Doctrines and Rulings of Selected Cases in Insurance Law

Prepared By: Alimar Mohammad Malabad

RULES ON CONSTRUCTION OF AN INSURANCE CONTRACT

1. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein
should be resolved against the insurer; in other words, it should be construed liberally in favor of
the insured and strictly against the insurer.
2. 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.
“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.”
The seemingly conflicting provisions must be harmonized to mean that upon a party’s purchase
of a memorial lot on installment from Eternal, an insurance contract covering the lot purchaser is
created and the same is effective, valid, and binding until terminated by Philamlife by disapproving
the insurance application. (Eternal Gardens Memorial Park Corp. vs. The Philippine
American Life Insurance Co., per Velasco, Jr., J.)

NATURE OF A HEALTH CARE AGREEMENT

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.
QUESTIONS ON MEDICAL HISTORY DEPENDS ON OPINION RATHER THAN FACT
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.
REQUISITES OF RESCISSION
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. (PHILAMCARE vs. CA, per
Ynares-Santiago, J.)

NO SUBROGATION WHEN INSURER PAYS INSURED AND THE CLAIM IS NOT DUE
An insurer indemnifies the insured based on the loss or injury the latter actually suffered from. If
there is no loss or injury, then there is no obligation on the part of the insurer to indemnify the
insured. Should the insurer pay the insured and it turns out that indemnification is not due, or if
due, the amount paid is excessive, the insurer takes the risk of not being able to seek recompense
from the alleged wrongdoer. This is because the supposed subrogor did not possess the right to
 Doctrines and Rulings of Selected Cases in Insurance Law
Prepared By: Alimar Mohammad Malabad

be indemnified and therefore, no right to collect is passed on to the subrogee. As regards the
determination of actual damages, it is axiomatic that actual damages must be proved with
reasonable degree of certainty and a party is entitled only to such compensation for the pecuniary
loss that was duly proven. (Loadstar Shipping Co. vs Malayan Insurance Co., per Reyes, J.)

NON-PRESENTATION OF THE INSURANCE CONTRACT IS NOT FATAL TO CAUSE OF

ACTION FOR REIMBURSEMENT AS SUBROGEE WHEN CERTAIN THAT LOSS OF CARGO
OCCURRED WHILE IN CARRIER’S CUSTODY
As a general rule, the marine insurance policy needs to be presented in evidence before the insurer
may recover the insured value of the lost/damaged cargo in the exercise of its subrogatory right.
By way of exception, the right of subrogation accrues simply upon payment by the insurance
company of the insurance claim. Hence, presentation in evidence of the marine insurance policy
is not indispensable before the insurer may recover from the common carrier the insured value of
the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, was held
sufficient to establish not only the relationship between the insurer and consignee, but also the
amount paid to settle the insurance claim. The presentation of the insurance contract was deemed
not fatal to the insurer’s cause of action because the loss of the cargo undoubtedly occurred while
on board the petitioner’s vessel.
It is already settled that the loss/damage to the GASI’s shipment occurred while they were in
ATI’s custody, possession and control as arrastre operator. Verily, the Certificate of Insurance and
the Release of Claim presented as evidence sufficiently established FIRST LEPANTO’s right to
collect reimbursement as the subrogee of the consignee, GASI. With ATI’s liability having been
positively established, to strictly require the presentation of the insurance contract will run counter
to the principle of equity upon which the doctrine of subrogation is premised. Subrogation is
designed to promote and to accomplish justice and is the mode which equity adopts to compel
the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay.
The payment by the insurer to the insured operates as an equitable assignment to the insurer of
all the remedies which the insured may have against the third party whose negligence or wrongful
act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of any
privity of contract or upon payment by the insurance company of the insurance claim. It accrues
simply upon payment by the insurance company of the insurance claim. (Asian Terminals, Inc.
vs. First Lepanto-Taisho Insurance Corp., per Reyes, J.)

AUTOMATIC ASSIGNMENT OF POLICY VOID IF ASSIGNEE HAS NO INSURABLE INTEREST

Respondent CKS cannot, under the Insurance Code — a special law — be validly a beneficiary of
the fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable
interest over said merchandise remains with the insured, the Cha spouses. The automatic
assignment of the policy to CKS under the provision of the lease contract previously quoted is void
for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus
rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer
(United) cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS)
who has no insurable interest in the property insured. (Sps. Cha vs. CA, per Padilla, J.)
 Doctrines and Rulings of Selected Cases in Insurance Law
Prepared By: Alimar Mohammad Malabad

“NO RECURRENCE” AN HONEST OPINION; INSURED DIES WITHIN 2 YEAR

CONTESTABILITY PERIOD
If the insured dies within the two-year contestability period, the insurer is bound to make good
its obligation under the policy, regardless of the presence or lack of concealment or
misrepresentation. (Sun Life of Canada [Philippines], Inc. vs. Sibya, per Reyes, J.)

ADDITIONAL OR OTHER INSURANCE CLAUSE

Such a condition is a provision which invariably appears in fire insurance policies and is intended
to prevent an increase in the moral hazard. It is commonly known as the additional or "other
insurance" clause and has been upheld as valid and as a warranty that no other insurance exists.
Its violation would thus avoid the policy. However, in order to constitute a violation, the other
insurance must be upon same subject matter, the same interest therein, and the same risk.
(Geagonia vs CA, per Davide, Jr., J.)

REINSTATEMENT OF POLICY; AMBIGUITY IN THE CASE AT BAR

The reinstatement of the insured’s policy is to be reckoned from the date when the application
was processed and approved by the insurer. To reinstate a policy means to restore the same to
premium-paying status after it has been permitted to lapse.
In the Letter of Acceptance, Khu declared that he was accepting "the imposition of an
extra/additional premium of P5.00 a year per thousand of insurance; effective June 22, 1999". It
is true that the phrase as used in this particular paragraph does not refer explicitly to the effectivity
of the reinstatement. But the Court notes that the reinstatement was conditioned upon the
payment of additional premium not only prospectively, that is, to cover the remainder of the
annual period of coverage, but also retroactively, that is for the period starting June 22, 1999.
Hence, by paying the amount of P3,054.50 on December 27, 1999 in addition to the P25,020.00
he had earlier paid on September 7, 1999, Khu had paid for the insurance coverage starting June
22, 1999. At the very least, this circumstance has engendered a true lacuna. In the Endorsement,
the obscurity is patent. In the first sentence of the Endorsement, it is not entirely clear whether
the phrase "effective June 22, 1999" refers to the subject of the sentence, namely "the
reinstatement of this policy," or to the subsequent phrase "changes are made on the policy." Given
the obscurity of the language, the construction favorable to the insured will be adopted by the
courts. (The Insular Life Assurance Company, Ltd. vs. Khu, per Del Castillo, J.)

THIRD PARTY LIABILITY INSURANCE; CMVLI

Where an insurance policy insures directly against liability, the insurer's liability accrues
immediately upon the occurrence of the injury or even upon which the liability depends, and does
not depend on the recovery of judgment by the injured party against the insured." The underlying
reason behind the third party liability (TPL) of the Compulsory Motor Vehicle Liability Insurance is
"to protect injured persons against the insolvency of the insured who causes such injury, and to
give such injured person a certain beneficial interest in the proceeds of the policy.
INSURER MAY BE DIRECTLY SUED BY INJURED PARTY BUT NOT SOLIDARILY LIABLE
 Doctrines and Rulings of Selected Cases in Insurance Law
Prepared By: Alimar Mohammad Malabad

While it is true that where the insurance contract provides for indemnity against liability to third
persons, such third persons can directly sue the insurer, however, the direct liability of the insurer
under indemnity contracts against third party liability does not mean that the insurer can be held
solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer
is based on contract; that of the insured is based on tort. (Vda. De Maglana vs Consolacion,
per Romero, J.)

LIABILITY OF INSURER IN CVMLI

The limit of the insurer’s liability for each person was ₱12,000, while the limit per accident was
pegged at ₱50,000. An insurer in an indemnity contract for third party liability is directly liable to
the injured party up to the extent specified in the agreement but it cannot be held solidarily liable
beyond that amount. (Tiu vs Arriesgado, per Callejo, Sr., J.)
CASH AND CARRY RULE; EXCEPTIONS THERETO
No insurance contract takes effect unless premium is paid except:
(1) In case of life or industrial life policy, whenever the grace period provision applies;
(2) Where the insurer acknowledged in the policy or contract of insurance itself the receipt of
premium, even if premium has not been actually paid;
(3) Where the parties agreed that premium payment shall be in installments and partial payment
has been made at the time of loss;
(4) Where the insurer granted the insured a credit term for the payment of the premium, and loss
occurs before the expiration of the term; and
(5) Where the insurer is in estoppel as when it has consistently granted a 60 to 90-day credit term
for the payment of premiums. (Gaisano vs. Development Insurance and Surety Corp. per
Jardeleza, J.)

EVEN THE SHIPPER WARRANTS SEAWORTHINESS OF THE VESSEL

The implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo
whether he be the shipowner or not. It becomes the obligation of a cargo owner to look for a
reliable common carrier which keeps its vessels in seaworthy condition. The shipper of cargo may
have no control over the vessel but he has full control in the choice of the common carrier that
will transport his goods. Or the cargo owner may enter into a contract of insurance which
specifically provides that the insurer answers not only for the perils of the sea but also provides
for coverage of perils of the ship.
PERILS OF THE SEA
Extends only to losses caused by sea damage, or by the violence of the elements, and does not
embrace all losses happening at sea. They insure against losses from extraordinary occurrences
only, such as stress of weather, winds and waves, lightning, tempests, rocks and the like. "Perils
of the sea" has been said to include only such losses as are of extraordinary nature, or arise from
some overwhelming power, which cannot be guarded against by the ordinary exertion of human
skill and prudence.
 Doctrines and Rulings of Selected Cases in Insurance Law
Prepared By: Alimar Mohammad Malabad

PERILS OF THE SHIP

A loss which, in the ordinary course of events, results from the natural and inevitable action of
the sea, from the ordinary wear and tear of the ship, or from the negligent failure of the ship's
owner to provide the vessel with proper equipment to convey the cargo under ordinary conditions,
is not a peril of the sea. (Roque vs IAC, per Gutierrez, Jr., J.)

THAT THE INSURANCE APPLICATION WAS FILLED UP BY INSURER’S AGENT NOT A

DEFENSE IN CONCEALMENT
By its tenor, the responsibility for preparing the application belonged to Manuel. Nothing in it
implies that someone else may provide the information that Philam Plans needed. Manuel cannot
sign the application and disown the responsibility for having it filled up. If he furnished Perla the
needed information and delegated to her the filling up of the application, then she acted on his
instruction, not on Philam Plans’ instruction. Manuel forgot that in signing the pension plan
application, he certified that he wrote all the information stated in it or had someone do it under
his direction. Manuel, a civil engineer and manager of a construction company, could be expected
to know that one must read every document, especially if it creates rights and obligations affecting
him, before signing the same. Manuel is not unschooled that the Court must come to his succor.
(Florendo vs PHILAM Plans, per Abad, J.)

LOSS VS DAMAGE; VEHICLE STOLEN = LOSS

The word "loss" refers to the act or fact of losing, or failure to keep possession, while the word
"damage" means deterioration or injury to property. Therefore, petitioner cannot exclude the loss
of respondent’s vehicle under the insurance policy under paragraph 4 of "Exceptions to Section
III," since the same refers only to "malicious damage," or more specifically, "injury" to the motor
vehicle caused by a person under the insured’s service. (Alpha Insurance and Surety Corp. vs
Castor, per Peralta, J.)

CONCEALMENT VS FALSE REPRESENTATIONS

The Insurance Code dispenses with proof of fraudulent intent in cases of rescission due to
concealment (that concealment of material facts is fraudulent in and of itself), but not so in cases
of rescission due to false representations. When an abundance of available documentary evidence
can be referenced to demonstrate a design to defraud, presenting a singular document with an
erroneous entry does not qualify as clear and convincing proof of fraudulent intent. Neither does
belatedly invoking just one other document, which was not even authored by the alleged
miscreant. (The Insular Assurance Co., Ltd. vs. The Heirs of Alvarez, per Leonen, J.)