Insurance Law case digests SY 2010-2011

Interpretation of insurance contracts

DIOSDADO C. TY vs. FIRST NATIONAL SURETY & ASSURANCE CO. INC.
G.R. NO. L-16138, April 29, 961
1 SCRA 1324
Facts:
Petitioner obtained personal accident policies which stipulated, among others, that for
partial disability resulting to the loss of either hand, the insurer shall be liable for P650.00.
It was further stated in the policies that, That loss of a hand shall mean the loss by
amputation through the bones of the wrist. A fire broke out which totally destroyed
Broadway Cotton Factory, Tys employer. Fighting his way out of the factory, Ty was
injured on the left hand by a heavy object. As a result, Ty suffered a temporary total
disability of his left hand which prevented hi from performing his work or labor necessary
in the pursuance of his occupation.
Issue:
Whether or not the insurer is liable
Held:
The insurer was not liable. We can not go beyond the clear and express conditions of the
insurance policies, all of which defined partial disability as loss of either hand by
amputation through the bones of the wrist. There was no such amputation. All that was
found was that the physical injuries caused temporary total disability of Tys left hand. We
might add that the agreement contained in the insurance policies are clear, express and
specific that only amputation of the left hand should be considered as a loss thereof, an
interpretation that would include the mere fracture or other temporary disability not
covered by the policies would certainly be unwarranted.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against the
plaintiff-appellant.

Insurance Law case digests SY 2010-2011

Interpretation of insurance contracts

SIMON DE LA CRUZ vs. THE CAPITAL INSURANCE AND SURETY CO., INC.
G.R. No. L-21574, June 30, 1966
17 SCRA 599
FACTS:
Eduardo de la Cruz, the son of herein petitioner, was the holder of an accident insurance
policy. In connection with the celebration of the New Year, the insured, a non-professional
boxer, participated in a boxing contest. In the course of his bout with another person,
likewise a non-professional, of the same height, weight, and size, Eduardo slipped and
was hit by his opponent on the left part of the back of the head, causing Eduardo to fall,
with his head hitting the rope of the ring. The insured died with the cause of death
reported as hemorrhage intercranial, left. The insurer refused to pay the proceeds of
the policy on the ground that the death of the insured, caused by his participation in a
boxing contest, was not accidental and, therefore, not covered by insurance.
ISSUE:
Whether or not the death of the insured is covered by the policy
HELD:
The terms accident and accidental as used in the insurance contract, have not
acquired any technical meaning, and are construed by the courts in their ordinary and
common acceptation. Thus, the terms have been taken to mean that which happen by
chance or fortuitously, without intention and design, and which is unexpected, unusual,
and unforeseen. An accident is an event that proceeds from an unknown cause and,
therefore, not expected. Without the unintentional slipping of the deceased, perhaps he
would not have received the blow in the head and would not have died. Boxing is
attended with some risks of external injuries, but any injury received in the course of the
game could be accidental. In boxing, as in other equally physically rigorous sports, such
as basketball or baseball, death is not ordinarily anticipated to result. If, therefore, it ever
does, the injury or death can only be accidental or produced by some unforeseen
happening or event as what occurred in this case. The insurer was liable.
WHEREFORE, in view of the foregoing, considerations, the decision appealed from is
hereby affirmed, with costs against appellant, so ordered.

Insurance Law case digests SY 2010-2011

Interpretation of insurance contracts

MISAMIS LUMBER CORPORATION vs. CAPITAL INSURANCE AND SURETY CO.,
INC.
G.R. No. L-21380, May 20, 1966
17 SCRA 228
FACTS:
Misamis Lumber has insured its Ford Falcon motor car for the amount of P14,000.00 with
Capital Insurance & Surety. It is included in the policy that the insured may authorize the
repair of the said vehicle and that the insurance company will be liable for it provided that
a detailed estimate of the cost is forwarded immediately to the insurance company and
that the estimated cost of such repair shall not exceed the authorized Repair Limit which
is set at P150.00.
Sometime after, the car figured in a minor accident that broke its crankcase and flywheel.
The plaintiff then had it repaired, the repair costs totaled P302.27.
However, the insurance company refused to pay for the total cost of repairs because it
claimed that the cost exceeded that which was stipulated as the repair limit.
ISSUE:
Whether or not the insurance company is held liable for the cost of repair which
exceeded the stipulated repair limit
HELD:
The Insurance Company is liable for only P150.00. The insurance policy stipulated in
paragraph 4 that if the insured authorizes the repair the liability of the insurer, per its subparagraph (a) is limited to P150.00. The literal meaning of this stipulation must control, it
being the actual contract, expressly and plainly provided for in the policy.
The insurance contract may be rather onerous (one-sided as the lower court put it), but
that in itself does not justify the abrogation of its express terms, terms which the insured
accepted or adhered to and which is the law between the contracting parties.
Finally, to require the insurer to prove that the cost of the repairs ordered by the insured
is unreasonable, as the appealed decision does, when the insurer was not given an
opportunity to inspect and assess the damage before the repairs were made, strikes us
as contrary to elementary justice and equity.
For the foregoing reasons, the appealed decision is hereby modified by ordering the
defendant-appellant Capital Insurance & Surety Company, Inc. to pay not more than
P150.00 to the plaintiff-appellee Misamis Lumber Corporation. Each party shall bear its
own costs and attorneys fees.

Insurance Law case digests SY 2010-2011

Interpretation of insurance contracts

JEWEL VILLACORTA vs. THE INSURANCE COMMISSION
G.R. No. L-54171, 28 October 1980
100 SCRA 467
FACTS:
Villacorta had her Colt Lancer car insured with Empire Insurance Company against own
damage, theft and 3rd party liability. While the car was in the repair shop, one of the
employees of the said repair shop took it out for a joyride after which it figured in a
vehicular accident. This resulted to the death of the driver and some of the passengers
as well as to extensive damage to the car.
Villacorta filed a claim for total loss with the said insurance company. However, it denied
the claim on the ground that the accident did not fall within the provisions of the policy
either for the Own Damage or Theft coverage, invoking the policy provision on
Authorized Driver Clause.
This was upheld by the Insurance Commission further stating that the car was not stolen
and therefore not covered by the Theft Clause because it is not evident that the person
who took the car for a joyride intends to permanently deprive the insured of his/ her car.
ISSUE:
Whether or not the insurer company should pay the said claim
HELD:
Yes. Where the insureds car is wrongfully taken without the insureds consent from the
car service and repair shop to whom it had been entrusted for check-up and repairs
(assuming that such taking was for a joy ride, in the course of which it was totally
smashed in an accident), respondent insurer is liable and must pay insured for the total
loss of the insured vehicle under the Theft Clause of the policy.
Assuming, despite the totally inadequate evidence, that the taking was temporary and
for a joy ride, the Court sustains as the better view that which holds that when a person,
either with the object of going to a certain place, or learning how to drive, or enjoying a
free ride, takes possession of a vehicle belonging to another, without the consent of its
owner, he is guilty of theft because by taking possession of the personal property
belonging to another and using it, his intent to gain is evident since he derives therefrom
utility, satisfaction, enjoymet and pleasure.
ACCORDINGLY, the appealed decision is set aside and judgment is hereby rendered
sentencing private respondent to pay petitioner the sum of P35,000.00 with legal interest
from the filing of the complaint until full payment is made and to pay the costs of suit.

Insurance Law case digests SY 2010-2011

Interpretation of insurance contracts

SIMEON DEL ROSARIO vs. THE EQUITABLE INSURANCE and CASUALTY CO., INC.

G.R. No. L-16215, June 29, 1963

8 SCRA 343
FACTS:
The defendant insurance company issued a personal accident policy on the life of
Francisco del Rosario, herein plaintiffs son, binding itself to pay the sum of P1,000.00 to
P3,000.00 as indemnity for the death of the insured. In the said policy, for the different
causes of death, disability of the insured, there is a corresponding is a specific amount as
indemnity. As for death due to drowning, there was no specific amount, hence, an
ambiguous provision.
Later, Francisco died of drowning as he was forced to jump off the motor launch on which
he was riding on account of fire that broke out on the said vessel. Simeon then filed a
claim for payment with defendant company which then paid him the sum of P1,000.00.
However, Simeons lawyer, informed the said company that the amount was wrong. In
turn, the defendant company referred the matter to the Insurance Commissioner, who
rendered an opinion that the liability of the company was only P1,000.00. Hence, it
refused to pay more than P1,00.00. A complaint for the recovery of the balance of
P2,000.00 was instituted with the CFI of Rizal.
ISSUE:
Whether or not the amount paid is the correct indemnity
HELD:
And so it has been generally held that the terms in an insurance policy, which are
ambiguous, equivocal or uncertain are to be construed strictly against, the insurer, and
liberally in favor of the insured so as to effect the dominant purpose of indemnity or
payment to the insured, especially where a forfeiture is involved, and the reason for this
rule is that the insured usually has no voice in the selection or arrangement of the words
employed and that the language of the contract is selected with great care and
deliberation by expert and legal advisers employed by, and acting exclusively in the
interest of, the insurance company.
Where two interpretations, equally fair, of languages used in an insurance policy may be
made, that which allows the greater indemnity will prevail.
At any event, the policy under consideration, covers death or disability by accidental
means, and the appellant insurance company agreed to pay P1,000.00 to P3,000.00 is
indemnity for death of the insured.
In view of the conclusions reached, it would seem unnecessary to discuss the other
issued raised in the appeal.
The judgment appealed from is hereby affirmed. Without costs.

Insurance Law case digests SY 2010-2011

Interpretation of insurance contracts

VIOLETA LALICAN vs. THE INSULAR LIFE ASSURANCE COMPANY LIMITED
G.R. No. 183526, August 25, 2009, 597 SCRA 159
FACTS:
Eulogio, the husband of herein petitioner, applied for an insurance policy the value of
which is P1,500,000.00. Under the policy terms, Eulogio is obliged to pay the premiums
on a quarterly basis, until the end of the 20-year period of the policy. It was likewise
stated therein that the insured has 31-day grace period for the payment of each premium
subsequent to the first and that default in any payment of said premiums shall result in
the automatic lapse of the said policy. Eulogio failed to pay a premium even after the
lapse of the 31-day grace period. Hence, the policy lapsed and became void. He filed an
Application for Reinstatement of said policy and paying the amount of the premium due.
However, Insular Life notified him that they could not fully process his application
because the amount he paid is inadequate to cover the accrued interests. Hence, he
again applied for the reinstatement of said policy this time, together with the required
amount. The husband of the insurance agent was the one who received his application
because the agent was away at that time. Within the same day, the insured died. This
fact was unknown to the agent who then submitted Eulogios application for
reinstatement to the Insular Life Regional Office.
Violeta then filed a claim for payment of the full proceeds of the policy. However, the
company said that she is not entitled to the insurance proceeds because they claimed
that the policy was not reinstated during her husbands lifetime and good health.
ISSUE:
Whether or not Eulogio was able to reinstate the lapsed insurance policy before his death
HELD:
NO. The Court agrees with the RTC that the conditions for reinstatement under the Policy
Contract and Application for Reinstatement were written in clear and simple language,
which could not admit of any meaning or interpretation other than those that they so
obviously embody. Violeta did not adduce any evidence that Eulogio might have failed to
fully understand the import and meaning of the provisions of his Policy Contract and/or
Application for Reinstatement both of which he voluntarily signed. While it is a cardinal
principle of insurance law that a policy or contract of insurance is to be construed liberally
in favor of the insured and strictly as against the insurer company, yet, contracts of
insurance, like other contracts are to be construed according to the sense and meaning
of the terms, which the parties themselves have used, if such terms are clear and
unambiguous, they must be taken and understood in their plain, ordinary and popular
sense.
WHEREFORE, premises considered, the Court DENIES the instant Petition for Review
on Certiorari under Rule 45 of the Rules of Court. The Court AFFIRMS the Orders dated
10 April 2008 and 3 July 2008 of the RTC of Gapan City, Branch 34, in Civil Case No.
2177, denying petitioner Violeta R. Lalicans Notice of Appeal, on the ground that the
Decision dated 30 August 2007 subject thereof, was already final and executor. No costs.
Estoppel as applied to insurance contracts

Insurance Law case digests SY 2010-2011

QUA CHEE GAN vs. LAW UNION AND ROCK INSURANCE CO., LTD.
G.R. No. L-4611, 17 December 1955
FACTS:
Plaintiff-appellee owned four bodegas used for the storage of copra and hemp. These
buildings, together with their contents, were insured with the defendant company since
1937 and the loss made payable to the Philippine National Bank as mortgage of the
hemp and crops, to the extent of its interest.
Sometime after, three of the bodegas, together with the merchandise inside, were
completely destroyed by fire of an undetermined origin. Consequently, Qua Chee Gan
notified the insurance company of his loss. The latter conducted an extensive
investigation. The damage was determined to be equivalent to P398,562.81 which was
later reduced to the full amount of the insurance, Php370,000.00. However, the
insurance company refused payment, claiming violation of warranties and conditions,
filing of fraudulent claims, and that the fire had been deliberately caused by the insured
or by other persons in connivance with him.
If moreover argued that since the bodegas insured had an external wall perimeter of 500
meters or 1,640 feet, the appellee should have 11 fire hydrants in the compound, and
that he actually had only 2 with a further pair nearby, belonging to the municipality of
Tabaco.
ISSUE:
Whether or not the insurer company is liable
HELD:
YES. The SC is in agreement with the trial court that the appellant is barred by waiver (or
rather estoppel) to claim violation of the so-called fire hydrants warranty, for the reason
that knowing fully all that the number of hydrants demanded therein never existed from
the very beginning, the appellant nevertheless issued the policies in question subject to
such warranty, and received the corresponding premiums. It would be perilously close to
conniving at fraud upon the insured to allow appellant to claims now as void ab initio the
policies that it had issued to the plaintiff without warining of their fatal defect, of which it
was informed, and after it had misled the defendant into believing that the policies were
effective.
The contract of insurance is one of perfect good faith (uferrimal fidei) not for the insured
alone, but equally so for the insurer, in fact, it is mere so for the latter, since its dominant
bargaining position carries with it stricter responsibility.
We find no reversible error in the judgment appealed from, wherefore the same is hereby
affirmed. Costs against the appellant.

Insurance Law case digests SY 2010-2011

Estoppel due to insurers inequitable conduct

FIELDMENS INSURANCE CO., INC. vs. MERCEDES VDA. DE SONGCO
G.R. No. L-24833, 23 September 1968
FACTS:
Federico Songco, a man who was only able to finish grade 1, owned a private jeepney
which he, through the inducement of Fieldmens insurance agent, insured with the
plaintiff company. The policy is a Common Carriers Accident Insurance Policy. The
insurance agent told Federico that whether his vehicle was an owner type or for
passengers it could be insured because their company is not owned by the Governent
and that the Government has nothing to do with their company, hence, they could do
what they please whenever they believe a vehicle is insurable. During the policys
covered period, the insured vehicle while being driven by Rodolfo, a duly licensed driver
and son of Federico figured in a vehicular accident resulting in the death of both father
and son as well as physical injuries to the other passengers of the jeepney.
The insurance company refused payment.
ISSUE:
Whether or not the insurance company is liable
HELD:
YES. Where inequitable conduct is shown by an insurance firm, it is estopped from
enforcing forfeitures in its favor, in order to forestall fraud or imposition on the insured.
After petitioner Fieldmens Insurance Co., Inc. had led the insured Federico Songco to
believe that he could qualify under the common carrier liability insurance policy, and to
enter into contract of insurance paying the premiums due, it could not, thereafter, in any
litigation arising out of such representation, be permitted to change its stand to the
detriment of the heirs of the insured. As estoppel is primarily based on the doctrine of
good faith and the avoidance of harm that will befall the innocent party due to its injurious
reliance, the failure to apply it in this case would result in a gross travesty of justice.
That is all that needs be said insofar as the first alleged error of respondent Court of
Appeals is concerned, petitioner being adamant in its far-from-reasonable plea that
estoppels could not be invoked by the heirs of the insured as a bar to the alleged breach
of warranty and condition in the policy. It would now rely on the fact that the insured
owned a private vehicle, not a common carrier, something which it knew all along when
not once but twice its agent, no doubt without any objection in its part, exerted the utmost
pressure on the insured, a man of scant education, to enter into such a contract.
WHEREFORE, the decision of respondent Court of Appeals of July 20, 1965, is affirmed
in its entirety. Costs against petitioner Fieldmens Insurance Co., Inc.

Insurance Law case digests SY 2010-2011

Automatic Insurance Coverage

ETERNAL GARDENS MEMORIAL PARK CORPORATION vs. THE PHILIPPINE
AMERICAN LIFE INSURANCE COMPANY
G.R. No. 166245, 9 April 2008
FACTS:
Respondent insurance company entered into a Creditor Group Life Policy agreement
with Eternal Gardens Memorial. Under said policy, the clients of Eternal who purchased
burial lots from it on installment basis would be insured by Philamlife. The amount of
insurance coverage depended upon the existing balance of the purchased burial lots.
The policy was to be effective for a period of one year, renewable on a yearly basis.
As required under the said policy, Eternal submitted a list of all new lot purchasers,
including the application of each purchaser and their corresponding unpaid balances.
Included in this list is a certain John Chuang.
When Chuang died, Eternal sent a letter, together with the pertinent papers, to Philamlife
which served as an insurance claim for Chuangs death. Philamlife required that Eternal
submit certain documents relative to its insurance claim for Chuangs death. Eternal
transmitted said documents which Philamlife was able to received. However, after more
than one year, Philamlife did not anymore reply to Eternals insurance claim. This
prompted Eternal to demand the insurance claims. However, Philamlife denied the said
claim, prompting Eternal to file a case before the RTC of Makati.
ISSUE:
Whether or not Philamlife assumed the risk of loss without approving the application.
HELD:
YES. An insurance contract covering the lot purchaser is created and the same is
effective, valid, and binding until terminated by Philamlife by disapproving the insurance
application. The second sentence of Creditor Group Life Policy No. P-1920 on the
Effective Date of Benefit is in the nature of a resolutory condition which would lead to the
cessation of the insurance contract. Moreover, the mere inaction of the insurer on the
insurance application must not work to prejudice the insured; it cannot be interpreted as
a termination of the insurance contract. The termination of the insurance contract by the
insurer must be explicit and unambiguous.
More often than not, insurance contracts are contracts of adhesion containing technical
terms and conditions of the industry, confusing if at all understandable to laypersons, that
are imposed on those who wish to avail of insurance. As such, insurance contracts are
imbued with public interest that must be considered whenever the rights and obligations
of the insurer and the insured are to be delineated. Hence, in order to protect the interest
of insurance applicants, insurance companies must be obligated to act with haste upon
insurance applications, to either deny or approve the same, or otherwise be bound to
honor the application as a valid, binding, and effective insurance contract.
WHEREFORE, we GRANT the petition.

Insurance Law case digests SY 2010-2011

When estoppel not applied to insurance contracts

JAMES STOKES vs. MALAYAN INSURANCE CO., INC.
G.R. No. L-34768, 24 February 1984
127 SCRA 766
FACTS:
Daniel Adolfson had a subsisting Malayan car insurance policy with coverage against
own damage as well as 3rd party liability when his car figured in a vehicular accident with
another car, resulting to damage to both vehicles. At the time of the accident, Adolfsons
car was being driven by James Stokes, who was authorized to do so by Adolfson.
Stokes, an Irish tourist who had been in the Philippines for only 90 days, had a valid and
subsisting Irish drivers license but without a Philippine drivers license.
Adolfson filed a claim with Malayan but the latter refused to pay contending that Stokes
was not an authorized driver under the Authorized Driver clause of the insurance policy
in relation to Section 21 of the Land Transportation Office.
ISSUE:
Whether or not Malayan is liable to pay the insurance claim of Adolfson
HELD:
NO. A contract of insurance is a contract of indemnity upon the terms and conditions
specified therein. When the insurer is called upon to pay in case of loss or damage, he
has the right to insist upon compliance with the terms of the contract. If the insured
cannot bring himself within the terms and conditions of the contract, he is not entitled as
a rule to recover for the loss or damage suffered. For the terms of the contract constitute
the measure of the insurers liability, and compliance therewith is a condition precedent to
the right of recovery.
At the time of the accident, Stokes had been in the Philippines for more than 90 days.
Hence, under the law, he could not drive a motor vehicle without a Philippine drivers
license. He was therefore not an authorized driver under the terms of the insurance
policy in question, and Malayan was right in denying the claim of the insured.
Acceptance of premium within the stipulated period for payment thereof, including the
agreed period of grace, merely assures continued effectivity of the insurance policy in
accordance with its terms. Such acceptance does not estop the insurer from interposing
any valid defense under the terms of the insurance policy.
The principle of estoppel is an equitable principle rooted upon natural justice which
prevents a person from going back on his own acts and representations to the prejudice
of another whom he has led to rely upon them. The principle does not apply to the instant
case. In accepting the premium payment of the insured, Malayan was not guilty of any
inequitable act or representation. There is nothing inconsistent between acceptance of
premium due under an insurance policy and the enforcement of its terms.
WHEREFORE, the appealed judgment is reversed. The complaint is dismissed. Costs
against appellees.

Insurance Law case digests SY 2010-2011

Change of irrevocable beneficiaries to revocable beneficiaries need consent of the

irrevocable beneficiaries
THE PHILIPPINE AMERICAN INSURANCE COMPANY vs. HONORABLE GREGORIO
G. PINEDA
G.R. No. L-54216, 19 July 1989
175 SCRA 416
FACTS:
On January 15, 1968, Rodolfo Dimayuga procured an ordinary life insurance policy from
the petitioner company and designated his wife and children as irrevocable beneficiaries
of said policy. In February 22, 1980, Dimayuga filed a petition before the CFI of Rizal to
amend the designation of the beneficiaries in his life policy from irrevocable to revocable.
ISSUE:
1) Whether or not the designation of the irrevocable beneficiaries could be
changed or amended without the consent of all the irrevocable beneficiaries.
2) Whether or not the irrevocable beneficiaries, one of whom is already deceased
while the others are all minors, could validly give consent to such amendment
HELD:
1)

NO. Needless to say, the applicable law in the instant case is the Insurance
Act, otherwise known as Act No. 2427 as amended, the policy having been
procured in 1968. Under the said law, the beneficiary designated in a life
insurance contract cannot be changed without the consent of the beneficiary
because he has a vested interest in the the policy. Inevitably therefore, based
on the aforequoted provision of the contract, not to mention the law then
applicable, it is only with the consent of all the beneficiaries that any change or
amendment in the policy concerning the irrevocable beneficiaries may be
legally and validly effected. Both the law and the policy do not provide for any
other exception, thus, abrogating the contention of the private respondent that
said designation can be amended if the Court finds a just, reasonable ground
to do so.
2) NO. the alleged acquiescence of the six children beneficiaries of the policy (the
beneficiary-wife predeceased the insured) cannot be considered an effective
ratification to the change of the beneficiaries from irrevocable to revocable.
Indubitable is the fact that all the six children named as beneficiaries were
minors at the time, for which reason, they could not validly give their consent.
Neither could they act through their father insured since their interests are quite
divergent from one another.
Therefore, the parent-insured cannot exercise rights and/or privileges
pertaining to the insurance contract for otherwise, the vested rights of the
irrevocable beneficiaries would be rendered inconsequential.
WHEREFORE, premises considered, the questioned Orders of the respondent Judge
are hereby nullified and set aside.

Insurance Law case digests SY 2010-2011

Common-law spouse is disqualified to be the beneficiary of insured

THE INSULAR LIFE ASSURANCE COMPANY, LTD. Vs. CARPONIA T. EBRADO
G.R. No. L-44059, 28 October 1977
80 SCRA 181
FACTS:
Buenaventura Ebrado was issued by petitioner company an insurance policy wherein he
designated Carponia, his common-law wife, as his revocable beneficiary.
When Buenaventura died, Carponia filed with the insurer a claim for the proceeds of the
policy in the total amount of P11,745.73.
Pascuala Vda. de Ebrado, Buenaventuras legal wife, likewise filed her claim as the
widow of the deceased insured. She asserts that she is the one entitled to the insurance
proceeds, not the common-law wife, Carponia.
ISSUE:
Whether or not a common-law wife named as beneficiary in the life insurance policy of a
legally married man can claim the proceeds thereof in case of death of the latter
HELD:
NO. When not otherwise specifically provided for by the Insurance Law, the contract of
life insurance is governed by the general rules of the civil law regulating contracts. And
under Article 2012 of the same Code, any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a life insurance policy by the
person who cannot make a donation to him. Common-law spouses are, definitely, barred
from receiving donations from each other.
In essence, a life insurance policy is no different from a civil donation insofar as the
beneficiary is concerned. Both are founded upon the same consideration: liberality. A
beneficiary is like a donee, because from the premiums of the policy which the insured
pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance.
As a consequence, the proscription in Article 739 of the new Civil Code should equally
operate in life insurance contracts. The mandate of Article 2012 cannot be laid aside: any
person who cannot receive a donation cannot be named as beneficiary in the life
insurance policy of the person who cannot make the donation. Under American law, a
policy of life insurance is considered as a testament and in construing it, the courts will,
so far as possible treat it as a will and determine the effect of a clause designating the
beneficiary by rules under which wins are interpreted.
ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia
T. Ebrado is hereby declared disqualified to be the beneficiary of the late Buenaventura
C. Ebrado in his life insurance policy. As a consequence, the proceeds of the policy are
hereby held payable to the estate of the deceased insured. Costs against Carponia T.
Ebrado

Insurance Law case digests SY 2010-2011

Health Care agreement is in the nature of non-life insurance

PHILAMCARE HEALTH SYSTEMS, INC. vs. COURT OF APPEALS
G.R. No. 125678, 18 March 2002
FACTS:
Ernani Trinos obtained a health care coverage with petitioner Philamcare. Under the
agreement, Trinos was entitled to avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was entitled to avail of out-patient benefits such as
annual physical examinations, preventive health care and other out-patient services.
During the period of coverage, Trinos suffered a heart attack and was hospitalized for
one month. During this time, his wife, Julita Trinos, tried to claim the benefits under the
health care agreement but petitioner company denied her claim on the ground that the
Health Care Agreement was void because there was concealment regarding Ernanis
medical history. Doctors allegedly discovered at the time of Ernanis confinement that he
was hypertensive, diabetic and asthmatic, contrary to his answer in the application form.
Thus Julita paid the hospitalization expenses herself.
When Ernani died, Julita instituted with the RTC of Manila an action for damages against
petitioner and its president. She asked for reimbursement of her expenses plus moral
damages and attorneys fees.
ISSUE:
Whether or not the petitioner is liable
HELD:
YES. The health care agreement was in the nature of non-life insurance, which is
primarily a contract of indemnity. Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingent, the health care
provider must pay for the same to the extent agreed upon under the contract.
Petitioner alleges that respondent was not the legal wife of the deceased member
considering that at the time of their marriage, the deceased was previously married to
another woman who was still alive. The health care agreement is in the nature of a
contract of indemnity. Hence, payment should be made to the party who incurred the
expenses. It is not controverted that respondent paid all the hospital and medical
expenses. She is therefore entitled to reimbursement. The records adequately prove the
expenses incurred by respondent for the deceaseds hospitalization, medication and the
professional fees of the attending physicians.
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of
the Court of Appeals dated December 14, 1995 is AFFIRMED.

Insurance Law case digests SY 2010-2011

Concealment
SUNLIFE ASSURANCE COMPANY OF CANADA vs. COURT OF APPEALS
G.R. No. 105135, 22 June 1995
FACTS:
Robert John Bacani procured a life insurance contract for himself from petitionercompany, designating his mother Bernarda Bacani, herein private respondent, as the
beneficiary. He was issued a policy valued at P100,000.00 with double indemnity in case
of accidental death. Sometime after, the insured died in a plane crash. Bernarda filed a
claim with petitioner, seeking the benefits of the insurance policy taken by her son.
However, said insurance company rejected the claim on the ground that the insured did
not disclose material facts relevant to the issuance of the policy, thus rendering the
contract of insurance voidable. Petitioner discovered that two weeks prior to his
application for insurance, the insured was examined and confined at the Lung Center of
the Philippines, where he was diagnosed for renal failure. The RTC, as affirmed by the
CA, this fact was concealed, as alleged by the petitioner. But the fact that was concealed
was not the cause of death of the insured and that matters relating to the medical history
of the insured is deemed to be irrelevant since petitioner waived the medical examination
prior to the approval and issuance of the insurance policy.
ISSUE:
Whether or not the concealment of such material fact, despite it not being the cause of
death of the insured, is sufficient to render the insurance contract voidable
HELD:
YES. Section 26 of the Insurance Code is explicit in requiring a party to a contract of
insurance to communicate to the other, in good faith, all facts within his knowledge which
are material to the contract and as to which he makes no warranty, and which the other
has no means of ascertaining.
Anent the finding that the facts concealed had no bearing to the cause of death of the
insured, it is well settled that the insured need not die of the disease he had failed to
disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in forming
his estimates of the risks of the proposed insurance policy or in making inquiries.
The SC, therefore, ruled that petitioner properly exercised its right to rescind the contract
of insurance by reason of the concealment employed by the insured. It must be
emphasized that rescission was exercised within the two-year contestability period as
recognized in Section 48 of The Insurance Code.
WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is
REVERSED and SET ASIDE.

Insurance Law case digests SY 2010-2011

Waiver of medical examination

IGNACIO SATURNINO vs. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY
G.R. No. L-16163, 28 February 1963
FACTS:
Estefania Saturnino obtained a 20-year endowment non-medical insurance. This kind of
policy dispenses with the medical examination of the applicant usually required in
ordinary life policies. However, two months prior to the issuance of the policy, Saturnino
was operated on for cancer, involving mastectomy of the right breast. She did not make a
disclosure thereof in her application for insurance. On the contrary, she stated therein
that she did not have, nor had she ever had, among other ailments listed in the
application, cancer or other tumors.
Sometime after, Saturnino died of pneumonia, secondary to influenza. Appellants here,
who are her surviving husband and minor child, respectively, demanded payment of the
face value of the policy. The claim was rejected and hence an action was subsequently
instituted.
ISSUE:
Whether or not the insured made such false representations of material facts as to avoid
the policy
HELD:
YES. The Insurance Law provides that materiality is to be determined not by the event,
but solely by the probable and reasonable influence of the facts upon the party to whom
the communication is due, in forming his estimate of the proposed contract, or in making
his inquiries. The waiver of medical examination renders even more material the
information required of the applicant concerning previous condition of health and
diseases suffered, for such information necessarily constitutes an important factor which
the insurer takes into consideration in deciding whether to issue the policy or not. It is
logical to assume that if appellee had been properly apprised of the insureds medical
history she would at least have been made to undergo medical examination in order to
determine her insurability.
A concealment, whether intentional or unintentional, entitles the insurer to rescind the
contract of insurance, concealment being defined as negligence to communicate that
which a party knows and ought to communicate. The basis of the rule vitiating the
contract in cases of concealment is that it misleads or deceives the insurer into accepting
the risk, or accepting it at the rate of premium agreed upon. The insurer, relying upon the
belief that the assured will disclose every material facts within his actual or presumed
knowledge, is misled into a belief that the circumstance withheld does not exist, and he is
thereby induced to estimate the risk upon a false basis that it does not exist.
The judgment appealed from, dismissing the complaint and awarding the return to
appellants of the premium already, paid, with interest at 6% up to January 29, 1959,
affirmed, with costs against appellants.

Insurance Law case digests SY 2010-2011

Materiality of the information

THELMA VDA. DE CANILANG vs. COURT OF APPEALS
G.R. No. 92492, 17 June 1993
FACTS:
Jaime Canilang applied for a non-medical insurance policy with respondent Great
Pacific Life Assurance Company naming his wife, Thelma Canilang as his beneficiary.
But he did not disclose the fact that he was diagnosed as suffering from sinus
tachycardia and that he has consulted a doctor twice. Jaime was issued an ordinary life
insurance policy with the face value of P19,700.00.
Jaime died of congestive heart failure, anemia, and chronic anemia. Petitioner
widow and beneficiary of the insured, filed a claim with Great Pacific which the insurer
denied upon the ground that the insured had concealed material information from it.
Hence, Thelma filed a complaint against Great Pacific with the Insurance Commission for
recovery of the insurance proceeds.
ISSUE:
Whether or not the non-disclosure of certain facts about the insureds previous health
conditions is material to warrant the denial of the claims of Thelma Canilang
HELD:
YES. The SC agreed with the Court of Appeals that the information which Jaime
Canilang failed to disclose was material to the ability of Great Pacific to estimate the
probable risk he presented as a subject of life insurance. Had Canilang disclosed his
visits to his doctor, the diagnosis made and medicines prescribed by such doctor, in the
insurance application, it may be reasonably assumed that Great Pacific would have
made further inquiries and would have probably refused to issue a non-medical
insurance policy or, at the very least, required a higher premium for the same coverage.
The materiality of the information withheld by Great Pacific did not depend upon the state
of mind of Jaime Canilang. A mans state of mind or subjective belief is not capable of
proof in our judicial process, except through proof of external acts or failure to act from
which inferences as to his subjective belief may be reasonably drawn. Neither does
materiality depend upon the actual or physical events which ensure. Materiality relates
rather to the probable and reasonable influence of the facts upon the party to whom the
communication should have been made, in assessing the risk involved in making or
omitting to make further inquiries and in accepting the application for insurance; that
probable and reasonable influence of the facts concealed must, of course, be
determined objectively, by the judge ultimately.
WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of
the Court of Appeals dated 16 October 1989 in C.A.-G.R. SP No. 08696 is hereby
AFFIRMED. No pronouncement as to the costs.

Insurance Law case digests SY 2010-2011

Effect of partial payment of premium

PHILIPPINE PHOENIX SURETY & INSURANCE, INC. vs. WOODWORKS, INC.
G.R. No. L-22684, 31 August 1967
FACTS:
Plaintiff Philippine Phoenix Surety issued to defendant company a fire insurance policy
for the amount of P300,000.00. The defendant was obligated to pay P6,051.95 as
premium of the said policy. However, the defendant was only able to pay P3,000.00.
Despite several demands made by the plaintiff on the defendant to pay the amount of
P3,522.09, the latter failed to pay.
ISSUE:
Whether or not the insurance company has the right to demand the balance of the
premium
HELD:
YES. There is, consequently, no doubt at all that, as between the insurer and the insured,
there was not only a perfected contract of insurance but a partially performed one as far
as the payment of the agreed premium was concerned. Thereafter the obligation of the
insurer to pay the insured the amount for which the policy was issued in case the
conditions therefor had been complied with, arose and became binding upon it, while the
obligation of the insured to pay the remainder of the total amount of the premium due
became demandable.
As the contract had become perfected, the parties could demand from each other the
performance of whatever obligations they had assumed. In the case of the insurer, it is
obvious that it had the right to demand from the insured the completion of the payment of
the premium due or sue for the rescission of the contract. As it chose to demand specific
performance of the insureds obligation to pay the balance of the premium, the latters
duty to pay is indeed indubitable.
Wherefore, the appealed decision being in accordance with law and the evidence, the
same is hereby affirmed, with costs.

Insurance Law case digests SY 2010-2011

Incontestability Clause
EMILIO TAN vs. COURT OF APPEALS
G.R. No. 48049, 29 June 1989
FACTS:
Tan Lee Siong, father of herein petitioners, applied for life insurance in the amount of
P80,000.00 with respondent company Philippine American Life Insurance Company. Said
application was approved and a corresponding policy was issued effective November 5,
1973, with petitioners as the beneficiaries.
On April 26, 1975, Tan Lee Siong died of hepatoma. Hence, petitioners filed with
respondent company their claim for the proceeds of the life insurance policy. However,
the insurance company denied the said claim and rescinded the policy by reason of the
alleged misrepresentation and concealment of material facts made by the deceased Tan
Lee Siong in his application for insurance. The premiums paid on the policy were
thereupon refunded.
The petitioners contend that the respondent company no longer had the right to rescind
the contract of insurance as rescission must allegedly be done during the lifetime of the
insured within two years and prior to the commencement of action.
ISSUE:
Whether or not the insurance company has the right to rescind the contract of insurance
despite the presence of an incontestability clause
HELD:
YES. The so-called incontestability clause precludes the insurer from raising the
defenses of false representations or concealment of material facts insofar as health and
previous diseases are concerned if the insurance has been in force for at least two years
during the insureds lifetime. The phrase during the lifetime found in Section 48 of the
Insurance Law simply means that the policy is no longer considered in force after the
insured has died. The key phrase in the second paragraph of Section 48 is for a period
of two years.
The policy was issued on November 6, 1973 and the insured died on April 26, 1975. The
policy was thus in force for a period of only one year and five months. Considering that
the insured died before the two-year period has lapsed, respondent company is not,
therefore, barred from proving that the policy is void ab initio by reason of the insureds
fraudulent concealment or misrepresentation. Moreover, respondent company rescinded
the contract of insurance and refunded the premiums paid on November 11, 1975,
previous to the commencement of this action on November 27, 1975.
WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision
of the Court of Appeals is AFFIRMED.