HISTORY OF INSURANCE IN THE PHILIPPINES

*Spanish era
*Code of Commerce
*Act 2427- subjected to many amendments, last is PD 63, Nov 29, 1972
*PD 612- has various amendments
*PD 1460-consolidated all insurance code
*August 15, 2013- RA 10607 (Memorize the title!)

Development of Insurance Commission

Sense of hesitation- doubt in financial instruament or insurance policy
-reluctance is due to lack of knwolege of insurance system, or insurance law and
Insurance Commission

*What is Insurance Commission and its power, and how it helps the public?
An agency, attached of DOF, regulates insurance companies, life or non life, pre need
companies, and HMOs
-mandate to supervise insurance, protect the right and interest of insurance companies

Insurance- 1829, Lloyds of London, strachman moray to build insurance in PH. Then
there is a need for law to organize, Spanish code of 1889. Domestic corporation of
strachman maraming foreign companies.

Sunlife Insurance of Canada- nauna

Non-life-yektong ling
1910-Insurance Life Comoany limited

1914- Act 2427 (Insurance Act) ilalim ng Insurance Division of Bureau of Treasury,
insurar teeaurer- insurance commission es official
Office of insurance commissioner

Central Bank fo the Philippines 1914

RA 1929- Preneed codes of the PH- supervise preneed companies in PH

EO 192- regulate health maintenance org under Insurance Commission under DOH

Certificate of Authority- need by insurance companies to operate

IC- Circular letters- all companies must have enough capital

IC- has the power to provide license to brokers, insurance agents, etc.
IC-71 years, Jan 3, 1949,
27 Life Insurance
55 Non Life Insurance
35
14 preneed
34 HMO

Contract Insurance an agreement whereby one undertakes for a consoderation to

indemnify others against loss, damage or liability from unknown event.
-it is deemed as a contact of suretyship.
-is one whereby for a stipulated consideration, the premium, one party the insurer,
undertake to compensate the other, the insured, for loss or damage caused by a
specified subject the insurable interest by a specified peril there is

Insurance business is the ff:

1. making or proposing to make any insurance contract
2. making or proposing any contract of suretyship
as a vocation and not merely incidental to any other legitimate business of the surety.
3. doing any kind of business, including a reinsurance business
4. doing or proposing to do any business in substance equivalent to any forgoing in a
manner designed to evade the provision of the insurance code.

How to know if a contact is an insurance contract?

1. Purpose, effect, contents.
2. Nature of the promise, act required to be performed, exact nature of the agreement.
3. Object and purpose is assumption of risk and indemnification of loss.

Elements of insurance contract (Section 3.

The insured has an insurable interest;
The insured is subject to a risk of loss by the happening of the designated peril;
The insurer assumes the risk; Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk:
In consideration of the insurer’s promise, the insured pays a premium.

pre-need plan vs insurance plan

Philalmcare case: Insurance plan since investment is own health, care provider pays
Philhealth case: Insurance contract elements are absent. Indemnity of the member is
not the focal point of agreement but the extension of health assistance to family
members.
Health plan is different from Pre need plan. Pre need company can issue plans if it is an
educational plan, pension, or life memorial plan.
Mitaubishi case: CBA can also be an insurance contract as indicated in one of its
provisions
Pandiman case: Protection and indemnification agreement is an insurance contract
*a promise of a third party is an insurance contract

SURETYSHIP considered as insurance contract if made by a surety doing an insurance

business
define under the CC as an agreement whereby one binds himself solodarily with the
principal debtor

REINSURANCE- an arrangement whereby an insurer transfers all or part of a risk to

another insurer to provide protection against the risk of their first insurance.

PRENEED PLANS covered by pre need code.

contacts, agreements, deeds or plans for the benefit of the planholders which provide
for the performance of future services, payment of monetary considerations in exchange
for cash
VARIABLE CONTRACTS governed by I Code. It means any policy or contact either
group or individual issued by an insurance company providing benefits or other
contractual payments so as to reflect investment results.

DOING AN INSURANCE BUSINESS

refer above

Bancassurance sale to bank customers by an insurance company of its insurance

products.

MUTUAL INSURANCE COMPANIES entities that are doing insurance business. It is

owned by policy holders to promote the welfare of its members. members are both
insured and insurers. No capital stock. Like P&I club.

HMO Health maintenance org. refers to a juridical entity legally organized to provide or
arrange for the provision of pre agreed health care services
Philhealthcare care: HMO not engaged in insurance business. If objective is merely
incidental and service is the principal purpose, not an insurance. (Principal and purpose
test application)

APPLICABLE LAW : RA 10607 updated tha PD 602. it includes microinsurance ,

bancassurance, trust operarions of insuram,e compamies. it increases the paid up
capital and net worth requirements for insurers. it created new requirements for
unimparef capital or assets and reserved....
Right of subrogation.
Article 2207 NCC
CORPORATION CODE also governs insurance, hence, subject to SEC regulations
Features or elements of Insurance
1. insured has insurable interest
2. insured is subject to a risk of loss by the happening of the designated peril
3. insurer assumes the risk
4. risk is part of a general scheme to distribute actual losses among a large group of
persons beating a similar risk
5. in lieu of insurers promise, the insured pays a premium

REQUISITES OF A VALID CONTRACT

1. consent of the contacting parties
2. object certain which is the subject matter. for insurance, obligation to indemnify
others against loss
3. cause of the obligation. for insurance the cause is premium pay

DISTRIBUTION OF LOSSES.
-there must be an assumption of risk by the insurer to distribute actual losses among a
large group of persons bearing a similar risk.

RISK. An element of an insurance contract that the insured is subject to a risk of loss by
the happening of the designated peril. (Section 3)

Risk must be:

a. A contingent or unknown event whether past or future
b. Must damnify the insured or create a liability against him
c. Must be real and cannot be prevented.
d. Uncertainty
Willful acts- not covered by insurance, exception is that if he did not participate or
contribute to the willful act.

Insurable risk requirement:

1. There must be a large number of homogenous exposure units
2. Loss must be accidental and unintentional
3. Loss must be determinable and measurable
4. Loss should not be catastrophic
*De minimis non curat lex- trivial losses are not insurable
5. Chance of loss must be calculable
6. Premium must be economically feasible
*risk that is not insured by reason of public policy is liability for exemplary damages

Pure Risk vs Speculative Risk

PR: a situation where the possibility is either the person involved will suffer a loss or he
will not suffer a loss. Involves the possibility that one’s property may be destroyed or
may suffer economic loss because of premature death or injury. (loss or no loss)

SR: risk may either result in gain or loss. (Ex. Gambling)

Actuarial Risk- risk involve in an insurance contract (pure risk). It is the risk that the cost
of insurance claims might be higher thatn the premiums paid.

Risk vs Designated Peril

DP: it is the specific cause of loss that is insured against
R: the uncertainty that the person or property insured will be lost or damaged by reason
of the designated peril

Past event- it is peculiar to marine insurance. Ex. Ship insurance. Lost or not lost,
insures the ship even for the event that may have already transpired. Insurer will pay
even if the ship turns out to be already lost at the time of the policy was taken

Risk vs Fortuitous event and condition

Risk is not synonymous to FE and condition in civil law. A risk insured against may even
be considered a period in civil. Ex. Life insurance, the only uncertainty is the time when
the risk insured against (death) will happen.

Risk vs Hazard
Hazards may either be:
Physical hazard- refers to the physical condition of the thing or the person that
increases the chance of loss
Moral hazard- involves dishonesty or character defects in the individual that
increase the chance of loss
Moral Hazard- includes carelessness or indifference to a loss because of the
existence of the insurance.

Loss- the end result of the risk insured against. It involves diminution of value or
disappearance of value resulting from a risk
Inherent vice- loses that arise from the very nature and condition of the property
are not generally covered by the insurance unless expressly provided for in the
policy.
Assumption of risk
*Insurer assumes the risk of loss for it promises to pay the insured of the risk insured
against occurs
*Not all promise to pay is in monetary form, in Fire Insurance Policy there is the
so called Option to Rebuild Clause where parties stipulate the repairing, rebuilding, or
replacing of buildings or structures wholly or partially damaged or destroyed.

Nature and Purpose of Risk

Insurance is a plan for dealing with the risk of economic loss where insured sacrifices a
present monetary loss in the form of premium payment to avoid greater loss in the
future.

How people deal with risks

a. Risk avoidance- people avoid an activity to escape the risk of loss
b. Risk retention- person involved will shoulder all the damages that may be
incurred
c. Risk transfer- one who is responsible will make the other party shoulder the loss
thru contract
d. Risk control- it is either loss avoidance or loss retention
e. Insurance

How insurance deals with risk

a. Risk-Distributing Device- risk of loss is not actually transferred to the insurer
but a number of people constituting the clients of the insurer to contribute to a
common fund by paying premiums.
-insurer will get the amount to be paid to each insured in case of loss from
common fund.
b. Law of Large Numbers- pooling of loss experience of large number of
homogenous exposure unts will also allow the insurer to predict future losses
with some accuracy.
-the greater the number of exposures, the more closely will the actual results
approach the probable results that are expected from an infinite number of
exposures

Characteristics of Insurance contracts

a. Aleatory- a contract of aleatory is when one of the aprties or both reciprocally
bind themselves to give or to do something in consideration of what the other
shall give or do upon the happening of an event which is uncertain.
-when an insured pay in pesos is not equal to what he will receive in case of loss.
b. Unilateral- payment of premium is not traditionally imposed as an obligation but
an event that gives the contract obligatory force. Upon payment of the premium,
 only the insurer has an obligation to pay the proceeds of the insurance in case of
loss
c. Personal- because the contract entered into is with due consideration to the
circumstances of the parties.
d. Consensual- perfected by mere consent
e. Uberrimae Fidae- contract of insurance is one of good faith. Both parties must
not only perform their obligations in good faith but must also avoid material
concealment or misrepresentations.
f. Executory and Conditional- executory to the insurer subject to conditions.

Insurance contract is not a wagering contract

WG: one person is interested in the loss of another, he benefits if the other party losses.
-unearned gains lead to idleness, and the wagerer becomes a social parasite.

Section 4 of the Insurance Code prevents insurance on a lottery or chance of

game

For a lottery to exist there must be a : consideration, price, and chance. Insurance code
prohibits insurance for or against any chance

*An insurance contract may be a wager if the ff condition exists:

a. beneficiary may freely take the initiative in procuring the contract
b. beneficiary has no interest in the life insured

According to Professor Patterson on wagering contracts:

Essentials of a wager:
a. Mutual agreement of 2 that according to the issue of a future uncertain event,
one shall receive from the other a stake
b. Necessity that each party shall either win or lose
c. Neither party shall have any interest other than the stake he is to win or lose
d. Mutuality of intent as to hazard

According to Anson: wager is a promise to give money or money’s worth upon the
determination or ascertainment of an uncertain event.

Social Value- insurance contributes to society by favorably affecting the allocation of

resources, engaging in loss-prevention, indemnifying losses, eliminating worry,
facilitating trade and commerce, and providing channel for investible funds.

General benefits of insurance

a. Gives peace of mind
 b. Keeps families and business together
c. Increases marginal utility of assets because it serves as intermediary between
those who have small need for a minor amount of capital
d. Facilitates credit transactions
e. Stimulates savings
f. Provides investment capital
g. Provides incentive to business or individuals because they are relieved of
fortuitous losses
h. Helps in loss prevention

Perfection-meeting of the minds

a. Cognition theory- perfected ones the offeror learns of the acceptance of his offer
by the other party
b. Insured usually makes the offer- by submitting the application to the insurer or its
agent
c. Unaccepted application- no insurance if there is no approval by the Company
d. Effect of non-acceptance- there is no contract.
e. Rules on Acceptance by an agent
1. If the act of acceptance of the risk by the agent and the giving by him
of a receipt is within the scope of the agent’s authority, and nothing
remains but to issue a policy, then the receipt will bind the company
2. Where agreement is made between the applicant and the agent
whether by signing an application containing such condition, or
otherwise, that no liability shall attach until the principal apprives the
risk and a receipt is given buy the agent, such acceptance os merely
conditional
3. Where the acceptance by the agent is within the scope of his authority
a receipt containing a contract for insurance for a specific time which is
not absolute but conditional, upon acceptance or rejection by the
principal, covers the specific period.
f. Tort liability- if no perfected contract, insurer my be subject to tort liability for
abuse of right or acting in a manner that is contrary to moral and good customs

Delivery of the Policy- since consensual, delivery is not necessary for the perfections
but it is still important that the policy be delivered to the insured so that the insured can
read and understand all the terms and conditions thereof.
-Policy is the proof of the terms and conditions of the contract and the fact that the
insured accepted the same.
- it can be stipulated that the delivery and acceptance is a condition for the effectivity of
the policy
Kinds of insurance
1. Private insurance
2. Government insurance- includes SSS, and GSIS
*extended insurance are also called social insurance” designed to protect a large group
of persons against peril, damage, loss, etc.
a. Compulsory insurance- it is secured from private insurers and not from a
particular government agency. Exx. Compulsory 3rd Party Liability Insurance for Motor
Vehicles and compulsory coverage of passengers and cargoes of vessels
b. General classification-
-insurance against loss or impairment of property interests,
-insurance against loss of earning power due to accidental injury,
-insurance against contingent liability to make payment to another for any cause

c. Classification according to object

1. life or health insurance
2. property insurance
3. liability insurance

d. Special Types
1. Marine Insurance
2. Casualty Insurance
3. Fire Insurance
4. Life Insurance
5. Compulsory 3rd Party Liability Insurance
6. Microinsurance

e. As to Persons Covered
1. Individual insurance
2. Group insurance- one or more person under a single contract

f. May either be personal insurance or business insurance

PI: those by natural persons and their families like life insurance,
disability…
BI: those that are used by business organizations

g. Life Insurance Classification

1. Term Insurance
2. Whole Life Insurance
3. Endowment Policy- insured paid a certain amount of the face value of
the policy. If the insured survives a certain period and the beneficiary
will get the proceeds if the insured does not survive
 4. Industrial life- where premiums are payable either monthly or oftener
5. Ordinary life- premium annually
h. Property insurance
1. Fire insurance and allied insurance
2. Marine insurance
3. Casualty insurance

i. Microinsurance- a financial product or service that meets the risk protection

needs for the poor where amount of contribution does not exceed 7.5% of the
current daily minimu nwage, maximum sum of guaranteed benefits if not more
then 1k times of DMW

Principle of indemnity- means that the insured should not collect more than the actual
cash value of the loss. It is to prevent the insured from profiting from insurance and to
reduce moral hazard.
Exception: life insurance because the amount to be paid can never be equal to
the value of the life
*Valued policies under which the insurer will pay fix value

Manifestations
1. Insurable interest is indispensable
2. Value of the interest destroyed or damage is generally the measure of
indemnity
3. Co-insurance clause in marine insurance
4. Subrogation in property insurance

INSURANCE LAW - SEP 17 2021

1. Subrogation Doctrine in The doctrine of subrogation is basically a process of legal

insurance (pls see Art substitution; the insurer, after aying the amount covered in
2207, Civil Code). To be insurance policy, stepping into the shoes of the insured, as it
further discussed in were, and availing himself of the latter’s rights that exist
Chapter 8 of the book. against the wrong doer at the time of the loss

Applicable only to property insurance

If the amount paid by the insurance company does not fully

cover the injury or loss, it is the agrrieved party, i.e the
insured, not the insurer, who is entitled to recover the
deficiency from the person responsible for the loss or injury
 Article 2207. If the plaintiff's property has been insured, and he has
received indemnity from the insurance company for the injury or
loss arising out of the wrong or breach of contract complained of,
the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the
contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to
recover the deficiency from the person causing the loss or injury.

2. Elements of Insurance 1. The insured has an insurable interest;

Contract (memorize)
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.

3. Construction/interpretation of insurance Contract. (Discussion will focus on issue of

interpretation (how it arose, and how it was resolved by the Court, and the basis therefore)

a) Cebu Shipyard v. AGOT

William Line, 306 SCRA
762 (1999) FACTS:

The luxury ship of William Lines caught fire and sank. 

The vessel was insured with Prudential for P45,000,000.00 pesos

for hull and machinery. The Hull Policy included an "Additional
Perils (INCHMAREE)" Clause covering loss of or damage to the
vessel through the negligence of, among others, ship repairmen. 

As a result of such payment, Prudential was subrogated to the

claim of P45 million, representing the value of the said insurance it
paid.

William Lines, Inc. filed a complaint for damages against CSEW,

alleging that the fire which broke out in M/V Manila City was caused
by CSEW's negligence and lack of care. 

The RTC ruled in favor of William Lines and the CA affirmed. 

ISSUE: Whether Prudential has the right of subrogation against its

own insured. 
 RULING: 

YES

The court held that upon proof of payment by Prudential Guarantee

to William Lines, the former was subrogated to the right of the latter
to indemnification from CSEW. 

Thus, when Prudential, after due verification of the merit and

validity of the insurance claim of William Lines, paid the total
amount covered by its insurance policy, it was subrogated to the
right to recover the insured loss from CSEW, the liable party.

b) New Life Enterprises v. BAYAN

CA, 207 SCRA 669
(1992) Facts:
 
Julian Sy insured the stocks in trade of New Life Enterprises (NEW LIFE)
with Western, Reliance and Equitable for P350,000, P1 million, and
P200,000, respectively. When the a fire broke on the building of NEW
LIFE, Julian Sy went to the insurance companies to file his claim.
Unfortunately, he was denied for violating policy clause no. 3 which
requires the insured to give notice of any insurance or insurances already
effected covering the stocks in trade.
 
The RTC ruled in favor of NEW LIFE. However, the decision of the lower
court was reversed by the CA.
 
Issue:
 
Whether or not the cardinal principle of insurance law that a policy or
contract of insurance is to be construed liberally in favor of the insured
and strictly against the insurer applied in this case.
 
Ruling:
 
No. The Court held that contracts of insurance, like other contracts, are to
be construed according to the sense and meaning of the terms which the
parties themselves have used. If such terms are clear and unambiguous,
they must be taken and understood in their plain, ordinary and popular
sense. Moreover, obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good
faith. 
 
In the case, petitioners should be aware of the fact that a party is not
relieved of the duty to exercise the ordinary care and prudence that would
be exacted in relation to other contracts. The conformity of the insured to
the terms of the policy is implied from his failure to express any
 disagreement with what is provided for. It may be true that the majority
rule, as cited by petitioners, is that injured persons may accept policies
without reading them, and that this is not negligence per se. But, this is
not without any exception. It is and was incumbent upon petitioner Sy to
read the insurance contracts, and this can be reasonably expected of him
considering that he has been a businessman since 1965 and the contract
concerns indemnity in case of loss in his money-making trade of which
important consideration he could not have been unaware as it was pre-in
case of loss in his money-making trade of which important consideration
he could not have been unaware as it was precisely the reason for his
procuring the same.

SC affirmed decision of CA

c) First Quezon City BERNARDINO

Insurance v. CA, 218
SCRA 526  Jose de Rosario and several other passengers was boarding a
slow moving bus. While the plaintiff was still on the bus' running
board with his hand on the bus door's handle bar, the slowly
moving bus sped forward at a high speed, as a result of which, the
plaintiff lost his balance and fell from the bus. As plaintiff clung
instinctively to the handle bar, he was dragged by the bus along the
asphalted road for about two (2) seconds. Plaintiff screamed of pain
and anguished even as the other passengers shouted and the bus'
driver, Gil Agpalo, an employee of defendant and third-party plaintiff
DMTC, abruptly stopped the bus. Then, Gil forthwith fled from the
scene, leaving the bus and the injured plaintiff behind.
Thereafter, the plaintiff was brought to the Manila Sanitarium and
Hospital where he was given immediate medical treatment. The
doctors performed a major surgical operation on plaintiff's right leg.
Plaintiff was confined at the hospital for a total period of forty (40)
days. The injuries had left plaintiff with a huge, ugly scar running
almost the entire length of his right leg. Also, the plaintiff incurred
lost earning by way of unearned salaries amounting to P7,500.00
due to said physical injuries and the consequent hospital
confinement.
Plaintiff filed a complaint against DMTC and its driver, Gil Agpalo.
Agpalo was later dropped as a party defendant because he could
not be served with summons. Upon filing its, defendant DMTC filed
a third-party complaint against First Quezon City Insurance Co. Inc.
Sometime on September 17, 1985 this third-party defendant filed its
answer to the third-party complaint.
The lower ruled and ordered DMTC to pay Del Rosario damages,
attorneys fee and cost of suit. The court also dismissed the third
party complaint, however ordered the insurance company to
indemnify DMTC in the amount of 12,000.
DMTC filed its appeal. The CA modified the lower court’s judgment
when it ordered First Quezon City Insurance to pay indemnification
to DMTC in the amon 0f 50,000 with legal interest.
 ISSUE:
Whether First Quezon City Insurance is liable beyond the limit of
the insurer’s liability

RULING

The insurance company clearly passed the maximum limit of the

petitioner's liability for damages arising from death or bodily injury
at P12,000.00 per passenger and its maximum liability per accident
at P50,000.00. Since only one passenger was injured in the
accident, the insurer's liability for the damages suffered by said
passenger is pegged to the amount of P12,000.00 only. What does
the limit of P50,000.00 per accident mean? It means that the
insurer's liability for any single accident will not exceed P50,000.00
regardless of the number of passengers killed or injured therein.
For example, if ten (10) passengers had been injured by the
operation of the insured bus, the insurer's liability for the accident
would not be P120,000.00 (at the rate of P12,000.00 per
passenger) but would be limited to only P50,000.00 for the entire
accident, as provided in the insurance contract.
The bus company may not recover from the insurance company
(herein petitioner) more than P 12,000.00 per passenger killed or
injured, or fifty thousand (P50,000.00) pesos per accident even if
under the judgment of the court, the erring bus operator will have to
pay more than P12,000.00 to each injured passenger. The trial
court's interpretation of the insurance contract was the correct
interpretation.

d) Malayan Ins. V. CA, DELOS REYES

270 SCRA 242 (1997)
Facts:
TKC Marketing imported 3,000 metric tons of soya bean meal
loaded on board a ship from Brazil to Manila. Said cargo was
insured against the risk of loss by Malayan amounting to
P18,986,902.45 and P1,195,005.45. The vessel, however, was
arrested and detained in South Africa because of a lawsuit
regarding the possession of the soya. TKC consulted Malayan on
recovery of the amount, but the latter claimed that it wasn’t covered
by the policy. The cargo was sold in Africa for Php 10 million due to
its perishable nature, but TKC wanted Malayan to shoulder the
remaining value of 10 million as well. Petitioner replied that the
arrest of the vessel by civil authority was not a peril covered by the
policies. 

TKC Marketing filed a complaint for damages. Malayan maintained

its claim that arrest by civil authorities wasn’t covered by the policy.
The lower court ruled in TKC’s favour and required Malayan to
pay. 
The appellate court affirmed the decision under the reason that
clause 12 of the policy regarding an excepted risk due to arrest by
civil authorities was deleted by Section 1.1 of the Institute War
Clauses which covered ordinary arrests by civil authorities. Failure
to deliver the consigned goods in the port of destination was also
covered by the Theft, Pilferage, and Non-delivery Clause of the
contract. Hence this petition.

Issues:
1.  Whether the arrest of the vessel was a risk covered under the
subject insurance policies. (YES)
2.  Whether the insurance policies must be strictly construed
against the insurer. (YES)

Ruling:

1) By way of a historical background, marine insurance developed

as an all-risk coverage, using the phrase “perils of the sea” to
encompass the wide and varied range of risks that were covered.
The subject policies contain the “Perils” clause which is a standard
form in any marine insurance policy. 

With the incorporation of subsection 1.1 of Section 1 of the Institute

War Clauses, however, this Court agrees with the Court of Appeals
and the private respondent that “arrest” caused by ordinary judicial
process is deemed included among the covered risks. This
interpretation becomes inevitable when subsection 1.1 of Section 1
of the Institute War Clauses provided that “this insurance covers
the risks excluded from the Standard Form of English Marine Policy
by the clause ‘Warranted free of capture, seizure, arrest, etc. x x x’
” or the F.C. & S. Clause. Jurisprudentially, “arrests” caused by
ordinary judicial process is also a risk excluded from the Standard
Form of English Marine Policy or the F.C. & S. Clause. 

If a marine insurance company desires to limit or restrict the

operation of the general provisions of its contract by special
proviso, exception, or exemption, it should express such limitation
in clear and unmistakable language. Obviously, the deletion of the
F.C. & S. Clause and the consequent incorporation of subsection
1.1 of Section 1 of the Institute War Clauses (Cargo) gave rise to
ambiguity. If the risk of arrest occasioned by ordinary judicial
process was expressly indicated as an exception in the subject
policies, there would have been no controversy with respect to the
interpretation of the subject clauses. 

2) An insurance contract should be so interpreted as to carry out

the purpose for which the parties entered into the contract which is,
to insure against risks of loss or damage to the goods. Such
interpretation should result from the natural and reasonable
 meaning of language in the policy. Where restrictive provisions are
open to two interpretations, that which is most favorable to the
insured is adopted. 

Indemnity and liability insurance policies are construed in

accordance with the general rule of resolving any ambiguity therein
in favor of the insured, where the contract or policy is prepared by
the insurer. A contract of insurance, being a contract of adhesion,
means that any ambiguity should be resolved against the insurer.

e) Western Guaranty v. LANDAS

CA, 187 SCRA 652
Facts:
Respondent Priscilla was struck by a De Dios Passenger Bus
owned by Respondent De Dios Transp. Co. Inc., then driven by
Walter Saga. Priscilla’s face was permanently disfigured, causing
her serious anxiety and moral distress.

Respondent bus company was insured with petitioner Western Guaranty

Corporation ("Western") under its Master Policy which provided, among
other things, for protection against third party liability.

RTC ruled in favor of Priscilla.

CA rul

f) Qua Chee Gan v. Law QUIROS

Union 96 Phil. 85 (1955)
FACTS: Chee Gan is a merchant who insured his 4 bodegas with
Law Union and Rock Insurance (LURI). One day, 3 warehouses
were burned, hence, the claim of insurance with LURI. LURI
opposed the claim stating that the fire had been deliberately caused
by Chee Gan. When Chee Gan was acquitted for the crime of
arson, LURI averred that the insurance policy is void due to Chee
Gan’s failure to install 11 hydrants which is a condition and
warranty of the fire insurance policy. They also alleged that there is
a gasoline found in the storage.

ISSUE: Whether Cheen Gan cannot claim insurance due to breach

of warranty.

RULING: NO. LURI is barred by waiver (or rather estoppel) to claim

violation of the so-called fire hydrants warranty, for the reason that
knowing fully all that the number of hydrants demanded therein
never existed from the very beginning, the insurance company
nevertheless issued the policies in question subject to such
warranty, and received the corresponding premiums. 

g) Sun Insurance v. CA TIBIG

211 SCRA 554 (1992) Facts:

GR 92383    July 19,1932       A  personal accident policywith a face value of 200,000 pesos
was issued by  Sun Insurance to Felix, Lim Jr. Two months after he
died due to a gunshot to his dead. 
       Lim’s secretary narrated that after Lim’s mother bday party ,
Lim played with his gun and pinted it to Nalagon. Nalago said it
may be loaded, Lim told her that  it was not as he removed the
magazine already He assured her that it was not loaded and
pointed the gun to his temple. There was explosion and Lim fell.
     The RTC ruled for the payment of the proceeds to the widow of
Lim. This decision was affirmed by the CA
    Sun INsurance cited the  four exceptions  provided in the 
insurance  contract  and contends  that the  claims of the widow  is
barred  by the provision.
     Sun Insurance  pointed out that the mere  act of pointing  the
gun at his temple  Lim  willfully exposed himself  to peril  and his
case falls under the  exception of the insurance. 
    
Issue:
   Whether the insurance policy  relieves the  insurer  of the
responsibility  to pay indemnity  agreed upon  if the insured  is
shown to have contributed  to his own  accident 
  
]
Ruling:
          NO.
        Insurance contracts are supposed to be  liberally  in favor  of
the assured .

           Lim was unquestionably negligent and that negligence cost

him his own life. But it should not prevent his widow from
recovering from the insurance policy he obtained precisely against
accident. There is nothing in the policy that relieves the insurer of
the responsibility to pay the indemnity agreed upon if the insured is
shown to have contributed to his own accident. Indeed, most
accidents are caused by negligence. There are only four exceptions
expressly made in the contract to relieve the insurer from liability,
and none of these exceptions is applicable in the case at bar.

Baka matanong

***decision
         WHEREFORE, the challenged decision of the Court of
Appeals is AFFIRMED insofar as it holds the petitioner liable to the
private respondent in the sum of P200,000.00 representing the face
value of the insurance contract, with interest at the legal rate from
the date of the filing of the complaint until the full amount is paid,
but MODIFIED with the deletion of all awards for damages,
 including attorney’s fees, except the costs of the suit.

****
he words “accident” and “accidental” have never acquired any
technical signification in law, and when used in an insurance
contract are to be construed and considered according to the
ordinary understanding and common usage and speech of people
generally. In substance, the courts are practically agreed that the
words “accident” and “accidental” mean that which happens by
chance or fortuitously, without intention or design, and which is
unexpected, unusual, and unforeseen. The definition that has
usually been adopted by the courts is that an accident is an event
that takes place without one’s foresight or expectation—an event
that proceeds from an unknown cause, or is an unusual effect of a
known case, and therefore not expected.4

An accident is an event which happens without any human agency

or, if happening through human agency, an event which, under the
circumstances, is unusual to and not expected by the person to
whom it happens. It has also been defined as an injury which
happens by reason of some violence or casualty to the insured
without his design, consent, or voluntary cooperation.

h) Rizal Surety v. CA 336 VILLACERAN

SCRA 12
Facts:

Rizal Surety issued a 1 million fire insurance policy with

Transworld. This was increased to 1.5 million. The subject policy
stated that Rizal Surety is “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 situated
within their own Compound xxx.” The policy also described the
four-span building covered by the same.

A later date, a fire broke out in the compound, 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) was also destroyed by the fire.

Issue:

Whether Rizal Surety is liable for loss of the two-storey building

considering that the fire insurance policy sued upon covered only
the contents of the four-span building.
 

Ruling:

Yes.  The court ruled that the policy had clauses on the building
coverage that read:
 
"contained and/or stored during the currency of this Policy
in the premises occupied by them forming part of the
buildings situated within own Compound"
 
"First, said properties must be contained and/or stored in
the areas occupied by Transworld and second, said areas
must form part of the building described in the policy xxx"

This generally means that the policy didn’t limit its coverage to what
was stored in the four-span building. As to questions of fact, both
the trial court and the Court of Appeals found that the so called
"annex " was not an annex building but an integral part of the four-
span building described in the policy and consequently, the
machines and spare parts stored were covered by the fire
insurance. A report said:

 
"Two-storey building constructed of partly timber and partly
concrete hollow blocks under g.i. roof which is adjoining and
intercommunicating with the repair of the first right span of
the lofty storey building and thence by property fence wall."

"Art.1377. The interpretation of obscure words or stipulations in a

contract shall not favor the party who caused the obscurity"

In Landicho vs. Government Service Insurance System, the Court

ruled that “the terms in an insurance policy, which are ambiguous,
equivocal or uncertain x x x are to be construed strictly and most
strongly against the insurer, and liberally in favor of the insured so
as to effect the dominant purpose of indemnity or payment to the
insured, especially where forfeiture is involved, and the reason for
this is that the insured usually has no voice in the selection or
arrangement of the words employed and that the language of the
contract is selected with great care and deliberation by experts and
legal advisers employed by, and acting exclusively in the interest
of, the insurance company.”
  

Hence, petition is dismissed.

i) Perla v. CA, 185 SCRA AGOT

741 (1990)
FACTS:

Herminio and Evelyn Lim executed a promissory note in favor

Supercars, Inc, for the purchase of  a brand new red Ford Laser
car. The same car is insured with Perla Compania de Seguros
(Perla). On the same day, Supercars, Inc. assigned its rights, title
and interest to FCP Credit Corporation (FCP).

However, the said vehicle was carnapped in the possession of

Evelyn Lim. 

Spouses Lim filed a claim for loss with Perla but this was denied on
the ground that Evelyn Lim, who was using the vehicle before it
was carnapped, was in possession of an expired driver’s license at
the time of the loss, in violation of the authorized driver clause of
the insurance policy.

ISSUE:  Whether Perla is liable despite the alleged violation of the

authorized driver clause in the insurance contract

RULING:

YES
The court held that where a car is admittedly, as in this case,
unlawfully and wrongfully taken without the owner's consent or
knowledge, such taking constitutes theft, and, therefore, it is the
"THEFT"' clause, and not the "AUTHORIZED DRIVER" clause that
should apply.

j) American Home BAYAN

Assurance v. CA, 366
SCRA 740 (2001) Facts:
 
Respondent Tantuco owns two oil mills which were separately covered by
fire insurance policies issued by petitioner American Home Assurance Co.
A fire that broke out gutted and consumed the new oil mill. Respondent
immediately notified the petitioner of the incident. However, petitioner
rejected respondent's claim for the insurance proceeds on the ground that
no policy was issued by it covering the burned oil mill. He argues that the
specific boundary description in the contract clearly pertains, not to the
burned oil mill, but to the other mill.
  
Upon complaint, RTC found the petitioner liable for the policy. This was
affirmed by the CA.
 
Issue:
 
Whether or not petitioner shall not be held liable because of the
misdescription of the building in the insurance policy.
 
Ruling:
 
No. The Court held that in construing the words used descriptive of a
building insured, the greatest liberality is shown by the courts in giving
effect to the insurance. In the case, the categorical statement embodied in
the policy is “On machineries and equipment…in the new oil mill”. Thus,
if the parties really intended to protect the first oil mill, then there is no
need to specify it as new. Further, it is unthinkable for respondent to
obtain the other policy from the very same company.
 
Hence, notwithstanding the misdescription in the policy, it is beyond
dispute, that what the parties manifestly intended to insure was the new oil
mill.

4. Characteristics and nature of insurance contracts (Pls read relevant provisions of the Civil
Code)

a) Aleatory (Article 2010 The insurer’s obligation to indemnify is dependent on the

of the Civil Code) happening of an event, which is uncertain or which is to occur at an
indeterminable time

Article2010.By an aleatory contract,one of the parties or          both

reciprocally bind themselves to give or to do         something in 
consideration of what the other shall give or          do upon the
happening of an event which is uncertain,or which is to occur at an
indeterminate time. (1790) 

b) Unilateral Upon payment of the premium the contract only has one obligation
which is imposed on the part of the insurer who undertakes to
indemnify the insured for any loss he suffers from covered risks
within the term of the policy

c) Personal Each party enters into the contract bearing in mind the character,
credit and conduct of the other

d) Consensual (Art 1305, The contract of insurance is perfected by mere consent without the
1306, & 1308, Civil Code) need of delivery or any formality
 Article 1305. A contract is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to
give something or to render some service. (1254a)
Article 1306. The contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy. (1255a)
Article 1308. The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of them.
(1256a)

e) Uberrimae Fidae The contract of insurance is one of perfect good faith. Thus, both
(highest or perfect good parties must not only perform their obligations in good faith but they
faith) must also avoid material concealment or misrepresentations.

The caveat emptor rule is therefore generally inapplicable.

(1) The obligation to maintain perfect good faith is imposed not only
on the insured but on the insurer as well. This “accounts for the
readiness which the courts apply the doctrine of estoppel as
against the insurer when he seeks to take advantage of some
condition of forfeiture in order to escape payment under the policy.”

f) Executory and The contract is executory to the insurer and subject to conditions,
conditional the principal one of which is the happening of the event insured
against. In addition to the main condition, it usually includes many
other conditions which must be complied with as precedent to the
right of the insured to claim the proceeds.

5. Classes of Insurance Life Insurance contracts:

(Life and Non Life) a. Individual Life
b. Group Life
c. Industrial Life

Non-Life insurance contracts:

a. Marine
b. Fire
c. Casualty

[De Leon, 11th ed. 2017]

6. Kinds of Insurance 1. Private insurance

2. Government insurance
7. Classification of Life 1. Life Insurance
Insurance 2. Property Insurance
3. Casualty Insurance
4. Micro Insurance

** [De Leon, 11th ed. 2017]

1. Insurance against loss or impairment of property interest

a. Marine Insurance
b. Fire Insurance
c. Guaranty Insurance
d. Credit Insurance
e. Fidelity Insurance
f. Theft Insurance
g. Title Insurance

2. Insurance against loss of earning power

a. Life Insurance
b. Accidental injury
c. Ill-health
d. etc.
3. Insurance against contingent liability to make payment to
another

a. Reinsurance
b. Workmen’s compensation Insurance
c. Motor vehicle liability insurance

8.  In general. - Anything having an appreciable pecuniary value, which

a) What May be insured? is subject to loss or deterioration or of which one may be deprived
so that his pecuniary interest is or may be prejudiced, may properly
constitute the subject matter of insurance.
** [De Leon, 11th ed. 2017]

“SEC. 3. Any contingent or unknown event, whether past or future,

which may damnify a person having an insurable interest, or create
a liability against him, may be insured against, subject to the
provisions of this chapter.

“The consent of the spouse is not necessary for the validity of an

insurance policy taken out by a married person on his or her life or
 that of his or her children.

“All rights, title and interest in the policy of insurance taken out by
an original owner on the life or health of the person insured shall
automatically vest in the latter upon the death of the original owner,
unless otherwise provided for in the policy.

“SEC. 4. The preceding section does not authorize an insurance for

or against the drawing of any lottery, or for or against any chance or
ticket in a lottery drawing a prize.

“SEC. 5. All kinds of insurance are subject to the provisions of this

chapter so far as the provisions can apply.

An insurance for or against the drawing of any lottery or for or

b) What cannot be against any chance or ticket in a lottery drawing a prize may not be
insured? insured, because gambling results in profit and insurance only
seeks to indemnify the insured against loss.

CASES

Guingon v. Del Monte (20 BERNARDINO

SCRA 1043)
Julio Aguilar owned and operated several jeepneys in the City of
Manila He entered into a contract with the Capital Insurance &
Surety Co., Inc. insuring the operation of his jeepneys against
accidents with third-party liability.

During the effectivity of such insurance policy, Iluminado del Monte,

one of the drivers of the jeepneys operated by Aguilar, figured in an
accident which killed one Gervacio Guingon who had just alighted
from another jeepney.

The heirs of Gervacio Guingon filed an action for damages praying

that the sum of P82,771.80 be paid to them jointly and severally by
the defendants, driver Iluminado del Monte, owner and operator
Julio Aguilar, and the Capital Insurance & Surety Co., Inc. For
failure to answer the complaint, Del Monte and Aguilar were
declared in default. Capital Insurance & Surety Co., Inc. answered,
alleging that the plaintiff has no cause of action against it.

The Court of First Instance of Manila rendered its judgment

ordering defendant Capital Insurance and Surety Co., Inc. is hereby
 sentenced to pay the plaintiffs the sum of Five Thousand
(P5,000.00) Pesos plus Five Hundred (P500.00) Pesos as
attorney's fees and costs. These sums of P5,000.00 and P500.00
adjudged against Capital Insurance and Surety Co., Inc. shall be
applied in partial satisfaction of the judgment rendered against
Iluminado del Monte and Julio Aguilar in this case.

On appeal the insurenace company argued that the plaintiffs not

being parties to the insurance contract, does not have a cause of
action against them company.

ISSUE:

Whether the plaintiff can sue the insurance company for its liability
to them

RULING

The right of the person injured to sue the insurer of the party at fault
(insured), depends on whether the contract of insurance is intended
to benefit third persons also or only the insured. And the test
applied has been this: Where the contract provides for indemnity
against liability to third persons, then third persons to whom the
insured is liable, can sue the insurer. Where the contract is for
indemnity against actual loss or payment, then third persons cannot
proceed against the insurer, the contract being solely to reimburse
the insured for liability actually discharged by him thru payment to
third persons, said third persons' recourse being thus limited to the
insured alone.

Eternal Gardens MPC v. DELOS REYES

Philam (551 SCRA 1)
FACTS:
December 10, 1980: Philippine American Life Insurance Company
(Philamlife) entered into an agreement denominated as Creditor
Group Life Policy No. P-19202 with Eternal Gardens Memorial Park
Corporation (Eternal). Under the policy (renewable annually), the
clients of Eternal who purchased burial lots from it on installment
basis would be insured by Philamlife. The amount of insurance
coverage depended upon the existing balance 
Eternal was required under the policy to submit to Philamlife a list
of all new lot purchasers, together with a copy of the application of
each purchaser, and the amounts of the respective unpaid
balances of all insured lot purchasers. Eternal complied with the
requirements by submitting a letter dated December 29, 1982, a list
of insurable balances of its lot buyers for October 1982 which
includes John Chuang which was stamped as received by Philam
Life

On August 2, 1984, Chuang died with a balance of 100,000 php

In reply, Philamlife wrote Eternal a letter on November 12, 1984,6

requiring Eternal to submit the following documents relative to its
insurance claim for Chuang’s death. Eternal transmitted the
required documents through a letter dated November 14, 1984,7
which was received by Philamlife on November 15, 1984. 

April 25, 1986: Philamlife had not furnished Eternal with any reply
on its insurance claim so its demanded its claim

According to Philam Life, since the application was submitted only

on November 15, 1984, after his death, Mr. John Uy Chuang was
not covered under the Policy since his application was not
approved.  Moreover, the acceptance of the premiums are only in
trust for and not a sign of approval.

RTC: favored Eternal. CA: Reversed RTC

Issue: Whether there is a valid insurance coverage. (YES)

RULING:
It must be remembered that an insurance contract is a contract of
adhesion which must be construed liberally in favor of the insured
and strictly against the insurer in order to safeguard the latter’s
interest. Thus, in Malayan Insurance Corporation v. Court of
Appeals, 270 SCRA 242 (1997), this Court held that: Indemnity and
liability insurance policies are construed in accordance with the
general rule of resolving any ambiguity therein in favor of the
insured, where the contract or policy is prepared by the insurer. 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. Limitations of liability should be
regarded with extreme jealousy and must be construed in such a
way as to preclude the insurer from noncompliance with its
obligations. 

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. The second
sentence of Creditor Group Life Policy No. P-1920 on the Effective
Date of Benefit is in the nature of a resolutory condition which
would lead to the cessation of the insurance contract. 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. 

To characterize the insurer and the insured as contracting parties

on equal footing is inaccurate at best. Insurance contracts are
wholly prepared by the insurer with vast amounts of experience in
the industry purposefully used to its advantage. More often than
not, insurance contracts are contracts of adhesion containing
technical terms and conditions of the industry, confusing if at all
understandable to laypersons, that are imposed on those who wish
to avail of insurance. As such, insurance contracts are imbued with
public interest that must be considered whenever the rights and
obligations of the insurer and the insured are to be delineated.
Hence, in order to protect the interest of insurance applicants,
insurance companies must be obligated to act with haste upon
insurance applications, to either deny or approve the same, or
otherwise be bound to honor the application as a valid, binding, and
effective insurance contract. 

Blue Cross Health Care v. LANDAS

Olivares (544 SCRA 580)

Malayan Insurance v. QUIROS

Regis Brokers (538 SCRA
681) FACTS: Fasco Motors Group shipped 120 motor vehicles from the
US to Manila, to be delivered to ABB Koppel. Upon arrival it was
transferred to Paircargo’s warehouse for storage until the release
from the Bureau of Customs. Upon release from the warehouse,
Regis Brokerage Corp. delivered the motor vehicles to ABB Koppel,
however, only 65 motors arrived and delivered to them. It is to be
noted that ABB Koppel insured the shipment with Malayan
Insurance. After payment of Malayan Insurance to ABB Koppel,
Malayan then after filed for claims against Pairacargo and Regis
Brokerage Corp.

Regis Brokerage Corp. assailed that the marine risk note

(insurance) was only procured on March 21, 1995 which is a later
date when the some of the motor vehicles are lost.
 ISSUE: Whether there is a contract of insurance between ABB
Koppel and Malayan Insurance at the time of the loss of motors.

RULING: NONE. The Marine Insurance Policy was never

presented in evidence before the trial court or the Court of Appeals.
There can be no consideration of the particular terms and
conditions in the insurance contract that specifically give rise to
Malayans right to be subrogated to ABB Koppel, or to such terms
that may have absolved Malayan from the duty to pay the
insurance proceeds to that consignee.

Eastern Shipping v. TIBIG

Prudential (599 SCRA
565) Facts:
G.R. No. 174116.      On November 8, 1995 56 cases f  auto parts  o Nissan  were
September 11, 2009.* loaded on MV Tuju at Nagoya Japan to be shipped to Manila. The
shipment was covered by  Bill of Lading NMA-1. The carrier was
owned and operated by Shipping Eastern Lines Inc,
    Upon inspection  it was found out that  there were missing  and
damaged cases  due to pilferage and improper handling. 
    Nissan  demanded for damages  in the amount of 1,047,298.34
against the owner of vessel, and ATI the arrestre operator. 
    As insurer of the shipment  against all risks per marine open
policy no. 86-168  and cargo risk note, Prudential paid Nissan  the
demanded amount. 
Prudential sued Eastern Shipping and ATI  for reimbursement  of
the amount paid to Nissan claiming that it had subrogated Nissan
by virtue of the payment done.
     The RTC favored Prudential and order EAstern to reimburse
Prudential. Decision was affirmed by the CA
Issue:
    Whether Prudential can claim reimbursement by its right of
subrogation without the presentation of the marine  insurance policy
and only presented the risk note and subrogation receipt

Ruling:
   No. 
   

 According to jurisprudence  marine insurance policy needs to be

presented in evidence before the trial court or even before the
appellate court. 
     In Malayan Insurance Co., Inc. v. Regis Brokerage Corp., the
Court stated that the presentation of the marine insurance policy
was necessary, as the issues raised therein arose from the very
existence of an insurance contract between Malayan Insurance and
its consignee, ABB Koppel, even prior to the loss of the shipment.
        In Wallem Philippines Shipping, Inc. v. Prudential Guarantee
and Assurance, Inc., the Court ruled that the insurance contract
 must be presented in evidence in order to determine the extent of
the coverage. 
         It is  important  to establish the date  when the insurance was
constituted , and the date can be known by the presentation of the
contract itself. Establishing the date  is crucial as there can be no
insurance  on a risk  that had already  occurred by the time  the
contract was executed.
    The presented marine risk note on its face does not specify the
date the insurance was constituted. The marine risk note was
issued  on November 16,1995  without the policy  it will be
guesswork if the  cargo was insured  during the voyage  which
started on Nov 8,1995
   

Prudential  having failed to present the  marine Insurance  Policy

cannot claim subrogation against Eastern 

WHEREFORE, premises considered, the petition is GRANTED.

The April 26, 2006 Decision and August 15, 2006 Resolution of the
Court of Appeals in CA-G.R. CV No. 68165 are hereby REVERSED
and SET ASIDE. The Complaint in Civil Case No. 96-1665 is
DISMISSED.

Paramount Insurance v. VILLACERAN

Remondeulaz (686 SCRA
567)
Facts:

On May 26, 1994, respondents insured with petitioner their 1994

Toyota Corolla sedan under a comprehensive motor vehicle
insurance policy for one year. During the effectivity of said
insurance, respondents’ car was unlawfully taken. Respondents
alleged that a certain Ricardo Sales (Sales) took possession of the
subject vehicle to add accessories and improvements thereon,
however, Sales failed to return the subject vehicle within the agreed
three-day period.

Then, respondents notified petitioner to claim for the

reimbursement of their lost vehicle. However, petitioner refused to
pay. Accordingly, respondents lodged a complaint for a sum of
money against petitioner before the Regional Trial Court of Makati
City but dismissed the complaint filed by respondents. Not in
conformity with the trial court’s Order, respondents filed an appeal
to the Court of Appeals and in its decision the appellate court
reversed and set aside the Order issued by the trial court.
 Petitioner, thereafter, filed a motion for reconsideration against said
Decision, but the same was denied by the appellate court. Hence
this Petition for Review on Certiorari.

Issue:

Whether Paramount Insurance Corporation is liable under the

insurance policy for the loss of respondents’ vehicle.

Ruling:

Yes.  The court ruled that Paramount Insurance Corporation is

liable under the insurance policy.

In People v. Bustinera, this Court had the occasion to interpret the

"theft clause" of an insurance policy. In this case, the Court
explained that when one takes the motor vehicle of another without
the latter’s consent even if the motor vehicle is later returned, there
is theft – there being intent to gain as the use of the thing unlawfully
taken constitutes gain. Also, in Malayan Insurance Co., Inc. v.
Court of Appeals,9 this Court held that the taking of a vehicle by
another person without the permission or authority from the owner
thereof is sufficient to place it within the ambit of the word theft as
contemplated in the policy, and is therefore, compensable.

Records would show that respondents entrusted possession of

their vehicle only to the extent that Sales will introduce repairs and
improvements thereon, and not to permanently deprive them of
possession thereof. Since, Theft can also be committed through
misappropriation, the fact that Sales failed to return the subject
vehicle to respondents constitutes Qualified Theft. Hence, since
respondents’ car is undeniably covered by a Comprehensive Motor
Vehicle Insurance Policy that allows for recovery in cases of theft,
petitioner is liable under the policy for the loss of respondents’
vehicle under the "theft clause."

United Merchants v. AGOT

Country Bankers (676
SCRA 382) FACTS:

UMC is engaged in the business of buying, selling, and

manufacturing Christmas lights, which was insured against fire with
Country Bankers Insurance Corporation (CBIC), valid until 6
September 1996. 
 UMC and CBIC executed Endorsement. It provides that UMCs
stocks in trade were insured against additional perils. 

On 3 July 1996, a fire gutted the warehouse rented by UMC. 

UMC submitted to CBIC its Sworn Statement of Formal Claim, with
proofs of its loss. 

CBIC rejected UMC s claim due to fraudulent/false declaration. 

ISSUE: Whether UMC is entitled to claim from CBIC the full

coverage of its fire insurance policy. 

RULING:

NO

The court held that where a fire insurance policy provides that 

 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 devices are used by the Insured
or anyone acting on his behalf to obtain any benefit under
this Policy, 
 and the evidence is conclusive that the proof of claim which
the insured submitted was false and fraudulent both as to
the kind, quality and amount of the goods and their value
destroyed by the fire, 
 such a proof of claim is a bar against the insured from
recovering on the policy even for the amount of his actual
loss. 

In this case, as proof of its loss of stocks in trade amounting to P

50,000,000.00, UMC submitted its Sworn Statement of Formal
Claim together with the documents. UMC defined stock in trade as
tangible personal property kept for sale or traffic. Applying UMCs
definition, only the letters of credit and invoices for raw materials,
Christmas lights and cartons may be considered. 

It has long been settled that a false and material statement made
with an intent to deceive or defraud voids an insurance policy. 

9. The Parties in insurance contract

a) insured The insured is the owner of the policy whose

property or life is insured or who took out the insurance over the life
 of persons in whom he has insurable interest.

b) insurer  The insurer is the party who promises to pay in case loss
results because the peril insured against occurred.

 “Insurer” or “insurance company” shall include all

partnerships, associations, cooperatives or corporations,
including government owned or controlled corporations or
entities, engaged as principals in the insurance business,
excepting mutual benefit associations.


c) beneficiary  is a third person involved in an insurance contract known as

the beneficiary. The beneficiary is the person in whose favor
the insurance was taken by the insured and who will receive
the proceeds of the insurance in case of loss.

 The beneficiary may be a party to the contract of insurance

or a third person (a person who is not a party to the
contract). For instance, person having insurable interest
over the life of another may obtain an insurance policy and
designate


CASES

Valenzuela v CA (191 BAYAN

SCRA 1)
Facts:

Valenzuela, general agent of PHILAMGEN solicited marine insurance

from one of his clients, the Delta Motors, Inc. Because of the large amount
the policy, PHILAMGEN started to become interested in and expressed its
intent to share in the commission due Valenzuela. However, the
Valenzuela refused the offer of PHILAMGEN. As a result, Philamgen
terminated the General Agency Agreement of Valenzuela, in addition to
the other harassment made before such termination.

Issue:

Whether the principal can unilaterally revoke the General Agency

Agreement.
 Ruling:

No. The Court held that the agency involving petitioner and private
respondent is one "coupled with an interest," and, therefore, should not be
freely revocable at the unilateral will of the latter.

In the case, the agency has been given not only for the interest of the
principal but for the interest of third persons or for the mutual interest of
the principal and the agent. Thus, it is evident that the agency ceases to be
freely revocable by the sole will of the principal.

RCBC v CA (289 SCRA BERNARDINO

292)

Palileo v Cosio (97 Phil DELOS REYES

919)

FACTS:

On December 10, 1980, respondent Philippine American Life

Insurance Company (Philamlife) entered into an agreement
denominated as Creditor Group Life Policy No. P-1920 with
petitioner Eternal Gardens Memorial Park Corporation (Eternal).
Under the policy, the clients of Eternal who purchased burial lots
from it on installment basis would be insured by Philamlife. The
amount of insurance coverage depended upon the existing balance
of the purchased burial lots. The policy was to be effective for a
period of one year, renewable on a yearly basis.

Eternal was required under the policy to submit to Philamlife a list

of all new lot purchasers, together with a copy of the application of
each purchaser, and the amounts of the respective unpaid
balances of all insured lot purchasers. Eternal complied by
submitting a letter dated December 29, 1982, containing a list of
insurable balances of its lot buyers for October 1982 which included
a certain John Chuang. His balance of payments was PhP100,000.
On August 2, 1984, Chuang died. Eternal sent a letter dated to
Philamlife, which served as an insurance claim for Chuang’s death.
Philamlife had not furnished Eternal with any reply on its insurance
claim so its demanded its claim. According to Philam Life, since the
application was submitted only on November 15, 1984, after his
death, Mr. John Uy Chuang was not covered under the Policy since
his application was not approved.  Moreover, the acceptance of the
premiums are only in trust for and not a sign of approval.

RTC ruled in favored of Eternal. CA Reversed RTC.

 
 ISSUE: Whether there was no valid insurance coverage

RULING:

It must be remembered that an insurance contract is a contract of

adhesion which must be construed liberally in favor of the insured
and strictly against the insurer in order to safeguard the latter’s
interest. Thus, in Malayan Insurance Corporation v. Court of
Appeals, 270 SCRA 242 (1997), this Court held that: Indemnity and
liability insurance policies are construed in accordance with the
general rule of resolving any ambiguity therein in favor of the
insured, where the contract or policy is prepared by the insurer. 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. Limitations of liability should be
regarded with extreme jealousy and must be construed in such a
way as to preclude the insurer from noncompliance with its
obligations. 

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. The second
sentence of Creditor Group Life Policy No. P-1920 on the Effective
Date of Benefit is in the nature of a resolutory condition which
would lead to the cessation of the insurance contract. 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. 

Great Pacific Live v CA LANDAS

(316 SCRA 677)

10. Assignee of insurance The policyholder is the assignor and the person in whose favor
contract the policy has been assigned is called the assignee.

Section 9. If an insurer assents to the transfer of an insurance from

a mortgagor to a mortgagee, and, at the time of his assent,
imposes further obligations on the assignee, making a new contract
with him, the acts of the mortgagor cannot affect the rights of said
assignee.
11. Insurance agent and
Insurance broker An insurance agent is any person who for compensation solicits or
obtains insurance on behalf of any insurance company or 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. Insurance agent
includes an agency leader, agency, manager or their equivalent.
[Aquino, page. 69]

An insurance broker is any person who for any* compensation,

commission or other thing of value acts or aids in any* manner in
soliciting, negotiating or procuring the making of any* insurance
contract or in placing risk or taking out insurance, on behalf of an
insured other than himself.90 Thus, while the insurer agent
normally represents the insurer, the insurance broker acts for and
in behalf of the insured. [Aquino, page. 75]