CHAPTER 1 GENERAL CONCEPTS Modern insurance contracts originated from the practice of merchants in the 14th century. Nevertheless, it has been acknowl- edged that different strains of security arrangements have already beer. used for centuries and they are akin to insurance contract in embrvonic form. Justice Laurel commented on the growth of insurance business in this wise: “The phenomenal growth of insurance from almost nothing a hundred years ago to its present gigantic proportion is not of the outstanding marvels of present-day business life. The demand for economic security, the growing need for social stability, and the clamor for protection against the hazards of cruel-crippling calamities and sudden economic shocks, have made insurance one of the felt necessities of modern life. Insurance is no longer a rich man’s monopoly. Upon it are heaped the assured hopes of many families of modest means. It is woven, as it were, into the very warp and woof of national economy. It touches the holiest and most sacred ties in the life of man—love of parents, love of wives and love of children.” §1. DEFINITION. The statutory definition of the “contract of insurance” appears in the first paragraph of Section 2 of the Insurance Code that states:? SEC. 2. Whenever used in this Code, the following terms shall have the respective meanings hereinafter set forth or indicated, unless the context otherwise requires: (a) A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify “The Insular Life Assurance Co., Ltd. v. Serafin D. Feliciano, et al., G.R. No. 47583, September 13, 1941, 73 Phil. 201 *Section 2, Insurance Code, Republic Act (RA) No. 10607 dated August 15, 2013, hereinafter referred to as I.C.INS CE LAW ALS OF INSURANC N No, 10607 with Notes on Pre-Need Act) Republi another against loss, damage or liability arising from an unknown or contingent event. A contract of suretyship shall be deemed to an insurance contract, within the meaning of this ode, only if made by a surety who or which, as such, is doing an insurance business as hereinafter provided. (b) The term doing an insurance business” or transacting an insurance business, within the meaning of this Code, shall include: (1) Making or proposing to make, as insurer, any insurance contract; (2) 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; (3) Doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; (4) Doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code. In the application of the provisions of this Code, the fact that no profit is derived from the making of insurance contracts, agreements or transactions or that no separate or direct consideration is received therefor, shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business. (c) As used in this Code, the term Commissioner means the Insurance Commissioner. a. Insurance may also be defined as a contract whereby one party called the insurer undertakes for a consideration to pay another party called the insured, or h; happening of the peril insured against, wh. or his beneficiary suffers loss or damage or is beneficiary, upon the ‘ereby the party insured 18 exposed to liability.CHAPTER 1 a GENERAL CONCEPTS §1.01. TEST, Whether or not a contract is one to be determined by its purpose, effect contents, and import and not. necessarily by the terminology used." 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 n der which the performance becomes requisite.+ The test is whenever the assumption of risk and the indemnification of loss is the principal object and purpose of the contract. a. For instance, a contract may be considered an insurance contract even if it is referred to as a health plan. In Philamcare Health Systems v. Court of Appeals,’ the Supreme Court ruled that the contract involved was an Insurance contract rather than a pre- need plan. In the said case, the insurable interest of respondent's husband in obtaining the health care agreement was his own health, 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. This ruling was reiterated in Fortune Medicare, Inc. v. Amorin’ where the Supreme Court emphasized “that for purposes of determining the liability of a health care provider to its members, jurisprudence holds that a health care agreement is in the nature of non-life insurance, which is primarily a contract of indemnity.” The arrangement is “the same when 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.” of insurance ig b. The Supreme Court reached a different conclusion in Philippine Health Care Provider, Inc. v. CIR* where it concluded that the elements of insurance contract are absent. The Court ruled that there was no indemnity precisely because the member merely ®National Auto Service Corporation v. State, Texas Civ. App., 55 8.W. (2d) 209. ‘White Gold Marine Services, Inc. v. Pioneer Insurance Surety Corporation, et al., G.R. No. 154514, July 28, 2005. “Philippine Health Care Providers v. CIR, G.R. No. 167330, September 18, °G.R. No, 125678, March 18, 2002, See also Blue Cross Health Care, Inc. v, Noemi and Danilo Olivares, G.R. No. 169737, February 12, 20 a ‘hs \ 7G.R. No. 196872, March 12, 2014 citing Philamcare | th Systems, Inc. V. CA, 429 Phil. 82, 90 (2002); see also Philippine Health Cure Providers, Ine. v, Commissioner of Internal Revenue, supra. ; “Supra (The Supreme Court reversed its previous ruling in 2008 as reported in 654 SCRA 511 (2008}).CE LAW sss bxTINIS OF NS TO Pre Newt AS? ‘ (Re bie Act No. 10607 with Notes republic Act 3 already paid in adv. of mete er paid oF jents. Indemnity of the wn press { price under the agre' ae of te at a pre-agreed: pric” } point of the agreeme ce) = the focal P* an affordable cost; it did not member was not of medical services partake of the nature member at e te contract of insurance. Although risk is t, it is not necessarily i insurance contract. y mary element of an ins! eC ee angen Seat risk alone is sufficient fo establish it Almost anvone whe undertakes @ contractual Neal Ce a Se cinguish eee Ci . there is 1 financial risk. Consequently ef to ial inurence s itioner) service contracts (like those of petition E a : contracts. Indeed, an entity undertakes a business risk when it offers to provide health services: the risk that it might fail to earn a reasonable return on its investment. But it is not the risk of the type peculiar only to insurance companies. c. It should be noted in this conn not one of the Pre-Need Plans expressly recognized under the Pre- Need Code and its Implementing Rules and Regulations.* Under the Implementing Rules and Regulations, a pre-need company may be authorized to issue plans if it is any or all of the following types of plans: (1) educational plan, (2) pension plan, and (3) life or memorial plan. io Byen a provision in a Collective Bargaining Agreement can be a lad insurance contract under certain circumstanc- . i Motors Philippines Salaried Employees Union (MMPSEU) v. Mitsubishi Motors Philippines Corp.,.° the Collective Bargaining Agreement entered into between the petiti i and respondent corporation, MMPC, co een es states that the company “shall obtain esined | ay provision Aue ns cavers tr ants under all iaetaeee ene for the dependents of regular ee basis hospitalization of forty thousand pesos (P40,000. OO) per, up to a maximum amount -000.00) per confinement subject to” cer tain limitations and condition: i i ruled that “MMPC is a no-fault insu Se ore ection that a Health Plan is *Section 4(b), R.A. No. 9829. Secti 19G.R. No, 175773, Jun ion 10, IRR of e 17, 2013, the Pre-Need