INSURANCE DIGESTS

Based on the syllabus of Professor A. E. Tayag

I. INTERPRETATION OF INSURANCE CONTRACTS

Malayan Insurance Corp. v. Court of Appeals

G.R. No. 119599, 20 March 1997, Romero, J.
Facts
Private Respondent TKC Marketing was the owner/consignee of soya bean meal
which was loaded on board MV Al Kaziemah from the port of Rio del Grande to the port of
Manila. The cargo was insured against the risk of loss by petitioner Malayan Insurance.
While the vessel was docked in Durban, South Africa, the civil authorities arrested and
detained it because of a lawsuit on a question of ownership and possession. Private
respondent notified petitioner but petitioner insisted that the arrest was not a peril covered
by the policies. The cargo was thereafter sold in Durban, South Africa due to its perishable
nature.

Private respondent filed a complaint for damages representing its initial claim of
USD 916,886.66 and asking that it be reimbursed the amount of Php 128,770.88 as legal
expenses and the interest it paid for the loan it obtained to finance the shipment totaling
Php 942,269.30. The lower court decided in private respondent’s favor. The CA affirmed
the decision of the lower court stating that arrests by civil authorities like what transpired
here was an excepted risk under Clause 12 of the Institute Cargo Clause or the Free from
Capture and Seizure Clause (F.C. & S). however, with the deletion of Clause 12 and the
consequent adoption of the Institute War Clauses, the arrest and seizure by judicial
processes which were excluded before were now covered.

Before the SC, the petitioner argues that an arrest by civil authority is not
compensable since the term “arrest” refers to “political or executive acts” and does not
include a loss caused by riot or ordinary judicial process; and that the automatic
incorporation of subsection 1.1 of Section 1 of the Institute War Clauses, among others,
means that any capture, arrest, detention, etc. pertained exclusively to warlike operations.

Issue
Whether or not the arrest is covered

Ruling
YES. 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.
The exception or limitation to the "Perils" clause and the "All other perils" clause in the
subject policies is specifically referred to as Clause 12 called the "Free from Capture &
Seizure Clause" or the F.C. & S. Clause. However, the FC & S clause was deleted from the
policies, consequently, the institute war clauses was deemed incorporated which, in
subsection 1.1 of Sec. 1 provides that “the risks excluded from the standard form of English
Marine Policy by the clause warranted free of capture, seizure, arrest, restraint or

Daverick Pacumio
UST Faculty of Civil Law
detainment, and the consequences thereof of hostilities or warlike operations, whether
there be a declaration of war or not;”

With the incorporation of subsection 1.1 of Sec. 1 of Institute War Clauses, "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. . . .'" or
the F.C. & S. Clause. Petitioner cannot argue that the FC & S clause can only be operative
in case of hostilities because its interpretation in recent years to include seizure or
detention by civil authorities seems consistent with the general purposes of the clause. In
fact, petitioner itself averred that subsection 1.1 of Section 1 of the Institute War Clauses
included "arrest" even if it were not a result of hostilities or warlike operations.

It has been held that a strained interpretation which is unnatural and forced, as to
lead to an absurd conclusion or to render the policy nonsensical, should, by all means, be
avoided. Likewise, it must be borne in mind that such contracts are invariably prepared by
the companies and must be accepted by the insured in the form in which they are written.
Such policies will, therefore, be construed strictly against the company in order to avoid a
forfeiture, unless no other result is possible from the language used.

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.

Be that as it may, exceptions to the general coverage are construed most strongly
against the company. Even an express exception in a policy is to be construed against the
underwriters by whom the policy is framed, and for whose benefit the exception is
introduced.

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. Where restrictive provisions are open to two interpretations, that which is most
favorable to the insured is adopted.

Simeon del Rosario v. Equitable Insurance

G.R. No. L-16215, 29 June 1963, Paredes, J.
Facts
 Defendant Equitable Insurance and Casualty Co., Inc. issued a Personal Accident
Policy on the life of Francisco del Rosario alias Paquito Bolero, the son of plaintiff Simeon
del Rosario, binding itself to pay the sum of Php 1,000.00 to Php 3,000.00 as indemnity for
the death of the insured. On 24 February 1957, the insured Paquito Bolero, while on board
the motor launch “ISLAMA”, were forced to jump off said launch on account of fire which
broke out on said vessel, resulting to the death by drowning, of the insured and beneficiary
in the waters of Jolo. Simeon, as sole heir, filed a claim for payment with defendant which
issued the sum of Php 1,000.00.

Atty. Vicente J. Francisco wrote defendant company informing them that the
amount received was not the correct one, and should be Php 1,500.00. Defendant company
referred the matter to the Insurance Commissioner who rendered an opinion that the
liability of the company was only Php 1,000.00. Atty. Vicente Francisco, in a subsequent
letter to the insurance company, asked for P3,000.00 which the Company refused to pay.
Hence, a complaint for the recovery of the balance of P2,000.00 more was instituted with
the CFI of Rizal (Pasay City, Branch VIII), praying for a further sum of P10,000.00 as
attorney's fees, expenses of litigation and costs.

The trial court held that under the terms of the policy, the defendant agreed to pay
Php 1,000.00 to Php 3,000.00; that death by drowning is covered by Part VI of the policy;
that there is no specific amount mentioned for death by drowning although the latter is
under Part VI of the policy. Since the defendant has bound itself to pay Php 1,000.00 to Php
3,000.00 as indemnity for the insured’s death, but the policy does not positively state any
definite amount that may be recovered in case of death by drowning, there is an ambiguity
in this respect in the policy, which ambiguity must be interpreted in favor of the insured
and strictly against the insurer so as to a low a greater indemnity. Thus, it awarded plaintiff
the amount of Php 3,000.00 (with Php 1,000.00 as mentioned already paid).

Issue
Is the trial court correct?

Ruling
YES. Generally, the insured, has little, if any, participation in the preparation of the
policy, together with the drafting of its terms and conditions. The interpretation of obscure
stipulations in a contract should not favor the party who caused the obscurity which, in the
case at bar, is the insurance company. The 'terms in an insurance policy, which are
ambiguous, equivocal or uncertain . . . are to be construed strictly 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 a forfeiture is involved.’

Fortune Insurance v. Court of Appeals

G.R. No. 115278, 23 May 1995, Davide, Jr., J.
Facts
 Producers Bank was insured by Fortune Insurance. On 29 June 1987, an armored car
of Producers, while in the process of transferring cash (Php 725,000.00) under the custody
of its teller, Maribeth Alampay (Alampay), from its Pasay Branch to its Head Office at 8737
Paseo de Roxas, Makati, was robbed. The said armored car was driven by Benjamin
Magalong (Magalong) and escored by Security Guard Saturnino Atiga (Atiga). Magalong
and Atiga were charged with highway robbery with others.

Producers demanded Fortune to pay the amount of the loss (Php 725,000.00) but
the latter refused to pay as the loss is excluded from the coverage of the insurance policy
which provides in its “General Exceptions” that Fortune shall not be liable in respect of any
loss caused by employees, trustees, or authorized representatives of the insured Producers.

The trial court ruled in favor of Producers, holding that Magalong and Atiga were
not employees or representatives of Producers because the latter may not be said to have
selected them, as their services were merely offered by PRC Management and by Unicorn
Security. Fortune appealed to the CA who affirmed in toto the decision.

Fortune contends that Magalong and Atiga were employees of Producers, following
Int’l Timber Corp. v. NLRC where it was held that a finding that a contractor is a labor-only
contractor is equivalent to a finding that there is an ER-EE relationship between the owner
of the project and the employee of the labor-only contractor.

Issue
Whether or not Magalong, Atiga, and Alampay are among those persons included
in the General Exceptions

Ruling
YES. The insurance policy entered into by the parties is a theft or robbery insurance
policy which is a form of casualty insurance. In these types of insurance, "the opportunity
to defraud the insurer — the moral hazard — is so great that insurers have found it
necessary to fill up their policies with countless restrictions, many designed to reduce this
hazard. Seldom does the insurer assume the risk of all losses due to the hazards insured
against." Persons frequently excluded under such provisions are those in the insured's
service and employment. The purpose of the exception is to guard against liability should
the theft be committed by one having unrestricted access to the property."

Even granting for the sake of argument that these contracts were not "labor- only"
contracts, and PRC Management Systems and Unicorn Security Services were truly
independent contractors, Magalong and Atiga were, in respect of the transfer of Producer's
money from its Pasay City branch to its head offce 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." Thus, Fortune is exempt.

Rafael (Rex) Verendia v. Court of Appeals

G.R. No. 76399, 22 January 1993, Melo, J.
Facts
Fidelity and Surety Insurance Company (Fidelity) issued a Fire Insurance Policy
covering Rafael (Rex) Verendia’s residential building at Antipolo, Rizal in the amount of
Php 385,000.00. Designated as beneficiary was the Monte de Piedad & Savings Bank.
Verendia also insured the same building with two other companies, i.e., the Country
Bankers Insurance for Php 56,000.00 and the Development Insurance for Php 400,000.00.
While the fire insurance policies were in force, the insured property was gutted by fire on
28 December 1980. Fidelity, despite being informed of the loss, refused payment prompting
Verendia to file a complaint with the CFI of Quezon City for payment of Php 385,000.00.

Fidelity answered 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 to a certain Roberto Garcia, when actually it was a Marcelo Garcia who was the
lessee. The trial court ruled in favor of Fidelity, holding that par. 3 of the policy was also
violated by Verendia in failing to inform Fidelity of his other insurance coverages with
Country Bankers and Development Insurance.

Verendia appealed to the IAC, who reversed the CFI because (a) there was no
misrepresentation concerning the lease for the contract was signed by Marcelo Garcia in
the name of Roberto Garcia; and (b) par. 3 of the policy requiring Verendia to give notice
to Fidelity of other insurance contracts was waived by Fidelity because it attempted to settle
the claim of Verendia.

Issues
1. Whether or not the lease contract submitted by Verendia to support his claim on
the fire insurance policy constitutes a false declaration forfeiting his benefits under
Sec. 13 of the policy; and
2. Whether or not, in submitting the subrogation receipt in evidence, Fidelity agreed
to settle Verendia’s claim in the amount stated in the receipt

Ruling
1. YES. The lease contract upon which Verendia relies to support his claim for
insurance was entered into between him and Robert Garcia. When the residential building
was burned down, it appears that Robert Garcia was still within the premises. However,
according to the investigation report, the building appeared to have “no occupant” and that
Roberto Garcia was “renting on the other side of the said compound.” These belie
Verendia’s uncorroborated testimony that Marcelo Garcia, whom he considered as the real
lessee, was occupying the building when it was burned. Robert Garcia disappeared after the
fire. It was only on 09 October 1981 that an adjuster was able to locate him. Robert Garcia
then executed an affidavit before the National Intelligence and Security Authority (NISA)
to the effect that he was not the lessee of Verendia's house and that his signature on the
contract of lease was a complete forgery.

During the trial, Verendia admitted that it was not Robert Garcia who signed the
lease contract. According to Verendia, it was signed by Marcelo Garcia cousin of Robert,
who had been paying the rentals all the while. Verendia, however, failed to explain why
Marcelo had to sign his cousin's name when he in fact was paying for the rent and why he
(Verendia) himself, the lessor, allowed such a ruse. Fidelity's conclusions on these proven
facts appear, therefore, to have sufficient bases: Verendia concocted the lease contract to
deflect responsibility for the fire towards an alleged "lessee", inflated the value of the
property by the alleged monthly rental of P6,500 when in fact, the Provincial Assessor of
Rizal had assessed the property's fair market value to be only P40,300.00, insured the same
property with two other insurance companies for a total coverage of around P900,000, and
created a dead-end for the adjuster by the disappearance of Robert Garcia.

Considering the foregoing discussion pointing to the fact that Verendia used a false
lease contract to support his claim, 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 states 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".

2. NO. There is no reason to conclude that by submitting the subrogation receipt as

evidence in court, Fidelity bound itself to a "mutual agreement" to settle Verendia's claims
in consideration of the amount of P142,685.77. While the said receipt appears to have been
a filled-up form of Fidelity, no representative of Fidelity had signed it. It is even incomplete
as the blank spaces for a witness and his address are not filled up. More significantly, the
same receipt states that Verendia had received the aforesaid amount. However, that
Verendia had not received the amount stated therein, is proven by the fact that Verendia
himself filed the complaint for the full amount of P385,000.00 stated in the policy.

New Life Enterprises v. Court of Appeals

G.R. No. 94071, 31 March 1992, Regalado, J.
Facts
Julian Sy and Jose Sy Bang formed a partnership named New Life Enterprises
engaged in the sale of construction materials. Julian Sy insured the stocks in trade of New
Life with Western Guaranty Corp., Reliance Surety and Insurance Co., Inc., and Equitable
Insurance Corp. Thus, when the building occupied by New Life was gutted by fire on 19
October 1982, the stocks in trade inside said building were insured against fire in the total
amount of Php 1,550,000.00. Unfortunately, the three (3) insurance companies denied New
Life’s claim for payment. All three (3) insurance companies justified their refusal because
of New Life’s “breach of policy conditions.” According to New Life, these insurance
companies were “sister companies.”

Thus, New Life filed civil actions before the RTC of Lucena City, which were
consolidated for trial whereafter the RTC held in favor of New Life. The CA, however,
reversed the RTC judgement.

Issue
Whether there was breach of policy conditions in this case

Ruling
YES. The policy conditions referred to in this case was Condition No. 3 or the “Other
Insurance Clause” which requires the Insured (New Life) to give notice to the company of
any insurance or insurances already effected, or which may subsequently be effected and
that unless such notice be given, all benefits under the policy shall be deemed forfeited. In
Pioneer Insurance v. Yap, the SC held that the purpose of this requirement is to prevent
over-insurance and thus avert the perpetration of fraud.

While it is a 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 company,
yet 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.

In this case, New Life admits that the insurance policies issued by private
respondents did not state or endorse thereon the other insurance coverage obtained or
subsequently effected on the same stocks in trade for the loss of which compensation is
claimed by New Life. The terms of the contract are clear and unambiguous. The insured is
specifically required to disclose to the insurer any other insurance and its particulars which
he may have effected on the same subject matter. The knowledge of such insurance by the
insurer's agents, even assuming the acquisition thereof by the former, is not the "notice"
that would stop the insurers from denying the claim. Petitioners should exercise the
ordinary care and prudence that would be exacted in relation to other contracts. It is and
was incumbent upon petitioner Julian Sy to read the insurance contracts which he admitted
to not reading.

Additionally, insofar as the liability of Reliance is concerned, the complaint for

recovery was filed on 31 January 1984, after more than one (1) year from petitioners’ receipt
of the insurers’ letter of denial on 29 November 1982. Note that policy condition no. 27 of
the insurance contract provides that claims filed beyond one (1) year after due notice of the
award shall be deemed to have already been abandoned. On this point, the RTC held that
the one year should be counted from the receipt of petitioners of the clarificatory letter of
Reliance’s EVP on 30 March 1983. This should not be. In Ang v. Fulton Insurance, the court
held that the condition similar to condition no. 27 is not merely a procedural requirement
but an important matter essential to a prompt settlement of claims against insurance
companies as it demands that insurance suits be brought by the insured while the evidence
as to the origin and cause of destruction have not yet disappeared.

National Power Corporation v. Court of Appeals

G.R. No. L-43706, 14 November 1986, Paras, J.
Facts
NPC entered into a contract with Far Eastern Electric, Inc. (FEEI) on 26 December
1962 for the erection of the Angat-Balintawak transmission lines for the Angat
Hydroelectric Project. Philippine American General Insurance Co., (Philamgen) issued a
surety bond in the amount of Php 30,672.00 for the faithful performance of FEIIC of its
undertakings. The condition of the bond states that Philamgen’s liability will expire one (1)
year from final completion and acceptance and said bond will be cancelled 30 days after its
expiration unless surety is notified of any existing obligation thereunder.

Meanwhile, the pertinent provisions of the construction contract between NPC and
FEEIC state that the contractor’s performance bond will be released by NPC at the
expiration of one (1) year from the completion and final acceptance of the work; and that
in the event the NPC takes over the work from the contractor FEEIC, the latter and his
bondsmen shall be liable for any expense in the completion of the work in excess of the
contract price and the bond filed by the contractor FEEIC shall be answerable for the same
and for any and all damages NPC may suffer as a result thereof.

FEEIC started construction on 26 December 1962 but on 30 May 1962, both FEEI and
Philamgen wrote NPC requesting assistance for the completion of the project due to
unavailability of FEEI’s equipment and finally, on 19 July 1963, in a joint letter, Philamgen
and FEEI informed NPC that FEEI was giving up the construction due to financial
difficulties. On the same date, NPC informed Philamgen of FEEI’s withdrawal and holding
the latter and Philamgen liable for the cost of work to be completed as of 20 July 1962 plus
damages. On 30 January 1967, NPC notified Philamgen that FEEI had an outstanding obli
in the amount of Php 75,019.85 but Philamgen did not pay and contended that its liability
under the bond expired on 20 September 1964.

NPC filed a collection case which was decided in its favor by the trial court but was
reversed by the CA.

Issue
Whether Philamgen is liable on its bond

Ruling
 YES. Contracts of insurance are to be construed liberally in favor of the insured and
strictly against the insurer. Thus ambiguity in the words of an insurance contract should
be interpreted in favor of its beneficiary.

The surety bond must be read in its entirety and together with the contract between
NPC and the contractors. The provisions must be construed together to arrive at their true
meaning Certain stipulations cannot be segregated and then made to control.

As early as 30 May 1963 Philamgen was duly informed of the failure of its principal
to comply with its undertaking. In fact, said notice of failure was also signed by its Assistant
Vice President. On 19 July 1963, when FEEI informed NPC that it was abandoning the
construction job, the latter forthwith informed Philamgen of the fact on the same date.
Moreover, on 01 August 1963, the fact that Philamgen was seasonably notified, was even
bolstered by its request from NPC for information of the percentage completed by the bond
principal prior to the relinquishment of the job to the latter and the reason for said
relinquishment.

Alpha Insurance v. Arsenia Sonia Castor

G.R. No. 198174, 02 September 2013, Peralta, J.
Facts
Respondent entered into a contract of insurance with petitioner involving her
Toyota Revo DLX DSL. The contract of insurance obligates petitioner to pay the respondent
Php 630,000.00 in case of loss or damage to the vehicle during 26 February 2007 to 26
February 2008. On 16 April 2007, respondent instructed her driver Jose Joel Lanuza
(Lanuza) to bring the vehicle to a nearby auto-shop for a tune-up but Lanuza never
returned said vehicle. Respondent reported this incident to petitioner but petitioner denied
the insurance claim of respondent arguing that under the policy, it is not liable for “any
malicious damage caused by the Insured, any member of his family or by a person in the
insured’s service.”

Respondent filed a complaint for sum of money against petitioner before RTC
Quezon City who ruled in respondent’s favor. The CA affirmed in toto the RTC decision.
Petitioner argues that the word “damage” in the aforementioned provisions of the policy
should be construed to cover malicious “loss” as in theft.

Issue
Whether or not the loss of respondent’s vehicle is excluded under the insurance
policy

Ruling
NO. The insurance policy states that Alpha Insurance shall indemnify the Insured
against loss by theft. In the exceptions thereto, the insurance policy states that Alpha
Insurance is not liable for any malicious damage caused by the insured, any member of his
family, or by a person in the insured’s service. Contract 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 ordinary and popular sense.

Adverse to petitioner's claim, the words "loss" and "damage" mean different things
in common ordinary usage. 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 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. Paragraph 4
clearly does not contemplate "loss of property," as what happened in the instant case.

Further, the CA aptly ruled that "malicious damage," as provided for in the subject
policy as one of the exceptions from coverage, is the damage that is the direct result from
the deliberate or willful act of the insured, members of his family, and any person in the
insured's service, whose clear plan or purpose was to cause damage to the insured vehicle
for purposes of defrauding the insurer.

Lastly, being contracts of adhesion, when the terms of the 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.

Fortune Medicare, Inc. v. David Robert U. Amorin

G.R. No. 195872, 12 March 2014, Reyes, J.
Facts
Amorin was a member of Fortune Care, a corporation engaged in providing health
maintenance services to its members. The terms of Amorin’s medical coverage were
provided in the Health Care Contract. While on vacation in Honolulu, Hawaii, Amorin
underwent an appendectomy at the St. Francis Medical Center causing him to incur
professional and hospitalization expenses of USD 7,242.35 and USD 1,777,79, respectively.
He attempted to recover this from Fortune Care but the latter merely approved a
reimbursement of Php 12,151.36, an amount based on the average cost of appendectomy if
the same was performed in the PH. Amorin asked for adjustment, citing a provision in the
contract saying that if the emergency confinement occurs in a foreign territory, Fortune
Care will be obligated to reimburse or pay 80% of the approved standard charges which
shall cover the hospitalization costs and professional fees.

Still, Fortune Care denied Amorin’s request prompting the latter to file a complaint
for breach of contract with RTC Makati City. Fortune Care argued that the contract did not
cover hospitalization costs and professional fees incurred in foreign countries as it was
confined to PH territory only. RTC Branch 66 dismissed Amorin’s complaint holding that
the parties intended to use PH standard as basis for the reimbursement.
 The CA reversed the RTC pointing out that health care agreements such as the
contract in this case, being like insurance contracts, must be liberally construed in favor of
the subscriber. In case its provisions are doubtful or reasonably susceptible of two
interpretations, the construction conferring coverage is to be adopted and exclusionary
clauses of doubtful import should be strictly construed against the provider. Second, the
CA explained that there was nothing under Article V of the Health Care Contract which
provided that the Philippine standard should be used even in the event of an emergency
confinement in a foreign territory.

Issue
Does the “approved standard charges” refer to PH standard alone?

Ruling
NO. For purposes of determining the liability of a health care provider to its
members, jurisprudence holds that a health care agreement is in the nature of non-life
insurance, which is primarily a contract of indemnity. In Philamcare Health Systems v. CA,
the SC held that being a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract — the insurer. This is
equally applicable to Health Care Agreements. The phraseology used in medical or hospital
service contracts, such as the one at bar, must be liberally construed in favor of the
subscriber, and if doubtful or reasonably susceptible of two interpretations the
construction conferring coverage is to be adopted, and exclusionary clauses of doubtful
import should be strictly construed against the provider.

As may be gleaned from the Health Care Contract, the parties thereto contemplated
the possibility of emergency care in a foreign country. As the contract recognized Fortune
Care's liability for emergency treatments even in foreign territories, it expressly limited its
liability only insofar as the percentage of hospitalization and professional fees that must be
paid or reimbursed was concerned, pegged at a mere 80% of the approved standard
charges. The word "standard" as used in the cited stipulation was vague and ambiguous, as
it could be susceptible of different meanings. From nowhere in the Health Care Contract
could it be reasonably deduced that these "standard charges" referred to the "Philippine
standard", or that cost which would have been incurred if the medical services were
performed in an accredited hospital situated in the Philippines. The RTC ruling that the
use of the "Philippine standard" could be inferred from the provisions of Section 3 (A),
which covered emergency care in an accredited hospital, was misplaced. Evidently, the
parties to the Health Care Contract made a clear distinction between emergency care in an
accredited hospital, and that obtained from a non-accredited hospital.

All told, in the absence of any qualifying word that clearly limited Fortune Care's
liability to costs that are applicable in the Philippines, the amount payable by Fortune Care
should not be limited to the cost of treatment in the Philippines, as to do so would result
in the clear disadvantage of its member.
 II. AS A CONSENSUAL CONTRACT

Great Pacific Life v. Court of Appeals

G.R. No. L-31845, 30 April 1979, De Castro, J.
Facts
Ngo Hing filed an application with the Great Pacific Life Assurance Company
(Pacific Life) for a 20-year endowment policy in the amount of Php 50,000.00 on the life of
his 1-year old daughter, Helen Go. Ngo Hing supplied the data required by Lapulapu
Mondragon (Mondragon), Branch Manager of Pacific Life in Cebu by handwriting, which
Mondragon encoded on the application form. Ngo Hing signed the form and paid the
annual premium of Php 1,077.75, keeping Php 1,317.00 as his commission for being an agent
of Pacific Life. Upon the payment of the premium, the binding deposit receipt (Exhibit E)
was issued to Ngo Hing. Mondragon also wrote at the back page of the application form
his strong recommendation for the approval of the insurance application.

On 30 April 1957, Mondragon received a letter from Pacific Life disapproving the
insurance application because the 20-year endowment plan was not available for minors
below 7 years old but Pacific Life can consider the same under the Juvenile Triple Action
Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be
sent to Pacific Life. This non-acceptance was allegedly not communicated by Mondragon
to Ngo Hing instead, Mondragon wrote Pacific Life strongly recommending the 20-year
endowment because Pacific Life is the only insurance company not selling the same to
children.

On 28 May 1957, Helen Go died of influenza with complication of broncho-

pneumonia. Thus, Ngo Hing sought the payment of proceeds of the insurance but having
failed in this, filed an action for recovery of the same before the CFI Cebu which rendered
the adverse decision, which was affirmed by the CA.

Issues
1. Whether the binding deposit receipt (Exhibit E) constituted a temporary contract
of life insurance; and
2. Whether Ngo Hing concealed the state of health and physical condition of his
daughter Helen Go

Ruling
1. NO. At the back of Exhibit E were conditions precedents before a deposit is
considered a binding receipt: (1) that the company shall be satisfied that the applicant was
insurable on standard rates; (2) that if the company does not accept the application and
offers to issue a different plan, the insurance contract shall not be binding until the
applicant accepts the policy offered; and (3) that if the applicant is not insurable according
to standard rates, and the company disapproves the application, the insurance applied for
shall not be in force at any time, and the premium paid shall be returned to the applicant.
Thus, the binding deposit receipt is merely conditional and does not insure outright.
Where an agreement is made between the applicant and the agent, no liability shall attach
until the principal approves the risk and a receipt is given by the agent.

Moreover, a contract of insurance, like other contracts, must be assented to by both

parties either in person or by their agents. The contract, to be binding from the date of the
application, must have been a completed contract, one that leaves nothing to be done,
nothing to be completed, nothing to be passed upon, or determined, before it shall take
effect. There can be no contract of insurance unless the minds of the parties have met in
agreement. In this case, there was no meeting of the minds. In the absence of a meeting of
the minds between petitioner Pacific Life and Ngo Hing over the 20-year endowment life
insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter, and
with the non-compliance of the abovequoted conditions stated in the disputed binding
deposit receipt, there could have been no insurance contract duly perfected between them.

The failure of Mondragon to communicate to Ngo Hing the rejection of the

application is irrelevant because there was no perfected contract. Private respondent, being
an authorized insurance agent of Pacific Life at Cebu branch office, is indubitably aware
that said company does not offer the life insurance applied for. When he filed the insurance
application in dispute, private respondent was, therefore, only taking the chance that
Pacific Life will approve the recommendation of Mondragon.

2. YES. When private respondent supplied the required essential data for the
insurance application form, he was fully aware that his one-year old daughter is typically a
mongoloid child. Such a congenital physical defect could never be ensconced nor disguised.
Nonetheless, private respondent, in apparent bad faith, withheld the fact material to the
risk to be assumed by the insurance company. As an insurance agent of Pacific Life, he
ought to know, as he surely must have known, his duty and responsibility to supply such a
material fact. Had he divulged said significant fact in the insurance application form, Pacific
Life would have verified the same and would have had no choice but to disapprove the
application outright.

The contract of insurance is one of perfect good faith, not for the insured alone but
equally so for the insurer. Concealment is a neglect to communicate that which a party
knows and ought to communicate.
 III. AS A CONTRACT OF INDEMNITY

Mayer Steel Pipe Corporation v. Court of Appeals

G.R. No. 124050, 19 June 1997, Puno, J.
Facts
Petitioner Hongkong Government Supplies Department (Hongkong) contracted
petitioner Mayer Steel Pipe Corporation (Mayer) to manufacture and supply various steel
pipes and fittings. Mayer insured the pipes and fittings against all risks with private
respondents South Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance
Corp. (Charter).

When the goods reached Hongkong, it was discovered that a substantial portion
thereof was damaged. Thus, petitioners filed a claim against private respondents for
indemnity who did not pay the full price because the surveyor’s report allegedly showed
that the damage is a factory defect. Petitioners filed an action against private respondents
for the recovery of the balance of the indemnity. Private respondents insisted that the
damage to the goods was not covered by the insurance policies because they are factory
defects.

The trial court ruled in favor of petitioners and found that the damage to the goods
is not due to factory defects and that the insurance contracts are “all risks” which insure
against all causes of conceivable loss and damage. The CA affirmed this but dismissed the
complaint nevertheless because, citing the case of Filipino Merchants v. Alejandro, it held
that the action is barred under Section 3(6) of the Carriage of Goods by Sea Act since it was
filed only on 17 April 1986 more than two years from the time the goods were unloaded
from the vessel. Section 3(6) of the Carriage of Goods by Sea Act provides that "the carrier
and the ship shall be discharged from all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or the date when the goods should have
been delivered.

Issue
Did the CA err?

Ruling
Partly. The CA erred in applying Sec. 3(6) of the Carriage of Goods by Sea Act
because under this provision, only the carrier’s liability is extinguished if no suit is filed
within one year after delivery of the goods or the date when they should have been
delivered. But the liability of the insurer is not extinguished because the insurer’s liability
is based not on the contract of carriage but on the contract of insurance. Moreover, in the
cited case of Filipino Merchants, it was the insurer which filed a claim against the carrier
for reimbursement of the amount it paid to the shipper. In the case at bar, it was the shipper
which filed a claim against the insurer. The basis of the shipper's claim is the "all risks"
insurance policies issued by private respondents to petitioner Mayer.
 However, the CA did not err in affirming the RTC. An insurance contract is a
contract whereby one party, for a consideration known as the premium, agrees to
indemnify another for loss or damage which he may suffer from a specified peril. An "all
risks" insurance policy covers all kinds of loss other than those due to willful and fraudulent
act of the insured. Thus, when private respondents issued the "all risks" policies to
petitioner Mayer, they bound themselves to indemnify the latter in case of loss or damage
to the goods insured. Such obligation prescribes in ten years, in accordance with Article
1144 of the New Civil Code.

Paramount Insurance Corporation v. Hon. Maximo M. Japzon

G.R. No. 68037, 29 July 1992, Romero, J.
Facts
Jose Lara (Lara) contracted the services of passenger jeepney operated by Willy
Garcia (Garcia) to transport his family, relatives, and friends from Manila to Pangasinan.
The jeepney was driven by Emilio Macasieb (Macasieb). On 27 May 1978, a Ford truck
driven by Willy Manuel (Manuel) overtook an unidentified motor vehicle and hit and
sideswept the jeepney driven by Macaseb causing injuries to Lara and Arsenio Paed. The
insurer of the truck is petitioner Paramount Surety. The owner of the truck, Domingo
Natividad, filed a notice of claim with Paramount who paid Natividad’s claims. A check in
the amount of Php 800.00 was paid to Paed’s wife, while a check of Php 5,000.00 was paid
by Paramount to Central Luzon Doctor’s Hospital covering the expense for medical
treatment and hospitalization of Lara and Paed.

Lara and Paed filed a criminal case against Manuel for reckless imprudence, while a
civil action for damages was filed by them against Garcia, Macasieb, Manuel, Natividad,
and impleaded Paramount as insurer of the Ford truck. A certain Atty. Segundo Gloria filed
a notice of appearance appearing on behalf of Natividad, Manuel, and Paramount.
Thereafter, the City Hall of Manila was gutted by fire. After the records were reconstituted,
the RTC rendered a decision ordering defendants, including Paramount, to pay jointly and
severally plaintiff Jose Lara, the amount of P15,000.00 for medical and hospitalization
expenses; the sum of P80,000.00 as moral and exemplary damages; the sum of P50,000.00
as compensatory damages; to pay jointly and severally plaintiff Arsenio Paed the sum of
P20,000.00 as moral and actual damages and to pay the sum of P10,000.00 by way of
attorney's fees and the costs of suit.

After almost a year from the promulgation of the decision, Paramount moved to set
aside the same on the ground that the court has not validly acquired jurisdiction over its
person.

Issue
Whether or not Paramount’s claims are tenable

Ruling
 Partly. The records of the case showed that all the pleadings, including the answer
with crossclaim and counterclaim filed by Atty. Segundo Gloria stated that he represented
the defendants Natividad, Manuel and Paramount. In fact, he even filed a notice of
appearance informing the court that he is representing the said defendants. It is worth
noting that this is not the first time petitioner raised the issue of want of jurisdiction over
its person as well as want of authority of a lawyer to appear for and in its behalf. In the case
docketed as G.R. No. 68066 entitled "Paramount Insurance Corp. v. Luna," the SC had the
opportunity to rule that "the mere filing of the answer with crossclaim raised a presumption
of authority to appear for petitioner Paramount Insurance Corporation . . . in accordance
with Section 21, Rule 138 of the Rules of Court. Such presumption is rebuttable, but only by
clear and positive proof.

In the absence of such clear and positive proof, the presumption of authority should
prevail over the petitioner's self-serving denial of such authority. It strains credulity that a
counsel who has no personal interest in the case would fight for and defend a case with
persistence and vigor if he has not been authorized or employed by the party concerned.
To the mind of the SC, the instant petition is filed merely to derail its execution. It took
Paramount almost six years to question the jurisdiction of the lower court. Moreover, as
earlier adverted to, the controverted Decision of August 30, 1983, became final and
executory on October 20, 1983. In any event, it is axiomatic that there is no justification in
law and in fact for the reopening of a case which has long become final and which in fact
was already executed on July 18, 1984.

However, there is merit in petitioner's contention that its liability is limited only to
P50,000.00 as expressed in Insurance Policy No. CV-3466 issued on February 23, 1978. The
said insurance policy clearly and categorically placed the petitioner's liability for all
damages arising out of death or bodily injury sustained by one person as a result of any one
accident at P50,000.00. Said amount complied with the minimum fixed by law then
prevailing, Section 377 of Presidential Decree No. 6123 (which was retained by P.D. No.
1460, the Insurance Code of 1978), which provided that the liability of land transportation
vehicle operators for bodily injuries sustained by a passenger arising out of the use of their
vehicles shall not be less than P12,000.00. Since the petitioner's liability under the insurance
contract is neither less than P12,000.00 nor contrary to law, morals, good customs, public
order or public policy, said stipulation must be upheld as effective and binding between
the parties. Therefore, the terms of the contract constitute the measure of the insurer's
liability.