Insurance Cases

Enriquez vs Sun Life Insurance

GR 15895

Facts:

This is an action brought by the plaintiff administrator of the estate of the late Joaquin Ma. Herrer to
recover from the defendant life insurance company the sum of pesos 6,000 paid by the deceased for a
life annuity. Joaquin Herrer made application to the Sun Life Assurance Company of Canada for a life
annuity. Two days later he paid the sum of P6,000 to the manager of the company's and was given a
receipt.

The application was immediately 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. On December 18,
1917, attorney Aurelio A. Torres wrote to the Manila office 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. This letter was received by Mr. Torres on the morning of December 21, 1917. Mr. Herrer died on
December 20, 1917. The trial court in favor of the defendant Sun Life Indurance. Hence, this appeal.

Issue: WON Herrer received the notice of acceptance of his application.

No,

The chief clerk of the Manila office of the Sun Life Assurance Company testified that he prepared the
letter on November 26, 1917, and handed it to the local manager,for signature. 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.

It is necessary to determine the law which should be applied to the facts in order to reach the courts
legal goal.  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, particularly article 16
of the Civil Code provides that "In matters which are governed by special laws, any deficiency of the
latter shall be supplied by the provisions of this Code. So since, the special law on the subject of
insurance is deficient in enunciating the principles governing acceptance, the subject-matter of the Civil
code, would be controlling. In the Civil Code is found article 1262 providing that "Consent is shown by
the concurrence of offer and acceptance with respect to the thing and the consideration which are to
constitute the contract. An acceptance made by letter shall not bind the person making the offer except
from the time it came to his knowledge.

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. Also, 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.

Here, 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 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.

Here, the contract for a life annuity was not perfected because it has not been proved satisfactorily that
the acceptance of the application ever came to the knowledge of the applicant.lawph!l.n

Philamcare Health System vs CA

GR 125678

Facts:

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with
petitioner Philamcare Health Systems, Inc. In the standard application form, he answered no to the
following question:
 Have you or any of your family members ever consulted or been treated for high blood
pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give
details).1

The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Under the
agreement, respondent’s husband was entitled to avail of hospitalization benefits, whether ordinary or
emergency. 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. 2

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 Ernani’s medical history. Doctors at the MMC allegedly discovered at the time of Ernani’s
confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application
form. 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.

On July 24, 1990, respondent instituted with the RTC of Manila, an action for damages against petitioner
and its president, She asked for reimbursement of her expenses plus moral damages and attorney’s
fees. After trial, the lower court ruled against petitioners to pay and reimburse plaintiff

1. the medical and hospital coverage of the late Ernani Trinos in the amount of P76,000.00 plus interest,
until the amount is fully paid to plaintiff who paid the same;

2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;

3. Defendants to pay the reduced amount of  P10,000.00 as exemplary damages to plaintiff;

4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.

On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for
damages and absolved petitioner Reverente. Hence, petitioner brought the instant petition for review,
raising the primary argument that a health care agreement is not an insurance contract; hence the
"incontestability clause" under the Insurance Code does not apply.1âwphi1.nêt

Petitioner argues that the agreement grants "living benefits," such as medical check-ups and
hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of the
agreement until its expiration one-year thereafter. Petitioner also points out that only medical and
hospitalization benefits are given under the agreement without any indemnification, unlike in an
insurance contract where the insured is indemnified for his loss. Moreover, since Health Care
Agreements are only for a period of one year, as compared to insurance contracts which last
longer,petitioner argues that the incontestability clause does not apply, as the same requires an
effectivity period of at least two years. Petitioner further argues that it is not an insurance company,
which is governed by the Insurance Commission, but a Health Maintenance Organization under the
authority of the Department of Health.

Issue: WON the Defendant is entitled to claim the benefits under the health care agreement

Held:

Yes, 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 designated peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses among a large
group of persons bearing a similar risk; and

5. In consideration of the insurer’s promise, the insured pays a premium

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future,
which may damnify a person having an insurable interest against him, may be insured against. Every
person has an insurable interest in the life and health of himself. Section 10 provides:

Every person has an insurable interest in the life and health:

(1) of himself, of his spouse and of his children;

(2) of any person on whom he depends wholly or in part for education or support, or in whom
he has a pecuniary interest;

(3) of any person under a legal obligation to him for the payment of money, respecting property
or service, of which death or illness might delay or prevent the performance; and

(4) of any person upon whose life any estate or interest vested in him depends.

In the case at bar, the insurable interest of respondent’s husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of non-life insurance,
which is primarily a contract of indemnity.Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingent, the health care provider must pay
for the same to the extent agreed upon under the contract.
Petitioner argues that respondent’s husband concealed a material fact in his application. It appears that
in the application for health coverage, petitioners required respondent’s husband to sign an express
authorization for any person, organization or entity that has any record or knowledge of his health to
furnish any and all information relative to any hospitalization, consultation, treatment or any other
medical advice or examination. In addition the petitioner additionally required the applicant for
authorization to inquire about the applicant’s medical history

The court held that Petitioner cannot rely on the stipulation regarding "Invalidation of agreement"
which reads:

Failure to disclose or misrepresentation of any material information by the member in the

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

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

(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of

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

The fraudulent intent on the part of the insured must be established to warrant rescission of the
insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is
an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence
rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is
liable for claims made under the contract. Having assumed a responsibility under the agreement,
petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health
care provider attaches once the member is hospitalized for the disease or injury covered by the
agreement or whenever he avails of the covered benefits which he has prepaid.

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract
of insurance." The right to rescind should be exercised previous to the commencement of an action on
the contract.In this case, no rescission was made. Besides, the cancellation of health care agreements as
in insurance policies require the concurrence of the following conditions:
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. 18

Here, none of the above pre-conditions was fulfilled in this case. When the terms of insurance contract
contain limitations on liability, courts should construe them in such a way as to preclude the insurer
from non-compliance with his obligation.Being a contract of adhesion, the terms of an insurance
contract are to be construed strictly against the party which prepared the contract – the insurer. By
reason of the exclusive control of the insurance company over the terms and phraseology of the
insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the
insured, especially to avoid forfeiture.This is equally applicable to Health Care Agreements. The
phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally
construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the
construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should
be strictly construed against the provider.

Anent the incontestability of the membership of respondent’s husband, we quote with approval the
following findings of the trial court:

(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc.
had twelve months from the date of issuance of the Agreement within which to contest the
membership of the patient if he had previous ailment of asthma, and six months from the
issuance of the agreement if the patient was sick of diabetes or hypertension. The periods
having expired, the defense of concealment or misrepresentation no longer lie

Phil Healthcare Providers vs CIR

GR 167330
Facts:

Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and
operate a prepaid group practice health care delivery system or a health maintenance organization to
take care of the sick and disabled persons enrolled in the health care plan and to provide for the
administrative, legal, and financial responsibilities of the organization." Individuals enrolled in its health
care programs pay an annual membership fee and are entitled to various preventive, diagnostic and
curative medical services provided by its duly licensed physicians, specialists at a hospital or clinic
owned, operated or accredited by it.
On January 27, 2000, respondent CIR sent petitioner a formal demand letter and the corresponding
assessment notices demanding the payment of deficiency taxes, including surcharges and interest, in
the total amount of ₱224,702,641.18. The deficiency [documentary stamp tax (DST)] assessment was
imposed on petitioner’s health care agreement with the members of its health care program pursuant
to Section 185 of the 1997 Tax Code.

Petitioner protested the assessment then 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.

On April 5, 2002, the CTA rendered a decision in which the petition was partially granted and ordered
the petitioner to pay he deficiency VAT amounting to ₱22,054,831.75 inclusive of 25% surcharge plus
20% interest from January 20, 1997 until fully paid for the 1996 VAT deficiency and ₱31,094,163.87
inclusive of 25% surcharge plus 20% interest.

Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled the DST
assessment. He claimed that petitioner’s health care agreement was a contract of insurance subject to
DST under Section 185 of the 1997 Tax Code.

On August 16, 2004, the CA rendered its decision. It held that petitioner’s health care agreement was in
the nature of a non-life insurance contract subject to DST. Hence, this appeal

Issue: WON the petitioners heath care agreement was a contract of insurance subject to DST under
Section 185 of the Tax Code.

Held:

No, Under RA 7875 (or "The National Health Insurance Act of 1995"), an HMO is "an entity that provides,
offers or arranges for coverage of designated health services needed by plan members for a fixed
prepaid premium."The payments do not vary with the extent, frequency or type of services provided.

Section 2 (2) of PD 1460 (otherwise known as the Insurance Code) enumerates what constitutes "doing
an insurance business" or "transacting an insurance business:"

a) making or proposing to make, as insurer, any insurance contract;

b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as
merely incidental to any other legitimate business or activity of the surety;

c) doing any kind of business, including a reinsurance business, specifically recognized as

constituting the doing of an insurance business within the meaning of this Code;

d) doing or proposing to do any business in substance equivalent to any of the foregoing in a

manner designed to evade the provisions of this Code.

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
therefore, shall not be deemed conclusive to show that the making thereof does not constitute the
doing or transacting of an insurance business.

Various courts in the United States, whose jurisprudence has a persuasive effect on our decisions, have
determined that HMOs are not in the insurance business. One test that they have applied is whether the
assumption of risk and indemnification of loss (which are elements of an insurance business) are the
principal object and purpose of the organization or whether they are merely incidental to its business. If
these are the principal objectives, the business is that of insurance. But if they are merely incidental and
service is the principal purpose, then the business is not insurance.

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 engaged in the insurance business.

The rule was enunciated in Jordan v. Group Health Association 23  wherein the 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 Health’s 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; to broaden the service to the individual in kind
and quantity; to enlarge the number receiving it; to regularize it as an everyday incident of living, like
purchasing food and clothing or oil and gas, rather than merely protecting against the financial loss
caused by extraordinary and unusual occurrences, such as death, disaster at sea, fire and tornado. It
is, in this instance, to take care of colds, ordinary aches and pains, minor ills and all the temporary bodily
discomforts as well as the more serious and unusual illness. To summarize, the distinctive features of
the cooperative are the rendering of service, its extension, the bringing of physician and patient
together, the preventive features, the regularization of service as well as payment, the substantial
reduction in cost by quantity purchasing in short, getting the medical job done and paid for; not,
except incidentally to these features, the indemnification for cost after the services is rendered.
Except the last, these are not distinctive or generally characteristic of the insurance
arrangement. There is, therefore, a substantial difference between contracting in this way for the
rendering of service, even on the contingency that it be needed, and contracting merely to stand its cost
when or after it is rendered.

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. This is especially
true when the contract is for the sale of goods or services on contingency. But obviously it was not the
purpose of the insurance statutes to regulate all arrangements for assumption or distribution of risk.
That view would cause them to engulf practically all contracts, particularly conditional sales and
contingent service agreements. 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.2

There is another and more compelling reason for holding that the service is not engaged in the
insurance business. 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. Certainly the objects and
purposes of the corporation organized and maintained by the California physicians have a wide scope in
the field of social service. Probably there is no more impelling need than that of adequate medical care
on a voluntary, low-cost basis for persons of small income. The medical profession unitedly is
endeavoring to meet that need. Unquestionably this is ‘service’ of a high order and not
‘indemnity.’26 (Emphasis supplied)

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 Jersey27  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 corporation’s 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…

Consequently, the 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.29 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 petitioner’s 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 petitioner’s services covers preventive and diagnostic medical services
intended to keep members from developing medical conditions or diseases. 30 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.31

Overall, petitioner appears to provide insurance-type benefits to its members (with respect to
its curative medical services), but these are incidental to the principal activity of providing them medical
care. The "insurance-like" aspect of petitioner’s business is miniscule compared to its noninsurance
activities. Therefore, since it substantially provides health care services rather than insurance services, it
cannot be considered as being in the insurance business.

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 petitioner’s 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. This is of course only prudent and appropriate, taking
into account the burdensome and strict laws, rules and regulations applicable to insurers and other
entities engaged in the insurance business. Moreover, we are also not unmindful that there are other
American authorities who have found particular HMOs to be actually engaged in insurance activities. 32

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

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 insurer’s promise, the insured pays a premium. 41

Do the agreements between petitioner and its members possess all these elements? They do not.

First. In our jurisdiction, a commentator of our insurance laws has pointed out that, 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:

It does not necessarily follow however, that a contract containing all the four elements mentioned
above would be an insurance contract. The primary purpose of the parties in making the contract may
negate the existence of an insurance contract. For example, a law firm which enters into contracts with
clients whereby in consideration of periodical payments, it promises to represent such clients in all suits
for or against them, is not engaged in the insurance business. Its contracts are simply for the purpose of
rendering personal services. On the other hand, a contract by which a corporation, in consideration of a
stipulated amount, agrees at its own expense to defend a physician against all suits for damages for
malpractice is one of insurance, and the corporation will be deemed as engaged in the business of
insurance. Unlike the lawyer’s retainer contract, the essential purpose of such a contract is not to render
personal services, but to indemnify against loss and damage resulting from the defense of actions for
malpractice.42 (Emphasis supplied)

Second. Not all the necessary elements of a contract of insurance are present in petitioner’s
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 petitioner’s 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.

In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,43 although the health care
contracts called for the defendant to partially reimburse a subscriber for treatment received from a non-
designated doctor, this did not make defendant an insurer. Citing Jordan, the Court determined that
"the primary activity of the defendant (was) the provision of podiatric services to subscribers in
consideration of prepayment for such services." 44 Since indemnity of the insured was not the focal point
of the agreement but the extension of medical services to the member at an affordable cost, it did not
partake of the nature of a contract of insurance.

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.

Indeed, petitioner, as an HMO, 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. Insurance risk, also known as actuarial risk, is the risk that the cost
of insurance claims might be higher than the premiums paid. The amount of premium is calculated on
the basis of assumptions made relative to the insured. 45

However, assuming that petitioner’s commitment to provide medical services to its members can be
construed as an acceptance of the risk that it will shell out more than the prepaid fees, it still will not
qualify as an insurance contract because petitioner’s objective is to provide medical services at reduced
cost, not to distribute risk like an insurer.

In sum, an examination of petitioner’s agreements with its members leads us to conclude that it is not
an insurance contract within the context of our Insurance Code.

Fortune Medicare vs Amorin

GR 195872
Facts:

David Robert U. Amorin was a cardholder/member of Fortune Medicare, Inc. (Fortune Care), a
corporation engaged in providing health maintenance services to its members. The terms of Amorin's
medical coverage were provided in a Corporate Health Program Contract (Health Care Contract) which
was executed on January 6, 2000 by Fortune Care and the House of Representatives, where Amorin was
a permanent employee.

While on vacation in Honolulu, Hawaii, United States of America (U.S.A.) in May 1999, Amorin
underwent an emergency surgery, specifically appendectomy, at the St. Francis Medical Center, causing
him to incur professional and hospitalization expenses of US$7,242.35 and US$1,777.79, respectively.
He attempted to recover from Fortune Care the full amount thereof upon his return to Manila, but the
company merely approved a reimbursement of ₱12,151.36, an amount that was based on the average
cost of appendectomy, net of medicare deduction, if the procedure were performed in an accredited
hospital in Metro Manila. Amorin received under protest the approved amount, but asked for its
adjustment to cover the total amount of professional fees which he had paid, and eighty percent (80%)
of the approved standard charges based on "American standard", considering that the emergency
procedure occurred in the U.S.A. To support his claim, Amorin cited Section 3, Article V on Benefits and
Coverages of the Health Care Contract, to wit:

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization cost
including the professional fee (based on the total approved charges) to a member who receives
emergency care in a non-accredited hospital. The above coverage applies only to Emergency
confinement within Philippine Territory. However, if the emergency confinement occurs in a foreign
territory, Fortune Care will be obligated to reimburse or pay eighty (80%) percent of the approved
standard charges which shall cover the hospitalization costs and professional fees. x x x 6

Still, Fortune Care denied Amorin’s request, prompting the latter to file a complaint 7 for breach of
contract with damages with the Regional Trial Court (RTC) of Makati City.

The RTC rendered its decision dismissing Amorin’s complaint. Citing Section 3, Article V of the Health
Care Contract, the RTC explained:

Taking the contract as a whole, the Court is convinced that the parties intended to use the Philippine
standard as basis. The clause providing for reimbursement in case of emergency operation in a foreign
territory equivalent to 80% of the approved standard charges which shall cover hospitalization costs and
professional fees, can only be reasonably construed in connection with the preceding clause on
professional fees to give meaning to a somewhat vague clause. A particular clause should not be studied
as a detached and isolated expression, but the whole and every part of the contract must be considered
in fixing the meaning of its parts. 10

In the absence of evidence to the contrary, the trial court considered the amount of ₱12,151.36 already
paid by Fortune Care to Amorin as equivalent to 80% of the hospitalization and professional fees
payable to the latter had he been treated in an affiliated hospital. 11

Dissatisfied, Amorin appealed the RTC decision to the CA. The CA rendered its Decision in favor of
Amorin. In so ruling, the appellate court pointed out that, first, health care agreements such as the
subject Health Care Contract, being like insurance contracts, must be liberally construed in favor of the
subscriber. In case its provisions are doubtful or reasonably susceptible of two interpretations, the
construction conferring coverage is to be adopted and exclusionary clauses of doubtful import should be
strictly construed against the provider.Second, the CA explained that there was nothing under Article V
of the Health Care Contract which provided that the Philippine standard should be used even in the
event of an emergency confinement in a foreign territory.

Hence, this appeal

Issue: WON petitioner is liable to pay the professional and hospitalization expenses incurred in a foreign
territory

Held:
Yes, The Court finds no cogent reason to disturb the CA’s finding that Fortune Care’s liability to Amorin
under the subject Health Care Contract should be based on the expenses for hospital and professional
fees which he actually incurred, and should not be limited by the amount that he would have incurred
had his emergency treatment been performed in an accredited hospital in the Philippines.

The Court emphasize 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. 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.

To aid in the interpretation of health care agreements, the Court laid down the following guidelines in
Philamcare Health Systems v. CA

When the terms of insurance contract contain limitations on liability, courts should construe them in
such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of
adhesion, the terms of an insurance contract are to be construed strictly against the party which
prepared the contract – the insurer. By reason of the exclusive control of the insurance company over
the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the
insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally applicable to
Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the one
at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of
two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of
doubtful import should be strictly construed against the provider. 20 (Citations omitted and emphasis
ours)

In the instant case, the extent of Fortune Care’s liability to Amorin under the attendant circumstances
was governed by Section 3(B), Article V of the subject Health Care Contract, considering that the
appendectomy which the member had to undergo qualified as an emergency care, but the treatment
was performed at St. Francis Medical Center in Honolulu, Hawaii, U.S.A., a non-accredited hospital. We
restate the pertinent portions of Section 3(B):

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization cost
including the professional fee (based on the total approved charges) to a member who receives
emergency care in a non-accredited hospital. The above coverage applies only to Emergency
confinement within Philippine Territory. However, if the emergency confinement occurs in foreign
territory, Fortune Care will be obligated to reimburse or pay eighty (80%) percent of the approved
standard charges which shall cover the hospitalization costs and professional fees. x x x 23 (Emphasis
supplied)

The point of dispute now concerns the proper interpretation of the phrase "approved standard
charges", which shall be the base for the allowable 80% benefit. The trial court ruled that the phrase
should be interpreted in light of the provisions of Section 3(A), i.e., to the extent that may be allowed for
treatments performed by accredited physicians in accredited hospitals. As the appellate court however
held, this must be interpreted in its literal sense, guided by the rule that any ambiguity shall be strictly
construed against Fortune Care, and liberally in favor of Amorin.

The Court agrees with the CA. As may be gleaned from the Health Care Contract, the parties thereto
contemplated the possibility of emergency care in a foreign country. As the contract recognized Fortune
Care’s liability for emergency treatments even in foreign territories, it expressly limited its liability only
insofar as the percentage of hospitalization and professional fees that must be paid or reimbursed was
concerned, pegged at a mere 80% of the approved standard charges.

The word "standard" as used in the cited stipulation was vague and ambiguous, as it could be
susceptible of different meanings. Plainly, the term "standard charges" could be read as referring to the
"hospitalization costs and professional fees" which were specifically cited as compensable even when
incurred in a foreign country. Contrary to Fortune Care’s argument, from nowhere in the Health Care
Contract could it be reasonably deduced that these "standard charges" referred to the "Philippine
standard", or that cost which would have been incurred if the medical services were performed in an
accredited hospital situated in the Philippines. The RTC ruling that the use of the "Philippine standard"
could be inferred from the provisions of Section 3(A), which covered emergency care in an accredited
hospital, was misplaced. Evidently, the parties to the Health Care Contract made a clear distinction
between emergency care in an accredited hospital, and that obtained from a non-accredited
hospital.1âwphi1 The limitation on payment based on "Philippine standard" for services of accredited
physicians was expressly made applicable only in the case of an emergency care in an accredited
hospital.

The proper interpretation of the phrase "standard charges" could instead be correlated with and
reasonably inferred from the other provisions of Section 3(B), considering that Amorin’s case fell under
the second case, i.e., emergency care in a non-accredited hospital. Rather than a determination of
Philippine or American standards, the first part of the provision speaks of the full reimbursement of "the
total hospitalization cost including the professional fee (based on the total approved charges) to a
member who receives emergency care in a non-accredited hospital" within the Philippines. Thus, for
emergency care in non-accredited hospitals, this cited clause declared the standard in the determination
of the amount to be paid, without any reference to and regardless of the amounts that would have been
payable if the treatment was done by an affiliated physician or in an affiliated hospital. For treatments in
foreign territories, the only qualification was only as to the percentage, or 80% of that payable for
treatments performed in non-accredited hospital.

All told, in the absence of any qualifying word that clearly limited Fortune Care's liability to costs that are
applicable in the Philippines, the amount payable by Fortune Care should not be limited to the cost of
treatment in the Philippines, as to do so would result in the clear disadvantage of its member. If, as
Fortune Care argued, the premium and other charges in the Health Care Contract were merely
computed on assumption and risk under Philippine cost and, that the American cost standard or any
foreign country's cost was never considered, such limitations should have been distinctly specified and
clearly reflected in the extent of coverage which the company voluntarily assumed. This was what
Fortune Care found appropriate when in its new health care agreement with the House of
Representatives, particularly in their 2006 agreement, the provision on emergency care in non-
accredited hospitals was modified to read as follows:
However, if the emergency confinement occurs in a foreign territory, Fortunecare will be obligated to
reimburse or pay one hundred (100%) percent under approved Philippine Standard covered charges for
hospitalization costs and professional fees but not to exceed maximum allowable coverage, payable in
pesos at prevailing currency exchange rate at the time of availment in said territory where he/she is
confined. x x x24

Settled is the rule that ambiguities in a contract are interpreted against the party that caused the
ambiguity. "Any ambiguity in a contract whose terms are susceptible of different interpretations must
be read against the party who drafted it." 25

Philippine Surety vs Royal Oil Products

GR L-9981

Facts:

White Gold Marine Services vs Pioneer

GR154514
Facts:

White Gold procured a protection and indemnity coverage for its vessels from The Steamship Mutual
Underwriting Association Limited (Steamship Mutual) through Pioneer Insurance and Surety Corporation
(Pioneer). Subsequently, 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 4 and 1875 of the Insurance Code,
while Pioneer violated Sections 299,6 3007 and 3018 in relation to Sections 302 and 303, thereof.

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 (P & I 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. Hence, this appeal. Petitioner
insists that Steamship Mutual as a P & I Club is engaged in the insurance business. It cites the definition
of a P & I Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals as "an association composed of
shipowners in general who band together for the specific purpose of providing insurance cover on a
mutual basis against liabilities incidental to shipowning that the members incur in favor of third parties."
It stresses that as a P & I Club, Steamship Mutual's primary purpose is to solicit and provide protection
and indemnity coverage and for this purpose, it has engaged the services of Pioneer to act as its agent.

Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the insurance
business in the Philippines. It is merely an association of vessel owners who have come together to
provide mutual protection against liabilities incidental to shipowning.

Issue: 1. WON Steamship Mutual engaged in the insurance business

2. WON Pioneer need a license as an insurance agent/broker for Steamship Mutual

1. Yes, Section 2(2) of the Insurance Code enumerates what constitutes "doing an insurance business" or
"transacting an insurance business". These are:

(a) making or proposing to make, as insurer, any insurance contract;

(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely
incidental to any other legitimate business or activity of the surety;

(c) doing any kind of business, including a reinsurance business, specifically recognized as constituting
the doing of an insurance business within the meaning of this Code;

(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code.

The same provision also provides, 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 preclude the existence of an insurance business. 12

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.13

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. 14

In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the
losses incident to a marine adventure.

Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the
insurer and insured. In it, the members all contribute, by a system of premiums or assessments, to the
creation of a fund from which all losses and liabilities are paid, and where the profits are divided among
themselves, in proportion to their interest. 17 Additionally, mutual insurance associations, or clubs,
provide three types of coverage, namely, protection and indemnity, war risks, and defense costs. 18
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. 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.

2. Yes, Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of
registration22 issued by the Insurance Commission. It has been licensed to do or transact insurance
business by virtue of the certificate of authority 23 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.24

Although Pioneer is already licensed as an insurance company, it needs a separate license to act as
insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states:

SEC. 299 . . .

No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of
applications for insurance, or receive for services in obtaining insurance, any commission or other
compensation from any insurance company doing business in the Philippines or any agent thereof,
without first procuring a license so to act from the Commissioner, which must be renewed annually on
the first day of January, or within six months thereafter

Blue Cross Health Care Providers vs CIR

GR 169737

Facts:

Respondent Neomi T. Olivares applied for a health care program with petitioner Blue Cross Health Care,
Inc., a health maintenance firm. For the period October 16, 2002 to October 15, 2003,she paid the
amount of P11,117. In the health care agreement, ailments due to "pre-existing conditions" were
excluded from the coverage.

On November 30, 2002, or barely 38 days from the effectivity of her health insurance, respondent
Neomi suffered a stroke and was admitted at the Medical City. During her confinement, she underwent
several laboratory tests. On December 2, 2002, her attending physician, Dr. Edmundo Saniel,informed
her that she could be discharged from the hospital. She incurred hospital expenses amounting
to P34,217.20. Consequently, she requested from the representative of petitioner at Medical City a
letter of authorization in order to settle her medical bills. But petitioner refused to issue the letter and
suspended payment pending the submission of a certification from her attending physician that the
stroke she suffered was not caused by a pre-existing condition.

On December 5, 2002, she demanded that petitioner pay her medical bill. When petitioner still refused,
she and her husband, respondent Danilo Olivares, were constrained to settle the bill.They thereafter
filed a complaint for collection of sum of money against petitioner in the MeTC. In its answer, petitioner
maintained that it had not yet denied respondents' claim as it was still awaiting Dr. Saniel's report. In a
letter to petitioner Dr. Saniel stated that:

[Respondent] Neomi T. Olivares is invoking patient-physician confidentiality. That she no longer has any
relationship with [petitioner]. And that I should not release any medical information concerning her
neurologic status to anyone without her approval.

The MeTc dismissed the complaint for lack of cause of action. It held that the best person to determine
whether or not the stroke she suffered was not caused by "pre-existing conditions" is her attending
physician Dr. Saniel who treated her and conducted the test during her confinement. But since the
evidence on record reveals that it was no less than [respondent Neomi] herself who prevented her
attending physician from issuing the required certification, petitioner cannot be faulted from suspending
payment of her claim, for until and unless it can be shown from the findings made by her attending
physician that the stroke she suffered was not due to pre-existing conditions could she demand
entitlement to the benefits of her policy

On appeal, the RTC, reversed the ruling of the MeTC and ordered petitioner to pay respondents. The
RTC held that it was the burden of petitioner to prove that the stroke of respondent Neomi was
excluded from the coverage of the health care program for being caused by a pre-existing condition. It
was not able to discharge that burden.

Aggrieved, petitioner filed a petition in the CA. In a decision, the CA affirmed the decision of the RTC.

Issue: WON petitioner was able to prove that respondent Neomi's stroke was caused by a pre-existing
condition and therefore was excluded from the coverage of the health care agreement

Held:

No, in Philamcare Health Systems, Inc. v. CA, the court ruled that a health care agreement is in the
nature of a non-life insurance. It is an established rule in insurance contracts that when their terms
contain limitations on liability, they should be construed strictly against the insurer. These are contracts
of adhesion the terms of which must be interpreted and enforced stringently against the insurer which
prepared the contract. This doctrine is equally applicable to health care agreements.

Petitioner never presented any evidence to prove that respondent Neomi's stroke was due to a pre-
existing condition. It merely speculated that Dr. Saniel's report would be adverse to Neomi, based on
her invocation of the doctor-patient privilege. This was a disputable presumption at best.

Section 3 (e), Rule 131 of the Rules of Court states:

 Sec. 3. Disputable presumptions. ― The following presumptions are satisfactory if
uncontradicted, but may be contradicted and overcome by other evidence:

xxx       xxx       xxx

(e) That evidence willfully suppressed would be adverse if produced.

Suffice it to say that this presumption does not apply if (a) the evidence is at the disposal of both parties;
(b) the suppression was not willful; (c) it is merely corroborative or cumulative and (d) the suppression is
an exercise of a privilege.

 Here, respondents' refusal to present or allow the presentation of Dr. Saniel's report was justified. It
was privileged communication between physician and patient.

Furthermore, as already stated, limitations of liability on the part of the insurer or health care provider
must be construed in such a way as to preclude it from evading its obligations. Accordingly, they should
be scrutinized by the courts with "extreme jealousy “and "care" and with a "jaundiced eye." Since
petitioner had the burden of proving exception to liability, it should have made its own assessment of
whether respondent Neomi had a pre-existing condition when it failed to obtain the attending
physician's report. It could not just passively wait for Dr. Saniel's report to bail it out. The mere reliance
on a disputable presumption does not meet the strict standard required under our jurisprudence.

MMPSEU vs MMPC
GR 175773
Facts:

The Collective Bargaining Agreement (CBA) of the parties in this case provides that the company
shoulder the hospitalization expenses of the dependents of covered employees subject to certain
limitations and restrictions.  Accordingly, covered employees pay part of the hospitalization insurance
premium through monthly salary deduction while the company, upon hospitalization of the covered
employees’ dependents, shall pay the hospitalization expenses incurred for the same. 

Each employee shall pay one hundred pesos (P100.00) per month through salary deduction as his share
in the payment of the insurance premium for the above coverage with the balance of the premium to be
paid by the COMPANY.  The hospitalization expenses must be covered by actual hospital and doctor’s
bills and any amount in excess of the above mentioned level of benefits will be for the account of the
employee.

On separate occasions, three members of MMPSEU, namely, Ernesto Calida (Calida), Hermie Juan Oabel
(Oabel) and Jocelyn Martin (Martin), filed claims for reimbursement of hospitalization expenses of their
dependents.

MMPC paid only a portion of their hospitalization insurance claims, not the full amount.  In the case of
Calida, his wife, Lanie, was confined at Sto. Tomas University Hospital.  The medical expenses incurred
totalled P29,967.10.  Of this amount, P9,000.00 representing professional fees was paid by MEDICard
Philippines, Inc. (MEDICard).  MMPC only paid P12,148.63. It did not pay the P9,000.00 already paid by
MEDICard and the P6,278.47 not covered by official receipts.

As regards Oabel’s claim, his wife Jovita Nemia (Jovita) was confined at The Medical City incurring
medical expenses totalling P8,489.35. Of this amount, P7,811.00 was paid by Jovita’s personal health
insurance, Prosper Insurance Company (Prosper). 12  MMPC paid the hospital the amount of
P630.87, after deducting from the total medical expenses the amount paid by Prosper and the P47.48
discount given by the hospital.

In the case of Martin, his father, Jose, was admitted at The Medical City and incurred medical expenses
amounting to P9,101.30.  MEDICard paid P8,496.00. Consequently, MMPC only paid P288.40, after
deducting from the total medical expenses the amount paid by MEDICard and the P316.90 discount
given by the hospital.

Claiming that under the CBA, they are entitled to hospital which should not be reduced by the amounts
paid by MEDICard and by Prosper, Calida, Oabel and Martin asked for reimbursement from MMPC.  
However, MMPC denied the claims contending that double insurance would result if the said employees
would receive from the company the full amount of hospitalization expenses despite having already
received payment of portions thereof from other health insurance providers.

This prompted the MMPSEU President to write the MMPC President demanding full payment of the
hospitalization benefits.  Alleging discrimination against MMPSEU union members, she pointed out that
full reimbursement was given in a similar claim filed by Luisito Cruz (Cruz), a member of the Hourly
Union.  In a letter-reply, MMPC clarified that the claims of the said MMPSEU members have already
been paid on the basis of official receipts submitted.  It also denied the charge of discrimination.
Thereafter,
MMPSEU referred the dispute to the National Conciliation and Mediation Board and requested for
preventive mediation.chanroblesvirtuallawlibrary

Proceedings before the Voluntary Arbitrator

The case was referred to Voluntary for resolution of the issue involving the interpretation of the subject
CBA provision.anroblesvirtuallawlibrary

MMPSEU alleged that there is nothing in the CBA which prohibits an employee from obtaining other
insurance or declares that medical expenses can be reimbursed only upon presentation of original
official receipts.  It stressed that the hospitalization benefits should be computed based on the formula
indicated in the CBA without deducting the benefits derived from other insurance providers.  Besides, if
reduction is permitted, MMPC would be unjustly benefitted from the monthly premium contributed by
the employees through salary deduction.  Moreover, any ambiguity should be resolved in favor of labor.
tuallawlibrary

On the other hand, MMPC argued that the reimbursement of the entire amounts being claimed by the
covered employees, including those already paid by other insurance companies, would constitute
double indemnity or double insurance, which is circumscribed under the Insurance Code.   Moreover, a
contract of insurance is a contract of indemnity and the employees cannot be allowed to profit from
their dependents’ loss. Ibrary
Meanwhile, in altter by MMPSEU to the Insurance Commission, through Atty. Richard David C. Funk II
(Atty. Funk) it rendered an opinion stating that “in cases of claims for reimbursement of medical
expenses where there are two contracts providing benefits to that effect, recovery may be had on
both simultaneously.  In the absence of an Other Insurance provision in these coverages, the courts
have uniformly held that an insured is entitled to receive the insurance benefits without regard to the
amount of total benefits provided by other insurance”

Thereafter, the Voluntary Arbitrator rendered a Decision finding MMPC liable to pay or reimburse the
amount of hospitalization expenses already paid by other health insurance companies.  The Voluntary
Arbitrator held that the employees may demand simultaneous payment from both the CBA and their
dependents’ separate health insurance without resulting to double insurance, since separate premiums
were paid for each contract.  He also noted that the CBA does not prohibit reimbursement in case there
are other health insurers.

MMPC filed a Petition before the CA. The CA found merit in MMPC’s Petition.  It ruled that despite the
lack of a provision which bars recovery in case of payment by other insurers, the wordings of the subject
provision of the CBA showed that the parties intended to make MMPC liable only for expenses actually
incurred by an employee’s qualified dependent. These mean that the employees shall only be paid
amounts not covered by other health insurance and is more in keeping with the principle of indemnity in
insurance contracts.  Besides, a contrary interpretation would "allow unscrupulous employees to unduly
profit from the benefits" and shall "open the floodgates to questionable claims."

Issue: WON the MMPC is liable to pay the full hospitalization benefits.

Held:

No, The Voluntary Arbitrator based his ruling on the opinion of Atty. Funk that the employees may
recover benefits from different insurance providers without regard to the amount of benefits paid by
each.  According to him, this view is consistent with the theory of the collateral source rule.

As part of American personal injury law, the collateral source rule was originally applied to tort cases
wherein the defendant is prevented from benefitting from the plaintiff’s receipt of money from other
sources.  Under this rule, if an injured person receives compensation for his injuries from a source
wholly independent of the tortfeasor, the payment should not be deducted from the damages which he
would otherwise collect from the tortfeasor, although the rule appears to allow a double recovery, the
collateral source will have a lien or subrogation right to prevent such a double recovery.

As seen, the collateral source rule applies in order to place the responsibility for losses on the party
causing them. Thus, it finds no application to cases involving no-fault insurances under which the
insured is indemnified for losses by insurance companies, regardless of who was at fault in the incident
generating the losses.

Here, it is clear that MMPC is a no-fault insurer.  Hence, it cannot be obliged to pay the hospitalization
expenses of the dependents of its employees which had already been paid by separate health insurance
providers of said dependents.

The Voluntary Arbitrator therefore erred in adopting Atty. Funk’s view that the covered employees are
entitled to full payment of the hospital expenses incurred by their dependents, including the amounts
already paid by other health insurance companies based on the theory of collateral source rule.

Further, the conditions set forth in the CBA provision indicate an intention to limit MMPC’s liability only
to actual expenses incurred by the employees’ dependents, that is, excluding the amounts paid by
dependents’ other health insurance providers. The condition that payment should be direct to the
hospital and doctor implies that MMPC is only liable to pay medical expenses actually shouldered by the
employees’ dependents.  It follows that MMPC’s liability is limited, that is, it does not include the
amounts paid by other health insurance providers.  This condition is obviously intended to thwart not
only fraudulent claims but also double claims for the same loss of the dependents of covered
employees.

It is well to note at this point that the CBA constitutes a contract between the parties and as such, it
should be strictly construed for the purpose of limiting the amount of the employer’s liability.

Furthermore, MMPSEU cannot rely on Samsel v. Allstate Insurance Co. where the Supreme Court of
Arizona allowed the insured to enjoy medical benefits under an automobile policy insurance despite
being able to also recover from a separate health insurer.  In that case, the Allstate automobile policy
does not contain any clause restricting medical payment coverage to expenses actually paid by the
insured nor does it specifically provide for reduction of medical payments benefits by a coordination of
benefits. 

However, in this case, the dependents’ group hospitalization insurance provision in the CBA specifically
contains a condition which limits MMPC’s liability only up to the extent of the expenses that should be
paid by the covered employee’s dependent to the hospital and doctor.  This is evident from the portion
which states that "payment [by MMPC] shall be direct to the hospital and doctor.

In addition, to allow reimbursement of amounts paid under other insurance policies shall constitute
double recovery which is not sanctioned by law. The CBA has provided for MMPC’s limited liability which
extends only up to the amount to be paid to the hospital and doctor by the employees’ dependents,
excluding those paid by other insurers.  Consequently, the covered employees will not receive more
than what is due them; neither is MMPC under any obligation to give more than what is due under the
CBA.

Moreover, since the subject CBA provision is an insurance contract, the rights and obligations of the
parties must be determined in accordance with the general principles of insurance law.   Being in the
nature of a non-life insurance contract and essentially a contract of indemnity, the CBA provision
obligates MMPC to indemnify the covered employees’ medical expenses incurred by their dependents
but only up to the extent of the expenses actually incurred. 

This is consistent with the principle of indemnity which proscribes the insured from recovering greater
than the loss.  Indeed, to profit from a loss will lead to unjust enrichment and therefore should not be
countenanced.  As aptly ruled by the CA, to grant the claims of MMPSEU will permit possible abuse by
employees.

Pandiman Philippines Inc. vs Marine Manning

GR143313
Facts:

Respondent Rosita Singhid's deceased husband Benito Singhid (Benito) was hired by Fullwin Maritime
Limited (Fullwin), through its local agent, respondent Marine Manning and Management Corporation
(MMMC), as chief cook on board the vessel MV Sun Richie Five. The vessel and its crew were insured
with Ocean Marine Mutual Insurance Association Limited (OMMIAL), a Protection and Indemnity Club
(P&I Club) of which the Sun Richie Five Bulkers S.A., owner of the vessel Sun Richie Five, is a member.
OMMIAL transacted business in the Philippines through its local correspondent, herein
petitioner Pandiman Philippines, Inc. (PPI).

While the vessel was on its way to Shanghai, China Benito suffered a heart attack, and subsequently
died. Therafter, Rosita filed a claim for death benefits with MMMC, which, however, referred her to
herein petitioner PPI. Upon Rosita's submission of all the required documents, petitioner approved the
claim and recommended payment thereof in the amount of US$79,000.00. But, despite said
recommendation, Rosita's death claims remained unpaid.

Hence, Rosita filed with the Labor Arbiter a complaint for recovery of death benefits, moral and
exemplary damages and attorney's fees. Named respondents in the complaint are MMMC, Fullwin,
petitioner PPI and OMMIAL.

The Labor Arbiter ruled dismissed and ordered respondents jointly and severally to pay complainant's
claims. It ruled that the claim against respondent Pandiman Philippines, Inc. should be as it is hereby
dismissed for lack of merit. On MMMC's appeal to the National Labor Relations Commission (NLRC), the
latter set aside the decision of the Labor Arbiter, absolved respondent MMMC from any liability and
instead held petitioner and OMMIAL liable for Rosita's claim.

Issue: WON petitioner PPI may be held liable for Rosita's claim for death benefits as Benito's widow

Held:

No, MV Sun Richie Five Bulkers S.A., owner of the vessel Sun Richie Five, was a member of a P&I Club,
which is "an association composed of shipowners in general who band together for the specific purpose
of providing insurance cover on a mutual basis against liabilities incidental to shipowning that the
members incur in favor of third parties."

In this protection and indemnity agreement, which is actually an insurance contract, the provisions of
the Insurance Code (P.D. 1460, as amended) is the governing law. In the subject insurance contract, the
P&I Club (OMMIAL) is the insurer, the shipowner (Sun Richie Five Bulkers S.A.) is the insured, and herein
respondent Rosita Singhid as widow and heir of a crew on board the insured vessel like Benito, is a
beneficiary.

In the decision under review, the Court of Appeals held petitioner PPI liable for Rosita's death claims
under the said contract of insurance, on the postulate that petitioner is an insurance agent, a term
defined and understood under Section 300 of the Insurance Code, as follows:
Section 300. Any person who for compensation solicits or obtains insurance on behalf of any insurance
company transmits for a person other than himself an application for a policy or contract of insurance to
or from such company or offers or assumes to act in the negotiating of such insurance shall be an
insurance agent within the intent of this section and shall thereby become liable to all the duties,
requirements, liabilities and penalties to which an insurance agent is subject.

Petitioner PPI, however, claims that it is not an insurance agent but a mere local correspondent 12 of the
P&I Club. Thus, petitioner maintains that even if OMMIAL (the P&I Club), as insurer of Sun Richie Five, is
held principally liable to Rosita for her husband's death benefits, petitioner cannot be held solidarily
liable together with said insurer.ςηαñrοblεš  Î½Î¹r†υαl  lαω  lιbrαrÿ

The court held that petitioner PPI is not an insurance agent. There is nothing to show that an insurance
contract in this case was in fact negotiated between the insured Sun Richie Five and the insurer
OMMIAL, through petitioner as insurance agent which will make petitioner an insurance agent under
the aforequoted Section 300 of the Insurance Code. As it is, the NLRC, in its decision, merely relied on
petitioner's reference to OMMIAL as its "principal" instead of its "client". Such "reference", however,
will not and cannot vary the definition of what an insurance agent actually is under the aforecited law,
nor can it automatically turn petitioner into one, thereby becoming correspondingly liable to all the
duties, requirements, liabilities and penalties to which an insurance agent is subject to.

In any event, payment for claims arising from the peril insured against, to which the insurer is liable, is
definitely not one of the liabilities of an insurance agent. Thus, there is no legal basis whatsoever for
holding petitioner solidarily liable with insurer OMMIAL for Rosita's claim for death benefits on account
of her husband's demise while under the employ of MMMC's principal, Fullwin.

Besides, even under the principle of "relativity of contracts", petitioner PPI cannot be held liable for the
same death benefits claims. The insurance contract between the insurer and the insured, under Article
1311 of the Civil Code, is binding only upon the parties (and their assigns and heirs) who execute the
same. With the reality, as borne by the records, that petitioner PPI is not a party to the insurance
contract in question, no liability or obligation arising therefrom, may be imposed upon it.

Further, the Court agrees with petitioner's contention that the appellate court erred in affirming the
NLRC's decision which absolved Fullwin and its manning agent, respondent MMMC, of their joint and
solidary liability arising from Benito's employment contract with Fullwin.

It is undisputed that Benito was employed by Fullwin through its manning agency, MMMC. Neither is it
disputed that Benito died during the effectivity of their employment contract while on board the
vessel MV Sun Richie Five. Fullwin, Benito's principal employer is, therefore, liable under the same
employment contract. For its part, MMMC is bound by its undertaking pursuant to the Rules and
Regulations Governing Overseas Employment (1991)13 that the manning applicants:

(3) Shall assume joint and solidary liability with the employer for all claims and liabilities which may
arise in connection with the implementation of the contract, including but not limited to payment of
wages, health and disability compensation and repatriation;