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1 THE CONTRACT OF INSURANCE

2 DEFINITION OF SOME TERMS

3 INSURANCE
Arrangement for transferring and distributing risks
4 CONTRACT of INSURANCE
agreement whereby
one undertakes for a consideration
to indemnify another
against loss, damage or liability
arising from an unknown or contingent event (Sec 2a)
5 “DOING AN INSURANCE BUSINESS”
or “TRANSACTING AN INSURANCE BUSINESS”
shall include:
(1) Making or proposing to make, as insurer, any insurance contract;
(2) 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;

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(3) Doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the meaning of
the Code;

(4) Doing or proposing to do any business in substance equivalent to any of the

foregoing in a manner designed to evade the provisions of the code (Sec2b)

7 CAVEAT:
➢that no profit is derived from the making of insurance contracts, agreements or
transactions or
➢that no separate or distinct consideration is received therefor,

shall not be deemed conclusive to show that the making thereof does not constitute
the doing or transacting of an insurance business.
8
❑Does the fact that no profit was derived from the transaction nor a separate
consideration received therefore mean that no insurance business was transacted?

No. Fact that no profit is derived from the contract or transaction or that no

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▪No. Fact that no profit is derived from the contract or transaction or that no
separate or direct consideration is received for such contract or transaction is NOT
deemed conclusive to show that no insurance business was transacted.

9 ELEMENTS
of an INSURANCE CONTRACT

10 ( C O C)
(I-R-A-P-S)

11
✓Like any other contract,
an insurance contract must have consent of the parties, object and cause or
consideration. (C-O-C)
12 C
✓The parties who give their consent in this contract
are the INSURER and INSURED

13 C
✓The parties who give their consent in this contract
are the INSURER and INSURED

S190: all individuals, partnerships, associations, or corps x x x except mutual benefit

associations
S7: Anyone except a public enemy
14 O
✓The object of the contract is
the transferring or distributing of the risk
of loss, damage, liability or disability
from the insured to the insurer
15 C

✓The cause or consideration of the contract is

the premium which the insured pays the insurer
16 additional elements of an insurance contract?
INSURABLE INTEREST

This means that the INSURED possesses an INTEREST of some kind susceptible of
pecuniary estimation.
▪
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▪
17
INSURABLE INTEREST

the INSURED possesses an INTEREST of some kind which the event insured against
may cause loss or damage
18 INSURABLE INTEREST
a person is deemed to have insurable interest in the subject matter insured
where he has a relation or connection with or concerning it
that he will derive pecuniary benefit or advantage from its preservation and
will suffer pecuniary loss or damage from its destruction, termination or injury by the
happening of the event insured against

19 Why is insurable interest necessary?

If the person procuring insurance has no insurable interest in the subject-matter of
the insurance, the contract is void.
20 Why is insurable interest necessary?
If the insured has no insurable interest in the subject-matter of the insurance, he will
not stand to suffer any loss or damage by the happening of the event insured
against.

21 RISK OF LOSS OR DAMAGE / DESIGNATED PERIL (as cause)/ PERIL INSURED

AGAINST

▪The happening of the designated events, either unknown or contingent, past or

future, will subject such interest to some loss, whether in the form of injury, damage,
or liability

22 ASSUMPTION OF RISK

▪The insurer assumes the risk to indemnify the insured in case of loss
▪Risk of loss or damage being assumed by the INSURER

23 PAYMENT OF PREMIUM

▪The insurer undertakes to assume the risk of such a loss for a CONSIDERATION
called the premium to be paid by the insured
▪
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▪
24 RISK-DISTRIBUTING SCHEME
This assumption of risk is part of a general scheme to distribute the loss among a
large number of persons exposed to similar risks

25 RISK-DISTRIBUTING SCHEME
The primary or basic element of insurance that provides that the assumption of risk
by the insurer is part of a general scheme to distribute, not merely transfer, losses
among persons having similar risks
26 CHARACTERISTICS of an INSURANCE CONTRACT

27 PROPERTY
– Since an insurance is a contract, as such it is property in legal contemplation

28 VOLUNTARY
➢not compulsory;
➢The parties must give their consent freely; no vice of consent, like force,
intimidation, undue influence, mistake, violence, etc.

Except if compulsory insurance coverage is required by law

29
❑Exception (Chapter VI, the Compulsory Motor Vehicle Liability Insurance)

You cannot register your vehicle unless it is covered by this type of insurance.
30 CONSENSUAL

➢perfected by the meeting of the minds of the parties; There is also an offer and an
acceptance between the insurer and the insured.
➢the parties may incorporate such terms and conditions as they may deem
convenient which will be binding provided they are not against the law or public
policy (Art. 1306, NCC)
➢If an application for insurance has not been either accepted or rejected, there is no
contract as yet

31
ENRIQUEZ VS. SUN LIFE ASSURANCE CO.

HELD: Follow the Theory of Cognition.

A contract is perfected upon knowledge of the acceptance. There was no perfected

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HELD: Follow the Theory of Cognition.

A contract is perfected upon knowledge of the acceptance. There was no perfected
contract since it was not shown that the acceptance of the application ever came to
the knowledge of the applicant.
32 ONEROUS
-There is valuable consideration (premium)

33 FORMAL
formal and real (not consensual) IN NATURE
because a policy is required to be issued (by the insurer), and the premium must be
paid (by the insured)

34 ALEATORY
(Art. 2010, NCC)
One of the parties or both reciprocally bind themselves to give or to do something in
consideration of what the other shall give or do upon the happening of an event
which is uncertain or which is to occur at an indeterminate time
❖NOT the same as a contract of Chance (wagering contract)
❖The parties seek to distribute possible loss by reason of mischance! (VANCE)
35 ALEATORY
➢depends upon some contingent event, which is uncertain, or though certain, is to
occur at some future undetermined time

▪ Event which may or may not happen - fire

▪ Even that will happen although we do not know when - death
36
▪EACH PARTY MUST TAKE A RISK

▪Insurer - being compelled upon the happening of the contingency, to pay the
entire sum agreed upon
▪Insured – parting with the amount required as premium without receiving anything
in case the contingency does not happen except what is ordinarily termed
“protection” which is itself is a valuable consideration

37 not a wagering contract

▪it depends upon some contingent event the occurrence of which will give rise to the
liability of the insurer

38 EXECUTORY
– as to the insurer as it is not executed until the happening of a loss (contingent

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38 EXECUTORY
– as to the insurer as it is not executed until the happening of a loss (contingent
event)

As to the insured, it is a EXECUTED contract after the payment of the premium

39 UNILATERAL
▪imposing legal duties only on the insurer who promises to indemnify in case of loss
▪
40 CONDITIONAL
– subject to conditions the principal one of which is the happening of the event
insured against

The contract usually includes many other conditions, such as payment of premium or
performance of some other act (ex. Medical examination), which must be complied
with as precedent to the right of the insured to claim benefit under it.

41
It is a conditional contract in the sense that the insurer is not obligated to pay unless
the loss arises from the specified perils.

42 A CONTRACT OF ADHESION
(Fine Print Rule)

- Policy is presented to the insured already in its printed form.

▪

43
Prepared only by the insurer and
imposed upon parties dealing with it
which may not be changed,
the latter’s participation in the agreement being reduced to the alternative to “take it
or leave it”,
therefore, any ambiguity thereon must be resolved against the insurer, the party
preparing the contract. (Qua Chee Gan vs. Law Union Rock Ins., Ltd., 52 O.G. 1982).

44
▪Rationale
Through the years, the courts have held that in these type of contracts, the parties
do not bargain on equal footing, the weaker party's participation being reduced to
the alternative to take it or leave it.
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the alternative to take it or leave it.

45
▪Thus, these contracts are viewed as traps for the weaker party whom the courts of
justice must protect. Consequently, any ambiguity therein is resolved against the
insurer, or construed liberally in favor of the insured.
[G.R. No. 156167; May 16, 2005] GULF RESORTS, INC., petitioner, vs. PHILIPPINE
CHARTER INSURANCE CORPORATION, respondent

46 GEAGONIA v CA, 241 S 152 (1995)

Xxx Provisions, conditions or exceptions in policies which tend to work a forfeiture of
insurance policies should be construed most strictly against those for whose benefits
they are inserted, and most favorably toward those against whom they are intended
to operate. X x x
47
PERSONAL

➢each party in the contract have in view the character, credit and conduct of the
other;
➢consider qualifications of the other party

48
➢It is a personal contract because an insurer contracts with reference to the character
of the insured for integrity and prudence.

➢As a consequence, the assignment or conveyance of the property insured does not
transfer the insurance and instead the policy is suspended.
49
The insurance contract DOES NOT FOLLOW THE PROPERTY COVERED such that when
a person acquires an insured property, he (transferee) does not ipso facto acquire any
right over the insurance contract.
50 OF HIGHEST DEGREE OF GOOD FAITH (UBERRIMAE FIDEI CONTRACT)

➢one of perfect good faith not for the insured alone but equally so for the insurer
➢requires the parties to the contract to disclose conditions affecting the risk of which
he is aware or material fact which the applicant knows, and those which he ought to
know
➢
51
-It is required that the parties, the insurer and the insured, but more so with the
insurer since its dominant bargaining position imposes a stricter liability or

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51
-It is required that the parties, the insurer and the insured, but more so with the
insurer since its dominant bargaining position imposes a stricter liability or
responsibility, to deal with each other in absolute good faith.

-SIGNIFICANCE: Concealment and Misrepresentation

52 A CONTRACT OF INDEMNITY

▪The promise of the insurer is to make good only the loss of the insured
▪Except life insurance where the liability of insurer is the face value of the policy
and not the earning capacity of the insured at the time of death

53 A CONTRACT OF INDEMNITY
➢recovery is commensurate with the amount of the loss suffered

However, life insurance is not a contract of indemnity except one procured by a

creditor on the life of the debtor.

54 REMEMBER
Non-life insurance is a contract of indemnity, because the party insured is entitled to
compensation for such loss as has been occasioned by the perils insured against.

The right to recover is commensurate with the loss sustained. (RULE: RECOVERY =
LOSS; Reason: avoid unjust enrichment)

55
✓Life insurance is not a contract of indemnity, but a contract to pay a certain sum of
money in the event of death, for life cannot be the subject of valuation or the loss
adjustable on any principle of indemnity.
56
-
-Life insurance is an INVESTMENT because it is secured by the insurer as a measure
of economic security for him during his lifetime and for his beneficiary upon his
death.

57
EXCEPT one secured by the creditor on the life of the debtor the reason being, the
amount of insurable interest is already susceptible of pecuniary estimation, which
value ordinarily is equivalent to the amount of the debt.

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58
If the insured cannot comply with the terms and conditions of the contract, he is not
entitled as a rule to recover the loss or damage suffered.
This is a condition precedent to the right to recovery.

59 SYNALLAGMATIC CONTRACT
➢Where the parties have (highly) reciprocal obligations
➢J. Vitug in UCPB Gen. Ins. V Masagana Telemart: a contract of insurance being
synallagmatic, the insured has the critical and highly important obligation of paying
the premium as his obligation, reciprocating the conditional obligation of the insurer
to pay the proceeds upon the occurrence of the event insured.

60 CLASSIFICATIONS of INSURANCE CONTRACTS

61
▪Life insurance contracts
▪Individual
▪Group Life
▪Industrial Life
▪Non-Life Insurance Contracts
▪Marine
▪Fire
▪Casualty
▪Contracts of Suretyship and bonding

62 IN GENERAL

63 TONTINE CONTRACT OF INSURANCE

▪Based upon survivorship among a number of individuals
▪More than a policy of life insurance since, in addition, it is an agreement to hold all
the premiums collected for the duration of the tontine period
64 IMPORTANCE OF THE GENERAL CLASSIFICATION OF INSURANCE (LIFE vs NON-
LIFE)

65 As to coverage

66 On the basis of the nature of the interest being protected

67 Life Insurance Contract

✓mutual agreement by which a party agrees to pay a given sum on the happening of
a particular event contingent on the duration of human life, in consideration of the
payment of a smaller sum immediately, or in periodical payments by the other party

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67

a particular event contingent on the duration of human life, in consideration of the

payment of a smaller sum immediately, or in periodical payments by the other party

68 Non-life Insurance Contract

✓ includes policies covering risks to which property may be exposed, as well as those
which cover the risk of liability to third persons
✓It covers a specified period of time (not more than 1 year) and has a definite period
of coverage
69 Suretyship
✓ agreement whereby
a party called the surety guarantees the performance by another party called the
principal or obligor of an obligation or undertaking in favor of a third party called the
obligee

70 CONTRACT of SURETYSHIP

shall be deemed to be an insurance contract, within the meaning of the Code, only if
made by a surety who or which, as such, is doing an insurance business as defined
71 Will any suretyship agreement amount to an insurance contract?
No. In order for a suretyship agreement to come under the purview of the Insurance
Code, the Surety undertaking to ensure the performance of the obligations MUST be
registered with the Insurance Commissioner and must have been issued by the latter
with a certificate of authority.
Furthermore, the person acting as a surety is habitually engaged as such for a
livelihood.

72 DOCTRINE
The character of insurance is not to be determined by the nomenclature used or the
manner or mode of affording insurance.
The dominant purpose of the agreement between the parties, as reflected by the risk
or contingency insured against is usually determinative of the nature of insurance.

73
Whether a contractual arrangement is INSURANCE would naturally determine

❑what laws or regulations apply,

❑ whether a license to sell insurance has to be obtained and
❑ what agency or office governs such arrangements!
74 Contracts for Contingent Benefits or Services
CONTRACTS THAT RESEMBLE INSURANCE
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CONTRACTS THAT RESEMBLE INSURANCE
75 Pre-Need Plans
✓Contracts which provide for the rendering of services or payment of money to plan
holders or their beneficiaries when the actual need for such payment or rendition of
services accrue

✓Exs. Educational plans, memorial or burial plans

✓

76 Pre-Need Plans
▪under the New Rules on the Regulation of Pre-need Plans under Sec. 16 of the
Securities Regulation Code
▪***While the Revised Securities Act includes pre-need plans in the definition of
contracts, the SRC does not mention pre-need plans in its definition of that term.
▪Since 1978, entities selling or marketing such plans are under the supervision of
the SEC
▪Now, under the Pre-Need Code, supervision is with the Office of the Insurance
Commission

77 Pre-Need Plans
✓Memorial and burial plans = Considered as pure service contracts in which the price
paid is intended to correspond to the benefits contracted for.
✓Pre-need purchase of services
✓Risks involved in pre-need plans are definite – the ever increasing costs for such
services
✓Companies selling them claim that these are really INVESTMENTS

78 Pre-Need Code (Dec. 2009)

✓Intended to address numerous complaints of holders of educational plans against
the providers on their obligations
✓Providers could not service the plans they issued considering the exponential rise
in tuition fees and other school expenses which these providers agreed to shoulder
under the plans
✓ NOWHERE in the Code is a declaration that pre-need contracts are contracts of
insurance.

79 Pre-Need Company
✓May not engage as such without a license issued by the IC
✓The license expires one year from the time of registration although renewable
yearly (Sec. 10, RA 9829)
✓Sec. 10, IRR: pre-need company may be license and authorized to issue any or all of
the following plan types: (a) educational; (b) pension; (c) life or memorial plan.

80 Health Care Agreements

✓Agreements that provide for out-patient benefits as well as preventive health care
services
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80
✓Agreements that provide for out-patient benefits as well as preventive health care
services
81 Philamcare v. CA
379 SCRA 356 (2002)
Philamcare brought the petition for review, raising the primary argument that a
health care agreement is not an insurance contract; hence the "incontestability
clause" under the Insurance Code Title 6, Sec. 48 does not apply.

82 2002
SC held that the insurable interest of respondent's husband in obtaining the health
care agreement was his own health. The health care agreement was in the nature of
non-life insurance, which is primarily a contract of indemnity. Once the member
incurs hospital, medical or any other expense arising from sickness, injury or other
stipulated contingent, the health care provider must pay for the same to the extent
agreed upon under the contract.
83
Being a contract of adhesion, the terms of an insurance contract are to be construed
strictly against the party which prepared the contract — the insurer.
By reason of the exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly interpreted against
the insurer and liberally in favor of the insured, especially to avoid forfeiture.
84
This is equally applicable to Health Care Agreements. The phraseology used in
medical or hospital service contracts must be liberally construed in favor of the
subscriber, and if doubtful or reasonably susceptible of two interpretations, the
construction conferring coverage is to be adopted, and exclusionary clauses of
doubtful import should be strictly construed against the provider.
85 Blue Cross Health Care Inc. v Olivares, 544 S 580 (2008)
❑In the agreement, ailments due to pre-existing conditions were excluded from
coverage.
❑Barely 38 days from the effectivity of her health insurance, Olivares suffered a stroke
and was admitted to a hospital accredited by BC.
❑BC refused settling medical bills pending submission of attending physician’s
certification that the stroke was not caused by a pre-existing condition.
86 Feb. 12, 2008
▪SC reiterated its ruling in the 2002 Philamcare Health case, stating that both cases
involve health care agreements which are in the nature of a non-life insurance. Thus,
the rule in insurance contracts that “when their terms contain limitations on liability,
they should be construed strictly against the insurer” is equally applicable to HCAs.
The burden of proving exception to liability rests on the insurer. Not having been
able to discharge the burden, it cannot now deny its liability.
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The burden of proving exception to liability rests on the insurer. Not having been
able to discharge the burden, it cannot now deny its liability.
87 PHIL. HEALTH CARE PROVIDERS V CIR, 554 s 511 (June 12, 2008)
▪CIR sent PHCP a formal demand letter for deficiency VAT, DST, etc. on the basis that
a HCA was a contract of insurance.
▪The CTA held that the HCA was in the nature of a non-life insurance contract subject
to DST.
▪SC held that PHCP does not actually provide medical or medical services but merely
arranges for the same and pays for them up to the stipulated maximum amount of
coverage; and, that PHCP does not bear the costs alone but distributes or spreads
them out among a large group of persons bearing a similar risk. (insurance)
88 PHIL. HEALTH CARE PROVIDERS V CIR, 600 S 413 (Sept. 18, 2009)
▪SC acting on motions for reconsiderations, REVERSED its 2008 ruling and declared
that PHCP is not engaged in the business of insurance.
▪Applied the principal object and purpose test (based on American case law)
89 principal object and purpose test
▪Determines whether the assumption of risk and indemnification of loss (which are
elements of an insurance business) are the principal object and purpose of the
organization or whether they are merely incidental to its business
▪If these are the principal objectives = INSURANCE
▪If merely incidental and service is the principal purpose = NOT INSURANCE
BUSINESS

90 principal object and purpose test

▪Forwards the argument that a corp, whose main object is to provide the members of
a group with health services is not engaged in the insurance business
▪The mere presence of risk would be insufficient to override the primary purpose of
the business to provide medical services as needed, with payment made directly to
the provider of these services
▪Even if PHCP assumes the risk of paying the cost of these services even if
significantly more than what the member has prepaid, it cannot be considered as
being engaged in the insurance business
91
▪SC took note of the fact that a significant portion of PHCP’s services covers
preventive and diagnostic medical services, which are programs that are designed to
prevent or to minimize the possibility of any assumption of risk on its part.
▪Indicative that goal is not to indemnify its members against any loss or damage
arising from a medical condition but to provide the health and medical services
needed to prevent such loss or damage.
92 Other Similar Arrangements

Protection and Indemnity Club (P & I Club)

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92

▪Protection and Indemnity Club (P & I Club)

✓an association composed of ship owners in general who band together for the
specific purpose of providing insurance cover on a mutual basis against liabilities
incidental to ship-owning that the members incur in favor of third persons
93 Pandiman Philippines, Inc. vs Marine Manning Management Corp, 460 SCRA 418
(2005)
▪Claims for benefits arising from the death of a chief cook on board a merchant
vessel (insured with Mutual = a P&I Club of which the owner of the vessel is a
member)
▪Mutual transacted business in the Phils through its local correspondent Pandiman
▪LA dismissed case vs Pandiman; NLRC reversed; CA sustained NLRC
▪SC: P & IC = INSURANCE CONTRACT
94 Pandiman Philippines, Inc. vs Marine Manning Management Corp, 460 SCRA 418
(June 21, 2005)
▪Issue: whether Pandiman was an insurance agent or merely the correspondent of
the P&IC
CA: insurance agent under Sec. 300, IC (insurer is Mutual)
SC: nothing in the records to indicate that Pandiman negotiated the contract of
insurance; however, sustained the claim of Pandiman that it is the local representative
or correspondent of the P&IC.
95 White Gold Marine Services v Pioneer Insurance and the Steamship Mutual
Underwriting Association Ltd, July 28, 2005
▪Steamship filed a case vs White Gold = collection of sum of money to recover
unpaid balance on Protection and Indemnity coverage for its vessels
▪White Gold filed a complaint before IC for violation of certain provisions of the
Insurance Code
▪IC dismissed the complaint as there was no need for Steamship to secure a license
because it was not engaged in the insurance business
96 White Gold Marine Services v Pioneer Insurance and the Steamship Mutual
Underwriting Association Ltd, July 28, 2005
▪IC and CA: there was no violation of the Insurance Code
▪SC: 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.
▪Sec. 2(2), IC: Steamship Manual and its agent, Pioneer, must secure licenses and
authorizations to do business as insurer and insurance agent, respectively.
97 Other Similar Arrangements

▪Warranty for Goods Sold or Services Rendered

❑Given by the seller or dealer
Arrangement involve RISK TRANSFERENCE

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❑Given by the seller or dealer

❑Arrangement involve RISK TRANSFERENCE
❑A warranty that covers extended service contracts within the scope of goods sold
for defects that likely existed in the goods at the time of sale is not an insurance
contract
❑Where the seller of goods agrees to indemnify the purchaser for loss or damage
due to, or caused by, inherent weakness of the goods sold, the agreement does
not amount to insurance
98 Other Similar Arrangements

▪Warranty for Goods Sold or Services Rendered

❑A warranty that goes materially beyond the goods or beyond defects in the
goods to compensate for losses due to causes unrelated to the general
merchantability of the goods is an insurance contract
❑If the agreement to indemnify covers perils outside of, or unrelated to the quality
of the goods sold, the agreement is substantially one of insurance
99 Warranty for Goods Sold or Services Rendered = INSURANCE

ILLUSTRATION 1:
Dealer undertook to guarantee the tires sold against defects in material or
workmanship WITHOUT LIMIT as to time, mileage, or service, and further expressly
guarantees them against “blowouts, cuts, bruises, rim cuts, under inflation, wheels
out of alignment, faulty brakes or other road hazards that may render the tire unfit
for further service”
100 Warranty for Goods Sold or Services Rendered = INSURANCE

ILLUSTRATION 2:

Purchaser to be indemnified “should the tire fail within the replacement period
specified, WITHOUT LIMITATION as to the cause of such failure
101 Warranty for Goods Sold or Services Rendered = INSURANCE

ILLUSTRATION 3:

A store selling watches agreed with the purchaser to replace the watch lost through
certain hazards (ex. Floods, or fire which may raze the purchaser’s house) within a
year of purchase
102 Warranty for Goods Sold or Services Rendered = NOT INSURANCE

ILLUSTRATION 1:

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102

ILLUSTRATION 1:

A lifetime termite treatment agreement, whereby the exterminator assumed

responsibility for the treatment of reappearing termites or to replace damaged
property
103 Warranty for Goods Sold or Services Rendered = NOT INSURANCE

ILLUSTRATION 2:

Services of lawyers to their clients under the usual “retainer” contracts which, in
consideration of periodic payments, agree to represent the client in any and all
litigations, whether brought by or against such client
104 Construction / Interpretation of Insurance Contracts
(Arts. 1306, 1370-1379, Civil Code)
105
✓The Insurance Code does not contain rules on interpretation or construction
✓Insurance contracts are to be construed by the same principles governing contracts
in general

106 STRICT IMPLEMENTATION OF TERMS

▪CC: when the terms of a contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulations shall control.
▪Jurisprudence: Courts are not permitted to make contracts for the parties; the
function and duty of the courts is simply to enforce and carry out the contracts
actually made.
107 Sun Insurance Office Ltd. vs CA, 195 SCRA 193 (1991)
SC strictly applied the literal construction rule when it denied the claim of the insured
on account of the failure of the latter to file the same within one year from the date of
first rejection by the insurer. This, even if the insured and the insurer continued
communicating on the subject matter, the insured still requested reconsideration of
the initial rejection.

108 Fortune Insurance & Surety Co. vs CA, 244 SCRA 308 (1995)
The insured bank lost P725k when its armored van was robbed while traversing Taft
Avenue en route to its head office.
Driver of the van and the security escort were somehow involved in the robbery.
Fortune refuses to pay the claim of the bank for the loss it incurred invoking the
Exceptions Clause of the policy.

109 Fortune Insurance & Surety Co. vs CA, 244 SCRA 308 (1995)
SC: insurer is exempt from liability under the policy noting that in burglary, robbery
and theft insurance, insurers often exclude risks arising from people who are in the
insured’s service and employment

110
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109

and theft insurance, insurers often exclude risks arising from people who are in the
insured’s service and employment
x x x the term specifying the excluded classes are to be given their meaning as
understood in common speech x x x

110 Fortune Insurance & Surety Co. vs CA, 244 SCRA 308 (1995)
SC:
“employee” = as any person who qualifies as such as generally and universally
understood or jurisprudentially established
“representative” = one who represents others or stands in the place of another
*In having been entrusted with the transfer of the insured’s money, the driver and the
security guard were considered as the insured’s representatives, thereby effectively
bringing the incident within the ambit of the Exceptions Clause
111 Gulf Resorts, Inc. vs Philippine Charter Insurance Corp., GR No. 156167, May 16,
2005
SC: Only two swimming pools are covered under the policy. There is no need for the
application of the fine print or contract of adhesion rule in this case where the intent
of the parties to limit the coverage of the policy to the two swimming pools only is
NOT AMBIGUOUS. This intent was gleaned from the fact that in the designation of
location of risk under the policy, only the 2 swimming pools were specified as
included and that the premium payment shows that there was no increase from the
original rates when the policy clearly covered only 2 swimming pools. X x x

112 STRICT IMPLEMENTATION OF TERMS

(Other Cases)
▪Cebu Shipyard vs William Lines, 306 SCRA 762 (1999)
▪New Life Enterprises vs CA, 207 SCRA 669 (1992)
▪First Quezon City Insurance Co. vs CA, 218 SCRA 526 (1993)
▪Misamis Lumber Corp. vs Capital Insurance & Surety Co., Inc., 17 SCRA 228 (1966)
113 LIBERAL INTERPRETATION OF TERMS
▪Where the terms and conditions are ambiguous and susceptible of various
interpretations or construction, the issue is to be resolved against the insurer, being
the party which prepared the contract (contra proferentum).
▪Lean towards the reasonable expectations of the parties, more so, that of the insured
114 Qua vs Law Union & Rock Insurance Co., 98 Phil 85 (1955)
▪Substantial amount of insurance covering 4 bodegas in Albay used in the hemp
business of the insured
▪Several warranties, in the form of riders, were claimed by the insurer to have been
breached and, thus, justifying the refusal by the insurer to pay the proceeds after fire
razed the premises
115 Fire hydrant warranty
Claim to have been violated because at the time of the fire there were only 2 fire

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115 Fire hydrant warranty

▪Claim to have been violated because at the time of the fire there were only 2 fire
hydrants when there should have been 11
▪SC: Insurer barred by WAIVER or ESTOPPEL for the reason that the insurer knew fully
well that the number of hydrants never existed from the beginning but issued the
policies nonetheless
116 Hemp warranty provision against storage of oils having a flash point below 300
degree Fahrenheit
▪Claimed to have been violated having kept 36 cans of gasoline incident to its
business
▪SC: “We see no reason why the prohibition of keeping gasoline in the premises
could not be expressed clearly and unmistakably, in the language and terms that the
general public can readily understand, without resort to obscure esoteric expression
(gobbledygook).”

117 Fieldmen’s Insurance Co. Inc. vs de Songco, 25 SCRA 20 (1968)

SC sustained the right of the INSURED to the proceeds of the common carrier
insurance policy he purchased from the insurer, even though his vehicle is clearly not
for public convenience but is a private jeepney taking into cognizance the fact that
the policy was issued upon the insistence of the agent that the privately owned
vehicle may be covered by a common carrier insurance contract. (Principle of
Estoppel)
118 Malayan Insurance Corp vs CA
▪The insurer insured 2 marine cargo policies covering soya bean meal
▪Vessel carrying the cargo was arrested and detained by the civil authorities in South
Africa
▪Insurer denied the claim made by the insured on the ground that arrest of the vessel
by civil authority was not a peril covered by the policies

119 Malayan Insurance Corp vs CA

▪SC: the “Perils Clause” in the policy did not limit the insurer’s assumed risks to
arrests caused solely by executive and political acts of the government of the seizing
state thereby excluding arrests caused by ordinary legal processes
120 Malayan Insurance Corp vs CA
▪SC: ruled against the insurer; “exceptions to the general coverage are construed
most strongly against the company” in order to avoid forfeiture, unless no other
result is possible from the language used
▪If a marine insurance company desires to limit or restrict the operation of the
general provisions of its contract by special proviso, exception, or exemption, it
should express such limitation in clear and unmistakable language.
121 LIBERAL INTERPRETATION OF TERMS
(Other Cases)
Western Guaranty Corp. vs CA, 187 SCRA 652 (1990)

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(Other Cases)
▪Western Guaranty Corp. vs CA, 187 SCRA 652 (1990)
▪Rizal Surety & Insurance Company vs CA, 336 SCRA 12 (2000)

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