INSURANCE LAW: I.

GENERAL CONCEPTS
CASE DIGEST

PHILIPPINE HEALTH CARE PROVIDERS, INC vs. should be transacting the business of accident, fidelity,
COMMISSIONER OF INTERNAL REVENUE (principal purpose employers liability, plate, glass, steam boiler, burglar, elevator,
and object test) automatic sprinkler, or other branch of insurance (except life,
marine, inland, and fire insurance). 
ACTION: MR and supplemental MR filed by petitioner Philippine
Health Care Providers, Inc. It stemmed from a petition for review Section 2 (2) of PD[20] 1460 (otherwise known as the
in (CTA) filed by petitioner seeking the cancellation of the Insurance Code) enumerates what constitutes doing an insurance
deficiency VAT and DST assessments. business or transacting an insurance business: 

FACTS:  a)          making or proposing to make, as

insurer, any insurance contract; 
 Petitioner is a domestic corporation whose primary
purpose is [t]o establish, maintain, conduct and operate b)            making or proposing to make, as
a prepaid group practice health care delivery system or surety, any contract of suretyship as
a health maintenance organization(HMO) a vocation and not as merely
 Individuals enrolled in its health care programs pay an incidental to any other legitimate
annual membership fee and are entitled to various business or activity of the surety; 
preventive, diagnostic and curative medical services
provided by its duly licensed physicians, specialists and c)             doing any kind of business, including
other professional technical staff participating in the a reinsurance business, specifically
group practice health delivery system at a hospital or recognized as constituting the doing
clinic owned, operated or accredited by it. of an insurance business within the
 On January 27, 2000, [CIR] sent petitioner a formal meaning of this Code; 
demand letter and the corresponding assessment d)            doing or proposing to do any business
notices demanding the payment of deficiency taxes for in substance equivalent to any of the
the taxable years 1996 and 1997 in the total amount foregoing in a manner designed to
of P224,702,641.18. evade the provisions of this Code. 
 The deficiency [documentary stamp tax (DST)]
assessment was imposed on petitioners health care In the application of the provisions of
agreement with the members of its health care program this Code, the fact that no profit is derived
pursuant to Section 185 of the 1997 Tax Code. from the making of insurance contracts,
 Petitioner protested the assessment. As respondent did agreements or transactions or that no
not act on the protest, petitioner filed a petition for separate or direct consideration is received
review in the Court of Tax Appeals (CTA) seeking the therefore, shall not be deemed conclusive to
cancellation of the deficiency VAT and DST assessments. show that the making thereof does not
 CTA: rendered a decision, which partially constitute the doing or transacting of an
granted the petition and declared VAT Ruling insurance business.  
No. [231]-88 void and without force and effect.
The 1996 and 1997 deficiency DST assessment Various courts in the United States, whose
against petitioner were CANCELLED AND SET jurisprudence has a persuasive effect on our decisions, have
ASIDE.   determined that HMOs are not in the insurance business. One test
 CIR appealed the CTA decision and claimed that that they have applied is whether the assumption of risk and
petitioners health care agreement was a indemnification of loss (which are elements of an insurance
contract of insurance subject to DST under business) are the principal object and purpose of the
Section 185 of the 1997 Tax Code. organization or whether they are merely incidental to its
 CA: petitioners health care agreement was in business. If these are the principal objectives, the business is that
the nature of a non-life insurance contract of insurance. But if they are merely incidental and service is the
subject to DST. Petitioner moved for principal purpose, then the business is not insurance.
reconsideration but the CA denied it. Hence,  
petitioner filed this case.
 SC: In a decision dated June 12, 2008, the Court Applying the principal object and purpose test, there
denied the petition and affirmed the CAs is significant American case law supporting the argument that a
decision. corporation (such as an HMO, whether or not organized for
 Petitioner filed the present motion for profit), whose main object is to provide the members of a group
reconsideration and supplemental motion for with health services [rather than the assumption of insurance
reconsideration, asserting the following risk], is not engaged in the insurance business. 
arguments:
   As an HMO, it is its obligation to maintain the good
health of its members. Accordingly, its health care programs
(a) The DST under Section 185 of the are designed to prevent or to minimize thepossibility of any
National Internal Revenue of 1997 is assumption of risk on its part. Thus, its undertaking under its
imposed only on a company engaged in agreements is not to indemnify its members against any loss or
the business of fidelity bonds and other damage arising from a medical condition but, on the contrary, to
insurance policies. Petitioner, as an HMO, provide the health and medical services needed to prevent such
is a service provider, not an insurance loss or damage.
company.
xxx  Overall, petitioner appears to provide insurance-type
benefits to its members (with respect to its curative medical
ISSUE: Whether petitioner is engaged in an insurance business services), but these are incidental to the principal activity of
whose healthcare agreements are subject to DST under Sec. 185, providing them medical care. The insurance-like aspect of
NIRC petitioners business is miniscule compared to its noninsurance
activities. Therefore, since it substantially provides health care
HELD: No.  HEALTH MAINTENANCE ORGANIZATIONS ARE services rather than insurance services, it cannot be considered
NOT ENGAGED IN THE INSURANCE BUSINESS as being in the insurance business.

Two requisites must concur before the DST can apply, namely: Lastly, it is significant that petitioner, as an HMO, is not
(1) the document must be a policy of insurance or an part of the insurance industry. This is evident from the fact that it
obligation in the nature of indemnity and (2) the maker is not supervised by the Insurance Commission but by the

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 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST

Department of Health. law found in the Civil code, closely related to the chapter
concerning life annuities.

The Civil Code rule, that an acceptance made by letter shall bind
Enriquez v. Sun Life Assurance Co. of Canada the person making the offer only from the date it came to his
knowledge, may not be the best expression of modern
Facts: On September 24, 1917, Joaquin Herrer made application
commercial usage. Still it must be admitted that its enforcement
to the Sun Life Assurance Company of Canada through its office in
avoids uncertainty and tends to security.
Manila for a life annuity. Two days later he paid the sum of
P6,000 to the manager of the company's Manila office and was In resume, therefore, the law applicable to the case is found to be
given a receipt reading as follows: the second paragraph of article 1262 of the Civil Code providing
that an acceptance made by letter shall not bind the person
“Provisional Receipt Pesos 6,000
making the offer except from the time it came to his knowledge.
(Written in Spanish in Full Text; Translated by a friend) The pertinent fact is, that according to the provisional receipt,
“Received the sum of 6,000 pesos from adon Joaquin Herrer from three things had to be accomplished by the insurance company
Manila as downpayment annuity as per Don J. Herrer now, before there was a contract: (1) There had to be a medical
subject to medical examination and approbation by the Central examination of the applicant; (2) there had to be approval of the
Office of the Company.” application by the head office of the company; and (3) this
approval had in some way to be communicated by the company
The application was immediately forwarded to the head office of to the applicant. The further admitted facts are that the head
the company at Montreal, Canada. On November 26, 1917, the office in Montreal did accept the application, did cable the Manila
head office gave notice of acceptance by cable to Manila. On office to that effect, did actually issue the policy and did, through
December 4, 1917, the policy was issued at Montreal. On its agent in Manila, actually write the letter of notification and
December 18, 1917, attorney Aurelio A. Torres wrote to the place it in the usual channels for transmission to the addressee.
Manila office of the company stating that Herrer desired to The fact as to the letter of notification thus fails to concur with
withdraw his application. The following day the local office the essential elements of the general rule pertaining to the
replied to Mr. Torres, stating that the policy had been issued, and mailing and delivery of mail matter as announced by the
called attention to the notification of November 26, 1917. This American courts, namely, when a letter or other mail matter is
letter was received by Mr. Torres on the morning of December addressed and mailed with postage prepaid there is a rebuttable
21, 1917. Mr. Herrer died on December 20, 1917. The letter dated presumption of fact that it was received by the addressee as soon
November 26, 1917 was never actually mailed and thus was as it could have been transmitted to him in the ordinary course of
never received by the applicant. the mails. But if any one of these elemental facts fails to appear, it
is fatal to the presumption. For instance, a letter will not be
Herrer estate’s administrator thus brought an action to recover presumed to have been received by the addressee unless it is
from the defendant life insurance company the sum of pesos shown that it was deposited in the post-office, properly
6,000 paid by the deceased for a life annuity. addressed and stamped.
TC-Favor of defendant. Plaintiff appealed. We hold that the contract for a life annuity in the case at bar was
not perfected because it has not been proved satisfactorily that
Issue: WON contract for a life annuity was perfected.
the acceptance of the application ever came to the knowledge of
Ruling: No. Before going to the main issue, it is crucial to know the applicant.
which law should be applied to the facts. Until quite recently, all
Judgment is thus reversed, and the plaintiff shall have and
of the provisions concerning life insurance in the Philippines
recover from the defendant.
were found in the Code of Commerce and the Civil Code.
Subsequently, the Insurance Act emerged concerns life and
health insurance. The Act expressly repealed selected provisions
in the Code of Commerce. The law of insurance is consequently Fieldmen Insurance Co. v. Vda. Songco
now found in the Insurance Act and the Civil Code.
Facts:
While, as just noticed, the Insurance Act deals with life insurance,
it is silent as to the methods to be followed in order that there Federico Songco, a man of scant education, being only a first
may be a contract of insurance. On the other hand, the Civil Code, grader, owned a private jeepney. Being the owner of such, he was
in article 1802, not only describes a contact of life annuity induced by Fieldmen Insurance Agent Benjamin Sambatto to
markedly similar to the one we are considering, but in two other apply for a “COMMON CARRIER’S LIABILITY INSURANCE
articles, gives strong clues as to the proper disposition of the POLICY” covering his private jeepney (insured vehicle).
case. For instance, article 16 of the Civil Code provides that "In
matters which are governed by special laws, any deficiency of the The insured vehicle while being driven by Rodolfo Songco, a duly
latter shall be supplied by the provisions of this Code." On the licensed driver and son of Federico, collided with another car in
supposition, therefore, which is incontestable, that the special the municipality of Calumpit. As a result, Federico Songco and
law on the subject of insurance is deficient in enunciating the Rodolfo Songco died, and Carlos Songco (another son of
principles governing acceptance, the subject-matter of the Civil Federico), and Angelita Songco (wife) and Jose Manuel (Family
code, if there be any, would be controlling. In the Civil Code is Friend sustained physical injuries.
found article 1262 providing that "Consent is shown by the
As testified by Amor Songco, 42 y/o son of Federico, while agent
concurrence of offer and acceptance with respect to the thing and
Sambatto was inducing his father to insure the insured vehicle,
the consideration which are to constitute the contract. An
Federico said that his vehicle is an ‘owner’ private vehicle and not
acceptance made by letter shall not bind the person making the
for passengers, therefore, it is not covered under the “COMMON
offer except from the time it came to his knowledge. The contract,
CARRIER’S LIABILITY INSURANCE POLICY, but agent Sambat
in such case, is presumed to have been entered into at the place
said whether the vehicle was a private or for passengers it could
where the offer was made." This latter article is in opposition to
be insured because their company is not owned by the
the provisions of article 54 of the Code of Commerce.
government, so they could do what they please whenever they
If no mistake has been made in announcing the successive steps believe a vehicle is insurable.
by which we reach a conclusion, then the only duty remaining is
RTC - It was held that Fieldmen’s Insurance cannot escape
for the court to apply the law as it is found. The legislature in its
liability under a common carrier insurance policy on the pretext
wisdom having enacted a new law on insurance, and expressly
that what was insured was a private vehicle and not a common
repealed the provisions in the Code of Commerce on the same
carrier, the policy being issued upon the agent’s insistence.
subject, and having thus left a void in the commercial law, it
would seem logical to make use of the only pertinent provision of CA - Affirmed RTC

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 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST

Issue: WON Fieldmen Insurance shall be held liable under the and fees already deducted and collected by Philamlife in
Common Carrier Insurance Policy, despite of the fact that the connection therewith be reimbursed to the agents.
insured vehicle was a private type.
Manuel Ortega, Philamlife's Senior Assistant Vice-President and
Held: Yes. Executive Assistant to the President, asked that respondent
Commission first rule on the questions of the jurisdiction of the
The Supreme Court apply the doctrine laid down under Qua Insurance Commissioner over the subject matter of the letters-
Chee Gan v. Law Union and Rock Insurance Co. Ltd. It was held complaint and the legal standing of private respondent.
that “where inequitable conduct is shown by an insurance firm, it
is stopped from enforcing forfeitures in its favor, in order to Respondent Commissioner denied the Motion to Quash.
forestall fraud or imposition on the insurred”. The Qua Chee Gan
case applied the doctrine of Estoppel. Estoppel is primarily based Issue: WON the resolution of the legality of the Contract of
on the doctrine of good faith and the avoidance of harm that will Agency falls within the jurisdiction of the Insurance
befall the innocent party due to its injurious reliance. Commissioner.

In this case, after petitioner Fieldmen's Insurance Co., Inc. had led Held: No. Since the contract of agency entered into between
the insured Federico Songco to believe that he could qualify Philamlife and its agents is not included within the meaning of an
under the common carrier liability insurance policy, and to enter insurance business, Section 2 of the Insurance Code cannot be
into contract of insurance paying the premiums due, it could not, invoked to give jurisdiction over the same to the Insurance
thereafter, in any litigation arising out of such representation, be Commissioner. Expressio unius est exclusio alterius.
permitted to change its stand to the detriment of the heirs of the
The general regulatory authority of the Insurance Commissioner
insured. As estoppel is primarily based on the doctrine of good
is described in Section 414 of the Insurance Code, to wit:
faith and the avoidance of harm that will befall the innocent party
due to its injurious reliance, the failure to apply it in this case The Insurance Commissioner shall have the duty to see that all
would result in a gross travesty of justice. laws relating to insurance, insurance companies and other
insurance matters, mutual benefit associations and trusts for
Fieldmen Insurance incurred legal liability under the
charitable uses are faithfully executed and to perform the duties
“COMMON CARRIER INSURANCE POLICY”, since some of the
imposed upon him by this Code, . . .
conditions contained in the policy issued by the defendant-
appellant were impossible to comply with under the existing On the other hand, Section 415 provides:
conditions at the time and 'inconsistent with the known facts,' the
insurer 'is estopped from asserting breach of such conditions.' In addition to the administrative sanctions provided elsewhere in
From this jurisprudence, we find no valid reason to deviate and this Code, the Insurance Commissioner is hereby authorized, at
consequently hold that the decision appealed from should be his discretion, to impose upon insurance companies, their
affirmed. The injured parties, to wit, Carlos Songco, Angelito directors and/or officers and/or agents, for any willful failure or
Songco and Jose Manuel, for whose hospital and medical refusal to comply with, or violation of any provision of this Code,
expenses the defendant company was being made liable, were or any order, instruction, regulation or ruling of the Insurance
passengers of the jeepney at the time of the occurrence, and Commissioner, or any commission of irregularities, and/or
Rodolfo Songco, for whose burial expenses the defendant conducting business in an unsafe and unsound manner as may be
company was also being made liable was the driver of the vehicle determined by the the Insurance Commissioner, the following:
in question. Except for the fact, that they were not fare paying
passengers, their status as beneficiaries under the policy is (a) fines not in excess of five hundred pesos a day; and
recognized therein."
(b) suspension, or after due hearing, removal of directors and/or
"The contract of insurance is one of perfect good faith (uberima officers and/or agents.
fides) not for the insured alone,but equally so for the insurer; in
A plain reading of the above-quoted provisions show that the
fact, it is more so for the latter, since its dominant bargaining
Insurance Commissioner has the authority to regulate the
position carries with it stricter responsibility."
business of insurance, which is defined as follows:

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

Philamlife v. Ansaldo insurance business," within the meaning of this Code, shall
include
G.R. No. 76452
(a) making or proposing to make, as insurer, any insurance
Petitioners: Philippine American Life Insurance Company and
contract;
Rodrigo De Los Reyes (Philamlife President)
Respondents: Hon. Armando Ansaldo (Insurance (b) making, or proposing to make, as surety, any contract of
Commissioner), and Ramon Montilla Paterno (private suretyship as a vocation and not as merely incidental to any other
respondent) legitimate business or activity of the surety;
Date of Promulgation: July 26, 1994
Ponente: Quason, J. (c) doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an insurance
Facts: business within the meaning of this Code;
Private respondent Ramon M. Paterno, Jr. through a letter- (d) doing or proposing to do any business in substance
complaint to respondent Commissioner, alleging certain equivalent to any of the foregoing in a manner designed to evade
problems encountered by agents, supervisors, managers and the provisions of this Code. (Insurance Code, Sec. 2[2])
public consumers of the Philamlife as a result of certain practices
by said company. With regard to private respondent's contention that the quasi-
judicial power of the Insurance Commissioner under Section 416
Private respondent was required by respondent Commissioner to of the Insurance Code applies in his case, we likewise rule in the
specify the provisions of the agency contract which he claimed to negative. Section 416 of the Code in pertinent part, provides:
be illegal.
The Commissioner shall have the power to adjudicate claims and
On August 4, private respondent submitted a letter of complaints involving any loss, damage or liability for which an
specification praying that the provisions on charges and fees insurer may be answerable under any kind of policy or contract
stated in the Contract of Agency executed between Philamlife and of insurance, or for which such insurer may be liable under a
its agents, as well as the implementing provisions as published in contract of suretyship, or for which a reinsurer may be used
the agents' handbook, agency bulletins and circulars, be declared under any contract or reinsurance it may have entered into, or
as null and void. He also asked that the amounts of such charges for which a mutual benefit association may be held liable under
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 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST

the membership certificates it has issued to its members, where  A complaint for specific performance and damages was
the amount of any such loss, damage or liability, excluding consequently instituted by the respondent with the
interest, costs and attorney's fees, being claimed or sued upon RTC, Branch 53 of Lucena City
any kind of insurance, bond, reinsurance contract, or  RTC – judgment is in favored of the plaintiff.
membership certificate does not exceed in any single claim one  CA – decision of RTC is affirmed. The appeal is
hundred thousand pesos. dismissed for lack of merit.
A reading of the said section shows that the quasi-judicial power ISSUE: WON THE BURNED OIL MILL IS COVERED BY INSURANCE
of the Insurance Commissioner is limited by law "to claims and POLICY
complaints involving any loss, damage or liability for which an
insurer may be answerable under any kind of policy or contract HELD: Yes. The burned (new) mill is covered by the
of insurance, . . ." Hence, this power does not cover the insurance policy.
relationship affecting the insurance company and its agents but is  In construing the words used descriptive of a building
limited to adjudicating claims and complaints filed by the insured insured, the greatest liberality is shown by the courts in
against the insurance company. giving effect to the insurance. In view of the custom of
insurance agents to examine buildings before writing
While the subject of Insurance Agents and Brokers is discussed policies upon them, and since a mistake as to the
under Chapter IV, Title I of the Insurance Code, the provisions of identity and character of the building is extremely
said Chapter speak only of the licensing requirements and unlikely, the courts are inclined to consider that the
limitations imposed on insurance agents and brokers. policy of insurance covers any building which the
The Insurance Code does not have provisions governing the parties manifestly intended to insure, however
relations between insurance companies and their agents. It inaccurate the description may be.Notwithstanding,
follows that the Insurance Commissioner cannot, in the exercise therefore, the misdescription in the policy, it is beyond
of its quasi-judicial powers, assume jurisdiction over dispute, to our mind, that what the parties manifestly
controversies between the insurance companies and their agents. intended to insure was the new oil mill.
 If the parties really intended to protect the first oil
We have held in the cases of Great Pacific Life Assurance mill, then there is no need to specify it as new.
Corporation v. Judico, 180 SCRA 445 (1989), and Investment  Petitioner argues that the warranty clearly obligates the
Planning Corporation of the Philippines v. Social Security insured to maintain all the appliances specified
Commission, 21 SCRA 904 (1962), that an insurance company therein. The breach occurred when the respondent
may have two classes of agents who sell its insurance policies: (1) failed to install internal fire hydrants inside the burned
salaried employees who keep definite hours and work under the building as warranted. This fact was admitted by the oil
control and supervision of the company; and (2) registered mills expeller operator, Gerardo Zarsuela.
representatives, who work on commission basis.  Again, the argument lacks merit. We agree with the
appellate courts conclusion that the aforementioned
Under the first category, the relationship between the insurance warranty did not require respondent to provide for all
company and its agents is governed by the Contract of the fire extinguishing appliances enumerated
Employment and the provisions of the Labor Code, while under therein. Additionally, we find that neither did it require
the second category, the same is governed by the Contract of that the appliances are restricted to those mentioned in
Agency and the provisions of the Civil Code on the Agency. the warranty. In other words, what the warranty
Disputes involving the latter are cognizable by the regular courts. mandates is that respondent should maintain in
efficient working condition within the premises of the
insured property, fire fighting equipments such as, but
not limited to, those identified in the list, which will
AMERICAN HOME ASSURANCE COMPANY vs TANTUCO
serve as the oil mills first line of defense in case any part
ENTERPRISES, INC.
of it bursts into flame.
GR NO. 138941
 To be sure, respondent was able to comply with the
Petitioner: American Home Assurance Company warranty. Within the vicinity of the new oil mill can be
Respondent: Tantuco Enterprises, Inc. found the following devices: numerous portable fire
Date of Promulgation: October 8, 2001 extinguishers, two fire hoses, fire hydrant, and an
Ponente: Puno emergency fire engine. All of these equipments were in
efficient working order when the fire occurred.
Facts:
 Respondent Tantuco Enterprises, Inc. is engaged in the
coconut oil milling and refining industry. It owns two oil PEREZ vs. CA
mills. It appears that respondent commenced its G.R. No. 112329
business operations with only one oil mill. In 1988, it
started operating its second oil mill. The latter came to Petitioners: Virginia Perez
be commonly referred to as the new oil mill. Respondents: Court of Appeals and BF Lifeman Insurance
 The two oil mills were separately covered by fire Corporation (private respondent)
insurance policies issued by petitioner American Home Date of Promulgation: January 28, 2000
Assurance Co., Philippine Branch. Official receipts Ponente: Ynares- Santiago
indicating payment for the full amount of the premium Action: Rescission of Insurance Contract; Petition for Certiorari
were issued by the petitioner's agent.
 September 20, 1991 – a fire broke out and consumed Facts:
the new oil mill. Respondent immediately notified the
petitioner of the incident. The latter then sent its  Primitivo B. Perez had been insured with the BF
appraisers who inspected the burned premises and the Lifeman Insurance Corporation since 1980 for
properties destroyed P20,000.00.
 October 15, 1991 - petitioner rejected respondents
claim for the insurance proceeds on the ground that no
policy was issued by it covering the burned oil mill. It  October 1987, an agent of the insurance corporation,
stated that the description of the insured establishment Rodolfo Lalog, convinced Primitivo Perez to apply for
referred to another building thus: Our policy nos. 306- additional insurance coverage of P50,000.00 to avail of
7432321-9 (Ps 6M) and 306-7432324-4 (Ps 3M) extend the ongoing promotional discount if the premium were
insurance coverage to your oil mill under Building No. 5, paid annually.
whilst the affected oil mill was under Building No. 14.
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 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST

 October 20, 1987, Primitivo Perez accomplished an gross negligence due to the delay in acting on the application.
application form for the additional insurance coverage 4. W/N the Insurance Policy for P50,000.00 is
of P50,000.00. Petitioner Virginia A. Perez, Primitivos rescinded.
wife, paid P2,075.00 to Lalog. The receipt issued by
Lalog indicated the amount received was a "deposit." Held:
1. No, it was not perfected. Insurance is a contract
 Lalog lost the application form accomplished by Perez. whereby, for a stipulated consideration, one party undertakes to
compensate the other for loss on a specified subject by specified
perils. A contract, on the other hand, is a meeting of the minds
 October 28, 1987, Lalog asked the Perez to fill up
between two persons whereby one binds himself, with respect to
another application form.
the other to give something or to render some service. Under
Article 1318 of the Civil Code, there is no contract unless the
 November 1, 1987, Perez was made to undergo the following requisites concur: (a) Consent of the contracting
required medical examination, which he passed. parties; (b) Object certain which is the subject matter of the
contract; (c) Cause of the obligation which is established. Consent
 Pursuant to the established procedure of the company, must be manifested by the meeting of the offer and the
Lalog forwarded the application, together with all its acceptance upon the thing and the cause which are to constitute
supporting papers, to the office of BF Lifeman Insurance the contract. The offer must be certain and the acceptance
Corporation at Gumaca, Quezon which office was absolute.
supposed to forward the papers to the Manila office.
When Primitivo filed an application for insurance, paid P2,075.00
 November 25, 1987, Perez died in an accident. He was and submitted the results of his medical examination, his
riding in a banca which capsized during a storm. application was subject to the acceptance of private respondent
BF Lifeman Insurance Corporation. The perfection of the contract
of insurance between the deceased and respondent corporation
 At the time of his death, his application papers for the was further conditioned upon compliance with the following
additional insurance of P50,000.00 were still with the requisites stated in the application form: "there shall be no
Gumaca office. Lalog testified that he went to follow up contract of insurance unless and until a policy is issued on this
the papers, he found them still in the Gumaca office and application and that the said policy shall not take effect until the
so he personally brought the papers to the Manila office premium has been paid and the policy delivered to and accepted by
of BF Lifeman Insurance Corporation. It was only on me/us in person while I/We, am/are in good health.". The assent of
November 27, 1987 that said papers were received in private respondent BF Lifeman Insurance Corporation therefore
Manila. was not given when it merely received the application form and
all the requisite supporting papers of the applicant. Its assent was
 December 2, 1987, without knowing that Perez died, BF given when it issues a corresponding policy to the applicant. It is
Lifeman Insurance Corporation approved the only when the applicant pays the premium and receives and
application and issued the corresponding policy for the accepts the policy while he is in good health that the contract of
P50,000.00. insurance is deemed to have been perfected.

 Petitioner Virginia Perez went to claim the benefits When Primitivo died on November 25, 1987, his application
under the insurance policy. She was paid P40,000.00 papers for additional insurance coverage were still with the
under the first insurance policy but the insurance branch office of respondent corporation in Gumaca and it was
company refused to pay the claim under the additional only two days later (November 27, 1987) when Lalog personally
policy coverage of P50,000.00, the proceeds of which delivered the application papers to the head office in Manila.
amount to P150,000.00. Consequently, there was absolutely no way the acceptance of the
application could have been communicated to the applicant for
the latter to accept inasmuch as the applicant at the time was
 Insurance company maintained that the insurance for
already dead. In the case of Enriquez vs. Sun Life Assurance Co. of
P50,000.00 had not been perfected at the time of the
Canada, recovery on the life insurance of the deceased was
death of Primitivo Perez. Consequently, the insurance
disallowed on the ground that the contract for annuity was not
company refunded the amount of P2,075.00 which
perfected since it had not been proved satisfactorily that the
Virginia Perez had paid.
acceptance of the application ever reached the knowledge of the
applicant.
 Private respondent BF Lifeman Insurance Corporation
filed a complaint against Virginia A. Perez seeking the
2. No, it is not a potestative condition but a
rescission and declaration of nullity of the insurance
suspensive condition. A potestative condition depends upon the
contract in question.
exclusive will of one of the parties and is considered void. In the
case at bar, the following conditions were imposed by the
 Petitioner Virginia Perez, on the other hand, averred respondent company for the perfection of the contract of
that the deceased had fulfilled all his prestations under insurance: (a) a policy must have been issued; (b) the premiums
the contract and all the elements of a valid contract are paid; and (c) the policy must have been delivered to and accepted
present. by the applicant while he is in good health. The condition
imposed by the corporation that the policy must have been
 Trial Court: In favor of Petitioner Virginia Perez. delivered to and accepted by the applicant while he is in good
health can hardly be considered as a potestative or facultative
condition. On the contrary, the health of the applicant at the time
 CA: Reversed the decision. In favor of BF Lifeman. of the delivery of the policy is beyond the control or will of the
Reason: No perfection of insurance contract. insurance company. Rather, the condition is a suspensive one
whereby the acquisition of rights depends upon the happening of
 Petitioners MR: Denied. Hence, this petition for an event which constitutes the condition. In this case, the
certiorari. suspensive condition was the policy must have been delivered
and accepted by the applicant while he is in good health. There
Issue: 1. W/N the additional insurance coverage is perfected. was non-fulfillment of the condition, however, inasmuch as the
2. W/N the condition imposed by BF Lifeman Insurance applicant was already dead at the time the policy was issued.
in the application form is a potestative condition. Hence, the non-fulfillment of the condition resulted in the non-
3. W/N BF Lifeman Insurance can be held liable for perfection of the contract.

5
 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST

A contract of insurance, like other contracts, must be assented to  In the case of Martin, they incurred medical expenses
by both parties either in person or by their agents. So long as an amounting to ₱9,101.30. MEDICard paid ₱8,496.00.
application for insurance has not been either accepted or Consequently, MMPC only paid ₱288.40,16 after
rejected, it is merely an offer or proposal to make a contract. The deducting from the total medical expenses the amount
contract, to be binding from the date of application, must have paid by MEDICard and the ₱316.90 discount given by
been a completed contract, one that leaves nothing to be done, the hospital.
nothing to be completed, nothing to be passed upon, or  Claiming that under the CBA, they are entitled to
determined, before it shall take effect. There can be no contract of hospital benefits which should not be reduced by the
insurance unless the minds of the parties have met in agreement. amounts paid by MEDICard and by Prosper, Calida,
Oabel and Martin asked for reimbursement from MMPC.
3. No, BF Lifeman Insurancec cannot be held liable  However, MMPC denied the claims contending that
for gross negligence. An application is a mere offer which double insurance would result if the said employees
requires the overt act of the insurer for it to ripen into a contract. would receive from the company the full amount of
Delay in acting on the application does not constitute acceptance hospitalization expenses despite having already
even though the insured has forwarded his first premium with received payment of portions thereof from other health
his application. The corporation may not be penalized for the insurance providers.
delay in the processing of the application papers. Moreover,  MMPSEU referred the dispute to the National
while it may have taken some time for the application papers to Conciliation and Mediation Board and requested for
reach the main office, in the case at bar, the same was acted upon preventive mediation.
less than a week after it was received. The processing of  The case was referred to Voluntary Arbitrator Rolando
applications by respondent corporation normally takes two to Capocyan for resolution of the issue involving the
three weeks, the longest being a month. In this case, the requisite interpretation of the subject CBA provision.
medical examination was undergone by the deceased on  Meanwhile, the parties separately sought for a legal
November 1, 1987; the application papers were forwarded to the opinion from the Insurance Commission relative to the
head office on November 27, 1987; and the policy was issued on issue at hand.
December 2, 1987. Under these circumstances, delay could not be  However, the Office of the Insurance Commission opted
deemed unreasonable so as to constitute gross negligence. not to render an opinion, based on MMPC’s letter, on the
matter as the same may become the subject of a formal
4. It is not rescinded but null and void. CA corrected complaint before it.
this in its Resolution of the MR filed by petitioner. Rescission  On the other hand, when queried by MMPSEU, the
presupposes the existence of a valid contract. A contract which is Insurance Commission, through Atty. Richard David C.
null and void is no contract at all and hence could not be the Funk II of the Claims Adjudication Division, rendered an
subject of rescission. opinion contained in a letter that “the courts have
uniformly held that an insured is entitled to receive the
insurance benefits without regard to the amount of total
benefits provided by other insurance. The result is
MITSUBISHI MOTORS PHILIPPINES SALARIED EMPLOYEES consistent with the public policy underlying the
UNION (MMPSEU) v. MITSUBISHI MOTORS PHILIPPINES collateral source rule – that is, x x x the courts have
CORPORATION (MMPC) usually concluded that the liability of a health or
G.R. No. 175773 accident insurer is not reduced by other possible
sources of indemnification or compensation.”
Petitioners: MITSUBISHI MOTORS PHILIPPINES SALARIED  Voluntary Arbitrator: in favor of MMPSEU. It held
EMPLOYEES UNION (MMPSEU) that the employees may demand simultaneous payment
Respondents: MITSUBISHI MOTORS PHILIPPINES from both the CBA and their dependents’ separate
CORPORATION (MMPC) health insurance without resulting to double insurance,
Date of Promulgation: June 17, 2013 since separate premiums were paid for each contract.
He also noted that the CBA does not prohibit
Facts: reimbursement in case there are other health insurers.
 CA: in favor of MMPC. It ruled that despite the lack of a
 The parties’ CBA provides for the hospitalization provision which bars recovery in case of payment by
insurance benefits for the covered dependents. other insurers, the wordings of the subject provision of
 Each employee shall pays one hundred pesos (₱100.00) the CBA showed that the parties intended to make
per month through salary deduction as his share in the MMPC liable only for expenses actually incurred by an
payment of the insurance premium for the above employee’s qualified dependent.
coverage with the balance of the premium to be paid by  MR is denied.
the company.
 Hence, this Petition.
 One of the stipulations in said CBA is that “d. Payment
shall be direct to the hospital and doctor and must be Issue/s: (1) WON the collateral source rule is applicable to the
covered by actual billings.” case at bar
 It is further added in the agreement that “the
hospitalization expenses must be covered by actual (2) WON the conditions set in the CBA limits MPPC’s
hospital and doctor’s bills and any amount in excess liability
of the above mentioned level of benefits will be for
the account of the employee. (3) WON Samsel v. Allstate Insurance Co. is applicable
to the case
 On separate occasions, three members of MMPSEU,
namely, Ernesto Calida (Calida), Hermie Juan Oabel (4) WON there will be unjust enrichment if
(Oabel) and Jocelyn Martin (Martin), filed claims for reimbursement of amounts paid under other insurance policies
reimbursement of hospitalization expenses of their shall not be allowed
dependents.
 In the case of Calida, the medical expenses incurred Held: NO. It is not applicable. The Voluntary Arbitrator based
totalled ₱29,967.10. Of this amount, ₱9,000.00 his ruling on the opinion of Atty. Funk that the employees may
representing professional fees was paid by MEDICard recover benefits from different insurance providers without
Philippines, Inc. (MEDICard) which provides health regard to the amount of benefits paid by each. According to him,
maintenance to Lanie. MMPC only paid ₱12,148.63. It this view is consistent with the theory of the collateral source
did not pay the ₱9,000.00 already paid by MEDICard rule.
and the ₱6,278.47 not covered by official receipts.

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 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST

As part of American personal injury law, the collateral source directly to the insured person or on the latter’s behalf all
rule was originally applied to tort cases wherein the defendant is reasonable expenses actually incurred.
prevented from benefiting from the plaintiff’s receipt of money
from other sources.38 Under this rule, if an injured person (4) NO. To constitute unjust enrichment, it must be
receives compensation for his injuries from a source wholly shown that a party was unjustly enriched in the sense that the
independent of the tortfeasor, the payment should not be term unjustly could mean illegally or unlawfully. A claim for
deducted from the damages which he would otherwise collect unjust enrichment fails when the person who will benefit has a
from the tortfeasor. valid claim to such benefit.

The Court went on to explain that although the rule appears to The CBA has provided for MMPC’s limited liability which extends
allow a double recovery, the collateral source will have a lien or only up to the amount to be paid to the hospital and doctor by the
subrogation right to prevent such a double recovery. In Mitchell employees’ dependents, excluding those paid by other insurers.
v. Haldar, the collateral source rule was rationalized by the Consequently, the covered employees will not receive more than
Supreme Court of Delaware: what is due them.

The collateral source rule is ‘predicated on the theory that a Moreover, since the subject CBA provision is an insurance
tortfeasor has no interest in, and therefore no right to benefit contract, the rights and obligations of the parties must be
from monies received by the injured person from sources determined in accordance with the general principles of
unconnected with the defendant’. According to the collateral insurance law. Being in the nature of a non-life insurance
source rule, ‘a tortfeasor has no right to any mitigation of contract and essentially a contract of indemnity, the CBA
damages because of payments or compensation received by the provision obligates MMPC to indemnify the covered
injured person from an independent source.’ The rationale for employees’ medical expenses incurred by their dependents
the collateral source rule is based upon the quasi-punitive nature but only up to the extent of the expenses actually incurred.
of tort law liability. It has been explained as follows: This is consistent with the principle of indemnity which
proscribes the insured from recovering greater than the loss.
Thus, the tortfeasor is required to bear the cost for the full value Indeed, to profit from a loss will lead to unjust enrichment and
of his or her negligent conduct even if it results in a windfall for therefore should not be countenanced.
the innocent plaintiff.

As seen, the collateral source rule applies in order to place the

responsibility for losses on the party causing them. Thus, it finds Sweet Lines Inc. v. Teves
no application to cases involving no-fault insurances under GR L-37750
which the insured is indemnified for losses by insurance
companies, regardless of who was at fault in the incident Petitioners: Sweet Lines, Inc. (Petitioner)
generating the losses. Here, it is clear that MMPC is a no-fault Respondents: Leovigildo Tandog, Jr., Rogelio Tiro (Private
insurer. Hence, it cannot be obliged to pay the respondents)
hospitalization expenses of the dependents of its employees Date of Promulgation: May 19, 1978
which had already been paid by separate health insurance Ponente: Santos
providers of said dependents. Action: Prohibition with Injunction

(2). Yes. The conditions set forth in the CBA provision Facts:
indicate an intention to limit MMPC’s liability only to actual
expenses incurred by the employees’ dependents, that is,  Private respondents Atty. Leovigildo Tandog and
excluding the amounts paid by dependents’ other health Rogelio Tiro, a contractor by professions, bought tickets for
insurance providers. voyage at the branch office of petitioner, a shipping company
transporting inter-island passengers and cargoes, at Cagayan de
The condition that payment should be direct to the hospital and Oro City.
doctor implies that MMPC is only liable to pay medical expenses
actually shouldered by the employees’ dependents. It follows that  Respondents were to board petitioner's vessel, M/S
MMPC’s liability is limited, that is, it does not include the amounts "Sweet Hope" bound for Tagbilaran City via the port of Cebu.
paid by other health insurance providers. This condition is
obviously intended to thwart not only fraudulent claims but also o Upon learning that the vessel was not
double claims for the same loss of the dependents of covered proceeding to Bohol, since many passengers were bound for
employees. Surigao, private respondents per advice, went to the branch
office for proper relocation to M/S "Sweet Town".
The terms of the subject provision are clear and provide no
room for any other interpretation. As there is no ambiguity,  Because the said vessel was already
the terms must be taken in their plain, ordinary and popular filled to capacity, they were forced to agree "to hide at the cargo
sense. Consequently, MMPSEU cannot rely on the rule that a section to avoid inspection of the officers of the Philippine
contract of insurance is to be liberally construed in favor of Coastguard."
the insured.
 Private respondents alleged that they were, during the
(3) No. It is not applicable. MMPSEU cannot rely on trip," "exposed to the scorching heat of the sun and the dust
Samsel v. Allstate Insurance Co. where the Supreme Court of coming from the ship's cargo of corn grits," and that the tickets
Arizona allowed the insured to enjoy medical benefits under an they bought at Cagayan de Oro City for Tagbilaran were not
automobile policy insurance despite being able to also recover honored and they were constrained to pay for other tickets.
from a separate health insurer.
 In view thereof, private respondents sued petitioner for
In that case, the Allstate automobile policy does not contain any damages and for breach of contract of carriage before
clause restricting medical payment coverage to expenses actually respondents Court of First Instance of Misamis Oriental.
paid by the insured nor does it specifically provide for reduction
of medical payments benefits by a coordination of benefits.  Petitioner moved to dismiss the complaint on the
However, in the case before us, the dependents’ group ground of improper venue. This motion was premised on the
hospitalization insurance provision in the CBA specifically condition printed at the back of the tickets, i.e., Condition No. 14,
contains a condition which limits MMPC’s liability only up to the which reads:
extent of the expenses that should be paid by the covered
employee’s dependent to the hospital and doctor. This is evident o 14. It is hereby agreed and understood that
from the portion which states that "payment by MMPC shall be any and all actions arising out of the conditions and provisions of
direct to the hospital and doctor." In contrast, the Allstate this ticket, irrespective of where it is issued, shall be filed in the
automobile policy expressly gives Allstate the authority to pay competent courts in the City of Cebu.
7
 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST

 The motion was denied by the trial court. Petitioner

moved to reconsider the order of denial, but no avail. Hence, this
instant petition. Sun Life Office Ltd. v. CA

Issue: Is Condition No. 14 printed at the back of the petitioner's Facts:

passage tickets purchased by private respondents, which limits
the venue of actions arising from the contract of carriage to the Sun Life issued PERSONAL ACCIDENT POLICY to Felix Lim Jr.
Court of First Instance of Cebu, valid and enforceable? with a face value of P200,000.00. Two months thereafter, he was
dead with a bullet wound in his dead. Nerissa Lim (“Nerissa), his
Ruling: No, it is not valid and enforceable. It should be borne wife and as a beneficiary, sought payment on the policy but it was
in mind, that with respect to the fourteen (14) conditions — one rejected.
of which is "Condition No. 14" which is in issue in this case —
printed at the back of the passage tickets, these are commonly On October 6, 1982, Lim was in a happy mood, but was not
known as "contracts of adhesion," the validity and/or drunk, and was playing with his handgun, from which he had
enforceability of which will have to be determined by the peculiar previously removed the magazine. Lim stood in front of Pilar
circumstances obtaining in each case and the nature of the Nalagon (“Nalagon”), his secretary, and pointed the gun at her.
conditions or terms sought to be enforced. For, "(W)hile Nalagon pushed Lim because it might be loaded. Lim assured that
generally, stipulations in a contract come about after deliberate the gun has no bullet and pointed it to his temple. Thereafter,
drafting by the parties thereto, ... there are certain contracts Nalagon heard an explosion and she saw Lim slumped to the
almost all the provisions of which have been drafted only by one floor.
party, usually a corporation. Such contracts are called contracts
Nerissa sued Sun Life before RTC Zamboanga.
of adhesion, because the only participation of the party is the
signing of his signature or his 'adhesion' thereto. Insurance RTC - ruled in favour of Nerissa
contracts, bills of lading, contracts of make of lots on the
installment plan fall into this category" CA - affirmed.

By the peculiar circumstances under which contracts of adhesion Issue: Whether the act of Felix Lim Jr., that is the pointing of
are entered into, certain guidelines in the determination of their the gun at his temple, was covered under PERSONAL ACCIDENT
validity and/or enforceability have been formulated in order to POLICY. Thus, making Sun Life Office liable.
that justice and fan play characterize the relationship of the
contracting parties. Thus, jurisprudence provides — Held: Yes.

“Such contracts (of which policies of insurance and The words‘accident’ and accident’, when used in the insurance
international bill of lading are prime examples) obviously cap for contract it must be construed and understood to the ordinary
greater strictness and vigilance on the part of the courts of understanding and common usage and speech of people
justice with a view to protecting the weaker party from abuses generally. In substance, the Court agreed that the words ‘accident
and imposition, and prevent their becoming traps for the and accidental’ mean that which happens by chance or
unwary.” fortuitously, without intention or design, and which is
unexpected, unusual, and unforeseen. The definition that has
To the same effect and import, and, in recognition of the usually been adopted by the courts is that an accident is an event
character of contracts of this kind, the protection of the that takes place without one's foresight or expectation — an
disadvantaged is expressly enjoined by the New Civil Code — event that proceeds from an unknown cause, or is an unusual
effect of a known case, and therefore not expected.
In all contractual property or other relations, when one of the
parties is at a disadvantage on account of his moral dependence, An accident is an event which happens without any human
ignorance indigence, mental weakness, tender age and other agency or, if happening through human agency, an event which,
handicap, the courts must be vigilant for his protection. under the circumstances, is unusual to and not expected by the
person to whom it happens. It has also been defined as an injury
Considered in the light Of the foregoing norms and in the context which happens by reason of some violence or casualty to the
Of circumstances Prevailing in the inter-island ship. ping industry injured without his design, consent, or voluntary co-operation.
in the country today, We find and hold that Condition No. 14
printed at the back of the passage tickets should be held as From the said definitions, the Court is of convinced that the
void and unenforceable for the following reasons first, under incident that resulted in Lim’s death was indeed an accident.
circumstances obligation in the inter-island shipping industry, it
is not just and fair to bind passengers to the terms of the The Court also noted that insurance contracts are as a rule
conditions printed at the back of the passage tickets, on which supposed to be interpreted liberally in favour of the assured.
Condition No. 14 is Printed in fine letters, and second, Condition There is no reason to deviate from this rule, especially in view of
No. 14 subverts the public policy on transfer of venue of the circumstances of this case as above analyzed.
proceedings of this nature, since the same will prejudice rights
and interests of innumerable passengers in different s of the
country who, under Condition No. 14, will have to file suits
against petitioner only in the City of Cebu.
ALPHA INSURANCE AND SURETY CO. vs. CASTOR
Considering that private respondents were relocated and then G.R. No. 198174
suffered the scorching heat of the sun and the dust coming from
the ship’s cargo, it is hardly just and proper to expect the Petitioners: Alpha Insurance and Surety Co.
passengers to examine their tickets received from Respondents: Arsenia Sonia Castor
crowded/congested counters. Again, it should be noted that Date of Promulgation: September 2, 2013
Condition No. 14 was prepared solely at the instance of the Ponente: Peralta, J.
petitioner, respondents had no say in its preparation. Neither did Action: Petition for Review on Certiorari under Rule 45 ;
the latter have the opportunity to take the into account prior to Complaint for Sum of Money w/ Damages
the purpose chase of their tickets. For, unlike the small print
provisions of contracts — the common example of contracts
of adherence — which are entered into by the insured in his Facts:
awareness of said conditions, since the insured is afforded
the opportunity to and consider the same, passengers of inter-  February 21, 2007: Respondent Castor entered into a
island vessels do not have the same chance, since their alleged contract of insurance with petitioner Alpha Insurance,
adhesion is presumed only from the fact that they purpose involving her motor vehicle, a Toyota Revo DLX DSL.
chased the tickets. Petition is therefore dismissed.

8
 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST

 The contract of insurance obligates petitioner Alpha The word "loss" refers to the act or fact of losing, or
Insurance to pay the respondent the amount of failure to keep possession, while the word "damage" means
₱630,000.00 in case of loss or damage to said vehicle deterioration or injury to property. Therefore, petitioner cannot
from February 26, 2007-2008. exclude the loss of respondent’s vehicle under the insurance
policy under paragraph 4 of "Exceptions to Section III," since the
same refers only to "malicious damage," or more specifically,
 April 16, 2007: Respondent instructed her driver, Jose
Joel Salazar Lanuza (Lanuza), to bring the vehicle to a "injury" to the motor vehicle caused by a person under the
insured’s service. Paragraph 4 clearly does not contemplate "loss
nearby auto-shop for a tune-up. However, Lanuza no
longer returned the motor vehicle to respondent and of property," as what happened in the instant case. If the
intention of the defendant-appellant was to include the term
despite diligent efforts to locate the same, said efforts
proved futile. "loss" within the term "damage" then logic dictates that it should
have used the term "damage" alone in the entire policy or
otherwise included a clear definition of the said term as part of
 Respondent reported the incident to the police and the provisions of the said insurance contract. This interpretation
notified petitioner of the said loss and demanded by the Court is bolstered by the observation that the subject
payment of the insurance proceeds. policy appears to clearly delineate between the terms "loss" and
"damage" by using both terms throughout the said policy.
 Petitioner Alpha Insurance denied the insurance claim
of respondent Castor, stating that upon verification of Basic rule in the interpretation of contracts that the
the Police Report and Affidavit, the culprit who stole the terms of a contract are to be construed according to the sense
insured unit is employed with the respondent. and meaning of the terms which the parties thereto have used. In
Petitioner averred that it is among the Policy Exceptions the case of property insurance policies, the evident intention of
that states “The Company shall not be liable for: Any the contracting parties, i.e., the insurer and the assured,
malicious damage caused by the Insured, any member of determine the import of the various terms and provisions
his family or by "A PERSON IN THE INSURED’S SERVICE.”. embodied in the policy. However, when the terms of the
insurance policy are ambiguous, equivocal or uncertain, such
 Respondent argued that the exception refers to damage that the parties themselves disagree about the meaning of
of the motor vehicle and not to its loss. However, particular provisions, the policy will be construed by the
petitioner’s denial of respondent’s insured claim courts liberally in favor of the assured and strictly against
remains firm. the insurer.

 Respondent Castor filed a Complaint for Sum of Money Lastly, a contract of insurance is a contract of
with Damages before the RTC. adhesion. So, when the terms of the insurance contract contain
limitations on liability, courts should construe them in such a way
as to preclude the insurer from non-compliance with his
 RTC: in favor of respondent Castor. obligation. An insurance contract is a contract of adhesion which
must be construed liberally in favor of the insured and strictly
 CA: Affirmed in toto. against the insurer in order to safeguard the latter’s interest.
Indemnity and liability insurance policies are construed in
 MR: Denied. 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
Issue: W/N the loss of respondent’s vehicle is excluded under the of adhesion, par excellence, any ambiguity therein should be
insurance policy. resolved against the insurer; in other words, it should be
construed liberally in favor of the insured and strictly against the
Held: (You can check the pertinent portion nung insurance insurer. Limitations of liability should be regarded with extreme
contract nila. Di ko na sinama) jealousy and must be construed in such a way as to preclude the
insurer from non-compliance with its obligations.
No. The theft perpetrated by the driver of the insured is
not an exception to the coverage from the insurance policy, since
Section III thereof did not qualify as to who would commit the
theft. This is evident from the very provision of Section III – "Loss
or Damage." The insurance company, subject to the limits of
liability, is obligated to indemnify the insured against theft. Said
provision does not qualify as to who would commit the theft.
Thus, even if the same is committed by the driver of the insured,
there being no categorical declaration of exception, the same
must be covered. As correctly pointed out by the plaintiff, "An
insurance contract should be interpreted as to carry out the
purpose for which the parties entered into the contract which is
to insure against risks of loss or damage to the goods. Such
interpretation should result from the natural and reasonable
meaning of language in the policy. Where restrictive provisions
are open to two interpretations, that which is most favorable to
the insured is adopted."

Moreover, contracts of insurance, like other contracts,

are to be construed according to the sense and meaning of the
terms which the parties themselves have used. If such terms are
clear and unambiguous, they must be taken and understood in
their plain, ordinary and popular sense. Accordingly, in
interpreting the exclusions in an insurance contract, the terms
used specifying the excluded classes therein are to be given their
meaning as understood in common speech.