ABOITIZ SHIPPING V.

NEW INDIA ASSURANCE

FACTS: Societe Francaise Des Colliodes entrusted its cargo containing textile and
auxillary chemicals to a vessel owned by Franco Belgian Services. Such cargo was
consigned to General Textile Inc. Manila, and was insured by respondent New India
Assurance. When it reached Hong Kong, such cargo was transferred to petitioners
vessel. Unfortunately, while en route, the vessels hull lead resulting to the sinking
of the ship. Petitioner notified General Textile Inc of the incident. The latter then
claimed damages from respondent.
Respondent hired a surveyor to investigate the incident. Such surveyor reported
that the vessels seaworthiness was questionable. Respondent then filed a
complaint for damages against petitioner, Franco Belgian Services, and FE Zuellig.
Trial court: petitioner liable
CA: Affirmed TCs ruling
ISSUE: W/N THE LIMITED LIABILITY DOCTRINE, WHICH LIMITS RESPONDENTS AWARD
OF DAMAGES TO ITS PRO RATA SHARE IN THE INSURANCE PROCEEDS, APLIES IN
THIS CASE?
RULING: NO.
-

In Monarch, the SC ruled that the sinking of the vessel in such case was not
due to a fortuitous event (this is where they like declared the limits of the
limited liability doctrine
An exception to the limited liability doctrine is when the damage is due to the
fault of the ship owner or to the concurrent negligence of the ship owner and
the captain. In this case, the ship owner shall be liable to the full extent of the
damages
Common carriers are bound to exercise 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.
In the case at bar, petitioner has the burden of showing that it
exercised extraordinary diligence in the transport of goods it had on
board in order to invoke the limited liability doctrine
Petitioner needs to prove that the unseaworthiness of the vessel
was not due to its fault or negligence
The Board of Marine Inquiry report (vessel daw was seaworthy) is
not always binding on the courts, especially when the trial courts
findings were contrary to that of the BMI (EVIDENCE ON RECORD

SHOWED THAT THE WEATHER WAS MODERATE WHEN THE VESSEL

SANK)
Determination of the civil liability of common carriers lies with the
courts
PETITION DENIED

PHILAMLIFE V. ANSALDO (in his capacity as

Insurance Commissioner)
FACTS: Private respondent Paterno sent a lettercomplaint to Comm. Ansaldo
alleging certain problems encountered by agents, employees, and clients of
Philamlife due to certain company practices (object of contention: Contract of
Agency b/w Philamlife and its agents)
Respondent asked Philamlifes president, Delos Reyes, to comment on Paternos
letter. Delos Reyes replied that private respondent should some sort of bill of
particulars, listing actual cases or situations relative to his allegations. Ansaldo gave
private respondent a copy of petitioners letter. Paterno replied that his earlier letter
was already sufficient in form and substance. Delos Reyes however reiterated his
contentions, contradicting private respondents claims.
A hearing was conducted which respondent commissioner held.
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 questions of the jurisdiction of the Insurance
Commissioner over the subject matter of the letters-complaint and the legal
standing of private respondent.
On October 27, respondent Commissioner notified both parties of the hearing of the
case on November 5, 1986.
On November 3, Manuel Ortega filed a Motion to Quash Subpoena/Notice. Three
days later, respondent commissioner denied such motion to quash.
Hence, this petition.
ISSUE: WHETHER OR NOT THE RESOLUTION OF THE LEGALITY OF THE CONTRACT OF
AGENCY FALLS WITHIN THE JURISDICTION OF THE INSURANCE COMMISSIONER?
RULING: NO.

Art. 414 of the Insurance Code provides that the Insurance Commissioner has
the authority to regulate the business of insurance
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.

The contract of agency entered into between Philamlife and its agents
however 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.

A reading of the Sec. 416 of the IC 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, xxx."

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.

The Insurance Code does not have provisions governing the relations
between insurance companies and their agents. It follows that the
Insurance Commissioner cannot, in the exercise of its quasi-judicial
powers, assume jurisdiction over controversies between the
insurance companies and their agents.

EXTRA NOTES: An insurance company may have two classes of agents who
sell its insurance policies: (1) salaried employees who keep definite hours and
work under the control and supervision of the company; and (2) registered
representatives, who work on commission basis.Under the first category, the
relationship between the insurance company and its agents is governed by
the Contract of Employment and the provisions of the Labor Code, while
under the second category, the same is governed by the Contract of Agency
and the provisions of the Civil Code on the Agency. Disputes involving the
latter are cognizable by the regular courts.

REPUBLIC V. DEL MONTE MOTORS

FACTS: case involves a petition seeking the reversal of the trial court decision which
found Comm. Malinis guilty of indirect contempt when he refused to obey a certain
resolution.
On Jan. 15-02, the RTC rendered a decision finding Vilfran Liner Inc. and the
Vilegass to be solidary liable to Del Monte Motors. The trial court ordered the
execution of the decision against the counterbond posted by Vilfran Liner Inc. and
issued by Capital Insurance and Surety Co Inc.
On April 18, 2002, CISCO opposed the Motion for Execution filed by respondent,
claiming that the latter had no record or document regarding the alleged issuance
of the counterbond; thus, the bond was not valid and enforceable.
On June 13, 2002, the RTC granted the Motion for Execution and issued the
corresponding Writ. Armed with this Writ, Sheriff Manuel S. Paguyo proceeded to
levy on the properties of CISCO. He also issued a Notice of Garnishment on several
depository banks of the insurance company. Moreover, he served a similar notice
on the Insurance Commission, so as to enforce the Writ on the security deposit filed
by CISCO with the Commission in accordance with Section 203 of the Insurance
Code.
On December 18, 2002, after a hearing on all the pending Motions, the RTC ruled
that the Notice of Garnishment served by Sheriff Paguyo on the insurance
commission was valid.
On January 8, 2003, respondent moved to cite Insurance Commissioner Eduardo T.
Malinis in contempt of court for his refusal to obey the December 18, 2002
Resolution of the trial court.
-

The resolution dated December 18, 2002 directed him to allow the withdrawal
of the security deposit of Capital Insurance and Surety Co. (CISCO) in the
amount of P11,835,375.50

RTC Decision: Malinis found to be in contempt of court.

ISSUE: W/N THE SECURITY DEPOSIT HELD BY THE INSURANCE COMMISSIONER
PURSUANT TO SECTION 203 OF THE INSURANCE CODE MAY BE LEVIED OR
GARNISHED IN FAVOR OF ONLY ONE INSURED?
-

The SC first discussed the issue of mootness. Commissioner Malinis kasi

authorized partial releases, pursuant daw to his power to control the fund. So

moot na daw. But the court said, NO. its not moot. Because 1.) only a portion
of respondents claim was satisfied, and 2.) the business of insurance is
imbued with public interest
RULING: NO.
Contrary to respondents contentions that Section 203 does not provide for an
absolute prohibition on the levy and garnishment of the security deposit, the Court
opined that the law expressly and clearly states that the security deposit shall be
(1) answerable for all the obligations of the depositing insurer under its insurance
contracts; (2) at all times free from any liens or encumbrance; and (3) exempt from
levy by any claimant.
To be sure, CISCO, though presently under conservatorship, has valid outstanding
policies. Its policy holders have a right under the law to be equally protected by its
security deposit. To allow the garnishment of that deposit would impair the fund by
decreasing it to less than the percentage of paid-up capital that the law requires to
be maintained. Further, this move would create, in favor of respondent, a
preference of credit over the other policy holders and beneficiaries.
Our Insurance Code is patterned after that of California. Thus, the ruling of the
state's Supreme Court on a similar concept as that of the security deposit is
instructive. Engwicht v. Pacific States Life Assurance Co. held that the money
required to be deposited by a mutual assessment insurance company with
the state treasurer was "a trust fund to be ratably distributed amongst all
the claimants entitled to share in it. Such a distribution cannot be had
except in an action in the nature of a creditors' bill, upon the hearing of
which, and with all the parties interested in the fund before it, the court
may make equitable distribution of the fund, and appoint a receiver to
carry that distribution into effect."
-

A single claimant may not lay stake on the securities to the exclusion of all
others. The other parties may have their own claims against the insurance
company under other insurance contracts it has entered into

The right to lay claim on the fund is dependent on the solvency of the insurer
and is subject to all other obligations of the company arising from its
insurance contracts. Thus, respondent's interest is merely inchoate. Being a
mere expectancy, it has no attribute of property. At this time, it is
nonexistent and may never exist.

POWERS OF THE COMMISIONER

The Insurance Code has vested the Office of the Insurance Commission with
both regulatory and adjudicatory authority over insurance matters

See Sec. 414 of the Insurance Code (regulatory authority)

Pursuant to these regulatory powers, the commissioner is authorized to
(1) issue (or to refuse to issue) certificates of authority to persons or
entities desiring to engage in insurance business in the Philippines; (2)
revoke or suspend these certificates of authority upon finding grounds for
the revocation or suspension; (3) impose upon insurance companies, their
directors and/or officers and/or agents appropriate penalties -- fines,
suspension or removal from office -- for failing to comply with the Code or
with any of the commissioner's orders, instructions, regulations or rulings,
or for otherwise conducting business in an unsafe or unsound manner.
Included in the above regulatory responsibilities is the duty to hold the
security deposits under Sections 191 and 203 of the Code, for the benefit
and security of all policy holders. As well as hold those mentioned in Sec.
192.

The law specifically confers custody over the securities upon the
commissioner, with whom these investments are required to be
deposited. An implied trust is created by the law for the benefit of
all claimants under subsisting insurance contracts issued by the
insurance company. As the officer vested with custody of the
security deposit, the insurance commissioner is in the best position
to determine if and when it may be released without prejudicing the
rights of other policy holders. Before allowing the withdrawal or the
release of the deposit, the commissioner must be satisfied that the
conditions contemplated by the law are met and all policy holders
protected.

In this case, Commissioner Malinis refused to release the security deposit of

CISCO. Believing that the funds were exempt from execution as provided by
law, he sought to protect other policy holders. His interpretation of the
provisions of the law carries great weight and consideration, as he is
the head of a specialized body tasked with the regulation of
insurance matters and primarily charged with the implementation of
the Insurance Code.

GERCIO V. SUNLIFE ASSURANCE CO.

FACTS: Hilario Gercio insured petitioner

Sunlife Assurance Co. insurer defendant
Andrea Zialcita (ex-wife) beneficiary defendant
The complaint is in the nature of mandamus. Its purpose is to compel the defendant
Sun Life Assurance Co. of Canada to change the beneficiary in the policy issued by
the defendant company on the life of the plaintiff Hilario Gercio, with one Andrea
Zialcita as beneficiary.
Life insurance worth 2000 pesos
Divorce was had because the wife had an affair (she was convicted of adultery)
1910: insurance taken 1914: insurance act became effective 1922: effort to
change beneficiary
ISSUE: WHETHER THE INSUREDTHE HUSBANDHAS THE POWER TO CHANGE THE
BENEFICIARYTHE FORMER WIFEAND 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
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 as soon as such decree becomes final. Unlike the
statutes of a few jurisdictions, there is no provision in 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 and the wife is named as beneficiary therein, a
subsequent divorce does not destroy her rights under the policy.
-

AMERICAN JURISPRUDENCE
1. *** Our insurance act is mostly taken from the statue of California; Yore vs. Booth
states: It seems to be the settled doctrine, with but slight dissent in the courts of
this country, that a person who procures a policy upon his own life, payable to a
designated beneficiary, although he pays the premiums himself, and keeps the
policy in his exclusive possession, has no power to change the beneficiary, unless
the policy itself, or the charter of the insurance company, so provides. In other
words, it is held that the beneficiary named in the policy, although he has parted
with nothing, and is simply the object of another's bounty, has acquired a vested
and irrevocable interest in the policy, which he may keep alive for his own benefit
by paying the premiums or assessments if the person who effected the insurance
fails or refuses to do so.
2. Connecticut Mutual Life Insurance Policy vs. Schaefer: a policy taken out in
good faith and valid at its inception, is not avoided by the cessation of the
insurable interest, unless such be the necessary effect of the provisions of the
policy itself.
3. Filley vs. Life Insurance Company: "The benefit accruing from a policy of life
insurance upon the life of a married man, payable upon his death to his wife,
naming her, is payable to the surviving beneficiary named, although she may
have years thereafter secured a divorce from her husband, and he was thereafter
again married to one who sustained the relation of wife to him at the time of his
death. The rights of a beneficiary in an ordinary life insurance policy become
vested, upon the issuance of the policy, and can thereafter, during the life of the
beneficiary, be defeated only as provided by the terms of the policy."

ANG GIOK CHIP V. SPRINGFIELD

FACTS: Ang Giok Chip formerly owned a warehouse. The contents of the warehouse
were insured with three insurance companies for the total sum of P60, 000.00.
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 .
Predicated on this policy 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. One of the interposed defenses of defendant Springfield: fixing of
hazardous materials stored in the warehouse (Court: the warehouse did contain
such hazardous materials; 39%). The judge ruled in favor of the plaintiff.
ISSUE: WHETHER A WARRANTY1 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.
-

TWO 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 if
actually embodied therein. 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.
Section 65 of the Insurance Act and its counterpart, section 2605 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,"
"enclosed," "embraced," "comprehended," etc In other words, the rider,
warranty F, is contained in the policy itself, because by the contract
of insurance agreed to by the parties it is made to form a part of the
same, but is not another instrument signed by the insured and
referred to in the policy as forming a part of it.
Again, referring to the jurisprudence of California, another rule of insurance
adopted in that State is in point. It is admitted that the policy before us
was accepted by the plaintiff. The receipt of this policy by the
insured without objection binds both the acceptor and the insured to
the terms thereof. The insured may not thereafter be heard to say
that he did not read the policy or know its terms, since it is his duty
to read his policy and it will be assumed that he did so. In California
Jurisprudence, vol. 14, p. 427, from which these statements are taken with
1 WARRANTY"
"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 store
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; * * *."

citations to California decisions, it is added that it has been held that where
the holder of a policy discovers a mistake made by himself and the local agent
in attaching the wrong rider to his application, elects to retain the policy
issued to him, and neither requests the issuance of a different one nor offers
to pay the premium requisite to insure against the risk which he believed the
rider to cover, he thereby accepts the policy.

PHILIPPINE HEALTH CARE PRODUCTS V. CIR

FOOTNOTE 21: Our Insurance Code was based on California and New York laws.
When a statute has been adopted from some other state or country and said statute
has previously been construed by the courts of such state or country, the statute is
deemed to have been adopted with the construction given. (Prudential Guarantee
and Assurance Inc. v. Trans-Asia Shipping Lines, Inc., G.R. No. 151890, 20 June
2006, 491 SCRA 411, 439; Constantino v. Asia Life Inc. Co., 87 Phil. 248, 251 [1950];
Gercio v. Sun Life Assurance Co. of Canada, 48 Phil. 53, 59 [1925]; Cerezo v.
Atlantic, Gulf & Pacific Co., 33 Phil. 425, 428-429 [1916]).
FACTS: 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 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.
On April 5, 2002, the CTA partially granted the petition: ordered to petitioner to pay
a portion of the deficiency taxes (it cancelled the DST assessment).
Respondent appealed such decision before the CA. (claimed that petitioners health
care agreement was a contract of insurance subject to DST under Sec. 185 of the
1997 Tax Code. CA held that petitioners health care agreement was in the form of a
non-life insurance subject to DST. Petitioner appealed, but was denied.
Hence, this petition.
2008 Decision: instant petition denied. Cited Bluecross decision.
ISSUE/S + RULING:
1. W/N PETITIONER IS AN HMO OR AN INSURANCE COMPANY?
HMO

BUSINESS OF INSURANCE

Under RA 7875 (or "The National Health

Insurance Act of 1995"), an HMO is "an
entity that provides, offers or arranges for
coverage of designated health services
needed by plan members for a fixed
prepaid premium."

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.

NIRC Sec. 185 states that 2 requisites must concur in order for the DST to
apply: (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).
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.
HMO purpose: reduce the cost rather than the risk of health care;
focused on service rather than indemnity
Petitioner: purpose is to provide health care not to indemnify its
members for any loss.
A HEALTH CARE AGREEMENT is not cone of the agreements contemplated by
Art. 185. In terms of the elements of an insurance contract, agreements
executed between petitioner and its members seem to be lacking (note: even
if an agreement has all the elements, but fails the principal object and
purpose test, its not an insurance contract)
Petitioners agreement: 1.) no loss, damage or liability on the part of the
member that should be indemnified by petitioner as an HMO; 2.) a member
can take advantage of the bulk of the benefits anytime; and 3.) the

assumption of the expense by petitioner is not confined to the happening of a

contingency but includes incidents even in the absence of illness or injury.
No legislative intent to impose DST on HMOs
The power to tax is not the power to destroy (the deficiency tax demanded
from petitioner is more than its net worth
Petitioners tax liability was extinguished by a tax amnesty

2. W/N PETITIONER IS SUBJECT TO DST? NO. ^REASONS

INSURANCE V. MASAGANA TELEMART

JUSTICE VITUG; SEPARATE OPINION: An essential characteristic of an insurance
is its being synallagmatic, a highly reciprocal contract where the rights
and obligations of the parties correlate and mutually correspond. The
insurer assumes the risk of loss which an insured might suffer in
consideration of premium payments under a risk-distributing device. Such
assumption of risk is a component of general scheme to distribute actual
losses among a group of persons, bearing similar risks, who make ratable
contributions to a fund from which the losses incurred due to exposures to
the peril insured against are assured and compensated.
FACTS: Respondent obtained five insurance policies from petitioner. Sometime in
1992, all of respondents properties along Taft Ave. were destroyed by fire. On July
13, 1992, plaintiff tendered, and defendant accepted, five (5) Equitable Bank
Manager's Checks in the total amount of P225,753.45 as renewal premium
payments for which Official Receipt Direct Premium No. 62926 was issued by
defendant. On July 14, 1992, Masagana made its formal demand for indemnification
for the burned insured properties. On the same day, defendant returned the five (5)
manager's checks stating in its letter that it was rejecting Masagana's claim on the
following grounds:
a)

Said policies expired last May 22, 1992 and were not renewed for another term;

b)

Defendant had put plaintiff and its alleged broker on notice of non-renewal earlier;
and

c)

The properties covered by the said policies were burned in a fire that took place
last June 13, 1992, or before tender of premium payment."

ISSUE: W/N RESPONDENTS TENDER OF PAYMENT OF THE PREMIUMS ON 13 JULY

1992 RESULTED TO THE RENEWAL OF THE POLICIES?
RULING: YES.
***FACTS TO CONSIDER: 1.) for years, Petitioner had been issuing fire policies to the
Respondent, and these policies were annually renewed; 2.) petitioner had been
granting Respondent a 60- to 90-day credit term within which to pay the premiums

on the renewed policies; 3.) there was no valid notice of non-renewal of the policies
in question, as there is no proof at all that the notice sent by ordinary mail was
received by Respondent, and the copy thereof allegedly sent to Zuellig was ever
transmitted to Respondent; 4.) the premiums for the policies in question in the
aggregate amount of P225,753.95 were paid by Respondent within the 60- to 90day credit term and were duly accepted and received by Petitioner's cashier.
Tuscany has provided a fourth exception to Section 77, namely, that the insurer
may grant credit extension for the payment of the premium. This simply means that
if the insurer has granted the insured a credit term for the payment of the premium
and loss occurs before the expiration of the term, recovery on the policy should be
allowed even though the premium is paid after the loss but within the credit term.
Moreover, there is nothing in Section 772 which prohibits the parties in an insurance
contract to provide a credit term within which to pay the premiums. That agreement
is not against the law, morals, good customs, public order or public policy. The
agreement binds the parties. Article 1306 of the Civil Code provides:
ART. 1306. The contracting parties may establish such stipulations
clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public policy.
Finally in the instant case, it would be unjust and inequitable if recovery on the
policy would not be permitted against Petitioner, which had consistently granted a
60- to 90-day credit term for the payment of premiums despite its full awareness of
Section 77. Estoppel bars it from taking refuge under said Section, since
Respondent relied in good faith on such practice. Estoppel then is the fifth exception
to Section 77.

2
Section 77 of the Insurance Code of 1978 provides:SEC. 77. An insurer is entitled to
payment of the premium as soon as the thing insured is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by
an insurance company is valid and binding unless and until the premium thereof has been
paid, except in the case of a life or an industrial life policy whenever the grace period
provision applies.
This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code)
promulgated on 18 December 1974. In turn, this Section has its source in Section 72 of Act
No. 2427 otherwise known as the Insurance Act as amended by R.A. No. 3540, approved on
21 June 1963, which read:
SEC. 72. An insurer is entitled to payment of premium as soon as the thing insured is
exposed to the peril insured against, unless there is clear agreement to grant the insured
credit extension of the premium due. No policy issued by an insurance company is valid and
binding unless and until the premium thereof has been paid.

PHILAMCARE HEALTH SYSTEMS V. CA

FACTS: in his application regarding a health care coverage, Ernani Trinos, deceased
husband of Julita Trinos (private respondent), answered NO to the question
regarding the presence of any heart ailments in the family.
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 Ernanis medical history. Doctors at the MMC allegedly discovered at the
time of Ernanis confinement that he was hypertensive, diabetic and asthmatic,
contrary to his answer in the application form. Thus, respondent paid the
hospitalization expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical
therapist at home. Later, he was admitted at the Chinese General Hospital. Due to
financial difficulties, however, respondent brought her husband home again. In the
morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent
was constrained to bring him back to the Chinese General Hospital where he died
on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila,
Branch 44, an action for damages against petitioner and its president, Dr. Benito
Reverente. She asked for reimbursement of her expenses plus moral damages and
attorneys fees.
RTC: ruled against petitioner
CA: affirmed RTC ruling with modifications.
ISSUE: W/N A HEALTH CARE AGREEMENT IS AN INSURANCE CONTRACT?
RULING: NO.
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 designated peril;

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. 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

(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; and
(4 of any person upon whose life any
) estate or interest vested in him
depends.

5. In consideration of the
insurers promise, the
insured pays a premium.

In the case at bar, the insurable interest of respondents husband in obtaining the
health care agreement was his own health. The health care agreement was 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.
The answer assailed by petitioner was in response to the question relating to the
medical history of the applicant. This largely depends on opinion rather than fact,
especially coming from respondents husband who was not a medical doctor. Where
matters of opinion or judgment are called for, answers made in good faith and
without intent to deceive will not avoid a policy even though they are untrue. Thus,
(A)lthough false, a representation of the expectation, intention, belief, opinion, or
judgment of the insured will not avoid the policy if there is no actual fraud in inducing
the acceptance of the risk, or its acceptance at a lower rate of premium, and this is
likewise the rule although the statement is material to the risk, if the statement is
obviously of the foregoing character, since in such case the insurer is not justified in
relying upon such statement, but is obligated to make further inquiry. There is a
clear distinction between such a case and one in which the insured is fraudulently
and intentionally states to be true, as a matter of expectation or belief, that which he
then knows, to be actually untrue, or the impossibility of which is shown by the facts
within his knowledge, since in such case the intent to deceive the insurer is obvious
and amounts to actual fraud.
FRAUD MUST BE ESTABLISHED TO WARRANT THE RESCISSION OF THE CONTRACT (In the
instant case no rescission was made; no cancellation happened either as the requisites for

such were not met3). 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.

BLUE CROSS HEALTH CARE V. OLIVARES

FACTS: Respondent applied for a health care program with petitioner (one of the
terms: ailments due to pre-existing conditions were excluded). 38 days after the
effectivity of such program, respondent suffered a stroke. 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. Respondent was constrained to pay the bill when petitioner still refused
pending respondents submission of the requested certification. Thereafter,
respondent filed a complaint against petitioner with the MeTC.
MeTC RULING: complaint dismissed for lack of cause of action.
RTC: REVERSED MeTC decision.
CA: AFFIRMED RTC Decision.
ISSUE: WHETHER PETITIONER WAS ABLE TO PROVE THAT RESPONDENT NEOMI'S
STROKE WAS CAUSED BY A PRE-EXISTING CONDITION AND THEREFORE WAS
EXCLUDED FROM THE COVERAGE OF THE HEALTH CARE AGREEMENT?
WHETHER IT WAS LIABLE FOR MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S
FEES?
RULING:
1. NO. Disabilities which existed before the commencement of the agreement
are excluded from its coverage if they become manifest within one year from
its effectivity. Stated otherwise, petitioner is not liable for pre-existing
conditions if they occur within one year from the time the agreement takes
effect. In this case, the burden was on petitioner to prove that Neomi's stroke
was excluded from the coverage of their agreement because it was due to a
pre-existing condition.
3
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.

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.
- Petitioner never presented evidence to prove that respondents stroke
stemmed from a pre-existing condition. What it had was a mere
speculation relative to respondents invocation of the doctor-patient
privilege.
- 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
2. YES. The RTC and CA found that there was a factual basis for the damages
adjudged against petitioner. They found that it was guilty of bad faith in
denying a claim based merely on its own perception that there was a preexisting condition.