Aboitiz v New India G..R. No. 156978 May 2, 2006 Ang Giok Chip v Springfield G.R. No.

L-33637
J. Quisimbing December 31, 1931
J. Malcolm
Facts:
Textile cargo owned by General Textile was shipped to Facts:
Manila using M/V P. Aboitiz. Before departing, the vessel Ang insured his warehouse for the total value of Php 60,000.
was advised that it was safe to travel to its destination, but One of these, amounting to 10,000, was with Springfield
while at sea, the vessel received a report of a typhoon Insurance Company. His warehouse burned down, then he
moving within its path. It was at the edge of a typhoon when attempted to recover 8,000 from Springfield for the
its hull leaker. The vessel sank, but the captain and indemnity. The insurance company interposed its defense on
his crew were saved. a rider in the policy in the form of Warranty F, fixing the
The captain filed his Marine Protest, stating that the amount of hazardous good that can be stored in a building to
weather was moderate breeze, small waves, becoming be covered by the insurance. They claimed that Ang violated
longer, fairly frequent white horse the 3 percent limit by placing hazardous goods to as high as
General Textile lodged a claim with respondent for the 39 percent of all the goods stored in the building. His suit to
amount of its loss. Respondent paid General Textile and was recover was granted by the trial court. Hence, this appeal.
subrogated to the rights of the latter.
After investigation, the cause was found to be the vessels Issue: Whether a warranty referred to in the policy as
unsearworthiness. forming part of the contract of insurance and in the form of a
General filed a complaint with Aboitiz and the trial rider to the insurance policy, is null and void because not
court consequently ruled in favor of the former. complying with the Philippine Insurance Act.
Petitioner elevated the case to the Court of Appeals, which
in turn, affirmed the trial courts decision. It moved for Held: No. The warranty is valid. Petition dismissed.
reconsideration but the same was denied. Hence, this
petition for review Ratio:
The Insurance Act, Section 65, taken from California law,
Issue: states:
WON the limited liability doctrine applies in this case "Every express warranty, made at or before the execution of
a policy, must be contained in the policy itself, or in another
Held: No instrument signed by the insured and referred to in the
policy, as making a part of it."
Ratio: Warranty F, indemnifying for a value of Php 20,000 and
Where the shipowner fails to overcome the presumption of pasted on the left margin of the policy stated:
negligence, the doctrine of limited liability cannot be applied. It is hereby declared and agreed that during the currency of
From the nature of their business and for reasons of public this policy no hazardous goods be stored in the Building to
policy, common carriers are bound to observe which this insurance applies or in any building
extraordinary diligence over the goods they transport communicating therewith, provided, always, however, that
according to all the circumstances of each case. In the event the Insured be permitted to stored a small quantity of the
of loss, destruction or deterioration of the insured goods, hazardous goods specified below, but not exceeding in all 3
common carriers are responsible, unless they can prove that per cent of the total value of the whole of the goods or
the loss, destruction or deterioration was brought about by merchandise contained in said warehouse, viz; . . . .
the causes specified in Article 1734 of the Civil Code. In all Also, the court stated a book that said, "any express
other cases, common carriers are presumed to have been at warranty or condition is always a part of the policy, but, like
fault or to have acted negligently, unless they prove that they any other part of an express contract, may be written in the
observed extraordinary diligence. Moreover, where the margin, or contained in proposals or documents expressly
vessel is found unseaworthy, the shipowner is also referred to in the policy, and so made a part of it."
presumed to be negligent since it is tasked with the It is well settled that a rider attached to a policy is a part of
maintenance of its vessel. Though this duty can the contract, to the same extent and with like effect as it
be delegated, still, the shipowner must exercise close actually embodied therein. In the second place, it is equally
supervision over its men. well settled that an express warranty must appear upon the
In the present case, petitioner has the burden of showing face of the policy, or be clearly incorporated therein and
that it exercised extraordinary diligence in the transport of made a part thereof by explicit reference, or by words clearly
the goods it had on board in order to invoke the limited evidencing such intention.
liability doctrine. Differently put, to limit its liability to the The court concluded that Warranty F is contained in the
amount of the insurance proceeds, petitioner has policy itself, because by the contract of insurance agreed to
the burden of proving that the unseaworthiness of its vessel by the parties it was made to be a part. It wasnt aseparate
was not due to its fault or negligence. instrument agreed to by the parties.
Considering the evidence presented and the circumstances The receipt of the policy by the insured without objection
obtaining in this case, we find that petitioner failed to binds him. It was his duty to read the policy and know its
discharge this burden. Both the trial and the appellate courts, terms. He also never chose to accept a different policy by
in this case, found that the sinking was not due to the considering the earlier one as a mistake. Hence, the rider is
typhoon but to its unseaworthiness. Evidence on record valid.
showed that the weather was moderate when the vessel ___
sank. These factual findings of the Court of Appeals,
affirming those of the trial court are not to be disturbed on Republic v Del Monte G.R. No. 156956 October 9,
appeal, but must be accorded great weight. These findings 2006
are conclusive not only on the parties but on this Court as C.J. Panganiban
well.
__ Facts:
Vilfran Liner lost in a case against Del Monte Motors. They Included here is the duty to hold security deposits under
were made to pay 11 million pesos for service contracts with Secs 191 and 202 of the Code for the benefit of policy
Del Monte, and such was sourced from the counterbond holders. Sec 192, on the other hand, states:
posted by Vilfran. CISCO issued the counterbond. CISCO the securities deposited as aforesaid shall be returned upon
opposed but was rebuffed. The RTC released a motion for the company's making application therefor and proving to the
execution commanding the sheriff to levy the amount on the satisfaction of the Commissioner that it has no further liability
property of CISCO. To completely satisfy the amount, the under any of its policies in the Philippines.
Insurance Commissioner was also commanded to withdraw He has been given great discretion to regulate the business
the security deposit filed by CISCO with the Commission to protect the public. Also An implied trust is created by the
according to Sec 203 of the Insurance Code. law for the benefit of all claimants under subsisting insurance
Insurance Commissioner Malinis was ordered by the RTC to contracts issued by the insurance company. He believed
withdraw the security bond of CISCO for the payment of the that the security deposit was exempt from execution to
insurance indemnity won by Del Monte Motor against Vilfran protect the policy holders.
Liner, the insured. You might also like:
Malinis didnt obey the order, so the respondent moved __
to cite him in contempt of Court. The RTC ruled against
Malinis because he didnt have legal basis. REPUBLIC VS DEL MOTORS (G.R. NO. 156956 OCTOBER
Issues: 9, 2006)
1. Whether or not the security deposit held by the Insurance
Commissioner pursuant to Section 203 of the Insurance
Code may be levied or garnished in favor of only one Republic of the Philippines vs Del Motors Inc.
insured. G.R. No. 156956 October 9, 2006
2. Whether or not the Insurance Commissioner has power to
withhold the release of the security deposit.
Facts: On January 15, 2002, the RTC rendered a
Held: No. Yes. Petition granted. Decision in Civil Case No. Q-97-30412, finding the
defendants (Vilfran Liner, Inc., Hilaria Villegas and
Ratio:
1. Sec 203- No judgment creditor or other claimant shall Maura Villegas) jointly and severally liable to pay Del
have the right to levy upon any of the securities of the Monte Motors, Inc., P 11,835,375.50 representing the
insurer held on deposit pursuant to the requirement of the
balance of Vilfran Liners service contracts with
Commissioner.
The court also claimed that the security deposit shall be (1) respondent. The trial court further ordered the
answerable for all the obligations of the depositing insurer execution of the Decision against the counterbond
under its insurance contracts; (2) at all times free from any
posted by Vilfran Liner on June 10, 1997, and issued
liens or encumbrance; and (3) exempt from levy by
any claimant. by Capital Insurance and Surety Co., Inc. (CISCO). On
To allow the garnishment of that deposit would impair the April 18, 2002, CISCO opposed the Motion for
fund by decreasing it to less than the percentage of paid-up
Execution filed by respondent, claiming that the latter
capital that the law requires to be maintained. Further, this
move would create, in favor of respondent, a preference of had no record or document regarding the alleged
credit over the other policy holders and beneficiaries. issuance of the counterbond; thus, the bond was not
Also, the securities are held as a contingency fund to
valid and enforceable.
answer for the claims against the insurance company by all
its policy holders and their beneficiaries. This step is taken in
the event that the company becomes insolvent or otherwise
unable to satisfy the claims against it. Thus, a
single claimant may not lay stake on the securities to the Issue: Whether or not the security deposit held by the
exclusion of all others. The other parties may have their own Insurance Commissioner pursuant to Section 203 of
claims against the insurance company under other insurance the Insurance Code may be levied or garnished in favor
contracts it has entered into.
2. The Insurance Code has vested the Office of the of only one insured.
Insurance Commission with both regulatory and adjudicatory
authority over insurance matters.
Under Sec 414 of the Insurance Code, "The Commissioner
may issue such rulings, instructions, circulars, orders and Held: No. Section 203 of the Insurance Code provides
decisions as he may deem necessary to secure the as follows:
enforcement of the provisions of this Code.
The commissioner is authorized to (1) issue (or to refuse to
issue) certificates of authority to persons or entities desiring Sec. 203. Every domestic insurance company shall, to
to engage in insurance business in the Philippines;16 (2) the extent of an amount equal in value to twenty-five
revoke or suspend these certificates of authority upon finding
grounds for the revocation or suspension; (3) impose upon per centum of the minimum paid-up capital required
insurance companies, their directors and/or officers and/or under section one hundred eighty-eight, invest its
agents appropriate penalties -- fines, suspension or removal funds only in securities, satisfactory to the
from office -- for failing to comply with the Code or with any
of the commissioner's orders, instructions, regulations or Commissioner, consisting of bonds or other evidences
rulings, or for otherwise conducting business in an unsafe or of debt of the Government of the Philippines or its
unsound manner. political subdivisions or instrumentalities, or of
government-owned or controlled corporations and adjudicatory authority over insurance matters. The
entities, including the Central Bank of the Philippines: general regulatory authority of the insurance
Provided, That such investments shall at all times be commissioner is described in Section 414 of the Code.
maintained free from any lien or encumbrance; and
Provided, further, That such securities shall be Pursuant to these regulatory powers, the commissioner
deposited with and held by the Commissioner for the is authorized to (1) issue (or to refuse to issue)
faithful performance by the depositing insurer of all its certificates of authority to persons or entities desiring
obligations under its insurance contracts. The to engage in insurance business in the Philippines; (2)
provisions of section one hundred ninety-two shall, so revoke or suspend these certificates of authority upon
far as practicable, apply to the securities deposited finding grounds for the revocation or suspension; (3)
under this section. impose upon insurance companies, their directors
and/or officers and/or agents appropriate penalties
fines, suspension or removal from office for failing
Except as otherwise provided in this Code, no to comply with the Code or with any of the
judgment creditor or other claimant shall have the commissioners orders, instructions, regulations or
right to levy upon any of the securities of the insurer rulings, or for otherwise conducting business in an
held on deposit pursuant to the requirement of the unsafe or unsound manner.
Commissioner.

Our Insurance Code is patterned after that of As the officer vested with custody of the security
California. Thus, the ruling of the states Supreme Court deposit, the insurance commissioner is in the best
on a similar concept as that of the security deposit is position to determine if and when it may be released
instructive. Engwicht v. Pacific States Life Assurance without prejudicing the rights of other policy holders.
Co. held that the money required to be deposited by a Before allowing the withdrawal or the release of the
mutual assessment insurance company with the state deposit, the commissioner must be satisfied that the
treasurer was a trust fund to be ratably distributed conditions contemplated by the law are met and all
amongst all the claimants entitled to share in it. Such a policy holders protected.
distribution cannot be had except in an action in the Advertisements
nature of a creditors bill, upon the hearing of which,
and with all the parties interested in the fund before it, ___
Philippine Health Care Providers v CIR G.R. No.
the court may make equitable distribution of the fund, 167330 June 12, 2008
and appoint a receiver to carry that distribution into J. Corona
effect.
Facts:
The petitioner, a prepaid health-care organization offering
benefits to its members. The CIR found that the organization
had a deficiency in the payment of the DST under Section
Basic is the statutory construction rule that provisions 185 of the 1997 Tax Code which stipulated its
of a statute should be construed in accordance with implementation:
the purpose for which it was enacted. That is, the On all policies of insurance or bonds or obligations of the
nature of indemnity for loss, damage, or liability made or
securities are held as a contingency fund to answer for renewed by any person, association or company or
the claims against the insurance company by all its corporation transacting the business of accident, fidelity,
policy holders and their beneficiaries. This step is employer's liability, plate, glass, steam
boiler, burglar, elevator, automatic sprinkler, or
taken in the event that the company becomes insolvent other branch of insurance (except life, marine, inland, and
or otherwise unable to satisfy the claims against it. fire insurance)
Thus, a single claimant may not lay stake on the The CIR sent a demand for the payment of deficiency taxes,
including surcharges and interest, for 1996-1997 in the total
securities to the exclusion of all others. The other amount of P224,702,641.18.
parties may have their own claims against the The petitioner protested to the CIR, but it didnt act on the
insurance company under other insurance contracts it appeal. Hence, the company had to go to the CTA. The
latter declared judgment against them and reduced the
has entered into. taxes. It ordered them to pay 22 million pesos for deficiency
VAT for 1997 and 31 million deficiency VAT for 1996.
CA denied the companys appeal an d increased taxes to 55
and 68 million for 1996 to 1997.
The Insurance Code has vested the Office of the
Insurance Commission with both regulatory and
Issues: WON a health care agreement in the nature of an
insurance contract and therefore subject to the documentary Held: No. Mfr granted. CIR must desist from collecting tax.
stamp tax (DST) imposed under Section 185 of Republic Act
8424 (Tax Code of 1997) Ratio:
Section 185 of the NIRC . Stamp tax on fidelity bonds and
Held: Yes. Petition dismissed. other insurance policies. On all policies of insurance or
bonds or obligations of the nature of indemnity for loss,
Ratio: damage, or liability made or renewed by any person,
The DST is levied on the exercise by persons of certain association or company or corporation transacting the
privileges conferred by law for the creation, revision, or business of accident, fidelity, employers liability, plate,
termination of specific legal relationships through glass, steam boiler, burglar, elevator, automatic sprinkler, or
the execution of specific instruments. other branch of insurance (except life, marine, inland, and
The DST is an excise upon the privilege, opportunity, or fire insurance).
facility offered at exchanges for the transaction of the Two requisites must concur before the DST can apply,
business. In particular, the DST under Section 185 of the namely: (1) the document must be a policy of insurance or
1997 Tax Code is imposed on the privilege of making or an obligation in the nature of indemnity and (2) the maker
renewing any policy of insurance (except life, marine, inland should be transacting the business of accident, fidelity,
and fire insurance), bond or obligation in the nature of employers liability, plate, glass, steam boiler, burglar,
indemnity for loss, damage, or liability. elevator, automatic sprinkler, or other branch of insurance
Petitioner's health care agreement is primarily a contract of (except life, marine, inland, and fire insurance).
indemnity. And in the recent case of Blue Cross Healthcare, Under RA 7875, an HMO is "an entity that provides, offers or
Inc. v. Olivares, this Court ruled that a health care arranges for coverage of designated health services needed
agreement is in the nature of a non-life insurance policy. by plan members for a fixed prepaid premium."
Its health care agreement is not a contract for the provision Various courts in the United States have determined that
of medical services. Petitioner does not actually provide HMOs are not in the insurance business. One test that they
medical or hospital services but merely arranges for the have applied is whether the assumption of risk and
same indemnification of loss are the principal object and purpose
It is also incorrect to say that the health care agreement is of the organization or whether they are merely incidental to
not based on loss or damage because, under the said its business. If these are the principal objectives, the
agreement, petitioner assumes the liability and indemnifies business is that of insurance. But if such is incidental and
its member for hospital, medical and related expenses (such service is the principal purpose, then the business is not
as professional fees of physicians). The term "loss or insurance.
damage" is broad enough to cover the monetary expense or Applying the "principal object and purpose test," there is
liability a member will incur in case of illness or injury. significant American case law supporting the argument that
Philamcare Health Systems, Inc. v. CA.- The health care a corporation, whose main object is to provide the members
agreement was in the nature of non-life insurance, which is of a group with health services, is not engaged in the
primarily a contract of indemnity. insurance business.
Similarly, the insurable interest of every member of For the purpose of determining what "doing an insurance
petitioner's health care program in obtaining the health care business" means, we have to scrutinize the operations of the
agreement is his own health. Under the agreement, business as a whole. This is of course only prudent and
petitioner is bound to indemnify any member who incurs appropriate, taking into account laws applicable to those in
hospital, medical or any other expense arising from the insurance business.
sickness, injury or other stipulated contingency to the extent Petitioner, as an HMO, is not part of the insurance industry.
agreed upon under the contract. This is evident from the fact that it is not supervised by the
You might also like: Insurance Commission but by the Department of Health. In
__ fact, in a letter dated September 3, 2000, the Insurance
Commissioner confirmed that petitioner is not engaged in the
Philippine Health Care v CIR G.R. No. 167330 insurance business.
September 18, 2009 As to whether the business is covered by the DST, we can
J. Corona see that while the contract did contains all the elements of
an insurance contract, as stated in Sec 2., Par 1 of the
Facts: Insurance Code, the primary purpose of the company is to
Philippine Health Cares objectives were: render service. The primary purpose of the parties in making
"[t]o establish, maintain, conduct and operate a prepaid the contract may negate the existence of an insurance
group practice health care delivery system or a health contract.
maintenance organization to take care of the sick and Also, there is no loss, damage or liability on the part of the
disabled persons enrolled in the health care plan and to member that should be indemnified by petitioner as an HMO.
provide for the administrative, legal, and financial Under the agreement, the member pays petitioner a
responsibilities of the organization. predetermined consideration in exchange for the hospital,
It lost the case in 2004 when it was made to pay over 100 medical and professional services rendered by the
million in VAT deficiencies. At the time the MFR was filed, it petitioners physician or affiliated physician to him.
was able to avail of tax amnesty under RA 9840 by paying 5 In other words, there is nothing in
percent of the tax or 5 million pesos. petitioner's agreements that gives rise to a monetary liability
Petitioner passed an MFR but the CA denied. Hence, this on the part of the member to any third party-provider of
case. medical services which might in turn necessitate
indemnification from petitioner. The terms "indemnify" or
Issue: "indemnity" presume that a liability or claim has already been
Was petitioner, as an HMO, engaged in the business of incurred. There is no indemnity precisely because the
insurance during the pertinent taxable years, and was thus member merely avails of medical services to be paid or
liable for DST?
already paid in advance at a pre-agreed price under
the agreements.
a prepaid group practice health care delivery system or
Also, a member can take advantage of the bulk of the
benefits anytime, e.g. laboratory services, x-ray, routine
annual physical examination and consultations, vaccine a health maintenance organization to take care of the
administration as well as family planning counseling, even in
the absence of any peril, loss or damage on his or her part.
sick and disabled persons enrolled in the health care
Petitioner is obliged to reimburse the member who receives
care from a non-participating physician or hospital. However,
this is only a very minor part of the list of services available. plan and to provide for the administrative, legal, and
The assumption of the expense by petitioner is not confined
to the happening of a contingency but includes incidents financial responsibilities of the organization. On
even in the absence of illness or injury.
Consequently, there is a need to distinguish prepaid service
contracts (like those of petitioner) from the usual insurance January 27, 2000, respondent CIR sent petitioner a
contracts.
However, assuming that petitioners commitment to provide formal deman letter and the corresponding assessment
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 qualify as an insurance contract notices demanding the payment of deficiency taxes,
because petitioners objective is to provide medical services
at reduced cost, not to distribute risk like an insurer. including surcharges and interest, for the taxable years
If it had been the intent of the legislature to impose DST on
health care agreements, it could have done so in clear and
categorical terms. It had many opportunities to do so. But it 1996 and 1997 in the total amount of
did not. The fact that the NIRC contained no specific
provision on the DST liability of health care agreements of P224,702,641.18. The deficiency assessment was
HMOs at a time they were already known as such, belies
any legislative intent to impose it on them. As a matter of
fact, petitioner was assessed its DST liability only on imposed on petitioners health care agreement with the
January 27, 2000, after more than a decade in the business
as an HMO. members of its health care program pursuant to
In view of petitioners availment of the benefits of [RA 9840],
and without conceding the merits of this case as discussed
above, respondent concedes that such Section 185 of the 1997 Tax Code. Petitioner protested
tax amnesty extinguishes the tax liabilities of petitioner.
21 Our Insurance Code was based on California and New the assessment in a letter dated February 23, 2000. As
York laws. When a statute has been adopted from some
other state or country and said statute has previously been
construed by the courts of such state or country, the statute respondent did not act on the protest, petitioner filed a
is deemed to have been adopted with the construction given.
___ petition for review in the Court of Tax Appeals (CTA)

PHIL. HEALTH CARE PROVIDERS, INC vs. COMMISSIONER OF seeking the cancellation of the deficiency VAT and DST
INTERNAL REVENUE
assessments. On April 5, 2002, the CTA rendered a
July 2, 2014 Leave a comment
decision, ordering the petitioner to PAY the deficiency

VAT amounting to P22,054,831.75 inclusive of 25%

GR. NO. 1677330 September 18, 2009, SPECIAL FIRST
surcharge plus 20% interest from January 20, 1997
DIVISION (CORONA, J.)
until fully paid for the 1996 VAT deficiency and

P31,094,163.87 inclusive of 25% surcharge plus 20%

FACTS:
interest from January 20, 1998 until fully paid for the

1997 VAT deficiency. Accordingly, VAT Ruling No.

Petitioner is a domestic corporation whose primary
[231]-88 is declared void and without force and effect.
purpose is to establish, maintain, conduct and operate
The 1996 and 1997 deficiency DST assessment against
petitioner is hereby CANCELLED AND SET ASIDE. 12, 2008 decision that it is irrelevant that petitioner is

Respondent is ORDERED to DESIST from collecting the an HMO and not an insurer because its agreements are

said DST deficiency tax. Respondent appealed the CTA treated as insurance contracts and the DST is not a tax

decision to the (CA) insofar as it cancelled the DST on the business but an excise on the privilege,

assessment. He claimed that petitioners health care opportunity or facility used in the transaction of the

agreement was a contract of insurance subject to DST business. Petitioner, however, submits that it is of

under Section 185 of the 1997 Tax Code. critical importance to characterize the business it is

On August 16, 2004, the CA rendered its decision engaged in, that is, to determine whether it is an HMO

which held that petitioners health care agreement was or an insurance company, as this distinction is

in the nature of a non-life insurance contract subject indispensable in turn to the issue of whether or not it

to DST. Respondent is ordered to pay the deficiency is liable for DST on its health care agreements.

Documentary Stamp Tax. Petitioner moved for Petitioner is admittedly an HMO. Under RA 7878 an

reconsideration but the CA denied it. 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

ISSUES: do not vary with the extent, frequency or type of

services provided. Section 2 (2) of PD 1460 enumerates

(1) Whether or not Philippine Health Care Providers, what constitutes doing an insurance business or

Inc. engaged in insurance business. transacting an insurance businesswhich are making

or proposing to make, as insurer, any insurance

(2) Whether or not the agreements between petitioner contract; making or proposing to make, as surety, any

and its members possess all elements necessary in the contract of suretyship as a vocation and not as merely

insurance contract. incidental to any other legitimate business or activity

of the surety; doing any kind of business, including a

reinsurance business, specifically recognized as

HELD:

constituting the doing of an insurance business within

the meaning of this Code; doing or proposing to do

NO. Health Maintenance Organizations are not

any business in substance equivalent to any of the

engaged in the insurance business. The SC said in June
 2. UCPB had been granting Masagana a 60-90-day credit term within
foregoing in a manner designed to evade the which to pay the premiums on the renewed policies.

3. There was no valid notice of non-renewal of the policies, as there is

provisions of this Code.
no proof that the notice sent by ordinary mail was received by
Masagana, and the copy allegedly sent to Zuellig was ever
transmitted to Masagana.

Overall, petitioner appears to provide insurance-type 4. The premiums for the policies were paid by Masagana within the
60- 90-day credit term and were duly accepted and received by
benefits to its members (with respect to its curative UCPBs cashier.

medical services), but these are incidental to the ISSUE & HOLDING

WON IC 77 must be strictly applied to UCPBs advantage despite

principal activity of providing them medical care. The
its practice of granting a 60- to 90-day credit term for the payment
of premiums. NO. MASAGANA WINS THIS TIME. 1999
insurance-like aspect of petitioners business is DECISION SET ASIDE; CA DECISION AFFIRMED

miniscule compared to its noninsurance activities. RATIO

Therefore, since it substantially provides health care SEC. 77. An insurer is entitled to payment of the premium as soon
as the thing insured is exposed to the peril insured
services rather than insurance services, it cannot be against. Notwithstanding any agreement to the contrary, no policy
or contract of insurance issued by an insurance company is valid
and binding unless and until the premium thereof has been paid,
considered as being in the insurance business.
except in the case of a life or an industrial life policy whenever the
grace period provision applies.

This was formerly Act 2427, Section 72:

Check out my Youtube channel.
SEC. 72. An insurer is entitled to payment of premium as soon as
the thing insured is exposed to the peril insured against, unless
___ there is clear agreement to grant the insured credit extension of
the premium due. No policy issued by an insurance company is
UCPB General Insurance v. Masagana Telamart (2001) valid and binding unless and until the premium thereof has been
paid. (Underscoring supplied)

UCPB GENERAL INSURANCE [UCPB] v. MASAGANA IC 77 does not restate the portion of IC 72 expressly permitting
TELAMART [Masagana] an agreement to extend the periodto pay the premium. However,
there are exceptions to IC 77.
2001 / Davide, Jr.
1. In case of a life or industrial life policywhenever the grace
FACTS [SEE 1999 CASE DIGEST FOR THE OTHER FACTS] period provision applies [Sec. 77]
2. Any acknowledgment of the receipt of premiumis
CA disagreed with UCPBs stand that Masaganas tender of conclusive evidence of payment [Sec. 78]
payment of the premiums on 13 July 1992 did not result in the 3. If the parties have agreed to the payment ininstallments of
the premium and partial payment has been made at the
renewal of the policies, having been made beyond the effective time of loss [Makati Tuscany Condominium v. CA]
date of renewal as provided under Policy Condition No. 26: 4. The insurer may grant credit extensionfor the payment of
the premium [Makati Tuscany Condominium]
Renewal Clause. Unless the company at least 45 days in 5. Estoppel
advance of the end of the policy period mails or delivers to the IC 77 merely precludes the parties from stipulating that the policy
assured at the address shown in the policy notice of its intention is valid even if premiums are not paid, but does not expressly
not to renew the policy or to condition its renewal upon reduction prohibit an agreement granting credit extension, and such an
of limits or elimination of coverages, the assured shall be entitled agreement is not contrary to morals, good customs, public order or
to renew the policy upon payment of the premium due on the public policy. [Makati Tuscany Condominium v. CA]
effective date of renewal.
ON EXCEPTION #4. If the insurer has granted the insured a
The following facts have been established: credit term for the payment of the premium and loss occurs before
the expiration of the term, recovery on the policy should be
1. For years, UCPB had been issuing fire policies to th Masagana, and allowed even though the premium is paid after the loss but within
these policies were annually renewed. the credit term.
 It would be unjust and inequitable if recovery on the Both the Court of Appeals and the trial court found that
policy would not be permitted against UCPB, which had sufficient proof exists that Masagana, which had procured
consistently granted a 60-90-day credit term for the payment of insurance coverage from UCPB for a number of years, had
premiums despite its full awareness of IC 77. Estoppel bars it been granted a 60 to 90-day credit term for the renewal of
from taking refuge under said section, since Masagana relied in the policies. Such a practice had existed up to the time the
good faith on such practice. claims were filed. Most of the premiums have been paid for
more than 60 days after the issuance. Also, no timely notice
__ of non-renewal was made by UCPB.

UCPB v Masagana G.R. No. 137172. April 4, 2001 The Supreme Court ruled against UCPB in the first case on
C.J. Davide the issue of whether the fire insurance policies issued by
petitioner to the respondent covering the period from May
22, 1991 to May 22, 1992 had been extended or renewed by
an implied credit arrangement though actual payment of
Facts: premium was tendered on a later date and after the
occurrence of the risk insured against.
In our decision of 15 June 1999 in this case, we reversed
and set aside the assailed decision[1] of the Court UCPB filed a motion for reconsideration.
of Appeals, which affirmed with modification the judgment of
the trial court (a) allowing Respondent to consign the sum of The Supreme Court, upon observing the facts, affirmed that
P225,753.95 as full payment of the premiums for there was no valid notice of non-renewal of the policies in
the renewal of the five insurance policies on Respondents question, as there is no proof at all that the notice sent by
properties; (b) declaring the replacement-renewal policies ordinary mail was received by Masagana. Also, the
effective and binding from 22 May 1992 until 22 May 1993; premiums were paid within the grace period.
and (c) ordering Petitioner to pay Respondent
P18,645,000.00 as indemnity for the burned properties
covered by the renewal-replacement policies. The
modification consisted in the (1) deletion of the trial courts Issue: Whether Section 77 of the Insurance Code of 1978
declaration that three of the policies were in force from must be strictly applied to Petitioners advantage despite its
August 1991 to August 1992; and (2) reduction of the award practice of granting a 60- to 90-day credit term for the
of the attorneys fees from 25% to 10% of the total amount payment of premiums.
due the Respondent.

Masagana obtained from UCPB five (5) insurance policies

on its Manila properties. Held: No. Petition denied.

The policies were effective from May 22, 1991 to May 22,
1992. On June 13, 1992, Masaganas properties were razed
by fire. On July 13, 1992, plaintiff tendered five checks for Ratio:
P225,753.45 as renewal premium payments. A receipt was
issued. On July 14, 1992, Masagana made its formal Section 77 of the Insurance Code provides: No policy or
demand for indemnification for the burned insured contract of insurance issued by an insurance company is
properties. UCPB then rejected Masaganas claims under valid and binding unless and until the premium thereof has
the argument that the fire took place before the tender of been paid
payment.
An exception to this section is Section 78 which
Hence Masagana filed this case. provides: Any acknowledgment in a policy or contract of
insurance of the receipt of premium is conclusive evidence
The Court of Appeals disagreed with UCPBs argument that of its payment, so far as to make the policy binding,
Masaganas tender of payment of the premiums on 13 July notwithstanding any stipulation therein that it shall not be
1992 did not result in the renewal of the policies, having binding until premium is actually paid.
been made beyond the effective date of renewal as provided
under Policy Condition No. 26, which states: Makati Tuscany v Court of Appeals- Section 77 may not
apply if the parties have agreed to the payment in
26. Renewal Clause. -- Unless the company at least forty installments of the premium and partial payment has been
five days in advance of the end of the policy period mails or made at the time of loss.
delivers to the assured at the address shown in the policy
notice of its intention not to renew the policy or Section 78 allows waiver by the insurer of the condition of
to condition its renewal upon reduction of limits prepayment and makes the policy binding despite the fact
or elimination of coverages, the assured shall be entitled to that premium is actually unpaid. Section 77 does not
renew the policy upon payment of the premium due on the expressly prohibit an agreement granting credit extension. At
effective date of renewal.
the very least, both parties should be deemed in estoppel to special power of authority in favor of Capt. Nuval and that it
question the arrangement they have voluntarily accepted. did not observe Sec 180(3), when it released the benefits
due to the minor children of Ayo and Lontok, when the said
The Tuscany case has provided another exception to complainants did notpost a bond as required-
Section 77 that the insurer may grant credit extension for the
payment of the premium. If the insurer has granted the Insular Life appealed to the CA. CA modified the decision of
insured a credit term for the payment of the premium and the Insurance Commission, eliminating the award to the
loss occurs before the expiration of the term, recovery on the minor children.
policy should be allowed even though the premium is paid
after the loss but within the credit term. Hence, this petition by the beneficiary families.

Moreover, there is nothing in Section 77 which prohibits the

parties in an insurance contract to provide a credit term
within which to pay the premiums. That agreement is not Issues:
against the law, morals, good customs, public order or public
policy. The agreement binds the parties. 1. WON Insular Life should still be liable to the complainants
when they relied on the special powers of attorney, which
It would be unjust if recovery on the policy would not be Capt. Nuval presented as documents, when they released
permitted against Petitioner, which had consistently granted the checks to the latter.
a 60- to 90-day credit term for the payment of
premiums. Estoppel bars it from taking refuge since 2. WON Insular Life should be liable to the complainants
Masagana relied in good faith on such practice. Estoppel when they released the check in favor of Ayo and Lontok,
then is the fifth exception. even if no bond was posted as required.

____
Pineda v Insular G.R. No. 105562 September 27,
1993 Held: Yes to both. Petition granted.
J. Davide Jr.

Ratio:
Facts:
1. The special powers of attorney "do not contain in
PMSI obtained a group insurance policy for its sailors. 6 of unequivocal and clear terms authority to Capt. Nuval to
the sailors, during the effectivity of the policy, perished while obtain, receive, receipt from respondent company insurance
the ship sank in Morocco. The families of the victims then proceeds arising from the death of the seaman-insured.
wanted to claim the benefits of the insurance. Hence, under
the advice of Nuval, the president of PMSI, they executed a Insular Life knew that a power of attorney in favor of Capt.
special power of attorney authorizing Capt. Nuval to, "follow Nuval for the collection and receipt of such proceeds was a
up, ask, demand, collect and receive" for their benefit the deviation from its practice with respect to group policies.
indemnities.
They gave the proceeds to the policyholder instead of
Insular drew against its account 6 checks, four for the beneficiaries themselves. Even the Isnular rep admitted
P200,00.00 each, one for P50,000.00 and another for that he gave the checks to the policyholder.
P40,00.00, payable to the order the families. The checks
were given to PMSI. Nuval, the PMSI president, pocketed Insular Life recognized Capt. Nuval as the attorney-in-fact of
the amounts in his bank account. the petitioners. However, it acted imprudently and
negligently in the premises by relying without question on the
When the families went to insular to get the benefits, their special power of attorney.
request was denied because Insular claimed that the checks
were already given to PMSI. Strong vs. Repide- third persons deal with agents at their
peril and are bound to inquire as to the extent of the power
The families filed a petition with the Insurance Commission. of the agent with whom they contract.
They won and Insular was ordered to pay them 500 a day
until the amount was furnished to them. The insurance Harry E. Keller Electric Co. vs. Rodriguez- The person
Commission held that the special powers dealing with an agent must also act with ordinary prudence
of attorney executed by complainants do not contain in and reasonable diligence. Obviously, if he knows or has
unequivocal and clear terms authority to Nuval to obtain and good reason to believe that the agent is exceeding his
receive from respondent company insurance proceeds authority, he cannot claim protection the party dealing with
arising from the death of the seaman-insured; also, that him may not shut his eyes to the real state of the case, but
Insular Life did not convincingly refuted the claim of should either refuse to deal with the agent at all, or should
Mrs. Alarcon that neither she nor her husband executed a ascertain from the principal the true condition of affairs.
Insular delivered the checks to a party not the agent of business. William Lines, Inc., the owner of M/V Manila City,
the beneficiaries. a luxury passenger-cargo vessel, which caught fire and
sank. At the time of the incident, subject vessel was insured
2. Art. 225. The father and the mother shall jointly exercise with Prudential for P45M for hull and machinery. CSEW was
legal guardianship over the property of their unemancipated insured for only Php 10 million for the shiprepairers liability
common child without the necessity of a court appointment. policy. They entered into a contract where negligence was
In case of disagreement, the father's decision shall prevail, the only factor that could make CSEW liable for damages.
unless there is judicial order to the contrary. Moreover, liability of CSEW was limited to only
Php 1million for damages. The Hull Policy included an
Where the market value of the property or the annual Additional Perils (INCHMAREE) Clause covering loss of or
income of the child exceeds P50,000, the parent concerned damage to the vessel through the negligence of, among
shall be required to furnish a bond in such amount as the others, ship repairmen.
court may determine, but not less than ten per centum (10%)
of the value of the property or annual income, to guarantee William brought Manila City to the dry dock of CSEW for
the performance of the obligations prescribed for general repairs. The officers and cabin crew stayed at the ship while
guardians. it was being repaired. After the vessel was transferred to the
docking quay, it caught fire and sank, resulting to its total
If the market value of the property or the annual income of loss.
the child exceeds P50,000.00, a bond has to be posted by
the parents concerned to guarantee the performance of the William brought suit against CSEW alleging that it was
obligations of a general guardian. through the latters negligence that the ship caught fire and
sank. Prudential was impleaded as co-plaintiff after it had
On group insurance : paid the value of insured items. It was subrogated to 45
million, or the value it claimed to indemnify.
Group insurance is essentially a single insurance contract
that provides coverage for many individuals, particularly for The trial court brought judgment against CSEW 45 million for
the employees of one employer. the ship indemnity, 65 million for loss of income, and more
than 13 million in other damages. The CA affirmed the TC
There is a master agreement issued to an employer. The decision.
employer acts as the collector of the dues and
premiums. Disbursement of insurance payments by the CSEW contended that the cause of the fire was due to
employer is also one of his duties. Williams hotworks on the said portion of the ship which they
didnt ask CSEW permission for.
They require an employee to pay a portion of the premium,
which the employer deducts from wages while the remainder Prudential, on the other hand, blamed the negligence of the
is paid by the employer. This is known as a contributory plan CSEW workers in the instance when they didnt mind rubber
as compared to a non-contributory plan where the premiums insulation wire coming out of the air-conditioning unit that
are solely paid by the employer. was already burning.

Although the employer may be the policyholder, the Hence this MFR.
insurance is actually for the benefit of the employee. In a
non-contributory plan, the payment by the employer of the
entire premium is a part of the total compensation paid for
the services of the employee. Issue:

The primary aim of group insurance is to provide the 1. WON CSEW had management and supervisory control
employer with a means of procuring insurance protection for of the ship at the time the fire broke out
his employees at a low cost and thereby retain their loyalty
and efficiency. 2. WON the doctrine of res ipsa loquitur applies against the
crew
___
3. WON Prudential has the right of subrogation against its
Cebu Shipyard v William G.R. No. 132607. May 5, own insured
1999
J. Purisima 4. WON the provisions limiting CSEWs liability for
negligence to a maximum of Php 1 million are valid

Facts:
Held: Yes. Yes. Yes. No. Petition denied.
Cebu Shipyard and Engineering Works, Inc. repaired marine
vessels while the Prudential is in the non-life insurance
Ratio: When Prudential paid the latter the total amount covered by
its insurance policy, it was subrogated to the right of the
1. The that factual findings by the CA are conclusive on the latter to recover the insured loss from the liable party,
parties and are not reviewable by this Court. They are CSEW.
entitled to great weight and respect when the CA affirmed
the factual findings arrived at by the trial court. Petitioner theorizes further that there can be no right of
subrogation as it is deemed a co-assured under the subject
The CA and the Cebu RTC are agreed that the fire which insurance policy with reliance on Clause 20 of the Work
caused the total loss of subject M/V Manila City was due to Order which states:
the negligence of the employees and workers of CSEW.
20. The insurance on the vessel should be maintained by the
Furthermore, in petitions for review on certiorari, only customer and/or owner of the vessel during the period the
questions of law may be put into issue. Questions of fact contract is in effect.
cannot be entertained.
Clause 20 of the Work Order in question is clear in the sense
2. For the doctrine of res ipsa loquitur to apply to a given that it requires William Lines to maintain insurance on the
situation, the following conditions must concur: (1) the vessel during the period of dry-docking or repair. However,
accident was of a kind which does not ordinarily occur the fact that CSEW benefits from the said stipulation does
unless someone is negligent; and (2) that the instrumentality not automatically make it as a co-assured of William Lines.
or agency which caused the injury was under the exclusive The intention of the parties to make each other a co-assured
control of the person charged with negligence. under an insurance policy is to be read from the insurance
contract or policy itself and not from any other contract or
The facts and evidence reveal the presence of these agreement because the insurance policy denominates
conditions. First, the fire would not have happened in the the beneficiaries of the insurance. The hull and machinery
ordinary course of things if reasonable care and diligence insurance procured by William Lines, Inc. from Prudential
had been exercised. named only William Lines, Inc. as the assured. There was
no manifestation of any intention of William Lines, Inc. to
Second, the agency charged with negligence, as found by constitute CSEW as a co-assured under subject policy. The
the trial court and the CA and as shown by the records, is claim of CSEW that it is a co-assured is unfounded.
CSEW, which had control over subject vessel when it was
docked for annual repairs. Then too, in the Additional Perils Clause of the same Marine
Insurance Policy, it is provided that this insurance also
What is more, in the present case the trial court found direct covers loss of or damage to vessel directly caused by the
evidence to prove that the workers didnt exercise due negligence of charterers and repairers who are not assured.
diligence in the care of subject vessel. The direct evidence
substantiates the conclusion that CSEW was really negligent As correctly pointed out by respondent Prudential, if CSEW
even without applying such doctrine. were deemed a co-assured under the policy, it would nullify
any claim of William Lines, Inc. from Prudential for any loss
3. Petitioner contends that Prudential is not entitled to be or damage caused by the negligence of CSEW. Certainly, no
subrogated to the rights of William Lines, Inc., theorizing that shipowner would agree to make a shiprepairer a co-assured
(1) the fire which gutted M/V Manila City was an excluded under such insurance policy; otherwise, any claim for loss or
risk and (2) it is a co-assured under the Marine Hull damage under the policy would be invalidated.
Insurance Policy. This was wrong. The one who caused the
fire has already been adjudicated by the courts as CSEW. 4. Although in this jurisdiction, contracts of adhesion have
been consistently upheld as valid per se; as binding as an
Upon proof of payment by Prudential to William Lines, Inc., ordinary contract, the Court recognizes instances when
the former was subrogated to the right of the latter to reliance on such contracts cannot be favored especially
indemnification from CSEW. As aptly ruled by the Court where the facts and circumstances warrant that subject
of Appeals, the law says: stipulations be disregarded. Thus, in ruling on the validity
and applicability of the stipulation limiting the liability
Art. 2207. If the plaintiffs property has been insured, and he of CSEW for negligence to P1M only, the facts and
has received indemnity from the insurance company for the circumstances vis-a-vis the nature of the provision sought to
injury or loss arising out of the wrong or breach of contract be enforced should be considered, bearing in mind the
complained of, the insurance company shall be subrogated principles of equity and fair play.
to the rights of the insured against the wrongdoer or the
person who has violated the contract. If the amount paid by It is worthy to note that M/V Manila City was insured with
the insurance company does not fully cover the injury or Prudential for P45M. Upon thorough investigation by its hull
loss, the aggrieved party shall be entitled to recover the surveyor, M/V Manila City was found to be beyond
deficiency from the person causing the loss or injury. economical salvage and repair. The evaluation of the
average adjusteralso reported a constructive total loss. The
said claim of William Lines, Inc., was then found to be valid
and compensable such that Prudential paid the latter the apply when the total insurance or insurances in force at the
total value of its insurance claim. Furthermore, it was time of loss or damage not more than P200,000.00.
ascertained that the replacement cost of the vessel, amounts
to P55M. Sy never disclosed co-insurance in the contracts he entered
into with the three corporations. The insured is specifically
Considering the circumstances, it would unfair to limit the required to disclose the insurance that he had contracted
liability of petitioner to One Million Pesos only. To allow with other companies. Sy also contended that the insurance
CSEW to limit its liability to P1M notwithstanding the fact that agents knew of the co-insurance. However, the theory of
the total loss suffered by the assured and paid for by imputed knowledge, that the knowledge of the agent is
Prudential amounted to P45M would sanction the exercise of presumed to be known by the principal, is not enough.
a degree of diligence short of what is ordinarily required
because, then, it would not be difficult for petitioner to When the words of the document are readily understandable
escape liability by the simple expedient of paying an amount by an ordinary reader, there is no need
very much lower than the actual damage suffered by for constructionanymore.
William.
The conformity of the insured to the terms of the policy is
__ implied with his failure to disagree with the terms of the
contract.
New Life v CA G.R. No. 94071 March 31, 1992
J. Regalado Since Sy, was a businessman, it was incumbent upon him to
read the contracts.

Pioneer Insurance and Surety Corporation vs. Yap- The

Facts: obvious purpose of the aforesaid requirement in the policy is
to prevent over-insurance and thus avert the perpetration of
Julian Sy, owner of New Life, insured his building in 3 fraud. The public, as well as the insurer, is interested in
different insurance agencies for 350,000, 1,000,000, and preventing the situation in which a fire would be profitable to
200,000. When his building and the goods the insured.
inside burned down, he claimed for insurance indemnities,
but these were rejected by the three companies for violation Also, policy condition 15 was used. It stated: 15.. . . if any
of policy conditions. false declaration be made or used in support thereof, . . . all
benefits under this Policy shall be forfeited . . .
Sy filed for 3 different suits in the trial court, where he won all
suits against the insurance companies. The court As for condition number 27, the stipulation read:
of appealsreversed the decision of the trial court.
27. Action or suit clause. If a claim be made and rejected
and an action or suit be not commenced either in the
Insurance Commission or any court of competent jurisdiction
Issue: Did the petitioner violate conditions 3 and 27 of the of notice of such rejection, or in case of arbitration taking
three insurance policies, thereby foreiting collection of place as provided herein, within twelve (12) months after due
indemnities? notice of the award made by the arbitrator or arbitrators or
umpire, then the claim shall for all purposes be deemed to
have been abandoned and shall not thereafter be
recoverable hereunder.
Held: Yes.
This is regarding Sys claim for one of the companies.
Recovery was filed in court by petitioners only on January
31, 1984, or after more than one (1) year had elapsed from
Ratio: petitioners' receipt of the insurers' letter of denial on
November 29, 1982. This made it void.
Condition 3. The insured shall give notice to the Company of
any insurance or insurances already effected, or which may __
subsequently be effected, covering any of the property or
properties consisting of stocks in trade, goods in process
and/or inventories only hereby insured, and unless such
notice be given and the particulars of such insurance or
insurances be stated therein or endorsed on this
policy pursuant to Section 50 of the Insurance Code, by or
on behalf of the Company before the occurrence of any loss
or damage, all benefits under this policy shall be deemed
forfeited, provided however, that this condition shall not
 The terms
Insurance Case Digest: New Life Enterprises V. Court Of
of the contract are clear and unambiguous.

Appeals (1992)
The insured is specifically required to disclose to

the insurer any other insurance and its

G.R. No. 94071 March 31, 1992 particulars which he may have effected on the
Lessons Applicable: Requisites of Double insurance same subject matter.
(Insurance) The knowledge of such insurance

by the insurer's agents, even assuming the

FACTS: acquisition thereof by the former,

is not the "notice" that would estop the insurers

May 15, 1981: Western Guaranty Corporation
from denying the claim.
issued Fire Insurance Policy to New Life
conclusion of
Enterprises foar P350,000
the trial court that Reliance and Equitable are "si
renewed on May, 13, 1982
ster
July 30,1981: Reliance Surety and Insurance
companies" is an unfounded conjecture drawn fr
Co., Inc. issued Fire Insurance Policy to New Life
om the mere fact that Yap Kam Chuan was
Enterprises for P300,000
an agent for both companies which also had the
November 12, 1981; Additional P700,000
same insurance claims adjuster
February 8, 1982: Equitable Insurance
Availmentof the
Corporation issued Fire Insurance Policy to New
services of the same agents and adjusters by dif
Life Enterprises for P200,000
ferent companies is a
October 19, 1982 2 am: fire electrical in nature
common practice in the insurancebusiness and
destroyed the stock in trade worth P1,550,000
such facts
Julian Sy went to Reliance to claim but he was
do not warrant the speculative conclusion of the
refused. Same thing happened with the others
trial court.
who were sister companies.
The conformity of the insured to the terms of
Sy violated the "Other Insurance Clause"
the policy isimplied from his failure to
RTC: favored New Life and against the three
express any disagreement with
insurance companies
what is provided for.
CA: reversed -failure to state or endorse the
a clear misrepresentation and a vital one
other insurance coverage
because where the insured had been asked to
ISSUE: W/N Sy can claim against the three
reveal but did not, that was deception -
insurance companies for violating
guilty of clear fraud
the "Other Insurance Clause"
total absence of such notice nullifies the policy

assuming arguendo that petitioners felt the

legitimate need to be clarified as to the policy condition

violated, there was a considerable lapse of time from their

HELD: NO. receipt of the insurer's clarificatory letter dated March 30,

1983, up to the time the complaint was filed in court on

 TKC Marketing imported 3,000 metric tons of soya from
January 31, 1984. The one-year prescriptive period was yet Brazil to Manila. It was insured by Malayan at the value of
toexpire on November 29, 1983, or about eight (8) months almost 20 million pesos. The vessel, however, was stranded
on South Africa because of a lawsuit regarding the
from the receipt of the clarificatory letter, but petitioners let possession of the soya. TKC consulted Malayan on recovery
the period lapse without bringing their action in court of the amount, but the latter claimed that it wasnt covered by
the policy. The soya was sold in Africa for Php 10 million, but
TKC wanted Malayan to shoulder the remaining value of 10
\___ million as well.

First Quezon City v CA GR. 98414 Feb 8, 1993 Petitioner filed suit due to Malayans reticence to pay.
J. Grino-Aquino Malayan claimed that arrest by civil authorities wasnt
covered by the policy. The trial court ruled in TKCs favor
with damages to boot. The appellate court affirmed the
decision under the reason that clause 12 of the policy
Facts: regarding an excepted risk due to arrest by civil authorities
was deleted by Section 1.1 of the Institute
One Jose del Rosario was injured while boarding a bus War Clauses which covered ordinary arrests by civil
owned by DMTC in the Manila International Airport. He authorities. Failure of the cargo to arrive was also covered
was hospitalized for forty days. He filed suit against the bus by the Theft, Pilferage, and Non-delivery Clause of the
company and the court granted him of over 100,000 pesos contract. Hence this petition.
in damages. The appellate court reduced damages to
55,090 pesos. The insurance companys liability was limited
to 12,000. The amount for insurance was made Php 50,000
in the appellate courts decision. Issues:

First Quezon City, the insurer of DTMC, filed a motion for 1. WON the arrest of the vessel was a risk covered under
reconsideration to limit the damages back to 12,000 pesos, the subject insurance policies.
the amount stipulated in the contract. This was denied hence
this petition for review. 2. WON the insurance policies must strictly construed
against the insurer.

Issue: Can the amount of the insurance companys liability

be limited to Php 12,000? Held: Yes. Yes. Petition dismissed.

Held: Yes Ratio:

1. Section 12 or the "Free from Capture & Seizure Clause"

states: "Warranted free of capture, seizure, arrest, restraint
Ratio: The contract stipulated liability at Php 12,000 per or detainment, and the consequences thereof or of any
passenger and at Php 50,000 as the maximum liability per attempt thereat Should Clause 12 be deleted, the relevant
accident. This means that the insurers liability for a single current institute war clauses shall be deemed to form part of
accident will not exceed 50,000 pesos. The court gave the this insurance.
example of 10 persons injured leaving a total of Php 120,000
in insurance liability payments. But with the Php 50,000 limit, This was really replaced by the subsection 1.1 of section 1 of
only such value was to be paid by the company to the Institute War Clauses (Cargo) which included the risks
insured. excluded from the standard form of English Marine Policy by
the clause warranted free of capture, seizure, arrest,
restraint or detainment, and the consequences thereof of
hostilities or warlike operations, whether there be a
__ declaration of war or not.

Malayan Insurance Corp vs CA G.R. 119599 March The petitioners claim that the Institute War Clauses can be
20, 1997 operative in case of hostilities or warlike operations on
J. Romero account of its heading "Institute War Clauses" is not tenable.
It reiterated the CAs stand that its interpretation in recent
years to include seizure or detention by civil authorities
seems consistent with the general purposes of the clause.
Facts:
This interpretation was regardless of the fact whether the not among those included in the Schedule of Indemnities set
arrest was in war or by civil authorities. forth in the insurance policy.

The petitioner was said to have confused the Institute

War clauses and the F.C.S. in English law.
Held: Yes. Petition dismissed.
It stated that "the F.C. & S. Clause was "originally
incorporated in insurance policies to eliminate the risks of
warlike operations". It also averred that the F.C. &
S. Clause applies even if there be no war or warlike Ratio:
operations. In the same vein, it contended that subsection
1.1 of Section 1 of the Institute War Clauses (Cargo) The policy states:
"pertained exclusively to warlike operations" and yet it also
stated that "the deletion of the F.C. & S. Clause and the Section 1. Liability to the Public Company will, subject to
consequent incorporation of subsection 1.1 of Section 1 of the Limits of Liability, pay all sums necessary to discharge
the Institute War Clauses (Cargo) was to include "arrest, etc. liability of the insured in respect of
even if it were not a result of hostilities or warlike
operations." (a) death of or bodily injury to or damage to property of
any passenger as defined herein.
The court found that the insurance agency tried to interpret
executive and political acts as those not including ordinary There was also a schedule of indemnities that specified a
arrests in the exceptions of the FCS clause , and claims that certain amount for a certain type of injury as well as hospital
the War Clauses now included executive and political acts service payments.
without including ordinary arrests in the new stipulation.
In this case, the limits on the amount payable for certain
A strained interpretation which is unnatural and forced, as to kinds of expenses were not considered by the court as
lead to an absurd conclusion or to render the policy excluding liability for any other type of expense or damage
nonsensical, should, by all means, be avoided. or loss even though actually sustained or incurred by the
third party victim.
2. Indemnity and liability insurance policies are construed in
accordance with the general rule of resolving The court noted that the limits of the liability was at 50,000
any ambiguitytherein in favor of the insured, where the per person per accident. Construing this with section 1
contract or policy is prepared by the insurer. A contract of means that all kinds of damages allowable by law were also
insurance, being a contract of adhesion, means that to be covered by the policy once it was shown that liability
any ambiguity should be resolved against the insurer. has arisen.

__ The schedule of indemnities was not a closed enumeration

of the kinds of damages Western can award.
Western Guaranty v CA G.R. No. 91666 July 20,
1990 Western should have used far more specific language, not
J. Feliciano the pay all sums necessary to discharge liability clause.

Insurance contracts must be read by the courts with a

jaundiced eye to prevent the insurer from escaping from its
Facts: obligation. Also, contracts of adhesion such as policies msut
be construed against the party who made them, in this case
Priscilla Rodriguez was struck by a bus owned by De Dios. western.
She was hospitalized and her face was permanently
disfigured. Western Guaranty, the insurance company of the __
bus line, was obliged to pay due to the bodily injury caused
by the bus. Rodriguez was able to earn a money judgment
Qua Chee Gan v. Law Union Rock - Breach of Warranty
from the court to the tune of 3000 for actual damages, 1500
for loss of earning capacity, and 20000 for
moral damages and attorneys fees. De Dios filed a 98 PHIL 85
complaint against Western to indemnify the amount.
Western lost the case in the appellate court, hence this
petition.
Facts:

> Qua Chee Gan, a merchant, owned 4 warehouses in

Albay which were used for the storage or copra and hemp in
Issue: Is Western liable for paying loss of earnings, which the appelle deals with exclusively.
moral damages and attorney's fees even if these items are
> The warehouses together with the contents were insured positive fraud, as to be abhorrent to fair-minded men. It
with Law Union since 1937 and the loss made payable to would be to allow the company to treat the policy as valid
PNB as mortgagee of the hemp and copra. long enough to get the premium on it, and leave it at liberty
to repudiate it the next moment.
> A fire of undetermined cause broke out in July 21, 1940
and lasted for almost 1 whole week.

> Bodegas 1, 3, and 4 including the merchandise stored Moreover, taking into account the well-known rule that
were destroyed completely. ambiguities or obscurities must strictly be interpreted against
the party that cause them, the memorandum of warranty
> Insured then informed insurer of the unfortunate event and invoked by the insurer bars the latter from questioning the
submitted the corresponding fire claims, which were later existence of the appliances called for, since its initial
reduced to P370T. expression the undernoted appliances for the extinction of
fire being kept on the premises insured hereby.. admits of
> Insurer refused to pay claiming violations of the warranties the interpretation as an admission of the existence of such
and conditions, filing of fraudulent claims and that the fire appliances which insurer cannot now contradict, should the
had been deliberately caused by the insured. parole evidence apply.
> Insured filed an action before CFI which rendered a
decision in favor of the insured.
(2) Whether or not the insured violated the hemp warranty
provision against the storage of gasoline since insured
admitted there were 36 cans of gasoline in Bodega 2 which
Issues and Resolutions: was a separate structure and not affected by the fire.

(1) Whether or not the policies should be avoided for the

reason that there was a breach of warranty.
It is well to note that gasoline is not specifically mentioned
among the prohibited articles listed in the so-called hemp
warranty. The clause relied upon by the insurer speaks of
Under the Memorandum of Warranty, there should be no oils. Ordinarily, oils mean lubricants and not gasoline or
less than 1 hydrant for each 150 feet of external wall kerosene. Here again, by reason of the exclusive control of
measurements of the compound, and since bodegas insured the insurance company over the terms of the contract, the
had an external wall per meter of 1640 feet, the insured ambiguity must be held strictly against the insurer and
should have 11 hydrants in the compound. But he only had liberally in favor of the insured, specially to avoid a forfeiture.
2.

Furthermore, the gasoline kept was only incidental to the

Even so, the insurer is barred by estoppel to claim violation insureds business. It is a well settled rule that keeping of
of the fire hydrants warranty, because knowing that the inflammable oils in the premises though prohibited by the
number of hydrants it demanded never existed from the very policy does NOT void it if such keeping is incidental to the
beginning, appellant nevertheless issued the policies subject business. Also, the hemp warranty forbade the storage only
to such warranty and received the corresponding in the building to which the insurance applies, and/or in any
premiums. The insurance company was aware, even before building communicating therewith; and it is undisputed that
the policies were issued, that in the premises there were no gasoline was stored in the burnt bodegas and that
only 2 hydrants and 2 others were owned by the Bodega No. 2 which was where the gasoline was found
Municipality, contrary to the requirements of the warranties stood isolated from the other bodegas.
in question.
__

Sun v CA G.R. No. 92383 July 17, 1992

It should be close to conniving at fraud upon the insured to J. Cruz
allow the insurer to claim now as void the policies it issued to
the insured, without warning him of the fatal defect, of which
the insurer was informed, and after it had misled the insured
into believing that the policies were effective.
Facts:

Lim accidentally killed himself with his gun after removing

Accdg to American Jurisprudence: It is a well-settled rule
that the insurer at the time of the issuance of a policy has the magazine, showing off, pointing the gun at his secretary,
the knowledge of existing facts, which if insisted on, would and pointing the gun at his temple. The widow, the
invalidate the contract from its very inception, such beneficiary, sued the petitioner and won 200,000 as
knowledge constitutes a waiver of conditions in the contract indemnity with additionalamounts for other damages and
inconsistent with known facts, and the insurer is stopped attorneys fees. This was sustained in the Court
thereafter from asserting the breach of such conditions. The of Appeals then sent to the Supreme court by the insurance
reason for the rule is: To allow a company to accept ones
company.
money for a policy of insurance which it knows to be void
and of no effect, though it knows as it must that the insured
believes it to be valid and binding is so contrary to the
dictates of honesty and fair dealing, as so closely related to
Issue: Rizal Surety issued a 1 million peso fire insurance policy with
Transworld. This was increased to 1.5 million. A four span
1. Was Lims widow eligible to receive the benefits? building was part of the policy. A fire broke out and gutted
the building, together with a two storey building behind it
2. Were the other damages valid? were gaming machines were stored. The company filed its
claims but to no avail. Hence, it brought a suit in court. It
aimed to make Rizal pay for almost 3 million including legal
interest and damages. Rizal claimed that the policy only
Held: covered damage on the four span building and not the two
storey building. The trial court ruled in Transworlds favor
1. Yes 2. No and ordered Rizal to pay actual damages only. The court
of appeals increased the damages. The insurance company
Ratio: 1. There was an accident. filed a MFR. The CA answered by modifying the imposition
of interest. Not satisfied, the insurance company petitioned
De la Cruz v. Capital Insurance says that "there is no
to the Supreme Court.
accident when a deliberate act is performed unless
some additional, unexpected, independent and unforeseen
happening occurs which produces or brings about their injury
or death." This was true when he fired the gun. Issue:

Under the insurance contract, the company wasnt liable for WON Rizal Surety is liable for loss of the two-storey building
bodily injury caused by attempted suicide or by one considering that the fire insurance policy sued upon covered
needlessly exposing himself to danger except to save only the contents of the four-span building.
anothers life.

Lim wasnt thought to needlessly expose himself

to danger due to the witness testimony that he took steps to Held: Yes. Petition dismissed.
ensure that the gun wasnt loaded. He even assured his
secretary that the gun was loaded.

There is nothing in the policy that relieves the insurer of the Ratio:
responsibility to pay the indemnity agreed upon if the insured
is shown to have contributed to his own accident. The policy had clauses on the building coverage that read:

2. In order that a person may be made liable to the payment "contained and/or stored during the currency of this Policy in
of moral damages, the law requires that his act be wrongful. the premises occupied by them forming part of
The adverse result of an action does not per se make the act the buildingssituated within own Compound"
wrongful and subject the act or to the payment of
moral damages. The law could not have meant to impose a "First, said properties must be contained and/or stored in the
penalty on the right to litigate; such right is so precious that areas occupied by Transworld and second, said areas must
moral damages may not be charged on those who may form part of the building described in the policy xxx"
exercise it erroneously. For these the law taxes costs.
This generally means that the policy didnt limit its coverage
If a party wins, he cannot, as a rule, recover attorney's fees to what was stored in the four-span building.
and litigation expenses, since it is not the fact of
winning alonethat entitles him to recover such damages of As to questions of fact, both the trial court and the Court
the exceptional circumstances enumerated in Art. 2208. of Appeals found that the so called "annex " was not
Otherwise, every time a defendant wins, automatically the an annexbuilding but an integral part of the four-span
plaintiff must pay attorney's fees thereby putting a premium building described in the policy and consequently, the
on the right to litigate which should not be so. For those machines and spare parts stored were covered by the fire
expenses, the law deems the award of costs as sufficient. insurance.

You might also like: A report said: "Two-storey building constructed of partly
timber and partly concrete hollow blocks under g.i. roof
__ which is adjoining and intercommunicating with the
repair of the first right span of the lofty storey building and
Rizal Surety v CA G.R. No. 112360. July 18, 2000 thence by property fence wall."
J. Purisima
"Art.1377. The interpretation of obscure words or stipulations
in a contract shall not favor the party who caused the
obscurity"
Facts:
 Landicho v GSIS- the 'terms in an insurance policy, which should have specifically excluded the said two-storey
are ambiguous, equivocal, or uncertain are to be construed building from the coverage of the fire insurance if minded to
strictly and most strongly against the insurer, and liberally in exclude the same but if did not, and instead, went on to
favor of the insured so as to effect the dominant purpose of provide that such fire insurance policy covers the products,
indemnity or payment to the insured raw materials and supplies stored within the premises of
Transworld which was an integral part of the four-span
The issue of whether or not Transworld has an insurable building occupied by Transworld, knowing fully well the
interest in the fun and amusement machines and spare existence of such building adjoining and intercommunicating
parts, which entitles it to be indemnified for the loss thereof, with the right section of the four-span building.
had been settled in another SC case.
Also, in case of doubt in the stipulation as to the coverage of
___ the fire insurance policy, under Art. 1377 of the New Civil
Code, the doubt should be resolved against the Rizal Surety,
whose layer or managers drafted the fire insurance policy
contract under scrutiny.
Rizal Surety vs. CA
on 11:25 PM in Case Digests, Commercial Law In Landicho vs. Government Service Insurance System, the
0 Court ruled that the terms in an insurance policy, which are
ambiguous, equivocal or uncertain x x x are to be construed
336 SCRA 12 (2000) strictly and 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 insured, especially where
forfeiture is involved, and the reason for this is that the
insured usually has no voice in the selection or arrangement
o INSURANCE LAW: Interpretation of Insurance Contracts of the words employed and that the language of the contract
is selected with great care and deliberation by experts and
FACTS: legal advisers employed by, and acting exclusively in the
interest of, the insurance company.
Rizal Surety & Insurance Company issued a fire insurance
policy in favor of Transworld Knitting Mills, Inc. The subject ___
policy stated that Rizal Surety is responsible in case of loss
whilst contained and/or stored during the currency of this PERLA COMPANIA DE SEGUROS, INC vs. CA and CAYAS
Policy in the premises occupied by them forming part of the G.R. No. 78860
buildings situated within own Compound xxx. The policy May 28, 1990
also described therein the four-span building covered by the FACTS: Cayas was the registered owner of a Mazda bus
same. which was insured with petitioner PERLA COMPANIA DE
SEGUROS, INC (PCSI). The bus figured in an accident in
Cavite, injuring several of its passengers. One of them, Perea,
On Jan. 12, 1981, fire broke out in the compound, razing the sued Cayas for damages in the CFI, while three others agreed
middle portion of its four-span building and partly gutting the to a settlement of P4,000.00 each with Cayas.
left and right sections thereof. A two-storey building (behind After trial, the court rendered a decision in favor of Perea,
said four-span building) was also destroyed by the fire. Cayas ordered to compensate the latter with damages. Cayas
filed a complaint with the CFI, seeking reimbursement from
PCSI for the amounts she paid to ALL victims, alleging that
ISSUE:
the latter refused to make such reimbursement
notwithstanding the fact that her claim was within its
contractual liability under the insurance policy.

o Whether or not Rizal Surety is liable for loss of the two-storey

building considering that the fire insurance policy sued upon The decision of the CA affirmed in toto the decision of the
covered only the contents of the four-span building RTC of Cavite, the dispositive portion of which states:
IN VIEW OF THE FOREGOING, judgment is hereby
HELD: rendered ordering defendant PCSI to pay plaintiff Cayas the
sum of P50,000.00 under its maximum liability as provided
for in the insurance policy;
Both the trial court and the CA found that the so-called
annex as not an annex building but an integral and
inseparable part of the four-span building described in the
In this petition for review on certiorari, petitioner seeks to
policy and consequently, the machines and spare parts limit its liability only to the payment made by private
stored therein were covered by the fire insurance in dispute. respondent to Perea and only up to the amount of
P12,000.00. It altogether denies liability for the payments
So also, considering that the two-storey building made by private respondents to the other 3 injured
aforementioned was already existing when subject fire passengers totaling P12,000.00.
insurance policy contract was entered into on Jan. 12, 1981,
having been constructed some time in 1978, petitioner
ISSUE: how much should PCSI pay? The court ordered ordering PCSI to pay Cayas P50,000
as compensation.
HELD: The decision of the CA is modified, petitioner only to
pay Cayas P12,000,000.00 PCSI appealed to the Court of Appeals, which affirmed the
The insurance policy provides: lower court's decision.

Its motion for reconsideration having been denied, PCSI filed

this petition
5. No admission, offer, promise or payment shall be made by
or on behalf of the insured without the written consent of the
Company
Issue:
It being specifically required that petitioners written consent
be first secured before any payment in settlement of any
WON PCSIs liability is limited only to the payment made by
claim could be made, private respondent is precluded from
seeking reimbursement of the payments made to the other 3 private respondent to the victim and only up to the amount of
victims in view of her failure to comply with the condition P12,000.00.
contained in the insurance policy.

Held: Yes. Petition dismissed.

Also, the insurance policy involved explicitly limits
petitioners liability to P12,000.00 per person and to
P50,000.00 per accident
Ratio:

The insurance policy involved explicitly limits petitioner's

liability to P12,000.00 per person and to P50,000.00 per
Clearly, the fundamental principle that contracts are accident.
respected as the law between the contracting parties finds
application in the present case. Thus, it was error on the part Stokes vs. Malayan- terms of the contract constitute the
of the trial and appellate courts to have disregarded the measure of the insurer's liability and compliance is
stipulations of the parties and to have substituted their own a conditionprecedent to the insured's right of recovery from
interpretation of the insurance policy.
the insurer.
We observe that although Cayas was able to prove a total loss
of only P44,000.00, petitioner was made liable for the The insurance policy placed liability for all damages arising
amount of P50,000.00, the maximum liability per accident out of death or bodily injury sustained by one person as a
stipulated in the policy. This is patent error. An insurance result of any one accident at P12,000.00.
indemnity, being merely an assistance or restitution insofar
as can be fairly ascertained, cannot be availed of by any Section 377 of Presidential Decree No. 612, which provided
accident victim or claimant as an instrument of enrichment
that the liability of land transportation vehicle operators for
by reason of an accident.
bodily injuries sustained by a passenger arising out of the
use of their vehicles shall not be less than P12,000.
___
Minimum liability is P12,000 per passenger. Not contrary to
Perla v Cayas 185 SCRA 741 May 28, 1990 law, morals, good customs, public order or public policy, said
J. Fernan stipulation must be upheld as effective, valid and binding as
between the parties.

In like manner, we rule as valid and binding upon private

Facts: respondent the condition requiring her to secure the
written permission of petitioner before effecting any payment
Milagros Cayas was the registered owner of a Mazda bus, in settlement of any claim against her. This was designed to
insured with Perla Compania de Seguros, Inc. (PCSI) under safeguard the insurer's interest against collusion between
a policy issued on February 3, 1978. The bus encountered the insured and the claimants.
an accident. One victim sued while the others entered into a
settlement. He won P32,000. It being specifically required that petitioner's written consent
be first secured before any payment in settlement of any
Cayas filed a complaint for a sum of money and damages claim could be made. Cayas is precluded from seeking
against PCSI in the Court of First Instance of Cavite. The reimbursement of the payments made to the three other
court eventually dismissed. She filed an MFR. She filed a passangers in view of her failure to comply with
motion to declare PCSI in default for its failure to file an the condition contained in the insurance policy.
answer.
Clearly, the fundamental principle that contracts are
respected as the law between the contracting parties
finds applicationin the present case.

In Phil. American General Insurance Co., Inc vs. Mutuc, we

ruled that contracts which are the private laws of the
contracting parties should be fulfilled according to the literal
sense of their stipulations, if their terms are clear and leave
no room for doubt as to the intention of the contracting
parties, for contracts are obligatory, no matter what form
they may be, whenever the essential requisites for their
validity are present.

Although Milagros Cayas was able to prove a total loss of

only P44,000.00, petitioner was made liable for the amount
of P50,000.00, the maximum liability. This was wrong. An
insurance indemnity, being merely an assistance or
restitution insofar as can be fairly ascertained, cannot be
availed of by any accident victim or claimant as an
instrument of enrichment.

You might also like:

__

Amerivcan homenone