An Outline of the Insurance Code

Republic Act No. 10607 (Amending Presidential Decree 612)

INTRODUCTORY JURISPRUDENCE

1. ABOITIZ SHIPPING vs. INSURANCE COMPANY OF  NORTH AMERICA , G.R. No.
168402, August 6, 2008

2. ASIAN TERMINALS, INC., vs. MALAYAN INSURANCE, CO., INC., G.R. No. 171406, April 4,
2011

DOCTRINE:

FACTS: A certain shipment, containing plastic bag of soda ash dense, was insured with
respondent Malayan Insurance Company, Inc. Upon arrival of the vessel at Pier 9, South Harbor,
Manila, the stevedores of petitioner Asian Terminals, Inc. When the unloading of the bags was
completed on November 28, 1995, 2,702 bags were found to be in bad order condition.

On December 28, 1995, after all the bags were unloaded in the warehouses of the consignee, a
total of 2,881 bags were in bad order condition due to spillage, caking, and hardening of the
contents.

On April 19, 1996, Malayan, as insurer, paid the value of the lost/damaged cargoes to the
consignee. Respondent filed a complaint for damages against the Petitioner.

Petitioner contends that respondent has no cause of action because it failed to present the
insurance contract or policy covering the subject shipment. Petitioner argues that the Subrogation
Receipt presented by respondent is not sufficient to prove that the subject shipment was insured
and that respondent was validly subrogated to the rights of the consignee.

Lower court favors Malayan insurance, it found that the proximate cause of the damage/loss was
the negligence of petitioner's stevedores who handled the unloading of the cargoes from the
vessel.

ISSUE: WON Malayan is entitled to the relief granted despite non-presentation of the insurance
contract or policy during trial.

HELD: Malayan is entitled to the relief. The SC said that non-presentation of the insurance
contract or policy is not fatal in the instant case.

First of all, this was never raised as an issue before the RTC. In fact, it is not among the issues
agreed upon by the parties to be resolved during the pre-trial.

In this case, the presentation of the insurance contract or policy was not necessary. Although
petitioner objected to the admission of the Subrogation Receipt in its Comment to respondent's
formal offer of evidence on the ground that respondent failed to present the insurance contract or
policy, a perusal of petitioner's Answer and Pre-Trial Brief shows that petitioner never questioned
respondent's right to subrogation, nor did it dispute the coverage of the insurance contract or
policy.

Since there was no issue regarding the validity of the insurance contract or policy, or any provision
thereof, respondent had no reason to present the insurance contract or policy as evidence during
the trial.

3. DBP POOL OF ACCREDITED INSURANCE COMPANIES vs.

RADIO MINDANAO  NETWORK, INC., G.R. NO. 147039, January 27, 2006

Doctrine:

FACTS:

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 ISSUE:

HELD:

4. VIOLETA R. LALICAN vs. THE INSULAR LIFE ASSURANCE COMPANY LIMITED, G.R.
No. 183526, August 25, 2009

Doctrine:

FACTS: Eulogio Lalican applied for an insurance policy with the Insular Life amounting to
Php 1,500,000. Under the terms of the policy, Eulogio was to pay the premiums on a
quarterly basis, having a grace period of 31 days, for the payment of each premium
subsequent to the first. If any premium was not paid on or before the due date, the policy
would be in default and if the premium remained unpaid until the end of the grace period,
the policy would automatically lapse and become void.

Eulogio paid the premiums due on the first two succeeding payment dates but failed to
pay subsequent premiums even after the lapse of the grace period thereby rendering the
policy void. He submitted an application for reinstatement of policy through Josephine
Malaluan, an agent of Insular Life, together with the payment of the unpaid premiums.
However, the Insular Life notified him that his application could not be processed because
he failed to pay the overdue interest of the unpaid premiums.

On Sept. 17, 1998, Eulogio submitted to Malaluan's house a second application for
reinstatement including the payment for the overdue interest as well as for the premiums
due for April and July of that year, which was received by Malaluan's husband on her
behalf and was thereby issued a receipt for the amount Eulogio deposited. However, on
that same day, Eulogio died of cardio-respiratory arrest secondary to electrocution.

ISSUE: Whether or not the policy of Eulogio was reinstated before his death.

HELD: Petition lacks merit.

RTC's decision has long acquired finality for Violeta failed to file a notice of appeal more
than five months after the decision was rendered.

As to the substantial claim of whether there is insurable interest, the Court says that the
matter of insurable interest is entirely irrelevant and the real point of contention herein is
whether Eulogio was able to reinstate the lapsed insurance policy on his life before his
death. The Court rules in the negative, for the insurance policy is clear on the procedure
of the reinstatement of the insurance contract, of which Eulogio has failed to accomplish
before his death. As provided by the policy, insurance shall be deemed reinstated upon
the approval of the insurance policy of the application for reinstatement. The approval
should be made during the lifetime of the insured, in the case at bar, it wasn’t.

5. MALAYAN INSURANCE CO., INC. vs. RODELIO ALBERTO and ENRICO ALBERTO
REYES, G.R. No. 194320, February 1, 2012

Doctrine:

FACTS:

ISSUE:

HELD:

6. PHILIPPINE HEALTH CARE PROVIDERS, INC. PROVIDERS, INC., vs. COMMISSIONER

OF INTERNAL REVENUE, G.R. No. 167330, September 18, 2009

Doctrine:

FACTS: Philippine Health Care Providers, Inc. is a domestic corporation whose primary
purpose is "[t]o establish, maintain, conduct and operate a prepaid group practice health
care delivery system or a health maintenance organization to take care of the sick and

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 disabled persons enrolled in the health care plan and to provide for the administrative,
legal, and financial responsibilities of the organization." Individuals enrolled in its health
care programs pay an annual membership fee and are entitled to various preventive,
diagnostic and curative medical services provided by its duly licensed physicians,
specialists and other professional technical staff participating in the group practice health
delivery system at a hospital or clinic owned, operated or accredited by it. January 27,
2000: Commissioner of Internal Revenue (CIR) sent petitioner a formal demand letter and
the corresponding assessment notices demanding the payment of deficiency taxes,
including surcharges and interest, for the taxable years 1996 and 1997 in the total
amount of P224,702,641.18

Petitioner protested the assessment in a letter dated February 23, 2000.

CIR did not act on the protest, petitioner filed a petition for review in the Court of Tax
Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments.

CTA: PARTIALLY GRANTED

to pay VAT DST assessment CANCELLED AND SET ASIDE

CIR: health care agreement was a contract of insurance subject to DST under Section
185 of the 1997 Tax Code

CA: health care agreement was in the nature of a non-life insurance contract subject to
DST Court Affirmed CA

ISSUES:
1. W/N the Philippine Health Care Providers, Inc (HMO) was engaged in the
business of insurance during the pertinent taxable years - NO
2. W/N the Philippine Health Care Providers, Inc enters into an insurance contract -
NO

HELD:

Health Maintenance Organizations Are Not Engaged In The Insurance Business

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

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

b) making or proposing to make, as surety, any contract of suretyship as a vocation

and not as merely incidental to any other legitimate business or activity of the surety;

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

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

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

foregoing in a manner designed to evade the provisions of this Code.

In the application of the provisions of this Code, the fact that no profit is derived from the
making of insurance contracts, agreements or transactions or that no separate or
direct consideration is received therefore, shall not be deemed conclusive to show
that the making thereof does not constitute the doing or transacting of an
insurance business.

One test to determine whether or not one is doing an insurance business or HMO is to
determine whether the assumption of risk and indemnification of loss (which are
elements of an insurance business) are the principal object and purpose of the
organization or whether they are merely incidental to its business. If these are the
principal objectives, the business is that of insurance. But if they are merely
incidental and service is the principal purpose, then the business is not insurance.

There is another and more compelling reason for holding that the service is not engaged
in the insurance business. Absence or presence of assumption of risk or peril is not
the sole test to be applied in determining its status. The question, more broadly, is
whether ‘service’ rather than ‘indemnity’ is its principal object and purpose.

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 The main difference between an HMO and an insurance company is that HMOs
undertake to provide or arrange for the provision of medical services through
participating physicians while insurance companies simply undertake to indemnify
the insured for medical expenses incurred up to a pre-agreed limit.

A participating provider of health care services is one who agrees in writing to render
health care services to or for persons covered by a contract issued by health service
corporation in return for which the health service corporation agrees to make
payment directly to the participating provider.

By the same token, any indemnification resulting from the payment for services rendered
in case of emergency by non-participating health providers would still be incidental to
petitioner’s purpose of providing and arranging for health care services and does not
transform it into an insurer. To fulfill its obligations to its members under the agreements,
petitioner is required to set up a system and the facilities for the delivery of such medical
services. This indubitably shows that indemnification is not its sole object.

As an HMO, it is its obligation to maintain the good health of its members. Accordingly,
its health care programs are designed to prevent or to minimize thepossibility of
any assumption of risk on its part. Thus, its undertaking under its agreements is not to
indemnify its members against any loss or damage arising from a medical condition but,
on the contrary, to provide the health and medical services needed to prevent such loss
or damage.

Overall, petitioner appears to provide insurance-type benefits to its members (with

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

Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry.
This is evident from the fact that it is not supervised by the Insurance Commission but by
the Department of Health.

A Health Care Agreement Is Not An Insurance Contract Contemplated Under Section

185 Of The NIRC of 1997

We shall quote the pertinent portion of Section 185:

Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies
of insurance or bonds or obligations of the nature of indemnity for loss, damage, or
liability made or renewed by any person, association or company or corporation
transacting the business of accident, fidelity, employer’s liability, plate, glass, steam
boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life,
marine, inland, and fire insurance), xxxx (Emphasis supplied)

Section 2 (1) of the Insurance Code defines a contract of insurance as an

agreement whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event. An
insurance contract exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designed

peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual

losses among a large group of persons bearing a similar risk and

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

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

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 First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if
a contract contains all the elements of an insurance contract, if its primary purpose is the
rendering of service, it is not a contract of insurance. It does not necessarily follow
however, that a contract containing all the four elements mentioned above would be an
insurance contract. The primary purpose of the parties in making the contract may
negate the existence of an insurance contract.

Second. Not all the necessary elements of a contract of insurance are present in
petitioner’s agreements. To begin with, there is no loss, damage or liability on the
part of the member that should be indemnified by petitioner as an HMO. Under the
agreement, the member pays petitioner a predetermined consideration in exchange for
the hospital, medical and professional services rendered by the petitioner’s physician or
affiliated physician to him. In case of availment by a member of the benefits under the
agreement, petitioner does not reimburse or indemnify the member as the latter does not
pay any third party. Instead, it is the petitioner who pays the participating physicians and
other health care providers for the services rendered at pre-agreed rates. The member
does not make any such payment. The terms "indemnify" or "indemnity" presuppose that
a liability or claim has already been incurred. There is no indemnity precisely because the
member merely avails of medical services to be paid or already paid in advance at a pre-
agreed price under the agreements.

Third. According to the agreement, a member can take advantage of the bulk of the
benefits anytime, e.g. laboratory services, x-ray, routine annual physical examination and
consultations, vaccine administration as well as family planning counseling, even in the
absence of any peril, loss or damage on his or her part.

Fourth. In case of emergency, petitioner is obliged to reimburse the member who

receives care from a non-participating physician or hospital. The assumption of the
expense by petitioner is not confined to the happening of a contingency but includes
incidents even in the absence of illness or injury.

Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true
that risk alone is sufficient to establish it. Indeed, petitioner, as an HMO, undertakes a
business risk when it offers to provide health services: the risk that it might fail to earn a
reasonable return on its investment. But it is not the risk of the type peculiar only to
insurance companies. Insurance risk, also known as actuarial risk, is the risk that the cost
of insurance claims might be higher than the premiums paid. The amount of premium is
calculated on the basis of assumptions made relative to the insured.

However, assuming that petitioner’s commitment to provide medical services to its

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

In sum, an examination of petitioner’s agreements with its members leads us to conclude

that it is not an insurance contract within the context of our Insurance Code.

WHEREFORE, the motion for reconsideration is GRANTED. SO ORDERED.

7. THE PHILIPPINE AMERICAN LIFE & GENERAL INSURANCE COMPANY vs. HON.
AUGUSTO BREVA, G.R. No. 147937. November 11, 2004

Doctrine:

FACTS:

ISSUE:

HELD:

8. STANDARD INSURANCE CO., INC.v. ARNOLD CUARESMA AND JERRY B.

CUARESMA, G.R. No. 200055, September 10, 2014

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 Doctrine:

FACTS:

ISSUE:

HELD:

1. Definition of Insurance
2. The Contract of Insurance
Gercio vs. Sunlife Insurance Co., 48: 53
Fieldmen’s Insurance Co., Inc. vs. Vda. De Songco, 25 SCRA 70
a. What may be insured
i. Kinds of insurable risk
ii. Insurance by married woman
iii. Insurance by minors
b. Parties to the contract
i. Who may be an insurer
ii. Who may be insured
iii. Insurance by mortgagor and mortgagees
San Miguel Brewer vs. Law Union and Rock Insurance Co., 40:6
Gonzales La O vs. Yek Tong Lin, 55:396
Bachrach vs. British American Ass. Co., 17:562
c. Insurable interest
i. Insurable interest in general
Filipinas Cia. De Seguros vs. Christian Huenfeld & Co., Inc., G.R. No. L-2294,
May 25, 1951
ii. Insurable interest in life
El Oriente vs. Posadas, 56: 147
iii. Insurable interest in property
PAL vs. Heald Lumber Co., 70 SCRA 323
Lamparo vs. Jose, 30: 437
Garcia vs. Hongkong Fire & Marine Ins. Co., 45:122
Lopez vs. del Rosario and Quiogue, 44: 99
iv. When insurable interest must exist
v. Effect of change of interest
vi. Assignment of insurance policies
San Miguel Brewer vs. Law Union and Rock Insurance Co., 40:6
Central Surety & Insurance Co. vs. Silva, (CA) O.G. No. 2, Jan. 31, 1958, p.376:
the mere delivery of an insurance policy or the assignment of the receipts
thereunder cannot be construed as payment in just the same way that delivery of
other mercantile and negotiable instruments do not constitute payment until the
proceeds are realized in accordance with Article 1249 of the Civil Code. The
reason is that an insurance policy is but an evidence of a right to claim
indemnification for loss occasioned by the risk insured against.
vii. Correct estimation of risk
viii. Delimitation of the risk
ix. Control of the risk
x. Concealment
Musgni vs. West Coast Life Insurance Company, 61:804
Argente vs. West Coast Life Insurance Company, 51:275
De Leon vs. Crown Life Ins. Co., C.A. GR 44842: there was concealment where
applicant did not disclose he had pneumonia, diabetesor syphilis which avoided
the insurance policy although the cause of death was totally unconnected to the
material fact misrepresented.
Insular Life Ass. Vs. Pineda, CA GR 43967: in the absence of evidence of the
uninsurability of a person afflicted with chronic cough, concealment thereof is no
ground for annulment of the policy
Yu Pang Cheng vs. CA, GR No. L-12465, May 29, 1959
Saturnino vs. Philamlife, 7 SCRA 316
xi. Duty to Disclose
d. Representations

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 i.Definition and nature
ii.Promissory representation
iii.Affirmative representation
iv. Effect of falsity of representation
Insular Life Ass. Ltd. vs. Feliciano, 73: 201
Sison vs. Manufacturer’s Life, 37 OG 1663: after the insurance policy was issued
to A, it was found out that a brother and sister of his had previously died of
pulmonary tuberculosis and that he was already spitting blood at the time he filed
his application. In this case, the misrepresentation was material and sufficient to
avoid the contract of insurance.
v. Rescission of insurance contracts
Saura Import & Export vs. Phil. Int’l Co., GR No. L-15184, May 31, 1963
vi. Effect of waiver and estoppel
vii. Incontestable clause
viii. Preliminary contracts of insurance
ix. Informal writings to evidence insurance
x. The insurance policy
De Lim vs. Life Ass. of Canada, 41:263
Enriquez vs. Sun Life of Canada, 41:269
Bonifacio Bros. vs. Mora, 20 SCRA 261
Ty vs. First National Surety, 1 SCRA 1324
Ty vs. Filipinas Compania de Seguros, 17 SCRA 365
Ang Giop Chip vs. Springfield, 56:275
xi. Construction and reformation of insurance policy
Sindayen vs. Ins. Life Ass., 62:9
Young vs. Midland Textile, Inc., 30: 617
Misamis Lumber vs. Capital Ind. & Surety, 17 SCRA 228
Tuarus Taxi Co. vs. Capital Ass. & Surety, 24 SCRA 254
Jarque vs. Union Fire, 56: 758
Phil. Mfg. vs. Union Ins. Society of Canada, 42: 378
xii. Matters to be stated in the policy
Paris Manila Perfume Co. vs. Phoenix Ass., 49: 753
Lim Cuan Sy vs. Northern Ass. o., 55:248
Sharruf & Co. vs. Baloise Fire Ins., 64: 258
xiii. To whom proceeds of policy payable
xiv. Open, valued and running policy
xv. Effect of certain stipulations in policy
Paulino vs. Capital Ins., No. L-11728, May 9, 1959
e. Warranties
i. Definition and nature
ii. Warranties vs. representations, conditions, etc.
Harding vs. Commercial Union Ass. Co., 38:454
Pioneer Insurance & Surety vs. Yap, 61 SCRA 426
Filipinas Life Assurance vs. Nava, 17 SCRA (1966)
iii. Effects of violation of warranty
f. Premium
i. Definition
ii. Time, place, mode, etc. of payment of premium
Capitol Ins. & Surety vs. Plastic Era Co., Inc., 65 SCRA 134
iii. Effect of non-payment
iv. Relief of harshness from forfeiture clauses. grace period, cash surrender value
v. Reinstatement of lapsed policy
vi. Excuse of non-payment of premiums
vii. Recovery of premiums paid
g. Loss
i. Meaning of proximate cause
ii. Losses for which insurer not liable
h. Notice of loss
i. Double insurance
j. Reinsurance
k. Payment of claims
3. Classes of Insurance
a. Marine Insurance

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 i. The vessel
ii. Cargoes and merchandise
iii. Goods stowed on deck
iv. Freightage
v. Insurable risks
vi. Perils of the sea
Go Tiaoco Y Hnos vs. Union Insurance Society of Canton Ltd., 40:40
vii. Insurable interest
1. As to freightage
2. In expected profits
viii. Loan on bottomry
ix. Loan on respondentia
x. Passage money
xi. Concealment
1. Standards for marine vs. fire insurance
2. Fraudulent intent
xii. Representations
1. Distinction between promissory representation and expectation
2. When fraud essential to falsity
xiii. Implied warranties
1. Seaworthiness
a. Extent
b. Different portions of trip require different degrees of
seaworthiness
c. Transshipment of cargo
2. The vessel shall not deviate from the agreed voyage
3. The vessel shall not engage in illegal ventures
xiv. Voyage and deviation
1. Seaworthiness vs. warranty of due diligence
2. Exceptions
3. Effect of improper deviation
xv. Loss
1. Actual total loss
2. Partial loss
3. Constructive total loss
4. Liability refers to insurance on cargo
5. Liability in case of reshipment
6. Articular average
7. General average
8. FPA (Free from Particular Average) Clauses
9. Deductible Franchise Clause
10. Memorandum
11. Inchmaree Clause
xvi. Rules of Abandonment
xvii. Nature of Indemnity
1. Co-insurance
2. Co-insurance implied in marine but not fire insurance
3. Primage
4. Drawback
St. Paul Fire & Marine Insurance Co. vs. Macondray & Co., Inc., et.
al., 70 SCRA 122
5. Remedies in case of gross average
b. Fire Insurance
Filipinas Cia. Seguros vs. Tan Chuaco, 47 O.G. 3486
Tan Chuco vs. Yorkshire Fire Ins. Co., 14:346
Go Lu vs. Yorkshire Ins. Co, 43:633
Gonzales vs. LaO Yeck Tong Lin Fire & Marine Ins. Co., 55:386
Yu Hun & Co. vs, British Traders Ins. Co., G.R. Nos. L-3719-25,May 18,
1954
Garris, Terren & Co. vs. North China Ins. Co., 44:749
Pioneer Insurance & Surety Corp. vs. Yap, 61 SCRA 426
c. Casualty Insurance
d. Suretyship

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 e. Life insurance
Teresa vda. De Fernadez vs. National Life Insurance Co. G.R. L- 14242,
June 30, 1960
Gercio vs. Sun Life, 48:53
Insular vs. Suva, 62:246Nario vs. Philam Life, 20 SCRA 434
BPI vs. Posadas, 56:215
Sun Life vs. Ingersoll, 42:331
Biagtan vs. Insular Life. 44 SCRA 58
4. The Business of Insurance
5. Security Fund
6. Compulsory Motor Vehicle Liability Insurance
7. Mutual Benefit Associations and Trusts for Charitable Uses