Blue Cross v Olivares G.R. No.
169737, February invocation of the privilege made the report adverse to
12, 2008J. Corona
Facts:
Neomi Olivares applied for a health care
program with Blue Cross for the amount of 12,000
pesos. 38 days after she applied, she suffered from a
stroke. Ailments due to “pre-existing conditions” were
excluded from the coverage. She was confined in
Medical City and discharged with a bill of Php
34,000. Blue Cross refused to pay unless she had her
physician’s certification that she was suffering from a
pre-existing condition. When Blue Cross still refused
to pay, she filed suit in the MTC. The health care
company rebutted by saying that the physician didn’t
disclose the condition due to the patient’s invocation
of the doctor-client privilege. The MTC dismissed for a
lack of cause of action because the physician didn’t
disclose the condition. In the RTC, the spouses
were awarded the amount of the hospital bills plus
60,000 in damages. This was under the ratio that the
burden to prove that Neomi had a pre-existing
condition was under Blue Cross. The CA denied the
motion for reconsideration of the health care
company.
Issues:
1. Whether petitioner was able to prove that
respondent Neomi's stroke was caused by a pre-
existing condition and therefore was excluded from
the coverage of the health care agreement.
2. Whether it was liable for moral and
exemplary damages and attorney's fees.
Held: No. Yes. Petition dismissed.
Ratio:
1. “Philamcare Health Systems, Inc. v. CA- a health
care agreement is in the nature of a non-life
insurance. It is an established rule in
insurance contracts that when their terms contain
limitations on liability, they should be construed strictly
against the insurer. These are contracts of adhesion
the terms of which must be interpreted and enforced
stringently against the insurer which prepared the
contract. This doctrine is equally applicable to health
care agreements.”
The agreement defined a pre-existing condition as:
“a disability which existed before the commencement
date of membership whose natural history can be
clinically determined, whether or not the Member was
aware of such illness or condition. Such conditions
also include disabilities existing prior to reinstatement
date in the case of lapse of an Agreement.”
“Under this provision, disabilities which existed before
the commencement of the agreement are excluded
from its coverage if they become manifest within one
year from its effectivity.”
Petitioners still averred that the non-disclosure of the
pre-existing condition made a presumption in its favor.
Respondents still maintained that the petitioner had
the duty to prove its accusation.
Petitioner never presented evidence to prove its
presumption that the Doctor’s report would work
against Neomi. They only perceived that the
Neomi and such was a disreputable presumption.
They should have made an independent assessment
of Neomi’s condition when it failed to obtain the
report. They shouldn’t have waited for the attending
physician’s report to come out.
Section 3 (e), Rule 131 of the Rules of Court states:
Under the rules of court, Rule 131, Sec. 3.
Disputable presumptions. ― The following
presumptions are satisfactory if uncontradicted, but
may be contradicted and overcome by other
evidence:
(e) That evidence willfully suppressed would be
adverse if produced.
The exception on presenting evidence applies when
the suppression is an exercise of a privilege.
Hence, Neomi had the privilege not to present the
Doctor’s report under the doctor-client privilege.
2. The court quoted the CA and RTC decision stating
that “ the refusal of petitioner to pay respondent
Neomi's bills smacks of bad faith, as its refusal [was]
merely based on its own perception that a stroke is a
pre-existing condition.” Also, there was factual bases
in the RTC and CA for the award of the damages.
CONCEALMENT MADE IN GOOD FAITH; VALID
INSURACE CONTRACT
PHILAMCARE HEALTH SYSTEMS, INC. VS. CA &
JULITA RAMOS
G.R. No.125678, March 18, 2002
Facts:
Ernani Trinos, deceased husband of Julita Ramos,
applied for a health care coverage with the petitioner
Philamcare. In the standard application form, he
delivered no to a question asking him if he had been
treated of any of the family member consulted for high
blood, heart trouble, diabetes, cancer, liver disease,
asthma or ulcer. The application was approved for a
period of 1 year from and thus extended to June 1,
1990. During the period of coverage, Ernani suffered
a heart attack and was confined for one month.
Respondent Julita Ramos tried to claim saying that
the health care Agreement was void as there was
concealment regarding Ernani’s medical history. On
July 24, 1990, after Ernani died, Julita Ramos
instituted an action for damages against Philam care
with the RTC Manila, which ruled against the latter.
Issue:
Whether or not there is a valid insurance contract
because of alleged concealment of material fact.
Held:
The Supreme Court ruled that there is a valid
insurance contract, after all, all the elements for an
insurance contract are contract are present and
alleged concealment answers made in good faith and
without intent to deceive will not avoid the policy. The
insurer, in case of material fact, is not justified in
relying upon such statement, but obligated to make
further inquiry.
 of the Insurance Code enumerates the coverage of
marine insurance.
WHITE GOLD MARINE SERVICES, INC. VS. A P & I Club is “a form of insurance against third party
PIONEER INSURANCE AND SURETY liability, where the third party is anyone other than the
CORPORATION AND THE STEAMSHIP MUTUAL P & I Club and the members. By definition then,
UNDERWRITING ASSOCIATION (BERMUDA) LTD. Steamship Mutual as a P & I Club is a mutual
G.R. No. 154514. July 28, 2005 insurance association engaged in the marine
Facts: insurance business.
White Gold Marine Services, Inc. procured a The records reveal Steamship Mutual is doing
protection and indemnity coverage for its vessels from business in the country albeit without the requisite
The Steamship Mutual Underwriting Association certificate of authority mandated by Section 187 of the
Limited through Pioneer Insurance and Surety Insurance Code. It maintains a resident agent in the
Corporation. White Gold was issued a Certificate of Philippines to solicit insurance and to collect
Entry and Acceptance. Pioneer also issued receipts payments in its behalf. We note that Steamship
evidencing payments for the coverage. When White Mutual even renewed its P & I Club cover until it was
Gold failed to fully pay its accounts, Steamship Mutual cancelled due to non-payment of the calls. Thus, to
refused to renew the coverage. continue doing business here, Steamship Mutual or
Steamship Mutual thereafter filed a case against through its agent Pioneer, must secure a license from
White Gold for collection of sum of money to recover the Insurance Commission.
the latter’s unpaid balance. White Gold on the other Since a contract of insurance involves public interest,
hand, filed a complaint before the Insurance regulation by the State is necessary. Thus, no insurer
Commission claiming that Steamship Mutual violated or insurance company is allowed to engage in the
Sections 186 and 187, while Pioneer violated insurance business without a license or a certificate of
Sections 299, to 301 of the Insurance Code. authority from the Insurance Commission.
The Insurance Commission dismissed the complaint. On the second issue, Pioneer is the resident agent of
It said that there was no need for Steamship Mutual to Steamship Mutual as evidenced by the certificate of
secure a license because it was not engaged in the registration issued by the Insurance Commission. It
insurance business. It explained that Steamship has been licensed to do or transact insurance
Mutual was a Protection and Indemnity Club. business by virtue of the certificate of authority issued
Likewise, Pioneer need not obtain another license as by the same agency. However, a Certification from the
insurance agent and/or a broker for Steamship Mutual Commission states that Pioneer does not have a
because Steamship Mutual was not engaged in the separate license to be an agent/broker of Steamship
insurance business. Moreover, Pioneer was already Mutual. Although Pioneer is already licensed as an
licensed; hence, a separate license solely as insurance company, it needs a separate license to act
agent/broker of Steamship Mutual was already as insurance agent for Steamship Mutual.
superfluous.
The Court of Appeals affirmed the decision of the
Insurance Commissioner. In its decision, the appellate
court distinguished between P & I Clubs vis-à-vis
conventional insurance. The appellate court also held
that Pioneer merely acted as a collection agent of
Steamship Mutual.
Issues:
(1) Is Steamship Mutual, a P & I Club, engaged in the
insurance business in the Philippines?
(2) Does Pioneer need a license as an insurance
agent/broker for Steamship Mutual?
Held:
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
PHILIPPINE CHARTER INSURANCE CORPORATION VS.
CHEMOIL LIGHTERAGE HITE GOLD CORPORATION
G.R. No. 136888. June 29, 2005
Facts:
Philippine Charter Insurance Corporation is a domestic
corporation engaged in the business of non-life insurance.
Respondent Chemoil Lighterage Corporation is also a
domestic corporation engaged in the transport of goods. On
24 January 1991, Samkyung Chemical Company, Ltd.,
based in South Korea, shipped 62.06 metric tons of the
liquid chemical DIOCTYL PHTHALATE (DOP) on board MT
“TACHIBANA” which was valued at US$90,201.57 and
another 436.70 metric tons of DOP valued at
US$634,724.89 to the Philippines. The consignee was
Plastic Group Phils., Inc. in Manila. PGP insured the cargo
with Philippine Charter Insurance Corporation against all
risks. The insurance was under Marine Policies No. MRN-
30721[5] dated 06 February 1991. Marine Endorsement No.
2786[7] dated 11 May 1991 was attached and formed part of
MRN-30721, amending the latter’s insured value to
P24,667,422.03, and reduced the premium accordingly. The
ocean tanker MT “TACHIBANA” unloaded the cargo to the
tanker barge, which shall transport the same to Del Pan
Bridge in Pasig River and haul it by land to PGP’s storage
tanks in Calamba, Laguna. Upon inspection by PGP, the
samples taken from the shipment showed discoloration
demonstrating that it was damaged. PGP then sent a letter
where it formally made an insurance claim for the loss it
sustained.
Petitioner requested the GIT Insurance Adjusters, Inc. (GIT),
to conduct a Quantity and Condition Survey of the shipment
which issued a report stating that DOP samples taken were
discolored. Inspection of cargo tanks showed manhole
covers of ballast tanks’ ceilings loosely secured and that the
rubber gaskets of the manhole covers of the ballast tanks re-
acted to the chemical causing shrinkage thus, loosening the
covers and cargo ingress. Petitioner paid PGP the full and
final payment for the loss and issued a Subrogation Receipt.
Meanwhile, PGP paid the respondent the as full payment for
the latter’s services. On 15 July 1991, an action for damages
was instituted by the petitioner-insurer against respondent-
carrier before the RTC, Br.16, City of Manila. Respondent
filed an answer which admitted that it undertook to transport
the shipment, but alleged that before the DOP was loaded
into its barge, the representative of PGP, Adjustment
Standard Corporation, inspected it and found the same
clean, dry, and fit for loading, thus accepted the cargo
without any protest or notice. As carrier, no fault and
negligence can be attributed against respondent as it
exercised extraordinary diligence in handling the cargo. After
due hearing, the trial court rendered a Decision in favor of
plaintiff. On appeal, the Court of Appeals promulgated its
Decision reversing the trial court. A petition for review on
certiorar[ was filed by the petitioner with this Court.
Issues:
1. Whether or not the Notice of Claim was filed within the
required period.
2.Whether or not the damage to the cargo was due to the
fault or negligence of the respondent.
Held:
Article 366 of the Code of Commerce has profound
application in the case at bar, which provides that; “Within
twenty-four hours following the receipt of the merchandise a
claim may be made against the carrier on account of
damage or average found upon opening the packages,
provided that the indications of the damage or average
giving rise to the claim cannot be ascertained from the
exterior of said packages, in which case said claim shall only
be admitted at the time of the receipt of the packages.” After
the periods mentioned have elapsed, or after the
transportation charges have been paid, no claim whatsoever
shall be admitted against the carrier with regard to the
condition in which the goods transported were delivered.
As to the first issue, the petitioner contends that the notice of
contamination was given by PGP employee, to Ms.
Abastillas, at the time of the delivery of the cargo, and
therefore, within the required period. The respondent,
however, claims that the supposed notice given by PGP over
the telephone was denied by Ms. Abastillas. The Court of
Appeals declared: that a telephone call made to defendant-
company could constitute substantial compliance with the
requirement of notice. However, it must be pointed out that
compliance with the period for filing notice is an essential
part of the requirement, i.e.. immediately if the damage is
apparent, or otherwise within twenty-four hours from receipt
of the goods, the clear import being that prompt examination
of the goods must be made to ascertain damage if this is not
immediately apparent. We have examined the evidence, and
We are unable to find any proof of compliance with the
required period, which is fatal to the accrual of the right of
action against the carrier.[27]
Nothing in the trial court’s decision stated that the notice of
claim was relayed or filed with the respondent-carrier
immediately or within a period of twenty-four hours from the
time the goods were received. The Court of Appeals made
the same finding. Having examined the entire records of the
case, we cannot find a shred of evidence that will precisely
and ultimately point to the conclusion that the notice of claim
was timely relayed or filed.
The requirement that a notice of claim should be filed within
the period stated by Article 366 of the Code of Commerce is
not an empty or worthless proviso.
The object sought to be attained by the requirement of the
submission of claims in pursuance of this article is to compel
the consignee of goods entrusted to a carrier to make
prompt demand for settlement of alleged damages suffered
by the goods while in transport, so that the carrier will be
enabled to verify all such claims at the time of delivery or
within twenty-four hours thereafter, and if necessary fix
responsibility and secure evidence as to the nature and
extent of the alleged damages to the goods while the matter
is still fresh in the minds of the parties.
The filing of a claim with the carrier within the time limitation
therefore actually constitutes a condition precedent to the
accrual of a right of action against a carrier for loss of, or
damage to, the goods. The shipper or consignee must allege
and prove the fulfillment of the condition. If it fails to do so,
no right of action against the carrier can accrue in favor of
the former. The aforementioned requirement is a reasonable
condition precedent; it does not constitute a limitation of
action.[31]
We do not believe so. As discussed at length above, there is
no evidence to confirm that the notice of claim was filed
within the period provided for under Article 366 of the Code
of Commerce. Petitioner’s contention proceeds from a false
presupposition that the notice of claim was timely
filed.Considering that we have resolved the first issue in the
negative, it is therefore unnecessary to make a resolution on
the second issue.
EXEMPTION SHOULD BE PROVEN IN ORDER TO
QUALIFY UNDEREXCEPTION CLAUSE OF
INSURANCE POLICY
COUNTRY BANKERS INSURANCE CORP. VS.
LIANGA BAY & COMMUNITY MULTI-PURPOSE
COOPERATIVE, INC.G.R. No.136914, January 25,
2002
Facts:
Country Banker’s Insurance Corp. (CBIC) insured the
building of respondent Lianga Bay and Community
Multi-Purpose Corp., Inc. against fire, loss, damage,
or liability during the period starting June 20, 1990 for
the sum of Php.200,000.00. On July 1, 1989 at about
12:40 in the morning a fire occurred. The respondent
filed the insurance claim but the petition denied the
same on the ground that the building was set on fire
by two NPA rebels and that such loss was an
excepted risk under par.6 of the conditions of the
insurance policy that the insurance does not cover
any loss or damage occasioned by among others,
mutiny, riot, military or any uprising. Respondent filed
an action for recovery of loss, damage or liability
against petitioner and the Trial Court ordered the
petition to pay the full value of the insurance.
Issue:
Whether or not the insurance corporation is exempted
to pay based on the exception clause in the insurance
policy.
Held:
The Supreme Court held that the insurance
corporation has the burden of proof to show that the
loss comes within the purview of the exception or
limitation set-up. But the insurance corporation cannot
use a witness to prove that the fire was caused by the
NPA rebels on the basis that the witness learned this
from others. Such testimony is considered hearsay
and may not be received as proof of the truth of what
he has learned. The petitioner, failing to prove the
exception, cannot rely upon on exemption or
exception clause in the fire insurance policy. The
petition was granted.
Gaisano Cagayan, Inc. vs Insurance Company of
North America
Facts:-
Intercapitol Marketing Corporation (IMC) is a maker of
Wrangler Blue Jeans. Levi Strauss (Phils.) Inc.(LSPI) is
the local distributor of products bearing trademarks
owned by Levi Strauss and Co. IMC and LSPI both
obtained from respondent fire insurance policies with
book debt endorsements. It provides for coverage on
book debts in connection with ready-made clothing
materials which have been sold or delivered to various
customers and dealers of the insured everywhere in the
Philippines. The policies defined book debts as the
unpaid account still appearing in the Book of Account of
the Insured 45 days after the time of the loss covered
under the said policy.- Petitioner is a customer and
dealer of the products of IMC and LSPI. Feb 25, 1991,
The Gaisano Superstore Complex in Cagayan de Oro
City, owned by petitioner, burned down. Included in the
items lost in the fire were the ready-made clothing
materials sold and delivered by IMC and LSPI.- Feb
1992, Respondent filed a complaint for damages against
petitioner, alleging that IMC and LSPI filed with
respondent their claims, that as of Feb 25, 1991,
the unpaid accounts of petitioner on the sale and delivery
of the clothing materials with IMC was P2,119,205.00
while with LSPI was P535,613.020, that respondent paid
the claims of IMC and LSPI, that respondent made
several demands for payment upon petitioner but were
ignored.- They failed to reach an amicable settlement.
RTC rendered their decision dismissing respondent's
complaint stating that the fire was accidental and was not
attributable to the negligence of the petitioner, that it has
not established that petitioner is the debtor of IMC and
LSPI, that since the invoice states that IMC and LSPI
retain ownership over the clothing materials until the
purchase price is fully paid.- CA reversed the RTC
decision.
Issue:
1. Whether the petitioner is liable for the unpaid
accounts
Held:
1. Yes. Petitioner ordered to pay P2,119.205.60 for IMC's
claims, but not P535,613 for LSPI's claims for lack of
factual basis.- The insurance in this case is not for loss of
goods by fire but for petitioner's accounts with IMC and
LSPI that remained unpaid 45 days after the fire.
Petitioner's obligation is for the payment of money.
Where the obligation consists in the payment of money,
the failure of the debtor to make the payment even by
reason of a fortuitous event shall not relieve him of his
liability. The rule that the obligor should be held exempt
from liability when the loss occurs thru a fortuitous event
only holds true when the obligation consists in the
delivery of a determinate thing and there is no stipulation
holding him liable even in case of fortuitous event. It does
not apply when the obligation is pecuniary in nature.-
Under Art 1263, if the obligation is generic in the
sense that the object thereof is designated merely by its
class or genus without any particular designation or
physical segregation from all others of the same class,
the loss or destruction of anything of the same kind even
without the debtor's fault and before he has incurred in
delay will not have the effect of extinguishing the
obligation. An obligation to pay money is generic;
therefore, it is not excused by fortuitous loss of any
specific property of the debtor.

Vicente Ong Lim Sing, Jr. v. Feb Leasing and Finance
Corp. GR no. 168115 June 8, 2007
FACTS:
FEB Leasing and Finance Corp entered into a
lease agreement of equipment and motor vehicles with
JVL Food Products. Vicente Ong Lim Sing, Jr. executed
an Individual Guarantee Agreement with FEB regarding
faithful compliance with the terms of the lease
agreement.
JVL defaulted on its obligation. By 2000, the
arrears of JVL amounted to P3,414,468.75. Due to the
continuous nonpayment despite numerous demands,
FEB filed a complaint for sum of money, damages, and
replevin against JVL and Lim. JVL and Lim argued before
the court that the lease contract was actually a sale on
installment basis. They further argued that the contract
was a contract of adhesion. The trial court rendered a
ruling In favor of Lim and JVL.
The trial court, through logic, ruled that Lim
cannot be a mere lessee because of he had an insurable
interest over the items. It has also been held that the test
of insurable interest in property is whether the assured
has a right, title or interest therein that he will be
benefited by its preservation and continued existence or
suffer a direct pecuniary loss from its destruction or injury
by the peril insured against. If Lim and JVL were to be
regarded as only a lessee, logically the lessor who
asserts ownership will be the one directly benefited or
injured and therefore the lessee is not supposed to be
the assured as he has no insurable interest.
FEB appealed the decision before the Court of
Appeals. The appellate court rendered judgment in favor
of FEB. It reversed the earlier decision of the RTC of
Manila and ordered Lim and JVL to pay FEB the amount
due plus damages. Unsatisfied with the decision, JVL
and Lim appealed the case before the Supreme Court.
ISSUE:
Whether or not a lease agreement was executed by JVL
and FEB.
RULING:
The Supreme Court dismissed the petition of
Lim and affirmed the decision of the Court of Appeals.
According to the Court, the agreement was indeed a
financial lease agreement and not a sale by installment
basis.
The Court also ruled that the lessee, herein
petitioner, had an insurable interest in the items even if
he was only a lessee. Section 17 of the Insurance Code
provides that the measure of an insurable interest in
property is the extent to which the insured might be
damnified by loss or injury thereof. It cannot be denied
that JVL will be directly damnified in case of loss,
damage, or destruction of any of the properties leased.
Interpretation of insurance contracts
VIOLETA LALICAN vs. THE INSULAR LIFE
ASSURANCE COMPANYLIMITEDG.R. No. 183526,
August 25, 2009, 597 SCRA
FACTS:
Eulogio, the husband of herein
p e t i t i o n e r , a p p l i e d f o r a n insurance
policy the value of which is P1,500,000.00. Under
thep o l i c y t e r m s , E u l o g i o i s o b l i g e
d 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 th
e 31 day grace period.
H e n c e , t h e p o l i c y l a p s e d
a n d b e c a m e v o i d . H e f i l e d
a n Application for Reinstatement of sai
d p o l i c y a n d p a y i n g t h e amount of the
premium due. However, Insular Life notified him t h a t
they could not fully process his
a p p l i c a t i o n b e c a u s e t h e 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 r
e c e i v e d h i s a p p l i c a t i o n 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 Eulogio’s 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 w a s n o t
reinstated during her husband’s lif
e t i m e a n d g o o d health.
ISSUE:
W h e t h e r o r n o t E u l o g i o w a s
a b l e t o r e i n s t a t e t h e l a p s e d
insurance policy before his death
HELD:
NO. The Court agrees with the RTC
t h a t t h e c o n d i t i o n s f o r reinstatement
under the Policy Contract and Applicati
o n f o r Reinstatement were written in clear and simple
language, which c o u l d n o t a d m i t o f a n y
meaning or interpretation other than
t h o s e t h a t t h e y s o o b v i o u s l y e m b o d y.
V i o l e t a d i d n o t a d d u c e any evidence that
Eulogio might have failed to fully understand the
import and meaning of the provisions of his Policy
Contracta n d / o r A p p l i c a t i o n f o r
R e i n s t a t e m e n t b o t h o f w h i
c h h e voluntarily signed. While it is a
cardinal principle of insurance l a w t h a t a
policy or contract of insurance is to be
construedl i b e r a l l y i n f a v o r o f t h e i n
sured and strictly as against thei n
s u r e r c o m p a n y, y e t , c o n t r a c t
s o f i n s u r a n c e , l i k e o t h e r con
tracts are to be construed acco
r d i n g t o t h e s e n s e a n d 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.
Philippine Health Care Providers, Inc. v.
Commissioner of Internal Revenue GR no. 167330
Sep 18, 2009
FACTS:
This is based on a Motion for Reconsideration
filed by the petitioner.
Philippine Health Care Providers, Inc. is a
domestic corporation primarily engaged in the
business of providing prepaid group practice health
care delivery system. On January 27, 2000, the
Commissioner of Internal Revenue sent an
assessment letter to the petitioner informing it and
demanding payment of P224, 702, 614. 18 in back
taxes, surcharge, and interests. The deficiency is
composed mostly of unpaid documentary stamp tax
(DST) imposed on the petitioner’s agreement with its
members.
Petitioner protested before the CIR but due to
the latter’s inaction; it filed a petition for review before
the Court of Tax Appeals. The CTA rendered a
decision partially granting the petition for review. The
petitioner was ordered to pay P53M instead of the
original P225M. Furthermore, the CIR was ordered to
desist from collecting DST tax
Respondent CIR appealed the decision before
the Court of Appeals. According to him, the
petitioner’s healthcare agreement is a contract of
insurance and as such, is subject to DST under
Section 185 of the 1997 Tax Code. The CA rendered
a decision reversing the earlier decision of the CTA. It
ordered the petitioner to pay P123M in DST.
Petitioner appealed the decision before the
Supreme Court which affirmed the CA’s decision. The
SC held that the petioner’s health care agreement
during the pertinent period was in the nature of non-
life insurance which is a contact of indemnity. The
Court further ruled that contracts between companies
like petitioner and its beneficiaries under their plans
are treated as insurance contract. The petitioner filed
a motion for reconsideration.
ISSUE:
Whether or not the health care agreement between
petitioner and its beneficiaries is an insurance
contract.
RULING:
The Supreme Court ruled in favor of the
petitioner and granted the motion for reconsideration.
The Court ruled that the health care agreement
between the petitioner’s and its beneficiaries is not a
contract of insurance.
The Court based its decision on the fact that the
HMO agreement does not qualify as an insurance
business based on the “principal object and purpose
test.” The test is based on Section 2 (2) of the
Insurance Code. Accordingly, an enterprise is
considered engaged in an insurance business when
the principal object of the enterprise is the assumption
of risk and the indemnification of loss. If the enterprise
assumes risk and indemnifies beneficiaries for losses,
then it is an insurance company.
American courts have pointed out that the main
difference between an HMO and an insurance
company is that HMOs undertake to provide or
arrange for the provision of medical services through
participating physicians while insurance companies
simply undertake to indemnify the insured for medical
expenses incurred up to a pre-agreed limit.
A substantial portion of petitioner’s 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.
Overall, petitioner appears to provide insurance-
type benefits to its members (with respect to
its curative medical services), but these are incidental
to the principal activity of providing them medical
care. The “insurance-like” aspect of petitioner’s
business is miniscule compared to its noninsurance
activities. Therefore, since it substantially provides
health care services rather than insurance services, it
cannot be considered as being in the insurance
business.
Lastly, it is significant that 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. In fact,
in a letter dated September 3, 2000, the Insurance
Commissioner confirmed that petitioner is not
engaged in the insurance business. This
determination of the commissioner must be accorded
great weight. It is well-settled that the interpretation of
an administrative agency which is tasked to
implement a statute is accorded great respect and
ordinarily controls the interpretation of laws by the
courts.

G.R. No. 112329 January 28, 2000 VIRGINIA
A. PEREZ, petitioner,
vs. COURT OF APPEALS and BF LIFEMAN
INSURANCE CORPORATION, respondents.
FACTS:
The facts of the case as summarized by respondent
Court of Appeals are not in dispute.
Primitivo B. Perez had been insured with the BF
Lifeman Insurance Corporation since 1980 for
P20,000.00. Sometime in October 1987, an agent of
the insurance corporation, convinced him to apply for
additional insurance coverage of P50,000.00.
Primitivo B. Perez accomplished an application form
for the additional insurance coverage. On the same
day, petitioner, paid P2,075. Perez was made to
undergo the required medical examination, which he
passed. Pursuant to the established procedure of the
company, Lalog forwarded the application for
additional insurance of Perez, together with all its
supporting papers, to the office of BF Lifeman
Insurance Corporation at Gumaca, Quezon which
office was supposed to forward the papers to the
Manila office. On November 25, 1987, Perez died in
an accident. He was riding in a banca which capsized
during a storm. At the time of his death, his
application papers for the additional insurance were
still with the Gumaca office. It was only on November
27, 1987 that said papers were received in Manila.
Petitioner Virginia Perez went to Manila to claim the
benefits under the insurance policies of the deceased.
She was paid P40,000.00 under the first insurance
policy for P20,000.00 (double indemnity in case of
accident) but the insurance company refused to pay
the claim under the additional policy coverage.. In its
letter' to Virginia A. Perez, the insurance company
maintained that the insurance for P50,000.00 had not
been perfected at the time of the death of Primitivo
Perez. Consequently, the insurance company
refunded the amount of P2,075.00 which Virginia
Perez had paid. On September 21, 1990, private
respondent BF Lifeman Insurance Corporation filed a
complaint against Virginia A. Perez seeking the
rescission and declaration of nullity of the insurance
contract in question. Petitioner Virginia A. Perez, on
the other hand, averred that the deceased had fulfilled
all his prestations under the contract and all the
elements of a valid contract are present.
On October 25, 1991, the trial court rendered a
decision in favor of petitioner.The trial court, in ruling
for petitioner, held that the premium for the additional
insurance of P50,000.00 had been fully paid and even
if the sum of P2,075.00 were to be considered merely
as partial payment, the same does not affect the
validity of the policy. The trial court further stated that
the deceased had fully complied with the
requirements of the insurance company. He paid,
signed the application form and passed the medical
examination. He should not be made to suffer the
subsequent delay in the transmittal of his application
form to private respondent's head office since these
were no longer within his control.
The Court of Appeals, however, reversed the decision
of the trial court saying that the insurance contract for
P50,000.00 could not have been perfected since at
the time that the policy was issued, Primitivo was
already dead. The Court of Appeals held that the
contract of insurance had to be assented to by both
parties and so long as the application for insurance
has not been either accepted or rejected, it is merely
an offer or proposal to make a contract.
Petitioner's motion for reconsideration having been
denied by respondent court, the instant petition
for certiorari was filed on the ground that there was a
consummated contract of insurance between the
deceased and BF Lifeman Insurance Corporation and
that the condition that the policy issued by the
corporation be delivered and received by the
applicant in good health, is potestative, being
dependent upon the will of the insurance company,
and is therefore null and void.
ISSUE:
w/n petitioner is entitled to the benefits.
HELD:
The petition is bereft of merit. A contract of insurance,
like all other contracts, must be assented to by both
parties, either in person or through their agents and
so long as an application for insurance has not been
either accepted or rejected, it is merely a proposal or
an offer to make a contract.
Insurance is a contract whereby, for a stipulated
consideration, one party undertakes to compensate
the other for loss on a specified subject by specified
perils.7 A contract, on the other hand, is a meeting of
the minds between two persons whereby one binds
himself, with respect to the other to give something or
to render some service.8 Under Article 1318 of the
Civil Code, there is no contract unless the following
requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the
contract;
(3) Cause of the obligation which is established.
Consent must be manifested by the meeting
of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The
offer must be certain and the acceptance absolute.
When Primitivo filed an application for
insurance, paid P2,075.00 and submitted the results
of his medical examination, his application was
subject to the acceptance of private respondent BF
Lifeman Insurance Corporation. The perfection of the
contract of insurance between the deceased and
respondent corporation was further conditioned upon
compliance with the following requisites stated in the
application form: there shall be no contract of
insurance unless and until a policy is issued on this
application and that the said policy shall not take
effect until the premium has been paid and the policy
delivered to and accepted by me/us in person while
I/We, am/are in good health.9
A potestative condition depends upon the exclusive
will of one of the parties. For this reason, it is
considered void. Article 1182 of the New Civil Code
states: When the fulfillment of the condition depends
upon the sole will the debtor, the conditional obligation
shall be void.
In the case at bar, the following conditions were
imposed by the respondent company for the
perfection of the contract of insurance:
(a) a policy must have been issued;
(b) the premiums paid; and
(c) the policy must have been delivered to
and accepted by the applicant while he is in
good health.
The condition imposed by the corporation that the
policy must have been delivered to and accepted by
the applicant while he is in good health can hardly be
considered as a potestative or facultative condition.
On the contrary, the health of the applicant at the time
of the delivery of the policy is beyond the control or
will of the insurance company. Rather, the condition is
a suspensive one whereby the acquisition of rights
depends upon the happening of an event which
constitutes the condition. In this case, the suspensive
condition was the policy must have been delivered
and accepted by the applicant while he is in good
health. There was non-fulfillment of the condition,
however, inasmuch as the applicant was already dead
at the time the policy was issued. Hence, the non-
fulfillment of the condition resulted in the non-
perfection of the contract.
As stated above, a contract of insurance, like other
contracts, must be assented to by both parties either
in person or by their agents. So long as an application
for insurance has not been either accepted or
rejected, it is merely an offer or proposal to make a
contract. The contract, to be binding from the date of
application, must have been a completed contract,
one that leaves nothing to be done, nothing to be
completed, nothing to be passed upon, or determined,
before it shall take effect. There can be no contract of
insurance unless the minds of the parties have met in
agreement.11
Prescinding from the foregoing, respondent
corporation cannot be held liable for gross
negligence. It should be noted that an application is a
mere offer which requires the overt act of the insurer
for it to ripen into a contract. Delay in acting on the
application does not constitute acceptance even
though the insured has forwarded his first premium
with his application. The corporation may not be
penalized for the delay in the processing of the
application papers. Moreover, while it may have taken
some time for the application papers to reach the
main office, in the case at bar, the same was acted
upon less than a week after it was received. The
processing of applications by respondent corporation
normally takes two to three weeks, the longest being
a month.12 In this case, however, the requisite medical
examination was undergone by the deceased on
November 1, 1987; the application papers were
forwarded to the head office on November 27, 1987;
and the policy was issued on December 2, 1987.
Under these circumstances, we hold that the delay
could not be deemed unreasonable so as to
constitute gross negligence.
G.R. No. 156167 ,May 16, 2005 GULF RESORTS,
INC., petitioner, vs.PHILIPPINE CHARTER
INSURANCE CORPORATION, respondent.
For review are the warring interpretations of petitioner
and respondent on the scope of the insurance
company’s liability for earthquake damage to
petitioner’s properties. Petitioner avers that, pursuant
to its earthquake shock endorsement rider, Insurance
Policy No. 31944 covers all damages to the properties
within its resort caused by earthquake. Respondent
contends that the rider limits its liability for loss to the
two swimming pools of petitioner.
FACTS:
The facts as established by the court a quo, and
affirmed by the appellate court are as follows:
Plaintiff 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 (AHAC-AIU). In the first four insurance
policies , the risk of loss from earthquake shock was
extended only to plaintiff’s two swimming pools, thus,
"earthquake shock endt, and two (2) swimming pools
only; that subsequently AHAC(AIU) issued in plaintiff’s
favor Policy covering the period March 14, 1988 to
March 14, 1989 and in 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 which
carried the entry under "Endorsement/Warranties at
Time of Issue", which read "Endorsement to Include
Earthquake Shock in the amount of P10,700.00 and
paid P42,658.14 as premium thereof..
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 Exhibit "7-C" the word "included"
above the underlined portion was deleted;
That on July 16, 1990 an earthquake struck
Central Luzon and Northern Luzon and plaintiff’s
properties covered by Policy issued by defendant,
including the two swimming pools in its Agoo Playa
Resort were damaged.2
After the earthquake, petitioner advised respondent
that it would be making a claim under its Insurance
Policy No. 31944 for damages on its properties. On
August 7, 1990, Bayne Adjusters and Surveyors, Inc.,
through its Vice-President A.R. de Leon,4rendered a
preliminary report5 finding extensive damage caused
by the earthquake to the clubhouse and to the two
swimming pools. Mr. de Leon stated that "except for
the swimming pools, all affected items have no
coverage for earthquake shocks. Petitioner filed its
formal demand7 for settlement of the damage to all its
properties in the Agoo Playa Resort. Respondent
denied petitioner’s claim on the ground that its
insurance policy only afforded earthquake shock
coverage to the two swimming pools of the
resort.8 Petitioner and respondent failed to arrive at a
settlement.9
Thus, petitioner filed a complaint10 with the regional
trial court of Pasig. The lower court after trial ruled in
favor of the respondent, viz:
The above schedule clearly shows that plaintiff paid
only a premium of P393.00 against the peril of
earthquake shock, the same premium it paid against
earthquake shock only on the two swimming pools in
all the policies issued by AHAC(AIU). From this fact
the Court must consequently agree with the position
of defendant that the endorsement rider (Exhibit "7-
C") means that only the two swimming pools were
insured against earthquake shock.
Plaintiff correctly points out that a policy of insurance
is a contract of adhesion hence, where the language
used in an insurance contract or application is such
as to create ambiguity the same should be resolved
against the party responsible therefor, i.e., the
insurance company which prepared the contract. To
the mind of [the] Court, the language used in the
policy in litigation is clear and unambiguous hence
there is no need for interpretation or construction but
only application of the provisions therein.Petitioner’s
Motion for Reconsideration was denied. Thus,
petitioner filed an appeal with the Court of Appeals.
After review, the appellate court affirmed the decision
of the trial court.
ISSUE:
WHETHER THE COURT OF APPEALS CORRECTLY
HELD THAT UNDER RESPONDENT’S INSURANCE
POLICY NO. 31944, ONLY THE TWO (2) SWIMMING
POOLS, RATHER THAN ALL THE PROPERTIES
COVERED THEREUNDER, ARE INSURED
AGAINST THE RISK OF EARTHQUAKE SHOCK.
HELD:
We hold that the petition is devoid of merit.
In Insurance Policy No. 31944, four key items are
important in the resolution of the case at bar.
It is basic that all the provisions of the insurance
policy should be examined and interpreted in
consonance with each other.25 All its parts are
reflective of the true intent of the parties. The policy
cannot be construed piecemeal. Certain stipulations
cannot be segregated and then made to control;
neither do particular words or phrases necessarily
determine its character. 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 shock coverage only to the two
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 a
similar risk; and
5. In consideration of the insurer's
promise, the insured pays a
premium.26 (Emphasis ours)
An insurance premium is the consideration paid an
insurer for undertaking to indemnify the insured
against a specified peril.27 In fire, casualty, and marine
insurance, the premium payable becomes a debt as
soon as the risk attaches.28 In the subject policy, no
premium payments were made with regard to
earthquake shock coverage, except on the two
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 petitioner’s previous insurance policies from AHAC-
AIU.
In sum, there is no ambiguity in the terms of the
contract and its riders. Petitioner cannot rely on the
general rule that insurance contracts are contracts of
adhesion which should be liberally construed in favor
of the insured and strictly against the insurer company
which usually prepares it.31 A contract of adhesion is
one wherein a party, usually a corporation, prepares
the stipulations in the contract, while the other party
merely affixes his signature or his "adhesion" thereto.
Through the years, the courts have held that in these
type of contracts, the parties do not bargain on equal
footing, the weaker party's participation being reduced
to the alternative to take it or leave it. Thus, these
contracts are viewed as traps for the weaker party
whom the courts of justice must
protect.32 Consequently, any ambiguity therein is
resolved against the insurer, or construed liberally in
favor of the insured.33
SO ORDERED.

G.R. No. 140349. June 29, 2005] SULPICIO LINES,
INC., petitioner, vs. FIRST LEPANTO-TAISHO
INSURANCE CORPORATION, respondent.
FACTS
On 25 February 1992, Taiyo Yuden Philippines, Inc.
(owner of the goods) and Delbros, Inc. (shipper) entered
into a contract, evidenced by Bill of Lading issued by the
latter in favor of the owner of the goods, for Delbros, Inc.
to transport a shipment of goods consisting of three (3)
wooden crates containing one hundred thirty-six (136)
cartons of inductors and LC compound on board the V
Singapore V20 from Cebu City to Singapore in favor of
the consignee, Taiyo Yuden Singapore Pte, Ltd.
For the carriage of said shipment from Cebu City to
Manila, Delbros, Inc. engaged the services of the vessel
M/V Philippine Princess, owned and operated by
petitioner Sulpicio Lines, Inc. (carrier). The vessel
arrived at the North Harbor, Manila, on 24 February
1992.
During the unloading of the shipment, one crate
containing forty-two (42) cartons dropped from the cargo
hatch to the pier apron. The owner of the goods
examined the dropped cargo, and upon an alleged
finding that the contents of the crate were no longer
usable for their intended purpose, they were rejected as
a total loss and returned to Cebu City.
The owner of the goods filed a claim with herein
petitioner-carrier for the recovery of the value of the
rejected cargo which was refused by the latter.
Thereafter, the owner of the goods sought payment from
respondent First Lepanto-Taisho Insurance Corporation
(insurer) under a marine insurance policy issued to the
former. Respondent-insurer paid the claim less thirty-five
percent (35%) salvage value or P194, 220.31.
The payment of the insurance claim of the owner of the
goods by the respondent-insurer subrogated the latter to
whatever right or legal action the owner of the goods may
have against Delbros, Inc. and petitioner-carrier, Sulpicio
Lines, Inc. Thus, respondent-insurer then filed claims for
reimbursement from Delbros, Inc. and petitioner-carrier
Sulpicio Lines, Inc. which were subsequently denied.
On 04 November 1992, respondent-insurer filed a suit for
damages with the trial court against Delbros, Inc. and
herein petitioner-carrier. petitioner-carrier filed its Answer
with Counterclaim. Delbros, Inc. filed on 15 April 1993 its
Answer with Counterclaim and Cross-claim, alleging that
assuming the contents of the crate in question were truly
in bad order, fault is with herein petitioner-carrier which
was responsible for the unloading of the crates.
Petitioner-carrier filed its Answer to Delbros, Inc.’s
cross-claim asserting that it observed extraordinary
diligence in the handling, storage and general care of the
shipment and that subsequent inspection of the shipment
by the Manila Adjusters and Surveyors Company showed
that the contents of the third crate that had fallen were
found to be in apparent sound condition, except that “2
cello bags each of 50 pieces ferri inductors No. LC FL
112270K-60 (c) were unaccounted for and missing as per
packaging list.”
After hearing, the trial court dismissed the
complaint for damages as well as the counterclaim filed
by therein defendant Sulpicio Lines, Inc. and the cross-
claim filed by Delbros, Inc. A Motion for Reconsideration
was then filed by herein respondent-insurer and
subsequently denied by the trial court. Thus,
respondent-insurer instituted an appeal with the Court of
Appeals, which reversed the dismissal of the complaint
by the lower court.
ISSUES:
Whether or not, based on the evidence presented during
the trial, the owner of the goods, respondent-insurer’s
predecessor-in-interest, did incur damages, and if so,
whether or not petitioner-carrier is liable for the same.
HELD:
It cannot be denied that the shipment sustained damage
while in the custody of petitioner-carrier. It is not
disputed that one of the three (3) crates did fall from the
cargo hatch to the pier apron while petitioner-carrier was
unloading the cargo from its vessel. Neither is it
impugned that upon inspection, it was found that two (2)
cartons were torn on the side and the top flaps were
open and that two (2) cello bags, each of 50 pieces ferri
inductors, were missing from the cargo.
The falling of the crate during the unloading is
evidence of petitioner-carrier’s negligence in handling the
cargo. As a common carrier, it is expected to observe
extraordinary diligence in the handling of goods placed in
its possession for transport.[12] The standard of
extraordinary diligence imposed upon common carriers is
considerably more demanding than the standard of
ordinary diligence, i.e., the diligence of a good pater
familias established in respect of the ordinary relations
between members of society.[13] A common carrier is
bound to transport its cargo and its passengers safely
"as far as human care and foresight can provide, using
the utmost diligence of a very cautious person, with due
regard to all circumstances.”[14] The extraordinary
diligence in the vigilance over the goods tendered for
shipment requires the common carrier to know and to
follow the required precaution for avoiding the damage
to, or destruction of, the goods entrusted to it for safe
carriage and delivery.[15] It requires common carriers to
render service with the greatest skill and foresight and “to
use all reasonable means to ascertain the nature and
characteristic of goods tendered for shipment, and to
exercise due care in the handling and stowage, including
such methods as their nature requires.”[16]
Thus, when the shipment suffered damages as it
was being unloaded, petitioner-carrier is presumed to
have been negligent in the handling of the damaged
cargo. Under Articles 1735[17] and 1752[18] of the Civil
Code, common carriers are presumed to have been at
fault or to have acted negligently in case the goods
transported by them are lost, destroyed or had
deteriorated. To overcome the presumption of liability for
loss, destruction or deterioration of goods under Article
1735, the common carrier must prove that they observed
extraordinary diligence as required in Article 1733[19] of
the Civil Code.[20]
 Petitioner-carrier miserably failed to adduce any
shred of evidence of the required extraordinary diligence
to overcome the presumption that it was negligent in
transporting the cargo.
Coming now to the issue of the extent of petitioner-
carrier’s liability, it is undisputed that respondent-insurer
paid the owner of the goods under the insurance policy
the amount of P194,220.31 for the alleged damages the
latter has incurred. Neither is there dispute as to the fact
that Delbros, Inc. paid P194,220.31 to respondent-
insurer in satisfaction of the whole amount of the
judgment rendered by the Court of Appeals. The
question then is: To what extent is Sulpicio Lines, Inc., as
common carrier, liable for the damages suffered by the
owner of the goods?
Upon respondent-insurer’s payment of the alleged
amount of loss suffered by the insured (the owner of the
goods), the insurer is entitled to be subrogated pro
tanto to any right of action which the insured may have
against the common carrier whose negligence or
wrongful act caused the loss.[21] Subrogation is the
substitution of one person in the place of another with
reference to a lawful claim or right, so that he who is
substituted succeeds to the rights of the other in relation
to a debt or claim, including its remedies or securities.
[22]
The rights to which the subrogee succeeds are the
same as, but not greater than, those of the person for
whom he is substituted, that is, he cannot acquire any
claim, security or remedy the subrogor did not have.[23] In
other words, a subrogee cannot succeed to a right not
possessed by the subrogor.[24] A subrogee in effect steps
into the shoes of the insured and can recover only if the
insured likewise could have recovered.[25]
Hence, we uphold the ruling of the appellate court
that herein petitioner-carrier is liable to pay the amount
paid by respondent-insurer for the damages sustained by
the owner of the goods.
As stated in the manifestation filed by Delbros, Inc.,
however, respondent-insurer had already been paid the
full amount granted by the Court of Appeals, hence, it will
be tantamount to unjust enrichment for respondent-
insurer to again recover damages from herein petitioner-
carrier.
With respect to Delbros, Inc.’s prayer contained in
its manifestation that, in case the decision in the instant
case be adverse to petitioner-carrier, a pronouncement
as to the matter of reimbursement, indemnification or
contribution in favor of Delbros, Inc. be included in the
decision, this Court will not pass upon said issue since
Delbros, Inc. has no personality before this Court, it not
being a party to the instant case. Notwithstanding, this
shall not bar any action Delbros, Inc. may institute
against petitioner-carrier Sulpicio Lines, Inc. with respect
to the damages the latter is liable to pay.
[G.R. No. 166245, April 09, 2008]
ETERNAL GARDENS MEMORIAL PARK
CORPORATION, PETITIONER, VS. THE
PHILIPPINE AMERICAN LIFE INSURANCE
COMPANY, RESPONDENT.
The Case: May the inaction of the insurer on the
insurance application be considered as approval of the
application?
The Facts
On December 10, 1980, respondent Philippine American
Life Insurance Company (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 policy was to be
effective for a period of one year, renewable on a yearly
basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but
not more than 65 years of age, is indebted to the Assured
for the unpaid balance of his loan with the Assured, and
is accepted for Life Insurance coverage by the Company
on its effective date is eligible for insurance under the
Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of
insurance up to P50,000.00. However, a declaration of
good health shall be required for all Lot Purchasers as
part of the application. The Company reserves the right
to require further evidence of insurability satisfactory to
the Company in respect of the following:
1.Any amount of insurance in excess of P50,000.00.
2.Any lot purchaser who is more than 55 years of age.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot Purchaser at any
time shall be the amount of the unpaid balance of his
loan (including arrears up to but not exceeding 2 months)
as reported by the Assured to the Company or the sum of
P100,000.00, whichever is smaller. Such benefit shall be
paid to the Assured if the Lot Purchaser dies while
insured under the Policy.
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.
Eternal 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. In relation to the instant petition, Eternal
complied by submitting a letter 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 PhP
100,000. On August 2, 1984, Chuang died.
Eternal sent a letter dated August 20, 1984[5] to
Philamlife, which served as an insurance claim for
Chuang's death. After more than a year, Philamlife had
not furnished Eternal with any reply to the latter's
insurance claim. This prompted Eternal to demand from
Philamlife the payment of the claim for PhP 100,000 on
April 25, 1986.[8]
In response to Eternal's demand, Philamlife denied
Eternal's insurance claim in a letter which read: that the
deceased was 59 years old when he entered into
Contract 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. In accordance with our Creditor's Group Life Policy
No. P-1920, under Evidence of Insurability provision, "a
declaration of good health shall be required for all Lot
Purchasers as party of the application." We cite further
the provision on Effective Date of Coverage under the
policy which states that "there shall be no insurance if the
application is not approved by the Company." Since no
application had been submitted by the Insured/Assured,
prior to his death, for our approval but was submitted
instead on November 15, 1984, after his death, Mr. John
Uy Chuang was not covered under the Policy. With
regard to our acceptance of premiums, these do not
connote our approval per se of the insurance coverage
but are held by us in trust for the payor until the
prerequisites for insurance coverage shall have been
met. We will however, return all the premiums which
have been paid in behalf of John Uy Chuang.
Consequently, Eternal filed a case before the Makati City
Regional Trial Court (RTC) for a sum of money against
Philamlife. The trial court decided in favor of Eternal.The
RTC found that Eternal submitted Chuang's application
for insurance which he accomplished before his death,
as testified to by Eternal's witness and evidenced by the
letter dated December 29, 1982, stating, among others:
"Encl: Phil-Am Life Insurance Application Forms &
[10]
Cert." It further ruled that due to Philamlife's inaction
from the submission of the requirements of the group
insurance on December 29, 1982 to Chuang's death on
August 2, 1984, as well as Philamlife's acceptance of the
premiums during the same period, Philamlife was
deemed to have approved Chuang's application. The
RTC said that since the contract is a group life insurance,
once proof of death is submitted, payment must follow.
Philamlife appealed to the CA, which REVERSED and
SET ASIDE RTC’s ruling.
The CA based its Decision on the factual finding that
Chuang's application was not enclosed in Eternal's letter
dated December 29, 1982. It further ruled that the non-
accomplishment of the submitted application form
violated Section 26 of the Insurance Code. Thus, the CA
concluded, there being no application form, Chuang was
not covered by Philamlife's insurance. Hence, we have
this petition .
ISSUE:
Whether Philamlife assumed the risk of loss without
approving the application.
RULING:
RULING:
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an
agreement denominated as Creditor Group Life Policy
No. P-1920 dated December 10, 1980. In the policy, it is
provided that:
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.
An examination of the above provision would show
ambiguity between its two sentences. The first sentence
appears to state that the insurance coverage of the
clients of Eternal already became effective upon
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 latter's interest. Thus, in Malayan
Insurance Corporation v. Court of Appeals, this Court
held that:
Indemnity and liability insurance policies are construed in
accordance with the general rule of resolving any
ambiguity therein in favor of the insured, where the
contract or policy is prepared by the insurer. A contract in the industry purposefully used to its advantage. More
of insurance, being a contract of adhesion,par often than not, insurance contracts are contracts of
excellence, any ambiguity therein should be resolved adhesion containing technical terms and conditions of the
against the insurer; in other words, it should be industry, confusing if at all understandable to laypersons,
construed liberally in favor of the insured and strictly that are imposed on those who wish to avail of insurance.
against the insurer. Limitations of liability should be As such, insurance contracts are imbued with public
regarded with extreme jealousy and must be construed in interest that must be considered whenever the rights and
such a way as to preclude the insurer from obligations of the insurer and the insured are to be
noncompliance with its obligations.[19] (Emphasis delineated. Hence, in order to protect the interest of
supplied.) insurance applicants, insurance companies must be
In the more recent case of Philamcare Health Systems, obligated to act with haste upon insurance applications,
Inc. v. Court of Appeals, we reiterated the above ruling, to either deny or approve the same, or otherwise be
stating that: bound to honor the application as a valid, binding, and
When the terms of insurance contract contain limitations effective insurance contract.[21]
on liability, courts should construe them in such a way as WHEREFORE, we GRANT the petition.(1) To pay
to preclude the insurer from non-compliance with his Eternal the amount of PhP 100,000 representing the
obligation. Being a contract of adhesion, the terms of an proceeds of the Life Insurance Policy of Chuang;
insurance contract are to be construed strictly against the
party which prepared the contract, the insurer. By reason
of the exclusive control of the insurance company over
the terms and phraseology of the insurance contract,
ambiguity must be strictly interpreted against the insurer
and liberally in favor of the insured, especially to avoid
forfeiture.[20]
Clearly, the vague contractual provision, in Creditor
Group Life Policy No. P-1920 dated December 10, 1980,
must be construed in favor of the insured and in favor of
the effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions
must be harmonized to mean that upon a party's
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 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.

As a final note, to characterize the insurer and the

insured as contracting parties on equal footing is
inaccurate at best. Insurance contracts are wholly
prepared by the insurer with vast amounts of experience