Detailed Facts
I. General Concepts
Enriquez vs SunLife
Assurance Company of
Canada
Nov. 29, 1920
J.Malcolm
An action by the plaintiff and
administrator of the estate of
Joaquin Ma. Herrer to
recover from the defendant
the sum 6,000 paid by the
deceased for a life annuity.
The trial court gave judgment
for the defendant. Plaintiff
appeals.
On September 24, 1917,
Joaquin Herrer made
application to the Sun Life
Assurance Company of
Canada through its office in
Manila for a life annuity.
Two days later he paid the
sum of P6,000 to the manager
of the company's Manila
office and was given a
receipt.
The application was
forwarded to the head office
of the company at Montreal,
Canada. On November 26,
1917, the head office gave
notice of acceptance by cable
to Manila. (Whether on the
same day the cable was
received notice was sent by
the Manila office of Herrer
that the application had been
accepted, is a disputed point).
On December 4, 1917, the
policy was issued at
Montreal. On December 18,
1917, attorney Aurelio A.
Torres wrote to the Manila
office of the company stating
that Herrer desired to
withdraw his application. The
following day the local office
replied to Mr. Torres, stating
that the policy had been
issued, and called attention to
the notification of November
26, 1917. This letter was
received by Mr. Torres on the
morning of December 21,
1917. Mr. Herrer died on
December 20, 1917.
Doctrine
Issue: Whether or not the principle that acceptance does not bind the offeror unless it came
to his knowledge.
Yes.
The Civil Code rule, that an acceptance made by letter shall bind the person making the
offer only from the date it came to his knowledge, may not be the best expression of modern
commercial usage. Still it must be admitted that its enforcement avoids uncertainty and
tends to security. Not only this, but in order that the principle may not be taken too lightly,
let it be noticed that it is identical with the principles announced by a considerable number
of respectable courts in the United States. The courts who take this view have expressly
held that an acceptance of an offer of insurance not actually or constructively
communicated to the proposer does not make a contract. Only the mailing of acceptance, it
has been said, completes the contract of insurance, as the locus poenitentiae is ended when
the acceptance has passed beyond the control of the party. (I Joyce, The Law of Insurance,
pp. 235, 244.)
In resume, therefore, the law applicable to the case is found to be the second paragraph of
article 1262 of the Civil Code providing that an acceptance made by letter shall not bind
the person making the offer except from the time it came to his knowledge. The pertinent
fact is, that according to the provisional receipt, three things had to be accomplished by the
insurance company before there was a contract:
(1) There had to be a medical examination of the applicant;
(2) there had to be approval of the application by the head office of the company; and
(3) this approval had in some way to be communicated by the company to the applicant.
The further admitted facts are that the head office in Montreal did accept the application,
did cable the Manila office to that effect, did actually issue the policy and did, through its
agent in Manila, actually write the letter of notification and place it in the usual channels
for transmission to the addressee. The fact as to the letter of notification thus fails to concur
with the essential elements of the general rule pertaining to the mailing and delivery of mail
matter as announced by the American courts, namely, when a letter or other mail matter is
addressed and mailed with postage prepaid there is a rebuttable presumption of fact that it
was received by the addressee as soon as it could have been transmitted to him in the
ordinary course of the mails. But if any one of these elemental facts fails to appear, it is
fatal to the presumption. For instance, a letter will not be presumed to have been received
by the addressee unless it is shown that it was deposited in the post-office, properly
addressed and stamped. (See 22 C.J., 96, and 49 L. R. A. [N. S.], pp. 458, et seq., notes.)
We hold that the contract for a life annuity in the case at bar was not perfected because it
has not been proved satisfactorily that the acceptance of the application ever came to the
knowledge of the applicant.
Note:
Until quite recently, all of the provisions concerning life insurance in the Philippines were
found in the Code of Commerce and the Civil Code. In the Code of the Commerce, there
formerly existed Title VIII of Book III and Section III of Title III of Book III, which dealt
with insurance contracts. In the Civil Code there formerly existed and presumably still
exist, Chapters II and IV, entitled insurance contracts and life annuities, respectively, of
Title XII of Book IV. On the after July 1, 1915, there was, however, in force the Insurance
Act. No. 2427. Chapter IV of this Act concerns life and health insurance. The Act expressly
repealed Title VIII of Book II and Section III of Title III of Book III of the code of
Commerce. The law of insurance is consequently now found in the Insurance Act and the
Civil Code.
While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the
methods to be followed in order that there may be a contract of insurance. On the other
hand, the Civil Code, in article 1802, not only describes a contact of life annuity markedly
similar to the one we are considering, but in two other articles, gives strong clues as to the
 proper disposition of the case. For instance, article 16 of the Civil Code provides that "In
The chief clerk of the Manila matters which are governed by special laws, any deficiency of the latter shall be supplied
office testified that he by the provisions of this Code." On the supposition, therefore, which is incontestable, that
prepared the letter dated the special law on the subject of insurance is deficient in enunciating the principles
November 26, 1917, and governing acceptance, the subject-matter of the Civil code, if there be any, would be
handed it to the local controlling. In the Civil Code is found article 1262 providing that "Consent is shown by the
manager, Mr. E. E. White, for concurrence of offer and acceptance with respect to the thing and the consideration which
signature. The witness are to constitute the contract. An acceptance made by letter shall not bind the person making
admitted on cross- the offer except from the time it came to his knowledge. The contract, in such case, is
examination that after presumed to have been entered into at the place where the offer was made." This latter
preparing the letter and article is in opposition to the provisions of article 54 of the Code of Commerce.
giving it to he manager, he
new nothing of what became
of it. The local manager, Mr.
White, testified to having
received the cablegram
accepting the application of
Mr. Herrer from the home
office on November 26,
1917. He said that on the
same day he signed a letter
notifying Mr. Herrer of this
acceptance. The witness
further said that letters, after
being signed, were sent to the
chief clerk and placed on the
mailing desk for
transmission. The witness
could not tell if the letter had
every actually been placed in
the mails. Mr. Tuason, who
was the chief clerk, on
November 26, 1917, was not
called as a witness. For the
defense, attorney Manuel
Torres testified to having
prepared the will of Joaquin
Ma. Herrer, that on this
occasion, Mr. Herrer
mentioned his application for
a life annuity, and that he said
that the only document
relating to the transaction in
his possession was the
provisional receipt. Rafael
Enriquez, the administrator
of the estate, testified that he
had gone through the effects
of the deceased and had
found no letter of notification
from the insurance company
to Mr. Herrer.
Eternal Gardens Memorial
Park Corporation vs Phil.
American Life Insurance
Company
April 9, 2008
J. Velasco Jr.
On December 10, 1980,
respondent Philippine
American Life Insurance
Company (Philamlife)
entered into an agreement
(Creditor Group Life
Policy)with petitioner Eternal
Gardens Memorial Park
Corporation. Under the
policy, 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.
Eternal was required 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 dated December 29,
1982,4 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, 19845 to
Philamlife, which served as
an insurance claim for
Chuang’s death. Attached to
the claim were the following
documents: (1) Chuang’s
Certificate of Death; (2)
Identification Certificate
stating that Chuang is a
RTC: For Eternal;
Eternal submitted Chuang’s application for insurance which he accomplished before his
death.
Further, 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. Philamlife appealed to the CA, which ruled, thus:
CA: Reversed.
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.
Issues:
Whether or not the evidence supports Eternal’s contention that it submitted a copy of the
application of Chuang before his death.
Whether Philamlife assumed the risk of loss without approving the application.
Yes.
Philamlife had stamped the Dec. 29, 1982 letter as ‘received’.
The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as
received, states that the insurance forms for the attached list of burial lot buyers were
attached to the letter. Such stamp of receipt has the effect of acknowledging receipt of the
letter together with the attachments. Such receipt is an admission by Philamlife against its
own interest.13 The burden of evidence has shifted to Philamlife, which must prove that
the letter did not contain Chuang’s insurance application. However, Philamlife failed to do
so; thus, Philamlife is deemed to have received Chuang’s insurance application.
Philamlife’s allegation that Eternal’s witnesses ran out of credibility and reliability
due to inconsistencies is groundless.
An examination of the testimonies of the witnesses mentioned by Philamlife, however,
reveals no overlooked facts of substance and value.
The witness admitted not knowing where the original insurance application was, but
believed that the application was transmitted to Philamlife as an attachment to a transmittal
letter.
As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one
or two insurance application forms were accomplished and the testimony of Mendoza on
who actually filled out the application form, these are minor inconsistencies that do not
affect the credibility of the witnesses. We reiterated the above ruling in Merencillo v.
People:
Minor discrepancies or inconsistencies do not impair the essential integrity of the
prosecution’s evidence as a whole or reflect on the witnesses’ honesty. The test is whether
the testimonies agree on essential facts and whether the respective versions corroborate
and substantially coincide with each other so as to make a consistent and coherent whole.
Yes.
The provisions of the Creditor Group Life Policy is ambiguous.
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
naturalized Filipino Citizen;
(3) Certificate of Claimant;
(4) Certificate of Attending
Physician; and (5) Assured’s
Certificate.
In reply, Philamlife wrote
Eternal a letter on November
12, 1984,6 requiring Eternal
to submit the following
documents relative to its
insurance claim for Chuang’s
death: (1) Certificate of
Claimant (with form
attached); (2) Assured’s
Certificate (with form
attached); (3) Application for
Insurance accomplished and
signed by the insured,
Chuang, while still living;
and (4) Statement of Account
showing the unpaid balance
of Chuang before his death.
Eternal transmitted the
required documents through
a letter dated November 14,
1984,7 which was received
by Philamlife on November
15, 1984.
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: The deceased was 59
years old when he entered
into Contract with Eternal
Gardens Memorial Park in
No application for Group
Insurance was submitted in
our office prior to his death
on August 2, 1984.
"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
effective.
Insurance contract is a contract of adhesion; must be construed against the insurer.
However, the seemingly conflicting provisions must be harmonized.
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 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.
Insurer is not in equal footing with the insured.
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 in the industry purposefully used to its advantage. More often
than not, insurance contracts are contracts of adhesion containing technical terms and
conditions of the industry, confusing if at all understandable to laypersons, that are imposed
on those who wish to avail of insurance. As such, insurance contracts are imbued with
public interest that must be considered whenever the rights and obligations of the insurer
and the insured are to be delineated. Hence, in order to protect the interest of insurance
applicants, insurance companies must be obligated to act with haste upon insurance
applications, to either deny or approve the same, or otherwise be bound to honor the
application as a valid, binding, and effective insurance contract.
Note:
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
was not covered under the Purchaser is not approved by the Company.
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.

Philamcare Health Systems
Inc. vs CA and Julita
Trinos
March 18, 2002
Issues: Whether or not the contract in this case is an insurance contract.
Whether the agreement is void because of Ernani’s concealment of material fact.
Whether or not there can be rescission of the contract in this case.
Whether the fact that private respondent is not the legal wife of the deceased has
bearing in this case.

Ynares- Santiago Yes.

Section 2 (1) of the Insurance Code defines a contract of insurance as
Ernani Trinos, deceased “an agreement whereby one undertakes for a consideration to indemnify another against
husband of respondent Julita loss, damage or liability arising from an unknown or contingent even.”
Trinos, applied for a health
care coverage with An insurance contract exists where the following elements concur:
Philamcare Health Systems,
Inc. In the standard 1. The insured has an insurable interest;
application form, he
answered no to the question: 2. The insured is subject to a risk of loss by the happening of the designated peril;

Have you or any of your family 3. The insurer assumes the risk;
members ever consulted or been
treated for high blood pressure, 4. Such assumption of risk is part of a general scheme to distribute actual losses among a
heart trouble, diabetes, cancer,
large group of persons bearing a similar risk; and
liver disease, asthma or peptic
ulcer? (If Yes, give details).
5. In consideration of the insurers promise, the insured pays a premium.[8]
The application was
approved for a period of one Section 3 of the Insurance Code states that any contingent or unknown event, whether
year from March 1, 1988 to past or future, which may damnify a person having an insurable interest against him, may
March 1, 1989. Accordingly, be insured against. Every person has an insurable interest in the life and health of himself.
he was issued Health Care Section 10 provides:
Agreement No. P010194.
Under the agreement, Every person has an insurable interest in the life and health:
respondents husband was
entitled to avail of (1) of himself, of his spouse and of his children;
hospitalization benefits,
whether ordinary or (2) of any person on whom he depends wholly or in part for education or support, or in
emergency, listed therein. He whom he has a pecuniary interest;
was also entitled to avail of
out-patient benefits such as (3) of any person under a legal obligation to him for the payment of money, respecting
annual physical property or service, of which death or illness might delay or prevent the performance; and
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, respondent tried to
claim the benefits under the
health care agreement.
However, petitioner denied
her claim saying that the
Health Care Agreement was
void. According to petitioner,
there was a concealment
regarding Ernanis medical
history. Doctors at the MMC
allegedly discovered at the
time of Ernanis confinement
that he was hypertensive,
diabetic and asthmatic,
contrary to his answer in the
application form. Thus,
respondent paid 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. Due to
financial difficulties,
however, respondent brought
her husband home again. In
the morning of April 13,
1990, Ernani had fever and
was feeling very weak.
Respondent was constrained
to bring him back to the
Chinese General Hospital
where he died on the same
day.
Respondent instituted an
action for damages before
RTC against petitioner,
(4) of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of respondents 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.
No.
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 respondents 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.[15] (Underscoring ours)
No.
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.
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:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or more
of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and
upon request of insured, to furnish facts on which cancellation is based.
None 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 .
No.
including Dr. Benito Health care agreement is in the nature of a contract of indemnity. Hence, payment should
Reverente. RTC ruled in her be made to the party who incurred expenses.
favor; ordered respondent to
pay.

CA: Affirmed, but deleted all

awards for damages and
absolved Reverente.

Phil. Health Care Providers Issues:

Inc vs CIR Whether or not petitioner which as an HMO was engaged in the business of insurance
during the pertinent taxable years.
September 18, 2009 Whether or not healthcare agreements are insurance contracts within the contemplation of
Sec. 185 1997 NIRC
J. Corona Whether or not there was legislative intent to impose DSTs on HMOs.
Petitioner is a domestic Whether or not petitioner’s liability was extinguished by tax amnesty (RA 9840).
corporation whose primary
purpose is [t]o establish, No.
maintain, conduct and Section 2 (2) of PD[20] 1460 (otherwise known as the Insurance Code) enumerates what
operate a prepaid group constitutes doing an insurance business or transacting an insurance business:
practice health care delivery
system or a health a) making or proposing to make, as insurer, any insurance contract;
maintenance organization to
take care of the sick and b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as
merely incidental to any other legitimate business or activity of the surety;
disabled persons enrolled in
the health care plan and to c) doing any kind of business, including a reinsurance business, specifically recognized as
provide for the constituting the doing of an insurance business within the meaning of this Code;
administrative, legal, and
financial responsibilities of d) doing or proposing to do any business in substance equivalent to any of the foregoing in a
the organization. Individuals manner designed to evade the provisions of this Code.
enrolled in its health care
programs pay an annual The fact that no profit is derived from the making of insurance contracts, agreements or transactions
membership fee and are or that no separate or direct consideration is received therefore, shall not be deemed conclusive to show
that the making thereof does not constitute the doing or transacting of an insurance business.
entitled to various preventive,
diagnostic and curative
Various courts in the United States, whose jurisprudence has a persuasive effect on our
medical services provided by
decisions, have determined that HMOs are not in the insurance business. One test that they
its duly licensed physicians,
have applied is whether the assumption of risk and indemnification of loss (which are
specialists and other
elements of an insurance business) are the principal object and purpose of the
professional technical staff
organization or whether they are merely incidental to its business.
participating in the group
practice health delivery
If these are the principal objectives, the business is that of insurance. But if they are merely
system at a hospital or clinic
incidental and service is the principal purpose, then the business is not insurance.
owned, operated or
accredited by it.
Applying the principal object and purpose test, there is significant American case law
supporting the argument that a corporation (such as an HMO, whether or not organized for
profit), whose main object is to provide the members of a group with health services, is not
On January 27, 2000,
engaged in the insurance business.
respondent Commissioner of
Internal Revenue [CIR] sent
Jordan vs Group Health Association
petitioner a formal demand
letter and the corresponding
assessment notices
demanding the payment of
deficiency taxes, including
surcharges and interest, for
the taxable years 1996 and
1997 in the total amount of
P224,702,641.18.
The deficiency [documentary
stamp tax (DST)] assessment
was imposed on petitioners
health care agreement with
the members of its health care
program pursuant to Section
185 of the 1997 Tax Code
Petitioner protested the
assessment in a letter dated
February 23, 2000. As
respondent did not act on the
protest, petitioner filed a
petition for review in the
Court of Tax Appeals (CTA)
seeking the cancellation of
the deficiency VAT and DST
assessments.
CTA: Partially Granted;
petitioner ordered to pay
deficiency VAT, but DST
Assessment is cancelled.
CA: Petitioner is subject to
DST; petitioner’s Health
Care Agreement was in the
nature of non-life insurance.
SC (6/12/08): Affirmed
Petitioner’s health care
agreement was in the nature
of non-life insurance which is
a contract of indemnity.
Petitioner’s contention that it
is a health maintenance
organization (HMO) and not
an insurance company is
irrelevant because contracts
between companies like
petitioner and the
beneficiaries under their
plans are treated as insurance
contracts. Moreover, DST is
not a tax on the business
transacted but an excise on
the privilege, opportunity or
facility offered at exchanges
for the transaction of the
business.
Court of Appeals of the District of Columbia Circuit held that Group Health Association
should not be considered as engaged in insurance activities since it was created primarily
for the distribution of health care services rather than the assumption of insurance risk.
xxx Although Group Healths activities may be considered in one aspect as creating security against
loss from illness or accident more truly they constitute the quantity purchase of well-rounded,
continuous medical service by its members. xxx The functions of such an organization are not identical
with those of insurance or indemnity companies. The latter are concerned primarily, if not exclusively,
with risk and the consequences of its descent, not with service, or its extension in kind, quantity or
distribution; with the unusual occurrence, not the daily routine of living. Hazard is predominant. On
the other hand, the cooperative is concerned principally with getting service rendered to its members
and doing so at lower prices made possible by quantity purchasing and economies in operation. Its
primary purpose is to reduce the cost rather than the risk of medical care
That an incidental element of risk distribution or assumption may be present should not
outweigh all other factors. If attention is focused only on that feature, the line between
insurance or indemnity and other types of legal arrangement and economic function
becomes faint, if not extinct.
The fallacy is in looking only at the risk element, to the exclusion of all others present or
their subordination to it. The question turns, not on whether risk is involved or assumed,
but on whether that or something else to which it is related in the particular plan is its
principal object purpose.
California Service Physicians vs Garrisons
Absence or presence of assumption of risk or peril is not the sole test to be applied in
determining its status. The question, more broadly, is whether, looking at the plan of
operation as a whole, service rather than indemnity is its principal object and purpose.
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.
Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue Shield of New
Jersey[27] is clear on this point:
The basic distinction between medical service corporations and ordinary health and accident insurers
is that the former undertake to provide prepaid medical services through participating physicians, thus
relieving subscribers of any further financial burden, while the latter only undertake to indemnify an
insured for medical expenses up to, but not beyond, the schedule of rates contained in the policy.
The primary purpose of a medical service corporation, however, is an undertaking to provide
physicians who will render services to subscribers on a prepaid basis. Hence, if there are no
physicians participating in the medical service corporations plan, not only will the subscribers
be deprived of the protection which they might reasonably have expected would be provided, but
the corporation will, in effect, be doing business solely as a health and accident indemnity insurer
without having qualified as such and rendering itself subject to the more stringent financial
requirements of the General Insurance Laws.
A participating provider of health care services is one who agrees in writing to render health care
services to or for persons covered by a contract issued by health service corporation in return for
which the health service corporation agrees to make payment directly to the participating provider.
Mere presence of risk would be insufficient to override the primary purpose of the business
to provide medical services as needed, with payment made directly to the provider of these
services. In short, even if petitioner assumes the risk of paying the cost of these services
even if significantly more than what the member has prepaid, it nevertheless cannot be
considered as being engaged in the insurance business.
By the same token, any indemnification resulting from the payment for services rendered
in case of emergency by non-participating health providers would still be incidental to
petitioners purpose of providing and arranging for health care services and does not
transform it into an insurer. To fulfill its obligations to its members under the agreements,
petitioner is required to set up a system and the facilities for the delivery of such medical
services. This indubitably shows that indemnification is not its sole object.

In fact, a substantial portion of petitioners services covers preventive and diagnostic

medical services intended to keep members from developing medical conditions or
diseases. As an HMO, it is its obligation to maintain the good health of its members.
Accordingly, its health care programs are designed to prevent or to minimize the possibility
of any assumption of risk on its part. Thus, its undertaking under its agreements is not to
indemnify its members against any loss or damage arising from a medical condition but, on
the contrary, to provide the health and medical services needed to prevent such loss or
damage.

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 petitioners 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.

It is important to emphasize that, in adopting the principal purpose test used in the above-
quoted U.S. cases, we are not saying that petitioners operations are identical in every respect
to those of the HMOs or health providers which were parties to those cases. What we are
stating is that, for the purpose of determining what doing an insurance business means, we
have to scrutinize the operations of the business as a whole and not its mere components.

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.[33] 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. The
reason behind this rule was explained in Nestle Philippines, Inc. v. Court of Appeals:[34]

The rationale for this rule relates not only to the emergence of the multifarious needs of a
modern or modernizing society and the establishment of diverse administrative agencies
for addressing and satisfying those needs; it also relates to the accumulation of experience
and growth of specialized capabilities by the administrative agency charged with
implementing a particular statute.

NO.
Tax laws are strictly construed on the taxing authority and liberally on the taxpayer.

In construing this provision, we should be guided by the principle that tax statutes are
strictly construed against the taxing authority. This is because taxation is a destructive
power which interferes with the personal and property rights of the people and takes from
them a portion of their property for the support of the government.Hence, tax laws may not
be extended by implication beyond the clear import of their language, nor their operation
enlarged so as to embrace matters not specifically provided.

We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care
agreement is in the nature of non-life insurance, which is primarily a contract of indemnity.
However, those cases did not involve the interpretation of a tax provision.

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. 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 designed 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 insurers promise, the insured pays a premium.

The agreements between petitioner and respondent does not contemplate all elements.

First. In our jurisdiction, even if a contract contains all the elements of an insurance
contract, if its primary purpose is the rendering of service, it is not a contract of insurance.

Second. Not all the necessary elements of a contract of insurance are present in petitioners
agreements. To begin with, there is no loss, damage or liability on the part of the member
that should be indemnified by petitioner as an HMO. Under the agreement, the member
pays petitioner a predetermined consideration in exchange for the hospital, medical and
professional services rendered by the petitioners physician or affiliated physician to him.
In case of availment by a member of the benefits under the agreement, petitioner does not
reimburse or indemnify the member as the latter does not pay any third party. Instead, it is
the petitioner who pays the participating physicians and other health care providers for the
services rendered at pre-agreed rates. The member does not make any such payment.

In other words, there is nothing in petitioner's agreements that gives rise to a monetary
liability on the part of the member to any third party-provider of medical services which
might in turn necessitate indemnification from petitioner. The terms indemnify or
indemnity presuppose that a liability or claim has already been incurred. There is no
indemnity precisely because the member merely avails of medical services to be paid or
already paid in advance at a pre-agreed price under the agreements.

Third. According to the agreement, a member can take advantage of the bulk of the benefits
anytime, e.g. laboratory services, x-ray, routine annual physical examination and
consultations, vaccine administration as well as family planning counseling, even in the
absence of any peril, loss or damage on his or her part.

Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives
care from a non-participating physician or hospital. However, this is only a very minor part
of the list of services available. The assumption of the expense by petitioner is not confined
to the happening of a contingency but includes incidents even in the absence of illness or
injury.

Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true
that risk alone is sufficient to establish it. Almost anyone who undertakes a contractual
obligation always bears a certain degree of financial risk. Consequently, there is a need to
distinguish prepaid service contracts (like those of petitioner) from the usual insurance
contracts.

None.
We can clearly see from these two histories (of the DST on the one hand and HMOs on the
other) that when the law imposing the DST was first passed, HMOs were yet unknown in
the Philippines. However, when the various amendments to the DST law were enacted, they
were already in existence in the Philippines and the term had in fact already been defined
by RA 7875.

If it had been the intent of the legislature to impose DST on health care agreements, it could
have done so in clear and categorical terms. It had many opportunities to do so. But it did
not. The fact that the NIRC contained no specific provision on the DST liability of health
care agreements of HMOs at a time they were already known as such, belies any legislative
intent to impose it on them. As a matter of fact, petitioner was assessed its DST liability
only on January 27, 2000, after more than a decade in the business as an HMO.

Yes.
The DST assessment for taxable years 1996 and 1997 became moot and academic when it
availed of the tax amnesty under RA 9480 on December 10, 2007. It paid P5,127,149.08
representing 5% of its net worth as of the year ended December 31, 2005 and complied

Fortune Insurance vs CA
and Producer’s Bank of the
Philippines
J. Davide Jr.
Respondent was insured by
plaintiff.
An armored car of the
plaintiff, while transferring
cash in the sum of
P725,000.00 under the
custody of its teller, Maribeth
Alampay, from its Pasay
Branch to its Head Office at
8737 Paseo de Roxas,
Makati, Metro Manila on
June 29, 1987, was robbed of
the said cash. The robbery
took place while the armored
car was traveling along Taft
Avenue in Pasay City;
The said armored car was
driven by Benjamin
Magalong, escorted by
Security Guard Saturnino
Atiga. Driver Magalong was
assigned by PRC
Management Systems with
the plaintiff by virtue of an
Agreement executed on
August 7, 1983.
The Security Guard Atiga
was assigned by Unicorn
Security Services, Inc. with
the plaintiff by virtue of a
contract of Security Service
executed on October 25,
1982.
with all requirements of the tax amnesty. Under Section 6(a) of RA 9480, it is entitled to
immunity from payment of taxes as well as additions thereto, and the appurtenant civil,
criminal or administrative penalties under the 1997 NIRC, as amended, arising from the
failure to pay any and all internal revenue taxes for taxable year 2005 and prior years.
The respondent concedes to this matter.
W/N the court is bound by minute resolution in another case (CIR vs PNB)
No, if it does not involve same subject matter and same parties; otherwise, res judicata will
set in.
Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioners
liability for DST on its health care agreement was not the subject matter of G.R. No.
148680, petitioner cannot successfully invoke the minute resolution in that case (which is
not even binding precedent) in its favor. Nonetheless, in view of the reasons already
discussed, this does not detract in any way from the fact that petitioners health care
agreements are not subject to DST.
Issue: Whether or not the word Magalong and Atiga qualifies as employees or
authorized representative under the General Exceptions Clause.
No.
Insurance Contract entered by the parties is a form of ‘Casualty Insurance’
Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident or
mishap, excluding certain types of loss which by law or custom are considered as falling exclusively
within the scope of insurance such as fire or marine. It includes, but is not limited to, employer's
liability insurance, public liability insurance, motor vehicle liability insurance, plate glass insurance,
burglary and theft insurance, personal accident and health insurance as written by non-life insurance
companies, and other substantially similar kinds of insurance.
Terms of the contract is controlling, taking into consideration its purpose, and always
in accordance with Insurance Laws.
Except with respect to compulsory motor vehicle liability insurance, the Insurance Code
contains no other provisions applicable to casualty insurance or to robbery insurance in
particular. These contracts are, therefore, governed by the general provisions applicable to
all types of insurance. Outside of these, the rights and obligations of the parties must be
determined by the terms of their contract, taking into consideration its purpose and always
in accordance with the general principles of insurance law.
It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity
to defraud the insurer — the moral hazard — is so great that insurers have found it necessary
to fill up their policies with countless restrictions, many designed to reduce this hazard.
Seldom does the insurer assume the risk of all losses due to the hazards insured against."
Persons frequently excluded under such provisions are those in the insured's service and
employment. The purpose of the exception is to guard against liability should the theft be
committed by one having unrestricted access to the property. In such cases, the terms
specifying the excluded classes are to be given their meaning as understood in common
speech. The terms "service" and "employment" are generally associated with the idea of
selection, control, and compensation.
A contract of insurance is a contract of adhesion, thus any ambiguity therein should be
resolved against the insurer, 15 or it should be construed liberally in favor of the insured
and strictly against the insurer. 16 Limitations of liability should be regarded with extreme
jealousy and must be construed in such a way, as to preclude the insurer from non-
compliance with its obligation. 17 It goes without saying then that if the terms of the
contract are clear and unambiguous, there is no room for construction and such terms cannot
be enlarged or diminished by judicial construction.
After an investigation
conducted by the Pasay
police authorities, the driver
Magalong and guard Atiga
were charged, together with
Edelmer Bantigue, Reynaldo
Aquino and John Doe, with
violation of P.D. 532 (Anti-
Highway Robbery Law)
before the Fiscal of Pasay
City.
The Fiscal of Pasay City then
filed an information charging
the aforesaid persons with the
said crime before Branch 112
of the Regional Trial Court of
Pasay.
An insurance contract is a contract of indemnity upon the terms and conditions specified
therein. 19 It is settled that the terms of the policy constitute the measure of the insurer's
liability. 20 In the absence of statutory prohibition to the contrary, insurance companies
have the same rights as individuals to limit their liability and to impose whatever conditions
they deem best upon their obligations not inconsistent with public policy.
It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and
exempt from protection and coverage losses arising from dishonest, fraudulent, or criminal
acts of persons granted or having unrestricted access to Producers' money or payroll. When
it used then the term "employee," it must have had in mind any person who qualifies as
such as generally and universally understood, or jurisprudentially established in the light of
the four standards in the determination of the employer-employee relationship, 21 or as
statutorily declared even in a limited sense as in the case of Article 106 of the Labor Code
which considers the employees under a "labor-only" contract as employees of the party
employing them and not of the party who supplied them to the employer. 22
Fortune claims that Producers' contracts with PRC Management Systems and Unicorn
Security Services are "labor-only" contracts.

Demands were made by the
plaintiff upon the defendant
to pay the amount of the loss
of P725,000.00, but the latter
refused to pay as the loss is
excluded from the coverage
of the insurance policy.
The company shall not be
liable under this policy in
report of
(b) any loss caused by any
dishonest, fraudulent or criminal
act of the insured or any officer,
employee, …authorized
representative of the Insured
whether acting alone or in
conjunction with others. . . .
But even granting for the sake of argument that these contracts were not "labor-only"
contracts, and PRC Management Systems and Unicorn Security Services were truly
independent contractors, we are satisfied that Magalong and Atiga were, in respect of the
transfer of Producer's money from its Pasay City branch to its head office in Makati, its
"authorized representatives" who served as such with its teller Maribeth Alampay.
Howsoever viewed, Producers entrusted the three with the specific duty to safely transfer
the money to its head office, with Alampay to be responsible for its custody in transit;
Magalong to drive the armored vehicle which would carry the money; and Atiga to provide
the needed security for the money, the vehicle, and his two other companions. In short, for
these particular tasks, the three acted as agents of Producers.
A "representative" is defined as one who represents or stands in the place of another; one
who represents others or another in a special capacity, as an agent, and is interchangeable
with "agent."
In view of the foregoing, Fortune is exempt from liability under the general exceptions
clause of the insurance policy.

The plaintiff contends that

Atiga and Magalong are not
its "officer, employee, . . .
trustee or authorized
representative . . . at the time
of the robbery.

RTC: For Respondent

Atiga and Magalong were not
employees of respondent.
Their respective agencies had
the power to dismiss and
were the one giving them
wages. Neither were they
authorized representatives
because it was the teller who
had custody of the money.

CA: Affirmed. Insurance

contracts must be strictly
construed against the insurer.
The word employee must be
understood in its ordinary
sense.
Sunlife Assurance
Company of Canada vs CA
and Sps. Rolando and
Bernarda Bacani
June 22, 1995
J. Quiason
On April 15, 1986, Robert
John B. Bacani procured a
life insurance contract for
himself from petitioner. He
was issued Policy No. 3-903-
766-X valued at
P100,000.00, with double
indemnity in case of
accidental death. The
designated beneficiary was
his mother, respondent
Bernarda Bacani.
On June 26, 1987, the insured
died in a plane crash.
Respondent Bernarda Bacani
filed a claim with petitioner,
seeking the benefits of the
insurance policy taken by her
son. Petitioner conducted an
investigation and its findings
prompted it to reject the
claim.
In its letter, petitioner
informed respondent
Bernarda Bacani, that the
insured did not disclose
material facts relevant to the
issuance of the policy, thus
rendering the contract of
insurance voidable. A check
representing the total
Issue: Whether or not petitioner properly rescinced the contract due to concealment.
Concealment
Sec. 26, Insurance Code
“A neglect to communicate that which a party knows or ought to communicate is
concealment”.
Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance
to communicate to the other, in good faith, all facts within his knowledge which are material
to the contract and as to which he makes no warranty, and which the other has no means of
ascertaining.
Materiality is to be determined not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom communication is due, in forming his estimate
of the disadvantages of the proposed contract or in making his inquiries (The Insurance
Code, Sec. 31).
The terms of the contract are clear. The insured is specifically required to disclose to the
insurer matters relating to his health.
The information which the insured failed to disclose were material and relevant to the
approval and issuance of the insurance policy. The matters concealed would have definitely
affected petitioner's action on his application, either by approving it with the corresponding
adjustment for a higher premium or rejecting the same. Moreover, a disclosure may have
warranted a medical examination of the insured by petitioner in order for it to reasonably
assess the risk involved in accepting the application.
In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality
of the information withheld does not depend on the state of mind of the insured. Neither
does it depend on the actual or physical events which ensue.
Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact
that he was hospitalized for two weeks prior to filing his application for insurance, raises
grave doubts about his bonafides. It appears that such concealment was deliberate on his
part.
The argument, that petitioner's waiver of the medical examination of the insured debunks
the materiality of the facts concealed, is untenable. We reiterate our ruling in Saturnino v.
Philippine American Life Insurance Company, 7 SCRA 316 (1963), that " . . . the waiver
of a medical examination [in a non-medical insurance contract] renders even more material
the information required of the applicant concerning previous condition of health and
premiums paid in the amount
of P10,172.00 was attached
to said letter.
Petitioner claimed that the
insured gave false statements
in his application when he
answered in the affirmative
the question:
Whether on the past 5 years,
had he consulted any doctor?
diseases suffered, for such information necessarily constitutes an important factor which
the insurer takes into consideration in deciding whether to issue the policy or not . . . "
Moreover, such argument of private respondents would make Section 27 of the Insurance
Code, which allows the injured party to rescind a contract of insurance where there is
concealment, ineffective (See Vda. de Canilang v. Court of Appeals, supra).
Anent the finding that the facts concealed had no bearing to the cause of death of the
insured, it is well settled that the insured need not die of the disease he had failed to disclose
to the insurer. It is sufficient that his non-disclosure misled the insurer in forming his
estimates of the risks of the proposed insurance policy or in making inquiries (Henson v.
The Philippine American Life Insurance Co., 56 O.G. No. 48 [1960]).

Butlimited his answer to We, therefore, rule that petitioner properly exercised its right to rescind the contract of
consultation with a certain insurance by reason of the concealment employed by the insured. It must be emphasized
Dr. Reinaldo Raymundo for that rescission was exercised within the two-year contestability period as recognized in
cough and flu complications. Section 48 of The Insurance Code.

Petitioner discovered that

two weeks prior to his
application for insurance, the
insured was examined and
confined at the Lung Center
of the Philippines, where he
was diagnosed for renal
failure. During his
confinement, the deceased
was subjected to urinalysis,
ultra-sonography and
hematology tests.

November 17, 1988,

respondent Bernarda Bacani
and her husband, respondent
Rolando Bacani, filed an
action for specific
performance against
petitioner with the Regional
Trial Court, Branch 191,
Valenzuela, Metro Manila.
Petitioner filed its answer
with counterclaim and a list
of exhibits consisting of
medical records furnished by
the Lung Center of the
Philippines.

RTC: The facts concealed by

the insured were made in
good faith and under a belief
that they need not be
disclosed. Moreover, it held
that the health history of the
insured was immaterial since
the insurance policy was
"non-medical".

CA: Affirmed.
William Tiu vs Pedro
Arriesgado and Philippine
Phoenix Surety and
Insurance Inc.
September 1, 2004
J. Callejo Sr.
At about 10:00 p.m. of March
15, 1987, the cargo truck
marked "Condor Hollow
Blocks and General
Merchandise" bearing plate
number GBP-675 was loaded
with firewood in Bogo, Cebu
and left for Cebu City. Upon
reaching Sitio Aggies,
Poblacion, Compostela,
Cebu, just as the truck passed
over a bridge, one of its rear
tires exploded. The driver,
Sergio Pedrano, then parked
along the right side of the
national highway and
removed the damaged tire to
have it vulcanized at a nearby
shop, about 700 meters
away.3 Pedrano left his
helper, Jose Mitante, Jr. to
keep watch over the stalled
vehicle, and instructed the
latter to place a spare tire six
fathoms away4 behind the
stalled truck to serve as a
warning for oncoming
vehicles. The truck’s tail
lights were also left on. It was
about 12:00 a.m., March 16,
1987.
At about 4:45 a.m., D’ Rough
Riders passenger bus with
plate number PBP-724 driven
by Virgilio Te Laspiñas was
cruising along the national
highway of Sitio Aggies,
Poblacion, Compostela,
Cebu. The passenger bus was
also bound for Cebu City, and
had come from Maya,
Daanbantayan, Cebu. Among
its passengers were the
Spouses Pedro A. Arriesgado
and Felisa Pepito Arriesgado,
who were seated at the right
side of the bus, about three
(3) or four (4) places from the
front seat.
As the bus was approaching
Issue: Whether or not respondent is liable for the expenses incurred by Arriesgado as
insurer of petitioner Tiu.
Yes.
The trial court in this case did not rule on the liability of respondent PPSII, while the
appellate court ruled that, as no evidence was presented against it, the insurance company
is not liable.
A perusal of the records will show that when the petitioners filed the Third-Party Complaint
against respondent PPSII, they failed to attach a copy of the terms of the insurance contract
itself.
Respondent PPSII did not dispute the existence of such contract, and admitted that it was
liable thereon. It claimed, however, that it had attended to and settled the claims of those
injured during the incident, and set up the following as special affirmative defenses:
8. It has attended to the claims of Vincent Canales, Asuncion Batiancila and Neptali Palces who
sustained injuries during the incident in question.
9. With respect to the claim of plaintiff, herein answering third party defendant through its authorized
insurance adjuster attended to said claim. In fact, there were negotiations to that effect. Only that it
cannot accede to the demand of said claimant considering that the claim was way beyond the
scheduled indemnity as per contract entered into with third party plaintiff William Tiu and third
party defendant (Philippine Phoenix Surety and Insurance, Inc.).
Considering the admissions made by respondent PPSII, the existence of the insurance
contract and the salient terms thereof cannot be dispatched.
As can be gleaned from the Certificate of Cover, such insurance contract was issued
pursuant to the Compulsory Motor Vehicle Liability Insurance Law. It was expressly
provided therein that the limit of the insurer’s liability for each person was ₱12,000, while
the limit per accident was pegged at ₱50,000. An insurer in an indemnity contract for third
party liability is directly liable to the injured party up to the extent specified in the agreement
but it cannot be held solidarily liable beyond that amount.
The respondent PPSII could not then just deny petitioner Tiu’s claim; it should have paid
₱12,000 for the death of Felisa Arriesgado, and respondent Arriesgado’s hospitalization
expenses of ₱1,113.80, which the trial court found to have been duly supported by receipts.
The total amount of the claims, even when added to that of the other injured
passengers which the respondent PPSII claimed to have settled, would not exceed the
₱50,000 limit under the insurance agreement.
Indeed, the nature of Compulsory Motor Vehicle Liability Insurance is such that it is
primarily intended to provide compensation for the death or bodily injuries suffered by
innocent third parties or passengers as a result of the negligent operation and use of motor
vehicles. The victims and/or their dependents are assured of immediate financial assistance,
regardless of the financial capacity of motor vehicle owners. As the Court, speaking through
Associate Justice Leonardo A. Quisumbing, explained in Government Service Insurance
System v. Court of Appeals:
However, although the victim may proceed directly against the insurer for indemnity, the third party
liability is only up to the extent of the insurance policy and those required by law. While it is true that
where the insurance contract provides for indemnity against liability to third persons, and such persons
can directly sue the insurer, the direct liability of the insurer under indemnity contracts against third
party liability does not mean that the insurer can be held liable in solidum with the insured and/or the
other parties found at fault. For the liability of the insurer is based on contract; that of the insured
carrier or vehicle owner is based on tort. …
Obviously, the insurer could be held liable only up to the extent of what was provided for
by the contract of insurance, in accordance with the CMVLI law. At the time of the incident,
the schedule of indemnities for death and bodily injuries, professional fees and other
charges payable under a CMVLI coverage was provided for under the Insurance
Memorandum Circular (IMC) No. 5-78 which was approved on November 10, 1978. As
therein provided, the maximum indemnity for death was twelve thousand (₱12,000.00)
the bridge, Laspiñas saw the pesos per victim. The schedules for medical expenses were also provided by said IMC,
stalled truck, which was then specifically in paragraphs (C) to (G).
about 25 meters away. He
applied the breaks and tried to Judgment:
swerve to the left to avoid Respondent Philippine Phoenix Surety and Insurance, Inc. and petitioner William Tiu are
hitting the truck. But it was ORDERED to pay, jointly and severally, respondent Pedro A. Arriesgado the total amount
too late; the bus rammed into of ₱13,113.80.
the truck’s left rear. The
impact damaged the right Note:
side of the bus and left
several passengers injured.
Pedro Arriesgado lost
consciousness and suffered a
fracture in his right colles.6
His wife, Felisa, was brought
to the Danao City Hospital.
She was later transferred to
the Southern Island Medical
Center where she died shortly
thereafter.

Respondent Pedro A.
Arriesgado then filed a
complaint for breach of
contract of carriage, damages
and attorney’s fees before the
Regional Trial Court of Cebu
City, against the petitioners,
D’ Rough Riders bus
operator William Tiu and his
driver, Virgilio Te Laspiñas
on May 27, 1987.

The petitioners, filed a Third-

Party Complaint on August
21, 1987 against the
following: respondent
Philippine Phoenix Surety
and Insurance, Inc. (PPSII),
petitioner Tiu’s insurer;
respondent Benjamin
Condor, the registered owner
of the cargo truck; and
respondent Sergio Pedrano,
the driver of the truck.

The aforesaid passenger bus,

owned and operated by third-
party plaintiff William Tiu, is
covered by a common carrier
liability insurance with
Certificate of Cover No.
054940 issued by Philippine
Phoenix Surety and
Insurance, Inc., Cebu City
Branch, which covers the
period from July 22, 1986 to
July 22, 1987.

After the aforesaid alleged

incident, third-party plaintiff
notified third-party defendant
Philippine Phoenix Surety
and Insurance, Inc., of the
alleged incident, but to no
avail;

That granting, et arguendo et

arguendi, if herein third-party
plaintiffs will be adversely
adjudged, they stand to pay
damages sought by the
plaintiff and therefore could
also look up to the Philippine
Phoenix Surety and
Insurance, Inc., for
contribution, indemnification
and/or reimbursement of any
liability or obligation that
they might [be] adjudged per
insurance coverage.

The respondent PPSII,

admitted that it had an
existing contract with
petitioner Tiu, but averred
that it had already attended to
and settled the claims of
those who were injured
during the incident. It could
not accede to the claim of
respondent Arriesgado, as
such claim was way beyond
the scheduled indemnity as
contained in the contract of
insurance.

Figuracion Vda. De Issues: Whether or not AFISCO can be held directly liable.
Maglana vs Judge Whether AFISCO is solidarily liable with Destrajo
Francisco Consolacion
Yes.
August 6, 1992
The agreement between the parties shows direct liability.
J. Romero The above-quoted provision leads to no other conclusion but that AFISCO can be held
directly liable by petitioners.
Lope Maglana was an
employee of the Bureau of As this Court ruled in Shafer vs. Judge, RTC of Olongapo City, Br. 75,
Customs whose work station
was at Lasa, here in Davao "[w]here an insurance policy insures directly against liability, the insurer's liability accrues
City. On December 20, 1978, immediately upon the occurrence of the injury or even upon which the liability depends, and does not
early morning, Lope Maglana depend on the recovery of judgment by the injured party against the insured."
was on his way to his work
The underlying reason behind the third party liability (TPL) of the Compulsory Motor
station, driving a motorcycle
Vehicle Liability Insurance is "to protect injured persons against the insolvency of the
owned by the Bureau of
insured who causes such injury, and to give such injured person a certain beneficial interest
Customs. At Km. 7, Lanang,
in the proceeds of the policy . . ." Since petitioners had received from AFISCO the sum of
he met an accident that
P5,000.00 under the no-fault clause, AFISCO's liability is now limited to P15,000.00.
resulted in his death. He died
on the spot. The PUJ jeep that
bumped the deceased was No.
However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo.
driven by Pepito Into,
Malayan Insurance Co., Inc. v. Court of Appeals, this Court had the opportunity to
operated and owned by
resolve the issue as to the nature of the liability of the insurer and the insured vis-a-vis the
defendant Destrajo. From the
third party injured in an accident. We categorically ruled thus:
investigation conducted by
the traffic investigator, the
PUJ jeep was overtaking While it is true that where the insurance contract provides for indemnity against liability to
another passenger jeep that third persons, such third persons can directly sue the insurer, however, the direct liability of
was going towards the city the insurer under indemnity contracts against third party liability does not mean that the
insurer can be held solidarily liable with the insured and/or the other parties found at fault.
poblacion. While overtaking,
The liability of the insurer is based on contract; that of the insured is based on tort.
the PUJ jeep of defendant
Destrajo running abreast with In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos (the injured
the overtaken jeep, bumped third party), but it cannot, as incorrectly held by the trial court, be made "solidarily" liable
the motorcycle driven by the with the two principal tortfeasors, namely respondents Sio Choy and San Leon Rice Mill, Inc.
deceased who was going For if petitioner-insurer were solidarily liable with said, two (2) respondents by reason of the
towards the direction of Lasa, indemnity contract against third party liability — under which an insurer can be directly sued
Davao City. The point of by a third party — this will result in a violation of the principles underlying solidary obligation
and insurance contracts. (emphasis supplied)
impact was on the lane of the
motorcycle and the deceased
The Court then proceeded to distinguish the extent of the liability and manner of enforcing
was thrown from the road and
the same in ordinary contracts from that of insurance contracts. While in solidary
met his untimely death. 1
obligations, the creditor may enforce the entire obligation against one of the solidary
debtors, in an insurance contract, the insurer undertakes for a consideration to indemnify
Consequently, the heirs of
the insured against loss, damage or liability arising from an unknown or contingent event.
Lope Maglana, Sr., here
11 Thus, petitioner therein, which, under the insurance contract is liable only up to
petitioners, filed an action for
P20,000.00, can not be made solidarily liable with the insured for the entire obligation of
damages and attorney's fees
P29,013.00 otherwise there would result "an evident breach of the concept of solidary
against operator Patricio
obligation."
Destrajo and the Afisco
Insurance Corporation
Similarly, petitioners herein cannot validly claim that AFISCO, whose liability under the
(AFISCO for brevity) before
insurance policy is also P20,000.00, can be held solidarily liable with Destrajo for the total
the then Court of First
amount of P53,901.70 in accordance with the decision of the lower court. Since under both
Instance of Davao, Branch II.
the law and the insurance policy, AFISCO's liability is only up to P20,000.00, the second
An information for homicide
paragraph of the dispositive portion of the decision in question may have unwittingly sown
thru reckless imprudence was
confusion among the petitioners and their counsel. What should have been clearly stressed
also filed against Pepito Into.
as to leave no room for doubt was the liability of AFISCO under the explicit terms of the
Into was convicted.
insurance contract.
RTC: Destrajo failed to
In fine, we conclude that the liability of AFISCO based on the insurance contract is direct,
exercise due diligence;
but not solidary with that of Destrajo which is based on Article 2180 of the Civil Code. 12
AFISCO is ordered to
As such, petitioners have the option either to claim the P15,000 from AFISCO and the
reimburse defendant Destrajo
balance from Destrajo or enforce the entire judgment from Destrajo subject to
whatever amounts the latter
reimbursement from AFISCO to the extent of the insurance coverage.
shall have paid only up to the
extent of its insurance
coverage. (Secondarily
liable)

Jewel Villacorta vs Issue: Whether or not the Insurance Commission’s ruling is correct.
Insurance Commission and
Empire Insurance No.
Company
First, respondent commission's ruling that the person who drove the vehicle in the person
October 28, 1980 of Benito Mabasa, who, according to its finding, was one of the residents of the Sunday
Machine Works, Inc. to whom the car had been entrusted for general check-up and repairs
Teehankee was not an "authorized driver" of petitioner-complainant is too restrictive and contrary to
the established principle that insurance contracts, being contracts of adhesion where the
Complainant [petitioner] was only participation of the other party is the signing of his signature or his "adhesion" thereto,
the owner of a Colt Lancer, "obviously call for greater strictness and vigilance on the part of courts of justice with a
Model 1976, insured with view of protecting the weaker party from abuse and imposition, and prevent their becoming
respondent company under traps for the unwary.2
Private Car Policy No.
MBI/PC-0704 for The main purpose of the "authorized driver" clause, as may be seen from its text, supra, is
P35,000.00 — Own Damage; that a person other than the insured owner, who drives the car on the insured's order, such
P30,000.00 — Theft; and as his regular driver, or with his permission, such as a friend or member of the family or
P30,000.00 — Third Party
Liability, effective May 16,
1977 to May 16, 1978. On
May 9, 1978, the vehicle was
brought to the Sunday
Machine Works, Inc., for
general check-up and repairs.
On May 11, 1978, while it
was in the custody of the
Sunday Machine Works, the
car was allegedly taken by six
(6) persons and driven out to
Montalban, Rizal. While
travelling along Mabini St.,
Sitio Palyasan, Barrio
Burgos, going North at
Montalban, Rizal, the car
figured in an accident, hitting
and bumping a gravel and
sand truck parked at the right
side of the road going south.
As a consequence, the gravel
and sand truck veered to the
right side of the pavement
going south and the car
veered to the right side of the
pavement going north. The
driver, Benito Mabasa, and
one of the passengers died
and the other four sustained
physical injuries. The car, as
well, suffered extensive
damage. Complainant,
thereafter, filed a claim for
total loss with the respondent
company but claim was
denied. Hence, complainant,
was compelled to institute the
present action.
The comprehensive motor
car insurance policy for
P35,000.00 issued by
respondent Empire Insurance
Company admittedly
undertook to indemnify the
petitioner-insured against
loss or damage to the car (a)
by accidental collision or
overturning, or collision or
overturning consequent upon
mechanical breakdown or
consequent upon wear and
tear; (b) by fire, external
explosion, self-ignition or
lightning or burglary,
housebreaking or theft; and
(c) by malicious act.
Insurance Commission:
The accident did not fall
within the provisions of the
policy either for the Own
the employees of a car service or repair shop must be duly licensed drivers and have no
disqualification to drive a motor vehicle.
A car owner who entrusts his car to an established car service and repair shop necessarily
entrusts his car key to the shop owner and employees who are presumed to have the
insured's permission to drive the car for legitimate purposes of checking or road-testing the
car. The mere happenstance that the employee(s) of the shop owner diverts the use of the
car to his own illicit or unauthorized purpose in violation of the trust reposed in the shop
by the insured car owner does not mean that the "authorized driver" clause has been violated
such as to bar recovery, provided that such employee is duly qualified to drive under a valid
driver's license.
The situation is no different from the regular or family driver, who instead of carrying out
the owner's order to fetch the children from school takes out his girl friend instead for a joy
ride and instead wrecks the car. There is no question of his being an "authorized driver"
which allows recovery of the loss although his trip was for a personal or illicit purpose
without the owner's authorization.
Secondly, and independently of the foregoing (since when a car is unlawfully taken, it is
the theft clause, not the "authorized driver" clause, that applies), where a car is admittedly
as in this case unlawfully and wrongfully taken by some people, be they employees of the
car shop or not to whom it had been entrusted, and taken on a long trip to Montalban without
the owner's consent or knowledge, such taking constitutes or partakes of the nature of theft
as defined in Article 308 of the Revised Penal Code, viz. "Who are liable for theft. — Theft
is committed by any person who, with intent to gain but without violence against or
intimidation of persons nor force upon things, shall take personal property of another
without the latter's consent," for purposes of recovering the loss under the policy in
question.
The Court rejects respondent commission's premise that there must be an intent on the part
of the taker of the car "permanently to deprive the insured of his car" and that since the
taking here was for a "joy ride" and "merely temporary in nature," a "temporary taking is
held not a taking insured against."
The evidence does not warrant respondent commission's findings that it was a mere "joy
ride". From the very investigator's report cited in its comment, 3 the police found from the
waist of the car driver Benito Mabasa Bartolome who smashed the car and was found dead
right after the incident "one cal. 45 Colt. and one apple type grenade," hardly the materials
one would bring along on a "joy ride". Then, again, it is equally evident that the taking
proved to be quite permanent rather than temporary, for the car was totally smashed in the
fatal accident and was never returned in serviceable and useful condition to petitioner-
owner.
Assuming, despite the totally inadequate evidence, that the taking was "temporary" and for
a "joy ride", the Court sustains as the better view that which holds that when a person, either
with the object of going to a certain place, or learning how to drive, or enjoying a free ride,
takes possession of a vehicle belonging to another, without the consent of its owner, he is
guilty of theft because by taking possession of the personal property belonging to another
and using it, his intent to gain is evident since he derives therefrom utility, satisfaction,
enjoyment and pleasure. Justice Ramon C. Aquino cites in his work Groizard who holds
that the use of a thing constitutes gain and Cuello Calon who calls it "hurt de uso. " 4
The insurer must therefore indemnify the petitioner-owner for the total loss of the insured
car in the sum of P35,000.00 under the theft clause of the policy, subject to the filing of
such claim for reimbursement or payment as it may have as subrogee against the Sunday
Machine Works, Inc.
Damage or Theft coverage,
invoking the policy provision
on "Authorized Driver"
clause.

Authorized Driver" clause in

this wise: "It must be
observed that under the
above-quoted provisions, the
policy limits the use of the
insured vehicle to two (2)
persons only, namely: the
insured himself or any person
on his (insured's) permission.
Under the second category, it
is to be noted that the words
"any person' is qualified by
the phrase

... on the insured's order or

with his permission.' It is
therefore clear that if the
person driving is other than
the insured, he must have
been duly authorized by the
insured, to drive the vehicle
to make the insurance
company liable for the
driver's negligence.

With these declarations of

complainant and her husband,
we hold that the person who
drove the vehicle, in the
person of Benito Mabasa, is
not an authorized driver of the
complainant. Apparently, this
is a violation of the
'Authorized Driver' clause of
the policy.

Also, the car was not stolen,

as there was no “taking”.
The fact that the car was
taken by one of the residents
of the Sunday Machine
Works, and the withholding
of the same, for a joy ride
should not be construed to
mean 'taking' under Art. 308
of the Revised Penal Code. If
at all there was a 'taking', the
same was merely temporary
in nature. A temporary taking
is held not a taking insured
against.
Palermo vs Pyramid Issue: Whether or not driving with an expired license should prevent petitioner from
Insurance Co. imposing his claim against defendant.

May 31, 1988 No.

Grino- Aquino
On October 12,1968, after
having purchased a brand
new Nissan Cedric de Luxe
Sedan car bearing Motor No.
087797 from the Ng Sam
Bok Motors Co. in Bacolod
City, plaintiff insured the
same with the defendant
insurance company against
any loss or damage for P
20,000.00 and against third
party liability for P permission." It does not apply when the person driving is the insured himself.
10,000.00. Plaintiff paid the
defendant P 361.34 premium
for one year, March 12, 1968
to March 12, 1969, for which
defendant issued Private Car
Comprehensive Policy No.
MV-1251, marked Exhibit
"A."
The automobile was,
however, mortgaged by the
plaintiff with the vendor, Ng
Sam Bok Motors Co., to
secure the payment of the
balance of the purchase price,
which explains why the
registration certificate in the
name of the plaintiff remains
in the hands of the
mortgagee, Ng Sam Bok
Motors Co.
There is no merit in the appellant's allegation that the plaintiff was not authorized to drive
the insured motor vehicle because his driver's license had expired. The driver of the insured
motor vehicle at the time of the accident was, the insured himself, hence an "authorized
driver" under the policy.
While the Motor Vehicle Law prohibits a person from operating a motor vehicle on the
highway without a license or with an expired license, an infraction of the Motor Vehicle
Law on the part of the insured, is not a bar to recovery under the insurance contract. It
however renders him subject to the penal sanctions of the Motor Vehicle Law.
The requirement that the driver be "permitted in accordance with the licensing or other laws
or regulations to drive the Motor Vehicle and is not disqualified from driving such motor
vehicle by order of a Court of Law or by reason of any enactment or regulation in that
behalf," applies only when the driver" is driving on the insured's order or with his
This view may be inferred from the decision of this Court in Villacorta vs. Insurance
Commission, 100 SCRA 467, where it was held that:
The main purpose of the "authorized driver" clause, as may be seen from its text, is that a
person other than the insured owner, who drives the car on the insured's order, such as his
regular driver, or with his permission, such as a friend or member of the family or the
employees of a car service or repair shop, must be duly licensed drivers and have no
disqualification to drive a motor vehicle.
In an American case, where the insured herself was personally operating her automobile
but without a license to operate it, her license having expired prior to the issuance of the
policy, the Supreme Court of Massachusetts was more explicit:
... Operating an automobile on a public highway without a license, which act is a statutory
crime is not precluded by public policy from enforcing a policy indemnifying her against
liability for bodily injuries The inflicted by use of the automobile." (Drew C. Drewfield
McMahon vs. Hannah Pearlman, et al., 242 Mass. 367, 136 N.E. 154, 23 A.L.R. 1467.)

On April 17, 1968, while

driving the automobile in
question, the plaintiff met a
violent accident. The La
Carlota City fire engine
crashed head on, and as a
consequence, the plaintiff
sustained physical injuries,
his father, Cesar Palermo,
who was with am in the car at
the time was likewise
seriously injured and died
shortly thereafter, and the car
in question was totally
wrecked.

The defendant was

immediately notified of the
occurrence, and upon its
orders, the damaged car was
towed from the scene of the
accident to the compound of
Ng Sam Bok Motors in
Bacolod City where it
remains deposited up to the
present time.

The insurance policy, Exhibit

"A," grants an option unto the
defendant, in case of accident
either to indemnify the
plaintiff for loss or damage to
the car in cash or to replace
the damaged car. The
defendant, however, refused
to take either of the above-
mentioned alternatives for
the reason as alleged, that the
insured himself had violated
the terms of the policy when
he drove the car in question
with an expired driver's
license.

CFI: Ordered defendant to

pay plaintiff.

On November 26, 1969, the

plaintiff filed a "Motion for
Immediate Execution
Pending Appeal." It was
opposed by the defendant,
but was granted by the trial
court on December 15, 1969.

Filipinas Compania De
Seguros vs Chistern,
Huenefled and Co.
May 25, 1951
Paras
On October 1, 1941, the
respondent corporation,
Christern Huenefeld, & Co.,
Inc., after payment of
corresponding premium,
obtained from the petitioner
,Filipinas Cia. de Seguros,
fire policy No. 29333 in the
sum of P1000,000, covering
merchandise contained in a
building located at No. 711
Roman Street, Binondo
Manila. On February 27,
1942, or during the Japanese
military occupation, the
building and insured
Issues: Whether or not respondent corporation can recover its insurance claim from
petitioner.
Whether or not respondent corporation can recover whatever it had paid to
petitioner.
No.
Control Test adopted
There is no question that majority of the stockholders of the respondent corporation were
German subjects. This being so, we have to rule that said respondent became an enemy
corporation upon the outbreak of the war between the United States and Germany. The
English and American cases relied upon by the Court of Appeals have lost their force in
view of the latest decision of the Supreme Court of the United States Clark vs. Uebersee
Finanz Korporation, decided on December 8, 1947, in which the control test has been
adopted.
However, we may add that, in Haw Pia vs. China Banking Corporation,* we already
held that China Banking Corporation came within the meaning of the word "enemy" as
used in the Trading with the Enemy Acts of civilized countries not only because it was
incorporated under the laws of an enemy country but because it was controlled by enemies.
The Philippine Insurance Law (Act No. 2427, as amended,) in section 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.
merchandise were burned. In The respondent having become an enemy corporation on December 10, 1941, the insurance
due time the respondent policy issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation)
submitted to the petitioner its had ceased to be valid and enforcible, and since the insured goods were burned after
claim under the policy. The December 10, 1941, and during the war, the respondent was not entitled to any indemnity
salvage goods were sold at under said policy from the petitioner.
public auction and, after
deducting their value, the Yes.
total loss suffered by the However, elementary rules of justice (in the absence of specific provision in the Insurance
respondent was fixed at Law) require that the premium paid by the respondent for the period covered by its policy
P92,650. The petitioner from December 11, 1941, should be returned by the petitioner.
refused to pay the claim on
the ground that the policy in It results that the petitioner is entitled to recover what paid to the respondent under the
favor of the respondent had circumstances on this case. However, the petitioner will be entitled to recover only the
ceased to be in force on the equivalent, in actual Philippines currency of P92,650 paid on April 19, 1943, in accordance
date the United States with the rate fixed in the Ballantyne scale.
declared war against
Germany, the respondent Wherefore, the appealed decision is hereby reversed and the respondent corporation is
Corporation (though ordered to pay to the petitioner the sum of P77,208.33, Philippine currency, less the amount
organized under and by virtue of the premium, in Philippine currency, that should be returned by the petitioner for the
of the laws of the Philippines) unexpired term of the policy in question, beginning December 11, 1941.
being controlled by the
German subjects and the
petitioner being a company
under American jurisdiction
when said policy was issued
on October 1, 1941. The
petitioner, however, in
pursuance of the order of the
Director of Bureau of
Financing, Philippine
Executive Commission,
dated April 9, 1943, paid to
the respondent the sum of
P92,650 on April 19, 1943.

An action was filed in CFI to

recover form respondent the
sum of 92, 650.

CFI: Dismissed; no
pronouncement as to cost.

CA: Affirmed; The Court of

Appeals overruled the
contention of the petitioner
that the respondent
corporation became an
enemy when the United
States declared war against
Germany, relying on English
and American cases which
held that a corporation is a
citizen of the country or state
by and under the laws of
which it was created or
organized. It rejected the
theory that nationality of
private corporation is
determine by the character or
citizenship of its controlling
stockholders.