White Gold Marine Services Inc. v. Pioneer Insurance and Surety Corp. GR no. 154514 July 28, 2005 Quisumbing, J.

FACTS White Gold Marine Services, Inc. procured a protection and indemnity coverage for its vessels from The Steamship Mutual Underwriting Association Limited through Pioneer Insurance and Surety Corporation. White Gold was issued a Certificate of Entry and Acceptance. Pioneer also issued receipts evidencing payments for the coverage. When White Gold failed to fully pay its accounts, Steamship Mutual refused to renew the coverage. Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover the latter s unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission claiming that Steamship Mutual violated Sections 186 and 187, while Pioneer violated Sections 299, to 301 of the Insurance Code. The Insurance Commission dismissed the complaint. It said that there was no need for Steamship Mutual to secure a license because it was not engaged in the insurance business. It explained that Steamship Mutual was a Protection and Indemnity Club. Likewise, Pioneer need not obtain another license as insurance agent and/or a broker for Steamship Mutual because Steamship Mutual was not engaged in the insurance business. Moreover, Pioneer was already licensed; hence, a separate license solely as agent/broker of Steamship Mutual was already superfluous. The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the appellate court distinguished between P & I Clubs vis-à-vis conventional insurance. The appellate court also held that Pioneer merely acted as a collection agent of Steamship Mutual. ISSUES Whether or not Steamship Mutual Underwriting Association (Bermuda) Ltd. Is engaged in an insurance business. Whether or not Pioneer Insurance and Surety Corp. needs a license to operate as the insurance agent/broker of Steamship Mutual?

RULING The test to determine if a contract is an insurance contract or not, depends on the nature of the promise, the act required to be performed, and the exact nature of the agreement in the light of the occurrence, contingency, or circumstances under which the performance becomes requisite. It is not by what it is called. Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the losses incident to a marine adventure. Section 99 of the Insurance Code enumerates the coverage of marine insurance. A P & I Club is a form of insurance against third party liability, where the third party is anyone other than the P & I Club and the members. By definition then, Steamship Mutual as a P & I Club is a mutual insurance association engaged in the marine insurance business. The records reveal Steamship Mutual is doing business in the country albeit without the requisite certificate of authority mandated by Section 187 of the Insurance Code. It maintains a resident agent in the Philippines to solicit insurance and to collect payments in its behalf. We note that Steamship Mutual even renewed its P & I Club cover until it was cancelled due to no-payment of the calls. Thus, to continue doing business here, Steamship Mutual or through its agent Pioneer, must secure a license from the Insurance Commission. Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no insurer or insurance company is allowed to engage in the insurance business without a license or a certificate of authority from the Insurance Commission. On the second issue, Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration issued by the Insurance Commission. It has been licensed to do or transact insurance business by virtue of the certificate of authority issued by the same agency. However, a Certification from the Commission states that Pioneer does not have a separate license to be an agent/broker of Steamship Mutual. Although Pioneer is already licensed as an insurance company, it needs a separate license to act as insurance agent for Steamship Mutual.

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The SC held that the petioner s health care agreement during the pertinent period was in the nature of non-life insurance which is a contact of indemnity. On January 27. in a letter dated September 3. Commissioner of Internal Revenue GR no. The petitioner filed a motion for reconsideration. the Insurance Commissioner confirmed that petitioner is not engaged in the insurance business. ISSUE Whether or not the health care agreement between petitioner and its beneficiaries is an insurance contract. Petitioner protested before the CIR but due to the latter s inaction. an enterprise is considered engaged in an insurance business when the principal object of the enterprise is the assumption of risk and the indemnification of loss. This is evident from the fact that it is not supervised by the Insurance Commission but by the Department of Health. The test is based on Section 2 (2) of the Insurance Code. 167330 September 18. Inc. 18 in back taxes. RULING The Supreme Court ruled in favor of the petitioner and granted the motion for reconsideration. The Court ruled that the health care agreement between the petitioner s and its beneficiaries is not a contract of insurance. surcharge. it is its obligation to maintain the good health of its members. As an HMO. The Court based its decision on the fact that the HMO agreement does not qualify as an insurance business based on the principal object and purpose test. Lastly. 702. 2000. it filed a petition for review before the Court of Tax Appeals. Therefore. to provide the health and medical services needed to prevent such loss or damage. the CIR was ordered to desist from collecting DST tax Respondent CIR appealed the decision before the Court of Appeals. and interests. Accordingly. J. petitioner appears to provide insurance-type benefits to its members (with respect to its curative medical services). it cannot be considered as being in the insurance business.Philippine Health Care Providers. Petitioner appealed the decision before the Supreme Court which affirmed the CA s decision. The CA rendered a decision reversing the earlier decision of the CTA. on the contrary. If the enterprise assumes risk and indemnifies beneficiaries for losses. its undertaking under its agreements is not to indemnify its members against any loss or damage arising from a medical condition but. its health care programs are designed to prevent or to minimize the possibility of any assumption of risk on its part. 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. but these are incidental to the principal activity of providing them medical care. 2009 Corona. is a domestic corporation primarily engaged in the business of providing prepaid group practice health care delivery system. Accordingly. Furthermore. then it is an insurance company. is not part of the insurance industry. Overall. The insurance-like aspect of petitioner s business is miniscule compared to its noninsurance activities. is subject to DST under Section 185 of the 1997 Tax Code. 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. This determination of the commissioner must be accorded great weight. the petitioner s healthcare agreement is a contract of insurance and as such. A substantial portion of petitioner s services covers preventive and diagnostic medical services intended to keep members from developing medical conditions or diseases. v. In fact. The CTA rendered a decision partially granting the petition for review. Inc. The petitioner was ordered to pay P53M instead of the original P225M. 614. The deficiency is composed mostly of unpaid documentary stamp tax (DST) imposed on the petitioner s agreement with its members. Thus. since it substantially provides health care services rather than insurance services. 2 . The Court further ruled that contracts between companies like petitioner and its beneficiaries under their plans are treated as insurance contract. It ordered the petitioner to pay P123M in DST. 2000. as an HMO. Philippine Health Care Providers. the Commissioner of Internal Revenue sent an assessment letter to the petitioner informing it and demanding payment of P224. According to him. FACTS This is based on a Motion for Reconsideration filed by the petitioner. it is significant that petitioner.

J. 1990 to June 1. diabetic and asthmatic. petitioner brought the instant petition for review. Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9. there was a concealment regarding Ernani s medical history. deceased husband of respondent Julita Trinos. P010194. Inc. 1989. however. 2002 Ynares-Santiago. 1988 to March 1. The insurer. Later. 1989 to March 1. raising the primary argument that a health care agreement is not an insurance contract. hence the "incontestability clause" under the Insurance Code does not apply. is not justified in relying upon such statement. after all. Ernani had fever and was feeling very weak.00. was docketed as Civil Case No. heart trouble. preventive health care and other out-patient services.000. respondent s husband was entitled to avail of hospitalization benefits. respondent brought her husband home again. During the period of his coverage. 125678 March 18. he was issued Health Care Agreement No. 1990. asthma or peptic ulcer? (If Yes. respondent instituted with the Regional Trial Court of Manila. liver disease. On appeal. petitioner denied her claim saying that the Health Care Agreement was void. RULING The Supreme Court ruled that there is a valid insurance contract. FACTS Ernani Trinos. the lower court ruled against petitioners. While her husband was in the hospital. Under the agreement. ISSUE Whether or not a healthcare agreement is not an insurance contract. On July 24. 1990. However.00 per disability. Accordingly. diabetes. amounting to about P76. but obligated to make further inquiry.Philamcare Health Systems. 1990. listed therein. Court of Appeals GR no. Dr. he was admitted at the Chinese General Hospital. applied for a health care coverage with petitioner Philamcare Health Systems. Thus. Branch 44. Hence. respondent tried to claim the benefits under the health care agreement.000. in case of material fact. After her husband was discharged from the MMC. After trial. In the morning of April 13. whether ordinary or emergency. She asked for reimbursement of her expenses plus moral damages and attorney s fees. give details). The amount of coverage was increased to a maximum sum of P75. contrary to his answer in the application form. 3 The application was approved for a period of one year from March 1. Upon the termination of the agreement. Benito Reverente. He was also entitled to avail of "out-patient benefits" such as annual physical examinations. the same was extended for another year from March 1. Doctors at the MMC allegedly discovered at the time of Ernani s confinement that he was hypertensive. 1990. According to petitioner. cancer. In the standard application form. the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and absolved petitioner Reverente. Inc. v. 1990. Petitioner s motion for reconsideration was denied. all the elements for an insurance contract are contract are present and alleged concealment answers made in good faith and without intent to deceive will not avoid the policy. he answered no to the following question: Have you or any of your family members ever consulted or been treated for high blood pressure. Respondent was constrained to bring him back to the Chinese General Hospital where he died on the same day. respondent paid the hospitalization expenses herself. 90-53795. he was attended by a physical therapist at home. which . then from March 1. Due to financial difficulties. an action for damages against petitioner and its president.

damage. By 2000. logically the lessor who asserts ownership will be the one directly benefited or injured and therefore the lessee is not supposed to be the assured as he has no insurable interest. executed an Individual Guarantee Agreement with FEB regarding faithful compliance with the terms of the lease agreement. Jr. through logic. ISSUE Whether or not a lease agreement was executed by JVL and FEB. FEB filed a complaint for sum of money.75.414. and replevin against JVL and Lim. FEB appealed the decision before the Court of Appeals. GR no. FACTS FEB Leasing and Finance Corp entered into a lease agreement of equipment and motor vehicles with JVL Food Products. the arrears of JVL amounted to P3. damages. 4 . 2007 Nachura. Unsatisfied with the decision. RULING The Supreme Court dismissed the petition of Lim and affirmed the decision of the Court of Appeals. or destruction of any of the properties leased. The trial court rendered a ruling In favor of Lim and JVL. Section 17 of the Insurance Code provides that the measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof. herein petitioner. They further argued that the contract was a contract of adhesion. JVL defaulted on its obligation.Vicente Ong Lim Sing. If Lim and JVL were to be regarded as only a lessee. had an insurable interest in the items even if he was only a lessee. Vicente Ong Lim Sing. Jr. the agreement was indeed a financial lease agreement and not a sale by installment basis. title or interest therein that he will be benefited by its preservation and continued existence or suffer a direct pecuniary loss from its destruction or injury by the peril insured against. Feb Leasing and Finance Corp. The appellate court rendered judgment in favor of FEB. Due to the continuous nonpayment despite numerous demands. It cannot be denied that JVL will be directly damnified in case of loss. It has also been held that the test of insurable interest in property is whether the assured has a right. v. The trial court. It reversed the earlier decision of the RTC of Manila and ordered Lim and JVL to pay FEB the amount due plus damages. The Court also ruled that the lessee. ruled that Lim cannot be a mere lessee because of he had an insurable interest over the items. J.468. According to the Court. JVL and Lim appealed the case before the Supreme Court. 168115 June 8. JVL and Lim argued before the court that the lease contract was actually a sale on installment basis.

participation in the preparation of the policy.000. issued Personal Accident Policy No. 1955. father and sole heir of the insured. 16. et al.J. FACTS On February 7. which enunciate that where there is an ambiguity with respect to the terms and conditions of the policy. Since the company promised to pay between P1000 and P3000 and insurance policies should be construed in favor of the insured.00. According to the court. G.. Unhappy with the decision of the IC. We believe that under the proven facts and circumstances. It is stipulated under Part VI (h) of the contract that the insurance does not cover death caused by drowning except as a consequence of the wrecking or disablement in Philippine waters of a passenger steam or motor vessel in which the insured is travelling as a fare paying passenger.C. It should be recalled in this connection. together with the drafting of its terms and Conditions. Remedios Jayme. and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured. . L-8151. The Equitable Insurance and Casualty Co. There is. Court of Appeals. while on board the motor launch "ISLAMA" together with 33 others. L-16215 June 29. The company issued to del Rosario P1. On February 24. a rider in the contract stating that the provisions of Part VI (h) are waived.C.). in the case at bar. son of herein plaintiff-appellee. the insured Francisco del Rosario. were forced to jump off said launch on account of fire which broke out on said vessel. . 1957. binding itself to pay the sum of P1. the insured. and acting exclusively in the interest of. alias Paquito Bolero. Simeon del Rosario. however. Calanoc v. resulting in the death of drowning. however. The case was elevated on appeal before the Court of Appeals but was affirmed by the appellate court. which are ambiguous. is the insurance company. are well taken.Simeon del Rosario v. The counsel of del Rosario. No. alias Paquito Bolero.. The CFI issued a decision in favor of del Rosario. filed a claim for payment with the insurance company.00 to P3. The interpretation of obscure stipulations in a contract should not favor the party who cause the obscurity (Art.S.000. 5 ... Jur. 1174).000. 1957. wrote to the company and informed them that del Rosario should get P1. . has little. Inc. as indemnity for the death of the insured." (29 Am. And so it has been generally held that the "terms in an insurance policy. the policy covers drowning but does not specify the amount to be paid in case of drowning. GR no. 7136 on the life of Francisco del Rosario. the company should pay del Rosario P3. . J. N.R.000. the same will be resolved against the one responsible thereof. 1377. 181) and the reason for this rule is that the "insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by expert and legal advisers employed by. The company referred the issue to the Insurance Commissioner who ruled in favor of the company. . if any.500 instead of P1. that generally. especially where a forfeiture is involved. of the insured and beneficiary in the waters of Jolo. including his beneficiary in the Policy. . the defendant Equitable Insurance and Casualty Co. for they are supported by the generally accepted principles or rulings on insurance.000. are to be construed strictly against. Dec. which. the insurer.000. equivocal or uncertain . 1963 Paredes. del Rosario appealed the decision before the CFI of Rizal (Pasay City). the findings and conclusions of the trial court. RULING The Supreme Court affirmed the decision of the CFI of Rizal. the insurance company" (44 C. ISSUE Whether or not the company should pay P3.000 instead of P1. Inc.

the Court: "The property of all foreign interest was placed within the reach of the vesting power (of the Alien Property Custodian) not to appropriate On October 1.Filipinas Compania de Seguros v. Uebersee Finanz Korporation. the Supreme Court of the United States definitely approved of the control theory. No. 1941. after deducting their value. & Co. It was not only by legal ownership of shares that a material influence could be exercised on the management of the corporation but also by long term loans and other factual situations. Measures of blocking foreign funds. 1942. with costs. 1943. The petitioner refused to pay the claim on the ground that the policy in favor of the respondent had ceased to be in force on the date the United States declared war against Germany. On February 27. 4. The petitioner. 1948 the following enlightening passages appear: Since World War I. the respondent Corporation (though organized under and by virtue of the laws of the Philippines) 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 total loss suffered by the respondent was fixed at P92. For that reason. In due time the respondent submitted to the petitioner its claim under the policy. legislation on enemy property enacted in various countries during World War II adopted by statutory provisions to the control test and determined. however. after payment of corresponding premium. or during the Japanese military occupation..Filipinas Cia. as in World War I. It was the English courts which first the Daimler case applied this new concept of "piercing the corporate veil. The United States did not. Inc. in pursuance of the order of the Director of Bureau of Financing. 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. The English and American cases relied upon by the Court of Appeals have lost their 6 . the judgment of the Court of First Instance of Manila was affirmed. and other administrative practice in the treatment of foreign-owned property in the United States allowed to large degree the determination of enemy interest in domestic corporations and thus the application of the control test. de Seguros. Philippine Executive Commission. 1943.. In Clark vs. themselves considered as enemies.650 on April 19. 1941. 148-153. 1947. GR no. and more recently. paid to the respondent the sum of P92. in the Court of First Instance of Manila for the purpose of recovering from the respondent the sum of P92. to various degrees. force in view of the latest decision of the Supreme Court of the United States in Clark vs. Uebersee Finanz Korporation. obtained from the petitioner . the respondent corporation. a paper presented to the Second International Conference of the Legal Profession held at the Hague (Netherlands) in August. 29333 in the sum of P1000. Christern. dated April 9. include as did other legislations the applications of the control test and again. Courts refused to recognized the concept whereby American-registered corporations could be considered as enemies and thus subject to domestic legislation and administrative measures regarding enemy property.. fire policy No. namely managed under the influence of individuals or corporations. the building and insured merchandise were burned. It rejected the theory that nationality of private corporation is determine by the character or citizenship of its controlling stockholders. 92 Law. 711 Roman Street. Advance Opinions. in the amendments of the Trading with the Enemy Act during the last war. The salvage goods were sold at public auction and. and that the payment made by the petitioner to the respondent corporation during the Japanese military occupation was under pressure.650. This being so. Court decisions sanctioned such administrative practice enacted under the First War Powers Act of 1941. we have to rule that said respondent became an enemy corporation upon the outbreak of the war between the United States and Germany. Huenefeld and Co. the incidents of control." which was adopted by the peace of Treaties of 1919 and the Mixed Arbitral established after the First World War. covering merchandise contained in a building located at No. belligerent and neutral. dealing with a Swiss corporation allegedly controlled by German interest. L-2294 May 25.. courts refused to apply this concept whereby the enemy character of an American or neutral-registered corporation is determined by the enemy nationality of the controlling stockholders. Binondo Manila. A. decided on December 8. There is no question that majority of the stockholders of the respondent corporation were German subjects. 1946. Ed. It was known that German and other enemy interests were cloaked by domestic corporation structure. In "Enemy Corporation" by Martin Domke. A corporation was subject to enemy legislation when it was controlled by enemies. on December 8.650 above mentioned. The present action was filed on August 6. the determination of enemy nationality of corporations has been discussion in many countries. Upon appeal to the Court of Appeals. The case is now before us on appeal by certiorari from the decision of the Court of Appeals. The United States of America did not adopt the control test during the First World War. Inc. CJ. 1947. pp. Court decisions were rendered on the basis of such newly enacted statutory provisions in determining enemy character of domestic corporation. in which the controls test has been adopted. G. the so called freezing regulations. The theory of the petitioner is that the insured merchandise were burned up after the policy issued in 1941 in favor of the respondent corporation has ceased to be effective because of the outbreak of the war between the United States and Germany on December 10. After trial. Christern Huenefeld. the Court of First Instance of Manila dismissed the action without pronouncement as to costs.000. 1951 Paras. 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. World War II revived the problem again.

pp. and its judgment in favor of the respondent corporation was predicated on its conclusion that the policy did not cease to be in force. of Ins. (Vance.) It results that the petitioner is entitled to recover what paid to the respondent under the circumstances on this case. However.) The respondent having become an enemy corporation on December 10. lost. The payment of said claim. All individuals therefore. 1941. However. the appealed decision is hereby reversed and the respondent corporation is ordered to pay to the petitioner the sum of P77." It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy. well founded. its action is not tenable in view of the ruling on the validity of the policy. As a matter of fact. and during the war. Such prohibition includes all negotiations. in deciding the case. as amended. so far as not vested.friendly or neutral assets but to reach enemy interest which masqueraded under those innocent fronts.208. So ordered. or render it aid." It becomes unnecessary. in accordance with the rate fixed in the Ballantyne scale.) In the case of an ordinary fire policy. p. by the petitioner (a Philippine corporation) had ceased to be valid and enforcible. or tend to increase. and the commencement of war determines. (6 Couch. Cyc. all acts of voluntary submission to it. (Supp. 1943 copy of which was sent to your office and the concurrence therein of the Financial Department of the Japanese Military Administration. Christern." Factually. 5352-5353. Sec. Huenefeld & Co. commerce. the contractual tie is broken and the contractual rights of the parties. merely obeyed the instruction of the Japanese Military Administration. 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. and all contracts relating thereto are thereby nullified. or for some other specified term it is plain that when the parties become alien enemies. 1941. The Court of Appeals. The power of seizure and vesting was extended to all property of any foreign country or national so that no innocent appearing device could become a Trojan horse. 1941. Law. 44. less the amount of the premium. The Court of Appeals necessarily assumed that. its income or resources. and following the instruction of said authority. 9) 299. which prior thereto may have been lawful. as may be seen from the following: "In view of the findings and conclusion of this office contained in its decision on Administrative Case dated February 9. in actual Philippines currency of P92. 7 . All intercourse between citizens of belligerent powers which is inconsistent with a state of war is prohibited by the law of nations. you are hereby ordered to pay the claim of Messrs. or trading with the enemy. The purpose of war is to cripple the power and exhaust the resources of the enemy. the Law on Insurance. 112. upon the life or lives of aliens engaged in service with the enemy. therefore.) in section 8. even if the payment by the petitioner to the respondent was involuntary. the respondent was not entitled to any indemnity under said policy from the petitioner. and it is inconsistent that one country should destroy its enemy's property and repay in insurance the value of what has been so destroyed.. . Inc. to dwell at length on the authorities cited in support of the appealed decision. China Banking * Corporation. . in a state of utter exclusion. 1941. all acts which will increase. however. as to each other. and are public enemies. Effect of war. ." (Emphasis supplied. exist. 45 Off Gaz. which grants insurance only from year. should be made by means of crossed check. the Court of Appeals held that "any intimidation resorted to by the appellee was not unjust but the exercise of its lawful right to claim for and received the payment of the insurance policy. this for the reason that the subjects of one country cannot be permitted to lend their assistance to protect by insurance the commerce or property of belligerent. alien subjects. in Philippine currency. 1941. However. who compose the belligerent powers. The Philippine Insurance Law (Act No. all trading intercourse with the enemy. or to do anything detrimental too their country's interest. 2427. or that it should in such manner increase the resources of the enemy. Philippine currency. in Haw Pia vs. should be returned by the petitioner. stated that the main issue hinges on the question of whether the policy in question became null and void upon the declaration of war between the United States and Germany on December 10. provides that "anyone except a public enemy may be insured. beginning December 11. Wherefore. for like reasons. that should be returned by the petitioner for the unexpired term of the policy in question. or receiving its protection. in ordering the petitioner to pay the claim of the respondent. It further prohibits insurance upon trade with or by the enemy..33. the petitioner will be entitled to recover only the equivalent. 1941. there can be no doubt that the Director of the Bureau of Financing. the insurance policy issued in its favor on October 1." and that the ruling of the Bureau of Financing to the effect that "the appellee was entitled to payment from the appellant was. also all acts concerning the transmission of money or goods. elementary rules of justice (in the absence of specific provision in the Insurance Law) require that the premium paid by the respondent for the period covered by its policy from December 11. we may add that. 1943. Without costs. and since the insured goods were burned after December 10.650 paid on April 19. generally.

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