1. Qua Chee Gan vs Law Union and Rock Insurance Co., Ltd.

Facts: Qua Chee Gan owns four warehouses in Albay. He was using these warehouses to
house crops like copra and hemp. All warehouses were insured by Law Union and Rock
Insurance for the amount of P370,000.00. The insurance states that Qua Chee Gan should
install 11 hydrants in the warehouses premises. Qua Chee Gan installed only two, but Law
Union nevertheless went on with the insurance policy and collected premiums from Qua
Chee Gan. The insurance contract also provides that oil should not be stored within the
premises of the warehouses.
In 1940, three of the warehouses were destroyed by fire. The damage caused amounted to
P398k. Qua Chee Gan demanded insurance pay from Law Union but the latter refused as it
alleged that after investigation from their part, they found out that Qua Chee Gan caused the
fire. Law Union in fact sued Qua Chee Gan for Arson.
Qua Chee Gan was acquitted in the arson case. He then demanded that Law Union pay up.
This time, Law Union averred that the insurance contract is void because Qua Chee Gan
failed to install 11 hydrants; and that gasoline was found in one of the warehouses.
ISSUE: Whether or not the insurance contract is void.
HELD: No. Law Union cannot exempt itself from paying Qua Chee Gan because it is estopped
from invoking the same. It is a well settled rule of law that an insurer which with knowledge
of facts entitling it to treat a policy as no longer in force, receives and accepts a premium on
the policy, estopped to take advantage of the forfeiture.
Also, gasoline is not one of those items specifically prohibited from the premises of
the warehouses. What was mentioned was the word oil which could mean
anything (from palm oil to lubricant and not gasoline or kerosene). This ambiguity is
to be interpreted against Law Union because a contract of insurance is a contract of
adhesion. Further, oil is incidental to Qua Chee Gans business, it being used for
motor fuel.
2. Ty v. Filipinas Compaia de Seguros
Facts:
> Ty was employed as a mechanic operator by Braodway Cotton Factory at Grace Park,
Caloocan.
> In 1953, he took personal accident policies from 7 insurance companies (6 defendants), on
different dates, effective for 12 mos.
> On Dec. 24. 1953, a fire broke out in the factory were Ty was working. A hevy object fell
on his hand when he was trying to put out the fire.
> From Dec. 1953 to Feb. 6, 1954 Ty received treatment at the Natl Orthopedic Hospital for
six listed injuries. The attending surgeon certified that these injuries would cause the
temporary total disability of Tys left hand.
> Insurance companies refused to pay Tys claim for compensation under the policies by
reason of said disability of his left hand. Ty filed a complaint in the municipal court who
decided in his favor.
> CFI reversed on the ground that under the uniform terms of the policies, partial disability
due to loss of either hand of the insured, to be compensable must be the result of
amputation.
Issue:
Whether or not Ty should be indemnified under his accident policies.

Held.
NO.
SC already ruled in the case of Ty v. FNSI that were the insurance policies define partial
disability as loss of either hand by amputation through the bones of the wrist, the insured
cannot recover under said policies for temporary disability of his left hand caused by the
fractures of some fingers. The provision is clear enough to inform the party entering into
that contract that the loss to be considered a disability entitled to indemnity, must be
severance or amputation of the affected member of the body of the insured.
3. Del Rosario v Equitable G.R. No. L-16215 June 29, 1963
Facts:
Equitables insurance policy covered indemnities for bodily injuries and deaths, however, it
never specificed an amount to be given in case of a persons death by drowning. It specified
amounts from 1,000 to 3,000 for other causes of death, however.
Francisico del Rosario died from drowning after jumping from a sinking ship. The insurer,
Equitable, agreed to pay Php 1,000 as the claim for an accident. His attorney, howvever,
contended that he amount should be greater under section 2, Php 1500. The issue was
resolved in the Insurance Commison, where it was held that Section 1, under the provisions
applied. (Php 1,000 as indemnity) The lawyer still didint agree and instituted a suit. The trail
court held that the company had the discretion to pay from Php 1,000 to 3,000 for death by
drowning since there was no fixed amount for this type of death. The amended decision
ordered the company to pay Php 2,000
Issue: What should the amount be?
Held: Judgment affirmed. Still 2,000.
Ratio:
The interpretation of obscure stipulations in a contract should not favor the party who cause
the obscurity.
Ambigious terms in a policy are to be construed strictly against, the insurer, and liberally in
favor of the insured for the payment of indemnity where forfeiture is involved. The company
takes great care in the wording and has legal advisers who create the contracts to the benefit
of the company.
Trial court ruling are well considered because they are supported by doctrines on insurance
resolving cases against the party who caused the ambiguity in the wording of the contracts
terms. This was also due to the fact that the insured didnt have much of a say in formulating
the contract.
4. Misamis v Capital Insurance
Facts:
Misamis Lumber Company insured its Ford Falcon to Capital Insurance for P 14,000. One day,
the cars crank and flywheel broke when it passed over a water hole in Aurora
Boulevard. Misamis sent it to be repaired at the cost of 302 pesos. However, Capital did not
want to pay the entire amount because the repair limit in the contract stipulated up to 150
pesos only. Misamis filed suit.
The lower court ruled against the insurance corporation because the company did not show
that the cost was excessive. Also , the court ruled that absolving the company of the excess

amount would make the contract one sided.

Issue: Is the insurance company liable for more than the amount in the repair limit?
Held: No. Insurance company only ordered to pay 150 pesos.
Ratio:
Paragraph 4, subpar a. of the insurance contract is clear and specific. It authorizes up to 150
pesos only as a repair limit.
The lower court did not heed the express stipulation in the agreement. The policy specifically
noted the mechanics for repair in par. 2 and the limits of the liability in par 4. The company
didnt notify the insurance provider before it did the repairs. Also, even if the contract is
onerous, this doesnt justify its abrogation.
5. Verendia v. CA
Facts:
> Fidelity and Surety Insurance Company (Fidelity) issued Fire Insurance Policy No. F-18876
effective between June 23, 1980 and June 23, 1981 covering Rafael (Rex) Verendia's
residential in the amount of P385,000.00. Designated as beneficiary was the Monte de
Piedad & Savings Bank.
> Verendia also insured the same building with two other companies, namely, The Country
Bankers Insurance for P56,000.00 and The Development Insurance for P400,000.00.
> While the three fire insurance policies were in force, the insured property was completely
destroyed by fire.
> Fidelity appraised the damage amounting to 385,000 when it was accordingly informed of
the loss. Despite demands, Fidelity refused payment under its policy, thus prompting
Verendia to file a complaint for the recovery of 385,000
> Fidelity, averred that the policy was avoided by reason of over-insurance, that Verendia
maliciously represented that the building at the time of the fire was leased under a contract
executed on June 25, 1980 to a certain Roberto Garcia, when actually it was a Marcelo Garcia
who was the lessee.
Issue:
Whether or not Verendia can claim on the insurance despite the misrepresentation as to the
lessee and the overinsurance.
Held:
NOPE.
The contract of lease upon which Verendia relies to support his claim for insurance benefits,
was entered into between him and one Robert Garcia, a couple of days after the effectivity of
the insurance policy. When the rented residential building was razed to the ground, it
appears that Robert Garcia was still within the premises. However, according to the
investigation by the police, the building appeared to have "no occupants" and that Mr.
Roberto Garcia was "renting on the otherside of said compound" These pieces of evidence
belie Verendia's uncorroborated testimony that Marcelo Garcia whom he considered as the
real lessee, was occupying the building when it was burned.
Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the

lease contract but it was Marcelo Garcia cousin of Robert, who had also been paying the
rentals all the while. Verendia, however, failed to explain why Marcelo had to sign his
cousin's name when he in fact he was paying for the rent and why he (Verendia) himself, the
lessor, allowed such a ruse. Fidelity's conclusions on these proven facts appear, therefore, to
have sufficient bases: Verendia concocted the lease contract to deflect responsibility for the
fire towards an alleged "lessee", inflated the value of the property by the alleged monthly
rental of P6,500) when in fact, the Provincial Assessor of Rizal had assessed the property's
fair market value to be only P40,300.00, insured the same property with two other insurance
companies for a total coverage of around P900,000, and created a dead-end for the adjuster
by the disappearance of Robert Garcia.
Basically a contract of indemnity, an insurance contract is the law between the parties. Its
terms and conditions constitute the measure of the insurer's liability and compliance
therewith is a condition precedent to the insured's right to recovery from the. As it is also a
contract of adhesion, an insurance contract should be liberally construed in favor of the
insured and strictly against the insurer company which usually prepares it
.
Considering, however, the foregoing discussion pointing to the fact that Verendia used a false
lease contract to support his claim under Fire Insurance Policy, the terms of the policy should
be strictly construed against the insured. Verendia failed to live by the terms of the policy,
specifically Section 13 thereof which is expressed in terms that are clear and unambiguous,
that all benefits under the policy shall be forfeited "if the claim be in any respect fraudulent,
or if any false declaration be made or used in support thereof, or if any fraudulent means or
devises are used by the Insured or anyone acting in his behalf to obtain any benefit under the
policy". Verendia, having presented a false declaration to support his claim for benefits in the
form of a fraudulent lease contract, he forfeited all benefits therein by virtue of Section 13 of
the policy in the absence of proof that Fidelity waived such provision
There is also no reason to conclude that by submitting the subrogation receipt as evidence in
court, Fidelity bound itself to a "mutual agreement" to settle Verendia's claims in
consideration of the amount of P142,685.77. While the said receipt appears to have been a
filled-up form of Fidelity, no representative of Fidelity had signed it. It is even incomplete as
the blank spaces for a witness and his address are not filled up. More significantly, the same
receipt states that Verendia had received the aforesaid amount. However, that Verendia had
not received the amount stated therein, is proven by the fact that Verendia himself filed the
complaint for the full amount of P385,000.00 stated in the policy. It might be that there had
been efforts to settle Verendia's claims, but surely, the subrogation receipt by itself does not
prove that a settlement had been arrived at and enforced. Thus, to interpret Fidelity's
presentation of the subrogation receipt in evidence as indicative of its accession to its
"terms" is not only wanting in rational basis but would be substituting the will of the Court
for that of the parties
6. GULF RESORTS, INC. VS. PHILIPPINE CHARTER INSURANCE CORPORATION
FACTS:
Plaintiff Gulf Resorts is the owner of the Plaza Resort situated at Agoo, La Union and had its
properties in said resort insured originally with the American Home Assurance Company or
AHAC-AIU. In the first four insurance policies issued by AHAC- AIU the risk of loss from
earthquake shock was extended to only the plaintiffs two swimming pools, thus,
earthquake shock endt. Subsequently, AHAC-AIU issued in the plaintiffs favor Policy

number 206-4182383-0 covering the period March 14, 1988 to March 14, 1989 and in the
said policy, the earthquake endorsement clause was deleted and the entry under
Endorsements/Warranties at the time of issue read that plaintiff renewed its policy with
AHAC-AIU for the period of March 14, 1989 to March 14, 1990 under policy number 2064568061-9 which carried the entry under Endorsement/Warranties at Time of Issue which
read Endorsement to Include Earthquake Shock in the amount of P10,700 and paid
P42,658.14 as premium thereof.
The plaintiff agreed to insure with defendant the properties covered by AHAC- AIU Policy
number 206-4568061-9 provided that the policy wording and rates in the said policy be
copied in the policy to be issued by defendant. The defendant then issued Policy number
31944 to plaintiff covering the period of March 14, 1990 to March 14, 1991 for P10,700,600
for a total premium of P45,159.92. In Policy number 31944 issued by defendant, the shock
endorsement provide:
In consideration of the payment by the insured to the company of the sum included
additional premium the Company agrees, notwithstanding what is stated in the printed
conditions of this policy due to the contrary, that this insurance covers loss or damage to
shock to any of the property insured by this Policy occasioned by or through or in
consequence of earthquake.
That in the said policy, the word included was deleted. On July 16, 1990 an earthquake
struck Central Luzon and Northern Luzon and the plaintiffs properties covered by Policy No.
31944 issued by defendant, including the two swimming pools in its Agoo Playa Resort were
damaged.
After the earthquake, petitioner advised respondent that it would be making a claim under
its Insurance Policy No. 31944 for damages on its properties. Respondent instructed
petitioner to file a formal claim, then assigned the investigation of the claim to an
independent claims adjuster. On July 30, 1990, respondent through its adjuster, requested
petitioner to submit various documents in support of its claim. Subsequently, the adjuster
rendered a decision saying except for the swimming pools, all affected items have no
coverage for earthquake shocks. Petitioner then filed its formal demand for settlement for
the damage to all its properties in the Agoo Playa Resort.
The regional trial court ruled in favor of respondent stating that only the 2 swimming pools
had earthquake shock coverage. Upon appeal, the appellate court affirmed the decision of
the trial court.
ISSUE: Whether or not the other properties in the Agoo Playa Resort are included in the
earthquake shock coverage of the said insurance policy
HELD: It is basic that all the provisions of the insurance policy should be examined and
interpreted in consonance with each other. All its parts are reflective of the true intent of the
parties. The policy cannot be construed piecemeal.
Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other
provisions. All the provisions and riders, taken and interpreted together, indubitably show
the intention of the parties to extend earthquake shock coverage to the two swimming pools
only.
A careful examination of the premium recapitulation will show that it is the clear intent of
the parties to extend earthquake coverage shock only to the 2 swimming pools. Section 2(1)
of the Insurance Code defines a contract of insurance as an agreement whereby one

undertakes for a consideration to indemnify another against loss, damage or liability arising
from an unknown or contingent event. Thus, an insurance contract exists where the
following elements concur:
1. the insured has an insurable interest
2. the insured is subject to a risk of loss by the happening of the designated peril
3. the insurer assumes the risk
4. such assumption of risk is part of a general scheme to distribute actual losses
among a large group of persons bearing similar risk
5. in consideration of the insurers promise, the insured pays a premium an insurance
premium is the consideration paid an insurer for undertaking to indemnify the
insured against a specified peril.
In the subject policy, no premium payments were made with regard to earthquake
shock coverage, except on the 2 swimming pools. There is no mention of any premium
payable for the other resort properties with regard to earthquake shock. This is
consistent with the history of petitioners previous insurance policies from AHAC-AIU.
Hence, the judgment of the Court of Appeals is affirmed.
7. WHITE GOLD MARINE SERVICES, INC., petitioner vs. PIONEER INSURANCE AND SURETY
CORPORATION and THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA)
LTD., respondents
FACTS: White Gold procured a protection and indemnity coverage for its vessels from The
Steamship Mutual through Pioneer. It was issued a Certificate of Entry and Acceptance.
Pioneer also issued receipts evidencing payments. When White Gold failed to fully pay its
accounts, Steamship Mutual refused to renew the coverage.
Steamship Mutual filed a case against White Gold for collection of sum of money. White Gold
filed a complaint before the Insurance Commission claiming that Steamship Mutual violated
Sections 186 and 187 of the Insurance Code, while Pioneer violated Sections 299-301 in
relation to Sections 302-303. It was dismissed, ruling that there was no need for Steamship
Mutual to secure a license because it was not engaged in the insurance business, as a
Protection and Indemnity Club (P & I Club). Pioneer also need not obtain another license as
insurance agent and/or a broker for Steamship Mutual. Moreover, Pioneer was already
licensed. CA affirmed. Hence, the petition.
A P & I Club is an association composed of ship owners in general who band together for the
specific purpose of providing insurance cover on a mutual basis against liabilities incidental to
ship owning that the members incur in favor of third parties. As a P & I Club, Steamship
Mutuals primary purpose is to solicit and provide protection and indemnity coverage and for
this purpose, it has engaged the services of Pioneer to act as its agent.
ISSUE: Whether Steamship Mutual, a P & I Club, is engaged in the insurance business in the
Philippines. YESWhether Pioneer needs a license as an insurance agent/broker for
Steamship Mutual. YES
HELD: Section 2 (2) of the Insurance Code enumerates what constitutes doing an insurance
business or transacting 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. A mutual insurance company is a
cooperative enterprise where the members are both the insurer and insured. Additionally,
mutual insurance associations, or clubs, provide three types of coverage, namely, protection
and indemnity, war risks, and defense costs.
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.
Thus, to continue doing business here, Steamship Mutual or through its agent Pioneer, must
secure a license from the Insurance Commission. Since a contract of insurance involves public
interest, regulation by the State is necessary. Thus, no insurer or insurance company is
allowed to engage in the insurance business without a license or a certificate of authority
from the Insurance Commission.
Although Pioneer is already licensed as an insurance company, it needs a separate license to
act as insurance agent for Steamship Mutual. CA decision REVERSED AND SET ASIDE.
Steamship Mutual and Pioneer are ORDERED to obtain licenses.
8. ETERNAL VS. PHILAMLIFE
FACTS: Respondent Philamlife entered into an agreement denominated as Creditor Group
Life Policy with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the
policy, the clients of Eternal who purchased burial lots from it on installment basis would be
insured by Philamlife. The amount of insurance coverage depended upon the existing
balance of the purchased burial lots.
The relevant provisions of the policy are:ELIGIBILITY.xxE VIDENCE OF
INSURABILITY.xxLIFE INSURANCE BENEFIT.x x EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan
with the Assured. However, there shall be no insurance if the application of the Lot Purchaser
is not approved by the Company.
xxEternal was required under the policy to submit to Philamlife a list of all new lot
purchasers, together with a copy of the application of each purchaser, and the amounts of
the respective unpaid balances of all insured lot purchasers. Eternal complied by submitting a
letter dated December 29, 1982, containing a list of 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 balance of payments was 100K. on August 2, 1984, Chuang died.
Eternal sent a letter dated to Philamlife, which served as an insurance claim for Chuangs
death. Attached to the claim were certain documents. In reply, Philamlife wrote Eternal a
letter requiring Eternal to submit the additional documents relative to its insurance claim for
Chuangs death. Eternal transmitted the required documents through a letter which was
received by Philamlife.
After more than a year, Philamlife had not furnished Eternal with any reply to the latters
insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim
for PhP 100,000.In response to Eternals demand, Philamlife denied Eternals insurance
claim in a letter a portion of which reads:

The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal
Gardens Memorial Park in October 1982 for the total maximum insurable amount of
P100,000.00 each. No application for Group Insurance was submitted in our office prior to his
death on August 2, 1984
Eternal filed a case with the RTC for a sum of money against Philamlife, which decided in
favor of Eternal, ordering Philamlife to pay the former 100K representing the proceeds of the
policy. CA reversed. Hence this petition.

ISSUE: WON Philamlife should pay the 100K insurance proceeds

HELD: Petition granted.
YES. An examination of the provision of the POLICY under effective date of benefit, would
show ambiguity between its two sentences. The first sentence appears to state that the
insurance coverage of the clients of Eternal already became effective upon contracting a loan
with Eternal while the second sentence appears to require Philamlife to approve the
insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract of adhesion which must be
construed liberally in favor of the insured and strictly against the insurer in order to
safeguard the latters interest.
On the other hand, the seemingly conflicting provisions must be harmonized to mean that
upon a partys purchase of a memorial lot on installment from Eternal, an insurance contract
covering the lot purchaser is created and the same is effective, valid, and binding until
terminated by Philamlife by disapproving the insurance application. The second sentence of
the Creditor Group Life Policy 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.
9. Philamcare v CA, G.R. No. 125678. March 18, 2002
Facts: Ernani Trinos applied for a health care coverage with Philam. He answered no to a
question asking if he or his family members were treated to heart trouble, asthma, diabetes,
etc.The application was approved for 1 year. He was also given hospitalization benefits and
out-patient benefits. After the period expired, he was given an expanded coverage for Php
75,000. During the period, he suffered from heart attack and was confined at MMC. The wife
tried to claim the benefits but the petitioner denied it saying that he concealed his medical
history by answering no to the aforementioned question. She had to pay for the hospital bills
amounting to 76,000. Her husband subsequently passed away. She filed a case in the trial
court for the collection of the amount plus damages. She was awarded 76,000 for the bills
and 40,000 for damages. The CA affirmed but deleted awards for damages. Hence, this
appeal.
Issue: WON a health care agreement is not an insurance contract; hence the incontestability
clause under the Insurance Code does not apply.
H e l d : No. Petition dismissed.
Ratio: Petitioner claimed that it granted benefits only when the insured is alive during the
one-year duration. It contended that there was no indemnification unlike in insurance
contracts. It supported this claim by saying that it is a health maintenance organization
covered by the DOH and not the Insurance Commission. Lastly, it claimed that the

Incontestability clause didnt apply because two-year and not one-year effectivity periods
were required.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event.Section 3 states: every person has an
insurable interest in the life and health:
(1) of himself, of his spouse and of his children.In this case, the husbands health was the
insurable interest. The health care agreement was in the nature of non-life insurance, which
is primarily a contract of indemnity. The provider must pay for the medical expenses resulting
from sickness or injury.While petitioner contended that the husband concealed material
fact of his sickness, the contract stated that: that any physician is, by these presents,
expressly authorized to disclose or give testimony at anytime relative to any information
acquired by him in his professional capacity upon any question affecting the eligibility for
health care coverage of the Proposed Members.
This meant that the petitioners required him to sign authorization to furnish reports about
his medical condition. The contract also authorized Philam to inquire directly to his medical
history.
Hence, the contention of concealment isnt valid.
They cant also invoke the Invalidation of agreement clause where failure of the insured to
disclose information was a grounds for revocation simply because the answer assailed by the
company was the heart condition question based on the insureds opinion. He wasnt a
medical doctor, so he cant accurately gauge his condition.
Henrick v Fire - in such case the insurer is not justified in relying upon such statement, but is
obligated to make further inquiry.Fraudulent intent must be proven to rescind the
contract. This was incumbent upon the provider.
Having assumed a responsibility under the agreement, petitioner is bound to answer the
same to the extent agreed upon. In the end, the liability of the health care provider attaches
once the member is hospitalized for the disease or injury covered by the agreement or
whenever he avails of the covered benefits which he has prepaid. Section 27 of the
Insurance Code- a concealment entitles the injured party to rescind a contract of insurance.
As to cancellation procedure- Cancellation requires certain conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or
more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the
policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code
and upon request of insured, to furnish facts on which cancellation is based
None were fulfilled by the provider.
As to incontestability- The trial court said that under the title Claim procedures of expenses,
the defendant Philamcare Health Systems Inc. had twelve months from the date of issuance
of the Agreement within which to contest the membership of the patient if he had previous
ailment of asthma, and six months from the issuance of the agreement if the patient was sick
of diabetes or hypertension. The periods having expired, the defense of concealment or
misrepresentation no longer lie.

Philhealth a formal demand letter and the corresponding assessment notices demanding the
payment of deficiency taxes for the taxable years 1996 and 1997 in the total amount of
P224,702,641.18. Philhealth protested the assessment and, as CIR did not act on the protest,
Philhealth filed a petition for review in the Court of Tax Appeals (CTA) seeking the
cancellation of the deficiency VAT and DST (documentary stamp tax) assessments. CTA
rendered a decision ordering the Philhealth to pay the deficiency VAT for 1996 and 1997 and
canceling the 1996 and 1997 deficiency DST assessment against it.
CIR appealed the CTA decision to CA insofar as it cancelled the DST assessment claiming that
petitioners health care agreement was a contract of insurance subject to DST under Section
185 of the 1997 Tax Code.
CA reversed the decision of CTA and upheld that the petitioners health care agreement was
in the nature of non-life insurance contract subject to DST.

10. PHILHEALTH CARE PROVIDERS vs. CIR

G.R. No. 167330 September 18, 2009
FACTS: On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent

indemnification of loss (which are elements of an insurance business) are the principal object and purpose of the
organization or whether they are merely incidental to its business. If these are the principal objectives, the business is
that of insurance. But if they are merely incidental and service is the principal purpose, then the business is not
insurance.

ISSUES:
1. WON the respondent is a Health Maintenance Organization (HMO)
2. WON petitioner, as an HMO, engaged in the business of insurance during the pertinent
taxable years
3. WON a health care agreement is an insurance contract.
HELD:
1. Philhealth is admittedly an HMO. Under RA 7875 (or "The National Health
Insurance Act of 1995"), an HMO is an entity that provides, offers or arranges for coverage
of designated health services needed by plan members for a fixed prepaid premium.
2. NO, Philhealth is not engaged in the business of insurance. Pursuant to the principal
object and purpose test adopted by the Supreme Court, the primary purpose of a medical
service corporation, such as Philhealth, is NOT the assumption of risk and indemnification,
but rather to provide physicians who will render services to subscribers on a prepaid basis. In
fact, a substantial portion of petitioners services covers preventive and diagnostic medical
services intended to keep members from developing medical conditions or diseases. As an
HMO, it is its obligation to maintain the good health of its members. Accordingly, its health
care programs are designed to prevent or to minimize the possibility of any assumption of
risk on its part. Thus, its undertaking under its agreements is not to indemnify its members
against any loss or damage arising from a medical condition but, on the contrary, to provide
the health and medical services needed to prevent such loss or damage. Petitioner, as an
HMO, is not part of the insurance industry. This is evident from the fact that it is not
supervised by the Insurance Commission but by the Department of Health.
3. NO, a healthcare agreement is not an insurance contract. The agreements between the
petitioner and its members do not possess all the elements of an insurance contract provided
in Sec. 2(1) of the Insurance Code because the healthcare's primary purpose is to render
service and not to assume risk and indemnify another. Also, there is nothing in petitioner's
agreements that gives rise to a monetary liability on the part of the member to any third
party-provider of medical services which might in turn necessitate indemnification from
petitioner. The terms "indemnify" or "indemnity" presuppose that a liability or claim has
already been incurred. There is no indemnity precisely because the member merely avails of
medical services to be paid or already paid in advance at a pre-agreed price under the
agreements.
NOTE: Principal object and purpose test of United State jurisprudence, to wit: whether the assumption of risk and