1 and 2 - Insurance Cases

KHO, Francis Cedric G.
Insurance Case Digests

Section 3D Student No. 2015078379
PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner

v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
G.R. No. 167330, 18 September 2009, J. Corona
FACTS:
Petitioner is a prepaid group practice health care delivery system or a

health maintenance organization to take care of the sick and 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.
It is engaged in Preventive medical services such as periodic monitoring

of health problems, family planning counseling, consultation and advices
on diet, exercise and other healthy habits, and immunization; Diagnostic
medical services such as routine physical examinations, x-rays, urinalysis,
fecalysis, complete blood count, and the like and Curative medical services
which pertain to the performing of other remedial and therapeutic
processes in the event of an injury or sickness on the part of the enrolled
member.
On January 27, 2000, respondent 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
₱224,702,641.18. The deficiency documentary stamp tax assessment was
imposed on petitioner’s health care agreement with the members of its
health care program pursuant to Section 185 of the 1997 Tax Code.
Petitioner filed petition for review in the Court of Tax Appeals and the latter
granted the petition partially and was ordered to pay the deficiency VAT
amounting to ₱22,054,831.75 inclusive of 25% surcharge plus 20% interest
from January 20, 1997 until fully paid for the 1996 VAT deficiency and
₱31,094,163.87 inclusive of 25% surcharge plus 20% interest from January
20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly, the VAT
Ruling No. [231]-88 is declared void and without force and effect.
KHO, Francis Cedric G. Insurance Case Digests
Respondent appealed the cancelled DST assessment and claimed that the
petitioner’s health care agreement was a contract of insurance subject to
DST under Section 185 of the 1997 Tax Code. The CA rendered its decision
and held that petitioner’s health care agreement was in the nature of a non-
life insurance contract subject to DST effectively ordering the petitioners to
pay the amounts of ₱55,746,352.19 and ₱68,450,258.73 as deficiency
Documentary Stamp Tax for 1996 and 1997, respectively, plus 25%
surcharge for late payment and 20% interest per annum from January 27,
2000.
ISSUE:
1. W/N, the organization is an HMO and NOT an insurance company.
(YES)
2. W/N, the health care agreement was a contract of insurance. (NO)
RULING: Petition for motion for reconsideration after the Court denied the
petition in a decision dated June 12, 2008 is GRANTED.
One test that they have applied is 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. In Jordan v.
Group Health Association, the Court of Appeals of the District of Columbia
Circuit held that Group Health Association should not be considered as
engaged in insurance activities since it was created primarily for the
distribution of health care services rather than the assumption of insurance
risk.
The functions of such an organization are not identical with those of

insurance or indemnity companies. The latter are concerned primarily, if
not exclusively, with risk and the consequences of its descent, not with
service, or its extension in kind, quantity or distribution; with the unusual
occurrence, not the daily routine of living. Hazard is predominant. To
summarize, the distinctive features of the cooperative are the rendering of
service, its extension, the bringing of physician and patient together, the
preventive features, the regularization of service as well as payment, the
substantial reduction in cost by quantity purchasing in short, getting the
medical job done and paid for; not, except incidentally to these features, the
indemnification for cost after the services is rendered. There is, therefore, a
substantial difference between contracting in this way for the rendering of
service, even on the contingency that it be needed, and contracting merely
to stand its cost when or after it is rendered.
American courts have pointed out that 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. The basic
distinction between medical service corporations and ordinary health and
accident insurers is that the former undertake to provide prepaid medical
services through participating physicians, thus relieving subscribers of any
further financial burden, while the latter only undertake to indemnify an
insured for medical expenses up to, but not beyond, the schedule of rates
contained in the policy.
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 the possibility
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.
KEY CONCEPTS:
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.
Section 2 (2) of PD20 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.
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.
From the language of Section 185, it is evident that two requisites must
concur before the DST can apply, namely: (1) the document must
be a policy of insurance or an obligation in the nature of

indemnity and (2) the maker should be 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).
Principal purpose test from US jurisdiction – HMO not an

insurance. 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. 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.
BLUE CROSS HEALTH CARE, INC, Petitioner

v.
NEOMI* and DANILO OLIVARES, Respondents
G.R. No. 169737, 12 February 2008, J.Corona
FACTS:
Respondent Neomi T. Olivares applied for a health care program with

petitioner Blue Cross Health Care, Inc., a health maintenance firm and paid
P11, 117 from Oct 16, 2002 to Oct 15, 2003. In the health care agreement,
ailments due to "pre-existing conditions" were excluded from the coverage.
On November 30, 2002, or barely 38 days from the effectivity of her health
insurance, respondent Neomi suffered a stroke and was admitted at the
Medical City which was one of the hospitals accredited by petitioner.
Consequently, she requested from the representative of petitioner at
Medical City a letter of authorization in order to settle her medical bills. But
petitioner refused to issue the letter and suspended payment pending the
submission of a certification from her attending physician that the stroke
she suffered was not caused by a pre-existing condition.
The health care agreement defined a "pre-existing condition" as a disability

which existed before the commencement date of membership whose
natural history can be clinically determined, whether or not the Member
was aware of such illness or condition. Such conditions also include
disabilities existing prior to reinstatement date in the case of lapse of an
Agreement.
ISSUE: W/N, the petitioner’s has the right to withhold payment for the
incurred medical expense due to the respondents suppressing the medical
report. (NO)
RULING:
A health care agreement is in the nature of a non-life insurance. It is an

established rule in insurance contracts that when their terms contain
limitations on liability, they should be construed strictly against the insurer.
These are contracts of adhesion the terms of which must be interpreted and
enforced stringently against the insurer which prepared the contract. This
doctrine is equally applicable to health care agreements. Blue Cross
Healthcare failed to provide any evidence to prove that Neomi’s stroke was
due to a pre-existing condition. It merely speculated that Dr. Saniel’s report

would be adverse to Neomi, based on her invocation of the doctor-patient
privilege. Neomi’s suppression of the report is an exercise of privilege.
Furthermore, as already stated, limitations of liability on the part of the

insurer or health care provider must be construed in such a way as to
preclude it from evading its obligations. Since petitioner had the burden of
proving exception to liability, it should have made its own assessment of
whether respondent Neomi had a pre-existing condition when it failed to
obtain the attending physician’s report. It could not just passively wait for
Dr. Saniel’s report to bail it out. The mere reliance on a disputable
presumption does not meet the strict standard required under our
jurisprudence.
KEY CONCEPTS:
 A health care agreement is in the nature of a non-life insurance. It is
an established rule in insurance contracts that when their terms
contain limitations on liability, they should be construed strictly
against the insurer.
 Limitations of liability on the part of the insurer or health care
provider must be construed in such a way as to preclude it from
evading its obligations.
 Pre-existing conditions - A disability which existed before the
commencement date of membership whose natural history can be
clinically determined, whether or not the Member was aware of such
illness or condition. Such conditions also include disabilities existing
prior to reinstatement date in the case of lapse of an Agreement.
PHILAMCARE HEALTH SYSTEMS, INC., Petitioner

v.
COURT OF APPEALS and JULITA TRINOS, Respondents
G.R. No. 125678, 18 March 2002, J. Ynares-Santiago
FACTS:
Respondent Julita Trinos’ deceased husband, Ernani Trinos applied for a

health care coverage with petitioner Philamcare Health Systems, Inc.
Under the agreement, respondent’s husband was entitled to avail of
hospitalization benefits, whether ordinary or emergency, listed therein. He
was also entitled to avail of "out-patient benefits" such as annual physical
examinations, preventive health care and other out-patient services. During
the period of his coverage, Ernani suffered a heart attack and was confined
at the Manila Medical Center (MMC) for one month beginning March 9,
1990. While her husband was in the hospital, respondent tried to claim the
benefits under the health care agreement. However, petitioner denied her
claim saying that the Health Care Agreement was void. According to
petitioner, there was a concealment regarding Ernani’s medical history.
Doctors at the MMC allegedly discovered at the time of Ernani’s
confinement that he was hypertensive, diabetic and asthmatic, contrary to
his answer in the application form.
ISSUE: W/N, the respondents are entitled to indemnification. (YES)
RULING:
The health care agreement was in the nature of non-life insurance, which is
primarily a contract of indemnity. The insurable interest of respondent’s
husband in obtaining the health care agreement was his own health. Once
the member incurs hospital, medical or any other expense arising from
sickness, injury or other stipulated contingent, the health care provider
must pay for the same to the extent agreed upon under the contract.
Concealment as a defense for the health care provider or insurer to avoid

liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the provider or insurer. In
any case, with or without the authority to investigate, petitioner is liable for
claims made under the contract. Having assumed a responsibility under the
agreement, petitioner is bound to answer the same to the extent agreed
upon. In the end, the liability of the health care provider attaches once the
member is hospitalized for the disease or injury covered by the agreement

or whenever he avails of the covered benefits which he has prepaid.
When the terms of insurance contract contain limitations on liability,

courts should construe them in such a way as to preclude the insurer from
non-compliance with his obligation. 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. By reason of the exclusive control of
the insurance company over the terms and phraseology of the insurance
contract, ambiguity must be strictly interpreted against the insurer and
liberally in favor of the insured, especially to avoid forfeiture.
KEY CONCEPTS:
 ELEMENTS OF INSURANCE CONTRACT (I,R.A.G,P)
a. The insured has an insurable interest;
b. The insured is subject to a risk of loss by the happening of the
designated peril;
c. The insurer assumes the risk;
d. Such assumption of risk is part of a general scheme to distribute
actual losses among a large group of persons bearing a similar
risk;
e. In consideration of the insurer’s promise, the insured pays a
premium.
 Section 3 of the Insurance Code states that any contingent or

unknown event, whether past or future, which may damnify a person
having an insurable interest against him, may be insured against.
Every person has an insurable interest in the life and health of
himself. Section 10 provides:
Every person has an insurable interest in the life and health:

1. Of himself, of his spouse and of his children;
2. Of any person on whom he depends wholly or in part
for education or support, or in whom he has a
pecuniary interest;
3. Of any person under a legal obligation to him for the
payment of money, respecting property or service, of
which death or illness might delay or prevent the
performance;
4. Of any person upon whose life any estate or interest

vested in him depends.
 Once the member incurs hospital, medical or any other expense

arising from sickness, injury or other stipulated contingent, the health
care provider must pay for the same to the extent agreed upon under
the contract.
 The fraudulent intent on the part of the insured must be established
to warrant rescission of the insurance contract.
 Concealment as a defense for the health care provider or insurer to
avoid liability is an affirmative defense and the duty to establish such
defense by satisfactory and convincing evidence rests upon the
provider or insurer. In any case, with or without the authority to
investigate, petitioner is liable for claims made under the contract.
Having assumed a responsibility under the agreement, petitioner is
bound to answer the same to the extent agreed upon. In the end, the
liability of the health care provider attaches once the member is
hospitalized for the disease or injury covered by the agreement or
whenever he avails of the covered benefits which he has prepaid.
 Under Section 27 of the Insurance Code, "a concealment entitles the

injured party to rescind a contract of insurance." The right to rescind
should be exercised previous to the commencement of an action on
the contract.17 In this case, no rescission was made. Besides, the
cancellation of health care agreements as in insurance policies require
the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of
the policy of one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the
address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of
the Insurance Code and upon request of insured, to furnish
facts on which cancellation is based.
FORTUNE MEDICARE, INC., Petitioner

v.
DAVID ROBERT U. AMORIN, Respondent
G.R. No. 195872, 12 March 2014, J. Reyes
FACTS:
David Robert U. Amorin was a cardholder/member of Fortune Medicare,

Inc., a corporation engaged in providing health maintenance services to its
members. The terms of Amorin’s medical coverage were provided in a
Corporate Health Program Contract. While on vacation in Honolulu,
Hawaii, Amorin underwent an emergency surgery, specifically
appendectomy, at the St. Francis Medical Center, causing him to incur
professional and hospitalization expenses of US$7,242.35 and US$1,777.79,
respectively. He attempted to recover from Fortune Care the full amount
thereof upon his return to Manila, but the company merely approved a
reimbursement of P12,151.36, an amount that was based on the average
cost of appendectomy, net of medicare deduction, if the procedure were
performed in an accredited hospital in Metro Manila.
Morin asked for its adjustment to cover the total amount of professional
fees which he had paid, and eighty percent (80%) of the approved standard
charges based on "American standard", considering that the emergency
procedure occurred in the U.S.A. He cited Section 3, Article V on Benefits
and Coverages of the Health Care Contract which states that for emergency
care attended by nonaffiliated physician (MSU), the member shall be
reimbursed 80% of the professional fee which should have been paid, had
the member been treated by an affiliated physician and that Fortune Care
shall reimburse the total hospitalization cost including the professional fee
(based on the total approved charges) to a member who receives emergency
care in a non-accredited hospital. The above coverage applies only to
Emergency confinement within Philippine Territory. However, if the
emergency confinement occurs in a foreign territory, Fortune Care will be
obligated to reimburse or pay eighty (80%) percent of the approved
standard charges which shall cover the hospitalization costs and
professional fees.
ISSUE: W/N, Fortune Care is correct in asserting that the operation of the
contract is only bound within the Philippine territory. (NO)
RULING:
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. Once the
member incurs hospital, medical or any other expense arising from
sickness, injury or other stipulated contingent, the health care provider
must pay for the same to the extent agreed upon under the contract.
When the terms of insurance contract contain limitations on liability,

courts should construe them in such a way as to preclude the insurer from
non-compliance with his obligation. 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. In this case, the Court agrees
with the CA that 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. Settled is the rule that ambiguities in a contract are interpreted
against the party that caused the ambiguity.
KEY CONCEPTS:
 When the terms of insurance contract contain limitations on liability,
courts should construe them in such a way as to preclude the insurer
from non-compliance with his obligation.
 A health care agreement is in the nature of non-life insurance, which
is primarily a contract of indemnity. Once the member incurs
hospital, medical or any other expense arising from sickness, injury
or other stipulated contingent, the health care provider must pay for
the same to the extent agreed upon under the contract.
WHITE GOLD MARINE SERVICES, INC., Petitioner

v.
PIONEER INSURANCE AND SURETY CORPORATION AND THE
STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION
(BERMUDA) LTD., Respondents
G.R. No. 154514, 28 July 2005, J. Quisumbing
FACTS:
White Gold, petitioner, procured a protection and indemnity for its vessel
from the Steamship Mutual Underwriting Association through Pioneer
Insurance and Security Corporation. Subsequently, White Gold was issued
a Certificate of Entry and Acceptance. When petitioner failed to fully pay its
account, Steamship Mutual refused to renew the coverage. Steamship
Mutual thereafter filed a case against White Gold for collection of sum of
money to recover the latter’s unpaid balance. White Gold on the other
hand, filed a complaint before the Insurance Commission claiming that
Steamship Mutual violated Sections 186 and 187 of the Insurance Code,
while Pioneer violated Sections 299, 300 and 301 in relation to Sections
302 and 303, thereof.
The Insurance Commissioner dismissed the complaint and said that there
is no need for the Steamship Mutual to procure license because it was not
engage in insurance business and was only a protection and indemnity
club (P&I Club). Likewise, it ruled that Pioneer need not secure another
license as an insurance agent and/or a broker of Steamship Mutual because
it was not engaged in insurance business and Pioneer already had a license
hence procurement of separate license as an insurance agent would only be
superfluous.
ISSUE: W/N, Pioneer is required to procure a license as an insurance

agent/broker for Steamship Mutual. (YES)
RULING:
Section 2(2) of the Insurance Code enumerates what constitutes doing an

insurance business or transacting an insurance business. These are:
(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.
The test to determine if a contract is an insurance contract or not, depends

on the nature of the promise, the act required to be performed, and the
exact nature of the agreement in the light of the occurrence, contingency, or
circumstances under which the performance becomes requisite. A mutual
insurance company is a cooperative enterprise where the members are both
the insurer and insured. In it, the members all contribute, by a system of
premiums or assessments, to the creation of a fund from which all losses
and liabilities are paid, and where the profits are divided among
themselves, in proportion to their interest. A P & I Club is “a form of
insurance against third party liability, where the third party is anyone other
than the P & I Club and the members.” By definition then, Steamship
Mutual as a P & I Club is a mutual insurance association engaged in the
marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit
without the requisite certificate of authority mandated by Section 187 of the
Insurance Code. It maintains a resident agent in the Philippines to solicit
insurance and to collect payments in its behalf. To continue doing business
here, Steamship Mutual or through its agent Pioneer, must secure a license
from the Insurance Commission. They must also procure a separate license
to act as insurance agent for Steamship Mutual as provided for by Section
299 of the Insurance code that prohibits an insurance agent or as an
insurance broker in the solicitation or procurement of applications for
insurance, or receive for services in obtaining insurance, any commission or
other compensation from any insurance company doing business in the
Philippines or any agent thereof, without first procuring a license so to act
from the Commissioner.
KEY CONCEPTS:
 The test to determine if a contract is an insurance contract or not,

depends on the nature of the promise, the act required to be
performed, and the exact nature of the agreement in the light of the
occurrence, contingency, or circumstances under which the

performance becomes requisite.
 A mutual insurance company is a cooperative enterprise where the
members are both the insurer and insured. In it, the members all
contribute, by a system of premiums or assessments, to the creation
of a fund from which all losses and liabilities are paid, and where the
profits are divided among themselves, in proportion to their interest.
 Protection and Indemnity Club (P & I Club)
 P & I Club is “a form of insurance against third party liability, where
the third party is anyone other than the P & I Club and the members.”
By definition then, Steamship Mutual as a P & I Club is a mutual
insurance association engaged in the marine insurance business.
 Requisite certificate of authority is mandated by Section 187 of the
Insurance Code.
 299 of the Insurance code that prohibits an insurance agent or as an
insurance broker in the solicitation or procurement of applications
for insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company
doing business in the Philippines or any agent thereof, without first
procuring a license so to act from the Commissioner.
RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin

Ma. Herrer, Petitioner
v.
SUN LIFE ASSURANCE COMPANY OF CANADA, Respondent
G.R. No. L-15895 , 29 November 1920, J. Malcolm
FACTS:
On Sept. 24 1917, Herrer made an application to SunLife through its office

in Manila for life annuity. Two (2) days later, he paid the sum of P6,000 to
the company’s manager in its Manila office and was given a receipt. 2 days
later, the head office in Canada gave notice of acceptance by cable to
Manila. On December 18, 1917, attorney Aurelio A. Torres wrote to the
Manila office of the company stating that Herrer desired to withdraw his
application. The following day the local office replied to Mr. Torres, stating
that the policy had been issued, and called attention to the notification of
November 26, 1917. This letter was received by Mr. Torres on the morning
of December 21, 1917. Mr. Herrer died on December 20, 1917.
ISSUE: W/N, the insurance contract was perfected. (NO)
RULING:
The contract for life annuity was NOT perfected because it had NOT been
proved satisfactorily that the acceptance of the application ever came to the
knowledge of the applicant. An acceptance of an offer of insurance NOT
actually or constructively communicated to the proposer does NOT make a
contract of insurance, as the locus poenitentiae is ended when an
acceptance has passed beyond the control of the party. The letter of
November 26, 1917, notifying Mr. Herrer that his application had been
accepted, was prepared and signed in the local office of the insurance
company, was placed in the ordinary channels for transmission, but as far
as we know, was never actually mailed and thus was never received by the
applicant.
Civil Code states in article 1262 providing that "Consent is shown by the
concurrence of offer and acceptance with respect to the thing and the
consideration which are to constitute the contract. An acceptance made by
letter shall not bind the person making the offer except from the time it
came to his knowledge. The contract, in such case, is presumed to have

been entered into at the place where the offer was made."
An acceptance made by letter shall bind the person making the offer only
from the date it came to his knowledge, may not be the best expression of
modern commercial usage. Still it must be admitted that its enforcement
avoids uncertainty and tends to security. Not only this, but in order that the
principle may not be taken too lightly, let it be noticed that it is identical
with the principles announced by a considerable number of respectable
courts in the United States. The courts who take this view have expressly
held that an acceptance of an offer of insurance not actually or
constructively communicated to the proposer does not make a contract.
Only the mailing of acceptance, it has been said, completes the contract of
insurance, as the locus poenitentiae is ended when the acceptance has
passed beyond the control of the party.
KEY CONCEPTS:
 The contract for life annuity was NOT perfected because it had NOT
been proved satisfactorily that the acceptance of the application ever
came to the knowledge of the applicant. An acceptance of an offer of
insurance NOT actually or constructively communicated to the
proposer does NOT make a contract of insurane, as the locus
poenitentiae is ended when an acceptance has passed beyond the
control of the party.
 LOCUS POENITENTIAE - an opportunity to withdraw from a
contract or obligation before it is completed or to decide not to
commit an intended crime.
 Sending a letter does not amount to actual or constructive
communication.
VIRGINIA A. PEREZ, Petitioner

v.
COURT OF APPEALS and BF LIFEMAN INSURANCE
CORPORATION, Respondents
G.R. No. 112329, 28 January 2000, J. Ynares-Santiago
FACTS:
Primitivo B. Perez had been insured with the BF Lifeman Insurance

Corporation for P20,000.00. Sometime in October 1987, an agent of the
insurance corporation, visited Perez in Quezon and convinced him to apply
for additional insurance coverage of P50,000.00. Virginia A. Perez,
Primitivo’s wife, paid P2,075.00 to the agent. The receipt issued indicated
the amount received was a "deposit." Unfortunately, the agent lost the
application form accomplished by Perez and he asked the latter to fill up
another application form. The agent sent the application for additional
insurance of Perez to the Quezon office but it was supposed to be forwarded
to the Manila office. Perez died due to drowning but this fact was
unbeknownst to BF Lifeman Corporation who approved the application and
issued the corresponding policy for the P50,000.00.
Petitioner Virginia Perez went to Manila to claim the benefits under the
insurance policies of the deceased. She was paid P40,000.00 under the first
insurance policy for P20,000.00 but the insurance company refused to pay
the claim under the additional policy coverage of P50,000.00, the proceeds
of which amount to P150,000.00. The insurance company maintained that
the insurance for P50,000.00 had not been perfected at the time of the
death of Primitivo Perez.
ISSUE: W/N, Virginia Perez can receive the proceeds of the 2nd insurance
policy. (NO)
RULING:
Perez’s application was subject to the acceptance of private respondent BF

Lifeman Insurance Corporation. The perfection of the contract of insurance
between the deceased and respondent corporation was further conditioned
with the following requisites stated in the application form stating “There
shall be no contract of insurance unless and until a policy is issued on this
application and that the said policy shall not take effect until the premium
has been paid and the policy delivered to and accepted by the applicant IN
GOOD HEALTH.”
BF Lifeman didn’t give its assent when it merely received the application
form and all the requisite supporting papers of the applicant. This happens
only when it gives a policy. When Primitivo died on November 25, 1987, his
application papers for additional insurance coverage were still with the
branch office of Respondent Corporation in Quezon. Consequently, there
was absolutely no way the acceptance of the application could have been
communicated to the applicant for the latter to accept inasmuch as the
applicant at the time was already dead.
Petitioner insists that the condition imposed by BF that a policy must have
been delivered to and accepted by the proposed insured in good health is
potestative, being dependent upon the will of the corporation and is
therefore void but the Court found it untenable. The policy requirement
that must be delivered to and accepted by the applicant while he is in good
health is not potestative. The health of the applicant at the time of the
delivery of the policy is beyond the control or will of the insurance
company. Rather, the condition is a suspensive one whereby the acquisition
of rights depends upon the happening of an event which constitutes the
condition.
KEY CONCEPTS:
 Potestative condition - Depends upon the exclusive will of one of the
parties and is considered void.
 A contract of insurance, like other contracts, must be assented to by
both parties either in person or by their agents. So long as an
application for insurance has not been either accepted or rejected, it
is merely an offer or proposal to make a contract. The contract, to be
binding from the date of application, must have been a completed
contract.
ALPHA INSURANCE AND SURETY CO., Petitioner

v.
ARSENIA SONIA CASTOR, Respondent
G.R. No. 198174, 2 September 2013, J. Peralta
FACTS:
On February 21, 2007, respondent entered into a contract of insurance,

Motor Car Policy No. MAND/CV-00186, with petitioner, involving her
motor vehicle, a Toyota Revo DLX DSL. The contract of insurance obligates
the petitioner to pay the respondent the amount of P630,000.00 in case of
loss or damage to said vehicle during the period covered, which is from
February 26, 2007 to February 26, 2008.
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver,
Jose Joel Salazar Lanuza (Lanuza), to bring the above-described vehicle to
a nearby auto-shop for a tune-up. However, Lanuza no longer returned the
motor vehicle to respondent and despite diligent efforts to locate the same,
said efforts proved futile. Resultantly, respondent promptly reported the
incident to the police and concomitantly notified petitioner of the said loss
and demanded payment of the insurance proceeds in the total sum of
₱630,000.00. Petitioner denied the insurance claim of the respondent
stating that upon their verification of the documents (police report)
submitted, they deemed that they are not liable (Section III) because the
one who stole the insured unit is employed by her.
ISSUE: W/N, the respondent is entitled to the insurance policy for the loss
of her car by her driver. (YES)
RULING:
It is a basic rule in the interpretation of contracts that the terms of a

contract are to be construed according to the sense and meaning of the
terms which the parties thereto have used. In the case of property insurance
policies, the evident intention of the contracting parties, i.e., the insurer
and the assured, determine the import of the various terms and provisions
embodied in the policy. However, when the terms of the insurance policy
are ambiguous, equivocal or uncertain, such that the parties themselves
disagree about the meaning of particular provisions, the policy will be
construed by the courts liberally in favor of the assured and strictly against
the insurer. A contract of insurance is a contract of adhesion. So, 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. Theft perpetrated by the driver of the
insured is not an exception to the coverage from the insurance policy, since
Section III thereof did not qualify as to who would commit the
theft. Under paragraph 4 of “Exceptions to Section III,” since the same
refers only to “malicious damage,” or more specifically, “injury” to the
motor vehicle caused by a person under the insured’s service. Paragraph 4
clearly does not contemplate “loss of property.”
Theft perpetrated by a driver of the insured is not an exception to the

coverage from the insurance policy subject of this case. This is evident from
the very provision of Section III – "Loss or Damage." The insurance
company, subject to the limits of liability, is obligated to indemnify the
insured against theft. Said provision does not qualify as to who would
commit the theft. Thus, even if the same is committed by the driver of the
insured, there being no categorical declaration of exception, the same must
be covered.
The defendant would argue that if the person employed by the insured
would commit the theft and the insurer would be held liable, then this
would result to an absurd situation where the insurer would also be held
liable if the insured would commit the theft. This argument is certainly
flawed. Of course, if the theft would be committed by the insured himself,
the same would be an exception to the coverage since in that case there
would be fraud on the part of the insured or breach of material warranty
under Section 69 of the Insurance Code.
KEY CONCEPTS:
 Rule in the interpretation of contracts - terms of a contract are to be
construed according to the sense and meaning of the terms which the
parties thereto have used.
STRONGHOLD INSURANCE COMPANY, INCORPORATED,

Petitioner
v.
INTERPACIFIC CONTAINER SERVICES AND GLORIA DEE
CHONG, Respondents
G.R. No. 194328, 01 July 2015, J. Perez
FACTS:
Respondent Gloria Dee Chong is the owner of the Fuso truck with Plate No.
PWH 512. The vehicle was insured by petitioner Stronghold Insurance
Company under Commercial Vehicle Policy No. 279675.3 with a
comprehensive motor car insurance policy for Pl5,306.45 undertook to
indemnify the insured against loss or damage to the car and death or injury
caused to third persons by reason of accident. While the policy was in
effect, the vehicle figured in an accident along National Highway in Brgy.
Palihan, Hermosa, Bataan resulting in the death of four (4) persons while
seriously injuring three (3) others. Two (2) vehicles were also heavily
damaged as a result of the accident. Pursuant to the provisions of the
insurance contract, respondent Chong filed a claim for the recovery of the
proceeds of her policy in the amount of ₱550,000.00. The claim was,
however, denied by the insurance company on the ground that at the time
the accident took place the driver of the insured vehicle was heavily drunk
as shown in the Pagpapatunay issued by Barangay Chairman Rafael Torres
and the Medico Legal Certificate which was signed by a certain Dr.
Ferdinand Bautista.
Private respondent Gloria Dee Chong argued that there was no sufficient
proof to support the claim of the petitioner that the driver was drunk at the
time of the incident underscoring the lack of mention of such crucial fact in
the police blotter report documenting the incident. RTC and the CA
rendered a decision in favor of the respondents due to the failure of the
petitioner to prove by prima facie evidence that the driver of the insured
vehicle was indeed under the influence of alcohol at the time of the
accident.
ISSUE: W/N, the Petitioner is Liable for the Claims of the Respondents in
the Absence of Proof.
RULING:
Contrary to the claim of the petitioner; it miserably failed to prove the fact
of intoxication during the trial. Aside from the Medico Legal Certificate and
the Pagpapatunay, which were stripped of evidentiary value because of the
dubious circumstances (Attendant alteration and tampering) under which
they were obtained, the petitioner did not adduce other proof to justify the
avoidance of the policy. For instance, petitioner could have adduced
affidavits of witnesses who were present at the scene of the accident to
attest to the fact that the driver was intoxicated. It did not. Upon the other
hand, respondents duly established their right to claim the proceeds of a
validly subsisting contract of insurance. Such contract was never denied.
What further dampens petitioner's position is the absence of the crucial fact
of intoxication in the blotter report which officially documented the
incident. Entries in police records made by a police officer in the
performance of the duty especially enjoined by law are prima facie evidence
of the fact therein stated, and their probative value may be substantiated or
nullified by other competent evidence. In this case, the lack of statement to
the effect that the driver was under the influence of alcohol in the said
report is too significant to escape the attention of the Court.
KEY CONCEPTS:
 In exempting insurers from liability under the contract, proof thereof
must be clear, credible and convincing. Fundamental is the rule that
the contract is the law between the parties and, that absent any
showing that its provisions are wholly or in part contrary to law,
morals, good customs, public order, or public policy, it shall be
enforced to the letter by the courts.
THE INSULAR LIFE ASSURANCE COMPANY, LTD., Petitioner

v.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO,
Respondents
G.R. No. L-44059, 28 October 1977, J. Martin
FACTS:
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The

Insular Life Assurance Co., Ltd., Policy No. 009929 on a whole-life plan for
P5,882.00 with a rider for Accidental Death Benefits for the same amount.
Buenaventura C. Ebrado designated Carponia T. Ebrado as the revocable
beneficiary in his policy and referred to as his wife. On October 21, 1969,
Buenventura C. Ebrado died as a result of an accident when he was hit by a
falling branch of a tree. As the insurance policy was in force, The Insular
Life Assurance Co., Ltd. stands liable to pay the coverage of the policy in an
amount of P11,745.73, representing the face value of the policy in the
amount of P5,882.00 plus the additional benefits for accidental death also
in the amount of P5,882.00 and the refund of P18.00 paid for the premium
due November, 1969, minus the unpaid premiums and interest thereon due
for January and February, 1969, in the sum of P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the
Policy as the designated beneficiary therein, although she admits that she
and the insured Buenaventura C. Ebrado were merely living as husband
and wife without the benefit of marriage. Pascuala Vda. de Ebrado also filed
her claim as the widow of the deceased insured. She asserts that she is the
one entitled to the insurance proceeds, not the common-law wife, Carponia
T. Ebrado.
The Insular Life Assurance Co., Ltd. commenced an action for Interpleader
to determine to whom the proceeds shall be paid.
ISSUE: W/N, a common law wife of decedent may claim for the proceeds of
the insurance as a beneficiary. (NO)
RULING:
A common-law wife named as a beneficiary in the life insurance policy of a

legally married man cannot claim the proceeds thereof in case the death of
the latter. The contract of insurance is govern by the provisions of the new
civil code on matters not specifically provided for in the insurance code.
Rather, the general rules of civil law should be applied to resolve this void
in the Insurance Law. Article 2011 of the New Civil Code states: “The
contract of insurance is governed by special laws. Matters not expressly
provided for in such special laws shall be regulated by this Code.” When not
otherwise specifically provided for by the Insurance Law, the contract of life
insurance is governed by the general rules of the civil law regulating
contracts. And under Article 2012 of the same Code, “any person who is
forbidden from receiving any donation under Article 739 cannot be named
beneficiary of a fife insurance policy by the person who cannot make a
donation to him. Common-law spouses are, definitely, barred from
receiving donations from each other. Also conviction for adultery or
concubinage is not required as only preponderance of evidence is
necessary.” In essence, a life insurance policy is no different from a civil
donation insofar as the beneficiary is concerned. Both are founded upon the
same consideration: liberality. A beneficiary is like a donee, because the
premiums of the policy which the insured pays out of liberality, the
beneficiary will receive the proceeds or profits of said insurance.”
There is every reason to hold that the bar in donations between legitimate
spouses and those between illegitimate ones should be enforced in life
insurance policies since the same are based on similar consideration. As
above pointed out, a beneficiary in a life insurance policy is no different
from a donee. Both the recipients of pure beneficence. So long as marriage
remains the threshold of family laws, reason and morality dictate that the
impediments imposed upon married couple should likewise be imposed
upon extra-marital relationship. If legitimate relationship is circumscribed
by these legal disabilities, with more reason should an illicit relationship be
restricted by these disabilities.
KEY CONCEPTS:
 The contract of insurance is govern by the provisions of the new civil
code on matters not specifically provided for in the insurance code.
 Article 2011 of the New Civil Code states: “The contract of insurance
is governed by special laws. Matters not expressly provided for in
such special laws shall be regulated by this Code.”
 Under Article 2012 of the same Code, “any person who is forbidden
from receiving any donation under Article 739 cannot be named
beneficiary of a fife insurance policy by the person who cannot make a
donation to him. Common-law spouses are, definitely, barred from

receiving donations from each other. Also conviction for adultery or
concubinage is not required as only preponderance of evidence is
necessary.
 A life insurance policy is no different from a civil donation insofar as
the beneficiary is concerned. Both are founded upon the same
consideration: liberality. A beneficiary is like a donee, because the
premiums of the policy which the insured pays out of liberality, the
beneficiary will receive the proceeds or profits of said insurance.”
HEIRS OF LORETO C. MARAMAG, represented by surviving spouse

VICENTA PANGILINAN MARAMAG, Petitioners
v.
EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN
MARAMAG, KARL BRIAN DE GUZMAN MARAMAG, TRISHA
ANGELIE MARAMAG, THE INSULAR LIFE ASSURANCE
COMPANY, LTD., and GREAT PACIFIC LIFE ASSURANCE
CORPORATION, Respondents
G.R. No. 181132, 5 June 2009, J. Nachura
FACTS:
Loreto Maramag designated as beneficiary his concubine Eva de Guzman

Maramag. Petitioners alleged that they were the legitimate wife and
children of Loreto Maramag, while respondents were Loreto’s illegitimate
family. Eva de Guzman Maramag (Eva) was a concubine of Loreto and a
suspect in the killing of the latter, thus, she is disqualified to receive any
proceeds from his insurance policies from Insular Life Assurance Company,
Ltd. (Insular) and Great Pacific Life Assurance Corporation (Grepalife). The
illegitimate children of Loreto—Odessa, Karl Brian, and Trisha Angelie—
were entitled only to one-half of the legitime of the legitimate children,
thus, the proceeds released to Odessa and those to be released to Karl Brian
and Trisha Angelie were inofficious and should be reduced. Vicenta alleges
that Eva is disqualified from claiming.
Insular admitted that Loreto misrepresented Eva as his legitimate wife and
Odessa, Karl Brian, and Trisha Angelie as his legitimate children, and that
they filed their claims for the insurance proceeds of the insurance policies;
that when it ascertained that Eva was not the legal wife of Loreto, it
disqualified her as a beneficiary and divided the proceeds among Odessa,
Karl Brian, and Trisha Angelie, as the remaining designated beneficiaries;
and that it released Odessa’s share as she was of age, but withheld the
release of the shares of minors Karl Brian and Trisha Angelie pending
submission of letters of guardianship.
Insular alleged that the complaint or petition failed to state a cause of

action insofar as it sought to declare as void the designation of Eva as
beneficiary, because Loreto revoked her designation as such in Policy No.
A001544070 and it disqualified her in Policy No. A001693029; and insofar
as it sought to declare as inofficious the shares of Odessa, Karl Brian, and
Trisha Angelie, considering that no settlement of Loreto’s estate had been

filed nor had the respective shares of the heirs been determined. Insular
further claimed that it was bound to honor the insurance policies
designating the children of Loreto with Eva as beneficiaries pursuant to
Section 53 of the Insurance Code.
Grepalife alleged that Eva was not designated as an insurance policy

beneficiary; that the claims filed by Odessa, Karl Brian, and Trisha Angelie
were denied because Loreto was ineligible for insurance due to a
misrepresentation in his application form that he was born on December
10, 1936 and, thus, not more than 65 years old when he signed it in
September 2001; that the case was premature, there being no claim filed by
the legitimate family of Loreto; and that the law on succession does not
apply where the designation of insurance beneficiaries is clear.
ISSUE: W/N, the petitioners may claim the proceeds of the insurance
benefit as the entitled beneficiary of Loreto. (NO – Eva, YES – illegitimate
children, NO – Vicenta and Legitimate children)
RULING:
Art. 2011 of the Civil Code provides that the contract of insurance is
governed by the (sic) special laws. Matters not expressly provided for in
such special laws shall be regulated by this Code. The principal law on
insurance is the Insurance Code, as amended. Only in case of deficiency in
the Insurance Code that the Civil Code may be resorted to.
The Insurance Code, as amended, contains a provision regarding to whom

the insurance proceeds shall be paid. It is very clear under Sec. 53 thereof
that the insurance proceeds shall be applied exclusively to the proper
interest of the person in whose name or for whose benefit it is made, unless
otherwise specified in the policy. Since the defendants are the ones named
as the primary beneficiary (sic) in the insurances (sic) taken by the
deceased Loreto C. Maramag and there is no showing that herein plaintiffs
were also included as beneficiary (sic) therein the insurance proceeds shall
exclusively be paid to them. This is because the beneficiary has a vested
right to the indemnity, unless the insured reserves the right to change the
beneficiary.
The plaintiffs cannot invoke the law on donations or the rules on

testamentary succession in order to defeat the right of herein defendants to
collect the insurance indemnity. The beneficiary in a contract of insurance
is not the donee spoken in the law of donation. The rules on testamentary
succession cannot apply here, for the insurance indemnity does not partake
of a donation. As such, the insurance indemnity cannot be considered as an
advance of the inheritance which can be subject to collation. The plaintiffs
has (sic) no sufficient cause of action against defendants Odessa, Karl Brian
and Trisha Angelie Maramag for the reduction and/or declaration of
inofficiousness of donation as primary beneficiary (sic) in the insurances
(sic) of the late Loreto C. Maramag.
Eva Verna De Guzman however is forbidden from receiving any donation

under Article 739 prohibiting concubines from being named as a
beneficiary of a life insurance policy of the person who cannot make any
donation to him, according to said article (Art. 2012, Civil Code). If a
concubine is made the beneficiary, it is believed that the insurance contract
will still remain valid, but the indemnity must go to the legal heirs and not
to the concubine, for evidently, what is prohibited under Art. 2012 is the
naming of the improper beneficiary. In such case, the action for the
declaration of nullity may be brought by the spouse of the donor or donee,
and the guilt of the donor and donee may be proved by preponderance of
evidence in the same action.
Section 53 of the Insurance code provides that the insurance proceeds shall
be applied exclusively to the proper interest of the person in whose name or
for whose benefit it is made unless otherwise specified in the policy. It is
obvious that the only persons entitled to claim the insurance proceeds are
either the insured, if still alive; or the beneficiary, if the insured is already
deceased, upon the maturation of the policy. The exception to this rule is a
situation where the insurance contract was intended to benefit third
persons who are not parties to the same in the form of favorable
stipulations or indemnity. In such a case, third parties may directly sue and
claim from the insurer.
Petitioners are third parties to the insurance contracts with

Insular and Grepalife and, thus, are not entitled to the proceeds
thereof. Accordingly, respondents Insular and Grepalife have no
legal obligation to turn over the insurance proceeds to
petitioners. The revocation of Eva as a beneficiary in one policy
and her disqualification as such in another are of no moment

considering that the designation of the illegitimate children as
beneficiaries in Loreto’s insurance policies remains valid.
Because no legal proscription exists in naming as beneficiaries
the children of illicit relationships by the insured.
KEY CONCEPTS:
 Any person who is forbidden from receiving any donation under
Article 739 cannot be named beneficiary of a life insurance policy of
the person who cannot make any donation to him
 If a concubine is made the beneficiary, it is believed that the
insurance contract will still remain valid, but the indemnity must go
to the legal heirs and not to the concubine, for evidently, what is
prohibited under Art. 2012 is the naming of the improper beneficiary.
 SECTION 53. The insurance proceeds shall be applied exclusively to
the proper interest of the person in whose name or for whose benefit
it is made unless otherwise specified in the policy.
 As a general rule, only persons entitled to claim the insurance
proceeds are either the insured, if still alive; or the beneficiary, if the
insured is already deceased, upon the maturation of the policy. THE
EXCEPTION is a situation where the insurance contract was intended
to benefit third persons who are not parties to the same in the form of
favorable stipulations or indemnity. In such a case, third parties may
directly sue and claim from the insurer.
 It is only in cases where the insured has not designated any
beneficiary, or when the designated beneficiary is
disqualified by law to receive the proceeds, that the
insurance policy proceeds shall redound to the benefit of
the estate of the insured.
UCPB GENERAL, INSURANCE CO., INC., Petitioner

v.
ASGARD CORRUGATED BOX MANUFACTURING
CORPORATION, Respondent
G.R. No. 244407, 26 January 2021, J. Carandang
FACTS:
On February 1, 2006, Asgard and Milestone Paper Products, Inc.

(Milestone) entered into a Toll Manufacturing Agreement (TMA) whereby
Asgard undertook to perform toll-manufacturing of paper products for
Milestone in accordance with the volume and specifications as Milestone
may define from time to time. It appears that Asgard needed additional
capital for the purchase of new equipment for its manufacturing plant. So,
it invited Milestone to invest in the company. Milestone installed new
equipment for the manufacturing plant and paper mill. After months of
managing and operating the business, Milestone accepted Asgard's
invitation by contributing the installed equipment and infusing such
amount of capital as may be necessary for the operations of the company.
Due to financial difficulties, Asgard filed with the RTC of QC a Petition for
Corporate Rehabilitation to allow Milestone to contribute
P150,000,000.00 worth of machinery and equipment in Asgard's business
but the Amemnded Plan was denied. Asgard and Milestone took out an
insurance policy from UCPB Insurance. Upon payment of insurance
premium, UCPB Insurance issued Industrial All Risk Policy No. HOF09FD-
FAR087915 (Policy) to Milestone and/or Market Link and/or Nova Baile
and/or Asgard to insure, among others, Asgard's machinery and equipment
of every kind and description in Novaliches, Quezon City for
P500,000,000.00 covering the period August 1, 2009 to August 1, 2010.
On July 15, 2010, Milestone pulled out its stocks, machinery, and
equipment from Asgard's plant in Novaliches, Quezon City for relocation to
Milestone's own premises in Laguna. In the course thereof, it caused
damage to Asgard's complete line of Isowa corrugating machine and
accessories as well as its printer-slotter-stacker.
Asgard notified UCPB Insurance about the loss and filed an insurance claim
under the Policy based on the Malicious Damage Endorsement but UCPB
Insurance denied the claim explaining that the Policy had no cross liability
cover, and the malicious damage was committed by Milestone, one of the
name insured, and not committed by a third party. Asgard moved for
reconsideration but UCPB Insurance denied the same contending that
Milestone's infliction of damage is not among the acts contemplated under
Section 87 (now Section 89) of the Insurance Code which provides that an
insurer is not liable for a loss caused by the willful act or through the
connivance of the insured; but he is not exonerated by the negligence of the
insured, or of the insurance agents of others.
ISSUE: W/N, Milestone had insurable interest over Asgard's corrugating

machines at the time of the loss or damage. (YES/NO)
RULING:
It is established that Milestone is a named insured under the Policy. The

business relationship of Milestone and Asgard arose pursuant to the Toll
Manufacturing Agreement (TMA). The TMA shall be effective until January
31, 2008, unless earlier terminated by either Party upon sixty (60) days
prior written notice to the other. Contrary to the ruling of the RTC,
paragraph 20(a) (i.e., liquidation as a valid cause for termination) will not
apply because the insurance Policy was obtained on August 7, 2009 after
the rehabilitation court denied Asgard's amended petition for corporate
rehabilitation in its Order dated June 9, 2009. This means that despite the
denial of Asgard's petition for corporate rehabilitation, the business
relationship between Asgard and Milestone pursuant to the TMA
continued. The removal of the stocks, machinery, and equipment by
Milestone is not a substantial breach of obligation contemplated that will
justify the termination of the TMA for a cause, effective after notice in
writing. When Milestone pulled out its stocks, machinery, and equipment
on July 15, 2010 from Asgard's premises in Novaliches, Quezon City, the
TMA remained in force and effect between Milestone and Asgard on a
month- to month basis after January 31, 2008. The TMA continued to
govern the business relationship of Asgard and Milestone. While the TMA
ends each month, there is no showing that there was notice in
writing served 60 days in advance to terminate under paragraph 19 of the
TMA or mere notice in writing for termination with cause under paragraph
20 thereof.
The Court does not agree with the CA's ratiocination that the mere removal
by Milestone of its machine and equipment from Asgard's premises
resulted in the termination of any existing relationship it had with Asgard.
As argued by UCPB Insurance, the withdrawal by Milestone of the parts

installed on the corrugating machines was unauthorized and the
termination of the TMA cannot be left to the sole will of one of the parties.
The TMA is the contract between Milestone and Asgard. The TMA has the
force of law between the parties and should be complied with in good faith.
Milestone cannot unilaterally terminate the TMA other than for causes of
termination, but always with notice in writing, under paragraphs 19 and 20
of the TMA. A contract binds both contracting parties; its validity cannot be
left to the will of one of them. To hold otherwise would offend the principle
of mutuality of contracts.
The Court disagrees with the finding of the RTC that Milestone lacked
insurable interest over the machine and equipment both at the time the
Policy took effect on August 1, 2009 and at the time of the loss in July 2010.
Asgard cannot take an inconsistent position that Milestone had no more
insurable interest under the Policy when in the Appellant's Brief, it
admitted that both Asgard and Milestone took out the insurance policy on
August 1, 2009 effective until August 1, 2010.
Section 13 of the Insurance Code defines insurable interest as "every

interest in property, whether real or personal, or any relation thereto, or
liability in respect thereof, of such nature that a contemplated peril might
directly damnify the insured." Parenthetically, under Section 14 of the same
Code, an insurable interest in property may consist in: (a) an existing
interest, like that of an owner or lienholder; (b) an inchoate interest
founded on existing interest, like that of a stockholder in corporate
property; or (c) an expectancy, coupled with an existing interest in that out
of which the expectancy arises, like that of a shipper of goods in the profits
he expects to make from the sale thereof. Therefore, an insurable interest in
property does not necessarily imply a property interest in, or a lien upon, or
possession of, the subject matter of the insurance, and neither the title nor
a beneficial interest is requisite to the existence of such an interest. It is
sufficient that the insured is so situated with reference to the property that
he would be liable to loss should it be injured or destroyed by the peril
against which it is insured. Anyone has an insurable interest in property
who derives a benefit from its existence or would suffer loss from its
destruction. Insurable interest in property is not limited to property
ownership in the subject matter of the insurance. Where the interest of the
insured in, or his relation to, the property is such that he will be benefitted
by its continued existence, or will suffer a direct pecuniary loss by its
destruction, his contract of insurance will be upheld, although he has no

legal or equitable title.
The insurer is not liable for a loss caused by the intentional act of the
insured or through his connivance. Such damage/loss is not an insurable
risk because the occurrence of the loss was subject to the control of one of
the parties and not merely caused by the negligence of the insured.
However, the insurer is not relieved from liability by the mere fact that the
loss was caused by the negligence of the insured, or of his agents or others.
Accordingly, it is no defense to an action on the policy that the negligence of
the insured caused or contributed to the injury. However, when the
insured's negligence is so gross that it is tantamount to misconduct, or
willful or wrongful act, the insurer is not liable. Since the damage or
loss caused by Milestone to Asgard's corrugating machines was
willful or intentional, UCPB Insurance is not liable under the
Policy. To permit Asgard to recover from the Policy for a loss
caused by the willful act of the insured is contrary to public
policy, i.e., denying liability for willful wrongs.
The insurance policy will specify what risks the insurer has agreed to grant
coverage for, and beyond these it may not be held liable. And unless the
insured can establish that the cause of the loss was covered by the policy,
his claim cannot prosper.
KEY CONCEPTS:
 Section 13 of the Insurance Code defines insurable interest as "every
interest in property, whether real or personal, or any relation thereto,
or liability in respect thereof, of such nature that a contemplated peril
might directly damnify the insured." Parenthetically, under Section 14
of the same Code, an insurable interest in property may consist in: (a)
an existing interest, like that of an owner or lienholder; (b) an
inchoate interest founded on existing interest, like that of a
stockholder in corporate property; or (c) an expectancy, coupled with
an existing interest in that out of which the expectancy arises, like
that of a shipper of goods in the profits he expects to make from the
sale thereof.
 A husband would thus have an insurable interest in the paraphernal
property of his wife since the fruits thereof belong the conjugal
partnership and may be used for the support of the family.
 Section 89 of the Insurance Code states that an insurer is not liable

for a loss caused by the willful act or through the connivance of the
insured; but he is not exonerated by the negligence of the insured, or
of the insurance agents or others.
 Such damage/loss is not an insurable risk because the occurrence of
the loss was subject to the control of one of the parties and not merely
caused by the negligence of the insured. However, the insurer is not
relieved from liability by the mere fact that the loss was caused by the
negligence of the insured, or of his agents or others. Accordingly, it is
no defense to an action on the policy that the negligence of the
insured caused or contributed to the injury. However, when the
insured's negligence is so gross that it is tantamount to misconduct,
or willful or wrongful act, the insurer is not liable.
 The Court cannot just rely on the Taiphil quotation to determine the
amount of actual loss, the PNB checks issued and deposited to
Taiphil's account as proof of payment, or the pictures of the damaged
machines. These pieces of evidence do not convincingly and
substantially prove the exact damage or actual loss sustained by
Asgard's corrugating machines caused maliciously by Milestone.
More so, what was presented was a mere "quotation" not a reliable
and competent evidence.
Spouses NILO CHA and STELLA UY CHA, and UNITED

INSURANCE CO., INC, Petitioners
v.
COURT OF APPEALS and CKS DEVELOPMENT CORPORATION,
Respondents
G.R. No. 124520, 18 August 1997, J. Padilla
FACTS:
Spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease
contract with CKS Development Corporation, as lessor, on 5 October 1988.
One of the stipulations of the 1 year lease contract states that “The LESSEE
shall not insure against fire the chattels, merchandise, textiles, goods and
effects placed at any stall or store or space in the leased premises without
first obtaining the written consent and approval of the LESSOR. If the
LESSEE obtain(s) the insurance thereof without the consent of the LESSOR
then the policy is deemed assigned and transferred to the LESSOR for its
own benefit.” Notwithstanding the above stipulation in the lease contract,
the Cha spouses insured against loss by fire their merchandise inside the
leased premises for P500,000.00 with the United Insurance Co., Inc.
without the written consent of CKS. On the day that the lease contract was
to expire, fire broke out inside the leased premises. When CKS learned of
the insurance earlier procured by the Cha spouses (without its consent), it
wrote the insurer (United) a demand letter asking that the proceeds of the
insurance contract (between the Cha spouses and United) be paid directly
to CKS, based on its lease contract with the Cha spouses. United Insurance
refused to pay CKS Development Corp. Hence, the latter filed a complaint
against the Cha spouses and United. RTC of Manila rendered a decision in
favor of the respondents and ordered United Insurance to pay CKS the
amount of P335,063.11 and defendant Cha spouses to pay P50,000.00 as
exemplary damages, P20,000.00 as attorney's fees and costs of suit.
ISSUE: W/N, the aforequoted stipulation in the lease contract entered into
between CKS and the Cha spouses is valid insofar as it provides that any
fire insurance policy obtained by the lessee (Cha spouses) over their
merchandise inside the leased premises is deemed assigned or transferred
to the lessor (CKS) if said policy is obtained without the prior written
consent of the latter. (NO)
RULING:
Under Sec. 18 of the Insurance Code of the Philippines which provides that
“No contract or policy of insurance on property shall be enforceable except
for the benefit of some person having an insurable interest in the property
insured.”
A non-life insurance policy such as the fire insurance policy taken by

petitioner-spouses over their merchandise is primarily a contract of
indemnity. Insurable interest in the property insured must exist at the time
the insurance takes effect and at the time the loss occurs. The basis of such
requirement of insurable interest in property insured is based on sound
public policy: to prevent a person from taking out an insurance policy on
property upon which he has no insurable interest and collecting the
proceeds of said policy in case of loss of the property. In such a case, the
contract of insurance is a mere wager which is void under Section 25 of the
Insurance Code.
In Sec. 25 of the same Code states, “Every stipulation in a policy of

Insurance for the payment of loss, whether the person insured has or has
not any interest in the property insured, or that the policy shall be received
as proof of such interest, and every policy executed by way of gaming or
wagering, is void.” Sec. 17 of the same Code provides that the measure of an
insurable interest in property is the extent to which the insured might be
damnified by loss of injury thereof.
The automatic assignment of the policy to CKS under the provision of the
lease contract previously quoted is void for being contrary to law and/or
public policy. The proceeds of the fire insurance policy thus rightfully
belong to the spouses. The liability of the Cha spouses to CKS for violating
their lease contract in that Cha spouses obtained a fire insurance policy
over their own merchandise, without the consent of CKS, is a separate and
distinct issue
KEY CONCEPTS:
 Sec. 18. No contract or policy of insurance on property shall be
enforceable except for the benefit of some person having an insurable
interest in the property insured.
 Sec. 25. Every stipulation in a policy of Insurance for the payment of
loss, whether the person insured has or has not any interest in the
property insured, or that the policy shall be received as proof of such
interest, and every policy executed by way of gaming or wagering, is

void.
 Sec. 17. The measure of an insurable interest in property is the extent
to which the insured might be damnified by loss of injury thereof.

1 and 2 - Insurance Cases

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1 and 2 - Insurance Cases

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KHO, Francis Cedric G.

Insurance Case Digests

PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner

Petitioner is a prepaid group practice health care delivery system or a

It is engaged in Preventive medical services such as periodic monitoring

On January 27, 2000, respondent Commissioner of Internal Revenue [CIR]

The functions of such an organization are not identical with those of

Any indemnification resulting from the payment for services rendered in

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

1. The insured has an insurable interest;

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

3. The insurer assumes the risk;

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

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

Section 2 (2) of PD20 1460 (otherwise known as the Insurance

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

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

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

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

be a policy of insurance or an obligation in the nature of

Principal purpose test from US jurisdiction – HMO not an

BLUE CROSS HEALTH CARE, INC, Petitioner

Respondent Neomi T. Olivares applied for a health care program with

The health care agreement defined a "pre-existing condition" as a disability

A health care agreement is in the nature of a non-life insurance. It is an

due to a pre-existing condition. It merely speculated that Dr. Saniel’s report

Furthermore, as already stated, limitations of liability on the part of the

PHILAMCARE HEALTH SYSTEMS, INC., Petitioner

Respondent Julita Trinos’ deceased husband, Ernani Trinos applied for a

ISSUE: W/N, the respondents are entitled to indemnification. (YES)

Concealment as a defense for the health care provider or insurer to avoid

member is hospitalized for the disease or injury covered by the agreement

When the terms of insurance contract contain limitations on liability,

 Section 3 of the Insurance Code states that any contingent or

Every person has an insurable interest in the life and health:

4. Of any person upon whose life any estate or interest

 Once the member incurs hospital, medical or any other expense

 Under Section 27 of the Insurance Code, "a concealment entitles the

FORTUNE MEDICARE, INC., Petitioner

David Robert U. Amorin was a cardholder/member of Fortune Medicare,

For purposes of determining the liability of a health care provider to its

When the terms of insurance contract contain limitations on liability,

WHITE GOLD MARINE SERVICES, INC., Petitioner

ISSUE: W/N, Pioneer is required to procure a license as an insurance

Section 2(2) of the Insurance Code enumerates what constitutes doing an

activity of the surety; (c) doing any kind of business, including a

The test to determine if a contract is an insurance contract or not, depends

 The test to determine if a contract is an insurance contract or not,

occurrence, contingency, or circumstances under which the

RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin

On Sept. 24 1917, Herrer made an application to SunLife through its office

ISSUE: W/N, the insurance contract was perfected. (NO)

came to his knowledge. The contract, in such case, is presumed to have

VIRGINIA A. PEREZ, Petitioner

Primitivo B. Perez had been insured with the BF Lifeman Insurance

Perez’s application was subject to the acceptance of private respondent BF

ALPHA INSURANCE AND SURETY CO., Petitioner

On February 21, 2007, respondent entered into a contract of insurance,

It is a basic rule in the interpretation of contracts that the terms of a

the insurer. A contract of insurance is a contract of adhesion. So, when the

Theft perpetrated by a driver of the insured is not an exception to the

STRONGHOLD INSURANCE COMPANY, INCORPORATED,

THE INSULAR LIFE ASSURANCE COMPANY, LTD., Petitioner