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INSURANCE

WEEK 4

WHITE GOLD MARINE SERVICES, INC. vs PIONEER INSURANCE AND SURETY

CORPORATION and THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION
(BERMUDA) LTD

FACTS:

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, White Gold was issued a Certificate of Entry and Acceptance. Pioneer also
issued receipts evidencing payments for the coverage. When White Gold failed to fully pay
its accounts, Steamship Mutual refused to renew the coverage.

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

The Insurance Commission dismissed the complaint. It said that there was no need
for Steamship Mutual to secure a license because it was not engaged in the insurance
business. It explained that Steamship Mutual was a Protection and Indemnity (P & I) Club.
Likewise, Pioneer need not obtain another license as insurance agent and/or a broker for
Steamship Mutual because Steamship Mutual was not engaged in the insurance business.
The Court of Appeals affirmed the decision of the Insurance Commissioner. It held that
Pioneer merely acted as a collection agent of Steamship Mutual.

ISSUES: Is Steamship Mutual engaged in the insurance business?

Does Pioneer, as agent/broker of Steamship Mutual, need a special license?

RULING:

A. YES. A P & I Club is a form of insurance against third party liability, where the third
party is anyone other than the P & I Club and the members. By definition then,
Steamship Mutual as a P & I Club is a mutual insurance association engaged in the
marine insurance business. Records reveal Steamship Mutual is doing business in
the country albeit without the requisite certificate of authority mandated by Section
187 of the Insurance Code. It maintains a resident agent in the Philippines to solicit
insurance and to collect payments in its behalf. We note that Steamship Mutual even
renewed its P & I Club cover until it was cancelled due to non-payment of the calls.
Thus, to continue doing business here, Steamship Mutual or through its agent
Pioneer, must secure a license from the Insurance Commission.

B. YES. Pioneer is the resident agent of Steamship Mutual as evidenced by the

certificate of registration issued by the Insurance Commission. It has been licensed
to do or transact insurance business by virtue of the certificate of authority issued by
the same agency. However, a Certification from the Commission states that Pioneer
does not have a separate license to be an agent/broker of Steamship Mutual.
Although Pioneer is already licensed as an insurance company, it needs a separate
license to act as insurance agent for Steamship Mutual pursuant to Section 299 of
the Insurance Code.
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NOTES:

Section 2(2) of the Insurance Code enumerates what constitutes doing an insurance
business or transacting an insurance business. These are:

(a) Making or proposing to make, as insurer, any insurance contract;

(b) Making, or proposing to make, as surety, any contract of suretyship as a vocation and not
as merely incidental to any other legitimate business or activity of the surety;
(c) Doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this Code;
(d) Doing or proposing to do any business in substance equivalent to any of the foregoing in
a manner designed to evade the provisions of this Code.

The same provision also provides the fact that no profit is derived from the making of
insurance contracts, agreements or transactions, or that no separate or direct consideration
is received therefor, shall not preclude the existence of an insurance business. The test to
determine if a contract is an insurance contract or not, depends on the nature of the promise,
the act required to be performed, and the exact nature of the agreement in the light of the
occurrence, contingency, or circumstances under which the performance becomes requisite.
It is not by what it is called. Basically, an insurance contract is a contract of indemnity. In it,
one undertakes for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event.

In particular, a marine insurance undertakes to indemnify the assured against marine

losses, such as the losses incident to a marine adventure. Section 99 of the Insurance Code
enumerates the coverage of marine insurance. Relatedly, a mutual insurance company is a
cooperative enterprise where the members are both the insurer and insured. In it, the
members all contribute, by a system of premiums or assessments, to the creation of a fund
from which all losses and liabilities are paid, and where the profits are divided among
themselves, in proportion to their interest.17 Additionally, mutual insurance associations, or
clubs, provide three types of coverage, namely, protection and indemnity, war risks, and
defense costs.

PHILIPPINE AMERICAN LIFE INSURANCE COMPANY and RODRIGO DE LOS REYES

vs HON. ARMANDO ANSALDO, in his capacity as Insurance Commissioner, and RAMON
MONTILLA PATERNO, JR.

FACTS:

The instant case arose from a letter-complaint of private respondent Ramon M.

Paterno, Jr., to respondent Commissioner, alleging certain problems encountered by agents,
supervisors, managers and public consumers of the Philippine American Life Insurance
Company (Philamlife) as a result of certain practices by said company. Respondent
Commissioner requested petitioner Rodrigo de los Reyes, in his capacity as Philamlife's
president, to comment on respondent Paterno's letter. De los Reyes suggested that private
respondent submit some sort of a 'bill of particulars' listing and citing actual cases, facts,
dates, figures, provisions of law, rules and regulations, and all other pertinent data which are
necessary to enable him to prepare an intelligent reply. A copy of this letter was sent by the
Insurance Commissioner to private respondent for his comments thereon.

Respondent Commissioner eventually received a letter from private respondent

maintaining that his letter-complaint of was sufficient in form and substance, and requested
that a hearing thereon be conducted. Private respondent submitted a letter of specification to
respondent Commissioner praying that the provisions on charges and fees stated in the
Contract of Agency executed between Philamlife and its agents, as well as the implementing
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provisions as published in the agents' handbook, agency bulletins and circulars, be declared
as null and void. He also asked that the amounts of such charges and fees already deducted
and collected by Philamlife in connection therewith be reimbursed to the agents, with interest
at the prevailing rate reckoned from the date when they were deducted.

Respondent Commissioner notified both parties of the hearing of the case. Manuel
Ortega consequently filed a Motion to Quash Subpoena/Notice but respondent
Commissioner denied the Motion to Quash. Private respondent contends in their petition that
the Insurance Commissioner has jurisdiction to take cognizance of the complaint in the
exercise of its quasi-judicial powers.

ISSUE:

Whether or not the resolution of the legality of the Contract of Agency falls within the
jurisdiction of the Insurance Commissioner

RULING:

NO. Since the contract of agency entered into between Philamlife and its agents is
not included within the meaning of an insurance business, Section 2 of the Insurance Code
cannot be invoked to give jurisdiction over the same to the Insurance
Commissioner. Expressio unius est exclusio alterius. With regard to private respondent's
contention that the quasi-judicial power of the Insurance Commissioner under Section 416 of
the Insurance Code applies in his case, the SC likewise rule in the negative. A reading of the
said section shows that the quasi-judicial power of the Insurance Commissioner is limited by
law to claims and complaints involving any loss, damage or liability for which an insurer may
be answerable under any kind of policy or contract of insurance. Hence, this power does not
cover the relationship affecting the insurance company and its agents but is limited to
adjudicating claims and complaints filed by the insured against the insurance company.

While the subject of Insurance Agents and Brokers is discussed under Chapter IV,
Title I of the Insurance Code, the provisions of said Chapter speak only of the licensing
requirements and limitations imposed on insurance agents and brokers. The Insurance Code
does not have provisions governing the relations between insurance companies and their
agents. It follows that the Insurance Commissioner cannot, in the exercise of its quasi-
judicial powers, assume jurisdiction over controversies between the insurance companies
and their agents. The petition is granted.

FILIPINAS COMPAÑIA DE SEGUROS vs CHRISTERN, HUENEFELD and CO. INC

FACTS:

On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc.,
after obtained from the petitioner Filipinas Cia. de Seguros, Fire Policy No. 29333 in the sum
of P1000,000, covering merchandise contained in a building located at No. 711 Roman
Street, Binondo Manila. During the Japanese military occupation, the building and insured
merchandise were burned. In due time, the respondent submitted to the petitioner its claim
under the policy. The salvage goods were sold at public auction and, after deducting their
value, the total loss suffered by the respondent was fixed at P92,650

The petitioner refused to pay the claim on the ground that the policy in favor of the
respondent had ceased to be in force on the date the United States declared war against
Germany, the respondent Corporation (though organized under and by virtue of the laws of
the Philippines) being controlled by the German subjects and the petitioner being a company
under American jurisdiction when said policy was issued. The petitioner, however, in
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pursuance of the order of the Director of Bureau of Financing, Philippine Executive

Commission paid to the respondent the sum of P92,650. The action was filed in the Court of
First Instance of Manila for the purpose of recovering from the respondent the sum of
P92,650. After trial, the Court of First Instance of Manila dismissed the action. Upon appeal
to the Court of Appeals, the judgment of the Court of First Instance of Manila was affirmed.

ISSUE:

Whether or not the policy in question became null and void upon the declaration of war
between the United States and Germany

RULING:

YES. Section 8 of the Philippine Insurance Law (Act No. 2427, as amended) provides
that anyone except a public enemy may be insured. It stands to reason that an insurance
policy ceases to be allowable as soon as an insured becomes a public enemy. The
respondent having become an enemy corporation on December 10, 1941, the insurance
policy issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had
ceased to be valid and enforceable, and since the insured goods were burned after
December 10, 1941, and during the war, the respondent was not entitled to any indemnity
under said policy from the petitioner. However, elementary rules of justice (in the absence of
specific provision in the Insurance Law) require that the premium paid by the respondent for
the period covered by its policy from December 11, 1941, should be returned by the
petitioner. Nevertheless, petitioner herein is entitled to recover what paid to the respondent
under the circumstances on this case. However, the petitioner will be entitled to recover only
the equivalent, in actual Philippines currency of P92,650, in accordance with the rate fixed in
the Ballantyne scale.

PAZ LOPEZ DE CONSTANTINO vs ASIA LIFE INSURANCE COMPANY

AGUSTINA PERALTA vs ASIA LIFE INSURANCE COMPANY

FACTS:

In the first case, defendant Asia Life Insurance Company (a foreign corporation
incorporated under the laws of Delaware, U.S.A.), issued on September 27, 1941, its Policy
No. 93912 for P3,000, whereby it insured the life of Arcadio Constantino for a term of twenty
years. The first premium covered the period up to September 26, 1942. The plaintiff Paz
Lopez de Constantino was regularly appointed beneficiary. After that first payment, no
further premiums were paid. The insured died on September 22, 1944. The defendant had to
close its branch office in Manila by reason of the Japanese occupation from January 2, 1942
until the year 1945.

In the second case, defendant Asia Life Insurance Company issued its Policy No.
78145 (Joint Life 20-Year Endowment Participating with Accident Indemnity), covering the
lives of the spouses Tomas Ruiz and Agustina Peralta, for the sum of P3,000. The annual
premium stipulated in the policy was regularly paid from August 1, 1938, up to and including
September 30, 1941. Effective August 1, 1941, the mode of payment of premiums was
quarterly, the last having been delivered on November 18, 1941, said payment covering the
period up to January 31, 1942. No further payments were handed to the insurer. Upon the
Japanese occupation, the insured and the insurer became separated by the lines of war, and
it was impossible and illegal for them to deal with each other. Because the insured had
borrowed on the policy, the cash surrender value of the policy was sufficient to maintain the
policy in force only up to September 7, 1942. Tomas Ruiz died on February 16, 1945. The
plaintiff Agustina Peralta is his beneficiary. Her demand for payment met with defendant's
refusal, grounded on non-payment of the premiums.
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ISSUE:

Whether or not the beneficiary in a life insurance policy may recover the amount thereof
although the insured died after repeatedly failing to pay the stipulated premiums, such failure
having been caused by the last war in the Pacific

RULING:

NO. The SC held emphasized that the policies in question stipulate that all premium
payments are due in advance and any unpunctuality in making any such payment shall
cause this policy to lapse. Wherefore, it would seem that pursuant to the express terms of
the policy, non-payment of premium produces its avoidance. After perusing the Insurance
Act, the SC IS firmly persuaded that the non-payment of premiums is such a vital defense of
insurance companies that since the very beginning, said Act No. 2427 expressly preserved
it, by providing that after the policy shall have been in force for two years, it shall become
incontestable (i.e. the insurer shall have no defense) except for fraud, non-payment of
premiums, and military or naval service in time of war (Sec. 184 [b], Insurance Act). When
Congress recently amended this section in Republic Act No. 171, the defense of fraud was
eliminated, while the defense of nonpayment of premiums was preserved. Thus, the
fundamental character of the undertaking to pay premiums and the high importance of the
defense of non-payment thereof was specifically recognized.

In keeping with such legislative policy, the SC adopted the United States Rule which
states that that the contract is not merely suspended, but is abrogated by reason of non-
payments is peculiarly of the essence of the contract. It additionally holds that it would be
unjust to allow the insurer to retain the reserve value of the policy, which is the excess of the
premiums paid over the actual risk carried during the years when the policy had been in
force. In this connection, it appears that the first policy had no reserve value, and that the
equitable values of the second had been practically returned to the insured in the form of
loan and advance for premium. In view of the foregoing, the lower court's decision absolving
the defendant from all liability on the policies in question was affirmed.

FIDELA SALES DE GONZAGA vs THE CROWN LIFE INSURANCE COMPANY

FACTS:

On September 26, 1939 the Crown Life Insurance Co., whose home office is in
Toronto, Canada, issued to Ramon Gonzaga through its branch office in Manila a 20-year
endowment policy for P15,000. The insured paid in due time the agreed yearly premium for
three consecutive years, the last payment having been effected on September 6, 1941. On
account of the outbreak of war, no premiums were paid after that date, although the policy
was continued in force up to June 12, 1943 under its automatic premium loan clause.
Ramon Gonzaga died on June 27, 1945 from an accident. Unsuccessful in her attempt to
collect the amount of the policy his widow and the beneficiary named in the policy began this
suit on December 18, 1947. The defendant set up the defense that the policy had lapsed by
non-payment of the stipulated premiums of the stipulated dates. The trial court ruled against
the plaintiff.

ISSUE:

Whether or not Fidela Gonzaga can claim despite the absence of premium payment during
the outbreak of the war

RULING:
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NO. The SC reiterated that non-payment of premiums by reason of war puts an end
to the contract. The failure of the defendant or its Filipino employees to advise the insured of
the defendant's new address did not work as a forfeiture of the right to have the premiums
satisfied promptly. While clandestine transactions between the parties during the war might
be binding, it was not obligatory on the insurer, and it was well-nigh risky for its employees,
to send out notices to its widely scattered policy holders, what with the postal service under
the control and administration of the ruthless occupants.

There is no duty when the law forbids; and there is no obligation without
corresponding right enjoyed by another. The insured had no right to demand that the
defendant maintain an office during the war, and the defendant was not obligated to do so.
The defendant's opening of an interim office partook of the nature of the privilege to the
policy holders to keep their policies operative rather than a duty to them under the contract.
Ramon Gonzaga could have taken advantage of this privilege if he was really intent on
preserving his policy. Gonzaga admittedly come to Manila on a visit every now and then, and
could have, without difficulty, contacted any of the defendant’s agents. The trial court
properly dismissed the action and the appealed decision is affirmed.