TOPIC: CONTRACT OF INSURANCE

TITLE: MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES

DEPARTMENT, petitioners, vs. COURT OF APPEALS, SOUTH SEA SURETY AND
INSURANCE CO., INC. and the CHARTER INSURANCE CORPORATION, respondents.

G.R. No. 124050 June 19, 1997

FACTS:

In 1983, Hongkong Government Supplies Department (HGSD) contracted Mayer Steel

Pipe Corporation for the latter to manufacture and deliver various steel pipes and fittings. Before
Mayer Steel shipped the said pipes, it insured them with two insurance companies namely,
South Sea Surety and Insurance Co., Inc. and Charter Insurance Corporation – each insurer
covering different portions of the shipment. The insurance policies cover “all risks” which include
all causes of conceivable loss or damage.
When the pipes reached Hongkong, the pipes were discovered to have been damaged.
The insurance companies refused to make payment. On April 17 1986, Mayer Steel sued the
insurance companies. The case reached the Court of Appeals. The CA ruled that the case filed
by Mayer Steel should be dismissed. It held that the action is barred under Section 3(6) of the
Carriage of Goods by Sea Act since it was filed only on April 17, 1986, more than two years
from the time the goods were unloaded from the vessel. Section 3(6) of the Carriage of Goods
by Sea Act provides that “the carrier and the ship shall be discharged from all liability in respect
of loss or damage unless suit is brought within one year after delivery of the goods or the date
when the goods should have been delivered.” The CA ruled that this provision applies not only
to the carrier but also to the insurer, citing the case of Filipino Merchants Insurance Co., Inc. vs
Alejandro.
ISSUE:
Whether or not the Court of Appeals is correct.
HELD:
No. Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship
shall be discharged from all liability for loss or damage to the goods if no suit is filed within one
year after delivery of the goods or the date when they should have been delivered. Under this
provision, only the carrier’s liability is extinguished if no suit is brought within one year. But the
liability of the insurer is not extinguished because the insurer’s liability is based not on the
contract of carriage but on the contract of insurance. A close reading of the law reveals that the
Carriage of Goods by Sea Act governs the relationship between the carrier on the one hand and
the shipper, the consignee and/or the insurer on the other hand. It defines the obligations of the
carrier under the contract of carriage. It does not, however, affect the relationship between the
shipper and the insurer. The latter case is governed by the Insurance Code.
The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it
was the insurer which filed a claim against the carrier for reimbursement of the amount it paid to
the shipper. In the case at bar, it was the shipper which filed a claim against the insurer. The
basis of the shipper’s claim is the “all risks” insurance policies issued by the insurers to Mayer
Steel.
The ruling in Filipino Merchants should apply only to suits against the carrier filed either
by the shipper, the consignee or the insurer.
TOPIC: DOING OR TRANSACTING AN INSURANCE BUSINESS
TITLE: PHIL. HEALTH CARE PROVIDERS, INC vs. COMMISSIONER OF INTERNAL
REVENUE
GR. NO. 1677330 September 18, 2009

FACTS:

Petitioner is a domestic corporation whose primary purpose is to establish, maintain,

conduct and operate a prepaid group practice health care delivery system or a health
maintenance organization to take care of the sick and disabled persons enrolled in the health
care plan and to provide for the administrative, legal, and financial responsibilities of the
organization. On January 27, 2000, respondent CIR sent petitioner a formal deman letter and
the corresponding assessment notices demanding the payment of deficiency taxes, including
surcharges and interest, for the taxable years 1996 and 1997 in the total amount of
P224,702,641.18. The deficiency assessment was imposed on petitioner’s health care
agreement with the members of its health care program pursuant to Section 185 of the 1997
Tax Code. Petitioner protested the assessment in a letter dated February 23, 2000. As
respondent did not act on the protest, petitioner filed a petition for review in the Court of Tax
Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments. On April
5, 2002, the CTA rendered a decision, ordering the petitioner to PAY the deficiency VAT
amounting to P22,054,831.75 inclusive of 25% surcharge plus 20% interest from January 20,
1997 until fully paid for the 1996 VAT deficiency and P31,094,163.87 inclusive of 25%
surcharge plus 20% interest from January 20, 1998 until fully paid for the 1997 VAT deficiency.
Accordingly, VAT Ruling No. [231]-88 is declared void and without force and effect. The 1996
and 1997 deficiency DST assessment against petitioner is hereby CANCELLED AND SET
ASIDE. Respondent is ORDERED to DESIST from collecting the said DST deficiency tax.
Respondent appealed the CTA decision to the (CA) insofar as it cancelled the DST assessment.
He claimed that petitioner’s health care agreement was a contract of insurance subject to DST
under Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision which held that petitioner’s health care
agreement was in the nature of a non-life insurance contract subject to DST. Respondent is
ordered to pay the deficiency Documentary Stamp Tax. Petitioner moved for reconsideration but
the CA denied it.

ISSUES:

(1) Whether or not Philippine Health Care Providers, Inc. engaged in insurance business.
(2) Whether or not the agreements between petitioner and its members possess all elements
necessary in the insurance contract.

HELD:

NO. Health Maintenance Organizations are not engaged in the insurance business. The
SC said in June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an
insurer because its agreements are treated as insurance contracts and the DST is not a tax on
the business but an excise on the privilege, opportunity or facility used in the transaction of the
business. Petitioner, however, submits that it is of critical importance to characterize the
business it is engaged in, that is, to determine whether it is an HMO or an insurance company,
as this distinction is indispensable in turn to the issue of whether or not it is liable for DST on its
health care agreements. Petitioner is admittedly an HMO. Under RA 7878 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. Section 2 (2) of PD 1460 enumerates what constitutes “doing an
insurance business” or “transacting an insurance business”which are making or proposing to
make, as insurer, any insurance contract; making or proposing to make, as surety, any contract
of suretyship as a vocation and not as merely incidental to any other legitimate business or
activity of the surety; doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the meaning of this Code;
doing or proposing to do any business in substance equivalent to any of the foregoing in a
manner designed to evade the provisions of this Code.

Overall, petitioner appears to provide insurance-type benefits to its members (with

respect to its curative medical services), but these are incidental to the principal activity of
providing them medical care. The “insurance-like” aspect of petitioner’s business is miniscule
compared to its noninsurance activities. Therefore, since it substantially provides health care
services rather than insurance services, it cannot be considered as being in the insurance
business.
TOPIC: CONTRACT OF ADHESION OR FINE PRINT
TITLE: Eternal Gardens Memorial Park Corporation vs. The Philippine American Life
Insurance Company
G.R. No. 166245 April 9, 2008
Facts:
On December 10, 1980, respondent Philippine American Life Insurance Company
(Philamlife) entered into an agreement denominated as Creditor Group Life Policy No. P-192
with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the
clients of Eternal who purchased burial lots from it on installment basis would be insured by
Philamlife. The amount of insurance coverage depended upon the existing balance of
the purchased burial lots. The policy was to be effective for a period of one year, renewable on
a yearly basis. Eternal sent a letter dated August 20, 1984 to Philamlife, which served as an
insurance claim for Chuang’s death. In reply, Philamlife wrote Eternal a letter on November 12,
1984, requiring Eternal to submit the following documents relative to its insurance claim for
Chuang’s death: (1) Certificate of Claimant (with form attached); (2) Assured’s Certificate (with
form attached); (3) Application for Insurance accomplished and signed by the insured, Chuang,
while still living; and (4) Statement of Account showing the unpaid balance of Chuang before his
death.Eternal transmitted the required documents through a letter dated November 14, 1984,
which was received by Philamlife on November 15, 1984.
After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s
insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim for
PhP 100,000 on April 25, 1986. In response to Eternal’s demand, Philamlife denied Eternal’s
insurance claim in a letter dated May 20, 1986. The letter stated that no application for group
insurance was transmitted prior to the death of Chuang but it was only submitted after the
latter’s death thus, he is not covered under the Policy. Consequently, Eternal filed a case before
the Makati City Regional Trial Court (RTC) for a sum of money against Philamlife.
Issues:
1.Whether or not there was a valid insurance coverage.
2.Whether or not Philamlife assumed the risk of loss without approving the application.
Ruling:
1. Yes. The fact of the matter is, the letter dated December 29, 1982, which Philamlife
stamped as received, states that the insurance forms for the attached list of burial lot buyers
were attached to the letter. Such stamp of receipt has the effect of acknowledging receipt of the
letter together with the attachments. Such receipt is an admission by Philamlife against its own
interest. The burden of evidence has shifted to Philamlife, which must prove that the letter did
not contain Chuang’s insurance application. However, Philamlife failed to do so; thus, Philamlife
is deemed to have received Chuang’s insurance application.
2. Yes. This question must be answered in the affirmative. As earlier stated, Philamlife and
Eternal entered into an agreement denominated as Creditor Group Life Policy No. P-1920 dated
December 10, 1980. In the policy, it is provided that: EFFECTIVE DATE OF BENEFIT. The
insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with
the Assured. However, there shall be no insurance if the application of the Lot Purchaser is not
approved by the Company. An examination of the above provision would show ambiguity
between its two sentences. The first sentence appears to state that the insurance coverage of
the clients of Eternal already became effective upon contracting a loan with Eternal while the
second sentence appears to require Philamlife to approve the insurance contract before the
same can become effective. It must be remembered that an insurance contract is a contract of
adhesion which must be construed liberally in favor of the insured and strictly against the insurer
in order to safeguard the latter’s interest. Clearly, the vague contractual provision, in Creditor
Group Life Policy No. P-1920 dated December 10, 1980, must be construed in favor of the
insured and in favor of the effectivity of the insurance contract. On the other hand, the
seemingly conflicting provisions must be harmonized to mean that upon a party’s purchase of a
memorial lot on installment from Eternal, an insurance contract covering the lot purchaser is
created and the same is effective, valid, and binding until terminated by Philamlife by
disapproving the insurance application. The second sentence of Creditor Group Life Policy No.
P-1920 on the Effective Date of Benefit is in the nature of a resolutory condition which would
lead to the cessation of the insurance contract.
TOPIC: Contract of Adhesion or Fine Print Rule

TITLE: Western Guaranty v CA, G.R. No. 91666 July 20, 1990

FACTS:

Priscilla Rodriguez was struck by a bus owned by De Dios. 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 from the court to the tune of 3000 for actual damages, 1500 for loss of earning
capacity, and 20000 for moral damages and attorney’s fees. De Dios filed
a complaint against Western to indemnify the amount. Western lost the case in
the appellate court, hence this petition.

Issue: Is Western liable for paying loss of earnings, moral damages and attorney's fees even if
these items are not among those included in the Schedule of Indemnities set forth in the
insurance policy.

Held: Yes. The law provides that:

Section 1. Liability to the Public — Company will, subject to the Limits of Liability, pay all sums
necessary to discharge liability of the insured in respect of —
(a) death of or bodily injury to or damage to property of any passenger as defined herein.

There was also a schedule of indemnities that specified a certain amount for a certain type of
injury as well as hospital service payments.
In this case, the limits on the amount payable for certain kinds of expenses were not considered
by the court as “excluding liability for any other type of expense or damage or loss even though
actually sustained or incurred by the third party victim.”

The court noted that the limits of the liability was at 50,000 per person per accident. Construing
this with section 1 means that all kinds of damages allowable by law were also to be covered by
the policy once it was shown that liability has arisen.

The schedule of indemnities was not a closed enumeration of the kinds of

damages Western can award.

Western should have used far more specific language, not 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 obligation. Also, contracts of adhesion such as policies must be construed
against the party who made them, in this case western.
TOPIC: PARTIES IN THE INSURANCE CONTRACT: INSURER AND INSURED
TITLE: GREAT PACIFIC LIFE ASSURANCE CORP. VS CA, G.R. No. 113899.

FACTS:
A contract of group life insurance was executed between petitioner Great Pacific Life Assurance
Corporation (hereinafter Grepalife) and Development Bank of the Philippines (hereinafter DBP).
Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP.
Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the
group life insurance plan. Subsequently, Grepalife issued Certificate No. B-18558, as insurance
coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness amounting to eighty-
six thousand, two hundred (P86,200.00) pesos.
Dr. Wilfredo Leuterio, then died due to massive cerebral hemorrhage. DBP submitted a death
claim to Grepalifebut denied such claim alleging that Dr. Leuterio was not physically healthy
when he applied for the insurance which caused his death. Allegedly, such non-disclosure
constituted concealment that justified the denial of the claim.
The widow of the late Dr. Leuterio filed with RTC against Grepalife for specific performance with
damages. RTC and CA ruled in favor of the respondent. Hence, this petition.
ISSUE: Whether or not Grepalife is liable to pay the insurance claim..
RULING: Yes. Grepalife is liable to pay the insurance claim. Medarda is a proper party in
interest (note that it was Wilfredo who has been paying the premium, as the insured, he is the
real party in interest and this status was transferred to his widow). The group life insurance or
“mortgage redemption insurance” provides that DBP as the mortgagee is merely an assignee of
Wilfredo; and that in the event of Wilfredo’s death before his indebtedness to DBP is paid,
proceeds from the insurance shall first be applied to the sum of the balance insured. But this
does not cease Wilfredo to be a party to the in When DBP submitted the insurance claim
against petitioner, the latter denied payment thereof, interposing the defense of concealment
committed by the insured. Thereafter, DBP collected the debt from the mortgagor and took the
necessary action of foreclosure on the residential lot of private respondent.[11] In Gonzales La
O vs. Yek Tong Lin Fire & Marine Ins. Co.[12] we held:
Insured, being the person with whom the contract was made, is primarily the proper person to
bring suit thereon. * * * Subject to some exceptions, insured may thus sue, although the policy is
taken wholly or in part for the benefit of another person named or unnamed, and although it is
expressly made payable to another as his interest may appear or otherwise. * * * Although a
policy issued to a mortgagor is taken out for the benefit of the mortgagee and is made payable
to him, yet the mortgagor may sue thereon in his own name, especially where the mortgagees
interest is less than the full amount recoverable under the policy insurance contract.
Topic: Aleatory Insurance

Title of the case:

MALAYAN INSURANCE CO., INC. (MICO), petitioner,
vs.
GREGORIA CRUZ ARNALDO, in her capacity as the INSURANCE COMMISSIONER, and
CORONACION PINCA, respondents.

Facts:
On June 7, 1981, the petitioner MALAYAN INSURANCE CO., INC. (hereinafter called (MICO)
issued to the private respondent, Coronacion Pinca, Fire Insurance Policy No. F-001-17212 on
her property for the amount of P14,000.00 effective July 22, 1981, until July 22, 1982. 2
On October 15,1981, MICO allegedly cancelled the policy for non-payment, of the premium and
sent the corresponding notice to Pinca. 3
On December 24, 1981, payment of the premium for Pinca was received by Domingo Adora,
agent of MICO. 4
On January 15, 1982, Adora remitted this payment to MICO,together with other payments. 5
On January 18, 1982, Pinca's property was completely burned. 6
On February 5, 1982, Pinca's payment was returned by MICO to Adora on the ground that her
policy had been cancelled earlier. But Adora refused to accept it.
On April 25, 1982, it filed a motion for reconsideration, which was denied on June 4, 1982.
Insurance Commission sustained the claim.

Issue: Whether or not MICO is liable for the loss of property of the insured Pinca.

Ruling:
Yes. We do not share MICO's view that there was no existing insurance at the time of the loss
sustained by Pinca because her policy never became effective for non-payment of premium.
Payment was in fact made, rendering the policy operative as of June 22, 1981, and removing it
from the provisions of Article 77, Thereafter, the policy could be cancelled on any of the
supervening grounds enumerated in Article 64 (except "nonpayment of premium") provided the
cancellation was made in accordance therewith and with Article 65.
A valid cancellation must, therefore, require concurrence of the following conditions:
(1) There must be prior notice of cancellation to the insured;
(2) The notice must be based on the occurrence, after the effective date of the policy, of one
or more of the grounds mentioned;
(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the
address shown in the policy;
(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that
upon written request of the insured, the insurer will furnish the facts on which the cancellation is
based.
Topic: Interpretation of Insurance Contracts
Title of the case: PAN MALAYAN INSURANCE CORPORATION, vs. CA
G.R. No. 81026, April 3, 1990

Facts:
On December 10, 1985 PANMALAY filed a complaint for damages with the RTC of Makati
against private respondents Erlinda Fabie and her driver. PANMALAY averred the following:
that it insured a Mitsubishi Colt Lancer car with plate No. DDZ-431 and registered in the name
of Canlubang Automotive Resources Corporation [CANLUBANG]; that on May 26, 1985, due to
the "carelessness, recklessness, and imprudence" of the unknown driver of a pick-up with plate
no. PCR-220, the insured car was hit and suffered damages in the amount of P42,052.00; that
PANMALAY defrayed the cost of repair of the insured car and, therefore, was subrogated to the
rights of CANLUBANG against the driver of the pick-up and his employer, Erlinda Fabie; and
that, despite repeated demands, defendants, failed and refused to pay the claim of PANMALAY

On February 12, 1986, private respondents filed a Motion to Dismiss alleging that PANMALAY
had no cause of action against them. They argued that payment under the "own damage"
clause of the insurance policy precluded subrogation under Article 2207 of the Civil Code.

RTC dismissed petitioner's complaint. On appeal, the Court of Appeals upheld the decision of
the RTC. Thus, the present petition.

Issue: Whether or not the insurer PANMALAY may institute an action to recover the amount it
had paid its assured in settlement of an insurance claim against private respondents as the
parties allegedly responsible for the damage caused to the insured vehicle

Ruling:
Yes.Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the
insured property is destroyed or damaged through the fault or negligence of a party other than
the assured, then the insurer, upon payment to the assured, will be subrogated to the rights of
the assured to recover from the wrongdoer to the extent that the insurer has been obligated to
pay. Payment by the insurer to the assured operates as an equitable assignment to the former
of all remedies which the latter may have against the third party whose negligence or wrongful
act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any
privity of contract or upon written assignment of claim. It accrues simply upon payment of the
insurance claim by the insurer,

There are a few recognized exceptions to this rule. For instance, if the assured by his own act
releases the wrongdoer or third party liable for the loss or damage, from liability, the insurer's
right of subrogation is defeated; Insurance Company of North America v. Elgin, Joliet & Eastern
Railway Co., 229 F 2d 705 (1956)]. Similarly, where the insurer pays the assured the value of
the lost goods without notifying the carrier who has in good faith settled the assured's claim for
loss, the settlement is binding on both the assured and the insurer, and the latter cannot bring
an action against the carrier on his right of subrogation [McCarthy v. Barber Steamship Lines,
Inc., 45 Phil. 488 (1923)]. And where the insurer pays the assured for a loss which is not a risk
covered by the policy, thereby effecting "voluntary payment", the former has no right of
subrogation against the third party liable for the loss
TOPIC: CONTRACT IS CONSIDERED A RISK DISTRIBUTING DEVICE
TITLE: Tibay v CA G.R. No. 119655. May 24, 1996

Facts:
Fortune Life issued a fire insurance Policy to Tibay on her two-storey residential building at
Zobel Street, Makati City. The insurance was for P600,000.00 covering the period from January
23, 1987 to January 23, 1988. On January 23 1987, Tibay only paid P600.00 of 3,000 peso
premium and left a balance.

The insured building was completely destroyed by fire. Tibay then paid the balance. On the
same day, she filed a claim on the policy. Her claim was accordingly referred to the adjuster,
Goodwill, which immediately wrote Violeta requesting her to furnish it with the necessary
documents for the investigation and processing of her claim. Petitioner complied, and she
signed a non-waiver agreement.
Fortune denied the claim for violation of the Insurance Code. Tibay sued for damages in the
amount of P600,000.00 representing the total coverage of the policy.

The trial court ruled for petitioners and made fortune liable for the total value of the insured
building and personal properties. The Court of Appeals reversed the court by removing liability
from Fortune after returning the premium. Hence this petition for review.

The petitioner contended that Fortune remained liable under the subject fire insurance policy in
spite of the failure of petitioners to pay their premium in full.

Issue: May a fire insurance policy be valid, binding and enforceable upon mere partial payment
of premium?

Held: No. Petition dismissed.

The pertinent provisions read:

This policy including any renewal thereof and/or any endorsement thereon is not in force until
the premium has been fully paid to and duly receipted by the Company in the manner provided
herein.
This policy shall be deemed effective, valid and binding upon the Company only when the
premiums therefor have actually been paid in full and duly acknowledged in a receipt signed by
any authorized official of the company. Where the premium has only been partially paid and the
balance paid only after the peril insured against has occurred, the insurance contract did not
take effect and the insured cannot collect at all on the policy. The Insurance Code which says
that no policy or contract of insurance issued by an insurance company is valid and binding
unless and until the premium has been paid.

What does “unless and until the premium thereof has been paid” mean?
Escosura v. San Miguel- the legislative practice was to interpret “with pay” in accordance to the
intention of distinguish between full and partial payment, where the modifying term is used.
Petitioners used Philippine Phoenix v. Woodworks, where partial payment of the premium made
the policy effective during the whole period of the policy.
The SC didn’t consider the 1967 Phoenix case as persuasive due to the different factual
scenario.

In Makati Tuscany v CA, the parties mutually agreed that the premiums could be paid in
installments, hence, this Court refused to invalidate the insurance policy.

Nothing in Article 77 of the Code suggested that the parties may not agree to allow payment of
the premiums in installment, or to consider the contract as valid and binding upon payment of
the first premium. Phoenix and Tuscany demonstrated the waiver of prepayment in full by the
insurer. In this case however, there was no waiver. There was a stipulation that the policy
wasn’t in force until the premium has been fully paid and receipted.

There was no juridical tie of indemnification from the fractional payment of premium. The
insurance contract itself expressly provided that the policy would be effective only when the
premium was paid in full.

Verily, it is elemental law that the payment of premium is requisite to keep the policy of
insurance in force. If the premium is not paid in the manner prescribed 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 alive.

South Sea v CA stipulated 2 exceptions to the requirement of payment of the entire premium as
a prerequisite to the validity of the insurance contract. These are when in case the insurance
coverage relates to life or insurance when a grace period applies, and when the insurer makes
a written acknowledgment of the receipt of premium to be conclusive evidence of payment.
Hence, in the absence of clear waiver of prepayment in full by the insurer, the insured cannot
collect on the proceeds of the policy.

“The terms of the insurance policy constitute the measure of the insurer’s liability. In the
absence of statutory prohibition to the contrary, insurance companies have the same rights as
individuals to limit their liability and to impose whatever conditions they deem best upon their
obligations not inconsistent with public policy.”
TOPIC: UBERRIMAE FIDES (PERFECT GOOD FAITH)
TITLE: FIELDMEN’S INSURANCE v. MERCEDES VARGAS vda. DE SONGCO, et al. and
CA

FACTS:
Federico Songco, a man of scant education [first grader], owned a private jeepney. He was
induced by Fieldmen’s Insurance agent Benjamin Sambat to apply for a Common Carrier’s
Liability Insurance Policy covering his motor vehicle. [As testified by Songco’s son Amor later,]
Federico said that his vehicle is an ‘owner’ private vehicle and not for passengers, but agent
Sambat said that they can insure whatever kind of vehicle because their company is not owned
by the government, so they could do what they please whenever they believe a vehicle is
insurable. Songco paid an annual premium and he was issued a Common Carriers Accident
Insurance Policy. After the policy expired, he renewed the policy. During the effectivity of the
renewed policy, the insured vehicle while being driven by Rodolfo Songco [duly licensed driver
and Federico’s son] collided with a car. As a result, Federico and Rodolfo died, while Carlos
(another son) and his wife Angelita, and a family friend sustained physical injuries.

The lower court held that Fieldmen’s Insurance cannot escape liability under a common carrier
insurance policy on the pretext that what was insured was a private vehicle and not a common
carrier, the policy being issued upon the agent’s insistence. CA affirmed the lower court.

CA DECISION AFFIRMED; FIELDMEN’S INSURANCE IS LIABLE

Issue: WON the petitioner is liable under the insurance policy.

Ruling:
From Qua Chee Gan v. Law Union and Rock Insurance – Where inequitable conduct is shown
by an insurance firm, it is estopped from enforcing forfeitures in its favor, in order to forestall
fraud or imposition on the insured. Estoppel is primarily based on the doctrine of good faith and
the avoidance of harm that will befall the innocent party due to its injurious reliance.

Fieldmen’s Insurance incurred legal liability under the policy. Since some of the conditions in the
policy were impossible to comply with under the existing conditions at the time and inconsistent
with the known facts, the insurer is estopped from asserting breach of such conditions. Except
for the fact that the passengers were not fare-paying, their status as beneficiaries under the
policy is recognized. Even if the be assumed that there was an ambiguity, such must bestrictly
interpreted against the party that caused them.
The contract of insurance is one of perfect good faith (uberrima fides) not for the insured alone,
but equally so for the insurer; in fact, it is more so for the latter, since its dominant bargaining
position carries with it stricter responsibility.
TOPIC: CONTRACT OF INDEMNITY

CASE TITLE: WHITE GOLD MARINE SERVICES, INC. VS. PIONEER INSURANCE AND
SURETY CORP. AND
THE STEAMSHIP MUTUAL UNDERWRITING ASSO.

FACTS:

White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity
coverage for its vessels from Steamship Mutual Underwriting Asso (Steamship Mutual).
Subsequently, White Gold was issued a Certificate of Entry and Acceptance. When White Gold
failed to fully pay its accounts, Steamship Mutual refused to renew the coverage.

Steamship Mutual thereafter filed a case against White Gold for collection of sum of
money to recover the latter’s unpaid balance. White Gold on the other hand filed a complaint
before the Insurance Commission claiming the Steamship Mutual violated Sections 186 and 187
of the Insurance Code, while Pioneer violated Secs. 299, 300 and 301 in relation to Secs. 302
and 303 thereof.

The Insurance Commission dismissed the complaint saying that there was no need for
Steamship Mutual to secure license because it was not engaged in the insurance business.
Likewise, Pioneer need not obtain another license as insurance agent and/or broker for
Steamship Mutual because the latter is not involved in the insurance business. Moreover,
Pioneer was already licensed, hence, a separate license solely as agent/broker of Steamship
Mutual was already superfluous.

ISSUE:
Is there a need for Steamship Mutual and Pioneer to secure license?

RULING:
YES.
Section 2(2) of the Insurance Code enumerates what constitutes “doing an insurance
business” or transacting and insurance business”. There are: (a) making or proposing to
make, as insurer, any insurance contract; (b) making or proposing to make, as surety, any
contract of suretyship as a vocation and not as merely incidental to any other legitimate
business or activity of the surety; (c) doing any kind of business, including a reinsurance
business, specifically recognized as constituting the doing of an insurance business within the
meaning of this Code; (d) doing or proposing to do any business in substance equivalent to any
of the foregoing in a manner designed to evade the provisions of this Code. Basically, an
insurance contract is a contract of indemnity. In it, one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent event.
In the case at bar, A P & I Club 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 then,
Steamship Mutual as a P & I Club is a mutual insurance associated engaged in the marine
insurance business. Thus, to continue doing business here, Steamship Mutual or through its
agent Pioneer, must secure a license from the Insurance Commission.
TOPIC: Personal Contract

CASE TITLE: THE INSULAR LIVE ASSURANCE COMPANY, LTD. VS. CARPONIA T.
EBRADO AND PASCUALA VDA. DE IBRADO

FACTS:

Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd. on a whole-life
with a rider for Accidental Death. Buenaventura C. Ebrado designated Carponia T. Ebrado as
the revocable beneficiary in the policy. Buenaventura C. Ebrado died, as the policy was in
force, the Insular Life Assurance Co., Ltd. paid the coverage. Carponia T. Ebrado filed with the
insurer a claim for the proceeds of the policy as the designated beneficiary therein, although she
admits that she and the insured Buenaventura Cristor Ebrado were merely living as husband
and wife without the benefit of marriage.

Pascuala Vda. De Ebrado also filed her claim as the widow of the deceased insured.
She asserts that she is the on entitled to the insurance proceeds, not the common-law wife,
Carponia T. Ebrado.

ISSUE:
Who is entitled to the insurance proceeds?

RULING:
It is Pascuala Vda. De Ebrado, the widow of the insured, and not Carponia T. Ebrado,
the common-law wife, entitled to the insurance proceeds.
It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal conviction
for adultery or concubinage is not essential in order to establish the disqualification mentioned
therein. Neither it is also necessary that a finding of such guilty or commission of those acts be
made in a separate independent action brought for the purpose. The guilt of the done
(beneficiary) may be proved by preponderance of evidence in the same proceeding. It is,
however, essential that such adultery or concubinage exists at the time defendant Carponia T.
Ebrado was made beneficiary in the policy in question for the disqualification and incapacity to
exist and that it is only necessary that such fact be established by preponderance of evidence in
the trial. Since it is agreed in their stipulation that the deceased insured and defendant
Carponia T. Ebrado were living together as husband and wife without being legally married and
that the marriage of the insured with the other defendant Pascuala Vda. De Ebrado was valid
and still existing at the time the insurance in question was purchased there is no question that
defendant Carponia T. Ebrado is disqualified from becoming the beneficiary in the policy in
question. It is quite unfortunate that the Insurance Act or even the new Insurance Code does
not contain any specific provision grossly resolutory of the prime question at hand. Rather the
general rules of civil law should be applied to resolve this void in the Insurance Law.
TOPIC: INTERPRETATION OF INSURANCE CONTRACTS
TITLE: RIZAL SURETY & INSURANCE COMPANY vs. COURT OF APPEALS
G.R. No. 112360. July 18, 2000
FACTS:
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 Policy in the premises occupied by them
forming part of the buildings situated within own Compound xxx.” The policy also described
therein the four-span building covered by the same.
On Jan. 12, 1981, fire broke out in the compound, razing the middle portion of its four-span
building and partly gutting the left and right sections thereof. A two-storey building (behind said
four-span building) was also destroyed by the fire.
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 covered damage on the four span building and not the two storey building. The trial court
ruled in Transworld’s favor and ordered Rizal to pay actual damages only. The court
of appeals increased the damages. The insurance company filed a MFR. The CA answered by
modifying the imposition of interest. Not satisfied, the insurance company petitioned to the
Supreme Court.
ISSUE: Whether or not Rizal Surety is liable for loss of the two-storey building considering that
the fire insurance policy sued upon covered only the contents of four-span building.
HELD:Yes. The policy provides that “ the properties must be contained and/or stored in the
areas occupied by Transworld and second, sad areas must form part of the building described
in the policy.” This means that the policy did not limit its coverage to what was stored in the four-
span building. Both the trial court and Court of Appeals found that the so called “Annex” was not
annex building but an integral part of four-span building described in the policy and
consequently, the machines and spare parts stored were covered by the fire insurance.
The two-storey building was already existing when subject fire insurance policy contract was
entered into. Petitioner should have specifically excluded the said two-storey building from the
coverage of the fire insurance if minded to exclude the same but if did not, and instead, went on
to provide that such fire insurance policy convers the products, raw materials and supplies
stored within premises of Transworld which was an integral part of four-span building occupied
by Transworld, knowing fully well the existence of such building adjoining and
intercommunicating with the right section of the four-span building.
Also, in case of doubt in the stipulation as to the coverage of the fire insurance policy, under
Article 1377 of the New Civil Code, provides that, “The interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the obscurity.” In this case, the
doubt should be resolved against the Rizal Surety, whose layer or managers drafted the fire
insurance policy contract under scrutiny.
TOPIC: INTERPRETATION OF INSURANCE CONTRACTS
TITLE: AMERICAN HOME ASSURANCE COMPANY vs. TANTUCO ENTERPRISES, INC.
G.R. No. 138941, October 8, 2001

FACTS:
Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refining industry.
It owns two oil mills which were separately covered by fire insurance policies issued by
petitioner American Home Assurance Co., Philippine Branch. The first oil mill was insured for
P3,000,000.00 under Policy No. 306-7432324-3 for the period March 1, 1991 to 1992.
The new oil mill was insured for P6,000,000.00 under Policy No. 306-7432321-9 for the same
term. Official receipts indicating payment for the full amount of the premium were issued by the
petitioner's agent. A fire that broke out in the early morning of September 30,1991 gutted and
consumed the new oil mill.
Respondent immediately notified the petitioner of the incident but petitioner rejected
respondent's claim for the insurance proceeds on the ground that no policy was issued by it
covering the burned oil mill. It stated that the description of the insured establishment referred to
another building thus: "Our policy nos. 306-7432321-9 (Ps 6M) and 306-7432324-4 (Ps 3M)
extend insurance coverage to your oil mill under Building No. 5, whilst the affected oil mill was
under Building No. 14. "
ISSUE:
Whether or not the Court of Appeals erred in its legal interpretation of 'Fire Extinguishing
Appliances Warranty' of the policy.
HELD:
In construing the words used descriptive of a building insured, the greatest liberality is shown by
the courts in giving effect to the insurance. In view of the custom of insurance agents to
examine buildings before writing policies upon them, and since a mistake as to the identity and
character of the building is extremely unlikely, the courts are inclined to consider that the policy
of insurance covers any building which the parties manifestly intended to insure, however
inaccurate the description may be.
Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind,
that what the parties manifestly intended to insure was the new oil mill. If the parties really
intended to protect the first oil mill, then there is no need to specify it as new.
In determining what the parties intended, the courts will read and construe the policy as a whole
and if possible, give effect to all the parts of the contract, keeping in mind always, however, the
prime rule that in the event of doubt, this doubt is to be resolved against the insurer. In
determining the intent of the parties to the contract, the courts will consider the purpose and
object of the contract.