Digested Cases in Law on Insurance

White Gold Marine Services vs. Pioneer Insurance, et al

G.R. No. 154514, July 28, 2005

Facts:

White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage for
its vessels from The Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship Mutual)
through Pioneer Insurance and Surety Corporation (Pioneer). Pioneer issued to White Gold a Certificate
of Entry and Acceptance and a receipts as 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 also filed a complaint before the Insurance Commission
claiming that Steamship Mutual violated Sections 186 and 187 of the Insurance Code, while Pioneer
violated Sections 299, 300 and 301 in relation to Sections 302 and 303.
The Insurance Commission dismissed the complaint stating 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 and a separate license
solely as agent/broker of Steamship Mutual was already superfluous.
The Court of Appeals affirmed the decision of the Insurance Commissioner. The court also held that
Pioneer merely acted as a collection agent of Steamship Mutual.

Issue:

Whether or not Pioneer need a license as an insurance agent/broker for Steamship Mutual.

Held:

Pioneer is the resident agent of Steamship Mutual as stated in 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 to them by the agency. However, a Certification 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.
Section 299 of the Insurance Code clearly states:

“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. . .”

Therefore Pioneer need to secure a license from the Insurance Commission as an agent/broker of
Steamship Mutual.
Verendia vs. CA
G.R. No. 75605 January 22, 1993

FACTS:

Petitioner Rafael Verendia's residential building was insured with Fidelity and Surety Insurance
Company and two others, Country Bankers Insurance and Development Insurance, with Monte de Piedad
& Savings Bank as beneficiary. The insured building was completely destroyed by fire. With this,
petitioner claim for the insurance on which Fidelity refused to give depending on its issued Fire Insurance
Policy F-1887. Fidelity, among other things, averred that the policy was avoided by reason of over-
insurance, that Verendia maliciously represented that the building at the time of the fire was leased under
a contract executed on 25 June 1980 to a certain Roberto Garcia, when actually it was a Marcelo Garcia
who was the lessee.

ISSUE:

Whether or not Verendia forfeited all benefits due to his presentation of a false declaration
(contract signed by Roberto, when in fact it was Marcelo Garcia who signed it) to support his claim.

HELD:

Yes. Verendia, having presented a false declaration to support his claim for benefits in the form
of a fraudulent lease contract, he forfeited all benefits therein by virtue of Section 13 of the policy in the
absence of proof that Fidelity waived such provision. Worse yet, by presenting a false lease contract,
Verendia, reprehensibly disregarded the principle that insurance contracts are uberrimae fidae and
demand the most abundant good faith

Based on previously decided cases:

Basically a contract of indemnity, an insurance contract is the law between the parties. Its terms and
conditions constitute the measure of the insurer's liability and compliance therewith is a condition
precedent to the insured's right to recovery from the insurer. As it is also a contract of adhesion, an
insurance contract should be liberally construed in favor of the insured and strictly against the insurer
company which usually prepares it.

Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease
contract to support his claim under Fire Insurance Policy No. F-18876, the terms of the policy should be
strictly construed against the insured. Verendia failed to live by the terms of the policy, specifically
Section 13 thereof which is expressed in terms that are clear and unambiguous, that all benefits under the
policy shall be forfeited "If the claim be in any respect fraudulent, or if any false declaration be made or
used in support thereof, or if any fraudulent means or devises are used by the Insured or anyone acting in
his behalf to obtain any benefit under the policy.”
Rizal Surety v. CA
G.R. No. 112360               July 18, 2000

Facts:
Rizal Surety & Insurance Company (Rizal Insurance) issued Fire Insurance Policy in favor of
Transworld Knitting Mills, Inc. (Transworld for One Million Pesos and eventually increased to One
Million Five Hundred Thousand Pesos.
The portions of subject policy on the buildings insured, and location read:
"‘On stocks of finished and/or unfinished products, raw materials and supplies of every kind and
description, the properties of the Insureds and/or held by them in trust, on commission or on joint account
with others and/or for which they (sic) responsible in case of loss whilst contained and/or stored during
the currency of this Policy in the premises occupied by them forming part of the buildings situate (sic)
within own Compound”
The same pieces of property insured with the petitioner were also insured with New India
Assurance Company, Ltd., (New India). A fire broke out in the compound of Transworld, razing the
middle portion of its four-span building and partly gutting the left and right sections thereof. A two-storey
building (behind said four-span building) where fun and amusement machines and spare parts were
stored, was also destroyed by the fire.
Transworld filed its insurance claims with Rizal Insurance and New India but it was failed. Rizal
Insurance countered that its fire insurance policy sued upon covered only the contents of the four-span
building, which was partly burned, and not the damage caused by the fire on the two-storey annex
building
The trial court rendered its decision dismissing the case as against The New India Assurance Co.,
Ltd. and Ordering defendant Rizal Surety And Insurance Company to pay Transwrold (sic) Knitting
Mills, Inc. for the actual value of the losses suffered by it. Court of Appeals modified the decision of trail
court stating that the defendant New India is hereby required to pay the plaintiff for the insurance claim
while Rizal Insurance amount to be paid had been reduced.
Issue:

Whether or not the two-story building be included in the fire insurance claim of the plaintiff from
Rizal Insurance.

Held:

Yes. The court upheld the decision of the court of appeal in toto.
In the case under consideration, both the trial court and the Court of Appeals found that the so
called "annex " was not an annex building but an integral and inseparable part of the four-span building
described in the policy and consequently, the machines and spare parts stored therein were covered by the
fire insurance in dispute. Also, considering that the two-storey building aforementioned was already
existing when subject fire insurance policy, petitioner should have specifically excluded the said two-
storey building from the coverage of the fire insurance.
Article 1377 of the New Civil Code provides: “The interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the obscurity"
Conformably, it stands to reason that the doubt should be resolved against the petitioner, Rizal Surety
Insurance Company, whose lawyer or managers drafted the fire insurance policy contract under scrutiny.
Therefore, the two-story annex building must be included in the fire insurance policy of the
plaintiff.
Philamcare vs. CA
G.R. No. 125678      March 18, 2002
Facts:
Ernani Trinos, deceased husband of private respondent Julita Trinos, applied for a health care
coverage with petitioner, Philamcare Health Systems, Inc. He answered no in the question regarding
consultations or treatments for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma
or peptic ulcer. His application was subsequently approved for a period of 1 year and under such
agreement, he was entitled to avail of “out-patient benefits” such as annual physical examinations,
preventive health care and other out-patient services. The agreement was extended upon termination and
the coverage was increased to a maximum sum of P75,000 per disability.
Ernani Trinos suffered a heart attack and was confined for one month. During his confinement,
his wife tried to claim the benefits under the agreement, but the petitioner denied her claims on the ground
that such agreement was void. The petitioner claims that there was concealment regarding Ernani’s
medical history which forced the respondent to pay for the hospitalization expenses herself. Due to
financial difficulties, respondent was forced to bring her husband home from the hospital; after which, her
husband felt weak and suffering from a fever. Ernani Trinos was brought back to the hospital where he
died on the same day.
Private respondent filed an action for damages against petitioner and the RTC ruled in her favor
against Philamcare. On appeal, the CA affirmed RTC decision; hence, this instant petition. The primary
argument of petitioner is that the health care agreement between Ernani Trinos and Philamcare is not an
insurance contract, therefore, the incontestability clause invoked by private respondent is not applicable.
Issue:
Whether or not the health care argument is an insurance contract?
Held:
Yes. The health care agreement between the parties is an insurance contract. The Insurance Code
requires the existence of specific elements stated under Sec. 2 in order to determine whether or not an
insurance contract exists. In the case at bar, the insurable interest of respondents’s husband in obtaining
the health care agreement was his own health and such agreement was in the nature of a non-life
insurance.
Petitioner also alleges that there was concealment of material fact in the application which
renders the agreement void. However, exisiting stipulations in the agreement absolves the respondent and
the stipulation regarding invalidation of agreement cannot be applied because Ernani Trinos had
authorized the petitioner to verify the alleged information. In the case at bar, fraudulent intent must be
established to warrant rescission and the cancellation of the health care agreement requires the
concurrence of conditions provided under Art. 27 of the Insurance Code. None of the conditions was
fulfilled in this case. Another contention of the petitioner is that the private respondent is not the legal
wife of the deceased which disqualifies the claimant from any right over the benefits. The health care
agreement is in the nature of a contract of indemnity; therefore, payment should be made to the party who
incurred the expenses which entitles the private respondent to be reimbursed. The petition is denied and
CA decision was affirmed.
Fortune Insurance vs. CA
G.R. No. 115278 May 23, 1995

FACTS:
Producers Bank was insured by Fortune Insurance. Producers Bank filed against Fortune
Insurance a complaint for recovery of the sum of P725,000.00 under the policy issued by Fortune. The
sum was allegedly lost during a robbery of Producer’s armored vehicle while it was in transit to transfer
the money from its Pasay City Branch to its head office in Makati.
The said armored vehicle was robbed by its driver Benjamin Magalong and security guard
Saturnino Atiga tasked to man the same. Both of them are not Producers Bank’s “employees” but were
merely assigned by and affiliated with PRC Management Systems and Unicorn Security Services.
Fortune Insurance refused to pay the amount as the loss, according to it, is excluded from the
coverage of the insurance policy. “General Exceptions” provides: The company shall not be liable under
this policy in report of x x x (b) any loss caused by any dishonest, fraudulent or criminal act of the
insured or any officer, employee, partner, director, trustee or authorized representative of the Insured
whether acting alone or in conjunction with others…”
Producers Bank opposed the contention of Fortune Insurance and contends that Atiga and
Magalong are not its officer, employee, trustee, or authorized representative at the time of the robbery.
According to Fortune Insurance, when Producers commissioned a guard and a driver to transfer its funds
from one branch to another, they effectively and necessarily became its authorized representatives in the
care and custody of the money. Assuming that they could not be considered authorized representatives,
they were, nevertheless, employees of Producers.

ISSUE:
WON Magalong and Atiga qualify as employees or authorized representatives of Producers under
paragraph (b) of the general exceptions clause of the insurance policy as to exempt Fortune Insurance
from liability to pay Producers Bank under said policy

HELD:
Yes.
Employer-employee relationship depends upon four standards: (1) the manner of selection and
engagement of the putative employee; (2) the mode of payment of wages; (3) the presence or absence of a
power to dismiss; and (4) the presence and absence of a power to control the putative employee’s conduct
The power of control over Magalong and Atiga was vested in and exercised by Producers Bank;
hence, an “employer-employee” relationship exists between Magalong and Atiga and Producers Bank.
PRC Management System and Unicorn Security Services are but “labor-only” contractors (not
employers) under Article 106 of the Labor Code which provides: “There is “labor-only” contracting
where the person supplying workers to an employer does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises, among others, and the workers recruited and
placed by such persons are performing activities which are directly related to the principal business of
such employer. In such cases, the person or intermediary shall be considered merely as an agent of the
employer who shall be responsible to the workers in the same manner and extent as if the latter were
directly employed by him.”
Magalong and Atiga were, in respect of the transfer of Producers Bank’s money from its Pasay
City branch to its head office in Makati, its “authorized representatives” who served as such with its teller
Maribeth Alampay. Howsoever viewed, Producers entrusted the three with the specific duty to safely
transfer the money to its head office, with Alampay to be responsible for its custody in transit; Magalong
to drive the armored vehicle which would carry the money; and Atiga to provide the needed security for
the money, the vehicle, and his two other companions. In short, for these particular tasks, the three acted
as agents of Producers. A “representative” is defined as one who represents or stands in the place of
another; one who represents others or another in a special capacity, as an agent, and is interchangeable
with “agent.”
G.R. No. 156167             May 16, 2005
GULF RESORTS, INC., petitioner,
vs.
PHILIPPINE CHARTER INSURANCE CORPORATION, respondent.

Facts
Petitioner Gulf Resorts owned Playa Resorts at Agoo, La Union, and it entered into an insurance
contract with the respondent American Home Assurance Company which insured Plaza Resort’s
properties against loss or damage due to earthquakes. On 16 July 1990, an earthquake struck Central
Luzon and Northern Luzon and the properties in Playa Resort were damaged including the two (2)
swimming pools. On 11 August 1990, Gulf Resorts filed its formal demand for settlement of the damage
to all of its properties in the Agoo Playa Resort, but on 23 August 1990, American Home Assurance
Company denied Gulf Resorts’ claim on the ground that its insurance policy only covered the two
swimming pools of Playa Resort against earthquake shock, and not the other properties damaged by the
said earthquake. Gulf Resorts contended that pursuant to this rider, no qualifications were placed on the
scope of the earthquake shock coverage, and thus, the policy extended earthquake shock coverage to its
properties.
On 24 January 1991, Gulf Resorts filed a complaint with the RTC Pasig where it asked for
payment for P5, 427,779.00 as amount of the lost/damaged properties, attorney fees, lost income, etc.
However, on 21 February 1994, the said RTC ruled in favor of American Home Assurance Company,
where it ruled that the insurance coverage against earthquake is limited only to the two swimming pools
of Gulf Resorts’ Playa Resort and does not extend against the other properties damaged by the
earthquake. Gulf Resort filed a motion for the trial court to reconsider its decision, but to no avail. Gulf
Resorts filed an appeal with the Court of Appeals, but the Court of Appeals affirmed the trial court’s
decision.

Issue :
W/N the insurance policy issued by American Home Assurance Company (AHAC-AIU) to Gulf
Resort’s coverage is not limited only to the two swimming pools of Gulf Resorts’ Playa Resort?

Held :
The Supreme Court held that the insurance policy issued to Gulf Resorts is only limited to the
two swimming pools and the other properties of Playa Resort are not covered by the property insurance
issued by American Home Assurance Company (AHAC-AIU). The Court held that there is no ambiguity
in the insurance contract and the earthquake shock rider, as Gulf Resorts stated that the swimming pools
are the only items covered by the insurance against loss due to earthquakes. The Court stated that
provisions in the insurance policy should be examined and interpreted in consonance with each other, and
should not be construed piecemeal. All parts of the insurance contract reflect the true intent of the parties.
The Supreme Court also defined contracts of adhesion as contracts where one party prepares the
stipulations in the contract while the other party merely affixes his/her signature thereto, citing the case of
Philippine National Bank vs. Court of Appeals (196 SCRA 536). Any ambiguity is resolved against the
insurer (who prepared the contract) and construed liberally in the insured’s favor.
However, since the policy and its riders are clear about the insurance coverage against earthquake
shock, the Gulf Resorts cannot use the doctrine of contract of adhesion and liberal interpretation of
insurance contract in the insured’s favor in case of ambiguity.
G.R. No. L-52756 October 12, 1987
MANILA MAHOGANY MANUFACTURING CORPORATION, petitioner,
vs.
COURT OF APPEALS AND ZENITH INSURANCE CORPORATION, respondents.
PADILLA, J:

Facts:
Petitioner insured its Mercedes Benz 4-door sedan with respondent insurance company . The
insured vehicle was bumped and damaged by a truck owned by San Miguel Corporation (SMC). For the
damage caused, respondent company paid petitioner ₱ 5,000.00 in amicable settlement. Petitioner’s
general manager executed a Release of Claim, subrogating respondent company to all its right to action
against San Miguel Corp. Respondent company wrote the Insurer Adjusters, Inc. to demand
reimbursements from San Miguel Corporation of the amount it had paid petitioner. Insurer Adjusters, Inc.
refused reimbursement alleging that SMC had already paid petitioner ₱ 4,500.00 for the damages to
petitioner’s motor vehicle, as evidenced by a cash voucher and Release of Claim executed by the General
Manager of petitioner discharging SMC from “ all actions, claims, demands the right of action that now
exist or hereafter develop arising out of or as a consequence of the accident.
Respondent demanded the ₱ 4,500.00 amount from petitioner. Petitioner refused. Suit was filed
for recovery. City Court ordered petitioner to pay respondent. CFI affirmed. CA affirmed with
modification that petitioner was to pay respondent the total amount of ₱ 5,000.00 it had received from
respondent.
Petitioner’s argument: Since the total damages were valued at P9,486.43 and only ₱ 5,000.00 was
received by petitioner from respondent, petitioner argues that it was entitled to go after SMC to claim the
additional which was eventually paid to it.
Respondent’s argument: No qualification to its right of subrogation.
ISSUE:
Whether or not the insured should pay the insurer despite that the subrogation in the Release of
Claim was conditioned on recovery of the total amount of damages that the insured has sustained.
RULING:
NO. Supreme Court said there being no other evidence to support its allegation that a gentleman’s
agreement existed between the parties, not embodied in the Release of Claim, such Release of Claim must
be taken as the best evidence of the intent and purpose of the parties. CA was correct in holding petitioner
should reimburse respondent ₱ 5,000.00.
When Manila Mahogany executed another release claim discharging SMC from all rights of
action after the insurer had paid the proceeds of the policy – the compromise agreement of ₱ 5,000.00–
the insurer is entitled to recover from the insured the amount of insurance money paid. Petitioner by its
own acts released SMC, thereby defeating respondent’s right of subrogation, the right of action against
the insurer was also nullified.
Since the insurer can be subrogated to only such rights as the insured may have, should the
insured, after receiving payment from the insurer, release the wrongdoer who caused the loss, the insurer
losses his rights against the latter. But in such a case, the insurer will be entitled to recover from the
insured whatever it has paid to the latter, unless the release was made with the consent of the insurer.
G.R. No. 150094             August 18, 2004
FEDERAL EXPRESS CORPORATION, petitioner,
vs.
AMERICAN HOME ASSURANCE COMPANY and PHILAM INSURANCE COMPANY,
INC., respondents.

Facts:

Shipper SMITHKLINE USA delivered to carrier Burlington Air Express, an agent of herein
petitioner, a cargo shipment, insured with respondent which consist of 109 cartons of veterinary
biological for delivery to consignee SMITHKLINE and French Overseas Company in Makati City with
the words, “REFRIGERATE WHEN NOT IN TRANSIT” and “PERISHABLE” stamp marked on its
face. However, 12 days after the cargoes arrived in Manila, it was found out that the same were stored
only in a room with 2 air conditioners running in the warehouse of Cargohaus Inc., to cool the place
instead of a refrigerator.
As a consequence of the result of the veterinary biological test, SMITHKLINE abandoned the
shipment and, declaring “total loss” for the unusable shipment, filed a claim with AHAC through its
representative in the Philippines, The Philam Insurance Co., Inc., (PHILAM) which recompensed
SMITHKLINE for the whole insured amount. Thereafter, PHILAM filed an action for damages against
FEDEX imputing negligence on either or both of them in the handling of the cargo where it was decided
that FEDEX is solidarily liable with Cargohaus Inc.
ISSUE:
Whether or not FEDEX is liable for damage to or loss of the insured goods?
RULING:
No. Upon receipt of the insurance proceeds, the consignee (SMITHKLINE) executed a
subrogation receipt in favor of respondents authorizing them “to file claims and begin suit against any
such carrier, person, vessel, corporation or government.” Undeniably, the consignee had a legal right to
receive the goods in the same condition it was delivered for transport to petitioner and if that right was
violated, the consignee would have a cause of action against the person responsible therefor.

Upon payment to the consignee of an indemnity for the loss of or damage to the insured
goods, the insurer's entitlement to subrogation pro tanto -- being of the highest equity -- equips it
with a cause of action in case of a contractual breach or negligence. 13 "Further, the insurer's
subrogatory right to sue for recovery under the bill of lading in case of loss of or damage to the
cargo is jurisprudentially upheld."
In the exercise of its subrogatory right, an insurer may proceed against an erring carrier and to all intents
and purposes, it stands in the place and in substitution of the consignee.
G.R. No. 166245             April 9, 2008
ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.

Facts:
Respondent Philamlife entered into an agreement denominated as Creditor Group Life Policy
with petitioner. Under the policy, the clients of Eternal who purchased burial lots from it on installment
basis would be insured by Philamlife. Among those insured was John Chuang who died with a balance of
payments pf PhP100,000.00. More than a year after complying with the required documents, Philamlife
had not furnished Eternal with any reply to the latter’s insurance claim. This prompted Eternal to demand
from Philamlife the payment of the claim for PhP 100,000 on April 25, 1986. Only then did Philamlife
respond that the deceased was not covered by the Policy.

The RTC said that since the contract is a group life insurance, once proof of death is submitted,
payment must follow. The CA ruled that the non-accomplishment of the submitted application form
violated Section 26 of the Insurance Code. Thus, the CA concluded, there being no application form,
Chuang was not covered by Philamlifes insurance.

Issue: 
Whetjer or not inaction of the insurer on the insurance application be considered approval of the
application?

Ruling:

Yes. As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor
Group Life Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that:
 
EFFECTIVE DATE OF BENEFIT.
 
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with
the Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved
by the Company.
 
An examination of the above provision would show ambiguity between its two sentences.   A
contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be
resolved against the insurer. Moreover, the mere inaction of the insurer on the insurance application must
not work to prejudice the insured; it cannot be interpreted as a termination of the insurance contract. The
termination of the insurance contract by the insurer must be explicit and unambiguous.
 1. Can an insurance policy be assigned or transferred?
Yes. In life insurance, the policy may pass by transfer, will or succession to any person,
whether he has insurable interest or not. The person to whom it is transferred may recover upon it
whatever the insured might have recovered.

Rule on Transfer of Policy from MoR to MeE

Transfer of insurance policy from mortgagor to mortgagee, and insurer assents and gives
additional obligations on the assignee (mortgagee), making a new contract with him: acts of mortgagor
cannot affect the rights of said assignee. Unless assignee makes a new contract with insurer, he has no
greater right under the insurance.
What may be transferred / assigned?
1. The policy itself
2. The proceeds of the policy
3. Subject matter of the insurance

Q: Can the insured transfer his claim against the

insurer after a loss has occurred?
A: Yes, and there is no need to obtain the consent of
the insurer because it is not the personal contract
which is being assigned, but a money claim under or
a right of action on the policy. Any stipulation to the
contrary is void (§83).

"Section 85. An agreement not to transfer the claim of the insured against the insurer after the loss has
happened, is void if made before the loss except as otherwise provided in the case of life insurance.