraud to justify moral damages. Exemplary damages

can’t be awarded because the defendant never acted in a reckless
manner to claim insurance. Attorney’s fees can’t be recovered as part
of damages because no premium should be placed on the right to
litigate.

INSURANCE DIGESTS I EH 404 33

V. Premium; 5 payment of the premium has been made, and the balance paid only after
the peril insured against has occurred, the insurance contract did not take
TIBAY v CA effect and the insured cannot collect. The partial payment is merely
(G.R. No. 119655, May 24, 1996) considered as a deposit.
----------------------------------------------
FACTS: The SC distinguished the present case from the case of Phoenix and
FORTUNE issued a Fire Insurance Policy in favor of Sps. Tibay on Tuscany which demonstrated the waiver of prepayment in full by the
their 2-storey residential bldg. located in Makati city, together with all insurer : impliedly, by suing for the balance of the premium as in Phoenix,
and expressly, by agreeing to make premiums payable in installments as
their personal effects therein. The total premium was P2983.50,
in Tuscany. In this case however, there was no waiver. The insurance
Violeta Tibay, however, only paid P600 thus leaving a considerable
contract itself expressly provided that the policy would be effective only
balance unpaid. The insured building was completely destroyed by
when the premium was paid in full. There was no juridical tie of
fire. Violeta then paid the balance of the premium 2 days thereafter. indemnification from the fractional payment of premium. Verily, it is
On the same day, she filed a claim on the fire insurance policy from elemental law that the payment of premium is requisite to keep the policy
Fortune. Fortune denied the claim on the ground of violation of a of insurance in force. If the premium is not paid in the manner prescribed
condition in the policy and Sec. 77 of the Insurance Code. in the policy as intended by the parties the policy is ineffective. Partial
payment even when accepted as a partial payment will not keep the policy
ISSUE: alive.
May a fire insurance policy be valid, binding and enforceable upon
mere partial payment of premium? In addition, the SC cited the case South Sea v CA which speaks only of
two statutory exceptions to the requirement of payment of the entire
RULING: premium as a prerequisite to the validity of the insurance contract. These
NO. Insurance is a contract whereby one undertakes for a consideration are (a) in case the insurance coverage relates to life or insurance when a
to indemnify another against loss, damage or liability arising from an grace period applies, and (b) when the insurer makes a written
unknown or contingent event. The consideration is the premium, which acknowledgment of the receipt of premium to be conclusive evidence of
must be paid at the time and in the way and manner specified in the policy, payment. Hence, in the absence of clear waiver of prepayment in full by
and if not so paid, the policy will lapse and be forfeited by its own terms. the insurer, the insured cannot collect on the proceeds of the policy.
The insurer and the insured expressly stipulated that “this policy including
any renewal thereof and/or any indorsement thereon is not in force until For it cannot be disputed that premium is the elixir vitae of the insurance
the premium has been fully paid to and duly receipted by the Company . . business because by law the insurer must maintain a legal reserve fund
. and that this policy shall be deemed effective, valid and binding upon the to meet its contingent obligations to the public, hence, the imperative need
Company only when the premiums therefor have actually been paid in full for its prompt payment and full satisfaction.
and duly acknowledged.
Conformably, Section 77 of the Insurance Code provides that "An insurer Further, the terms of the insurance policy constitute the measure of the
is entitled to payment of the premium as soon as the thing insured is insurer’s liability. In the absence of statutory prohibition to the contrary,
exposed to the peril insured against. Notwithstanding any agreement to insurance companies have the same rights as individuals to limit their
the contrary, no policy or contract of insurance issued by an insurance liability and to impose whatever conditions they deem best upon their
company is valid and binding unless and until the premium thereof has obligations not inconsistent with public policy.
been paid, except in the case of a life or an industrial life policy whenever
the grace period provision applies."
In this case, not only does the insurance policy provide that full payment
be made but Sec. 77 likewise provides so. Accordingly, where only partial

INSURANCE DIGESTS I EH 404 34

V. Premium; 6 exclusively in the hands of one of the contracting parties the right to
decide whether the contract should stand or not.
PHILIPPINE PHOENIX SURETY & INSURANCE, INC. v
WOODWORKS, INC. Instead, the legal effect produced by Woodwork’s failure to pay is that
(92 SCRA 419) the parties to the contract could demand from each other the
performance of whatever obligations they had assumed. In this case,
FACTS: the insurer (Phoenix) has the option to either sue for specific
On April 1, 1960, a fire insurance policy was delivered by Philippine performance, or sue for the rescission of the contract. Since Phoenix
Phoenix Surety & Insurance Co. (insurer) in favor of Woodworks Inc. chose to sue for specific performance, Woodworks has no other
(insured). On September 22 of the same year, Woodworks paid 3,000 choice but to pay.
pesos on account of the total premium of 6, 051.95. Woodworks did
not pay the remaining balance.

In view of Woodworks’ failure to pay, Phoenix filed a case against

Woodworks Inc. for the collection of 3, 522. 09 pesos which is the sum
representing the value of unpaid premiums on the fire insurance
policy. This fire insurance policy was to be effective for 1 year. (April
1, 1960 – April 1, 1961).

ISSUES:
1. Was there a perfected contract of insurance despite the fact that
Woodworks did not pay the full amount of the premium?
2. Did Woodworks’ failure to pay the unpaid balance of the premium
produce the effect of cancelling the contract of insurance?

RULING:
1. YES, there was a perfected contract of insurance. This is taken from
the fact that Phoenix had already issued the policy in favor of
Woodworks and that the latter had paid 3,000 pesos on account of the
total premium of 6, 051. 95. Although it was perfected, it was only
partially performed (since Woodworks did not pay the full premium)
But due to the fact it was perfected, it had already bound both parties.
Phoenix already had the obligation to pay the amount stated on the
policy in case Woodworks should suffer loss under the fire insurance
policy while Woodworks had the obligation to pay the unpaid premium.

2. Woodwork’s failure to pay did not cancel the contract of

insurance. This is because to rule that non – payment of premiums
would cancel the contract of insurance would in effect place

INSURANCE DIGESTS I EH 404 35

VI The Policy Insurance; 1 RULING:
The Cover Notes remain to be valid.
PACIFIC TIMBER EXPORT CORPORATION v CA
(112 SCRA 199) PTEC paid in full all the premiums as called for by the statement
Issued by WIC after the issuance of the two regular marine insurance
FACTS: policies, thereby leaving no account unpaid by PTEC due on the
Pacific Timber Export Corporation (PTEC) secured temporary insurance coverage, which must be deemed to include the Cover
insurance from Workmen’s Insurance Company (WIC) for its Note. If the Note is to be treated as a separate policy instead of
exportation of 1,250,000 board feet of Philippine Lauan and Apitong integrating it to the regular policies subsequently issued, the
logs to be shipped from the Diapitan Bay, Quezon Province to purpose and function of the Cover Note would be set at naught
Okinawa and Tokyo, Japan. WIC issued issued on March 19, 1963 a or rendered meaningless, for it is in a real sense a contract, not
Cover Note. Subsequently, on April 2, 1963, the regular marine cargo a mere application for insurance which is a mere offer.
policies were issued by WIC in favor of the PTEC. The first policy
covered 542 pieces of logs equivalent to 499,950 board feet while the The adjuster went as far as submitting his report to respondent, as
second policy was for 853 pieces of logs equivalent to 695,548 board well as its computation of respondent's liability on the insurance
feet. The total cargo insured under the two marine policies accordingly coverage. This coverage could not have been no other than what was
consisted of 1,395 logs, or the equivalent of 1,195.498 bd. ft. stipulated in the Cover Note, for no loss or damage had to be assessed
on the coverage arising from the marine insurance policies. It was not
After the issuance of Cover Policy but before the issuance of the two necessary to ask PTEC to pay premium on the Cover Note, for the
marine policies, some of the logs intended to be exported were lost loss insured against having already occurred, the more practical
during loading operations in the Diapitan Bay. At about 10:00AM procedure is simply to deduct the premium from the amount due the
on March 29, 1963, while the logs were alongside the vessel, bad petitioner on the Cover Note.
weather developed resulting in 75 pieces of logs which were rafted
together to break loose from each other. 45 pieces of logs were The non-payment of premium on the Cover Note is, therefore, no
salvaged, but 30 pieces were verified to have been lost or washed cause for the PTEC to lose what is due it as if there had been
away as a result of the accident. payment of premium, for non-payment by it was not chargeable
against its fault. Had all the logs been lost during the loading
operations, but after the issuance of the Cover Note, liability on the
PTEC informed WIC about the incident. After the adjustment
note would have already arisen even before payment of premium. This
company issued a report to WIC, WIC denied the claim on the
is how the cover note as a "binder" should legally operate otherwise,
ground that WIC’s investigation revealed that the entire shipment it would serve no practical purpose in the realm of commerce, and is
of logs covered by the two marines policies were received in good supported by the doctrine that where a policy is delivered without
order at their point of destination. Moreso, WIC is in the position requiring payment of the premium, the presumption is that a credit was
that the claim of PTEC is being denied on the ground that the cover intended and policy is valid.
note is null and void for lack of valuable consideration

ISSUE:
W/N the Cover Notes are null and void for lack of consideration (non-
payment of premiums).

INSURANCE DIGESTS I EH 404 36

VI The Policy Insurance; 2 private respondent sought the payment of the proceeds of the
insurance, but having failed in his effort, he filed the action for the
GREAT PACIFIC LIFE ASSURANCE CORP v CA recovery of the same before the Court of First Instance of Cebu, which
(89 SCRA 543) rendered the adverse decision.

FACTS: ISSUE:
On March 14, 1957, Ngo Hing filed an application with the Great W/N the binding deposit receipt constituted a temporary contract of
Pacific Life Assurance Company (Pacific Life) for a twenty-year the life insurance in question.
endowment policy in the amount of P50,000.00 on the life of his one-
year old daughter Helen Go. Said respondent supplied the essential RULING:
data which petitioner Lapulapu D. Mondragon, Branch Manager of the NO. The binding deposit receipt in question is merely as
Pacific Life in Cebu City wrote on the corresponding form in his own acknowledgment, on behalf of the company, that the latter’s branch
handwriting. Mondragon finally type-wrote the data on the application office had received from the applicant the insurances premium and
form which was signed by private respondent Ngo Hing. The latter had accepted the application subject for processing by the insurance
paid the annual premium, the sum of P1,077.75 going over to the company; and that the latter will either approve or reject the same on
Company, but he retained the amount of P1,317.00 as his commission the basis of whether or not the applicant is “insurable on standard
for being a duly authorized agent of Pacific life. rates.” Since petitioner Pacific Life disapproved the insurance
application of respondent Ngo Hing, the binding deposit receipt in
Upon the payment of the insurance premium, the binding deposit question had never become in force at any time.
receipt was issued to private respondent Ngo Hing. Likewise,
petitioner Mondragon handwrote at the bottom of the back page of the As held in De Lim vs. Sun Life Assurance Company of Canada, “a
application form his strong recommendation for the approval of the contract of insurance, like other contracts, must be assented to by both
insurance application. Then on April 30, 1957, Mondragon received a parties either in person or by their agents. x x x. The contract, to be
letter from Pacific Life disapproving the insurance stating that the 20- binding from the date of the application, must have been a completed
year endowment plan is not available for minors below seven years contract, one that leaves nothing to be done, nothing to be completed,
old, but Pacific life can consider the same under the Juvenile Triple nothing to be passed upon, or determined, before it shall take effect.
Action Plan, and advised that if the offer is acceptable, the Juvenile There can be no contract of insurance unless the minds of the parties
NonMedical Declaration be sent to the Company. have met in agreement.”

The non-acceptance of the insurance plan by Pacific Life was

allegedly not communicated by petitioner Mondragon to private
respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote
back Pacific life again strongly recommending the approval of the 20-
year endowment life insurance on the ground that Pacific Life is the
only insurance company not selling the 20-year endowment insurance
plan to children, pointing out that since 1954 the customers, especially
the Chinese, were asking for such coverage.

It was when things were in such state that as May 28, 1957 Helen Go
died of influenza with complication of bronchopneumonia. Thereupon,
INSURANCE DIGESTS I EH 404 37

 petitioner, it arbitrarily ruled in its Order that the period of ten (10) years
VI The Policy Insurance; 3 had not yet lapsed.

PHILAM LIFE AND GENERAL INSURANCE COMPANY v JUDGE It based its finding on a mere explanation of the private respondents'
LORE R. VALENCIA-BAGALACSA, ET AL. counsel and not on evidence presented by the parties as to the date
(G.R. No. 139776. August 1, 2002.) when to reckon the prescriptive period. Consequently, the Court of
Appeals committed a reversible error when it declared that the RTC
FACTS: did not commit any grave abuse of discretion in issuing the said Order.
Private respondents, as legitimate children and forced heirs of their
late father, Faustino Lumaniog, filed with the Regional Trial Court, a It must be emphasized that petitioner had specifically alleged in the
complaint for recovery of sum of money against petitioner, PhilAm Life, Answer that it had denied private respondents' claim per its letter
alleging that their father was insured by petitioner and that despite dated July 11, 1983. Hence, due process demands that it be given
repeated demands for payment of the claim due from petitioner, the the opportunity to prove that private respondents had received
latter finally refused said claim on February 14, 1995 and so, private said letter, dated July 11, 1983. Said letter is crucial to petitioner's
respondents filed their complaint on June 20, 1995. defense that the filing of the complaint for recovery of sum of money
in June, 1995 is beyond the 10-year prescriptive period.
Petitioner filed an answer with counterclaim and motion to dismiss on
ground of prescription of action alleging that it had denied private The appellate court should have granted the petition for certiorari
respondents' claim in a letter dated March 12, 1982, on ground of assailing said Order. Certiorari is an appropriate remedy to assail an
concealment. interlocutory order (1) when the tribunal issued such order without or
in excess of jurisdiction or with grave abuse of discretion and (2) when
The RTC denied petitioner's motion to dismiss upholding the claim of the assailed interlocutory order is patently erroneous and the remedy
private respondents' counsel that the running of the 10-year period of appeal would not afford adequate and expeditious relief. In the case
was "stopped" on May 25, 1983 when private respondents requested at bar, the said Order was issued with grave abuse of discretion for
for a reconsideration of the denial and it was only on February 14, being patently erroneous and arbitrary, thus, depriving petitioner of
1995 when petitioner finally decided to deny their claim that the 10- due process.
year period began to run.

Petitioner filed a petition for certiorari under Rule 65 of the Rules of

Court in the Court of Appeals but the latter denied the same. Hence,
the present petition for review.

ISSUE:
W/N the complaint filed by private respondents for payment of life
insurance proceeds is already barred by prescription of action.

RULING:
The Supreme Court ruled that the RTC committed a grave abuse of
discretion when, in resolving the motion for reconsideration of

INSURANCE DIGESTS I EH 404 38

VI The Policy Insurance; 4 complete the contract of insurance. It is thus clear that any rider,
clause, warranty or endorsement pasted or attached to the policy is
CIR v LINCOLN PHILIPPINE LIFE INSURANCE COMPANY, INC. considered part of such policy or contract of insurance.
(G.R. No. 119176, March 19, 2002) However, the said increase is still imposable with documentary stamp
taxes because the original documentary stamps tax paid by Lincoln
Any rider, clause, warranty or endorsement pasted or attached to the Philippine covered only the original amount of the policies without the
policy is considered part of such policy or contract of insurance thus projected increase.
there is no need to enter into a separate agreement. It is to be noted that although the clause was to take effect only on
1984, it was written into the policy at the time of its issuance. Section
FACTS: 173 of the NIRC provides that the payment of documentary stamp
Respondent Lincoln Philippine Life Insurance Co., Inc., (now Jardine- taxes is done at the time the act is done. Section 183 of the NIRC
CMA Life Insurance Company, Inc.) is a domestic corporation provides that the tax base for the computation of documentary stamp
engaged in life insurance business. Respondents issued a special taxes on life insurance policies is the amount fixed in policy.
kind of life insurance policy known as the Junior Estate Builder Policy, Here, although the automatic increase in the amount of life insurance
in which there is a clause providing for an automatic increase in the coverage was to take effect later on, the amount of the increase was
amount of life insurance coverage upon attainment of a certain age by already definite at the time of the issuance of the policy. Thus, the
the insured without the need of issuing a new policy. amount insured by the policy at the time of its issuance necessarily
included the additional sum covered by the automatic increase clause
Private respondent paid documentary stamp taxes due on the policy because it was already determinable at the time the transaction was
based on the initial sum assured. In 1984, when the automatic clause entered into and formed part of the policy.
took effect, petitioner Internal Revenue Commissioner issued The additional insurance was an obligation subject to a suspensive
deficiency documentary stamps tax assessment corresponding to the obligation, but still a part of the insurance sold to which respondent
automatic increase in the insurance coverage on the policy issued by was liable for the payment of the documentary stamp tax. The
respondent. deficiency of documentary stamp tax imposed on respondent is not on
the amount of the original insurance coverage, but on the increase of
Private respondent questioned the deficiency documentary stamps the amount insured upon the effectivity of the Junior Estate Builder
tax assessment because the "automatic increase clause" is not a Policy.
separate agreement from the main agreement. They filed a petition
with the CTA which was held in their favor. The CIR appealed with the
CA affirming the decision of the CTA.

ISSUE:
W/N the automatic increase clause in the policy was an integral part
of the policy and involves only one transaction

RULING:
YES. The “automatic increase clause” in the policy is an integral part
of the policy and does not involve another transaction. Section 50 in
the Insurance Code states that it may contain any word, phrase,
clause, mark, sign, symbol, signature, number, or word necessary to

INSURANCE DIGESTS I EH 404 39

VI The Policy Insurance; 5 building described in the policy and consequently, the machines and
spare parts stored therein were covered by the fire insurance in
RIZAL SURETY AND INSURANCE CO. v CA dispute.
(G.R. 112360, July 18, 2000)
Considering that the two-storey building aforementioned was already
FACTS: existing when the subject fire insurance policy contract was entered
On March 13, 1980, Rizal Surety & Insurance Company (Rizal into on Jan. 12, 1981, having been constructed some time in 1978,
Insurance) issued Fire Insurance Policy No. 45727 in favor of petitioner should have specifically excluded the said two-storey
Transworld Knitting Mills, Inc. (Transworld), initially for One Million building from the coverage of the fire insurance if minded to exclude
(P1,000,000.00) Pesos and eventually increased to One Million Five the same but it did not, and instead, went on to provide that such fire
Hundred Thousand (P1,500,000.00) Pesos, covering the period from insurance policy covers the products, raw materials and supplies
August 14, 1980 to March 13, 1981. The same pieces of property stored within the premises of Transworld which was an integral part of
insured with the petitioner were also insured with New India Assurance the four-span building occupied by Transworld, knowing fully well the
Company, Ltd., (New India). existence of such building adjoining and intercommunicating with the
right section of the four-span building. Verily, the two-storey building
On January 12, 1981, fire broke out in the compound of Transworld, involved, a permanent structure which adjoins and intercommunicates
razing the middle portion of its four-span building and partly gutting the with the "first right span of the lofty storey building," formed part
left and right sections thereof. A two-storey building (behind said four- thereof, and meets the requisites for compensability under the fire
span building) where fun and amusement machines and spare parts insurance policy sued upon.
were stored, was also destroyed by the fire. Transworld filed its
insurance claims with Rizal Surety & Insurance Company and New Also, in case of doubt in the stipulation as to the coverage of the fire
India Assurance Company but to no avail. insurance policy, under Article 1377 of the New Civil Code, the doubt
should be resolved against the Rizal Surety, whose lawyer or
Private respondent brought against the said insurance companies an managers drafted the fire insurance policy contract under scrutiny.
action for collection of sum of money and damages. Petitioner Rizal
Insurance countered that its fire insurance policy sued upon covered Note: Same with I. Introduction; 3
only the contents of the four-span building, which was partly burned,
and not the damage caused by the fire on the two-storey annex
building.

ISSUE:
W/N Rizal Surety is liable for loss of the two-storey building
considering that the fire insurance policy sued upon covered only the
contents of the four-span building.

RULING:
Yes, Rizal Surety is liable for the loss of the two-storey building.
The Supreme Court agrees with the findings of the lower courts in
contending that the so-called “annex” of the four-span building is not
an annex building but an integral and inseparable part of the four-span

INSURANCE DIGESTS I EH 404 40

VII. Devices for ascertaining and controlling risk and loss; ISSUE: W/N Dr. Leuterio concealed that he had hypertension, which
D. Warranties; 1 would vitiate the insurance contract?

GREAT PACIFIC LIFE ASSURANCE CORP v CA RULING:

(G.R. No. 113899, October 13, 1999) NO. Concealment exists where the assured had knowledge of a fact
material to the risk, which honesty, good faith, and fair dealing requires
FACTS: that he should communicate it to the assured, but he designedly and
A contract of group life insurance was executed between Great Pacific intentionally withholds the same.
Life Assurance Corporation (Grepalife) and Development Bank of the
Philippines (DBP). Grepalife agreed to insure the lives of eligible Grepalife merely relied on the testimony of Dr. Mejia, as supported by
housing loan mortgagors of DBP. One of these mortgagors was Dr. the information given by the widow of the decedent. Grepalife asserts
Wilfredo Leuterio. In an application form, Dr. Leuterio answered that Dr. Mejias technical diagnosis of the cause of death of Dr. Leuterio
questions concerning his health condition in which Grepalife issued was a duly documented hospital record, and that the widows
the insurance thereafter. declaration that her husband had possible hypertension several years
ago should not be considered as hearsay, but as part of res gestae.
7. Have you ever had, or consulted, a physician for a heart condition, high However, the medical findings were not conclusive because Dr. Mejia
blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any did not conduct an autopsy on the body of the decedent. Dr. Mejia
other physical impairment? stated that he had no knowledge that the insured decedent had any
Answer: NO. previous hospital confinement. Dr. Leuterios death certificate stated
8. Are you now, to the best of your knowledge, in good health?
that hypertension was only the possible cause of death. The widows
Answer: YES
statement, as to the medical history of her husband, was due to her
A year later Dr. Leuterio died due to massive cerebral hemorrhage. unreliable recollection of events. Hence, the statement of the
DBP submitted a death claim to Grepalife but Grepalife denied the physician was properly considered by the trial court as hearsay.
claim alleging that Dr. Leuterio was not physically healthy when he
applied for an insurance coverage. Grepalife alleged that Dr. Leuterio There was however no sufficient proof that the insured had suffered
did not disclose that he had been suffering from hypertension, which from hypertension. Aside from the statement of the insureds widow
caused his death. Allegedly, such non-disclosure constituted who was not even sure if the medicines taken by Dr. Leuterio were for
concealment that justified the denial of the claim. hypertension, the appellant had not proven nor produced any witness
who could attest to Dr. Leuterios medical history.
Dr. Leuterio widow filed a complaint with the RTC against Grepalife for
Specific Performance with Damages. During the trial, Dr. Mejia, who The fraudulent intent on the part of the insured must be established to
issued the death certificate, was called to testify. Dr. Mejias findings, entitle the insurer to rescind the contract. Misrepresentation as a
based partly from the information given by the respondent widow, defense of the insurer to avoid liability is an affirmative defense and
stated that Dr. Leuterio complained of headaches presumably due to the duty to establish such defense by satisfactory and convincing
high blood pressure. The inference was not conclusive because Dr. evidence rests upon the insurer. In the case at bar, the petitioner failed
Leuterio was not autopsied, hence, other causes were not ruled out. to clearly and satisfactorily establish its defense, and is therefore liable
The RTC rendered a decision in favor of respondent widow. The Court to pay the proceeds of the insurance.
of Appeals sustained the trial courts decision.

INSURANCE DIGESTS I EH 404 41

VII. Devices for ascertaining and controlling risk and loss; Anent the finding that the facts concealed had no bearing to the cause
D. Warranties; 2 of death of the insured, it is well settled that the insured need not die
of the disease he had failed to disclose to the insurer. It is sufficient
SUN LIFE ASSURANCE CO. v CA that his non-disclosure misled the insurer in forming his estimates of
(G.R. No. 105135, June 22, 1995) the risks of the proposed insurance policy or in making inquiries.

FACTS: The SC ruled that petitioner properly exercised its right to rescind the
Robert John Bacani procured a life insurance contract for himself from contract of insurance by reason of the concealment employed by the
petitioner-company, designating his mother Bernarda Bacani, herein insured. It must be emphasized that rescission was exercised within
private respondent, as the beneficiary. He was issued a policy valued the two-year contestability period as recognized in Section 48 of The
at P100,000.00 with double indemnity in case of accidental death. Insurance Code.
Sometime after, the insured died in a plane crash. Bernarda filed a
claim with petitioner, seeking the benefits of the insurance policy taken
by her son.

However, said insurance company rejected the claim on the ground

that the insured did not disclose material facts relevant to the issuance
of the policy, thus rendering the contract of insurance voidable.
Petitioner discovered that two weeks prior to his application for
insurance, the insured was examined and confined at the Lung Center
of the Philippines, where he was diagnosed for renal failure.

The RTC, as affirmed by the CA, this fact was concealed, as alleged
by the petitioner. But the fact that was concealed was not the cause
of death of the insured and that matters relating to the medical history
of the insured is deemed to be irrelevant since petitioner waived the
medical examination prior to the approval and issuance of the
insurance policy.

ISSUE:
W/N the concealment of such material fact, despite it not being the
cause of death of the insured, is sufficient to render the insurance
contract voidable.

RULING:
YES. Section 26 of the Insurance Code is explicit in requiring a party
to a contract of insurance to communicate to the other, in good faith,
all facts within his knowledge which are material to the contract and
as to which he makes no warranty, and which the other has no means
of ascertaining.

INSURANCE DIGESTS I EH 404 42

VII. Devices for ascertaining and controlling risk and loss; RULING:
D. Warranties; 3 NO, he did not conceal a material fact.

PHILAMCARE HEALTH SYSTEMS INC. v CA The answer assailed by petitioner was in response to the question
(379 SCRA 356) relating to the medical history of the applicant. This largely depends
on opinion rather than fact, especially coming from respondent’s
The health care agreement was in the nature of non-life insurance, husband who was not a medical doctor. Where matters of opinion or
which is primarily a contract of indemnity. Being a contract of judgment are called for answers made in good faith and without intent
adhesion, the terms of an insurance contract are to be construed to deceive will not avoid a policy even though they are untrue.
strictly against the party which prepared the contract – the insurer.
The fraudulent intent on the part of the insured must be established to
FACTS: warrant rescission of the insurance contract. Concealment as a
Ernani Trinos, deceased husband of respondent Julita Trinos, was defense for the health care provider or insurer to avoid liability is an
issued a Health Care Agreement for a health coverage with petitioner affirmative defense and the duty to establish such defense by
Philamcare Health Systems Inc. During the period of Ernani’s satisfactory and convincing evidence rests upon the provider or
coverage, he suffered a heart attack and was confined in the hospital. insurer.
Respondent tried to claim the benefits under the health care
agreement, but petitioner denied her claim. Petitioner asserted, Being a contract of adhesion, the terms of an insurance contract are
among other things, that only medical and hospitalization benefits are to be construed strictly against the party which prepared the contract
given under the agreement without any indemnification – unlike in an – the insurer. By reason of the exclusive control of the insurance
insurance contract where the insured is indemnified for his loss. As a company over the terms and phraseology of the insurance contract,
result, respondent wound up paying the hospitalization expenses ambiguity must be strictly interpreted against the insurer and liberally
herself. in favor of the insured, especially to avoid forfeiture. This is equally
applicable to Health Care Agreements.
After Ernani’s passing, respondent filed an action for damages against
petitioner and its president, Dr. Reverente. The RTC ruled in favor of
respondent and awarded damages. On appeal, the CA affirmed the
decision of the RTC but deleted all awards for damages and absolved
Reverente.

As an argument, petitioner contends that respondent's husband

concealed a material fact in his application when the latter answered
in the negative when asked whether he had history of high blood
pressure, heart trouble, diabetes, cancer, liver disease, asthma or
peptic ulcer.

ISSUE:
W/N there is concealment of material fact made by Ernani.

INSURANCE DIGESTS I EH 404 43

VII. Devices for ascertaining and controlling risk and loss; to the contract and as to which he makes no warranty, and which the
D. Warranties; 4 other has not the means of ascertaining." (Emphases supplied)

VDA de CANILANG v CA The information Jaime failed to disclose was material to the
(G.R. No. 92492, June 17,1993) ability of Great Pacific to estimate the probable risk he presented
as a subject of life insurance. Had Jaime disclosed his visits to
FACTS: his doctor, the diagnosis made and the medicines prescribed by
Jaime Canilang applied for a "non-medical" insurance policy with such doctor, it may be reasonably assumed that Great Pacific
respondent Great Pacific Life Assurance Company ("Great Pacific") would have made further inquiries and would have probably
naming his wife, petitioner Thelma Canilang, as his beneficiary. Jaime refused to issue a non-medical insurance policy or, at the very
eventually died. As the beneficiary of Jaime’s insurance policy, least, required a higher premium for the same coverage.
petitioner thereafter filed a claim with Great Pacific. However, Great
Pacific denied her claim on the ground that Jaime had concealed
material information from it – that is, that he had twice consulted a
doctor, and that he was found to have been suffering from "sinus
tachycardia" and "acute bronchitis", prior to his insurance policy
application.

The Insurance Commissioner ruled in favor of petitioner. However, the

CA reversed and set aside the decision. Now comes petitioner alleging
that Jaime’s non-disclosure of certain facts about his previous health
conditions does not amount to fraud and Great Pacific is deemed to
have waived inquiry thereto.

ISSUE:
W/N Great Pacific’s denial of petitioner’s claim was justified on the
ground of material concealment as to the state of the insured’s health
at the time of the filing of insurance application.

RULING:
YES, the denial of petitioner’s claim was justified. The relevant
statutory provisions at the time Great Pacific issued the insurance
contract and at the time Jaime died, are Sections 26 and 28 of the
Insurance Code of 1978. These provisions read as follows:

"Sec. 26. A neglect to communicate that which a party knows and ought
to communicate, is called a concealment."
xxx xxx xxx
Sec. 28. Each party to a contract of insurance must communicate to the
other, in good faith, all factors within his knowledge which are material

INSURANCE DIGESTS I EH 404 44

VII. Devices for ascertaining and controlling risk and loss; 2. W/N Manuel was bound by the failure of respondents Perla and Ma.
D. Warranties; 5 Celeste to declare the condition of Manuel's health in the pension plan
application.
MA. LOURDES S. FLORENDO v PHILAM PLANS, INC., PERLA 3. W/N or not Philam Plans' approval of Manuel's pension plan
ABCEDE and MA. CELESTE ABCEDE application and acceptance of his premium payments precluded it
(G.R. No. 186983. February 22, 2012) from denying Lourdes' claim.

Pursuant to Section 27 of the Insurance Code, concealment by the RULING:

insured entitles the insurer to rescind its contract of insurance. 1. Manuel is guilty of concealing his illness. Lourdes points out that,
seeing the unfilled spaces in Manuel's pension plan application
FACTS: relating to his medical history, Philam Plans should have returned it to
On October 23, 1997 Manuel Florendo filed an application for him for completion. Since Philam Plans chose to approve the
comprehensive pension plan with respondent Philam Plans, Inc. application just as it was, it cannot cry concealment on Manuel's part.
(Philam Plans). Manuel signed the application and left to Perla, who is Further, Lourdes adds that Philam Plans never queried Manuel
the agent of Philam Plans, the task of supplying the information directly regarding the state of his health. Consequently, it could not
needed in the application. Under the master policy, Philam Life was to blame him for not mentioning it.
automatically provide life insurance coverage, including accidental
death, to all who signed up for Philam Plans' comprehensive pension However, when Manuel signed the pension plan application, he
plan. adopted as his own the written representations and declarations
embodied in it. It is clear from these representations that he concealed
Eleven months later or on September 15, 1998, Manuel died of blood his chronic heart ailment and diabetes from Philam Plans. Hence,
poisoning. Subsequently, Lourdes 8led a claim with Philam Plans for pursuant to Section 27 of the Insurance Code, Manuel's concealment
the payment of the benefits under her husband's plan. 10 Because entitles Philam Plans to rescind its contract of insurance with him.
Manuel died before his pension plan matured and his wife was to get
only the bene8ts of his life insurance, Philam Plans forwarded her 2. Even if there was no evidence of collusion between Perla and
claim to Philam Life. Philam Plans declined the claim because they Manuel, we still go back to the fact that Manuel signed the application
found out that Manuel was on maintenance medicine for his heart and which he certified that the information stated in it or had someone do
had an implanted pacemaker. Further, he suffered from diabetes it under his direction. Hence, Manuel is bound by the acts of Perla.
mellitus and was taking insulin.
3. The comprehensive pension plan that Philam Plans issued contains
RTC ruled in favour of Lourdes. However, the CA reversed the RTC a one-year incontestability. The incontestability clause precludes the
decision. Hence, this petition. insurer from disowning liability under the policy it issued on the ground
of concealment or misrepresentation regarding the health of the
ISSUE: insured after a year of its issuance. However, Manuel died on the
1. W/N Manuel is guilty of concealing his illness when he kept blank eleventh month following the issuance of his plan, hence, the one year
and did not answer questions in his pension plan application regarding incontestability period has not yet set in. Consequently, Philam Plans
the condition he suffered from. was not barred from questioning Lourdes' entitlement to the benefits
of her husband's pension plan.

INSURANCE DIGESTS I EH 404 45