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G.R. No.

198174 September 2, 2013 xxxx

ALPHA INSURANCE AND SURETY CO., PETITIONER, (4) Any malicious damage caused by the Insured, any member of his
In view [of] the foregoing, we regret that we cannot act favorably on your

PERALTA, J.: In letters dated July 12, 2007 and August 3, 2007, respondent reiterated
her claim and argued that the exception refers to damage of the motor
Before us is a Petition for Review on Certiorari under Rule 45 of the vehicle and not to its loss. However, petitioner’s denial of respondent’s
Rules of Court assailing the Decision1 dated May 31, 2011 and insured claim remains firm.
Resolution2 dated August 10, 2011 of the Court of Appeals (CA) in CA-
G.R. CV No. 93027. Accordingly, respondent filed a Complaint for Sum of Money with
Damages against petitioner before the Regional Trial Court (RTC) of
The facts follow. Quezon City on September 10, 2007.

On February 21, 2007, respondent entered into a contract of insurance, In a Decision dated December 19, 2008, the RTC of Quezon City ruled in
Motor Car Policy No. MAND/CV-00186, with petitioner, involving her favor of respondent in this wise:
motor vehicle, a Toyota Revo DLX DSL. The contract of insurance
obligates the petitioner to pay the respondent the amount of Six Hundred WHEREFORE, premises considered, judgment is hereby rendered in
Thirty Thousand Pesos (₱630,000.00) in case of loss or damage to said favor of the plaintiff and against the defendant ordering the latter as
vehicle during the period covered, which is from February 26, 2007 to follows:
February 26, 2008.
To pay plaintiff the amount of ₱466,000.00 plus legal interest of 6% per
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, annum from the time of demand up to the time the amount is fully settled;
Jose Joel Salazar Lanuza (Lanuza), to bring the above-described vehicle
to a nearby auto-shop for a tune-up. However, Lanuza no longer returned To pay attorney’s fees in the sum of ₱65,000.00; and
the motor vehicle to respondent and despite diligent efforts to locate the
same, said efforts proved futile. Resultantly, respondent promptly To pay the costs of suit.
reported the incident to the police and concomitantly notified petitioner of
the said loss and demanded payment of the insurance proceeds in the
All other claims not granted are hereby denied for lack of legal and
total sum of ₱630,000.00.
factual basis.3
In a letter dated July 5, 2007, petitioner denied the insurance claim of
Aggrieved, petitioner filed an appeal with the CA.
respondent, stating among others, thus:
On May 31, 2011, the CA rendered a Decision affirming in toto the RTC
Upon verification of the documents submitted, particularly the Police
of Quezon City’s decision. The fallo reads:
Report and your Affidavit, which states that the culprit, who stole the
Insure[d] unit, is employed with you. We would like to invite you on the
provision of the Policy under Exceptions to Section-III, which we quote: WHEREFORE, in view of all the foregoing, the appeal is DENIED.
Accordingly, the Decision, dated December 19, 2008, of Branch 215 of
1.) The Company shall not be liable for:
the Regional Trial Court of Quezon City, in Civil Case No. Q-07-61099, is by accidental collision or overturning, or collision or overturning
hereby AFFIRMED in toto. consequent upon mechanical breakdown or consequent upon wear and
Petitioner filed a Motion for Reconsideration against said decision, but
the same was denied in a Resolution dated August 10, 2011. by fire, external explosion, self-ignition or lightning or burglary,
housebreaking or theft;
Hence, the present petition wherein petitioner raises the following
grounds for the allowance of its petition: (c)


DOES NOT COVER LOSS BUT ONLY DAMAGE BECAUSE THE whilst in transit (including the processes of loading and unloading)
TERMS OF THE INSURANCE POLICY ARE [AMBIGUOUS] incidental to such transit by road, rail, inland waterway, lift or elevator.

WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT The Company shall not be liable to pay for:
[AFFIRMED] IN TOTO THE JUDGMENT OF THE TRIAL COURT.5 Loss or Damage in respect of any claim or series of claims arising out of
one event, the first amount of each and every loss for each and every
Simply, the core issue boils down to whether or not the loss of vehicle insured by this Policy, such amount being equal to one percent
respondent’s vehicle is excluded under the insurance policy. (1.00%) of the Insured’s estimate of Fair Market Value as shown in the
Policy Schedule with a minimum deductible amount of Php3,000.00;
We rule in the negative.
Consequential loss, depreciation, wear and tear, mechanical or electrical
breakdowns, failures or breakages;
Significant portions of Section III of the Insurance Policy states:
Damage to tires, unless the Schedule Vehicle is damaged at the same
The Company will, subject to the Limits of Liability, indemnify the Insured
Any malicious damage caused by the Insured, any member of his family
against loss of or damage to the Schedule Vehicle and its accessories
or by a person in the Insured’s service.6
and spare parts whilst thereon:
In denying respondent’s claim, petitioner takes exception by arguing that
the word "damage," under paragraph 4 of "Exceptions to Section III,"
means loss due to injury or harm to person, property or reputation, and
should be construed to cover malicious "loss" as in "theft." Thus, it act or fact of losing, or failure to keep possession, while the word
asserts that the loss of respondent’s vehicle as a result of it being stolen "damage" means deterioration or injury to property. 1âwphi1

by the latter’s driver is excluded from the policy.

Therefore, petitioner cannot exclude the loss of respondent’s vehicle
We do not agree. under the insurance policy under paragraph 4 of "Exceptions to Section
III," since the same refers only to "malicious damage," or more
Ruling in favor of respondent, the RTC of Quezon City scrupulously specifically, "injury" to the motor vehicle caused by a person under the
elaborated that theft perpetrated by the driver of the insured is not an insured’s service. Paragraph 4 clearly does not contemplate "loss of
exception to the coverage from the insurance policy, since Section III property," as what happened in the instant case.
thereof did not qualify as to who would commit the theft. Thus:
Further, the CA aptly ruled that "malicious damage," as provided for in
Theft perpetrated by a driver of the insured is not an exception to the the subject policy as one of the exceptions from coverage, is the damage
coverage from the insurance policy subject of this case. This is evident that is the direct result from the deliberate or willful act of the insured,
from the very provision of Section III – "Loss or Damage." The insurance members of his family, and any person in the insured’s service, whose
company, subject to the limits of liability, is obligated to indemnify the clear plan or purpose was to cause damage to the insured vehicle for
insured against theft. Said provision does not qualify as to who would purposes of defrauding the insurer, viz.:
commit the theft. Thus, even if the same is committed by the driver of the
insured, there being no categorical declaration of exception, the same This interpretation by the Court is bolstered by the observation that the
must be covered. As correctly pointed out by the plaintiff, "(A)n insurance subject policy appears to clearly delineate between the terms "loss" and
contract should be interpreted as to carry out the purpose for which the "damage" by using both terms throughout the said policy. x x x
parties entered into the contract which is to insure against risks of loss or
damage to the goods. Such interpretation should result from the natural xxxx
and reasonable meaning of language in the policy. Where restrictive
provisions are open to two interpretations, that which is most favorable to If the intention of the defendant-appellant was to include the term "loss"
the insured is adopted." The defendant would argue that if the person within the term "damage" then logic dictates that it should have used the
employed by the insured would commit the theft and the insurer would be term "damage" alone in the entire policy or otherwise included a clear
held liable, then this would result to an absurd situation where the insurer definition of the said term as part of the provisions of the said insurance
would also be held liable if the insured would commit the theft. This contract. Which is why the Court finds it puzzling that in the said policy’s
argument is certainly flawed. Of course, if the theft would be committed provision detailing the exceptions to the policy’s coverage in Section III
by the insured himself, the same would be an exception to the coverage thereof, which is one of the crucial parts in the insurance contract, the
since in that case there would be fraud on the part of the insured or insurer, after liberally using the words "loss" and "damage" in the entire
breach of material warranty under Section 69 of the Insurance Code.7 policy, suddenly went specific by using the word "damage" only in the
policy’s exception regarding "malicious damage." Now, the defendant-
Moreover, contracts of insurance, like other contracts, are to be appellant would like this Court to believe that it really intended the word
construed according to the sense and meaning of the terms which the "damage" in the term "malicious damage" to include the theft of the
parties themselves have used. If such terms are clear and unambiguous, insured vehicle.
they must be taken and understood in their plain, ordinary and popular
sense.8 Accordingly, in interpreting the exclusions in an insurance The Court does not find the particular contention to be well taken.
contract, the terms used specifying the excluded classes therein are to
be given their meaning as understood in common speech.9
True, it is a basic rule in the interpretation of contracts that the terms of a
contract are to be construed according to the sense and meaning of the
Adverse to petitioner’s claim, the words "loss" and "damage" mean terms which the parties thereto have used. In the case of property
different things in common ordinary usage. The word "loss" refers to the insurance policies, the evident intention of the contracting parties, i.e., the
insurer and the assured, determine the import of the various terms and WHEREFORE, premises considered, the instant Petition for Review on
provisions embodied in the policy. However, when the terms of the Certiorari is DENIED. Accordingly, the Decision dated May 31, 2011 and
insurance policy are ambiguous, equivocal or uncertain, such that the Resolution dated August 10, 2011 of the Court of Appeals are hereby
parties themselves disagree about the meaning of particular provisions, AFFIRMED.
the policy will be construed by the courts liberally in favor of the assured
and strictly against the insurer.10 SO ORDERED.

Lastly, a contract of insurance is a contract of adhesion. So, when the G.R. No. L-21574 June 30, 1966
terms of the insurance contract contain limitations on liability, courts
should construe them in such a way as to preclude the insurer from non- SIMON DE LA CRUZ, plaintiff and appellee,
compliance with his obligation. Thus, in Eternal Gardens Memorial Park vs.
Corporation v. Philippine American Life Insurance Company,11 this Court THE CAPITAL INSURANCE and SURETY CO., INC., defendant and
ruled – appellant.

It must be remembered that an insurance contract is a contract of Achacoso, Nera and Ocampo for defendant and appellant.
adhesion which must be construed liberally in favor of the insured and Agustin M. Gramata for plaintiff and appellee.
strictly against the insurer in order to safeguard the latter’s interest. Thus,
in Malayan Insurance Corporation v. Court of Appeals, this Court held
This is an appeal by the Capital Insurance & Surety Company, Inc., from
Indemnity and liability insurance policies are construed in accordance
the decision of the Court of First Instance of Pangasinan (in Civ Case No.
with the general rule of resolving any ambiguity therein in favor of the
U-265), ordering it to indemnify therein plaintiff Simon de la Cruz for the
insured, where the contract or policy is prepared by the insurer. A
death of the latter's son, to pay the burial expenses, and attorney's fees.
contract of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other words,
it should be construed liberally in favor of the insured and strictly against Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines,
the insurer. Limitations of liability should be regarded with extreme Inc. in Baguio, was the holder of an accident insurance policy (No. ITO-
jealousy and must be construed in such a way as to preclude the insurer BFE-170) underwritten by the Capital Insurance & Surety Co., Inc., for
from non-compliance with its obligations. the period beginning November 13, 1956 to November 12, 1957. On
January 1, 1957, in connection with the celebration of the New Year, the
Itogon-Suyoc Mines, Inc. sponsored a boxing contest for general
In the more recent case of Philamcare Health Systems, Inc. v. Court of
entertainment wherein the insured Eduardo de la Cruz, a non-
Appeals, we reiterated the above ruling, stating that:
professional boxer participated. In the course of his bout with another
person, likewise a non-professional, of the same height, weight, and size,
When the terms of insurance contract contain limitations on liability, Eduardo slipped and was hit by his opponent on the left part of the back
courts should construe them in such a way as to preclude the insurer of the head, causing Eduardo to fall, with his head hitting the rope of the
from non-compliance with his obligation. Being a contract of adhesion, ring. He was brought to the Baguio General Hospital the following day.
the terms of an insurance contract are to be construed strictly against the The cause of death was reported as hemorrhage, intracranial, left.
party which prepared the contract, the insurer. By reason of the exclusive
control of the insurance company over the terms and phraseology of the
Simon de la Cruz, the father of the insured and who was named
insurance contract, ambiguity must be strictly interpreted against the
beneficiary under the policy, thereupon filed a claim with the insurance
insurer and liberally in favor of the insured, especially to avoid forfeiture.12
company for payment of the indemnity under the insurance policy. As the
claim was denied, De la Cruz instituted the action in the Court of First
Instance of Pangasinan for specific performance. Defendant insurer set
up the defense that the death of the insured, caused by his participation occurs which produces or brings about the result of injury or death.4 In
in a boxing contest, was not accidental and, therefore, not covered by other words, where the death or injury is not the natural or probable result
insurance. After due hearing the court rendered the decision in favor of of the insured's voluntary act, or if something unforeseen occurs in the
the plaintiff which is the subject of the present appeal. doing of the act which produces the injury, the resulting death is within
the protection of policies insuring against death or injury from accident.
It is not disputed that during the ring fight with another non-professional
boxer, Eduardo slipped, which was unintentional. At this opportunity, his In the present case, while the participation of the insured in the boxing
opponent landed on Eduardo's head a blow, which sent the latter to the contest is voluntary, the injury was sustained when he slid, giving
ropes. That must have caused the cranial injury that led to his death. occasion to the infliction by his opponent of the blow that threw him to the
Eduardo was insured "against death or disability caused by accidental ropes of the ring. Without this unfortunate incident, that is, the
means". Appellant insurer now contends that while the death of the unintentional slipping of the deceased, perhaps he could not have
insured was due to head injury, said injury was sustained because of his received that blow in the head and would not have died. The fact that
voluntary participation in the contest. It is claimed that the participation in boxing is attended with some risks of external injuries does not make any
the boxing contest was the "means" that produced the injury which, in injuries received in the course of the game not accidental. In boxing as in
turn, caused the death of the insured. And, since his inclusion in the other equally physically rigorous sports, such as basketball or baseball,
boxing card was voluntary on the part of the insured, he cannot be death is not ordinarily anticipated to result. If, therefore, it ever does, the
considered to have met his death by "accidental means". 1äwphï1.ñët injury or death can only be accidental or produced by some unforeseen
happening or event as what occurred in this case.
The terms "accident" and "accidental", as used in insurance contracts,
have not acquired any technical meaning, and are construed by the Furthermore, the policy involved herein specifically excluded from its
courts in their ordinary and common acceptation. Thus, the terms have coverage —
been taken to mean that which happen by chance or fortuitously, without
intention and design, and which is unexpected, unusual, and unforeseen. (e) Death or disablement consequent upon the Insured engaging
An accident is an event that takes place without one's foresight or in football, hunting, pigsticking, steeplechasing, polo-playing,
expectation — an event that proceeds from an unknown cause, or is an racing of any kind, mountaineering, or motorcycling.
unusual effect of a known cause and, therefore, not expected.1
Death or disablement resulting from engagement in boxing contests was
Appellant however, would like to make a distinction between "accident or not declared outside of the protection of the insurance contract. Failure of
accidental" and "accidental means", which is the term used in the the defendant insurance company to include death resulting from a
insurance policy involved here. It is argued that to be considered within boxing match or other sports among the prohibitive risks leads inevitably
the protection of the policy, what is required to be accidental is to the conclusion that it did not intend to limit or exempt itself from liability
the means that caused or brought the death and not the death itself. It for such death.5
may be mentioned in this connection, that the tendency of court decisions
in the United States in recent years is to eliminate the fine distinction Wherefore, in view of the foregoing considerations, the decision appealed
between the terms "accidental" and "accidental means" and to consider from is hereby affirmed, with costs against appellant. so ordered.
them as legally synonymous.2 But, even if we take appellant's theory, the
death of the insured in the case at bar would still be entitled to
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon,
indemnification under the policy. The generally accepted rule is that,
J.P., Zaldivar and Sanchez, JJ., concur.
death or injury does not result from accident or accidental means within
the terms of an
accident-policy if it is the natural result of the insured's voluntary act, Footnotes
unaccompanied by anything unforeseen except the death or
injury.3 There is no accident when a deliberate act is performed unless G.R. No. L-16138 April 29, 1961
some additional, unexpected, independent, and unforeseen happening
DIOSDADO C. TY, plaintiff-appellant, DIOSDADO C. TY, plaintiff-appellant,
vs. vs.
appellee. appellee.

x---------------------------------------------------------x x---------------------------------------------------------x

G.R. No. L-16139 April 29, 1961. G.R. No. L-16144 April 29, 1961

DIOSDADO C. TY, plaintiff-appellant, DIOSDADO C. TY, plaintiff-appellant,

vs. vs.
ASSOCIATED INSURANCE & SURETY CO., INC., defendant-appellee. CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.

x---------------------------------------------------------x x---------------------------------------------------------x

G.R. No. L-16140 April 29, 1961 G.R. No. L-16145 April 29, 1961

DIOSDADO C. TY, plaintiff-appellant, DIOSDADO C. TY, plaintiff-appellant,

vs. vs.
UNITED INSURANCE CO., INC., defendant-appellee. CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.

x---------------------------------------------------------x V. B. Gesunundo for plaintiff-appellant.

M. Perez Cardenas for defendant-appellee.
G.R. No. L-16141 April 29, 1961.
DIOSDADO C. TY. plaintiff-appellant,
vs. Appeal from a judgment of the Court of First Instance of Manila, Hon.
PHILIPPINE SURETY & INSURANCE CO., INC., defendant-appellee. Gregorio S. Narvasa, presiding, dismissing the actions filed in the above-
entitled cases.
The facts found by the trial court, which are not disputed in this appeal,
G.R. No. L-16142 April 29, 1961. are as follows:

DIOSDADO C. TY, plaintiff-appellant, At different times within a period of two months prior to December
vs. 24, 1953, the plaintiff herein Diosdado C. Ty, employed as
RELIANCE SURETY & INSURANCE CO., INC., defendant-appellee. operator mechanic foreman in the Broadway Cotton Factory, in
Grace Park, Caloocan, Rizal, at a monthly salary of P185.00,
x---------------------------------------------------------x insured himself in 18 local insurance companies, among which
being the eight above named defendants, which issued to him
personal accident policies, upon payment of the premium of
G.R. No. L-16143 April 29, 1961
P8.12 for each policy. Plaintiff's beneficiary was his employer,
Broadway Cotton Factory, which paid the insurance premiums.
On December 24, 1953, a fire broke out which totally destroyed xxx xxx xxx
the Broadway Cotton Factory. Fighting his way out of the factory,
plaintiff was injured on the left hand by a heavy object. He was Either hand ............................................................................
brought to the Manila Central University hospital, and after P650.00
receiving first aid there, he went to the National Orthopedic
Hospital for treatment of his injuries which were as follows: xxx xxx xxx

1. Fracture, simple, proximal phalanx index finger, left; ... The loss of a hand shall mean the loss by amputation through
the bones of the wrist....
2. Fracture, compound, comminuted, proximal phalanx, middle
finger, left and 2nd phalanx, simple; Defendants rejected plaintiff's claim for indemnity for the reason
that there being no severance of amputation of the left hand, the
3. Fracture, compound, comminute phalanx, 4th finger, left; disability suffered by him was not covered by his policy. Hence,
plaintiff sued the defendants in the Municipal Court of this City,
4. Fracture, simple, middle phalanx, middle finger, left; and from the decision of said Court dismissing his complaints,
plaintiff appealed to this Court. (Decision of the Court of First
5. Lacerated wound, sutured, volar aspect, small finger, left; Instance of Manila, pp. 223-226, Records).

6. Fracture, simple, chip, head, 1st phalanx, 5th digit, left. He In view of its finding, the court absolved the defendants from the
underwent medical treatment in the Orthopedic Hospital from complaints. Hence this appeal.
December 26, 1953 to February 8, 1954. The above-described
physical injuries have caused temporary total disability of The main contention of appellant in these cases is that in order that he
plaintiff's left hand. Plaintiff filed the corresponding notice of may recover on the insurance policies issued him for the loss of his left
accident and notice of claim with all of the abovenamed hand, it is not necessary that there should be an amputation thereof, but
defendants to recover indemnity under Part II of the policy, which that it is sufficient if the injuries prevent him from performing his work or
is similarly worded in all of the policies, and which reads labor necessary in the pursuance of his occupation or business.
pertinently as follows: Authorities are cited to the effect that "total disability" in relation to one's
occupation means that the condition of the insurance is such that
INDEMNITY FOR TOTAL OR PARTIAL DISABILITY common prudence requires him to desist from transacting his business or
renders him incapable of working. (46 C.J.S., 970). It is also argued that
If the Insured sustains any Bodily Injury which is effected solely obscure words or stipulations should be interpreted against the person
through violent, external, visible and accidental means, and which who caused the obscurity, and the ones which caused the obscurity in
shall not prove fatal but shall result, independently of all other the cases at bar are the defendant insurance companies.
causes and within sixty (60) days from the occurrence thereof, in
Total or Partial Disability of the Insured, the Company shall pay, While we sympathize with the plaintiff or his employer, for whose benefit
subject to the exceptions as provided for hereinafter, the amount the policies were issued, we can not go beyond the clear and express
set opposite such injury: conditions of the insurance policies, all of which define partial disability as
loss of either hand by amputation through the bones of the wrist." There
PARTIAL DISABILITY was no such amputation in the case at bar. All that was found by the trial
court, which is not disputed on appeal, was that the physical injuries
"caused temporary total disability of plaintiff's left hand." Note that the
disability of plaintiff's hand was merely temporary, having been caused by
fracture of the index, the middle and the fourth fingers of the left hand.
We might add that the agreement contained in the insurance policies is issued, the duplicate original of which is
the law between the parties. As the terms of the policies are clear, hereto attached as Exhibit "A";
express and specific that only amputation of the left hand should be
considered as a loss thereof, an interpretation that would include the 2. An armored car of the plaintiff, while in
mere fracture or other temporary disability not covered by the policies the process of transferring cash in the
would certainly be unwarranted. sum of P725,000.00 under the custody of
its teller, Maribeth Alampay, from its
WHEREFORE, the decision appealed from is hereby affirmed, with costs Pasay Branch to its Head Office at 8737
against the plaintiff-appellant. Paseo de Roxas, Makati, Metro Manila on
June 29, 1987, was robbed of the said
G.R. No. 115278 May 23, 1995 cash. The robbery took place while the
armored car was traveling along Taft
FORTUNE INSURANCE AND SURETY CO., INC., petitioner, Avenue in Pasay City;
COURT OF APPEALS and PRODUCERS BANK OF THE 3. The said armored car was driven by
PHILIPPINES, respondents. Benjamin Magalong Y de Vera, escorted
by Security Guard Saturnino Atiga Y
Rosete. Driver Magalong was assigned by
PRC Management Systems with the
DAVIDE, JR., J.: plaintiff by virtue of an Agreement
executed on August 7, 1983, a duplicate
original copy of which is hereto attached
The fundamental legal issue raised in this petition for review as Exhibit "B";
on certiorari is whether the petitioner is liable under the Money, Security,
and Payroll Robbery policy it issued to the private respondent or whether
recovery thereunder is precluded under the general exceptions clause 4. The Security Guard Atiga was assigned
thereof. Both the trial court and the Court of Appeals held that there by Unicorn Security Services, Inc. with the
should be recovery. The petitioner contends otherwise. plaintiff by virtue of a contract of Security
Service executed on October 25, 1982, a
duplicate original copy of which is hereto
This case began with the filing with the Regional Trial Court (RTC) of attached as Exhibit "C";
Makati, Metro Manila, by private respondent Producers Bank of the
Philippines (hereinafter Producers) against petitioner Fortune Insurance
and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of 5. After an investigation conducted by the
the sum of P725,000.00 under the policy issued by Fortune. The sum Pasay police authorities, the driver
was allegedly lost during a robbery of Producer's armored vehicle while it Magalong and guard Atiga were charged,
was in transit to transfer the money from its Pasay City Branch to its head together with Edelmer Bantigue Y Eulalio,
office in Makati. The case was docketed as Civil Case No. 1817 and Reynaldo Aquino and John Doe, with
violation of P.D. 532 (Anti-Highway
assigned to Branch 146 thereof.
Robbery Law) before the Fiscal of Pasay
City. A copy of the complaint is hereto
After joinder of issues, the parties asked the trial court to render judgment attached as Exhibit "D";
based on the following stipulation of facts:
6. The Fiscal of Pasay City then filed an
1. The plaintiff was insured by the information charging the aforesaid
defendants and an insurance policy was
persons with the said crime before Branch WHEREFORE, premises considered, the Court finds for
112 of the Regional Trial Court of Pasay plaintiff and against defendant, and
City. A copy of the said information is
hereto attached as Exhibit "E." The case (a) orders defendant to
is still being tried as of this date; pay plaintiff the net
amount of P540,000.00 as
7. Demands were made by the plaintiff liability under Policy No.
upon the defendant to pay the amount of 0207 (as mitigated by the
the loss of P725,000.00, but the latter P40,000.00 special clause
refused to pay as the loss is excluded deduction and by the
from the coverage of the insurance policy, recovered sum of
attached hereto as Exhibit "A," specifically P145,000.00), with interest
under page 1 thereof, "General thereon at the legal rate,
Exceptions" Section (b), which is marked until fully paid;
as Exhibit "A-1," and which reads as
follows: (b) orders defendant to
pay plaintiff the sum of
GENERAL EXCEPTIONS P30,000.00 as and for
attorney's fees; and
The company shall not be liable under this
policy in report of (c) orders defendant to
pay costs of suit.
xxx xxx xxx
All other claims and counterclaims are accordingly
(b) any loss caused by any dismissed forthwith.
dishonest, fraudulent or
criminal act of the insured SO ORDERED. 2
or any officer, employee,
partner, director, trustee or The trial court ruled that Magalong and Atiga were not employees or
authorized representatives of Producers. It Said:
representative of the
Insured whether acting The Court is satisfied that plaintiff may not be said to have
alone or in conjunction selected and engaged Magalong and Atiga, their services
with others. . . . as armored car driver and as security guard having been
merely offered by PRC Management and by Unicorn
8. The plaintiff opposes the contention of Security and which latter firms assigned them to plaintiff.
the defendant and contends that Atiga and The wages and salaries of both Magalong and Atiga are
Magalong are not its "officer, employee, . . presumably paid by their respective firms, which alone
. trustee or authorized representative . . . wields the power to dismiss them. Magalong and Atiga
at the time of the robbery.1 are assigned to plaintiff in fulfillment of agreements to
provide driving services and property protection as such
On 26 April 1990, the trial court rendered its decision in favor of — in a context which does not impress the Court as
Producers. The dispositive portion thereof reads as follows: translating into plaintiff's power to control the conduct of
any assigned driver or security guard, beyond perhaps The Labor Code is a special law specifically dealing
entitling plaintiff to request are replacement for such with/and specifically designed to protect labor and
driver guard. The finding is accordingly compelled that therefore its definition as to employer-employee
neither Magalong nor Atiga were plaintiff's "employees" in relationships insofar as the application/enforcement of
avoidance of defendant's liability under the policy, said Code is concerned must necessarily be inapplicable
particularly the general exceptions therein embodied. to an insurance contract which defendant-appellant itself
had formulated. Had it intended to apply the Labor Code
Neither is the Court prepared to accept the proposition in defining what the word "employee" refers to, it
that driver Magalong and guard Atiga were the must/should have so stated expressly in the insurance
"authorized representatives" of plaintiff. They were merely policy.
an assigned armored car driver and security guard,
respectively, for the June 29, 1987 money transfer from Said driver and security guard cannot be considered as
plaintiff's Pasay Branch to its Makati Head Office. Quite employees of plaintiff-appellee bank because it has no
plainly — it was teller Maribeth Alampay who had power to hire or to dismiss said driver and security guard
"custody" of the P725,000.00 cash being transferred under the contracts (Exhs. 8 and C) except only to ask for
along a specified money route, and hence plaintiff's then their replacements from the contractors.5
designated "messenger" adverted to in the policy. 3
On 20 June 1994, Fortune filed this petition for review on certiorari. It
Fortune appealed this decision to the Court of Appeals which docketed alleges that the trial court and the Court of Appeals erred in holding it
the case as CA-G.R. CV No. 32946. In its decision 4 promulgated on 3 liable under the insurance policy because the loss falls within the general
May 1994, it affirmed in toto the appealed decision. exceptions clause considering that driver Magalong and security guard
Atiga were Producers' authorized representatives or employees in the
The Court of Appeals agreed with the conclusion of the trial court that transfer of the money and payroll from its branch office in Pasay City to
Magalong and Atiga were neither employees nor authorized its head office in Makati.
representatives of Producers and ratiocinated as follows:
According to Fortune, when Producers commissioned a guard and a
A policy or contract of insurance is to be construed driver to transfer its funds from one branch to another, they effectively
liberally in favor of the insured and strictly against the and necessarily became its authorized representatives in the care and
insurance company (New Life Enterprises vs. Court of custody of the money. Assuming that they could not be considered
Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. authorized representatives, they were, nevertheless, employees of
Court of Appeals, 211 SCRA 554). Contracts of Producers. It asserts that the existence of an employer-employee
insurance, like other contracts, are to be construed relationship "is determined by law and being such, it cannot be the
according to the sense and meaning of the terms which subject of agreement." Thus, if there was in reality an employer-
the parties themselves have used. If such terms are clear employee relationship between Producers, on the one hand, and
and unambiguous, they must be taken and understood in Magalong and Atiga, on the other, the provisions in the contracts of
their plain, ordinary and popular sense (New Life Producers with PRC Management System for Magalong and with Unicorn
Enterprises Case, supra, p. 676; Sun Insurance Office, Security Services for Atiga which state that Producers is not their
Ltd. vs. Court of Appeals, 195 SCRA 193). employer and that it is absolved from any liability as an employer, would
not obliterate the relationship.
The language used by defendant-appellant in the above
quoted stipulation is plain, ordinary and simple. No other Fortune points out that an employer-employee relationship depends upon
interpretation is necessary. The word "employee" must be four standards: (1) the manner of selection and engagement of the
taken to mean in the ordinary sense. putative employee; (2) the mode of payment of wages; (3) the presence
or absence of a power to dismiss; and (4) the presence and absence of a
power to control the putative employee's conduct. Of the four, the right- dismissal; and (4) the power to control the employee's
of-control test has been held to be the decisive factor. 6 It asserts that the conduct.
power of control over Magalong and Atiga was vested in and exercised
by Producers. Fortune further insists that PRC Management System and Since under Producers' contract with PRC Management Systems it is the
Unicorn Security Services are but "labor-only" contractors under Article latter which assigned Magalong as the driver of Producers' armored car
106 of the Labor Code which provides: and was responsible for his faithful discharge of his duties and
responsibilities, and since Producers paid the monthly compensation of
Art. 106. Contractor or subcontractor. — There is "labor- P1,400.00 per driver to PRC Management Systems and not to Magalong,
only" contracting where the person supplying workers to it is clear that Magalong was not Producers' employee. As to Atiga,
an employer does not have substantial capital or Producers relies on the provision of its contract with Unicorn Security
investment in the form of tools, equipment, machineries, Services which provides that the guards of the latter "are in no sense
work premises, among others, and the workers recruited employees of the CLIENT."
and placed by such persons are performing activities
which are directly related to the principal business of such There is merit in this petition.
employer. In such cases, the person or intermediary shall
be considered merely as an agent of the employer who It should be noted that the insurance policy entered into by the parties is
shall be responsible to the workers in the same manner a theft or robbery insurance policy which is a form of casualty insurance.
and extent as if the latter were directly employed by him. Section 174 of the Insurance Code provides:

Fortune thus contends that Magalong and Atiga were employees of Sec. 174. Casualty insurance is insurance covering loss
Producers, following the ruling in International Timber or liability arising from accident or mishap, excluding
Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only" certain types of loss which by law or custom are
contractor is equivalent to a finding that there is an employer-employee considered as falling exclusively within the scope of
relationship between the owner of the project and the employees of the insurance such as fire or marine. It includes, but is not
"labor-only" contractor. limited to, employer's liability insurance, public liability
insurance, motor vehicle liability insurance, plate glass
On the other hand, Producers contends that Magalong and Atiga were insurance, burglary and theft insurance, personal accident
not its employees since it had nothing to do with their selection and and health insurance as written by non-life insurance
engagement, the payment of their wages, their dismissal, and the control companies, and other substantially similar kinds of
of their conduct. Producers argued that the rule in International Timber insurance. (emphases supplied)
Corp. is not applicable to all cases but only when it becomes necessary
to prevent any violation or circumvention of the Labor Code, a social Except with respect to compulsory motor vehicle liability insurance, the
legislation whose provisions may set aside contracts entered into by Insurance Code contains no other provisions applicable to casualty
parties in order to give protection to the working man. insurance or to robbery insurance in particular. These contracts are,
therefore, governed by the general provisions applicable to all types of
Producers further asseverates that what should be applied is the rule insurance. Outside of these, the rights and obligations of the parties must
in American President Lines vs. Clave, 8 to wit: be determined by the terms of their contract, taking into consideration its
purpose and always in accordance with the general principles of
In determining the existence of employer-employee insurance law. 9
relationship, the following elements are generally
considered, namely: (1) the selection and engagement of It has been aptly observed that in burglary, robbery, and theft insurance,
the employee; (2) the payment of wages; (3) the power of "the opportunity to defraud the insurer — the moral hazard — is so great
that insurers have found it necessary to fill up their policies with countless
restrictions, many designed to reduce this hazard. Seldom does the director, trustee or authorized
insurer assume the risk of all losses due to the hazards insured representative of the Insured whether
against." 10 Persons frequently excluded under such provisions are those acting alone or in conjunction with others.
in the insured's service and employment. 11 The purpose of the exception . . . (emphases supplied)
is to guard against liability should the theft be committed by one having
unrestricted access to the property. 12 In such cases, the terms specifying There is marked disagreement between the parties on the correct
the excluded classes are to be given their meaning as understood in meaning of the terms "employee" and "authorized representatives."
common speech. 13 The terms "service" and "employment" are generally
associated with the idea of selection, control, and compensation. 14 It is clear to us that insofar as Fortune is concerned, it was its intention to
exclude and exempt from protection and coverage losses arising from
A contract of insurance is a contract of adhesion, thus any ambiguity dishonest, fraudulent, or criminal acts of persons granted or having
therein should be resolved against the insurer, 15 or it should be construed unrestricted access to Producers' money or payroll. When it used then
liberally in favor of the insured and strictly against the the term "employee," it must have had in mind any person who qualifies
insurer. 16 Limitations of liability should be regarded with extreme jealousy as such as generally and universally understood, or jurisprudentially
and must be construed established in the light of the four standards in the determination of the
in such a way, as to preclude the insurer from non-compliance with its employer-employee relationship, 21 or as statutorily declared even in a
obligation. 17 It goes without saying then that if the terms of the contract limited sense as in the case of Article 106 of the Labor Code which
are clear and unambiguous, there is no room for construction and such considers the employees under a "labor-only" contract as employees of
terms cannot be enlarged or diminished by judicial construction. 18 the party employing them and not of the party who supplied them to the
employer. 22
An insurance contract is a contract of indemnity upon the terms and
conditions specified therein. 19 It is settled that the terms of the policy Fortune claims that Producers' contracts with PRC Management Systems
constitute the measure of the insurer's liability. 20 In the absence of and Unicorn Security Services are "labor-only" contracts.
statutory prohibition to the contrary, insurance companies have the same
rights as individuals to limit their liability and to impose whatever Producers, however, insists that by the express terms thereof, it
conditions they deem best upon their obligations not inconsistent with is not the employer of Magalong. Notwithstanding such express
public policy. assumption of PRC Management Systems and Unicorn Security
Services that the drivers and the security guards each shall
With the foregoing principles in mind, it may now be asked whether supply to Producers are not the latter's employees, it may, in fact,
Magalong and Atiga qualify as employees or authorized representatives be that it is because the contracts are, indeed, "labor-only"
of Producers under paragraph (b) of the general exceptions clause of the contracts. Whether they are is, in the light of the criteria provided
policy which, for easy reference, is again quoted: for in Article 106 of the Labor Code, a question of fact. Since the
parties opted to submit the case for judgment on the basis of their
GENERAL EXCEPTIONS stipulation of facts which are strictly limited to the insurance
policy, the contracts with PRC Management Systems and
The company shall not be liable under this policy in Unicorn Security Services, the complaint for violation of P.D. No.
respect of 532, and the information therefor filed by the City Fiscal of Pasay
City, there is a paucity of evidence as to whether the contracts
xxx xxx xxx between Producers and PRC Management Systems and Unicorn
Security Services are "labor-only" contracts.
(b) any loss caused by any dishonest,
fraudulent or criminal act of the insured or But even granting for the sake of argument that these contracts were not
any officer, employee, partner, "labor-only" contracts, and PRC Management Systems and Unicorn
Security Services were truly independent contractors, we are satisfied Petitioner Philippine Health Care Providers, Inc. believes otherwise and
that Magalong and Atiga were, in respect of the transfer of Producer's assails the CA decision in this petition for review under Rule 45 of the
money from its Pasay City branch to its head office in Makati, its Rules of Court.
"authorized representatives" who served as such with its teller Maribeth
Alampay. Howsoever viewed, Producers entrusted the three with the Petitioner is a domestic corporation whose primary purpose is "[t]o
specific duty to safely transfer the money to its head office, with Alampay establish, maintain, conduct and operate a prepaid group practice health
to be responsible for its custody in transit; Magalong to drive the armored care delivery system or a health maintenance organization to take care of
vehicle which would carry the money; and Atiga to provide the needed the sick and disabled persons enrolled in the health care plan and to
security for the money, the vehicle, and his two other companions. In provide for the administrative, legal, and financial responsibilities of the
short, for these particular tasks, the three acted as agents of Producers. organization."2 Individuals enrolled in its health care programs pay an
A "representative" is defined as one who represents or stands in the annual membership fee and are entitled to various preventive, diagnostic
place of another; one who represents others or another in a special and curative medical services provided by its duly licensed physicians,
capacity, as an agent, and is interchangeable with "agent." 23 specialists and other professional technical staff participating in the group
practice health delivery system at a hospital or clinic owned, operated or
In view of the foregoing, Fortune is exempt from liability under the accredited by it.3
general exceptions clause of the insurance policy.
The pertinent part of petitioner's membership or health care
WHEREFORE , the instant petition is hereby GRANTED. The decision of agreement4 provides:
the Court of Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well
as that of Branch 146 of the Regional Trial Court of Makati in Civil Case VII BENEFITS
No. 1817 are REVERSED and SET ASIDE. The complaint in Civil Case
No. 1817 is DISMISSED. Subject to paragraphs VIII [on pre-existing medical condition] and
X [on claims for reimbursement] of this Agreement, Members
No pronouncement as to costs. shall have the following Benefits under this Agreement:

SO ORDERED. In-Patient Services. In the event that a Member contract[s]

sickness or suffers injury which requires confinement in a
G.R. No. 167330 June 12, 2008 participating Hospital[,] the services or benefits stated below shall
be provided to the Member free of charge, but in no case shall
PHILIPPINE HEALTH CARE PROVIDERS, INC., petitioner, [petitioner] be liable to pay more than P75,000.00 in benefits with
vs. respect to anyone sickness, injury or related causes. If a member
COMMISSIONER OF INTERNAL REVENUE, respondent. has exhausted such maximum benefits with respect to a
particular sickness, injury or related causes, all accounts in
DECISION excess of P75,000.00 shall be borne by the enrollee. It is[,]
however, understood that the payment by [petitioner] of the said
maximum in In-Patient Benefits to any one member shall
preclude a subsequent payment of benefits to such member in
respect of an unrelated sickness, injury or related causes
Is a health care agreement in the nature of an insurance contract and happening during the remainder of his membership term.
therefore subject to the documentary stamp tax (DST) imposed under
Section 185 of Republic Act 8424 (Tax Code of 1997)?
(a) Room and Board
This is an issue of first impression. The Court of Appeals (CA) answered
(b) Services of physician and/or surgeon or specialist
it affirmatively in its August 16, 2004 decision1 in CA-G.R. SP No. 70479.
(c) Use of operating room and recovery room administered either in [petitioner's] Clinic or in a Participating
Hospital under the direction or supervision of [petitioner's]
(d) Standard Nursing Services Physician, Participating Physician or [petitioner's] Medical
(e) Drugs and Medication for use in the hospital except
those which are used to dissolve blood clots in the (a) Gold Plan Standard Annual Physical Examination on
vascular systems (i.e., trombolytic agents) the anniversary date of membership, to be done at
[petitioner's] designated hospital/clinic, to wit:
(f) Anesthesia and its administration
(i) Taking a medical history
(g) Dressings, plaster casts and other miscellaneous
supplies (ii) Physical examination

(h) Laboratory tests, x-rays and other necessary (iii) Chest x-ray
diagnostic services
(iv) Stool examination
(i) Transfusion of blood and other blood elements
(v) Complete Blood Count
Condition for in-Patient Care. The provision of the services or
benefits mentioned in the immediately preceding paragraph shall (vi) Urinalysis
be subject to the following conditions:
(vii) Fasting Blood Sugar (FBS)
(a) The Hospital Confinement must be approved by
[petitioner's] Physician, Participating Physician or (viii) SGPT
[petitioner's] Medical Coordinator in that Hospital prior to
confinement. (ix) Creatinine

(b) The confinement shall be in a Participating Hospital (x) Uric Acid

and the accommodation shall be in accordance with the
Member[']s benefit classification.
(xi) Resting Electrocardiogram
(c) Professional services shall be provided only by the
(xii) Pap Smear (Optional for women 40 years and
[petitioner's] Physicians or Participating Physicians.
(d) If discharge from the Hospital has been authorized by
(b) Platinum Family Plan/Gold Family Plan and Silver
[petitioner's] attending Physician or Participating
Annual Physical Examination.
Physician and the Member shall fail or refuse to do so,
[petitioner] shall not be responsible for any charges
incurred after discharge has been authorized. The following tests are to be done as part of the
Member[']s Annual check-up program at [petitioner's]
designated clinic, to wit:
Out-Patient Services. A Member is entitled free of charge to the
following services or benefits which shall be rendered or
1) Routine Physical Examination
2) CBC (Complete Blood Count) receive emergency care [in case of emergency. For this purpose,
all hospitals and all attending physician(s) in the Emergency
* Hemoglobin * Hematocrit Room automatically become accredited. In participating hospitals,
the member shall be entitled to the following services free of
* Differential * RBC/WBC charge: (a) doctor's fees, (b) emergency room fees, (c) medicines
used for immediate relief and during treatment, (d) oxygen,
intravenous fluids and whole blood and human blood products,
3) Chest X-ray
(e) dressings, casts and sutures and (f) x-rays, laboratory and
diagnostic examinations and other medical services related to the
4) Urinalysis emergency treatment of the patient.]5 Provided, however, that in
no case shall the total amount payable by [petitioner] for said
5) Fecalysis Emergency, inclusive of hospital bill and professional fees,
exceed P75,000.00.
(c) Preventive Health Care, which shall include:
If the Member received care in a non-participating hospital,
(i) Periodic Monitoring of Health Problems [petitioner] shall reimburse [him]6 80% of the hospital bill or the
amount of P5,000.00[,] whichever is lesser, and 50% of the
(ii) Family planning counseling professional fees of non-participating physicians based on
[petitioner's] schedule of fees provided that the total amount[,]
(iii) Consultation and advices on diet, exercise inclusive of hospital bills and professional fee shall not exceed
and other healthy habits P5,000.00.

(iv) Immunization but excluding drugs for vaccines On January 27, 2000, respondent Commissioner of Internal Revenue
used sent petitioner a formal demand letter and the corresponding assessment
notices demanding the payment of deficiency taxes, including surcharges
(d) Out-Patient Care, which shall include: and interest, for the taxable years 1996 and 1997 in the total amount
of P224,702,641.18. The assessment represented the following:
(i) Consultation, including specialist evaluation
Value Added Tax (VAT) DST
(ii) Treatment of injury or illness 1996 P 45,767,596.23 P 55,746,352.19
1997 54,738,434.03 68,450,258.73
(iii) Necessary x-ray and laboratory examination P 100,506,030.26 P 124,196,610.92

(iv) Emergency medicines needed for the The deficiency DST assessment was imposed on petitioner's health care
immediate agreement with the members of its health care program pursuant to
Section 185 of the 1997 Tax Code which provides:
relief of symptoms
Section 185. Stamp tax on fidelity bonds and other insurance
(v) Minor surgery not requiring confinement policies. - On all policies of insurance or bonds or obligations of
the nature of indemnity for loss, damage, or liability made or
Emergency Care. Subject to the conditions and limitations in this renewed by any person, association or company or
Agreement and those specified below, a Member is entitled to corporation transacting the business of accident, fidelity,
employer's liability, plate, glass, steam boiler, burglar, elevator, On August 16, 2004, the CA rendered its decision.10 It held that
automatic sprinkler, or other branch of insurance (except life, petitioner's health care agreement was in the nature of a non-life
marine, inland, and fire insurance), and all bonds, insurance contract subject to DST:
undertakings, or recognizances, conditioned for the performance
of the duties of any office or position, for the doing or not doing of WHEREFORE, the petition for review is GRANTED. The Decision
anything therein specified, and on all obligations guaranteeing the of the Court of Tax Appeals, insofar as it cancelled and set aside
validity or legality of any bond or other obligations issued by any the 1996 and 1997 deficiency documentary stamp tax
province, city, municipality, or other public body or organization, assessment and ordered petitioner to desist from collecting the
and on all obligations guaranteeing the title to any real estate, or same is REVERSED and SET ASIDE.
guaranteeing any mercantile credits, which may be made or
renewed by any such person, company or corporation, there shall Respondent is ordered to pay the amounts of P55,746,352.19
be collected a documentary stamp tax of fifty centavos (P0.50) on and P68,450,258.73 as deficiency Documentary Stamp Tax for
each four pesos (P4.00), or fractional part thereof, of the premium 1996 and 1997, respectively, plus 25% surcharge for late
charged. (emphasis supplied) payment and 20% interest per annum from January 27, 2000,
pursuant to Sections 248 and 249 of the Tax Code, until the same
Petitioner protested the assessment in a letter dated February 23, 2000. shall have been fully paid.
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 SO ORDERED.11
deficiency VAT and DST assessments.
Petitioner moved for reconsideration but the CA denied it. Hence, this
On April 5, 2002, the CTA rendered a decision,7 the dispositive portion of petition.
which read:
Petitioner essentially argues that its health care agreement is not a
WHEREFORE, in view of the foregoing, the instant Petition for contract of insurance but a contract for the provision on a prepaid basis
Review is PARTIALLY GRANTED. Petitioner is hereby of medical services, including medical check-up, that are not based on
ORDERED to PAY the deficiency VAT amounting loss or damage. Petitioner also insists that it is not engaged in the
to P22,054,831.75 inclusive of 25% surcharge plus 20% interest insurance business. It is a health maintenance organization regulated by
from January 20, 1997 until fully paid for the 1996 VAT deficiency the Department of Health, not an insurance company under the
and P31,094,163.87 inclusive of 25% surcharge plus 20% jurisdiction of the Insurance Commission. For these reasons, petitioner
interest from January 20, 1998 until fully paid for the 1997 VAT asserts that the health care agreement is not subject to DST.
deficiency. Accordingly, VAT Ruling No. [231]-88 is declared void
and without force and effect. The 1996 and 1997 deficiency DST
We do not agree.
assessment against petitioner is hereby CANCELLED AND SET
ASIDE. Respondent is ORDERED to DESIST from collecting the
said DST deficiency tax. The DST is levied on the exercise by persons of certain privileges
conferred by law for the creation, revision, or termination of specific legal
relationships through the execution of specific instruments.12 It is an
excise upon the privilege, opportunity, or facility offered at exchanges for
the transaction of the business.13 In particular, the DST under Section
Respondent appealed the CTA decision to the CA9 insofar as it cancelled 185 of the 1997 Tax Code is imposed on the privilege of making or
the DST assessment. He claimed that petitioner's health care agreement renewing any policy of insurance (except life, marine, inland and fire
was a contract of insurance subject to DST under Section 185 of the insurance), bond or obligation in the nature of indemnity for loss,
1997 Tax Code. damage, or liability.
Under the law, a contract of insurance is an agreement whereby one Petitioner's health care agreement is substantially similar to that involved
undertakes for a consideration to indemnify another against loss, damage in Philamcare Health Systems, Inc. v. CA.18 The health care agreement
or liability arising from an unknown or contingent event.14 The event in that case entitled the subscriber to avail of the hospitalization benefits,
insured against must be designated in the contract and must either be whether ordinary or emergency, listed therein. It also provided for "out-
unknown or contingent.15 patient benefits" such as annual physical examinations, preventive health
care and other out-patient services. This Court ruled in Philamcare Health
Petitioner's health care agreement is primarily a contract of indemnity. Systems, Inc.:
And in the recent case of Blue Cross Healthcare, Inc. v. Olivares,16 this
Court ruled that a health care agreement is in the nature of a non-life [T]he insurable interest of [the subscriber] in obtaining the health
insurance policy. care agreement was his own health. The health care agreement
was in the nature of non-life insurance, which is primarily a
Contrary to petitioner's claim, its health care agreement is not a contract contract of indemnity. Once the member incurs hospital,
for the provision of medical services. Petitioner does not actually provide medical or any other expense arising from sickness, injury or
medical or hospital services but merely arranges for the same17 and pays other stipulated contingency, the health care provider must pay
for them up to the stipulated maximum amount of coverage. It is also for the same to the extent agreed upon under the
incorrect to say that the health care agreement is not based on loss or contract.19 (emphasis supplied)
damage because, under the said agreement, petitioner assumes the
liability and indemnifies its member for hospital, medical and related Similarly, the insurable interest of every member of petitioner's health
expenses (such as professional fees of physicians). The term "loss or care program in obtaining the health care agreement is his own health.
damage" is broad enough to cover the monetary expense or liability a Under the agreement, petitioner is bound to indemnify any member who
member will incur in case of illness or injury. incurs hospital, medical or any other expense arising from sickness,
injury or other stipulated contingency to the extent agreed upon under the
Under the health care agreement, the rendition of hospital, medical and contract.
professional services to the member in case of sickness, injury or
emergency or his availment of so-called "out-patient services" (including Petitioner's contention that it is a health maintenance organization and
physical examination, x-ray and laboratory tests, medical consultations, not an insurance company is irrelevant. Contracts between companies
vaccine administration and family planning counseling) is the contingent like petitioner and the beneficiaries under their plans are treated as
event which gives rise to liability on the part of the member. In case of insurance contracts.20
exposure of the member to liability, he would be entitled to
indemnification by petitioner. Moreover, DST is not a tax on the business transacted but an excise on
the privilege, opportunity, or facility offered at exchanges for the
Furthermore, the fact that petitioner must relieve its member from liability transaction of the business.21 It is an excise on the facilities used in the
by paying for expenses arising from the stipulated contingencies belies transaction of the business, separate and apart from the business
its claim that its services are prepaid. The expenses to be incurred by itself.22
each member cannot be predicted beforehand, if they can be predicted at
all. Petitioner assumes the risk of paying for the costs of the services WHEREFORE, the petition is hereby DENIED. The August 16, 2004
even if they are significantly and substantially more than what the decision of the Court of Appeals in CA-G.R. SP No. 70479 is AFFIRMED.
member has "prepaid." Petitioner does not bear the costs alone but
distributes or spreads them out among a large group of persons bearing Petitioner is ordered to pay the amounts of P55,746,352.19
a similar risk, that is, among all the other members of the health care and P68,450,258.73 as deficiency documentary stamp tax for 1996 and
program. This is insurance. 1997, respectively, plus 25% surcharge for late payment and 20%
interest per annum from January 27, 2000 until full payment thereof.
Costs against petitioner. not engaged in the insurance business. It explained that Steamship
Mutual was a Protection and Indemnity Club (P & I Club). Likewise,
SO ORDERED. Pioneer need not obtain another license as insurance agent and/or a
broker for Steamship Mutual because Steamship Mutual was not
G.R. No. 154514. July 28, 2005 engaged in the insurance business. Moreover, Pioneer was already
licensed, hence, a separate license solely as agent/broker of Steamship
Mutual was already superfluous.
PIONEER INSURANCE AND SURETY CORPORATION AND THE The Court of Appeals affirmed the decision of the Insurance
STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) Commissioner. In its decision, the appellate court distinguished between
LTD., Respondents. P & I Clubs vis-à-vis conventional insurance. The appellate court also
held that Pioneer merely acted as a collection agent of Steamship
In this petition, petitioner assigns the following errors allegedly committed
by the appellate court,
This petition for review assails the Decision1 dated July 30, 2002 of the
Court of Appeals in CA-G.R. SP No. 60144, affirming
the Decision2 dated May 3, 2000 of the Insurance Commission in I.C.
Adm. Case No. RD-277. Both decisions held that there was no violation THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT
of the Insurance Code and the respondents do not need license as STEAMSHIP IS NOT DOING BUSINESS IN THE PHILIPPINES ON THE
insurer and insurance agent/broker. GROUND THAT IT COURSED . . . ITS TRANSACTIONS THROUGH ITS
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protection and
indemnity coverage for its vessels from The Steamship Mutual
Underwriting Association (Bermuda) Limited (Steamship Mutual) through
Pioneer Insurance and Surety Corporation (Pioneer). Subsequently, THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS
White Gold was issued a Certificate of Entry and Acceptance.3Pioneer BEREFT OF ANY EVIDENCE THAT RESPONDENT STEAMSHIP IS
also issued receipts evidencing payments for the coverage. When White ENGAGED IN INSURANCE BUSINESS.
Gold failed to fully pay its accounts, Steamship Mutual refused to renew

Steamship Mutual thereafter filed a case against White Gold for collection THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT
of sum of money to recover the latter’s unpaid balance. White Gold on PIONEER NEED NOT SECURE A LICENSE WHEN CONDUCTING ITS
the other hand, filed a complaint before the Insurance Commission AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP.
claiming that Steamship Mutual violated Sections 1864 and 1875 of the
Insurance Code, while Pioneer violated Sections 299,63007 and 3018 in FOURTH ASSIGNMENT OF ERROR
relation to Sections 302 and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there RESPONDENT PIONEER AND [IN NOT REMOVING] THE OFFICERS
was no need for Steamship Mutual to secure a license because it was AND DIRECTORS OF RESPONDENT PIONEER.9
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I (c) doing any kind of business, including a reinsurance business,
Club, engaged in the insurance business in the Philippines? (2) Does specifically recognized as constituting the doing of an insurance business
Pioneer need a license as an insurance agent/broker for Steamship within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any
The parties admit that Steamship Mutual is a P & I Club. Steamship of the foregoing in a manner designed to evade the provisions of this
Mutual admits it does not have a license to do business in the Philippines Code.
although Pioneer is its resident agent. This relationship is reflected in the
certifications issued by the Insurance Commission. ...

Petitioner insists that Steamship Mutual as a P & I Club is engaged in the The same provision also provides, the fact that no profit is derived from
insurance business. To buttress its assertion, it cites the definition of a P the making of insurance contracts, agreements or transactions, or that no
& I Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals10 as "an separate or direct consideration is received therefor, shall not preclude
association composed of shipowners in general who band together for the existence of an insurance business.12
the specific purpose of providing insurance cover on a mutual basis
against liabilities incidental to shipowning that the members incur in favor The test to determine if a contract is an insurance contract or not,
of third parties." It stresses that as a P & I Club, Steamship Mutual’s depends on the nature of the promise, the act required to be performed,
primary purpose is to solicit and provide protection and indemnity and the exact nature of the agreement in the light of the occurrence,
coverage and for this purpose, it has engaged the services of Pioneer to contingency, or circumstances under which the performance becomes
act as its agent. requisite. It is not by what it is called.13

Respondents contend that although Steamship Mutual is a P & I Club, it Basically, an insurance contract is a contract of indemnity. In it, one
is not engaged in the insurance business in the Philippines. It is merely undertakes for a consideration to indemnify another against loss, damage
an association of vessel owners who have come together to provide or liability arising from an unknown or contingent event.14
mutual protection against liabilities incidental to
shipowning.11 Respondents aver Hyopsung is inapplicable in this case
In particular, a marine insurance undertakes to indemnify the assured
because the issue in Hyopsung was the jurisdiction of the court
against marine losses, such as the losses incident to a marine
over Hyopsung.
adventure.15 Section 9916 of the Insurance Code enumerates the
coverage of marine insurance.
Is Steamship Mutual engaged in the insurance business?
Relatedly, a mutual insurance company is a cooperative enterprise where
Section 2(2) of the Insurance Code enumerates what constitutes "doing the members are both the insurer and insured. In it, the members all
an insurance business" or "transacting an insurance business". These contribute, by a system of premiums or assessments, to the creation of a
are: fund from which all losses and liabilities are paid, and where the profits
are divided among themselves, in proportion to their
(a) making or proposing to make, as insurer, any insurance contract; interest.17 Additionally, mutual insurance associations, or clubs, provide
three types of coverage, namely, protection and indemnity, war risks, and
(b) making, or proposing to make, as surety, any contract of suretyship as defense costs.18
a vocation and not as merely incidental to any other legitimate business
or activity of the surety; 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."19 By definition then, Steamship Mutual as a P & I Club is a
mutual insurance association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country WHEREFORE, the petition is PARTIALLY GRANTED. The Decision
albeit without the requisite certificate of authority mandated by Section dated July 30, 2002 of the Court of Appeals affirming the Decision dated
18720 of the Insurance Code. It maintains a resident agent in the May 3, 2000 of the Insurance Commission is hereby REVERSED AND
Philippines to solicit insurance and to collect payments in its behalf. We SET ASIDE. The Steamship Mutual Underwriting Association (Bermuda)
note that Steamship Mutual even renewed its P & I Club cover until it was Ltd., and Pioneer Insurance and Surety Corporation are ORDERED to
cancelled due to non-payment of the calls. Thus, to continue doing obtain licenses and to secure proper authorizations to do business as
business here, Steamship Mutual or through its agent Pioneer, must insurer and insurance agent, respectively. The petitioner’s prayer for the
secure a license from the Insurance Commission. revocation of Pioneer’s Certificate of Authority and removal of its directors
and officers, is DENIED. Costs against respondents.
Since a contract of insurance involves public interest, regulation by the
State is necessary. Thus, no insurer or insurance company is allowed to SO ORDERED.
engage in the insurance business without a license or a certificate of
authority from the Insurance Commission.21 Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ.,
Does Pioneer, as agent/broker of Steamship Mutual, need a special
license? G.R. No. 113899 October 13, 1999

Pioneer is the resident agent of Steamship Mutual as evidenced by the GREAT PACIFIC LIFE ASSURANCE CORP., petitioner,
certificate of registration22 issued by the Insurance Commission. It has vs.
been licensed to do or transact insurance business by virtue of the COURT OF APPEALS AND MEDARDA V. LEUTERIO, respondents.
certificate of authority23 issued by the same agency. However, a
Certification from the Commission states that Pioneer does not have a QUISUMBING, J.:
separate license to be an agent/broker of Steamship Mutual.24
This petition for review, under Rule 45 of the Rules of Court, assails the
Although Pioneer is already licensed as an insurance company, it needs Decision 1 dated May 17, 1993, of the Court of Appeals and its
a separate license to act as insurance agent for Steamship Mutual. Resolution 2 dated January 4, 1994 in CA-G.R. CV No. 18341. The
Section 299 of the Insurance Code clearly states: appellate court affirmed in toto the judgment of the Misamis Oriental
Regional Trial Court, Branch 18, in an insurance claim filed by private
SEC. 299 . . . respondent against Great Pacific Life Assurance Co. The dispositive
portion of the trial court's decision reads:
No person shall act as an insurance agent or as an insurance broker in
the solicitation or procurement of applications for insurance, or receive for WHEREFORE, judgment is rendered adjudging the
services in obtaining insurance, any commission or other compensation defendant GREAT PACIFIC LIFE ASSURANCE
from any insurance company doing business in the Philippines or any CORPORATION as insurer under its Group policy No. G-
agent thereof, without first procuring a license so to act from the 1907, in relation to Certification B-18558 liable and
Commissioner, which must be renewed annually on the first day of ordered to pay to the DEVELOPMENT BANK OF THE
January, or within six months thereafter. . . PHILIPPINES as creditor of the insured Dr. Wilfredo
Leuterio, the amount of EIGHTY SIX THOUSAND TWO
Finally, White Gold seeks revocation of Pioneer’s certificate of authority HUNDRED PESOS (P86,200.00); dismissing the claims
and removal of its directors and officers. Regrettably, we are not the for damages, attorney's fees and litigation expenses in
forum for these issues. the complaint and counterclaim, with costs against the
defendant and dismissing the complaint in respect to the
plaintiffs, other than the widow-beneficiary, for lack of On October 20, 1986, the widow of the late Dr. Leuterio, respondent
cause of action. 3 Medarda V. Leuterio, filed a complaint with the Regional Trial Court of
Misamis Oriental, Branch 18, against Grepalife for "Specific Performance
The facts, as found by the Court of Appeals, are as follows: with Damages." 5During the trial, Dr. Hernando Mejia, who issued the
death certificate, was called to testify. Dr. Mejia's findings, based partly
A contract of group life insurance was executed between petitioner Great from the information given by the respondent widow, stated that Dr.
Pacific Life Assurance Corporation (hereinafter Grepalife) and Leuterio complained of headaches presumably due to high blood
Development Bank of the Philippines (hereinafter DBP). Grepalife agreed pressure. The inference was not conclusive because Dr. Leuterio was not
to insure the lives of eligible housing loan mortgagors of DBP. autopsied, hence, other causes were not ruled out.

On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing On February 22, 1988, the trial court rendered a decision in favor of
debtor of DBP applied for membership in the group life insurance plan. In respondent widow and against Grepalife. On May 17, 1993, the Court of
an application form, Dr. Leuterio answered questions concerning his Appeals sustained the trial court's decision. Hence, the present petition.
health condition as follows: Petitioners interposed the following assigned errors:

7. Have you ever had, or consulted, a 1. THE LOWER COURT ERRED IN

physician for a heart condition, high blood HOLDING DEFENDANT-APPELLANT
pressure, cancer, diabetes, lung; kidney or LIABLE TO THE DEVELOPMENT BANK
stomach disorder or any other physical OF THE PHILIPPINES (DBP) WHICH IS
Answer: No. If so give details
8. Are you now, to the best of your BORROWERS, INSTEAD OF
knowledge, in good health? DISMISSING THE CASE AGAINST
Answer: [x] Yes [ ] NO. 4 Grepalife] FOR LACK OF CAUSE OF
On November 15, 1983, Grepalife issued Certificate No. B-18558, as
insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage 2. THE LOWER COURT ERRED IN NOT
indebtedness amounting to eighty-six thousand, two hundred DISMISSING THE CASE FOR WANT OF
(P86,200.00) pesos. 1âwphi1.nêt


On August 6, 1984, Dr. Leuterio died due to "massive cerebral OVER THE PERSON OF THE
hemorrhage." Consequently, DBP submitted a death claim to Grepalife. DEFENDANT.
Grepalife denied the claim alleging that Dr. Leuterio was not physically
healthy when he applied for an insurance coverage on November 15, 3. THE LOWER COURT ERRED IN
1983. Grepalife insisted that Dr. Leuterio did not disclose he had been ORDERING DEFENDANT-APPELLANT
suffering from hypertension, which caused his death. Allegedly, such TO PAY TO DBP THE AMOUNT OF
non-disclosure constituted concealment that justified the denial of the P86,200.00 IN THE ABSENCE OF ANY
DBP IN ACCORDANCE WITH ITS To resolve the issue, we must consider the insurable interest in
GROUP INSURANCE CONTRACT WITH mortgaged properties and the parties to this type of contract. The
DEFENDANT-APPELLANT. rationale of a group insurance policy of mortgagors, otherwise known as
the "mortgage redemption insurance," is a device for the protection of
4. THE LOWER COURT ERRED IN both the mortgagee and the mortgagor. On the part of the mortgagee, it
HOLDING THAT THERE WAS NO has to enter into such form of contract so that in the event of the
CONCEALMENT OF MATERIAL unexpected demise of the mortgagor during the subsistence of the
INFORMATION ON THE PART OF mortgage contract, the proceeds from such insurance will be applied to
WILFREDO LEUTERIO IN HIS the payment of the mortgage debt, thereby relieving the heirs of the
APPLICATION FOR MEMBERSHIP IN mortgagor from paying the obligation. 7 In a similar vein, ample protection
THE GROUP LIFE INSURANCE PLAN is given to the mortgagor under such a concept so that in the event of
BETWEEN DEFENDANT-APPELLANT death; the mortgage obligation will be extinguished by the application of
OF THE INSURANCE CLAIM ARISING the insurance proceeds to the mortgage indebtedness. 8 Consequently,
FROM THE DEATH OF WILFREDO where the mortgagor pays the insurance premium under the group
LEUTERIO. 6 insurance policy, making the loss payable to the mortgagee, the
insurance is on the mortgagor's interest, and the mortgagor continues to
Synthesized below are the assigned errors for our resolution: be a party to the contract. In this type of policy insurance, the mortgagee
is simply an appointee of the insurance fund, such loss-payable clause
does not make the mortgagee a party to the contract. 9
1. Whether the Court of Appeals erred in
holding petitioner liable to DBP as
beneficiary in a group life insurance Sec. 8 of the Insurance Code provides:
contract from a complaint filed by the
widow of the decedent/mortgagor? Unless the policy provides, where a mortgagor of property
effects insurance in his own name providing that the loss
2. Whether the Court of Appeals erred in shall be payable to the mortgagee, or assigns a policy of
not finding that Dr. Leuterio concealed that insurance to a mortgagee, the insurance is deemed to be
he had hypertension, which would vitiate upon the interest of the mortgagor, who does not cease to
the insurance contract? be a party to the original contract, and any act of his, prior
to the loss, which would otherwise avoid the insurance,
will have the same effect, although the property is in the
3. Whether the Court of Appeals erred in
hands of the mortgagee, but any act which, under the
holding Grepalife liable in the amount of
contract of insurance, is to be performed by the
eighty six thousand, two hundred
mortgagor, may be performed by the mortgagee therein
(P86,200.00) pesos without proof of the
named, with the same effect as if it had been performed
actual outstanding mortgage payable by
by the mortgagor.
the mortgagor to DBP.
The insured private respondent did not cede to the mortgagee all his
Petitioner alleges that the complaint was instituted by the widow of Dr.
rights or interests in the insurance, the policy stating that: "In the event of
Leuterio, not the real party in interest, hence the trial court acquired no
the debtor's death before his indebtedness with the Creditor [DBP] shall
jurisdiction over the case. It argues that when the Court of Appeals
have been fully paid, an amount to pay the outstanding indebtedness
affirmed the trial court's judgment, Grepalife was held liable to pay the
shall first be paid to the creditor and the balance of sum assured, if there
proceeds of insurance contract in favor of DBP, the indispensable party
is any, shall then be paid to the beneficiary/ies designated by the
who was not joined in the suit.
debtor." 10 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 the decedent. Grepalife asserts that Dr. Mejia's technical diagnosis of the
debt from the mortgagor and took the necessary action of foreclosure on cause of death of Dr. Leuterio was a duly documented hospital record,
the residential lot of private respondent. 11 In Gonzales La O vs. Yek Tong and that the widow's declaration that her husband had "possible
Lin Fire & Marine Ins. Co. 12 we held: hypertension several years ago" should not be considered as hearsay,
but as part of res gestae.
Insured, being the person with whom the contract was
made, is primarily the proper person to bring suit On the contrary the medical findings were not conclusive because Dr.
thereon. * * * Subject to some exceptions, insured may Mejia did not conduct an autopsy on the body of the decedent. As the
thus sue, although the policy is taken wholly or in part for attending physician, Dr. Mejia stated that he had no knowledge of Dr.
the benefit of another person named or unnamed, and Leuterio's any previous hospital confinement. 16 Dr. Leuterio's death
although it is expressly made payable to another as his certificate stated that hypertension was only "the possible cause of
interest may appear or otherwise. * * * Although a policy death." The private respondent's statement, as to the medical history of
issued to a mortgagor is taken out for the benefit of the her husband, was due to her unreliable recollection of events. Hence, the
mortgagee and is made payable to him, yet the mortgagor statement of the physician was properly considered by the trial court as
may sue thereon in his own name, especially where the hearsay.
mortgagee's interest is less than the full amount
recoverable under the policy, * * *. The question of whether there was concealment was aptly answered by
the appellate court, thus:
And in volume 33, page 82, of the same work, we read
the following: The insured, Dr. Leuterio, had answered in his insurance
application that he was in good health and that he had not
Insured may be regarded as the real party in interest, consulted a doctor or any of the enumerated ailments,
although he has assigned the policy for the purpose of including hypertension; when he died the attending
collection, or has assigned as collateral security any physician had certified in the death certificate that the
judgment he may obtain. 13 former died of cerebral hemorrhage, probably secondary
to hypertension. From this report, the appellant insurance
And since a policy of insurance upon life or health may pass by transfer, company refused to pay the insurance claim. Appellant
will or succession to any person, whether he has an insurable interest or alleged that the insured had concealed the fact that he
not, and such person may recover it whatever the insured might have had hypertension.
recovered, 14the widow of the decedent Dr. Leuterio may file the suit
against the insurer, Grepalife. Contrary to appellant's allegations, there was no sufficient
proof that the insured had suffered from hypertension.
The second assigned error refers to an alleged concealment that the Aside from the statement of the insured's widow who was
petitioner interposed as its defense to annul the insurance contract. not even sure if the medicines taken by Dr. Leuterio were
Petitioner contends that Dr. Leuterio failed to disclose that he had for hypertension, the appellant had not proven nor
hypertension, which might have caused his death. Concealment exists produced any witness who could attest to Dr. Leuterio's
where the assured had knowledge of a fact material to the risk, and medical history . . .
honesty, good faith, and fair dealing requires that he should communicate
it to the assured, but he designedly and intentionally withholds the xxx xxx xxx
same. 15
Appellant insurance company had failed to establish that
Petitioner merely relied on the testimony of the attending physician, Dr. there was concealment made by the insured, hence, it
Hernando Mejia, as supported by the information given by the widow of cannot refuse payment of the claim. 17
The fraudulent intent on the part of the insured must be established to WHEREFORE, the petition is hereby DENIED. The Decision and
entitle the insurer to rescind the contract.18Misrepresentation as a defense Resolution of the Court of Appeals in CA-G.R. CV 18341 is AFFIRMED
of the insurer to avoid liability is an affirmative defense and the duty to with MODIFICATION that the petitioner is ORDERED to pay the
establish such defense by satisfactory and convincing evidence rests insurance proceeds amounting to Eighty-six thousand, two hundred
upon the insurer. 19 In the case at bar, the petitioner failed to clearly and (P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo Leuterio
satisfactorily establish its defense, and is therefore liable to pay the (deceased), upon presentation of proof of prior settlement of mortgagor's
proceeds of the insurance. 1âwphi1.nêt indebtedness to Development Bank of the Philippines. Costs against

And that brings us to the last point in the review of the case at bar.
Petitioner claims that there was no evidence as to the amount of Dr. SO ORDERED.
Leuterio's outstanding indebtedness to DBP at the time of the
mortgagor's death. Hence, for private respondent's failure to establish the G.R. No. 112329 January 28, 2000
same, the action for specific performance should be dismissed.
Petitioner's claim is without merit. A life insurance policy is a valued VIRGINIA A. PEREZ, petitioner,
policy. 20 Unless the interest of a person insured is susceptible of exact vs.
pecuniary measurement, the measure of indemnity under a policy of COURT OF APPEALS and BF LIFEMAN INSURANCE
insurance upon life or health is the sum fixed in the policy. 21 The CORPORATION, respondents.
mortgagor paid the premium according to the coverage of his insurance,
which states that:
The policy states that upon receipt of due proof of the
A contract of insurance, like all other contracts, must be assented to by
Debtor's death during the terms of this insurance, a death
both parties, either in person or through their agents and so long as an
benefit in the amount of P86,200.00 shall be paid.
application for insurance has not been either accepted or rejected, it is
merely a proposal or an offer to make a contract.
In the event of the debtor's death before his indebtedness
with the creditor shall have been fully paid, an amount to
Petitioner Virginia A. Perez assails the decision of respondent Court of
pay the outstanding indebtedness shall first be paid to the
Appeals dated July 9, 1993 in CA-G.R. CV 35529 entitled, "BF Lifeman
Creditor and the balance of the Sum Assured, if there is
Insurance Corporations; Plaintiff-Appellant versus Virginia A. Perez.
any shall then be paid to the beneficiary/ies designated by
Defendant-Appellee," which declared Insurance Policy 056300 for
the debtor." 22(Emphasis omitted)
P50,000.00 issued by private respondent corporation in favor of the
deceased Primitivo B. Perez, null and void and rescinded, thereby
However, we noted that the Court of Appeals' decision was promulgated reversing the decision rendered by the Regional Trial Court of Manila,
on May 17, 1993. In private respondent's memorandum, she states that Branch XVI.
DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor's
outstanding loan. Considering this supervening event, the insurance
The facts of the case as summarized by respondent Court of Appeals are
proceeds shall inure to the benefit of the heirs of the deceased person or
not in dispute.
his beneficiaries. Equity dictates that DBP should not unjustly enrich itself
at the expense of another (Nemo cum alterius detrimenio protest).
Hence, it cannot collect the insurance proceeds, after it already Primitivo B. Perez had been insured with the BF Lifeman Insurance
foreclosed on the mortgage. The proceeds now rightly belong to Dr. Corporation since 1980 for P20,000.00. Sometime in October 1987, an
Leuterio's heirs represented by his widow, herein private respondent agent of the insurance corporation, Rodolfo Lalog, visited Perez in
Medarda Leuterio. Guinayangan, Quezon and convinced him to apply for additional
insurance coverage of P50,000.00, to avail of the ongoing promotional
discount of P400.00 if the premium were paid annually. 1âw phi1.nêt
On October 20, 1987, Primitivo B. Perez accomplished an application Petitioner Virginia A. Perez, on the other hand, averred that the deceased
form for the additional insurance coverage of P50,000.00. On the same had fulfilled all his prestations under the contract and all the elements of
day, petitioner Virginia A. Perez, Primitivo's wife, paid P2,075.00 to Lalog. a valid contract are present. She then filed a counterclaim against private
The receipt issued by Lalog indicated the amount received was a respondent for the collection of P150,000.00 as actual damages,
"deposit."1 Unfortunately, Lalog lost the application form accomplished by P100,000.00 as exemplary damages, P30,000.00 as attorney's fees and
Perez and so on October 28, 1987, he asked the latter to fill up another P10,000.00 as expenses for litigation.
application form.2 On November 1, 1987, Perez was made to undergo the
required medical examination, which he passed.3 On October 25, 1991, the trial court rendered a decision in favor of
petitioner, the dispositive portion of which reads as follows:
Pursuant to the established procedure of the company, Lalog forwarded
the application for additional insurance of Perez, together with all its WHEREFORE PREMISES CONSIDERED, judgment is hereby
supporting papers, to the office of BF Lifeman Insurance Corporation at rendered in favor of defendant Virginia A. Perez, ordering the
Gumaca, Quezon which office was supposed to forward the papers to the plaintiff BF Lifeman Insurance Corporation to pay to her the face
Manila office. value of BF Lifeman Insurance Policy No. 056300, plus double
indemnity under the SARDI or in the total amount of P150,000.00
On November 25, 1987, Perez died in an accident. He was riding in a (any refund made and/or premium deficiency to be deducted
banca which capsized during a storm. At the time of his death, his therefrom).
application papers for the additional insurance of P50,000.00 were still
with the Gumaca office. Lalog testified that when he went to follow up the SO ORDERED.5
papers, he found them still in the Gumaca office and so he personally
brought the papers to the Manila office of BF Lifeman Insurance The trial court, in ruling for petitioner, held that the premium for the
Corporation. It was only on November 27, 1987 that said papers were additional insurance of P50,000.00 had been fully paid and even if the
received in Manila. sum of P2,075.00 were to be considered merely as partial payment, the
same does not affect the validity of the policy. The trial court further
Without knowing that Perez died on November 25, 1987, BF Lifeman stated that the deceased had fully complied with the requirements of the
Insurance Corporation approved the application and issued the insurance company. He paid, signed the application form and passed the
corresponding policy for the P50,000.00 on December 2, 1987.4 medical examination. He should not be made to suffer the subsequent
delay in the transmittal of his application form to private respondent's
Petitioner Virginia Perez went to Manila to claim the benefits under the head office since these were no longer within his control.
insurance policies of the deceased. She was paid P40,000.00 under the
first insurance policy for P20,000.00 (double indemnity in case of The Court of Appeals, however, reversed the decision of the trial court
accident) but the insurance company refused to pay the claim under the saying that the insurance contract for P50,000.00 could not have been
additional policy coverage of P50,000.00, the proceeds of which amount perfected since at the time that the policy was issued, Primitivo was
to P150,000.00 in view of a triple indemnity rider on the insurance policy. already dead.6Citing the provision in the application form signed by
In its letter' of January 29, 1988 to Virginia A. Perez, the insurance Primitivo which states that:
company maintained that the insurance for P50,000.00 had not been
perfected at the time of the death of Primitivo Perez. Consequently, the . . . there shall be no contract of insurance unless and until a
insurance company refunded the amount of P2,075.00 which Virginia policy is issued on this application and that the policy shall not
Perez had paid. take effect until the first premium has been paid and the policy
has been delivered to and accepted by me/us in person while
On September 21, 1990, private respondent BF Lifeman Insurance I/we, am/are in good health
Corporation filed a complaint against Virginia A. Perez seeking the
rescission and declaration of nullity of the insurance contract in question.
the Court of Appeals held that the contract of insurance had to be and accepted by me/us in person while I/We, am/are in good
assented to by both parties and so long as the application for insurance health.9
has not been either accepted or rejected, it is merely an offer or proposal
to make a contract. The assent of private respondent BF Lifeman Insurance Corporation
therefore was not given when it merely received the application form and
Petitioner's motion for reconsideration having been denied by respondent all the requisite supporting papers of the applicant. Its assent was given
court, the instant petition for certiorari was filed on the ground that there when it issues a corresponding policy to the applicant. Under the
was a consummated contract of insurance between the deceased and abovementioned provision, it is only when the applicant pays the
BF Lifeman Insurance Corporation and that the condition that the policy premium and receives and accepts the policy while he is in good health
issued by the corporation be delivered and received by the applicant in that the contract of insurance is deemed to have been perfected.
good health, is potestative, being dependent upon the will of the
insurance company, and is therefore null and void. It is not disputed, however, that when Primitivo died on November 25,
1987, his application papers for additional insurance coverage were still
The petition is bereft of merit. with the branch office of respondent corporation in Gumaca and it was
only two days later, or on November 27, 1987, when Lalog personally
Insurance is a contract whereby, for a stipulated consideration, one party delivered the application papers to the head office in Manila.
undertakes to compensate the other for loss on a specified subject by Consequently, there was absolutely no way the acceptance of the
specified perils.7 A contract, on the other hand, is a meeting of the minds application could have been communicated to the applicant for the latter
between two persons whereby one binds himself, with respect to the to accept inasmuch as the applicant at the time was already dead. In the
other to give something or to render some service.8 Under Article 1318 of case of Enriquez vs.Sun Life Assurance Co. of Canada,10 recovery on the
the Civil Code, there is no contract unless the following requisites concur: life insurance of the deceased was disallowed on the ground that the
contract for annuity was not perfected since it had not been proved
(1) Consent of the contracting parties; satisfactorily that the acceptance of the application ever reached the
knowledge of the applicant.
(2) Object certain which is the subject matter of the contract;
Petitioner insists that the condition imposed by respondent corporation
that a policy must have been delivered to and accepted by the proposed
(3) Cause of the obligation which is established.
insured in good health is potestative being dependent upon the will of the
corporation and is therefore null and void.
Consent must be manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
We do not agree.
contract. The offer must be certain and the acceptance absolute.
A potestative condition depends upon the exclusive will of one of the
When Primitivo filed an application for insurance, paid P2,075.00 and
parties. For this reason, it is considered void. Article 1182 of the New
submitted the results of his medical examination, his application was
Civil Code states: When the fulfillment of the condition depends upon the
subject to the acceptance of private respondent BF Lifeman Insurance
sole will the debtor, the conditional obligation shall be void.
Corporation. The perfection of the contract of insurance between the
deceased and respondent corporation was further conditioned upon
compliance with the following requisites stated in the application form: In the case at bar, the following conditions were imposed by the
respondent company for the perfection of the contract of insurance:
there shall be no contract of insurance unless and until a policy is
issued on this application and that the said policy shall not take (a) a policy must have been issued;
effect until the premium has been paid and the policy delivered to
(b) the premiums paid; and
(c) the policy must have been delivered to and accepted by the A final note. It has not escaped our notice that the Court of Appeals
applicant while he is in good health. declared Insurance Policy 056300 for P50,000.00 null and void and
rescinded. The Court of Appeals corrected this in its Resolution of the
The condition imposed by the corporation that the policy must have been motion for reconsideration filed by petitioner, thus:
delivered to and accepted by the applicant while he is in good health can
hardly be considered as a potestative or facultative condition. On the Anent the appearance of the word "rescinded" in the dispositive
contrary, the health of the applicant at the time of the delivery of the portion of the decision, to which defendant-appellee attaches
policy is beyond the control or will of the insurance company. Rather, the undue significance and makes capital of, it is clear that the use of
condition is a suspensive one whereby the acquisition of rights depends the words "and rescinded" is, as it is hereby declared, a
upon the happening of an event which constitutes the condition. In this superfluity. It is apparent from the context of the decision that the
case, the suspensive condition was the policy must have been delivered insurance policy in question was found null and void, and did not
and accepted by the applicant while he is in good health. There was non- have to be "rescinded".13
fulfillment of the condition, however, inasmuch as the applicant was
already dead at the time the policy was issued. Hence, the non-fulfillment True, rescission presupposes the existence of a valid contract. A contract
of the condition resulted in the non-perfection of the contract. which is null and void is no contract at all and hence could not be the
subject of rescission.
As stated above, a contract of insurance, like other contracts, must be
assented to by both parties either in person or by their agents. So long as WHEREFORE, the decision rendered by the Court of Appeals in CA-G.R.
an application for insurance has not been either accepted or rejected, it is CV No. 35529 is AFFIRMED insofar as it declared Insurance Policy No.
merely an offer or proposal to make a contract. The contract, to be 056300 for P50,000.00 issued by BF Lifeman Insurance Corporation of
binding from the date of application, must have been a completed no force and effect and hence null and void. No costs. 1âw phi1.nêt

contract, one that leaves nothing to be done, nothing to be completed,

nothing to be passed upon, or determined, before it shall take effect. SO ORDERED.
There can be no contract of insurance unless the minds of the parties
have met in agreement.11
G.R. No. L-15895 November 29, 1920
Prescinding from the foregoing, respondent corporation cannot be held
RAFAEL ENRIQUEZ, as administrator of the estate of the late
liable for gross negligence. It should be noted that an application is a
Joaquin Ma. Herrer, plaintiff-appellant,
mere offer which requires the overt act of the insurer for it to ripen into a
contract. Delay in acting on the application does not constitute
acceptance even though the insured has forwarded his first premium with
his application. The corporation may not be penalized for the delay in the
processing of the application papers. Moreover, while it may have taken Jose A. Espiritu for appellant.
some time for the application papers to reach the main office, in the case Cohn, Fisher and DeWitt for appellee.
at bar, the same was acted upon less than a week after it was received.
The processing of applications by respondent corporation normally takes
two to three weeks, the longest being a month.12 In this case, however,
the requisite medical examination was undergone by the deceased on
November 1, 1987; the application papers were forwarded to the head MALCOLM, J.:
office on November 27, 1987; and the policy was issued on December 2,
1987. Under these circumstances, we hold that the delay could not be This is an action brought by the plaintiff ad administrator of the estate of
deemed unreasonable so as to constitute gross negligence. the late Joaquin Ma. Herrer to recover from the defendant life insurance
company the sum of pesos 6,000 paid by the deceased for a life annuity. the application of Mr. Herrer from the home office on November 26, 1917.
The trial court gave judgment for the defendant. Plaintiff appeals. He said that on the same day he signed a letter notifying Mr. Herrer of
this acceptance. The witness further said that letters, after being signed,
The undisputed facts are these: On September 24, 1917, Joaquin Herrer were sent to the chief clerk and placed on the mailing desk for
made application to the Sun Life Assurance Company of Canada through transmission. The witness could not tell if the letter had every actually
its office in Manila for a life annuity. Two days later he paid the sum of been placed in the mails. Mr. Tuason, who was the chief clerk, on
P6,000 to the manager of the company's Manila office and was given a November 26, 1917, was not called as a witness. For the defense,
receipt reading as follows: attorney Manuel Torres testified to having prepared the will of Joaquin
Ma. Herrer, that on this occasion, Mr. Herrer mentioned his application for
MANILA, I. F., 26 de septiembre, 1917. a life annuity, and that he said that the only document relating to the
transaction in his possession was the provisional receipt. Rafael
Enriquez, the administrator of the estate, testified that he had gone
through the effects of the deceased and had found no letter of notification
from the insurance company to Mr. Herrer.
Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como
prima dela Renta Vitalicia solicitada por dicho Don Joaquin Herrer hoy,
Our deduction from the evidence on this issue must be that the letter of
sujeta al examen medico y aprobacion de la Oficina Central de la
November 26, 1917, notifying Mr. Herrer that his application had been
accepted, was prepared and signed in the local office of the insurance
company, was placed in the ordinary channels for transmission, but as
The application was immediately forwarded to the head office of the far as we know, was never actually mailed and thus was never received
company at Montreal, Canada. On November 26, 1917, the head office by the applicant.
gave notice of acceptance by cable to Manila. (Whether on the same day
the cable was received notice was sent by the Manila office of Herrer that
Not forgetting our conclusion of fact, it next becomes necessary to
the application had been accepted, is a disputed point, which will be
determine the law which should be applied to the facts. In order to reach
discussed later.) On December 4, 1917, the policy was issued at
our legal goal, the obvious signposts along the way must be noticed.
Montreal. On December 18, 1917, attorney Aurelio A. Torres wrote to the
Manila office of the company stating that Herrer desired to withdraw his
application. The following day the local office replied to Mr. Torres, Until quite recently, all of the provisions concerning life insurance in the
stating that the policy had been issued, and called attention to the Philippines were found in the Code of Commerce and the Civil Code. In
notification of November 26, 1917. This letter was received by Mr. Torres the Code of the Commerce, there formerly existed Title VIII of Book III
on the morning of December 21, 1917. Mr. Herrer died on December 20, and Section III of Title III of Book III, which dealt with insurance contracts.
1917. In the Civil Code there formerly existed and presumably still exist,
Chapters II and IV, entitled insurance contracts and life annuities,
respectively, of Title XII of Book IV. On the after July 1, 1915, there was,
As above suggested, the issue of fact raised by the evidence is whether
however, in force the Insurance Act. No. 2427. Chapter IV of this Act
Herrer received notice of acceptance of his application. To resolve this
concerns life and health insurance. The Act expressly repealed Title VIII
question, we propose to go directly to the evidence of record.
of Book II and Section III of Title III of Book III of the code of Commerce.
The law of insurance is consequently now found in the Insurance Act and
The chief clerk of the Manila office of the Sun Life Assurance Company the Civil Code.
of Canada at the time of the trial testified that he prepared the letter
introduced in evidence as Exhibit 3, of date November 26, 1917, and
While, as just noticed, the Insurance Act deals with life insurance, it is
handed it to the local manager, Mr. E. E. White, for signature. The
silent as to the methods to be followed in order that there may be a
witness admitted on cross-examination that after preparing the letter and
contract of insurance. On the other hand, the Civil Code, in article 1802,
giving it to he manager, he new nothing of what became of it. The local
not only describes a contact of life annuity markedly similar to the one we
manager, Mr. White, testified to having received the cablegram accepting
are considering, but in two other articles, gives strong clues as to the
proper disposition of the case. For instance, article 16 of the Civil Code be a medical examination of the applicant; (2) there had to be approval of
provides that "In matters which are governed by special laws, any the application by the head office of the company; and (3) this approval
deficiency of the latter shall be supplied by the provisions of this Code." had in some way to be communicated by the company to the applicant.
On the supposition, therefore, which is incontestable, that the special law The further admitted facts are that the head office in Montreal did accept
on the subject of insurance is deficient in enunciating the principles the application, did cable the Manila office to that effect, did actually issue
governing acceptance, the subject-matter of the Civil code, if there be the policy and did, through its agent in Manila, actually write the letter of
any, would be controlling. In the Civil Code is found article 1262 providing notification and place it in the usual channels for transmission to the
that "Consent is shown by the concurrence of offer and acceptance with addressee. The fact as to the letter of notification thus fails to concur with
respect to the thing and the consideration which are to constitute the the essential elements of the general rule pertaining to the mailing and
contract. An acceptance made by letter shall not bind the person making delivery of mail matter as announced by the American courts, namely,
the offer except from the time it came to his knowledge. The contract, in when a letter or other mail matter is addressed and mailed with postage
such case, is presumed to have been entered into at the place where the prepaid there is a rebuttable presumption of fact that it was received by
offer was made." This latter article is in opposition to the provisions of the addressee as soon as it could have been transmitted to him in the
article 54 of the Code of Commerce. ordinary course of the mails. But if any one of these elemental facts fails
to appear, it is fatal to the presumption. For instance, a letter will not be
If no mistake has been made in announcing the successive steps by presumed to have been received by the addressee unless it is shown
which we reach a conclusion, then the only duty remaining is for the court that it was deposited in the post-office, properly addressed and stamped.
to apply the law as it is found. The legislature in its wisdom having (See 22 C.J., 96, and 49 L. R. A. [N. S.], pp. 458, et seq., notes.)
enacted a new law on insurance, and expressly repealed the provisions
in the Code of Commerce on the same subject, and having thus left a We hold that the contract for a life annuity in the case at bar was not
void in the commercial law, it would seem logical to make use of the only perfected because it has not been proved satisfactorily that the
pertinent provision of law found in the Civil code, closely related to the acceptance of the application ever came to the knowledge of the
chapter concerning life annuities. applicant.lawph!

The Civil Code rule, that an acceptance made by letter shall bind the Judgment is reversed, and the plaintiff shall have and recover from the
person making the offer only from the date it came to his knowledge, may defendant the sum of P6,000 with legal interest from November 20, 1918,
not be the best expression of modern commercial usage. Still it must be until paid, without special finding as to costs in either instance. So
admitted that its enforcement avoids uncertainty and tends to security. ordered.
Not only this, but in order that the principle may not be taken too lightly,
let it be noticed that it is identical with the principles announced by a Mapa, C.J., Araullo, Avanceña and Villamor, JJ., concur.
considerable number of respectable courts in the United States. The Johnson, J., dissents.
courts who take this view have expressly held that an acceptance of an
offer of insurance not actually or constructively communicated to the G.R. No. 166245 April 9, 2008
proposer does not make a contract. Only the mailing of acceptance, it
has been said, completes the contract of insurance, as the locus
poenitentiae is ended when the acceptance has passed beyond the
control of the party. (I Joyce, The Law of Insurance, pp. 235, 244.)
COMPANY, respondent.
In resume, therefore, the law applicable to the case is found to be the
second paragraph of article 1262 of the Civil Code providing that an
acceptance made by letter shall not bind the person making the offer
except from the time it came to his knowledge. The pertinent fact is, that
according to the provisional receipt, three things had to be accomplished VELASCO, JR., J.:
by the insurance company before there was a contract: (1) There had to

Central to this Petition for Review on Certiorari under Rule 45 which The Life Insurance coverage of any Lot Purchaser at any time
seeks to reverse and set aside the November 26, 2004 Decision1 of the shall be the amount of the unpaid balance of his loan (including
Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the arrears up to but not exceeding 2 months) as reported by the
inaction of the insurer on the insurance application be considered as Assured to the Company or the sum of P100,000.00, whichever is
approval of the application? smaller. Such benefit shall be paid to the Assured if the Lot
Purchaser dies while insured under the Policy.
The Facts
On December 10, 1980, respondent Philippine American Life Insurance
Company (Philamlife) entered into an agreement denominated as The insurance of any eligible Lot Purchaser shall be effective on
Creditor Group Life Policy No. P-19202 with petitioner Eternal Gardens the date he contracts a loan with the Assured. However, there
Memorial Park Corporation (Eternal). Under the policy, the clients of shall be no insurance if the application of the Lot Purchaser is not
Eternal who purchased burial lots from it on installment basis would be approved by the Company.3
insured by Philamlife. The amount of insurance coverage depended upon
the existing balance of the purchased burial lots. The policy was to be Eternal was required under the policy to submit to Philamlife a list of all
effective for a period of one year, renewable on a yearly basis. new lot purchasers, together with a copy of the application of each
purchaser, and the amounts of the respective unpaid balances of all
The relevant provisions of the policy are: insured lot purchasers. In relation to the instant petition, Eternal complied
by submitting a letter dated December 29, 1982,4 containing a list of
ELIGIBILITY. insurable balances of its lot buyers for October 1982. One of those
included in the list as "new business" was a certain John Chuang. His
Any Lot Purchaser of the Assured who is at least 18 but not more balance of payments was PhP 100,000. On August 2, 1984, Chuang
than 65 years of age, is indebted to the Assured for the unpaid died.
balance of his loan with the Assured, and is accepted for Life
Insurance coverage by the Company on its effective date is Eternal sent a letter dated August 20, 19845 to Philamlife, which served
eligible for insurance under the Policy. as an insurance claim for Chuang’s death. Attached to the claim were the
following documents: (1) Chuang’s Certificate of Death; (2) Identification
EVIDENCE OF INSURABILITY. Certificate stating that Chuang is a naturalized Filipino Citizen; (3)
Certificate of Claimant; (4) Certificate of Attending Physician; and (5)
Assured’s Certificate.
No medical examination shall be required for amounts of
insurance up to P50,000.00. However, a declaration of good
health shall be required for all Lot Purchasers as part of the In reply, Philamlife wrote Eternal a letter on November 12,
application. The Company reserves the right to require further 1984,6 requiring Eternal to submit the following documents relative to its
evidence of insurability satisfactory to the Company in respect of insurance claim for Chuang’s death: (1) Certificate of Claimant (with form
the following: 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
1. Any amount of insurance in excess of P50,000.00.
Chuang before his death.
2. Any lot purchaser who is more than 55 years of age.
Eternal transmitted the required documents through a letter dated WHEREFORE, premises considered, judgment is hereby
November 14, 1984,7 which was received by Philamlife on November 15, rendered in favor of Plaintiff ETERNAL, against Defendant
1984. PHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay the
sum of P100,000.00, representing the proceeds of the Policy of
After more than a year, Philamlife had not furnished Eternal with any John Uy Chuang, plus legal rate of interest, until fully paid; and, to
reply to the latter’s insurance claim. This prompted Eternal to demand pay the sum of P10,000.00 as attorney’s fees.
from Philamlife the payment of the claim for PhP 100,000 on April 25,
1986.8 SO ORDERED.

In response to Eternal’s demand, Philamlife denied Eternal’s insurance The RTC found that Eternal submitted Chuang’s application for insurance
claim in a letter dated May 20, 1986,9 a portion of which reads: which he accomplished before his death, as testified to by Eternal’s
witness and evidenced by the letter dated December 29, 1982, stating,
The deceased was 59 years old when he entered into Contract among others: "Encl: Phil-Am Life Insurance Application Forms &
#9558 and 9529 with Eternal Gardens Memorial Park in October Cert."10 It further ruled that due to Philamlife’s inaction from the
1982 for the total maximum insurable amount of P100,000.00 submission of the requirements of the group insurance on December 29,
each. No application for Group Insurance was submitted in our 1982 to Chuang’s death on August 2, 1984, as well as Philamlife’s
office prior to his death on August 2, 1984. acceptance of the premiums during the same period, Philamlife was
deemed to have approved Chuang’s application. The RTC said that since
In accordance with our Creditor’s Group Life Policy No. P-1920, the contract is a group life insurance, once proof of death is submitted,
under Evidence of Insurability provision, "a declaration of good payment must follow.
health shall be required for all Lot Purchasers as party of the
application." We cite further the provision on Effective Date of Philamlife appealed to the CA, which ruled, thus:
Coverage under the policy which states that "there shall be no
insurance if the application is not approved by the Company." WHEREFORE, the decision of the Regional Trial Court of Makati
Since no application had been submitted by the Insured/Assured, in Civil Case No. 57810 is REVERSED and SET ASIDE, and the
prior to his death, for our approval but was submitted instead on complaint is DISMISSED. No costs.
November 15, 1984, after his death, Mr. John Uy Chuang was not
covered under the Policy. We wish to point out that Eternal SO ORDERED.11
Gardens being the Assured was a party to the Contract and was
therefore aware of these pertinent provisions. The CA based its Decision on the factual finding that Chuang’s
application was not enclosed in Eternal’s letter dated December 29,
With regard to our acceptance of premiums, these do not connote 1982. It further ruled that the non-accomplishment of the submitted
our approval per se of the insurance coverage but are held by us application form violated Section 26 of the Insurance Code. Thus, the CA
in trust for the payor until the prerequisites for insurance coverage concluded, there being no application form, Chuang was not covered by
shall have been met. We will however, return all the premiums Philamlife’s insurance.
which have been paid in behalf of John Uy Chuang.
Hence, we have this petition with the following grounds:
Consequently, Eternal filed a case before the Makati City Regional Trial
Court (RTC) for a sum of money against Philamlife, docketed as Civil The Honorable Court of Appeals has decided a question of
Case No. 14736. The trial court decided in favor of Eternal, the substance, not therefore determined by this Honorable Court, or
dispositive portion of which reads: has decided it in a way not in accord with law or with the
applicable jurisprudence, in holding that:
I. The application for insurance was not duly submitted to Eternal added it was noted at the bottom of said letter that the
respondent PhilamLife before the death of John Chuang; corresponding "Phil-Am Life Insurance Application Forms & Cert." were
enclosed in the letter that was apparently received by Philamlife on
II. There was no valid insurance coverage; and January 15, 1983. Finally, Eternal alleged that it provided a copy of the
insurance application which was signed by Chuang himself and executed
III. Reversing and setting aside the Decision of the before his death.
Regional Trial Court dated May 29, 1996.
On the other hand, Philamlife claims that the evidence presented by
The Court’s Ruling Eternal is insufficient, arguing that Eternal must present evidence
showing that Philamlife received a copy of Chuang’s insurance
As a general rule, this Court is not a trier of facts and will not re-examine
factual issues raised before the CA and first level courts, considering
their findings of facts are conclusive and binding on this Court. However, The evidence on record supports Eternal’s position.
such rule is subject to exceptions, as enunciated in Sampayan v. Court of
Appeals: The fact of the matter is, the letter dated December 29, 1982, which
Philamlife stamped as received, states that the insurance forms for the
(1) when the findings are grounded entirely on speculation, attached list of burial lot buyers were attached to the letter. Such stamp
surmises or conjectures; (2) when the inference made is of receipt has the effect of acknowledging receipt of the letter together
manifestly mistaken, absurd or impossible; (3) when there is with the attachments. Such receipt is an admission by Philamlife against
grave abuse of discretion; (4) when the judgment is based on a its own interest.13 The burden of evidence has shifted to Philamlife, which
misapprehension of facts; (5) when the findings of facts are must prove that the letter did not contain Chuang’s insurance application.
conflicting; (6) when in making its findings the [CA] went beyond However, Philamlife failed to do so; thus, Philamlife is deemed to have
the issues of the case, or its findings are contrary to the received Chuang’s insurance application.
admissions of both the appellant and the appellee; (7) when the
findings [of the CA] are contrary to the trial court; (8) when To reiterate, it was Philamlife’s bounden duty to make sure that before a
the findings are conclusions without citation of specific evidence transmittal letter is stamped as received, the contents of the letter are
on which they are based; (9) when the facts set forth in the correct and accounted for.
petition as well as in the petitioner’s main and reply briefs are not
disputed by the respondent; (10) when the findings of fact are Philamlife’s allegation that Eternal’s witnesses ran out of credibility and
premised on the supposed absence of evidence and contradicted reliability due to inconsistencies is groundless. The trial court is in the
by the evidence on record; and (11) when the Court of Appeals best position to determine the reliability and credibility of the witnesses,
manifestly overlooked certain relevant facts not disputed by the because it has the opportunity to observe firsthand the witnesses’
parties, which, if properly considered, would justify a different demeanor, conduct, and attitude. Findings of the trial court on such
conclusion.12(Emphasis supplied.) matters are binding and conclusive on the appellate court, unless some
facts or circumstances of weight and substance have been overlooked,
In the instant case, the factual findings of the RTC were reversed by the misapprehended, or misinterpreted,14 that, if considered, might affect the
CA; thus, this Court may review them. result of the case.15

Eternal claims that the evidence that it presented before the trial court An examination of the testimonies of the witnesses mentioned by
supports its contention that it submitted a copy of the insurance Philamlife, however, reveals no overlooked facts of substance and value.
application of Chuang before his death. In Eternal’s letter dated
December 29, 1982, a list of insurable interests of buyers for October
1982 was attached, including Chuang in the list of new businesses.
Philamlife primarily claims that Eternal did not even know where the the credibility of the witnesses. Thus, we ruled in People v. Paredes that
original insurance application of Chuang was, as shown by the testimony minor inconsistencies are too trivial to affect the credibility of witnesses,
of Edilberto Mendoza: and these may even serve to strengthen their credibility as these negate
any suspicion that the testimonies have been rehearsed.17
Atty. Arevalo:
We reiterated the above ruling in Merencillo v. People:
Q Where is the original of the application form which is required in
case of new coverage? Minor discrepancies or inconsistencies do not impair the essential
integrity of the prosecution’s evidence as a whole or reflect on the
[Mendoza:] witnesses’ honesty. The test is whether the testimonies agree on
essential facts and whether the respective versions corroborate
A It is [a] standard operating procedure for the new client to fill up and substantially coincide with each other so as to make a
two copies of this form and the original of this is submitted to consistent and coherent whole.18
Philamlife together with the monthly remittances and the second
copy is remained or retained with the marketing department of In the present case, the number of copies of the insurance application
Eternal Gardens. that Chuang executed is not at issue, neither is whether the insurance
application presented by Eternal has been falsified. Thus, the
Atty. Miranda: inconsistencies pointed out by Philamlife are minor and do not affect the
credibility of Eternal’s witnesses.
We move to strike out the answer as it is not responsive as
counsel is merely asking for the location and does not [ask] for However, the question arises as to whether Philamlife assumed the risk
the number of copy. of loss without approving the application.

Atty. Arevalo: This question must be answered in the affirmative.

Q Where is the original? 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:
A As far as I remember I do not know where the original but when
I submitted with that payment together with the new clients all the
originals I see to it before I sign the transmittal letter the originals The insurance of any eligible Lot Purchaser shall be effective on
are attached therein.16 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.
In other words, the witness admitted not knowing where the original
insurance application was, but believed that the application was
transmitted to Philamlife as an attachment to a transmittal letter. 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
As to the seeming inconsistencies between the testimony of Manuel
contracting a loan with Eternal while the second sentence appears to
Cortez on whether one or two insurance application forms were
require Philamlife to approve the insurance contract before the same can
accomplished and the testimony of Mendoza on who actually filled out
become effective.
the application form, these are minor inconsistencies that do not affect
It must be remembered that an insurance contract is a contract of the insurer on the insurance application must not work to prejudice the
adhesion which must be construed liberally in favor of the insured and insured; it cannot be interpreted as a termination of the insurance
strictly against the insurer in order to safeguard the latter’s interest. Thus, contract. The termination of the insurance contract by the insurer must be
in Malayan Insurance Corporation v. Court of Appeals, this Court held explicit and unambiguous.
As a final note, to characterize the insurer and the insured as contracting
Indemnity and liability insurance policies are construed in parties on equal footing is inaccurate at best. Insurance contracts are
accordance with the general rule of resolving any ambiguity wholly prepared by the insurer with vast amounts of experience in the
therein in favor of the insured, where the contract or policy is industry purposefully used to its advantage. More often than not,
prepared by the insurer. A contract of insurance, being a insurance contracts are contracts of adhesion containing technical terms
contract of adhesion, par excellence, any ambiguity therein and conditions of the industry, confusing if at all understandable to
should be resolved against the insurer; in other words, it laypersons, that are imposed on those who wish to avail of insurance. As
should be construed liberally in favor of the insured and strictly such, insurance contracts are imbued with public interest that must be
against the insurer. Limitations of liability should be regarded with considered whenever the rights and obligations of the insurer and the
extreme jealousy and must be construed in such a way as to insured are to be delineated. Hence, in order to protect the interest of
preclude the insurer from noncompliance with its insurance applicants, insurance companies must be obligated to act with
obligations.19 (Emphasis supplied.) haste upon insurance applications, to either deny or approve the same,
or otherwise be bound to honor the application as a valid, binding, and
In the more recent case of Philamcare Health Systems, Inc. v. Court of effective insurance contract.21
Appeals, we reiterated the above ruling, stating that:
WHEREFORE, we GRANT the petition. The November 26, 2004 CA
When the terms of insurance contract contain limitations on Decision in CA-G.R. CV No. 57810 is REVERSED and SET ASIDE. The
liability, courts should construe them in such a way as to preclude May 29, 1996 Decision of the Makati City RTC, Branch 138
the insurer from non-compliance with his obligation. Being a is MODIFIED. Philamlife is hereby ORDERED:
contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract, (1) To pay Eternal the amount of PhP 100,000 representing the
the insurer. By reason of the exclusive control of the insurance proceeds of the Life Insurance Policy of Chuang;
company over the terms and phraseology of the insurance
contract, ambiguity must be strictly interpreted against the insurer (2) To pay Eternal legal interest at the rate of six percent (6%) per
and liberally in favor of the insured, especially to avoid forfeiture.20 annum of PhP 100,000 from the time of extra-judicial demand by
Eternal until Philamlife’s receipt of the May 29, 1996 RTC
Clearly, the vague contractual provision, in Creditor Group Life Policy No. Decision on June 17, 1996;
P-1920 dated December 10, 1980, must be construed in favor of the
insured and in favor of the effectivity of the insurance contract. (3) To pay Eternal legal interest at the rate of twelve percent
(12%) per annum of PhP 100,000 from June 17, 1996 until full
On the other hand, the seemingly conflicting provisions must be payment of this award; and
harmonized to mean that upon a party’s purchase of a memorial lot on
installment from Eternal, an insurance contract covering the lot purchaser (4) To pay Eternal attorney’s fees in the amount of PhP 10,000.
is created and the same is effective, valid, and binding until terminated by
Philamlife by disapproving the insurance application. The second No costs.
sentence of Creditor Group Life Policy No. P-1920 on the Effective Date
of Benefit is in the nature of a resolutory condition which would lead to
the cessation of the insurance contract. Moreover, the mere inaction of
G.R. No. 158085 October 14, 2005 period covering August 21 to December 18, 1997, petitioner filed with the
CIR its [documentary stamp tax (DST)] declaration returns and paid the
REPUBLIC OF THE PHILIPPINES, Represented by the total amount of ₱30,000,000.00.
vs. "On December 29, 1997, the [Court of Tax Appeals] (CTA) rendered its
SUNLIFE ASSURANCE COMPANY OF CANADA, Respondent. decision in Insular Life Assurance Co. Ltd. v. [CIR], which held that
mutual life insurance companies are purely cooperative companies and
DECISION are exempt from the payment of premium tax and DST. This
pronouncement was later affirmed by this court in [CIR] v. Insular Life
PANGANIBAN, J.: Assurance Company, Ltd. Sun Life surmised that[,] being a mutual life
insurance company, it was likewise exempt from the payment of premium
tax and DST. Hence, on August 20, 1999, Sun Life filed with the CIR an
aving satisfactorily proven to the Court of Tax Appeals, to the Court of
administrative claim for tax credit of its alleged erroneously paid premium
Appeals and to this Court that it is a bona fide cooperative, respondent is
tax and DST for the aforestated tax periods.
entitled to exemption from the payment of taxes on life insurance
premiums and documentary stamps. Not being governed by the
Cooperative Code of the Philippines, it is not required to be registered "For failure of the CIR to act upon the administrative claim for tax credit
with the Cooperative Development Authority in order to avail itself of the and with the 2-year period to file a claim for tax credit or refund dwindling
tax exemptions. Significantly, neither the Tax Code nor the Insurance away and about to expire, Sun Life filed with the CTA a petition for review
Code mandates this administrative registration. on August 23, 1999. In its petition, it prayed for the issuance of a tax
credit certificate in the amount of ₱61,485,834.51 representing
₱31,485,834.51 of erroneously paid premium tax for the third quarter of
The Case
1997 and ₱30,000[,000].00 of DST on policies of insurance from August
21 to December 18, 1997. Sun Life stood firm on its contention that it is a
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, mutual life insurance company vested with all the characteristic features
seeking to nullify the January 23, 2003 Decision2 and the April 21, 2003 and elements of a cooperative company or association as defined in
Resolution3 of the Court of Appeals (CA) in CA-GR SP No. 69125. The [S]ection 121 of the Tax Code. Primarily, the management and affairs of
dispositive portion of the Decision reads as follows: Sun Life were conducted by its members; secondly, it is operated with
money collected from its members; and, lastly, it has for its purpose the
"WHEREFORE, the petition for review is hereby DENIED."4 mutual protection of its members and not for profit or gain.

The Facts "In its answer, the CIR, then respondent, raised as special and affirmative
defenses the following:
The antecedents, as narrated by the CA, are as follows:
‘7. Petitioner’s (Sun Life’s) alleged claim for refund is subject to
"Sun Life is a mutual life insurance company organized and existing administrative routinary investigation/examination by respondent’s (CIR’s)
under the laws of Canada. It is registered and authorized by the Bureau.
Securities and Exchange Commission and the Insurance Commission to
engage in business in the Philippines as a mutual life insurance company ‘8. Petitioner must prove that it falls under the exception provided for
with principal office at Paseo de Roxas, Legaspi Village, Makati City. under Section 121 (now 123) of the Tax Code to be exempted from
premium tax and be entitled to the refund sought.
"On October 20, 1997, Sun Life filed with the [Commissioner of Internal
Revenue] (CIR) its insurance premium tax return for the third quarter of ‘9. Claims for tax refund/credit are construed strictly against the claimants
1997 and paid the premium tax in the amount of ₱31,485,834.51. For the thereof as they are in the nature of exemption from payment of tax.
‘10. In an action for tax credit/refund, the burden is upon the taxpayer to "Notwithstanding these arguments, the CTA denied the CIR’s motion for
establish its right thereto, and failure to sustain this burden is fatal to said reconsideration.
claim x x x.
"Thwarted anew but nonetheless undaunted, the CIR comes to this
‘11. It is incumbent upon petitioner to show that it has complied with the court via this petition on the sole ground that:
provisions of Section 204[,] in relation to Section 229, both in the 1997
Tax Code.’ ‘The Tax Court erred in granting the refund[,] because respondent does
not fall under the exception provided for under Section 121 (now 123) of
"On November 12, 2002, the CTA found in favor of Sun Life. Quoting the Tax Code to be exempted from premium tax and DST and be entitled
largely from its earlier findings in Insular Life Assurance Company, Ltd. v. to the refund.’
[CIR], which it found to be on all fours with the present action, the CTA
ruled: "The CIR repleads the arguments it raised with the CTA and proposes
further that the [CA] decision in [CIR] v. Insular Life Assurance Company,
‘The [CA] has already spoken. It ruled that a mutual life insurance Ltd. is not controlling and cannot constitute res judicata in the present
company is a purely cooperative company[;] thus, exempted from the action. At best, the pronouncements are merely persuasive as the
payment of premium and documentary stamp taxes. Petitioner Sun Life is decisions of the Supreme Court alone have a universal and mandatory
without doubt a mutual life insurance company. x x x. effect."5

‘xxxxxxxxx Ruling of the Court of Appeals

‘Being similarly situated with Insular, Petitioner at bar is entitled to the In upholding the CTA, the CA reasoned that respondent was a purely
same interpretation given by this Court in the earlier cases of The Insular cooperative corporation duly licensed to engage in mutual life insurance
Life Assurance Company, Ltd. vs. [CIR] (CTA Case Nos. 5336 and 5601) business in the Philippines. Thus, respondent was deemed exempt from
and by the [CA] in the case entitled [CIR] vs. The Insular Life Assurance premium and documentary stamp taxes, because its affairs are managed
Company, Ltd., C.A. G.R. SP No. 46516, September 29, 1998. Petitioner and conducted by its members with money collected from among
Sun Life as a mutual life insurance company is[,] therefore[,] a themselves, solely for their own protection, and not for profit. Its members
cooperative company or association and is exempted from the payment or policyholders constituted both insurer and insured who contribute, by a
of premium tax and [DST] on policies of insurance pursuant to Section system of premiums or assessments, to the creation of a fund from which
121 (now Section 123) and Section 199[1]) (now Section 199[a]) of the all losses and liabilities were paid. The dividends it distributed to them
Tax Code.’ were not profits, but returns of amounts that had been overcharged them
for insurance.
"Seeking reconsideration of the decision of the CTA, the CIR argued that
Sun Life ought to have registered, foremost, with the Cooperative For having satisfactorily shown with substantial evidence that it had
Development Authority before it could enjoy the exemptions from erroneously paid and seasonably filed its claim for premium and
premium tax and DST extended to purely cooperative companies or documentary stamp taxes, respondent was entitled to a refund, the CA
associations under [S]ections 121 and 199 of the Tax Code. For its ruled.
failure to register, it could not avail of the exemptions prayed for.
Moreover, the CIR alleged that Sun Life failed to prove that ownership of Hence, this Petition.6
the company was vested in its members who are entitled to vote and
elect the Board of Trustees among [them]. The CIR further claimed that The Issues
change in the 1997 Tax Code subjecting mutual life insurance companies
to the regular corporate income tax rate reflected the legislature’s
Petitioner raises the following issues for our consideration:
recognition that these companies must be earning profits.
"I. life insurance company to a nonstock mutual life insurance
corporation11 pursuant to Section 266 of the Insurance Code of
"Whether or not respondent is a purely cooperative company or 1978.12 On the basis of its bylaws, its ownership has been vested in its
association under Section 121 of the National Internal Revenue Code member-policyholders who are each entitled to one vote;13and who, in
and a fraternal or beneficiary society, order or cooperative company on turn, elect from among themselves the members of its board of
the lodge system or local cooperation plan and organized and conducted trustees.14 Being the governing body of a nonstock corporation, the board
solely by the members thereof for the exclusive benefit of each member exercises corporate powers, lays down all corporate business policies,
and not for profit under Section 199 of the National Internal Revenue and assumes responsibility for the efficiency of management.15
Second, it is operated with money collected from its members. Since
"II. respondent is composed entirely of members who are also its
policyholders, all premiums collected obviously come only from them.16
"Whether or not registration with the Cooperative Development Authority
is a sine qua non requirement to be entitled to tax exemption. The member-policyholders constitute "both insurer and insured"17 who
"contribute, by a system of premiums or assessments, to the creation of a
"III. fund from which all losses and liabilities are paid."18 The
premiums19 pooled into this fund are earmarked for the payment of their
indemnity and benefit claims.
"Whether or not respondent is exempted from payment of tax on life
insurance premiums and documentary stamp tax."7
Third, it is licensed for the mutual protection of its members, not for the
profit of anyone.
We shall tackle the issues seriatim.
As early as October 30, 1947, the director of commerce had already
The Court’s Ruling
issued a license to respondent -- a corporation organized and existing
under the laws of Canada -- to engage in business in the
The Petition has no merit. Philippines.20 Pursuant to Section 225 of Canada’s Insurance Companies
Act, the Canadian minister of state (for finance and privatization) also
First Issue: declared in its Amending Letters Patent that respondent would be a
mutual company effective June 1, 1992.21 In the Philippines, the
Whether Respondent Is a Cooperative insurance commissioner also granted it annual Certificates of Authority to
transact life insurance business, the most relevant of which were dated
The Tax Code defines a cooperative as an association "conducted by the July 1, 1997 and July 1, 1998.22
members thereof with the money collected from among themselves and
solely for their own protection and not for profit."8 Without a doubt, A mutual life insurance company is conducted for the benefit of its
respondent is a cooperative engaged in a mutual life insurance business. member-policyholders,23 who pay into its capital by way of premiums. To
that extent, they are responsible for the payment of all its losses.24 "The
First, it is managed by its members. Both the CA and the CTA found that cash paid in for premiums and the premium notes constitute their assets
the management and affairs of respondent were conducted by its x x x."25 In the event that the company itself fails before the terms of the
member-policyholders.9 policies expire, the member-policyholders do not acquire the status of
creditors.26 Rather, they simply become debtors for whatever premiums
A stock insurance company doing business in the Philippines may "alter that they have originally agreed to pay the company, if they have not yet
its organization and transform itself into a mutual insurance paid those amounts in full, for "[m]utual companies x x x depend solely
company."10 Respondent has been mutualized or converted from a stock upon x x x premiums."27 Only when the premiums will have accumulated
to a sum larger than that required to pay for company losses will the A stipulated insurance premium "cannot be increased, but may be
member-policyholders be entitled to a "pro rata division thereof as lessened annually by so much as the experience of the preceding year
profits."28 has determined it to have been greater than the cost of carrying the
insurance x x x."35 The difference between that premium and the cost of
Contributing to its capital, the member-policyholders of a mutual company carrying the risk of loss constitutes the so-called "dividend" which,
are obviously also its owners.29Sustaining a dual relationship inter se, however, "is not in any real sense a dividend."36 It is a technical term that
they not only contribute to the payment of its losses, but are also entitled is well understood in the insurance business to be widely different from
to a proportionate share30 and participate alike31 in its profits and surplus. that to which it is ordinarily attached.

Where the insurance is taken at cost, it is important that the rates of The so-called "dividend" that is received by member-policyholders is not
premium charged by a mutual company be larger than might reasonably a portion of profits set aside for distribution to the stockholders in
be expected to carry the insurance, in order to constitute a margin of proportion to their subscription to the capital stock of a
safety. The table of mortality used will show an admittedly higher death corporation.37 One, a mutual company has no capital stock
rate than will probably prevail; the assumed interest rate on the to which subscription is necessary; there are no stockholders to speak of,
investments of the company is made lower than is expected to be but only members. And, two, the amount they receive does not partake of
realized; and the provision for contingencies and expenses, made greater the nature of a profit or income. The quasi-appearance of profit will not
than would ordinarily be necessary.32 This course of action is taken, change its character. It remains an overpayment, a benefit to which the
because a mutual company has no capital stock and relies solely upon its member-policyholder is equitably entitled.38
premiums to meet unexpected losses, contingencies and expenses.
Verily, a mutual life insurance corporation is a cooperative that promotes
Certainly, many factors are considered in calculating the insurance the welfare of its own members. It does not operate for profit, but for the
premium. Since they vary with the kind of insurance taken and with the mutual benefit of its member-policyholders. They receive their insurance
group of policyholders insured, any excess in the amount anticipated by a at cost, while reasonably and properly guarding and maintaining the
mutual company to cover the cost of providing for the insurance over its stability and solvency of the company.39 "The economic benefits filter to
actual realized cost will also vary. If a member-policyholder receives an the cooperative members. Either equally or proportionally, they are
excess payment, then the apportionment must have been based upon a distributed among members in correlation with the resources of the
calculation of the actual cost of insurance that the company has provided association utilized."40
for that particular member-policyholder. Accordingly, in apportioning
divisible surpluses, any mutual company uses a contribution method that It does not follow that because respondent is registered as a nonstock
aims to distribute those surpluses among its member-policyholders, in the corporation and thus exists for a purpose other than profit, the company
same proportion as they have contributed to the surpluses by their can no longer make any profits.41 Earning profits is merely its secondary,
payments.33 not primary, purpose. In fact, it may not lawfully engage in any business
activity for profit, for to do so would change or contradict its nature42 as a
Sharing in the common fund, any member-policyholder may choose to non-profit entity.43 It may, however, invest its corporate funds in order to
withdraw dividends in cash or to apply them in order to reduce a earn additional income for paying its operating expenses and meeting
subsequent premium, purchase additional insurance, or accelerate the benefit claims. Any excess profit it obtains as an incident to its operations
payment period. Although the premium made at the beginning of a year can only be used, whenever necessary or proper, for the furtherance of
is more than necessary to provide for the cost of carrying the insurance, the purpose for which it was organized.44
the member-policyholder will nevertheless receive the benefit of the
overcharge by way of dividends, at the end of the year when the cost is Second Issue:
actually ascertained. "The declaration of a dividend upon a policy
reduces pro tanto the cost of insurance to the holder of the policy. That is Whether CDA Registration Is Necessary
its purpose and effect."34
Under the Tax Code although respondent is a cooperative, registration by enhancing agricultural production, cottage industries, community
with the Cooperative Development Authority (CDA)45 is not necessary in development, and agrarian reform through cooperatives.52
order for it to be exempt from the payment of both percentage taxes on
insurance premiums, under Section 121; and documentary stamp taxes The whole cooperative system, with its vertical and horizontal linkages --
on policies of insurance or annuities it grants, under Section 199. from the market cooperative of agricultural products to cooperative rural
banks, consumer cooperatives and cooperative insurance -- was
First, the Tax Code does not require registration with the CDA. No tax envisioned to offer considerable economic opportunities to people who
provision requires a mutual life insurance company to register with that joined cooperatives.53 As an effective instrument in redistributing income
agency in order to enjoy exemption from both percentage and and wealth,54 cooperatives were promoted primarily to support the
documentary stamp taxes. agrarian reform program of the government.55

A provision of Section 8 of Revenue Memorandum Circular (RMC) No. Notably, the cooperative under PD 175 referred only to an organization
48-91 requires the submission of the Certificate of Registration with the composed primarily of small producers and consumers who voluntarily
CDA,46 before the issuance of a tax exemption certificate. That provision joined to form a business enterprise that they themselves owned,
cannot prevail over the clear absence of an equivalent requirement under controlled, and patronized.56 The Bureau of Cooperatives Development --
the Tax Code. One, as we will explain below, the Circular does not apply under the Department of Local Government and Community
to respondent, but only to cooperatives that need to be registered under Development (later Ministry of Agriculture)57 -- had the authority to
the Cooperative Code. Two, it is a mere issuance directing all internal register, regulate and supervise only the following cooperatives: (1) barrio
revenue officers to publicize a new tax legislation. Although the Circular associations involved in the issuance of certificates of land transfer; (2)
does not derogate from their authority to implement the law, it cannot add local or primary cooperatives composed of natural persons and/or barrio
a registration requirement,47when there is none under the law to begin associations; (3) federations composed of cooperatives that may or may
with. not perform business activities; and (4) unions of cooperatives that did
not perform any business activities.58 Respondent does not fall under any
Second, the provisions of the Cooperative Code of the Philippines48 do of the above-mentioned types of cooperatives required to be registered
not apply. Let us trace the Code’s development in our history. under PD 175.

As early as 1917, a cooperative company or association was already When the Cooperative Code was enacted years later, all cooperatives
defined as one "conducted by the members thereof with money collected that were registered under PD 175 and previous laws were also deemed
from among themselves and solely for their own protection and not registered with the CDA.59 Since respondent was not required to be
profit."49 In 1990, it was further defined by the Cooperative Code as a registered under the old law on cooperatives, it followed that it was not
"duly registered association of persons, with a common bond of interest, required to be registered even under the new law.
who have voluntarily joined together to achieve a lawful common social
or economic end, making equitable contributions to the capital required Furthermore, only cooperatives to be formed or organized under the
and accepting a fair share of the risks and benefits of the undertaking in Cooperative Code needed registration with the CDA.60 Respondent
accordance with universally accepted cooperative principles."50 already existed before the passage of the new law on cooperatives. It
was not even required to organize under the Cooperative Code, not only
The Cooperative Code was actually an offshoot of the old law on because it performed a different set of functions, but also because it did
cooperatives. In 1973, Presidential Decree (PD) No. 175 was not operate to serve the same objectives under the new law -- particularly
signed into law by then President Ferdinand E. Marcos in order to on productivity, marketing and credit extension.61
strengthen the cooperative movement.51 The promotion of cooperative
development was one of the major programs of the "New Society" under The insurance against losses of the members of a cooperative referred to
his administration. It sought to improve the country’s trade and commerce in Article 6(7) of the Cooperative Code is not the same as the life
insurance provided by respondent to member-policyholders. The former
is a function of a service cooperative,62 the latter is not. Cooperative cooperative companies. Being a cooperative, respondent is thus exempt
insurance under the Code is limited in scope and local in character. It is from both types of taxes.
not the same as mutual life insurance.
It is worthy to note that while RA 8424 amending the Tax Code has
We have already determined that respondent is a cooperative. The deleted the income tax of 10 percent imposed upon the gross investment
distinguishing feature of a cooperative enterprise63 is the mutuality of income of mutual life insurance companies -- domestic68 and foreign69 --
cooperation among its member-policyholders united for that the provisions of Section 121 and 199 remain unchanged.70
purpose.64 So long as respondent meets this essential feature, it does not
even have to use65 and carry the name of a cooperative to operate its Having been seasonably filed and amply substantiated, the claim for
mutual life insurance business. Gratia argumenti that registration is exemption in the amount of ₱61,485,834.51, representing percentage
mandatory, it cannot deprive respondent of its tax exemption privilege taxes on insurance premiums and documentary stamp taxes on policies
merely because it failed to register. The nature of its operations is clear; of insurance or annuities that were paid by respondent in 1997, is in
its purpose well-defined. Exemption when granted cannot prevail over order. Thus, the grant of a tax credit certificate to respondent as ordered
administrative convenience. by the appellate court was correct.

Third, not even the Insurance Code requires registration with the CDA. WHEREFORE, the Petition is hereby DENIED, and the assailed Decision
The provisions of this Code primarily govern insurance contracts; only if a and Resolution are AFFIRMED. No pronouncement as to costs.
particular matter in question is not specifically provided for shall the
provisions of the Civil Code on contracts and special laws govern.66 SO ORDERED.

True, the provisions of the Insurance Code relative to the organization G.R. No. 112360 July 18, 2000
and operation of an insurance company also apply to cooperative
insurance entities organized under the Cooperative Code.67 The latter
law, however, does not apply to respondent, which already existed as a
cooperative company engaged in mutual life insurance prior to the laws
passage of that law. The statutes prevailing at the time of its organization
INC., respondents.
and mutualization were the Insurance Code and the Corporation Code,
which imposed no registration requirement with the CDA.
Third Issue:
Whether Respondent Is Exempted
At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court seeking to annul and set aside the July 15, 1993 Decision1 and
from Premium Taxes and DST
October 22, 1993 Resolution2 of the Court of Appeals3 in CA-G.R. CV NO.
28779, which modified the Ruling4 of the Regional Trial Court of Pasig,
Having determined that respondent is a cooperative that does not have to Branch 161, in Civil Case No. 46106.
be registered with the CDA, we hold that it is entitled to exemption from
both premium taxes and documentary stamp taxes (DST).
The antecedent facts that matter are as follows:
The Tax Code is clear. On the one hand, Section 121 of the Code
On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance)
exempts cooperative companies from the 5 percent percentage tax on
issued Fire Insurance Policy No. 45727 in favor of Transworld Knitting
insurance premiums. On the other hand, Section 199 also exempts from
Mills, Inc. (Transworld), initially for One Million (₱1,000,000.00) Pesos
the DST, policies of insurance or annuities made or granted by
and eventually increased to One Million Five Hundred Thousand On May 26, 1982, private respondent brought against the said insurance
(₱1,500,000.00) Pesos, covering the period from August 14, 1980 to companies an action for collection of sum of money and damages,
March 13, 1981. docketed as Civil Case No. 46106 before Branch 161 of the then Court of
First Instance of Rizal; praying for judgment ordering Rizal Insurance and
Pertinent portions of subject policy on the buildings insured, and location New India to pay the amount of ₱2,747, 867.00 plus legal interest,
thereof, read: ₱400,000.00 as attorney's fees, exemplary damages, expenses of
litigation of ₱50,000.00 and costs of suit.6
"‘On stocks of finished and/or unfinished products, raw materials and
supplies of every kind and description, the properties of the Insureds Petitioner Rizal Insurance countered that its fire insurance policy sued
and/or held by them in trust, on commission or on joint account with upon covered only the contents of the four-span building, which was
others and/or for which they (sic) responsible in case of loss whilst partly burned, and not the damage caused by the fire on the two-storey
contained and/or stored during the currency of this Policy in the premises annex building.7
occupied by them forming part of the buildings situate (sic) within own
Compound at MAGDALO STREET, BARRIO UGONG, PASIG, METRO On January 4, 1990, the trial court rendered its decision; disposing as

xxx xxx xxx "ACCORDINGLY, judgment is hereby rendered as follows:

‘Said building of four-span lofty one storey in height with mezzanine (1)Dismissing the case as against The New India Assurance Co.,
portions is constructed of reinforced concrete and hollow blocks and/or Ltd.;
concrete under galvanized iron roof and occupied as hosiery mills,
garment and lingerie factory, transistor-stereo assembly plant, offices, (2) Ordering defendant Rizal Surety And Insurance Company to
warehouse and caretaker's quarters. pay Transwrold (sic) Knitting Mills, Inc. the amount of P826,
500.00 representing the actual value of the losses suffered by it;
'Bounds in front partly by one-storey concrete building under galvanized and
iron roof occupied as canteen and guardhouse, partly by building of two
and partly one storey constructed of concrete below, timber above (3) Cost against defendant Rizal Surety and Insurance Company.
undergalvanized iron roof occupied as garage and quarters and partly by
open space and/or tracking/ packing, beyond which is the SO ORDERED."8
aforementioned Magdalo Street; on its right and left by driveway, thence
open spaces, and at the rear by open spaces.'"5
Both the petitioner, Rizal Insurance Company, and private respondent,
Transworld Knitting Mills, Inc., went to the Court of Appeals, which came
The same pieces of property insured with the petitioner were also insured out with its decision of July 15, 1993 under attack, the decretal portion of
with New India Assurance Company, Ltd., (New India). which reads:

On January 12, 1981, fire broke out in the compound of Transworld, "WHEREFORE, and upon all the foregoing, the decision of the court
razing the middle portion of its four-span building and partly gutting the below is MODIFIED in that defendant New India Assurance Company
left and right sections thereof. A two-storey building (behind said four- has and is hereby required to pay plaintiff-appellant the amount of
span building) where fun and amusement machines and spare parts P1,818,604.19 while the other Rizal Surety has to pay the plaintiff-
were stored, was also destroyed by the fire. appellant P470,328.67, based on the actual losses sustained by plaintiff
Transworld in the fire, totalling P2,790,376.00 as against the amounts of
Transworld filed its insurance claims with Rizal Surety & Insurance fire insurance coverages respectively extended by New India in the
Company and New India Assurance Company but to no avail.
amount of P5,800,000.00 and Rizal Surety and Insurance Company in WHICH CLEARLY SHOW THAT THE PREMISES OCCUPIED
No costs.
On August 20, 1993, from the aforesaid judgment of the Court of Appeals CIVIL ACTION, AND IN NOT ORDERING TRANSWORLD TO
New India appealed to this Court theorizing inter alia that the private PAY TO RIZAL SURETY MORAL AND PUNITIVE DAMAGES
respondent could not be compensated for the loss of the fun and (ART. 2205, CIVIL CODE), PLUS ATTORNEY'S FEES AND
amusement machines and spare parts stored at the two-storey building EXPENSES OF LITIGATION (ART. 2208 PARS. 4 and 11, CIVIL
because it (Transworld) had no insurable interest in said goods or items. CODE).11

On February 2, 1994, the Court denied the appeal with finality in G.R. No. The Petition is not impressed with merit.
L-111118 (New India Assurance Company Ltd. vs. Court of Appeals).
It is petitioner's submission that the fire insurance policy litigated upon
Petitioner Rizal Insurance and private respondent Transworld, interposed protected only the contents of the main building (four-span),12 and did not
a Motion for Reconsideration before the Court of Appeals, and on include those stored in the two-storey annex building. On the other hand,
October 22, 1993, the Court of Appeals reconsidered its decision of July the private respondent theorized that the so called "annex" was not an
15, 1993, as regards the imposition of interest, ruling thus: annex but was actually an integral part of the four-span building13 and
therefore, the goods and items stored therein were covered by the same
fire insurance policy.
"WHEREFORE, the Decision of July 15, 1993 is amended but only
insofar as the imposition of legal interest is concerned, that, on the
assessment against New India Assurance Company on the amount of Resolution of the issues posited here hinges on the proper interpretation
P1,818,604.19 and that against Rizal Surety & Insurance Company on of the stipulation in subject fire insurance policy regarding its coverage,
the amount of P470,328.67, from May 26, 1982 when the complaint was which reads:
filed until payment is made. The rest of the said decision is retained in all
other respects. "xxx contained and/or stored during the currency of this Policy in the
premises occupied by them forming part of the buildings situate (sic)
SO ORDERED."10 within own Compound xxx"

Undaunted, petitioner Rizal Surety & Insurance Company found its way Therefrom, it can be gleaned unerringly that the fire insurance policy in
to this Court via the present Petition, contending that: question did not limit its coverage to what were stored in the four-span
building. As opined by the trial court of origin, two requirements must
concur in order that the said fun and amusement machines and spare
parts would be deemed protected by the fire insurance policy under
scrutiny, to wit:
SURETY TO TRANSWORLD. "First, said properties must be contained and/or stored in the areas
occupied by Transworld and second, said areas must form part of the
building described in the policy xxx"14
'Said building of four-span lofty one storey in height with mezzanine Indeed, the stipulation as to the coverage of the fire insurance policy
portions is constructed of reinforced concrete and hollow blocks and/or under controversy has created a doubt regarding the portions of the
concrete under galvanized iron roof and occupied as hosiery mills, building insured thereby. Article 1377 of the New Civil Code provides:
garment and lingerie factory, transistor-stereo assembly plant, offices,
ware house and caretaker's quarter.' "Art.1377. The interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the obscurity"
The Court is mindful of the well-entrenched doctrine that factual findings
by the Court of Appeals are conclusive on the parties and not reviewable Conformably, it stands to reason that the doubt should be resolved
by this Court, and the same carry even more weight when the Court of against the petitioner, Rizal Surety Insurance Company, whose lawyer or
Appeals has affirmed the findings of fact arrived at by the lower court.15 managers drafted the fire insurance policy contract under scrutiny. Citing
the aforecited provision of law in point, the Court in Landicho vs.
In the case under consideration, both the trial court and the Court of Government Service Insurance System,19 ruled:
Appeals found that the so called "annex " was not an annex building but
an integral and inseparable part of the four-span building described in the "This is particularly true as regards insurance policies, in respect of which
policy and consequently, the machines and spare parts stored therein it is settled that the 'terms in an insurance policy, which are ambiguous,
were covered by the fire insurance in dispute. The letter-report of the equivocal, or uncertain x x x are to be construed strictly and most strongly
Manila Adjusters and Surveyor's Company, which petitioner itself cited against the insurer, and liberally in favor of the insured so as to effect the
and invoked, describes the "annex" building as follows: dominant purpose of indemnity or payment to the insured, especially
where forfeiture is involved' (29 Am. Jur., 181), and the reason for this is
"Two-storey building constructed of partly timber and partly concrete that the 'insured usually has no voice in the selection or arrangement of
hollow blocks under g.i. roof which is adjoining and intercommunicating the words employed and that the language of the contract is selected
with the repair of the first right span of the lofty storey building and thence with great care and deliberation by experts and legal advisers employed
by property fence wall."16 by, and acting exclusively in the interest of, the insurance company.' (44
C.J.S., p. 1174).""20
Verily, the two-storey building involved, a permanent structure which
adjoins and intercommunicates with the "first right span of the lofty storey Equally relevant is the following disquisition of the Court in Fieldmen's
building",17 formed part thereof, and meets the requisites for Insurance Company, Inc. vs. Vda. De Songco,21 to wit:
compensability under the fire insurance policy sued upon.
"'This rigid application of the rule on ambiguities has become necessary
So also, considering that the two-storey building aforementioned was in view of current business practices. The courts cannot ignore that
1âwphi 1

already existing when subject fire insurance policy contract was entered nowadays monopolies, cartels and concentration of capital, endowed
into on January 12, 1981, having been constructed sometime in with overwhelming economic power, manage to impose upon parties
1978,18 petitioner should have specifically excluded the said two-storey dealing with them cunningly prepared 'agreements' that the weaker party
building from the coverage of the fire insurance if minded to exclude the may not change one whit, his participation in the 'agreement' being
same but if did not, and instead, went on to provide that such fire reduced to the alternative to 'take it or leave it' labelled since Raymond
insurance policy covers the products, raw materials and supplies stored Saleilles 'contracts by adherence' (contrats [sic] d'adhesion), in contrast
within the premises of respondent Transworld which was an integral part to these entered into by parties bargaining on an equal footing, such
of the four-span building occupied by Transworld, knowing fully well the contracts (of which policies of insurance and international bills of lading
existence of such building adjoining and intercommunicating with the are prime example) obviously call for greater strictness and vigilance on
right section of the four-span building. the part of courts of justice with a view to protecting the weaker party
from abuses and imposition, and prevent their becoming traps for the
After a careful study, the Court does not find any basis for disturbing what unwary (New Civil Code, Article 24; Sent. of Supreme Court of Spain, 13
the lower courts found and arrived at. Dec. 1934, 27 February 1942.)'"22
The issue of whether or not Transworld has an insurable interest in the The controversy at bar is on all fours with the aforecited case.
fun and amusement machines and spare parts, which entitles it to be Considering that private respondent's insurable interest in, and
indemnified for the loss thereof, had been settled in G.R. No. L-111118, compensability for the loss of subject fun and amusement machines and
entitled New India Assurance Company, Ltd., vs. Court of Appeals, spare parts, had been adjudicated, settled and sustained by the Court of
where the appeal of New India from the decision of the Court of Appeals Appeals in CA-G.R. CV NO. 28779, and by this Court in G.R. No. L-
under review, was denied with finality by this Court on February 2, 1994. 111118, in a Resolution, dated February 2, 1994, the same can no longer
be relitigated and passed upon in the present case. Ineluctably, the
The rule on conclusiveness of judgment, which obtains under the petitioner, Rizal Surety Insurance Company, is bound by the ruling of the
premises, precludes the relitigation of a particular fact or issue in another Court of Appeals and of this Court that the private respondent has an
action between the same parties based on a different claim or cause of insurable interest in the aforesaid fun and amusement machines and
action. "xxx the judgment in the prior action operates as estoppel only as spare parts; and should be indemnified for the loss of the same.
to those matters in issue or points controverted, upon the determination
of which the finding or judgment was rendered. In fine, the previous So also, the Court of Appeals correctly adjudged petitioner liable for the
judgment is conclusive in the second case, only as those matters actually amount of P470,328.67, it being the total loss and damage suffered by
and directly controverted and determined and not as to matters merely Transworld for which petitioner Rizal Insurance is liable.26
involved therein."23
All things studiedly considered and viewed in proper perspective, the
Applying the abovecited pronouncement, the Court, in Smith Bell and Court is of the irresistible conclusion, and so finds, that the Court of
Company (Phils.), Inc. vs. Court of Appeals,24held that the issue of Appeals erred not in holding the petitioner, Rizal Surety Insurance
negligence of the shipping line, which issue had already been passed Company, liable for the destruction and loss of the insured buildings and
upon in a case filed by one of the insurers, is conclusive and can no articles of the private respondent.
longer be relitigated in a similar case filed by another insurer against the
same shipping line on the basis of the same factual circumstances. WHEREFORE, the Decision, dated July 15, 1993, and the Resolution,
Ratiocinating further, the Court opined: dated October 22, 1993, of the Court of Appeals in CA-G.R. CV NO.
28779 are AFFIRMED in toto. No pronouncement as to costs.
"In the case at bar, the issue of which vessel ('Don Carlos' or 'Yotai
Maru') had been negligent, or so negligent as to have proximately caused SO ORDERED.
the collision between them, was an issue that was actually, directly and
expressly raised, controverted and litigated in C.A.-G.R. No. 61320-R. Melo, (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.
Reyes, L.B., J., resolved that issue in his Decision and held the 'Don
Carlos' to have been negligent rather than the 'Yotai Maru' and, as
already noted, that Decision was affirmed by this Court in G.R. No. L-
48839 in a Resolution dated 6 December 1987. The Reyes Decision thus
became final and executory approximately two (2) years before the Sison
Decision, which is assailed in the case at bar, was promulgated. Applying
the rule of conclusiveness of judgment, the question of which vessel had
been negligent in the collision between the two (2) vessels, had long
been settled by this Court and could no longer be relitigated in C.A.-G.R.
No. 61206-R. Private respondent Go Thong was certainly bound by the
ruling or judgment of Reyes, L.B., J. and that of this Court. The Court of
Appeals fell into clear and reversible error when it disregarded the
Decision of this Court affirming the Reyes Decision."25