INSURANCE LAW 1

CASE BRIEFS
CONSTANTINO vs. ASIA LIFE

FACTS:

Appeal consolidates two cases.

Asia life insurance Company (ALIC) was incorporated in Delaware.

For the sum of 175.04 as annual premium duly paid to ALIC, it issued Policy No. 93912 whereby it insured
the life of Arcadio Constantino for 20 years for P3T with Paz Constantino as beneficiary.

First premium covered the period up to Sept. 26, 1942. No further premiums were paid after the first
premium and Arcadio died on Sept. 22, 1944.

Due to Jap occupation, ALIC closed its branch office in Manila from Jan. 2 1942-1945.

On Aug. 1, 1938, ALIC issued Policy no. 78145 covering the lives of Spouses Tomas Ruiz and Agustina
Peralta for the sum of P3T for 20 years. The annual premium stipulated was regularly paid from Aug. 1,
1938 up to and including Sept. 30, 1940.

Effective Aug. 1, 1941, the mode of payment was changed from annually to quarterly and such quarterly
premiums were paid until Nov. 18, 1941.
Last payment covered the period until Jan. 31, 1942.
Tomas Ruiz died on Feb. 16, 1945 with Agustina Peralta as his beneficiary.

Due to Jap occupation, it became impossible and illegal for the insured to deal with ALIC. Aside from this
the insured borrowed from the policy P234.00 such that the cash surrender value of the policy was
sufficient to maintain the policy in force only up to Sept. 7, 1942.

Both policies contained this provision: All premiums are due in advance and any unpunctuality in making
such payment shall cause this policy to lapse unless and except as kept in force by the grace period
condition.

Paz Constantino and Agustina Peralta claim as beneficiaries, that they are entitled to receive the
proceeds of the policies less all sums due for premiums in arrears. They also allege that non-payment of
the premiums were caused by the closing of ALIC’s offices during the war and the impossible
circumstances by the war, therefore, they should be excused and the policies should not be forfeited.

Lower court ruled in favor of ALIC.

ISSUE: May a beneficiary in a life insurance policy recover the amount thereof although the insured died
after repeatedly failing to pay the stipulated premiums, such failure being caused by war?

HELD: NO.

Due to the express terms of the policy, non-payment of the premium produces its avoidance. In Glaraga
v. Sun Life, it was held that a life policy was avoided because the premium had not been paid within the

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time fixed; since by its express terms, non-payment of any premium when due or within the 31 day grace
period ipso fact caused the policy to lapse.

When the life insurance policy provides that non-payment of premiums will cause its forfeiture, war does
NOT excuse non- payment and does not avoid forfeiture. Essentially, the reason why punctual payments
are important is that the insurer calculates on the basis of the prompt payments. Otherwise, malulugi sila.

It should be noted that the parties contracted not only as to peace time conditions but also as to war-time
conditions since the policies contained provisions applicable expressly to wartime days. The logical
inference therefore is that the parties contemplated the uninterrupted operation of the contract even if
armed conflict should ensue.

INSULAR LIFE V. EBRADO 80 SCRA 181

FACTS:

Buenaventura Ebrado was issued by Insular Life Assurance Co. a whole life plan for P5,882.00 with a
rider for Accidental Death Benefits for the same amount.

Ebrado designated Carponia Ebrado as the revocable beneficiary in his policy, referring to her as his wife.
Ebrado died when he was accidentally hit by a falling branch of tree.
Insurer by virtue of the contract was liable for 11,745.73, and Carponia filed her claim, although she
admitted that she and the insured were merely living as husband and wife without the benefit of marriage.

Pascuala Ebrado also filed her claim as the widow of the deceased insured.

Insular life filed an interpleader case and the lower court found in favor of Pascuala.

ISSUE: Between Carponia and Pascuala, who is entitled to the proceeds?

HELD: Pascuala.

It is quite unfortunate that the Insurance Act or our own Insurance Code does not contain a specific
provision grossly resolutory of the prime question at hand. Rather, the general rules of civil law should be
applied to resolve this void in the insurance law. Art. 2011 of the NCC states: The contract of insurance
is governed by special laws. Matters not expressly provided for in such special laws shall be regulated
by this Code. When not otherwise specifically provided for in the insurance law, the contract of life
insurance is governed by the general rules of civil law regulating contracts.

Under Art. 2012, NCC: Any person who is forbidden from receiving any donation under Art. 739 cannot
be named beneficiary of a life insurance policy by a person who cannot make any donation to him,
according to said article. Under Art. 739, donations between persons who were guilty of adultery or
concubinage at the time of the donation shall be void.

In essence, a life insurance policy is no different from civil donations insofar as the beneficiary is
concerned. Both are founded on the same consideration of liberality. A beneficiary is like a donee because
from the premiums of the policy which the insured pays, the beneficiary will receive the proceeds or profits
of said insurance. As a consequence, the proscription in Art. 739 should equally operate in life insurance
contracts.

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Therefore, since common-law spouses are barred from receiving donations, they are likewise barred from
receiving proceeds of a life insurance contract.

QUA CHEE GAN vs. LA UNION AND ROCK INSURANCE

FACTS:

Qua Chee Gan, a merchant, owned 4 warehouses in Albay which were used for the storage or copra and
hemp in which the appelle deals with exclusively.

The warehouses together with the contents were insured with Law Union since 1937 and the loss made
payable to PNB as mortgagee of the hemp and copra.

A fire of undetermined cause broke out in July 21, 1940 and lasted for almost 1 whole week. Bodegas 1,
3, and 4 including the merchandise stored were destroyed completely.
Insured then informed insurer of the unfortunate event and submitted the corresponding fire claims, which
were later reduced to P370T.

Insurer refused to pay claiming violations of the warranties and conditions, filing of fraudulent claims and
that the fire had been deliberately caused by the insured.

Insured filed an action before CFI which rendered a decision in favor of the insured.

Issues and Resolutions:

WON the policies should be avoided for the reason that there was a breach of warranty.

Under the Memorandum of Warranty, there should be no less than 1 hydrant for each 150 feet of external
wall measurements of the compound, and since bodegas insured had an external wall per meter of 1640
feet, the insured should have 11 hydrants in the compound. But he only had 2.
Even so, the insurer is barred by estoppel to claim violation of the fire hydrants warranty, because knowing
that the number of hydrants it demanded never existed from the very beginning, appellant nevertheless
issued the policies subject to such warranty and received the corresponding premiums. The insurance
company was aware, even before the policies were issued, that in the premises there were only 2
hydrants and 2 others were owned by the Municipality, contrary to the requirements of the warranties in
question.

It should be close to conniving at fraud upon the insured to allow the insurer to claim now as void the
policies it issued to the insured, without warning him of the fatal defect, of which the insurer was informed,
and after it had misled the insured into believing that the policies were effective.

Accdg to American Jurisprudence: It is a well-settled rule that the insurer at the time of the issuance of a
policy has the knowledge of existing facts, which if insisted on, would invalidate the contract from its very
inception, such knowledge constitutes a waiver of conditions in the contract inconsistent with known facts,
and the insurer is stopped thereafter from asserting the breach of such conditions. The reason for the
rule is: To allow a company to accept one’s money for a policy of insurance which it knows to be void and
of no effect, though it knows as it must that the insured believes it to be valid and binding is so contrary
to the dictates of honesty and fair dealing, as so closely related to positive fraud, as to be abhorrent to
fair-minded men. It would be to allow the company to treat the policy as valid long enough to get the
premium on it, and leave it at liberty to repudiate it the next moment.

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Moreover, taking into account the well-known rule that ambiguities or obscurities must strictly be
interpreted against the party that cause them, the memorandum of warranty invoked by the insurer bars
the latter from questioning the existence of the appliances called for, since its initial expression “the
undernoted appliances for the extinction of fire being kept on the premises insured hereby..” admits of
the interpretation as an admission of the existence of such appliances which insurer cannot now
contradict, should the parole evidence apply.

WON the insured violated the hemp warranty provision against the storage of gasoline since
insured admitted there were 36 cans of gasoline in Bodega 2 which was a separate structure and not
affected by the fire.

It is well to note that gasoline is not specifically mentioned among the prohibited articles listed in the so-
called hemp warranty. The clause relied upon by the insurer speaks of “oils”. Ordinarily, oils mean
lubricants and not gasoline or kerosene. Here again, by reason of the exclusive control of the insurance
company over the terms of the contract, the ambiguity must be held strictly against the insurer and liberally
in favor of the insured, specially to avoid a forfeiture.

Furthermore, the gasoline kept was only incidental to the insured’s business. It is a well settled rule that
keeping of inflammable oils in the premises though prohibited by the policy does NOT void it if such
keeping is incidental to the business. Also, the hemp warranty forbade the storage only in the building to
which the insurance applies, and/or in any building communicating therewith; and it is undisputed that no
gasoline was stored in the burnt bodegas and that Bodega No. 2 which was where the gasoline was
found stood isolated from the other bodegas.

TY V. FILIPINAS COMPAÑIA DESEGUROS

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 Nat’l Orthopedic Hospital for six listed
injuries. The attending surgeon certified that these injuries would cause the temporary total disability of
Ty’s left hand.

Insurance companies refused to pay Ty’s 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: WON Ty should be indemnified under his accident policies.

HELD. NO.

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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. In the
words of Atty. Quimson: Aba gago pala siya, Sinabi ng loss by amputation, pinagpipilitan pa nyang
fracture lang ang kailangan.

DEL ROSARIO V. EQUITABLE INSURANCE 118 PHIL 349

FACTS:

Equitable Insurance issued a life Insurance policy to del Rosario binding itself to pay P1,000 to P3,000
as indemnity.

Del Rosario died in a boating accident. The heirs filed a claim and Equitable paid them P1,000.

The heir filed a complaint for recovery of the balance of P2,000, claiming that the insurere should pay him
P3,000 as stated in the policy.

ISSUE: WON the heir is entitled to recover P3,000.

HELD: YES.

Generally accepted principles or ruling on insurance, enunciate that where there is an ambiguity with
respect to the terms and conditions of the policy, the same shall be resolved against the one responsible
thereof. The insured has little, if any, participation in the preparation of the policy. The interpretation of
obscure stipulations in a contract should not favor the party who cause the obscurity.

MISAMIS LUMBER V. CAPITAL INSURANCE 123 PHIL 1077

FACTS:

Misamis lumber insured it’s motor car for P14T with Capital Insurance. The policy stipulated that the
insured may authorize the repair of the vehicle necessitated by damage and the liability of the insured is
limited to 150.

Car met an accident and was repaired by Morosi Motors at a total cost of P302.27. Misamis made a report
of the accident to Capital who refused to pay the cost of the repairs.

ISSUE: WON the insurer is liable for the total amount of the repair.

HELD: NO.

The insurance policy stipulated that if it is the insured who authorized the repair, the liability of the insurer
is limited to 150. The literal meaning of the stipulation must control, it being the actual contract, expressly
and plainly provided for in the policy.

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VERENDIA V. CA 217 SCRA 1993

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: WON 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.

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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

PHILAMLIFE V. ANSALDO 234 SCRA 509

FACTS:

Ramon M. Paterno sent a letter-complaint to the Insurance Commissioner alleging certain problems
encountered by agents, supervisors, managers and public consumers of the Philamlife as a result of
certain practices by said company.

Commissioner requested petitioner Rodrigo de los Reyes, in his capacity as Philamlife's president, to
comment on respondent Paterno's letter.

The complaint prays that provisions on charges and fees stated in the Contract of Agency executed
between Philamlife and its agents, as well as the implementing provisions as published in the agents'
handbook, agency bulletins and circulars, be declared as null and void. He also asked that the amounts
of such charges and fees already deducted and collected by Philamlife in connection therewith be
reimbursed to the agents, with interest at the prevailing rate reckoned from the date when they were
deducted

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Manuel Ortega, Philamlife's Senior Assistant Vice-President and Executive Assistant to the President,
asked that the Commissioner first rule on the questions of the jurisdiction of the Insurance Commissioner
over the subject matter of the letters-complaint and the legal standing of Paterno.

Insurance Commissioner set the case for hearing and sent subpoena to the officers of Philamlife. Ortega
filed a motion to quash the subpoena alleging that the Insurance company has no jurisdiction over the
subject matter of the case and that there is no complaint sufficient in form and contents has been filed.

The motion to quash was denied.

ISSUE: WON the insurance commissioner had jurisdiction over the legality of the Contract of Agency
between Philamlife and its agents.

HELD: No, it does not have jurisdiction.

The general regulatory authority of the Insurance Commissioner is described in Section 414 of the

Insurance Code, to wit:

"The Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance
companies and other insurance matters, mutual benefit associations and trusts for charitable uses are
faithfully executed and to perform the duties imposed upon him by this Code, . . . ."

On the other hand, Section 415 provides:

"In addition to the administrative sanctions provided elsewhere in this Code, the Insurance Commissioner
is hereby authorized, at his discretion, to impose upon insurance companies, their directors and/or officers
and/or agents, for any willful failure or refusal to comply with, or violation of any provision of this Code, or
any order, instruction, regulation or ruling of the Insurance Commissioner, or any commission of
irregularities, and/or conducting business in an unsafe or unsound manner as may be determined by the
Insurance Commissioner, the following:

fines not in excess of five hundred pesos a day; and

suspension, or after due hearing, removal of directors and/or officers and/or agents."

A plain reading of the above-quoted provisions show that the Insurance Commissioner has the authority
to regulate the business of insurance, which is defined as follows:

"(2) The term 'doing an insurance business' or 'transacting an insurance business,' within the meaning of
this Code, shall include (a) making or proposing to make, as insurer, any insurance contract; (b) making,
or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental of
the surety; (c) doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this Code; (d) doing or proposing
to do any business in substance equivalent to any of the foregoing in a manner designed to evade the
provisions of this Code. (Insurance Code, Sec. 2 [2])

Since the contract of agency entered into between Philamlife and its agents is not included within the
meaning of an insurance business, Section 2 of the Insurance Code cannot be invoked to give jurisdiction
over the same to the Insurance Commissioner. Expressio unius est exclusio alterius.

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PHILAMCARE V. CA

FACTS:

Ernani Trinos, applied for a health care coverage with Philamcare. In the standard application form, he
answered NO to the following question: “Have you or any of your family members ever consulted or been
treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If
Yes, give details)”

The application was approved for a period of one year from March 1, 1988 to March 1, 1989. He was a
issued Health Care Agreement, and under such, he was entitled to avail of hospitalization benefits,
whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such
as annual physical examinations, preventive health care and other out-patient services.

Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to
March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a
maximum sum of P75,000.00 per disability.

During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical
Center (MMC) for one month beginning March 9, 1990.

While her husband was in the hospital, Julita tried to claim the benefits under the health care agreement.
However, Philamcare denied her claim saying that the Health Care Agreement was void.
According to Philamcare, there was concealment regarding Ernani's medical history.

Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was hypertensive,
diabetic and asthmatic, contrary to his answer in the application form.
Julita had no choice but to pay the hospitalization expenses herself, amounting to about P76,000.00

After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later,
he was admitted at the Chinese General Hospital (CGH). Due to financial difficulties, Julita brought her
husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Julita
was constrained to bring him back to the CGH where he died on the same day.

Julita instituted, an action for damages against Philamcare. She asked for reimbursement of her
expenses plus moral damages and attorney's fees. RTC decided in favor of Julita. CA affirmed.

ISSUES AND RESOLUTIONS:

Philamcare brought the instant petition for review, raising the primary argument that a health care
agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code
Title 6, Sec. 48 does not apply.

SC held that in the case at bar, the insurable interest of respondent's husband in obtaining the health
care agreement was his own health. The health care agreement was in the nature of non-life insurance,
which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense
arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same
to the extent agreed upon under the contract.

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Under the title Claim procedures of expenses, Philamcare. had 12 mos 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.

Petitioner argues that respondent's husband concealed a material fact in his application. It appears that
in the application for health coverage, petitioners required respondent's husband to sign an express
authorization for any person, organization or entity that has any record or knowledge of his health to
furnish any and all information relative to any hospitalization, consultation, treatment or any other medical
advice or examination.

Philamcare cannot rely on the stipulation regarding "Invalidation of agreement" which reads:

Failure to disclose or misrepresentation of any material information by the member in the application or
medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement
from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid.
An undisclosed or misrepresented information is deemed material if its revelation would have resulted in
the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the
benefit or benefits applied for.

The answer assailed by petitioner was in response to the question relating to the medical history of the
applicant. This largely depends on opinion rather than fact, especially coming from respondent's husband
who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in
good faith and without intent to deceive will not avoid a policy even though they are untrue. Thus,

(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured
will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance
at a lower rate of premium, and this is likewise the rule although the
statement is material to the risk, if the statement is obviously of the foregoing character, since in such
case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry.
There is a clear distinction between such a case and one in which the insured is fraudulently and
intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually
untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the
intent to deceive the insurer is obvious and amounts to actual fraud.

The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance
contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the
provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims
made under the contract. 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.

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract
of insurance." The right to rescind should be exercised previous to the commencement of an action on
the contract. In this case, no rescission was made. Besides, the cancellation of health care agreements
as in insurance policies require the concurrence of the following conditions:

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Prior notice of cancellation to insured;

Notice must be based on the occurrence after effective date of the policy of one or more of the grounds
mentioned;
Must be in writing, mailed or delivered to the insured at the address shown in the policy;

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 of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain
limitations on liability, courts should construe them in such a way as to preclude the insurer from non-
compliance with his obligation. Being a contract of adhesion, the terms of an 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. This is equally applicable to Health Care Agreements. The phraseology used in medical or
hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber,
and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to
be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider.

PHILAMCARE V. CA (REPEAT – CASE #09)

379 SCRA 356

FACTS:

Ernani Trinos, applied for a health care coverage with Philamcare. In the standard application form, he
answered NO to the following question: “Have you or any of your family members ever consulted or been
treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If
Yes, give details)”

The application was approved for a period of one year from March 1, 1988 to March 1, 1989. He was a
issued Health Care Agreement, and under such, he was entitled to avail of hospitalization benefits,
whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such
as annual physical examinations, preventive health care and other out-patient services.

Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to
March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a
maximum sum of P75,000.00 per disability.

During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical
Center (MMC) for one month beginning March 9, 1990.

While her husband was in the hospital, Julita tried to claim the benefits under the health care agreement.
However, Philamcare denied her claim saying that the Health Care Agreement was void.
According to Philamcare, there was concealment regarding Ernani's medical history.

Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was hypertensive,
diabetic and asthmatic, contrary to his answer in the application form.
Julita had no choice but to pay the hospitalization expenses herself, amounting to about P76,000.00

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 INSURANCE LAW 12

After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later,
he was admitted at the Chinese General Hospital (CGH). Due to financial difficulties, Julita brought her
husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Julita
was constrained to bring him back to the CGH where he died on the same day.

Julita instituted, an action for damages against Philamcare. She asked for reimbursement of her
expenses plus moral damages and attorney's fees. RTC decided in favor of Julita. CA affirmed.

ISSUES AND RESOLUTIONS:

Philamcare brought the instant petition for review, raising the primary argument that a health care
agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code
Title 6, Sec. 48 does not apply.

SC held that in the case at bar, the insurable interest of respondent's husband in obtaining the health
care agreement was his own health. The health care agreement was in the nature of non-life insurance,
which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense
arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same
to the extent agreed upon under the contract.

Under the title Claim procedures of expenses, Philamcare. had 12 mos 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.

Petitioner argues that respondent's husband concealed a material fact in his application. It appears that
in the application for health coverage, petitioners required respondent's husband to sign an express
authorization for any person, organization or entity that has any record or knowledge of his health to
furnish any and all information relative to any hospitalization, consultation, treatment or any other medical
advice or examination.

Philamcare cannot rely on the stipulation regarding "Invalidation of agreement" which reads:

Failure to disclose or misrepresentation of any material information by the member in the application or
medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement
from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid.
An undisclosed or misrepresented information is deemed
material if its revelation would have resulted in the declination of the applicant by Philamcare or the
assessment of a higher Membership Fee for the benefit or benefits applied for.

The answer assailed by petitioner was in response to the question relating to the medical history of the
applicant. This largely depends on opinion rather than fact, especially coming from respondent's husband
who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in
good faith and without intent to deceive will not avoid a policy even though they are untrue. Thus,

(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured
will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance
at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if
the statement is obviously of the foregoing character, since in such case the insurer is not justified in

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relying upon such statement, but is obligated to make further inquiry. There is a clear distinction between
such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter
of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is
shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious
and amounts to actual fraud.

The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance
contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the
provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims
made under the contract. 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.

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract
of insurance." The right to rescind should be exercised previous to the commencement of an action on
the contract. In this case, no rescission was made. Besides, the cancellation of health care agreements
as in insurance policies require the concurrence of the following conditions:

Prior notice of cancellation to insured;

Notice must be based on the occurrence after effective date of the policy of one or more of the grounds
mentioned;
Must be in writing, mailed or delivered to the insured at the address shown in the policy;

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 of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain
limitations on liability, courts should construe them in such a way as to preclude the insurer from non-
compliance with his obligation. Being a contract of adhesion, the terms of an 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. This is equally applicable to Health Care Agreements. The phraseology used in medical or
hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber,
and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to
be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider.

FILIPINAS CIA DE SEGUROS V. CHRISTERN HUENFELD & CO.

FACTS:

Oct. 1, 1941, Domestic Corp Christern, after payment of the premium, obtained from Filipinas, fire policy
no. 29333 for P100T covering merchandise contained in a building located in Binondo.

On Feb. 27, 1942, during the Jap occupation, the building and the insured merchandise were burned.
Christern submitted to Filipinas its claim.

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Salvaged goods were sold and the total loss of Christern was P92T.

Filipinas denied liability on the ground that Christern was an enemy corp and cannot be insured.

ISSUE: WON Filipinas is liable to Christern, Huenfeld & Co.

HELD: NO.

Majority of the stockholders of Christern were German subjects. This being so, SC ruled that said
corporation became an enemy corporation upon the war between the US and Germany. The Phil
Insurance Law in Sec. 8 provides that anyone except a public enemy may be insured. It stands to reason
that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy.

The purpose of the war is to cripple the power ad exhaust the resources of the enemy, and it is
inconsistent that one country should destroy its enemy property and repay in insurance the value of what
has been so destroyed, or that it should in such manner increase the resources of the enemy or render it
aid.

All individuals who compose the belligerent powers, exist as to each other, in a state of utter exclusion
and are public enemies. Christern having become an enemy corporation on Dec. 10. 1941, the insurance
policy issued in his favor on Oct. 1, 1941 by Filipinas had ceased to be valid and enforceable, and since
the insured goods were burned after Dec. 10, 1941, and during the war, Christern was NOT entitled to
any indemnity under said policy from Filipinas.

Elementary rules of justice require that the premium paid by Christern for the period covered by the policy
from Dec. 10, 1941 should be returned by Filipinas.

SAN MIGUEL BREWERY V. LAW UNION ROCK INSURANCE COMPANY

FACTS:

On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt of 10T.

Mortgage contract stated that Dunn was to have the property insured at his own expense, authorizing
SMB to choose the insurers and to receive the proceeds thereof and retain so much of the proceeds as
would cover the mortgage debt.

Dunn likewise authorized SMB to take out the insurance policy for him.

Brias, SMB’s general manager, approached Law Union for insurance to the extent of 15T upon the
property. In the application, Brias stated that SMB’s interest in the property was merely that of a
mortgagee.

Law Union, not wanting to issue a policy for the entire amount, issued one for P7,500 and procured
another policy of equal amount from Filipinas Cia de Seguros. Both policies were issued in the name of
SMB only and contained no reference to any other interests in the propty. Both policies required
assignments to be approved and noted on the policy.

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Premiums were paid by SMB and charged to Dunn. A year later, the policies were renewed.

In 1917, Dunn sold the property to Harding, but no assignment of the policies was made to the latter.

Property was destroyed by fire. SMB filed an action in court to recover on the policies. Harding was made
a defendant because by virtue of the sale, he became the owner of the property, although the policies
were issued in SMB’s name.

SMB sought to recover the proceeds to the extent of its mortgage credit with the balance to go to Harding.

Insurance Companies contended that they were not liable to Harding because their liability under the
policies was limited to the insurable interests of SMB only.

SMB eventually reached a settlement with the insurance companies and was paid the balance of it’s
mortgage credit. Harding was left to fend for himself. Trial court ruled against Harding. Hence the appeal.

ISSUE: WON the insurance companies are liable to Harding for the balance of the proceeds of the 2
policies.

HELD: NOPE.

Under the Insurance Act, the measure of insurable interest in the property is the extent to which the
insured might be daminified by the loss or injury thereof. Also it is provided in the IA that the insurance
shall be applied exclusively to the proper interest of the person in whose name it is made. Undoubtedly,
SMB as the mortgagee of the property, had an insurable interest therein; but it could NOT, an any event,
recover upon the two policies an amount in excess of its mortgage credit.

By virtue of the Insurance Act, neither Dunn nor Harding could have recovered from the two policies. With
respect to Harding, when he acquired the property, no change or assignment of the policies had been
undertaken. The policies might have been worded differently so as to protect the owner, but this was not
done.

If the wording had been: “Payable to SMB, mortgagee, as its interests may appear, remainder to
whomsoever, during the continuance of the risk, may become owner of the interest insured” , it would
have proved an intention to insure the entire interest in the property, NOT merely SMB’s and would have
shown to whom the money, in case of loss, should be paid. Unfortunately, this was not what was stated
in the policies.

If during the negotiation for the policies, the parties had agreed that even the owner’s interest would be
covered by the policies, and the policies had inadvertently been written in the form in which they were
eventually issued, the lower court would have been able to order that the contract be reformed to give
effect to them in the sense that the parties intended to be bound. However, there is no clear and
satisfactory proof that the policies failed to reflect the real agreement between the parties that would
justify the reformation of these two contracts.

SAURA IMPORT EXPORT CO. V. PHILIPPINE INTERNATIONAL SURETY

FACTS:

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 INSURANCE LAW 16

On Dec. 26, 1952, Saura mortgaged to PNB its registered parcel of land in Davao to secure the payment
of a promissory note of P27T.

A building of strong materials which was also owned by Saura, was erected on the parcel of land and the
building had always been covered by insurance even before the execution of the mortgage contract.

Pursuant to the mortgage agreement which required Saura to insure the building and its contents, it
obtained a fire insurance for P29T from PISC for a period of 1 year starting Oct. 2, 1954.

The mortgage also required Saura to endorse the insurance policy to PNB. The memo stated: Loss if
any, payable to PNG as their interest may appear, subject to the terms, conditions and warranties of this
policy.

The policy was delivered to PNB by Saura.

On Oct. 15, 1954, barely 13 days after the issuance of the fire insurance, PISC canceled the same,
effective as of the date of issue. Notice of the cancellation was sent to PNB in writing and was received
by the bank on Nov. 8, 1954.

On Apr. 6, 1955, the building and its contents worth P4,685 were burned. On April 11, 1985, Saura filed
a claim with PISC and mortgagee bank.

Upon presentation of notice of loss with PNB, Saura learned for the first time that the policy had been
previously canceled by PISC, when Saura’s folder in the bank’s file was opened and the notice of the
cancellation by PISC was found.

ISSUE: WON there was proper cancellation of the policy?

HELD: NO.

The policy in question does NOT provide for the notice of cancellation, its form or period. The Insurance
Law does not likewise provide for such notice. This being the case, it devolves upon the Court to apply
the generally accepted principles of insurance, regarding cancellation of the insurance policy by the
insurer.

Actual notice of cancellation in a clear and unequivocal manner, preferably in writing should be given by
the insurer to the insured so that the latter might be given an opportunity to obtain other insurance for his

own protection. The notice should be personal to the insurer and not to and/or through any unauthorized
person by the policy. Both the PSIC and the PNB failed, wittingly or unwittingly to notify Saura of the
cancellation made.

The insurer contends that it gave notice to PNB as mortgagee of the property and that was already
substantial compliance with its duty to notify the insured of the cancellation of the policy. But notice to the
bank, as far as Saura herein is concerned, is not effective notice. PISC is then ordered to pay Saura
P29T, the amount involved in the policy subject matter of this case.

PALILIEO V. COSIO

FACTS:

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 INSURANCE LAW 17

On Dec. 18, 1951, Palileo obtained from Cosio a loan of P12T.

To secure payment, Cosio required Palileo to sign a document known as “conditional sale of residential
building”, purporting to convey to Cosio, with a right to repurchase (on the part of Palileo), a two-story
building of strong materials belonging to Palileo.

After execution of the document, Cosio insured the building against fire with Associated Insurance &
Surety Co. (Associated) for 15T.

The insurance policy was issued in the name of Cosio.

The building was partly destroyed by fire and after proper demand, Cosio was able to collect from the
insurance company an indemnity of P13,107.

Palileo demanded from Cosio that she be credited with the necessary amount to pay her obligation out
of the insurance proceeds, but Cosio refused to do so.

Trial Court found that the debt had an unpaid balance of P12T. It declared the obligation of Palileo to
Cosio fully compensated by virtue of the proceeds collected by Cosio and further held that the excess of
P1,107 (13,107 – 12,000) be refunded to Palileo

ISSUE: WON the trial court was justified in considering the obligation of Palileo fully compensated by the
insurance amount that Cosio was able to collect from Associated, and WON the trial court was correct in
requiring Cosio to refund the excess of P1,107 to Palileo.

HELD: NO and NO.

The rule is that “where a mortgagee, independently of the mortgagor, insures the mortgaged property in
his own name and for his own interest, he is entitled to the insurance proceeds in case of loss, but in such
case, he is not allowed to retain his claim against the mortgagor, but is passed by subrogation to the
insurer to the extent of the money paid.”

The lower court erred in declaring that the proceeds of the insurance taken out by Cosio on the property
insured to the benefit of Palileo and in ordering the former to deliver to the latter, the difference between
the indebtedness and the amount of insurance received by Cosio. In the light of this ruling, the correct
solution would be that the proceeds of the Insurance be delivered to Cosio, but her claim against Palileo
should be considered assigned to the insurance company who is deemed subrogated to the rights of
Cosio to the extent of the money paid as indemnity.

GREPALIFE V. CA 316 SCRA 677

FACTS:

A contract of group life insurance was executed between Grepalife and DBP. Grepalife agreed to insure
the lives of eligible housing loan mortgagors of DBP.
Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group life
insurance plan.

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In an application form, Dr. Leuterio answered questions concerning his health stating that he is in good
health and has never consulted a physician for or a heart condition, high blood pressure, cancer, diabetes,
lung, kidney or stomach disorder or any other physical impairment.

Grepalife issued the insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness
amounting to eighty-six thousand, two hundred (P86,200.00) pesos.
Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP submitted a death claim to
Grepalife.

Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied for an
insurance coverage and insisted that Dr. Leuterio did not disclose that he had been suffering from
hypertension, which caused his death. Allegedly, such non-disclosure constituted concealment that
justified the denial of the claim.

The widow of the late Dr. Leuterio, filed a complaint against Grepalife for "Specific Performance with
Damages." During the trial, Dr. Hernando Mejia, who issued the death certificate, was called to testify.
Dr. Mejia’s findings, based partly from the information given by the widow, stated that Dr. Leuterio
complained of headaches presumably due to high blood pressure. The inference was not conclusive
because Dr. Leuterio was not autopsied, hence, other causes were not ruled out.

RTC ruled in favor of widow and against Grepalife. Grepalife appealed contending that the wife was not
the proper party in interest to file the suit, since it is DBP who insured the life of Dr. Leuterio.

ISSUE: WON the widow is the real party in interest, (not DBP) and has legal standing to file the suit.

HELD: YES.

Grepalife alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in
interest, hence the trial court acquired no jurisdiction over the case. It argues that when the Court of
Appeals affirmed the trial court’s judgment, Grepalife was held liable to pay the proceeds of insurance
contract in favor of DBP, the indispensable party who was not joined in the suit.

To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to
this type of contract. The rationale of a group insurance policy of mortgagors, otherwise known as the
"mortgage redemption insurance," is a device for the protection of both the mortgagee and the mortgagor.
On the part of the mortgagee, it has to enter into such form of contract so that in the event of the
unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from
such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the
mortgagor from paying the obligation.

In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event of
death; the mortgage obligation will be extinguished by the application of the insurance proceeds to the
mortgage indebtedness. Consequently, where the mortgagor pays the insurance premium under the
group insurance policy, making the loss payable to the mortgagee, the insurance is on the mortgagor’s
interest, and the mortgagor continues to be a party to the contract. In this type of policy insurance, the
mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make the
mortgagee a party to the contract.

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The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance,
the policy stating that: "In the event of the debtor’s death before his indebtedness with the Creditor [DBP]
shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor
and the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies designated by
the debtor." When DBP submitted the insurance claim against petitioner, the latter denied payment
thereof, interposing the defense of concealment committed by the insured. Thereafter, DBP collected the
debt from the mortgagor and took the necessary action of foreclosure on the residential lot of private
respondent

And since a policy of insurance upon life or health may pass by transfer, will or succession to any person,
whether he has an insurable interest or not, and such person may recover it whatever the insured might
have recovered, 14 the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

As to the question of whether there was concealment, CA held as affirmed by the SC that contrary to
Grepalife’s allegations, there was no sufficient proof that the insured had suffered from hypertension.
Aside from the statement of the insured’s widow who was not even sure if the medicines taken by Dr.
Leuterio were for hypertension, the appellant had not proven nor produced any witness who could attest
to Dr. Leuterio’s medical history.

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the
duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. In the case
at bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore liable to pay
the proceeds of the insurance

Irish Joycel A. Flores