G.R. No.

74811 September 30, 1988

CHUA YEK HONG, petitioner,

vs.
INTERMEDIATE APPELLATE COURT, MARIANO GUNO, and DOMINADOR
OLIT, respondents.

FACTS:

Petitioner is a duly licensed copra dealer based at Puerta Galera, Oriental Mindoro, while private
respondents are the owners of the vessel, "M/V Luzviminda I," a common carrier engaged in
coastwise trade from the different ports of Oriental Mindoro to the Port of Manila.

In October 1977, petitioner loaded 1,000 sacks of copra, valued at P101,227.40, on board the
vessel "M/V Luzviminda I" for shipment from Puerta Galera, Oriental Mindoro, to Manila. Said
cargo, however, did not reach Manila because somewhere between Cape Santiago and
Calatagan, Batangas, the vessel capsized and sank with all its cargo.

On 30 March 1979, petitioner instituted before the then Court of First Instance of Oriental
Mindoro, a Complaint for damages based on breach of contract of carriage against private
respondents (Civil Case No. R-3205). The trial court ruled in favor of the petitioner, but the
Appellate Court reversed this decision and held that the private respondent’s liability is
extinguished as a result of the total loss of the vessel.

ISSUE:

Whether or not the private respondents' liability, as ship owners, for the loss of the cargo is
merely co-extensive with their interest in the vessel such that a total loss thereof results in its
extinction.

RULING: (YES)

Article 587 of the Code of Commerce provides:

Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of
third persons which may arise from the conduct of the captain in the care of the
goods which he loaded on the vessel; but he may exempt himself therefrom by
abandoning the vessel with all the equipments and the freight it may have earned
during the voyage.

The term "ship agent" as used in the foregoing provision is broad enough to include the ship
owner (Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256 [1921]). Pursuant to said provision,
therefore, both the ship owner and ship agent are civilly and directly liable for the indemnities in
favor of third persons, which may arise from the conduct of the captain in the care of goods
transported, as well as for the safety of passengers transported Yangco vs. Laserna,
supra; Manila Steamship Co., Inc. vs. Abdulhaman et al., 100 Phil. 32 [1956]).

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However, under the same Article, this direct liability is moderated and limited by the ship agent's
or ship owner's right of abandonment of the vessel and earned freight. This expresses the
universal principle of limited liability under maritime law. The most fundamental effect of
abandonment is the cessation of the responsibility of the ship agent/owner (Switzerland General
Insurance Co., Ltd. vs. Ramirez, L-48264, February 21, 1980, 96 SCRA 297). It has thus been
held that by necessary implication, the ship agent's or ship owner's liability is confined to that
which he is entitled as of right to abandon the vessel with all her equipment and the freight it
may have earned during the voyage," and "to the insurance thereof if any" (Yangco vs.
Lasema, supra). In other words, the ship owner's or agent's liability is merely co-extensive with
his interest in the vessel such that a total loss thereof results in its extinction. "No vessel, no
liability" expresses in a nutshell the limited liability rule. The total destruction of the vessel
extinguishes maritime liens as there is no longer any res to which it can attach (Govt. Insular
Maritime Co. vs. The Insular Maritime, 45 Phil. 805, 807 [1924]).

The limited liability rule, however, is not without exceptions, namely: (1) where the injury or
death to a passenger is due either to the fault of the ship owner, or to the concurring negligence
of the ship owner and the captain (Manila Steamship Co., Inc. vs. Abdulhaman supra); (2)
where the vessel is insured; and (3) in workmen's compensation claims Abueg vs. San
Diego, supra). In this case, there is nothing in the records to show that the loss of the cargo was
due to the fault of the private respondent as shipowners, or to their concurrent negligence with
the captain of the vessel.

In sum, it will have to be held that since the ship agent's or ship owner's liability is merely co-
extensive with his interest in the vessel such that a total loss thereof results in its extinction
(Yangco vs. Laserna, supra), and none of the exceptions to the rule on limited liability being
present, the liability of private respondents for the loss of the cargo of copra must be deemed to
have been extinguished. There is no showing that the vessel was insured in this case.

WHEREFORE, the judgment sought to be reviewed is hereby AFFIRMED. No costs.

SO ORDERED.

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G.R. No. 156978             May 2, 2006

ABOITIZ SHIPPING CORPORATION, Petitioner,

vs.
NEW INDIA ASSURANCE COMPANY, LTD., Respondent.

FACTS:

Societe Francaise Des Colloides loaded a cargo of textiles and auxiliary chemicals from France
on board a vessel owned by Franco-Belgian Services, Inc.

The cargo was consigned to General Textile, Inc., in Manila and insured by respondent New
India Assurance Company, Ltd.

While in Hongkong, the cargo was transferred to M/V P. Aboitiz for transshipment to Manila.

On October 31, 1980, the vessel sank, but the captain and his crew were saved.

Thereafter, petitioner notified7 the consignee, General Textile, of the total loss of the vessel and
all of its cargoes. General Textile, lodged a claim with respondent for the amount of its loss.
Respondent paid General Textile and was subrogated to the rights of the latter.8

Respondent hired a surveyor, Perfect, Lambert and Company, to investigate the cause of the
sinking. In its report,9 the surveyor concluded that the cause was the flooding of the holds
brought about by the vessel’s questionable seaworthiness.

Consequently, respondent filed a complaint for damages against petitioner Aboitiz for
breached their contract of carriage

The trial court held petitioner liable for the total value of the lost cargo plus legal interest.

Petitioner elevated the case to the Court of Appeals and presented the findings of the BMI.
However, on August 29, 2002, the appellate court affirmed in toto the trial court’s decision.

ISSUE:

Whether or not the limited liability doctrine, which limits respondent’s award of damages to its
pro-rata share in the insurance proceeds, applies in this case.

RULING: (NO)

An exception to the limited liability doctrine is when the damage is due to the fault of the
shipowner or to the concurrent negligence of the shipowner and the captain. In which case, the
shipowner shall be liable to the full-extent of the damage. We thus find it necessary to clarify
now the applicability here of the decision in Monarch.

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From the nature of their business and for reasons of public policy, common carriers are bound to
observe extraordinary diligence over the goods they transport according to all the circumstances
of each case. In the event of loss, destruction or deterioration of the insured goods, common
carriers are responsible, unless they can prove that the loss, destruction or deterioration was
brought about by the causes specified in Article 1734 of the Civil Code. In all other cases,
common carriers are presumed to have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence. Moreover, where the vessel is found
unseaworthy, the shipowner is also presumed to be negligent since it is tasked with the
maintenance of its vessel. Though this duty can be delegated, still, the shipowner must exercise
close supervision over its men.

In the present case, petitioner has the burden of showing that it exercised extraordinary diligence
in the transport of the goods it had on board in order to invoke the limited liability doctrine.
Differently put, to limit its liability to the amount of the insurance proceeds, petitioner has the
burden of proving that the unseaworthiness of its vessel was not due to its fault or negligence.
Considering the evidence presented and the circumstances obtaining in this case, we find that
petitioner failed to discharge this burden. It initially attributed the sinking to the typhoon and
relied on the BMI findings that it was not at fault. However, both the trial and the appellate
courts, in this case, found that the sinking was not due to the typhoon but to its unseaworthiness.
Evidence on record showed that the weather was moderate when the vessel sank. These factual
findings of the Court of Appeals, affirming those of the trial court are not to be disturbed on
appeal, but must be accorded great weight. These findings are conclusive not only on the parties
but on this Court as well.

Where the shipowner fails to overcome the presumption of negligence, the doctrine of limited
liability cannot be applied.28 Therefore, we agree with the appellate court in sustaining the trial
court’s ruling that petitioner is liable for the total value of the lost cargo.

WHEREFORE, the petition is DENIED for lack of merit. The Decision dated August 29, 2002
and Resolution dated January 23, 2003 of the Court of Appeals in CA-G.R. CV No. 28770
are AFFIRMED.

Costs against petitioner.

SO ORDERED.

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G.R. No. 76452 July 26, 1994

PHILIPPINE AMERICAN LIFE INSURANCE COMPANY and RODRIGO DE LOS

REYES, petitioners,
vs.
HON. ARMANDO ANSALDO, in his capacity as Insurance Commissioner, and RAMON
MONTILLA PATERNO, JR., respondents.

FACTS:

The instant case arose from a letter-complaint of private respondent Ramon M. Paterno, Jr. dated
April 17, 1986, to respondent Commissioner, alleging certain problems encountered by agents,
supervisors, managers and public consumers of the Philippine American Life Insurance
Company (Philamlife) as a result of certain practices by said company.

On July 14, a hearing on the letter-complaint was held by respondent Commissioner on the
validity of the Contract of Agency complained of by private respondent.

On August 4, private respondent submitted a letter of specification to respondent Commissioner

dated July 31, 1986, reiterating his letter of April 17, 1986 and praying that the provisions on
charges and fees stated in the Contract of Agency executed between Philamlife and its agents, as
well as the implementing provisions as published in the agents' handbook, agency bulletins and
circulars, be declared as null and void. He also asked that the amounts of such charges and fees
already deducted and collected by Philamlife in connection therewith be reimbursed to the
agents, with interest at the prevailing rate reckoned from the date when they were deducted.

In a letter dated October 14, 1986, Manuel Ortega, Philamlife's Senior Assistant Vice-President
and Executive Assistant to the President, asked that respondent Commission first rule on the
question of the jurisdiction of the Insurance Commissioner over the subject matter.

ISSUE:

Whether or not the resolution of the legality of the Contract of Agency falls within the
jurisdiction of the Insurance Commissioner.

RULING: (NO)

The general regulatory authority of the Insurance Commissioner is described in Section 414 of
the Insurance Code, to wit:

The Insurance Commissioner shall have the duty to see that all laws relating to
insurance, insurance companies and other insurance matters, mutual benefit
associations and trusts for charitable uses are faithfully executed and to perform
the duties imposed upon him by this Code, . . .

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A plain reading of the above-quoted provisions show that the Insurance Commissioner has the
authority to regulate the business of insurance, which is defined as follows:

(2)  The term "doing an insurance business" or "transacting an insurance

business," within the meaning of this Code, shall include
(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.  (Insurance Code, Sec. 2[2]; Emphasis supplied).

Since the contract of agency entered into between Philamlife and its agents is not included within
the meaning of an insurance business, Section 2 of the Insurance Code cannot be invoked to give
jurisdiction over the same to the Insurance Commissioner. Expressio unius est exclusio alterius.

With regard to private respondent's contention that the quasi-judicial power of the Insurance
Commissioner under Section 416 of the Insurance Code applies in his case, we likewise rule in
the negative. Section 416 of the Code in pertinent part, provides:

The Commissioner shall have the power to adjudicate claims and complaints
involving any loss, damage or liability for which an insurer may be answerable
under any kind of policy or contract of insurance, or for which such insurer may
be liable under a contract of suretyship, or for which a reinsurer may be used
under any contract or reinsurance it may have entered into, or for which a mutual
benefit association may be held liable under the membership certificates it has
issued to its members, where the amount of any such loss, damage or liability,
excluding interest, costs and attorney's fees, being claimed or sued upon any kind
of insurance, bond, reinsurance contract, or membership certificate does not
exceed in any single claim one hundred thousand pesos.

A reading of the said section shows that the quasi-judicial power of the Insurance Commissioner
is limited by law "to claims and complaints involving any loss, damage or liability for which an
insurer may be answerable under any kind of policy or contract of insurance, . . ." Hence, this
power does not cover the relationship affecting the insurance company and its agents but is
limited to adjudicating claims and complaints filed by the insured against the insurance
company.

WHEREFORE, the petition is GRANTED. The Order dated November 6, 1986 of the Insurance
Commission is SET ASIDE.

SO ORDERED.

Page 6 of 12
G.R. No. 23703           September 28, 1925

HILARIO GERCIO, plaintiff-appellee,
vs.
SUN LIFE ASSURANCE OF CANADA, ET AL., defendants.
SUN LIFE ASSURANCE OF CANADA, appellant.

FACTS:

On January 29, 1910, the Sun Life Assurance Co. of Canada issued insurance policy No. 161481
on the life of Hilario Gercio. The policy was what is known as a twenty-year endowment policy.
By its terms, the insurance company agreed to insure the life of Hilario Gercio for the sum of
P2,000, to be paid him on February 1, 1930, or if the insured should die before said date, then to
his wife, Mrs. Andrea Zialcita, should she survive him. The policy did not include any provision
reserving to the insured the right to change the beneficiary.

On the date the policy was issued, Andrea Zialcita was the lawful wife of Hilario Gercio.
Towards the end of the year 1919, she was convicted of the crime of adultery. On September 4,
1920, a decree of divorce was issued in civil case no. 17955, which had the effect of completely
dissolving the bonds of matrimony contracted by Hilario Gercio and Andrea Zialcita.

On March 4, 1922, Hilario Gercio formally notified the Sun Life Assurance Co. of Canada that
he had revoked his donation in favor of Andrea Zialcita, and that he had designated in her stead
his present wife, Adela Garcia de Gercio, as the beneficiary of the policy. Gercio requested the
insurance company to eliminate Andrea Zialcita as beneficiary. This, the insurance company has
refused and still refuses to do.

ISSUE:

Whether or not the insured — the husband — has the power to change the beneficiary — the
former wife — and to name instead his actual wife, where the insured and the beneficiary have
been divorced and where the policy of insurance does not expressly reserve to the insured the
right to change the beneficiary

RULING: (NO)

The wife has an insurable interest in the life of her husband. The beneficiary has an absolute
vested interest in the policy from the date of its issuance and delivery. So when a policy of life
insurance is taken out by the husband in which the wife is named as beneficiary, she has a
subsisting interest in the policy. And this applies to a policy to which there are attached the
incidents of a loan value, cash surrender value, an automatic extension by premiums paid, and to
an endowment policy, as well as to an ordinary life insurance policy. If the husband wishes to
retain to himself the control and ownership of the policy he may so provide in the policy. But if
the policy contains no provision authorizing a change of beneficiary without the beneficiary's

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consent, the insured cannot make such change. Accordingly, it is held that a life insurance
policy of a husband made payable to the wife as beneficiary, is the separate property of the
beneficiary and beyond the control of the husband.

As to the effect produced by the divorce, the Philippine Divorce Law, Act No. 2710, merely
provides in section 9 that the decree of divorce shall dissolve the community property (not the
separate property) as soon as such decree becomes final. Unlike the statutes of a few
jurisdictions, there is no provision in the Philippine Law permitting the beneficiary in a policy
for the benefit of the wife of the husband to be changed after a divorce. It must follow, therefore,
in the absence of a statute to the contrary, that if a policy is taken out upon a husband's life the
wife is named as beneficiary therein, a subsequent divorce does not destroy her rights under the
policy.

On the admitted facts and the authorities supporting the nearly universally accepted principles of
insurance, we are irresistibly led to the conclusion that the question at issue must be answered in
the negative.

The judgment appealed from will be reversed and the complaint ordered dismissed as to the
appellant, without special pronouncement as to the costs in either instance. So ordered.

Page 8 of 12
G.R. No. L-33637         December 31, 1931

ANG GIOK CHIP, doing business under the name and style of Hua Bee Kong Si, plaintiff-
appellee,
vs.
SPRINGFIELD FIRE & MARINE INSURANCE COMPANY, defendant-appellant.

FACTS:

Ang Giok Chip doing business under the name and style of Hua Bee Kong Si was formerly the
owner of a warehouse situated at No. 643 Calle Reina Regente, City of Manila. The contents of
the warehouse were insured with the three insurance companies for the total sum of P60,000.
One insurance policy, in the amount of P10,000, was taken out with the Springfield Fire &
Marine Insurance Company. The warehouse was destroyed by fire on January 11, 1928, while
the policy issued by the latter company was in force.

The plaintiff instituted action in the Court of First Instance of Manila against the defendant to
recover a proportional part of the loss coming to P8,170.59.

Four special defenses were interposed on behalf of the insurance company, one being planted on
a violation of warranty F fixing the amount of hazardous goods which might be stored in the
insured building.

WARRANTY F

It is hereby declared and agreed that during the currency of this policy no
hazardous goods be stored in the Building to which this insurance applies or
in any building communicating therewith, provided, always, however, that
the Insured be permitted to stored a small quantity of the hazardous goods
specified below, but not exceeding in all 3 per cent of the total value of the
whole of the goods or merchandise contained in said warehouse, viz; . . . .

The trial judge in his decision found against the insurance company

ISSUE:

Whether or not a warranty referred to in the policy as forming part of the contract of insurance
and in the form of a rider to the insurance policy, is null and void because not complying with
the Philippine Insurance Act.

RULING: (NO)

We turn to two of such well recognized doctrines. In the first place, it is well settled that a rider
attached to a policy is a part of the contract, to the same extent and with like effect as it actually

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embodied therein. (I Couch, Cyclopedia of Insurance Law, sec. 159.) In the second place, it is
equally well settled that an express warranty must appear upon the face of the policy, or be
clearly incorporated therein and made a part thereof by explicit reference, or by words clearly
evidencing such intention. (4 Couch, Cyclopedia of Insurance Law, sec. 862.)

Section 65 of the Insurance Act and its counterpart, section 265 of the Civil Code of California,
will bear analysis as tested by reason and authority. The law says that every express warranty
must be "contained in the policy itself." The word "contained," according to the dictionaries,
means "included," inclosed," "embraced," "comprehended," etc. When, therefore, the courts
speak of a rider attached to the policy, and thus "embodied" therein, or of a warranty
"incorporated" in the policy, it is believed that the phrase "contained in the policy itself" must
necessarily include such rider and warranty.

We have studied this case carefully and having done so have reached the definite conclusion that
warranty F, a rider attached to the face of the insurance policy, and referred to in contract of
insurance, is valid and sufficient under section 65 of the Insurance Act.

Page 10 of 12
G.R. No. 167330               September 18, 2009

PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

FACTS:

Petitioner 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 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.

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 (DST)] 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 protested the assessment in a letter dated February 23, 2000. As respondent 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 rendered a decision which
cancelled and set-aside the DST assessment.

Respondent appealed the CTA decision to the Court of Appeals (CA). He claimed that
petitioner’s health care agreement was a contract of insurance subject to DST under Section 185
of the 1997 Tax Code. On August 16, 2004, the CA rendered its decision. It held that petitioner’s
health care agreement was in the nature of a non-life insurance contract subject to DST.

ISSUE:

Whether or not the petitioner’s health care agreement is a contract of insurance that is subject to
Documentary Stamp Tax.

RULING: (NO)

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, looking at the plan of

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operation as a whole, ‘service’ rather than ‘indemnity’ is its principal object and
purpose. Certainly the objects and purposes of the corporation organized and maintained by the
California physicians have a wide scope in the field of social service. Probably there is no more
impelling need than that of adequate medical care on a voluntary, low-cost basis for persons of
small income. The medical profession unitedly is endeavoring to meet that need. Unquestionably
this is ‘service’ of a high order and not ‘indemnity.’ (Emphasis supplied)

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. 

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.

In fact, a substantial portion of petitioner’s services covers preventive and diagnostic medical
services intended to keep members from developing medical conditions or diseases.30 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.31

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.

Taking into account that health care agreements are clearly not within the ambit of Section 185
of the NIRC and there was never any legislative intent to impose the same on HMOs like
petitioner, the same should not be arbitrarily and unjustly included in its coverage.

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