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FACTS: Petitioner Hongkong Government Supplies Department (Hongkong) contracted Mayer Steel Pipe Corporation (Mayer) to manufacture and supply various steel pipes and fittings. From August to October, 1983, Mayer shipped the pipes and fittings to Hongkong. Prior to the shipping, Mayer insured the pipes and fittings against all risks with South Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp. (Charter). Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc. as third-party inspector to examine whether the pipes and fittings are manufactured in accordance with the specifications in the contract. Industrial Inspection certified all the pipes and fittings to be in good order condition before they were loaded in the vessel. Nonetheless, when the goods reached Hongkong, it was discovered that a substantial portion thereof was damaged. Petitioners filed a claim against private respondents for indemnity under the insurance contract. Charter Insurance paid Hongkong Government Supplies Department the amount of HK$64,904.75 but refused to pay the cost of repair of the damaged pipes on belief that it is a factory defect. Petitioners filed an action against private respondents to recover the sum. The trial court ruled in favor of them. On appeal, the CA affirmed the finding of the trial court that the damage is not due to factory defect and that it was covered by the "all risks" insurance policies issued by private respondents to petitioner Mayer. However, it set aside the decision of the trial court and dismissed the complaint on the ground of prescription. Thus, a petition was raised in the SC. ISSUE: Whether or not the shipper may still file a claim against the insurer. RULING: An insurance contract is a contract whereby one party, for a consideration known as the premium, agrees to indemnify another for loss or damage which he may suffer from a specified peril.An "all risks" insurance policy covers all kinds of loss other than those due to willful and fraudulent act of the insured.Thus, when private respondents issued the "all risks" policies to petitioner Mayer, they bound themselves to indemnify the latter in case of loss or damage to the goods insured. Such obligation prescribes in ten years, in accordance with Article 1144 of the New Civil Code.chanroble The SC reinstated the decision of the Regional Trial Court. It found that the damage to the goods is not due to manufacturing defects. It also noted that the insurance contracts executed by petitioner

Mayer and private respondents are "all risks" policies which insure against all causes of conceivable loss or damage. The only exceptions are those excluded in the policy, or those sustained due to fraud or intentional misconduct on the part of the insured. Name : Mercy Dedal Cruz Topic : DOING OR TRANSACTING AN INSURANCE BUSINESS PHILIPPINE HEALTH CARE PROVIDERS , INC. vs COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 167330 June 12, 2008

FACTS: Philippine Health Care Providers, Inc. is a domestic corporation whose primary purpose is to 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. On January 27, 2000, the Commissioner of Internal Revenue 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. The deficiency stamp tax 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. Petitioner essentially argues that its health care agreement is not a contract of insurance but a contract for the provision on a prepaid basis of medical services, including medical check-up, that are not based on loss or damage. Petitioner also insists that it is not engaged in the insurance business. It is a health maintenance organization regulated by the Department of Health, not an insurance company under the jurisdiction of the Insurance Commission. For these reasons, petitioner asserts that the health care agreement is not subject to DST. The CTA partially granted the petition ordering the respondent to desis from collecting the DST assessment. On appeal, the Court reversed the said decision. Thus a case was raised in the SC. ISSUE: Whether or not the petitioner is transacting an insurance business. RULING:
Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses arising from the stipulated contingencies belies its claim that its services are prepaid. The expenses to be incurred by each member cannot be predicted beforehand, if they can be predicted at all. Petitioner assumes the risk of paying for the costs of the services even if they are significantly and substantially more than what the member has

prepaid. Petitioner does not bear the costs alone but distributes or spreads them out among a large group of persons bearing a similar risk, that is, among all the other members of the health care program. This is insurance. Petition was denied and the petitioner was ordered to pay the deficiency documentary stamp tax for 1996 and 1997, respectively, plus 25% surcharge for late payment and 20% interest per annum from January 27, 2000 until full payment thereof.

Name : Mercy Dedal Cruz Topic : CONTRACT OF ADHESION


Philippine American Life Insurance Company (Philamlife) entered into an agreement with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal who purchased burial lots from it on installment basis would be insured by Philamlife. The amount of insurance coverage depended upon the existing balance of the purchased burial lots. The policy was to be effective for a period of one year, renewable on a yearly basis. In compliance of the policy, Eternal submitted a list of the purchasers included John Chuang who died on August 2, 1984. Eternal submitted a letter with supporting documents to Philamlife as a claim to Chuang's death. After more than a year, Philamlife had not furnished Eternal with any reply to the latters insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000. Consequently, Eternal filed a case before the Makati RTC for collection of sum of money. Philamlife denied the claim on the ground that no application for Chuang was filed before his death. The trial court decided in favor of Eternal. The CA dismissed the case upon appeal. Thus, a case was raised before the SC.

ISSUE: Whether or not Philamlife's inaction should be construed as approval on Chuang's application for the insurance. RULING:
It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly against the insurer in order to safeguard the latters interest.

In Malayan Insurance Corporation v. Court of Appeals, the Supreme Court held that: Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be

regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its obligations. Moreover, the mere inaction of the insurer on the insurance application must not work to prejudice the insured; it cannot be interpreted as a termination of the insurance contract. The termination of the insurance contract by the insurer must be explicit and unambiguous. Petition was granted. Philamlife was oredered to pay the proceeds of Chuang's Life Insurance Policy, plus interests and attorney's fees.


FACTS: Respondent Priscilla E. Rodriguez was struck by a De Dios passenger bus owned by respondent De Dios Transportation Co., Inc., .She was thrown to the ground, hitting her forehead. Her face was permanently disfigured, causing her serious anxiety and moral distress. The bus driver disregarded the stop signal given by a traffic policeman to allow pedestrians to cross the road. Respondent bus company was insured with petitioner Western Guaranty Corporation ("Western") under its Master Policy which provided, among other things, for protection against third party liability. Priscilla Rodriguez filed a complaint for damages before the Regional Trial Court of Makati against De Dios Transportation Co. and Walter A. Saga,the driver. Respondent De Dios Transportation Co., in turn, filed a third-party complaint against its insurance carrier, petitioner Western. The court rendered a decision in favor of Rodriguez. On appeal, the Court of Appeals affirmed in toto the decision of the trial court. Petitioner moved for the reconsideration of the appellate court's decision but was denied for lack of merit. Thus Western filed before the SC for Review of the CA's earlier decision. ISSUE: Whether or not Western Guaranty Corporation should imdemnify the victim. RULING: Petitioner Western would have us construe the Schedule of Indemnities as comprising contractual limitations of liability which, as already noted, is comprehensively defined in Section 1 - Liability to the Public" - of the Master Policy. It is wellsettled, however, that contractual limitations of liability found in insurance contracts should be regarded by courts with a jaundiced eye and extreme care and should be so construed as to preclude the insurer from evading compliance with its just obligations. chanrobles virtual law library

Finally, an insurance contract is a contract of adhesion. The rule is well entrenched in our jurisprudence that the terms of such contract are to be construed strictly against the party which prepared the contract, which in this case happens to be petitioner Western. The Court denied the Petition for Review.



FACTS: A contract of group life insurance was executed between petitioner Great Pacific Life Assurance Corporation (hereinafter Grepalife) and Development Bank of the Philippines . Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP. On November 11, 1983, Dr. Wilfredo Leuterio, a housing debtor of DBP, applied for membership in the group life insurance plan. In an application form, he answered that he was in good health. On August 6, 1984, Dr. Leuterio died due to massive cerebral hemorrhage. Consequently, DBP submitted a death claim to Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied for an insurance coverage on Grepalife. The widow, respondent Medarda V. Leuterio, filed a complaint with the Regional Trial Court of Misamis Oriental against Grepalife for Specific Performance with Damages. The trial court rendered a decision in favor of respondent widow and against Grepalife. On appeal, the CA sustained the trial court's decision. Hence, a petition was raised. ISSUE: Whether or not the widow of Dr. Leuterio is a real party of interest. RULING: To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this type of contract. The rationale of a group insurance policy of mortgagors, otherwise known as the mortgage redemption insurance, is a device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event of death; the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness.Consequently, where the mortgagor pays the insurance premium under the group insurance policy, making the loss payable to the mortgagee, the insurance is on the mortgagors interest, and the mortgagor continues to be a party to the contract. In this type of policy insurance, the mortgagee is simply an appointee of the

insurance fund, such loss-payable clause does not make the mortgagee a party to the contract. Section 8 of the Insurance Code provides: Unless the policy provides, where a mortgagor of property effects insurance in his own name providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not cease to be a party to the original contract, and any act of his, prior to the loss, which would otherwise avoid the insurance, will have the same effect, although the property is in the hands of the mortgagee, but any act which, under the contract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee therein named, with the same effect as if it had been performed by the mortgagor. The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy stating that: In the event of the debtors death before his indebtedness with the Creditor [DBP] shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies designated by the debtor.When DBP submitted the insurance claim against petitioner, the latter denied payment thereof, interposing the defense of concealment committed by the insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary action of foreclosure on the residential lot of private respondent. In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co. we held: Insured, being the person with whom the contract was made, is primarily the proper person to bring suit thereon. * * * Subject to some exceptions, insured may thus sue, although the policy is taken wholly or in part for the benefit of another person named or unnamed, and although it is expressly made payable to another as his interest may appear or otherwise. * * * Although a policy issued to a mortgagor is taken out for the benefit of the mortgagee and is made payable to him, yet the mortgagor may sue thereon in his own name, especially where the mortgagees interest is less than the full amount recoverable under the policy, * * *. And in volume 33, page 82, of the same work, we read the following: Insured may be regarded as the real party in interest, although he has assigned the policy for the purpose of collection, or has assigned as collateral security any judgment he may obtain. And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover it whatever the insured might have recovered,[ the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife. Petition was denied and petitioner was ordered to pay the insurance proceeds to the heirs of the insured Dr. Wilfredo Leuterio. Name : Mercy Dedal Cruz Topic : INTERPRETATION OF INSURANCE CONTRACTS RIZAL SURETY & INSURANCE COMPANY, v COURT OF APPEALS and

TRANSWORLD KNITTING MILLS, INC. G.R. No. 112360. July 18, 2000 FACTS: On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance) issued Fire Insurance Policy No. 45727 in favor of Transworld Knitting Mills, Inc. (Transworld), covering the premises occupied by Transworld forming part of the buildings situate within a Compound at Magdalo Street, Barrio Ugong, Pasig, Metro Manila. The same pieces of property insured with the petitioner were also insured with New India Assurance Company, Ltd., (New India).On January 12, 1981, fire broke out in the compound of Transworld, razing the middle portion of its four-span building and partly gutting the left and right sections thereof. A two-storey building (behind said four-span building) where fun and amusement machines and spare parts were stored, was also destroyed by the fire.Transworld filed its insurance claims with Rizal Surety & Insurance Company and New India Assurance Company but to no avail. Private respondent brought against the said insurance companies an action for collection of sum of money and damages. The trial court dismissed the case against New India and oredered Rizal Insurance to pay Transworld. The CA modified the decision and ordered Rizal Insurance and New India to pay the appellant . A petition was raised in the SC. ISSUE: Whether or not the respondent insurance companies should be held liable to pay the proceeds of the insurance. RULING: Indeed, the stipulation as to the coverage of the fire insurance policy under controversy has created a doubt regarding the portions of the building insured thereby. Article 1377 of the New Civil Code provides: "Art.1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity" Conformably, it stands to reason that the doubt should be resolved against the petitioner, Rizal Surety Insurance Company, whose lawyer or managers drafted the fire insurance policy contract under scrutiny. Citing the aforecited provision of law in point, the Court in Landicho vs. Government Service Insurance System, ruled: "This is particularly true as regards insurance policies, in respect of which it is settled that the 'terms in an insurance policy, which are ambiguous, equivocal, or uncertain x x x are to be construed strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where forfeiture is involved' (29 Am. Jur., 181), and the reason for this is that the 'insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by experts and legal advisers employed by, and acting exclusively in the interest of, the insurance company.' (44 C.J.S., p. 1174)." Equally relevant is the following disquisition of the Court in Fieldmen's Insurance Company, Inc. vs.

Vda. De Songco, to wit: "'This rigid application of the rule on ambiguities has become necessary in view of current business practices. The courts cannot ignore that nowadays monopolies, cartels and concentration of capital, endowed with overwhelming economic power, manage to impose upon parties dealing with them cunningly prepared 'agreements' that the weaker party may not change one whit, his participation in the 'agreement' being reduced to the alternative to 'take it or leave it' labelled since Raymond Saleilles 'contracts by adherence' (contrats [sic] d'adhesion), in contrast to these entered into by parties bargaining on an equal footing, such contracts (of which policies of insurance and international bills of lading are prime example) obviously call for greater strictness and vigilance on the part of courts of justice with a view to protecting the weaker party from abuses and imposition, and prevent their becoming traps for the unwary (New Civil Code, Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942.)'. The SC affirmed the decision of the CA in toto. Name : Mercy Dedal Cruz Topic : DOING OR TRANSACTING AN INSURANCE BUSINESS PHILIPPINE HEALTH CARE PROVIDERS , INC. vs COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 167330 September 18, 2009

FACTS: Petitioner is a domestic corporation whose primary purpose is to 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 P224,702,641.18. The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioners health care agreement with the members of its health care program pursuant to Section 185 of the 1997 Tax Code. The CTA partially granted the petition. Respondent appealed the CTA decision to the Court of Appeals insofar as it cancelled the DST assessment. He claimed that petitioners health care agreement was a contract of insurance subject to DST under Section 185 of the 1997 Tax Code. The CA held that petitioners health care agreement was in the nature of a non-life insurance contract subject to DST. Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed a petition to the SC. In a decision dated June 12, 2008, the Court denied the petition and affirmed the CAs decision. SC held that petitioners health care

agreement during the pertinent period was in the nature of non-life insurance which is a contract of indemnity. It also ruled that petitioners contention that it is a health maintenance organization (HMO) and not an insurance company is irrelevant because contracts between companies like petitioner and the beneficiaries under their plans are treated as insurance contracts. Moreover, DST is not a tax on the business transacted but an excise on the privilege, opportunity or facility offered at exchanges for the transaction of the business. Unhappy with the decision, petitioner filed a motion for reconsideration. ISSUE: Whether or not the Philippine Health Care Providers, Inc. is transacting an insurance business. RULING: Section 2 (2) of PD 1460 (otherwise known as the Insurance Code) enumerates what constitutes doing an insurance business or transacting an insurance business: a) making or proposing to make, as insurer, any insurance contract; b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety; c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code. In the application of the provisions of this Code, the fact that no profit is derived from the making of insurance contracts, agreements or transactions or that no separate or direct consideration is received therefore, shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business. Various courts in the United States, whose jurisprudence has a persuasive effect on our decisions, have determined that HMOs are not in the insurance business. 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. Applying the principal object and purpose test, there is significant American case law supporting the argument that a corporation (such as an HMO, whether or not organized for profit), whose main object is to provide the members of a group with health services, is not engaged in the

insurance business. 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. Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue Shield of New Jersey is clear on this point: 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. xxx xxx xxx The primary purpose of a medical service corporation, however, is an undertaking to provide physicians who will render services to subscribers on a prepaid basis. Hence, if there are no physicians participating in the medical service corporations plan, not only will the subscribers be deprived of the protection which they might reasonably have expected would be provided, but the corporation will, in effect, be doing business solely as a health and accident indemnity insurer without having qualified as such and rendering itself subject to the more stringent financial requirements of the General Insurance Laws. A participating provider of health care services is one who agrees in writing to render health care services to or for persons covered by a contract issued by health service corporation in return for which the health service corporation agrees to make payment directly to the participating provider. (Emphasis supplied) Consequently, the mere presence of risk would be insufficient to override the primary purpose of the business to provide medical services as needed, with payment made directly to the provider of these services. In short, even if petitioner assumes the risk of paying the cost of these services even if significantly more than what the member has prepaid, it nevertheless cannot be considered as being engaged in the insurance business. 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 petitioners

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 petitioners services covers preventive and diagnostic medical services intended to keep members from developing medical conditions or diseases. 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. Overall, petitioner appears to provide insurance-type benefits to its members (with respect to its curative medical services), but these are incidental to the principal activity of providing them medical care. The insurance-like aspect of petitioners 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. It is important to emphasize that, in adopting the principal purpose test used in the abovequoted U.S. cases, we are not saying that petitioners operations are identical in every respect to those of the HMOs or health providers which were parties to those cases. What we are stating is that, for the purpose of determining what doing an insurance business means, we have to scrutinize the operations of the business as a whole and not its mere components. This is of course only prudent and appropriate, taking into account the burdensome and strict laws, rules and regulations applicable to insurers and other entities engaged in the insurance business. Moreover, we are also not unmindful that there are other American authorities who have found particular HMOs to be actually engaged in insurance activities. 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. In fact, in a letter dated September 3, 2000, the Insurance Commissioner confirmed that petitioner is not engaged in the insurance business. This determination of the commissioner must be accorded great weight. It is well-settled that the interpretation of an administrative agency which is tasked to implement a statute is accorded great respect and ordinarily controls the interpretation of laws

by the courts. The reason behind this rule was explained in Nestle Philippines, Inc. v. Court of Appeals: The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or modernizing society and the establishment of diverse administrative agencies for addressing and satisfying those needs; it also relates to the accumulation of experience and growth of specialized capabilities by the administrative agency charged with implementing a particular statute. In Asturias Sugar Central, Inc. vs. Commissioner of Customs, the Court stressed that executive officials are presumed to have familiarized themselves with all the considerations pertinent to the meaning and purpose of the law, and to have formed an independent, conscientious and competent expert opinion thereon. The courts give much weight to the government agency officials charged with the implementation of the law, their competence, expertness, experience and informed judgment, and the fact that they frequently are the drafters of the law they interpret.