Insurance Laws and Jurisprudence Reviewer

INSURANCE LAW

I. GENRAL CONCEPTS

A. INSURANCE

1. Definition Sec 2 (1), I.C.

Sec. 2(1). A "contract of insurance" is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.

2. Elements

a. The insured has an insurable interest Sec 12-14, I.C.

Sec. 12. The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal, accomplice, or accessory in willfully bringing about the death of the insured; in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified.

Sec. 13. Every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured, is an insurable interest.

Sec. 14. An insurable interest in property may consist in: (a) An existing interest; (b) An inchoate interest founded on an existing interest; or (c) An expectancy, coupled with an existing interest in that out of which the expectancy arises.

b. The insured is subject to a risk of loss by the happening of the designated peril Sec 3, I.C.

Sec. 3. Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, may be insured against, subject to the provisions of this chapter.

The consent of the husband is not necessary for the validity of an insurance policy taken out by a married woman on her life or that of her children.

Any minor of the age of eighteen years or more, may, notwithstanding such minority, contract for life, health and accident insurance, with any insurance company duly authorized to do business in the Philippines, provided the insurance is taken on his own life and the beneficiary appointed is the minor's estate or the minor's father, mother, husband, wife, child, brother or sister.

The married woman or the minor herein allowed to take out an insurance policy may exercise all the rights and privileges of an owner under a policy.

All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of a minor shall automatically vest in the minor upon the death of the original owner, unless otherwise provided for in the policy.

c. The insurer assumes the risk Sec 2, I.C.

Sec. 2. Whenever used in this Code, the following terms shall have the respective meanings hereinafter set forth or indicated, unless the context otherwise requires:

(1) A "contract of insurance" is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.

A contract of suretyship shall be deemed to be an insurance contract, within the meaning of this Code, only if made by a surety who or which, as such, is doing an insurance business as hereinafter provided.

By: Elaine Marie G. Laceda 1

INSURANCE LAW

(2) The term "doing an insurance business" or "transacting an insurance business", within the meaning of this Code, shall include:

(a) making or proposing to make, as insurer, any insurance contract; (b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as

merely incidental to any other legitimate business or activity of the surety; (c) doing any kind of business, including a reinsurance business, specifically recognized as

constituting the doing of an insurance business within the meaning of this Code; (d) doing or proposing to do any business in substance equivalent to any of the foregoing in a

manner designed to evade the provisions of this Code.In the application of the provisions of this Code the fact that no profit is derived from the making of insurance contracts, agreements or transactions or that no separate or direct consideration is received therefor, shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business.

(3) As used in this code, the term "Commissioner" means the "Insurance Commissioner".

d. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and

e. In consideration of the insurers promise, the insured pays a premium. Sec 77, I.C.

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.

PhilamCare Health Systems, Inc. vs. Court of AppealsG.R. No. 125678 March 18, 2002

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner Philamcare Health Systems, Inc. In the standard application form, he stated that he was never treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer.

Under the agreement, respondents husband was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services.

During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month. 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.

After Ernanis death, Julita Trinos filed an action for damages where she asked for reimbursement of her expenses plus moral damages and attorneys fees.

RTC rendered judgment in favor of the plaintiff ordering defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos, and to pay moral and exemplary damages plus attorneys fees and cost of suit. CA affirmed.

Held: SC Affirmed.

An insurance contract exists where the following elements concur:


INSURANCE LAW

1. The insured has an insurable interest;2. The insured is subject to a risk of loss by the happening of the designated peril;3. The insurer assumes the risk;4. Such assumption of risk is part of a general scheme to distribute actual losses among a large

group of persons bearing a similar risk; and5. In consideration of the insurers promise, the insured pays a premium.

Section 10 provides that: Every person has an insurable interest in the life and health 1. of himself, of his spouse and of his children;2. of any person on whom he depends wholly or in part for education or support, or in whom he

has a pecuniary interest;3. of any person under a legal obligation to him for the payment of money, respecting property or

service, of which death or illness might delay or prevent the performance; and4. of any person upon whose life any estate or interest vested in him depends.

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.

Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid.

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." However, the right to rescind should be exercised previous to the commencement of an action on the contract. In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of certain conditions, none of which was fulfilled in this case.

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.

The defendant Philamcare Health Systems Inc. had twelve months from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie.

Lastly, petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time of their marriage, the deceased was previously married to another woman who was still alive. However, the health care agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred the expenses.

3. Characteristics

a. Aleatory (but not wagering) Sec 2010, Civil Code; Sec 25, I.C.

Art. 2010. By an aleatory contract, one of the parties or both reciprocally bind themselves to give or to do something in consideration of what the other shall give or do upon the happening of an event which is uncertain, or which is to occur at an indeterminate time. (1790)


INSURANCE LAW

Sec. 25. Every stipulation in a policy of insurance for the payment of loss whether the person insured has or has not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering, is void.

b. Indemnity (except life and accident insurance where the result is death, and valued policies) Sec 17, I.C.

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

c. Personald. Unilateral (executed as to insured and executory as to insurer upon payment

of premiums)e. Conditional (distinguish between property insurance, where loss may or may

not occur and may be total or partial, and life insurance, death will occur so that time of happening is the contingent element)

4. Perfection Art 1318-1319, Civil Code; Sec 77 and 226, I.C.

Art. 1318. There is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. (1261)

Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made. (1262a)

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.

Sec. 226. No policy, certificate or contract of insurance shall be issued or delivered within the Philippines unless in the form previously approved by the Commissioner, and no application form shall be used with, and no rider, clause, warranty or endorsement shall be attached to, printed or stamped upon such policy, certificate or contract unless the form of such application, rider, clause, warranty or endorsement has been approved by the Commissioner.

Enriquez vs. Sun Life Assurance Company of CanadaG.R. No. L-15895 November 29, 1920

On September 24, 1917, Joaquin Herrer applied with the Sun Life Assurance Company of Canada for a life annuity and paid the sum of P6,000.

The application was immediately forwarded to the head office of the company at Montreal, Canada. On November 26, 1917, the head office gave notice of acceptance by cable to Manila. On December 4, 1917, the policy was issued at Montreal.

On December 18, 1917, Atty. Aurelio A. Torres wrote the Manila office stating that Herrer desired to withdraw his application. The following day the local office replied stating that the policy had been issued, and called attention to the notification of November 26, 1917. This letter was received by Mr. Torres on the morning of December 21, 1917. Mr. Herrer died on December 20, 1917.


INSURANCE LAW

Issue: Whether the contract for a life annuity was perfected.

Held: No.

According to the provisional receipt, three things had to be accomplished by the insurance company before there was a contract: (1) There had to be a medical examination of the applicant; (2) there had to be approval of the application by the head office of the company; and (3) this approval had in some way to be communicated by the company to the applicant.

Likewise, the second paragraph of Article 1262 of the Civil Code, the law applicable to the case, provides that an acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge.

The contract for a life annuity in the case at bar was not perfected because it has not been proved satisfactorily that the acceptance of the application ever came to the knowledge of the applicant.

A letter will not be presumed to have been received by the addressee unless it is shown that it was deposited in the post-office, properly addressed and stamped.

Eternal Gardens Memorial Park Corporation vs. Philippine American Life Insurance CompanyG.R. No. 166245 April 9, 2008

Philamlife entered into an agreement denominated as Creditor Group Life Policy with petitioner Eternal. Under the policy, the clients of Eternal who purchased burial lots from it on installment basis would be insured by Philamlife. The amount of insurance coverage depended upon the existing balance of the purchased burial lots.

Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy of the application of each purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers. One of those included in the list as "new business" was a certain John Chuang. His balance of payments was PhP 100,000. On August 2, 1984, Chuang died.

Eternal sent a letter to Philamlife, which served as an insurance claim for Chuangs death. In reply, Philamlife required Eternal to submit the following documents relative to its insurance claim for Chuangs death: (1) Certificate of Claimant (with form attached); (2) Assureds Certificate (with form attached); (3) Application for Insurance accomplished and signed by the insured, Chuang, while still living; and (4) Statement of Account showing the unpaid balance of Chuang before his death. Eternal transmitted the required documents received by Philamlife on November 15, 1984.

After more than a year, Philamlife had not furnished Eternal with any reply to the latters insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000 on April 25, 1986.

Philamlife denied Eternals insurance claim. It claimed that since no application had been submitted by the Insured/Assured, prior to his death, for its approval but was submitted instead on November 15, 1984, after his death, Mr. John Uy Chuang was not covered under the Policy.

Consequently, Eternal filed a case for a sum of money against Philamlife. RTC decided in favor of Eternal ordering PHILAMLIFE, to pay the sum of P100,000.00, representing the proceeds of the Policy of John Uy Chuang, plus legal rate of interest, until fully paid.

The RTC found that Eternal submitted Chuangs application for insurance which he accomplished before his death. It further ruled that due to Philamlifes inaction from the submission of the requirements of the group insurance on December 29, 1982 to Chuangs death on August 2, 1984, as well as Philamlifes acceptance of the premiums during the same period, Philamlife was deemed to have approved Chuangs application. The RTC said that since the contract is a group life insurance, once proof of death is submitted, payment must follow.


INSURANCE LAW

CA reversed RTC ruling. It ruled that the non-accomplishment of the submitted application form violated Section 26 of the Insurance Code. Thus, the CA concluded, there being no application form, Chuang was not covered by Philamlifes insurance.

Issue: Whether Philamlife assumed the risk of loss without approving the application

Held: Yes.

The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received, states that the insurance forms for the attached list of burial lot buyers were attached to the letter. Such stamp of receipt has the effect of acknowledging receipt of the letter together with the attachments. Such receipt is an admission by Philamlife against its own interest. The burden of evidence has shifted to Philamlife, which must prove that the letter did not contain Chuangs insurance application. However, Philamlife failed to do so; thus, Philamlife is deemed to have received Chuangs insurance application.

Furthermore, an examination of the provision on Effective Date of Benefit under the policy would show ambiguity between its two sentences. The first sentence appears to state that the insurance coverage of the clients of Eternal already became effective upon contracting a loan with Eternal while the second sentence appears to require Philamlife to approve the insurance contract before the same can become effective.

It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly against the insurer in order to safeguard the latters interest. Clearly, the vague contractual provision must be construed in favor of the insured and in favor of the effectivity of the insurance contract.

The seemingly conflicting provisions must be harmonized to mean that upon a partys purchase of a memorial lot on installment from Eternal, an insurance contract covering the lot purchaser is created and the same is effective, valid, and binding until terminated by Philamlife by disapproving the insurance application. The second sentence of the policy on the Effective Date of Benefit is in the nature of a resolutory condition which would lead to the cessation of the insurance contract.

The mere inaction of the insurer on the insurance application must not work to prejudice the insured; it cannot be interpreted as a termination of the insurance contract. The termination of the insurance contract by the insurer must be explicit and unambiguous.

5. Kinds of Insurance

B. INSURANCE DISTINGUISHED FROM OTHER CONTRACTS

1. Suretyship Art 2047, Civil Code; Sec 2(1), par. 2, I.C.

Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. (1822a)

Section 2 (1), par. 2 -- A contract of suretyship shall be deemed to be an insurance contract, within the meaning of this Code, only if made by a surety who or which, as such, is doing an insurance business as hereinafter provided.

2. Pre-Need Plans Sec 3.9, SRC

Section 3.9. Pre-Need Plans are contracts which provide for the performance of future services or the payment of future monetary considerations at the time of actual need, for which planholders pay in cash


INSURANCE LAW

or installment at stated prices, with or without interest or insurance coverage and includes life, pension, education, interment, and other plans which the Commission may from time to time approve.

3. Variable Contracts Sec 232, I.C.

Sec. 232. (1) No insurance company authorized to transact business in the Philippines shall issue, deliver, sell or use any variable contract in the Philippines, unless and until such company shall have satisfied the Commissioner that its financial and general condition and its methods of operations, including the issue and sale of variable contracts, are not and will not be hazardous to the public or to its policy and contract owners. No foreign insurance company shall be authorized to issue, deliver or sell any variable contract in the Philippines, unless it is likewise authorized to do so by the laws of its domicile.

(2) The term "variable contract" shall mean any policy or contract on either a group or on an individual basis issued by an insurance company providing for benefits or other contractual payments or values thereunder to vary so as to reflect investment results of any segregated portfolio of investments or of a designated separate account in which amounts received in connection with such contracts shall have been placed and accounted for separately and apart from other investments and accounts. This contract may also provide benefits or values incidental thereto payable in fixed or variable amounts, or both. It shall not be deemed to be a "security" or "securities" as defined in The Securities Act, as amended, or in the The Investment Company Act, as amended, nor subject to regulation under said Acts.

(3) In determining the qualifications of a company requesting authority to issue, deliver, sell or use variable contracts, the Commissioner shall always consider the following: (a) the history, financial and general condition of the company: Provided, That such company, if a foreign company, must have deposited with the Commissioner for the benefit and security of its variable contract owners in the Philippines, securities satisfactory to the Commissioner consisting of bonds of the Government of the Philippines or its instrumentalities with an actual market value of two million pesos; (b) the character, responsibility and fitness of the officers and directors of the company; and (c) the law and regulation under which the company is authorized in the state of domicile to issue such contracts.

(4) If after notice and hearing, the Commissioner shall find that the company is qualified to issue, deliver, sell or use variable contracts in accordance with this Code and the regulations and rules issued thereunder, the corresponding order of authorization shall be issued. Any decision or order denying authority to issue, deliver, sell or use variable contracts shall clearly and distinctly state the reasons and grounds on which it is based.

C. INSURANCE BUSINESS

1. Doing an Insurance Business Sec 2(2), I.C.

Sec. 2 (2) The term "doing an insurance business" or "transacting an insurance business", within the meaning of this Code, shall include:

(a) making or proposing to make, as insurer, any insurance contract; (b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as

merely incidental to any other legitimate business or activity of the surety; (c) doing any kind of business, including a reinsurance business, specifically recognized as

constituting the doing of an insurance business within the meaning of this Code; (d) doing or proposing to do any business in substance equivalent to any of the foregoing in a

manner designed to evade the provisions of this Code.In the application of the provisions of this Code the fact that no profit is derived from the making of insurance contracts, agreements or transactions or that no separate or direct consideration is received therefor, shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business.

Phil. American Life Insurance Company vs. AnsaldoG.R. No. 76452 July 26, 1994


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Ramon M. Paterno, Jr. filed a letter-complaint to respondent Insurance Commissioner, alleging certain problems encountered by agents, supervisors, managers and public consumers of Philamlife as a result of certain practices by said company.

Respondent Commissioner requested petitioner Rodrigo de los Reyes, in his capacity as Philamlife's president, to comment on respondent Paterno's letter. Petitioner De los Reyes suggested that private respondent "submit some sort of a 'bill of particulars' to enable him to prepare an intelligent reply. However, private respondent maintained that his letter-complaint was sufficient in form and substance, and requested that a hearing thereon be conducted.

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

Petitioner De los Reyes submitted an Answer stating inter alia that: (1) Private respondent's letter does not contain any of the particular information which Philamlife was seeking from him and which he promised to submit; and (2) That since the Commission's quasi-judicial power was being invoked with regard to the complaint, private respondent must file a verified formal complaint before any further proceedings.

On October 1, private respondent executed an affidavit, verifying his letters of April 17, 1986, and July 31, 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.

Despite the foregoing, respondent Commissioner set the case for hearing and sent notice to the officers of Philamlife. Ortega filed a MTQ the subpoena alleging that the Subpoena/Notice has no legal basis and is premature and the Insurance Commission has no jurisdiction over the subject matter or nature of the action and over the parties involved. MTQ denied.

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

Held: No.

A plain reading of Sec 414 and 415 of the Insurance Code show that the Insurance Commissioner has the authority to regulate the business of insurance, which is defined as follows:

(a) making or proposing to make, as insurer, any insurance contract;(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety; (c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; (d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code. (Insurance Code, Sec. 2[2])

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

Likewise, a reading of Section 416 of the Code 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


INSURANCE LAW

which an insurer may be answerable under any kind of policy or contract of insurance, . . ." Hence, this power does not cover the relationship affecting the insurance company and its agents but is limited to adjudicating claims and complaints filed by the insured against the insurance company.

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.

Registered representatives who work on commission basis is governed by the Contract of Agency and the provisions of the Civil Code on Agency, and disputes involving these agents are cognizable by the regular courts.

2. Mutual Insurance Companies

White Gold Marine Services, Inc. vs. Pioneer Insurance and Surety CorporationG.R. No. 154514 July 28, 2005

White Gold procured a protection and indemnity coverage for its vessels from Steamship Mutual through Pioneer Insurance. Subsequently, White Gold was issued a Certificate of Entry and Acceptance. Pioneer also issued receipts evidencing payments for the coverage. When White Gold failed to fully pay its accounts, Steamship Mutual refused to renew the coverage.

Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover the latters unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission claiming that Steamship Mutual violated Sections 186 and 187 of the Insurance Code, while Pioneer violated Sections 299, 300 and 301 in relation to Sections 302 and 303, thereof.

The Insurance Commission dismissed the complaint. It said that there was no need for Steamship Mutual to secure a license because it was not engaged in the insurance business. It explained that Steamship Mutual was a Protection and Indemnity Club (P & I Club). Likewise, Pioneer need not obtain another license as insurance agent and/or a broker for Steamship Mutual because Steamship Mutual was not engaged in the insurance business. Moreover, Pioneer was already licensed, hence, a separate license solely as agent/broker of Steamship Mutual was already superfluous. CA affirmed.

Issues: Is Steamship Mutual, a P & I Club, engaged in the insurance business in the Philippines?

Held: Yes.

Section 2(2) of the Insurance Code enumerates what constitutes doing an insurance business or transacting an insurance business. These are:

(a) making or proposing to make, as insurer, any insurance contract;(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety; (c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; (d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code.

The same provision also provides, the fact that no profit is derived from the making of insurance contracts, agreements or transactions, or that no separate or direct consideration is received therefor, shall not preclude the existence of an insurance business.

The test to determine if a contract is an insurance contract or not, depends on the nature of the promise, the act required to be performed, and the exact nature of the agreement in the light of the occurrence, contingency, or circumstances under which the performance becomes requisite. It is not by what it is called.


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Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.

A P & I Club is a form of insurance against third party liability, where the third party is anyone other than the P & I Club and the members. By definition then, Steamship Mutual as a P & I Club is a mutual insurance association engaged in the marine insurance business.

The records reveal Steamship Mutual is doing business in the country albeit without the requisite certificate of authority mandated by Section 187 of the Insurance Code. It maintains a resident agent in the Philippines to solicit insurance and to collect payments in its behalf. Thus, to continue doing business here, Steamship Mutual or through its agent Pioneer, must secure a license from the Insurance Commission.

Issue: Does Pioneer need a license as an insurance agent/broker for Steamship Mutual?

Held: Yes.

Although Pioneer is already licensed as an insurance company, it needs a separate license to act as insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states:

No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for insurance, or receive for services in obtaining insurance, any commission or other compensation from any insurance company doing business in the Philippines or any agent thereof, without first procuring a license so to act from the Commissioner, which must be renewed annually on the first day of January, or within six months thereafter.

D. LAWS GOVERNING INSURANCE

1. Insurance Code2. Civil Code Art 2011, Civil Code

Art. 2011. The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code. (n)

Insular Life Assurance Company, Ltd. vs. Ebrado G.R. No. L-44059 October 28, 1977

Buenaventura Ebrado was issued by The Life Assurance Co., Ltd., Policy No. 009929 on a whole-life for P5,882.00 with a, rider for Accidental Death for the same amount. He designated Carponia T. Ebrado as the revocable beneficiary in his policy.

Buenaventura C. Ebrado died as a result of an accident when he was hit by a failing branch of a tree. Thus, Carponia Ebrado filed claim with the Insular Life Assurance Co. which was contested by Pascuala Ebrado who also filed claim for the proceeds of said policy. The latter asserts that she is the one entitled to the insurance proceeds, not the common-law wife.

In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance Co., Ltd. commenced an action for Interpleader before the CFI.

CFI declared Carponia T. Ebrado disqualified from becoming beneficiary of the insured and directed the payment of the insurance proceeds to the estate of the deceased insured.

Issue: Can a common-law wife named as beneficiary in the life insurance policy of a legally married man claim the proceeds thereof in case of death of the latter?

Held: No.


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In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy which the insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of the new Civil Code: Those made between persons who were guilty of adultery or concubinage at the time of donation, should equally operate in life insurance contracts.

No criminal conviction for the offense is a condition precedent before the disabilities mentioned in Article 739 may effectuate. The guilt of the donee may be proved by preponderance of evidence in an action for declaration of nullity of the donation.

The requisite proof of common-law relationship between the insured and the beneficiary has been conveniently supplied by the stipulations between the parties in the pre-trial conference of the case. These stipulations are nothing less than judicial admissions which, as a consequence, no longer require proof and cannot be contradicted.

a. Revocation of Irrevocable beneficiaries in terminated marriages Art 43(4), 50 and 64, Family Code

Art. 43(4). The innocent spouse may revoke the designation of the other spouse who acted in bad faith as beneficiary in any insurance policy, even if such designation be stipulated as irrevocable; and

Art. 50. The effects provided for by paragraphs (2), (3), (4) and (5) of Article 43 and by Article 44 shall also apply in the proper cases to marriages which are declared ab initio or annulled by final judgment under Articles 40 and 45.

The final judgment in such cases shall provide for the liquidation, partition and distribution of the properties of the spouses, the custody and support of the common children, and the delivery of third presumptive legitimes, unless such matters had been adjudicated in previous judicial proceedings.

All creditors of the spouses as well as of the absolute community or the conjugal partnership shall be notified of the proceedings for liquidation.

In the partition, the conjugal dwelling and the lot on which it is situated, shall be adjudicated in accordance with the provisions of Articles 102 and 129.

Art. 64. After the finality of the decree of legal separation, the innocent spouse may revoke the donations made by him or by her in favor of the offending spouse, as well as the designation of the latter as beneficiary in any insurance policy, even if such designation be stipulated as irrevocable. The revocation of the donations shall be recorded in the registries of property in the places where the properties are located. Alienations, liens and encumbrances registered in good faith before the recording of the complaint for revocation in the registries of property shall be respected. The revocation of or change in the designation of the insurance beneficiary shall take effect upon written notification thereof to the insured.

The action to revoke the donation under this Article must be brought within five years from the time the decree of legal separation become final.

b. Void donations Art 739, 2012, Civil Code

Art. 739. The following donations shall be void: (1) Those made between persons who were guilty of adultery or concubinage at the time of the

donation; (2) Those made between persons found guilty of the same criminal offense, in consideration

thereof; (3) Those made to a public officer or his wife, descedants and ascendants, by reason of his

office.

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilt of the donor and donee may be proved by preponderance of evidence in the same action. (n)


INSURANCE LAW

Art. 2012. Any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy by the person who cannot make any donation to him, according to said article. (n)

c. Life annuity contracts Art 2021-2027, Civil Code

Art. 2021. The aleatory contract of life annuity binds the debtor to pay an annual pension or income during the life of one or more determinate persons in consideration of a capital consisting of money or other property, whose ownership is transferred to him at once with the burden of the income. (1802a)

Art. 2022. The annuity may be constituted upon the life of the person who gives the capital, upon that of a third person, or upon the lives of various persons, all of whom must be living at the time the annuity is established.

It may also be constituted in favor of the person or persons upon whose life or lives the contract is entered into, or in favor of another or other persons. (1803)

Art. 2023. Life annuity shall be void if constituted upon the life of a person who was already dead at the time the contract was entered into, or who was at that time suffering from an illness which caused his death within twenty days following said date. (1804)

Art. 2024. The lack of payment of the income due does not authorize the recipient of the life annuity to demand the reimbursement of the capital or to retake possession of the property alienated, unless there is a stipulation to the contrary; he shall have only a right judicially to claim the payment of the income in arrears and to require a security for the future income, unless there is a stipulation to the contrary. (1805a)

Art. 2025. The income corresponding to the year in which the person enjoying it dies shall be paid in proportion to the days during which he lived; if the income should be paid by installments in advance, the whole amount of the installment which began to run during his life shall be paid. (1806)

Art. 2026. He who constitutes an annuity by gratuitous title upon his property, may provide at the time the annuity is established that the same shall not be subject to execution or attachment on account of the obligations of the recipient of the annuity. If the annuity was constituted in fraud of creditors, the latter may ask for the execution or attachment of the property. (1807a)

Art. 2027. No annuity shall be claimed without first proving the existence of the person upon whose life the annuity is constituted. (1808)

d. Compulsory motor vehicle liability insurance Art 2186, Civil Code

Art. 2186. Every owner of a motor vehicle shall file with the proper government office a bond executed by a government-controlled corporation or office, to answer for damages to third persons. The amount of the bond and other terms shall be fixed by the competent public official. (n)

e. Insurers right of subrogation Art 2207, Civil Code

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

3. General Principles on Insurance

Constantino vs. Asia Life Insurance Company


INSURANCE LAW

G.R. No. L-1669 August 31, 1950

Case 1: In consideration of the sum of P176.04 as annual premium duly paid to it, the Asia Life Insurance Company insured the life of Arcadio Constantino for a term of twenty years with the plaintiff Paz Lopez de Constantino regularly appointed as beneficiary.

The policy contained, among others, this stipulation: All premium payments are due in advance and any unpunctuality in making any such payment shall cause this policy to lapse unless and except as kept in force by the Grace Period condition (31 days) or under Option 4 below.

After that first payment, no further premiums were paid. The insured died on September 22, 1944.

Case 2: On August 1, 1938, the defendant Asia Life Insurance Company issued its Policy No. 78145 (Joint Life 20-Year Endowment Participating with Accident Indemnity), covering the lives of the spouses Tomas Ruiz and Agustina Peralta, for the sum of P3,000. The annual premium stipulated in the policy was regularly paid covering the period up to January 31, 1942. No further payments were handed to the insurer.

Because the insured had borrowed on the policy an amount of P234.00 in January, 1941, the cash surrender value of the policy was sufficient to maintain the policy in force only up to September 7, 1942. Tomas Ruiz died on February 16, 1945. The plaintiff Agustina Peraltas claim, as beneficiary, was refused by defendant grounded on non-payment of the premiums.

The lower court absolved the defendant. Hence this appeal.

Issue: Whether the beneficiary in a life insurance policy may recover the amount thereof although the insured died after repeatedly failing to pay the stipulated premiums, such failure having been caused by the last war in the Pacific.

Held: No.

The insurance company, for a comparatively small consideration, undertakes to guarantee the insured against loss or damage, upon the terms and conditions agreed upon, and upon no other, and when called upon to pay, in case of loss, the insurer, therefore, may justly insists upon a fulfillment of these terms. If the insured cannot bring himself within the conditions of the policy, he is not entitled for the loss.

The terms of the policy constitute the measure of the insurer's liability, and in order to recover the insured must show himself within those terms; and if it appears that the contract has been terminated by a violation, on the part of the insured, of its conditions, then there can be no right of recovery. The compliance of the insured with the terms of the contract is a condition precedent to the right of recovery.

Promptness of payment is essential in the business of life insurance. All the calculations of the insurance company are based on the hypothesis of prompt payments. They not only calculate on the receipt of the premiums when due, but on compounding interest upon them. It is on this basis that they are enabled to offer assurance at the favorable rates they do.

Non-payment at the day involves absolute forfeiture if such be the terms of the contract, as is the case here. Courts cannot with safety vary the stipulation of the parties by introducing equities for the relief of the insured against their own negligence.

It should be noted that the parties contracted not only for peacetime conditions but also for times of war, because the policies contained provisions applicable expressly to wartime days. The logical inference, therefore, is that the parties contemplated uninterrupted operation of the contract even if armed conflict should ensue.

4. Special Laws


INSURANCE LAW

a. Revised Government Service Insurance Act of 1977 covers insurance of government employees

b. Social Security Act of 1954 covers insurance of employees in private employment

c. Property Insurance Law covers insurance of government propertyd. RA No. 4898 as amended provides life, disability and accident insurance

coverage to barangay officialse. EO No. 250f. PDIC Charter insures deposits of all banks entitled to benefits of insurance

5. Corporation Code Sec 185, I.C.

Sec. 185. Corporations formed or organized to save any person or persons or other corporations harmless from loss, damage, or liability arising from any unknown or future or contingent event, or to indemnify or to compensate any person or persons or other corporations for any such loss, damage, or liability, or to guarantee the performance of or compliance with contractual obligations or the payment of debt of others shall be known as "insurance corporations".

The provisions of the Corporation Law shall apply to all insurance corporations now or hereafter engaged in business in the Philippines insofar as they do not conflict with the provisions of this chapter.

E. INTERPRETATION OF INSURANCE CONTRACTS

1. Clear Provision Given Ordinary Meaning

Union Manufacturing Co., Inc. vs. Philippine Guaranty Co., Inc.G.R. No. L-27932 October 30, 1972

The Union Mfg. obtained certain loans, overdrafts and other credit accommodations from the Republic Bank in the total sum of P415,000.00 with interest at 9% per annum from said date. To secure the payment thereof, Union Mfg. executed real and chattel mortgages on certain properties. As additional condition of the mortgage contract, it undertook to secure insurance coverage over the mortgaged properties for the same amount of P415,000.00.

For failure of Union Mfg. to secure insurance coverage on the mortgaged properties despite being reminded of said requirement, the Republic Bank procured from the defendant, Philippine Guaranty Co., Inc. an insurance coverage on loss against fire for P500,000.00 over the subject properties.

Sometime on September 6, 1964, a fire occurred in the premises of the Union Mfg. Thus the company filed its fire claim with the defendant Philippine Guaranty Co., Inc., thru its adjuster, H. H. Bayne Adjustment Co., which was denied by said defendant on the following grounds: (1) violation of Policy Condition No. 3 and/or the 'Other Insurance Clause' for representing that there were no other insurance policies at the time of the issuance of said defendant's policy, and it appearing furthermore that while the policy of the defendant was in full force and effect the company secured other fire insurance policies without the written consent of the defendant endorsed on the policy; and (2) non-compliance with Policy Condition No. 11 for having failed to submit the required documents and other proofs with respect to the claim.

Held: SC affirmed.

Inasmuch as Union Mfg. has violated the condition of the policy to the effect that it did not reveal the existence of other insurance policies over the same properties, as required by the warranty appearing on the face of the policy issued by the defendant, the conclusion is inevitable that both the Republic Bank and Union Manufacturing Co., Inc. cannot recover from the same policy of the defendant because the same is null and void.


INSURANCE LAW

Ty vs. First National Surety & Assurance Co., Inc.G.R. No. L-16138 April 29, 1961

The plaintiff herein Diosdado C. Ty, employed as operator mechanic foreman in the Broadway Cotton Factory insured himself in 18 local insurance companies which issued to him personal accident policies, upon payment of the premium of P8.12 for each policy. Plaintiff's beneficiary was his employer, Broadway Cotton Factory, which paid the insurance premiums.

On December 24, 1953, a fire broke out which totally destroyed the Broadway Cotton Factory. Fighting his way out of the factory, plaintiff was injured on the left hand by a heavy object. He was brought to the MCU hospital, and after receiving first aid there, he went to the National Orthopedic Hospital for treatment of his injuries which have caused temporary total disability of his left hand.

Plaintiff filed the corresponding notice of accident and notice of claim to recover indemnity. Defendants rejected plaintiff's claim for indemnity for the reason that there being no severance of amputation of the left hand, the disability suffered by him was not covered by his policy. Hence, plaintiff sued the defendants.

MTC absolved the defendants from the complaints. Hence this appeal.

Held: SC affirmed.

The main contention of appellant is that in order that he may recover on the insurance policies issued him for the loss of his left hand, it is not necessary that there should be an amputation thereof, but that it is sufficient if the injuries prevent him from performing his work or labor necessary in the pursuance of his occupation or business.

The agreement contained in the insurance policies is the law between the parties. As the terms of the policies are clear, express and specific that only amputation of the left hand should be considered as a loss thereof, an interpretation that would include the mere fracture or other temporary disability not covered by the policies would certainly be unwarranted.

2. Ambiguous Provision Interpreted Against Insurer

Qua Chee Gan vs. Law Union & Rock Insurance Co., Ltd.G.R. No. L-4611 December 17, 1955

Qua Chee Gan, a merchant of Albay, owned 4 warehouses or bodegas used for the storage of stocks of copra and of hemp, baled and loose. They had been, with their contents, insured with the Law Union & Rock Insurance Co., Ltd. since 1937, and the loss made payable to the PNB as mortgagee of the hemp and crops, to the extent of its interest.

Fire of undetermined origin gutted and completely destroyed Bodegas Nos. 1, 2 and 4, with the merchandise stored theren. The plaintiff submitted the corresponding fire claims however, the Insurance Company resisted payment, claiming violation of warranties and conditions, filing of fraudulent claims, and that the fire had been deliberately caused by the insured or by other persons in connivance with him.

With counsel for the insurance company acting as private prosecutor, Que Chee Gan, with his brother, Qua Chee Pao, and some employees of his, were indicted and tried for the crime of arson, it being claimed that they had set fire to the destroyed warehouses to collect the insurance. They were, however, acquitted by the trial court.

Thereafter, plaintiff instituted action seeking to recover the proceeds of the fire insurance policies. After trial, the CFI rendered a decision in favor of the plaintiff.


INSURANCE LAW

Held: SC affirmed.

It is argued by the Insurance Company that since the bodegas insured had an external wall perimeter of 500 meters or 1,640 feet, the appellee should have 11 fire hydrants in the compound, and that he actually had only 2, with a further pair nearby, belonging to the municipality of Tabaco.

The appellant is barred by waiver (or rather estoppel) to claim violation of the so-called fire hydrants warranty, for the reason that knowing fully all that the number of hydrants demanded therein never existed from the very beginning, the appellant neverthless issued the policies in question subject to such warranty, and received the corresponding premiums.

Moreover, taking into account the well known rule that ambiguities or obscurities must be strictly interpreted against the party that caused them, the "memo of warranty" invoked by appellant bars the latter from questioning the existence of the appliances called for in the insured premises, since its initial expression, "the undernoted appliances for the extinction of fire being kept on the premises insured hereby, . . . it is hereby warranted . . .", admits of interpretation as an admission of the existence of such appliances which appellant cannot now contradict, should the parol evidence rule apply.

As to maintenance of a trained fire brigade of 20 men, the record is preponderant that the same was organized, and drilled, from time to give, although not maintained as a permanently separate unit, which the warranty did not require. Anyway, it would be unreasonable to expect the insured to maintain for his compound alone a fire fighting force that many municipalities in the Islands do not even possess.

Under the second assignment of error, appellant insurance company avers, that the insured violated the "Hemp Warranty" provisions against the storage of gasoline, since appellee admitted that there were 36 cans of gasoline in the building designed as "Bodega No. 2" that was a separate structure not affected by the fire.

It is well to note that gasoline is not specifically mentioned among the prohibited articles listed in the so-called "hemp warranty." The cause relied upon by the insurer speaks of "oils, animal and/or vegetable and/or mineral and/or their liquid products having a flash point below 300o Fahrenheit", and is decidedly ambiguous and uncertain; for in ordinary parlance, "Oils" mean "lubricants" and not gasoline or kerosene. Thus, by reason of the exclusive control of the insurance company over the terms and phraseology of the contract, the ambiguity must be held strictly against the insurer and liberally in favor of the insured, especially to avoid forfeiture.

Furthermore, it is well settled that even though there are printed prohibitions against keeping certain articles on the insured premises the policy will not be avoided by a violation of these prohibitions, if the prohibited articles are necessary or in customary use in carrying on the trade or business conducted on the premises.

The next two defenses pleaded by the insurer, that the insured connived at the loss and that the fraudulently inflated the quantity of the insured stock in the burnt bodegas, are closely related to each other. Both defenses are predicted on the assumption that the insured was in financial difficulties and set the fire to defraud the insurance company, presumably in order to pay off the Philippine National Bank, to which most of the insured hemp and copra was pledged. Both defenses are fatally undermined by the established fact that, notwithstanding the insurer's refusal to pay the value of the policies the extensive resources of the insured enabled him to pay off the National Bank in a short time; and if he was able to do so, no motive appears for attempt to defraud the insurer.

While the acquittal of the insured in the arson case is not res judicata on the present civil action, the insurer's evidence, to judge from the decision in the criminal case, is practically identical in both cases and must lead to the same result, since the proof to establish the defense of connivance at the fire in order to defraud the insurer "cannot be materially less convincing than that required in order to convict the insured of the crime of arson".

Del Rosario vs. Equitable Insurance & Casualty Co., Inc.G.R. No. L-16215 June 29, 1963


INSURANCE LAW

Equitable Insurance & Casualty Co., Inc. issued Personal Accident Policy No. 7136 on the life of Francisco del Rosario, alias Paquito Bolero, binding itself to pay the sum of P1,000.00 to P3,000.00, as indemnity in case of death of the insured.

On February 24, 1957, the insured Francisco del Rosario, alias Paquito Bolero, while on board the motor launch "ISLAMA" together with 33 others, including his beneficiary in the Policy, Remedios Jayme, were forced to jump off said launch on account of fire which broke out on said vessel, resulting in the death by drowning, of the insured and beneficiary. Simeon del Rosario, father of the insured, and as the sole heir, filed a claim for payment with defendant company which paid the sum of P1,000.00, pursuant to Section 1 of Part I of the policy. Atty. Francisco, wrote defendant company acknowledging receipt by his client (plaintiff herein), of the P1,000.00, but informing said company that said amount was not the correct one. In a subsequent letter to the insurance company, Atty. Francisco asked for P3,000.00 which the Company refused to pay. Hence, a complaint for the recovery of the balance of P2,000.00 was instituted.

CFI ruled in favor of plaintiff and held that since the defendant has bound itself to pay P1000.00 to P3,000.00 as indemnity for the death of the insured but the policy does not positively state any definite amount that may be recovered in case of death by drowning, there is an ambiguity in this respect in the policy, which ambiguity must be interpreted in favor of the insured and strictly against the insurer so as to allow greater indemnity.

Held: SC Affirmed.

The "terms in an insurance policy, which are ambiguous, equivocal or uncertain . . . are to be construed strictly against, the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved," and the reason for this rule is that the "insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by expert and legal advisers employed by, and acting exclusively in the interest of, the insurance company".

Verendia vs. Court of AppealsG.R. No. 75605 January 22, 1993

Fidelity and Surety Insurance issued Fire Insurance Policy No. F-18876 effective between June 23, 1980 and June 23, 1981 covering Rafael (Rex) Verendia's residential building. Designated as beneficiary was the Monte de Piedad & Savings Bank.

Verendia also insured the same building with two other companies, namely, The Country Bankers Insurance and The Development Insurance.

While the three fire insurance policies were in force, the insured property was completely destroyed by fire on the early morning of December 28, 1980. Fidelity was accordingly informed of the loss and despite demands, refused payment under its policy, thus prompting Verendia to file a complaint.

Answering the complaint, Fidelity, among other things, averred that the policy was avoided by reason of over-insurance; that Verendia maliciously represented that the building at the time of the fire was leased to a certain Roberto Garcia, when actually it was a Marcelo Garcia who was the lessee.

CFI rendered a decision ruling in favor of Fidelity. The trial court ruled that Paragraph 3 of the policy was violated by Verendia in that the insured failed to inform Fidelity of his other insurance coverages with Country Bankers Insurance and Development Insurance.

The CA reversed for the following reasons: (a) there was no misrepresentation concerning the lease for the contract was signed by Marcelo Garcia in the name of Roberto Garcia; and (b) Paragraph 3 of the policy contract requiring Verendia to give notice to Fidelity of other contracts of insurance was waived by Fidelity as shown by its conduct in attempting to settle the claim of Verendia. MR denied.


INSURANCE LAW

Held: CFI reinstated.

Verendia failed to live by the terms of the policy, specifically Section 13 thereof which is expressed in terms that are clear and unambiguous, that all benefits under the policy shall be forfeited "If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devises are used by the Insured or anyone acting in his behalf to obtain any benefit under the policy". Verendia, having presented a false declaration to support his claim for benefits in the form of a fraudulent lease contract, he forfeited all benefits therein by virtue of Section 13 of the policy in the absence of proof that Fidelity waived such provision. Worse yet, by presenting a false lease contract, Verendia, reprehensibly disregarded the principle that insurance contracts are uberrimae fidae and demand the most abundant good faith.

3. Stipulations Cannot be Segregated

Gulf Resorts, Inc. vs. Philippine Charter Insurance Corp.G.R. No. 156167 May 16, 2005

Plaintiff is the owner of the Plaza Resort insured originally with the American Home Assurance Company (AHAC-AIU). In the first four insurance policies issued by AHAC-AIU the risk of loss from earthquake shock was extended only to plaintiffs two swimming pools.

Plaintiff agreed to insure with defendant the properties covered by AHAC-AIU provided that the policy wording and rates in said policy be copied in the policy to be issued by defendant.

On July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiffs properties covered by Policy No. 31944 issued by defendant, including the two swimming pools were damaged.

After the earthquake, petitioner advised respondent that it would be making a claim under its Insurance Policy No. 31944 for damages on its properties. Respondent denied petitioners claim on the ground that its insurance policy only afforded earthquake shock coverage to the two swimming pools of the resort. Thus, petitioner filed a complaint praying for the payment for the losses sustained by the insured properties.

RTC ruled in favor of respondent declaring after finding that only the 2 swimming pools had earthquake shock coverage. CA affirmed.

Held: SC Affirmed.

It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance with each other. All its parts are reflective of the true intent of the parties. The policy cannot be construed piecemeal. Certain stipulations cannot be segregated and then made to control; neither do particular words or phrases necessarily determine its character. Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other provisions. All the provisions and riders, taken and interpreted together, indubitably show the intention of the parties to extend earthquake shock coverage to the two swimming pools only.

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;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; and5. In consideration of the insurers promise, the insured pays a premium.

An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril. In the subject policy, no premium payments were made with regard to


INSURANCE LAW

earthquake shock coverage, except on the two swimming pools. There is no mention of any premium payable for the other resort properties with regard to earthquake shock. This is consistent with the history of petitioners previous insurance policies from AHAC-AIU.

There is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on the general rule that insurance contracts are contracts of adhesion which should be liberally construed in favor of the insured and strictly against the insurer company which usually prepares it.

Petitioner cannot claim it did not know the provisions of the policy. From the inception of the policy, petitioner had required the respondent to copy verbatim the provisions and terms of its latest insurance policy from AHAC-AIU. Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No. 206-4568061-9 in drafting its Insurance Policy No. 31944. It is true that there was variance in some terms, specifically in the replacement cost endorsement, but the principal provisions of the policy remained essentially similar to AHAC-AIUs policy.

4. Judicial Construction Cannot Alter Terms

Misamis Lumber Corporation vs. Capital Insurance and Surety Co., Inc.G.R. No. L-21380 May 20, 1966

Misamis Lumber Corp, under its former name, Lanao Timber Mills, Inc., insured its Ford Falcon motor car for the amount of P14,000 with Capital Insurance & Surety Company, Inc.

While the insurance policy was in force, the insured car, while traveling along in Aurora Boulevard in front of the Pepsi-Cola plant in Quezon City, passed over a water hole which the driver did not see because an oncoming car did not dim its light. The crankcase and flywheel housing of the car broke when it hit a hollow block lying alongside the water hole. At the instance of the plaintiff-appellee, the car was towed and repaired by Morosi Motors at its shop at 1906 Taft Avenue Extension at a total cost of P302.27.

When the repairs on the car had already been made, the plaintiff-appellee made a report of the accident to the defendant-appellant Capital Insurance & Surety Company. Since the defendant-appellant refused to pay for the total cost of to wage and repairs, suit was filed.

The defendant-appellant admits liability in the amount of P150, but not for any excess thereof. However, the CFI did not exonerate the said appellant for the excess because, according to it, the company's absolution would render the insurance contract one-sided and that the said insurer had not shown that the cost of repairs in the sum of P302.27 is unreasonable, excessive or padded, nor had it shown that it could have undertaken the repairs itself at less expense.

Held: Defendant liable only to the extent of P150.00

The insurance policy stipulated in paragraph 4 that if the insured authorizes the repair the liability of the insurer, per its sub-paragraph (a), is limited to P150.00. The literal meaning of this stipulation must control, it being the actual contract, expressly and plainly provided for in the policy.

The option to undertake the repairs is accorded to the insurance company per paragraph 2. The said company was deprived of the option because the insured took it upon itself to have the repairs made, and only notified the insurer when the repairs were done. As a consequence, paragraph 4, which limits the company's liability to P150.00, applies.

The insurance contract may be rather onerous ("one-sided", as the lower court put it), but that in itself does not justify the abrogation of its express terms, terms which the insured accepted or adhered to and which is the law between the contracting parties

Fortune Insurance and Surety Co., Inc. vs. CAG.R. No. 115278 May 23, 1995


INSURANCE LAW

Producers Bank filed against petitioner Fortune Insurance and Surety Co., Inc. a complaint for recovery of the sum of P725,000.00 under the theft or robbery insurance policy issued by Fortune. The sum was allegedly lost during a robbery of Producer's armored vehicle while it was in transit to transfer the money from its Pasay City Branch to its head office in Makati.

Fortune refused to pay as the loss is allegedly excluded from the coverage of the insurance policy which provides that: The company shall not be liable under this policy for xxx any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee, partner, director, trustee or authorized representative of the Insured whether acting alone or in conjunction with others.

The plaintiff opposes the contention of defendant Fortune and contends that Atiga and Magalong are not its "officer, employee, . . . trustee or authorized representative . . . at the time of the robbery.

RTC, finding that Magalong and Atiga were not employees or representatives of Producers, ordered the defendant to pay plaintiff the net amount of P540,000.00 as liability under the policy.

According to the lower court, plaintiff may not be said to have selected and engaged Magalong and Atiga, their services as armored car driver and as security guard having been merely offered by PRC Management and by Unicorn Security and which latter firms assigned them to plaintiff. The wages and salaries of both Magalong and Atiga are presumably paid by their respective firms, which alone wields the power to dismiss them.

CA affirmed in toto the appealed decision. It agreed with the conclusion of the trial court that Magalong and Atiga were neither employees nor authorized representatives of Producers.

The CA likewise ratiocinated that the language used by defendant-appellant in the policy is plain, ordinary and simple. No other interpretation is necessary. The word "employee" must be taken to mean in the ordinary sense.

Held: Fortune exempt from liability.

It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance policy which is a form of casualty insurance. Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions applicable to casualty insurance or to robbery insurance in particular other than Sec. 174. These contracts are, therefore, governed by the general provisions applicable to all types of insurance. Outside of these, the rights and obligations of the parties must be determined by the terms of their contract, taking into consideration its purpose and always in accordance with the general principles of insurance law.

It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud the insurer the moral hazard is so great that insurers have found it necessary to fill up their policies with countless restrictions, many designed to reduce this hazard. Seldom does the insurer assume the risk of all losses due to the hazards insured against." Persons frequently excluded under such provisions are those in the insured's service and employment. The purpose of the exception is to guard against liability should the theft be committed by one having unrestricted access to the property. In such cases, the terms specifying the excluded classes are to be given their meaning as understood in common speech. The terms "service" and "employment" are generally associated with the idea of selection, control, and compensation.

A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against the insurer, or it should be construed liberally in favor of the insured and strictly against the insurer. Conversely, if the terms of the contract are clear and unambiguous, there is no room for construction and such terms cannot be enlarged or diminished by judicial construction.

An insurance contract is a contract of indemnity upon the terms and conditions specified therein. It is settled that the terms of the policy constitute the measure of the insurer's liability. In the absence of statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit


INSURANCE LAW

their liability and to impose whatever conditions they deem best upon their obligations not inconsistent with public policy.

Insofar as Fortune is concerned, it was its intention to exclude and exempt from protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons granted or having unrestricted access to Producers' money or payroll. When it used then the term "employee," it must have had in mind any person who qualifies as such as generally and universally understood, or jurisprudentially established in the light of the four standards in the determination of the employer-employee relationship, or as statutorily declared even in a limited sense as in the case of Article 106 of the Labor Code which considers the employees under a "labor-only" contract as employees of the party employing them and not of the party who supplied them to the employer.

A "representative" is defined as one who represents or stands in the place of another; one who represents others or another in a special capacity, as an agent, and is interchangeable with "agent." Thus, even granting for the sake of argument that these contracts were not "labor-only" contracts, and PRC Management Systems and Unicorn Security Services were truly independent contractors, we are satisfied that Magalong and Atiga were, in respect of the transfer of Producer's money from its Pasay City branch to its head office in Makati, its "authorized representatives" who served as such with its teller Maribeth Alampay.

II. PARTIES

A. INSURED

1. Definition the person to be indemnified; the person who applied for and to whom an insurance policy is issued.

2. Capacity Art 1390, Civil Code

Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties:

(1) Those where one of the parties is incapable of giving consent to a contract; (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or

fraud.These contracts are binding, unless they are annulled by a proper action in court. They are

susceptible of ratification. (n)

a. Married women Sec 3, par 2 and 4, I.C.; Art 73, Family Code

Sec. 3. x x xThe consent of the husband is not necessary for the validity of an insurance policy taken out by

a married woman on her life or that of her children.x x x


Art. 73. Either spouse may exercise any legitimate profession, occupation, business or activity without the consent of the other. The latter may object only on valid, serious, and moral grounds. In case of disagreement, the court shall decide whether or not:

(1) The objection is proper; and (2) Benefit has occurred to the family prior to the objection or thereafter. If the benefit accrued

prior to the objection, the resulting obligation shall be enforced against the separate property of the spouse who has not obtained consent.

The foregoing provisions shall not prejudice the rights of creditors who acted in good faith. (117a)

b. Minors Sec 3, par 3-5, I.C.; Art 38, Civil Code


INSURANCE LAW

Sec. 3. x x xAny minor of the age of eighteen years or more, may, notwithstanding such minority, contract

for life, health and accident insurance, with any insurance company duly authorized to do business in the Philippines, provided the insurance is taken on his own life and the beneficiary appointed is the minor's estate or the minor's father, mother, husband, wife, child, brother or sister.


All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of a minor shall automatically vest in the minor upon the death of the original owner, unless otherwise provided for in the policy.

Art. 38. Minority, insanity or imbecility, the state of being a deaf-mute, prodigality and civil interdiction are mere restrictions on capacity to act, and do not exempt the incapacitated person from certain obligations, as when the latter arise from his acts or from property relations, such as easements. (32a)

3. Disqualification: Public Enemy Sec 7, I.C.

Sec. 7. Anyone except a public enemy may be insured.

Filipinas Compaia De Seguros vs. Christern Huenefeld and Co., Inc.G.R. No. L-2294 May 25, 1951

Christern Huenefeld, & Co., Inc., organized under and by virtue of the laws of the Philippines being controlled by the German subjects, obtained from the petitioner Filipinas Cia. de Seguros, fire policy No. 29333. During the Japanese military occupation, the building and insured merchandise were burned. In due time the respondent submitted to the petitioner its claim under the policy. The petitioner refused to pay the claim on the ground that the policy in favor of the respondent had ceased to be in force on the date the US declared war against Germany. The petitioner, however, in pursuance of the order of the Director of Bureau of Financing, Philippine Executive Commission, paid to the respondent the sum of P92,650.

Thus, petitioner filed with the CFI an action for the purpose of recovering from the respondent the sum of P92,650. CFI dismissed the action.

The CA affirmed and overruled the contention of the petitioner that the respondent corporation became an enemy when the US declared war against Germany, relying on English and American cases which held that a corporation is a citizen of the country or state by and under the laws of which it was created or organized. It rejected the theory that nationality of private corporation is determined by the character or citizenship of its controlling stockholders.

Issue: WON the respondent corporation is entitled to indemnity pursuant to the fire insurance.

Held: No.

The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except a public enemy may be insured." It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy.

There is no question that majority of the stockholders of the respondent corporation were German subjects. This being so, said respondent became an enemy corporation upon the outbreak of the war between the US and Germany. Thus, having become an enemy corporation on December 10, 1941, the insurance policy issued in its favor had ceased to be valid and enforcible, and since the insured goods were burned after December 10, 1941, and during the war, the respondent was not entitled to any indemnity under said policy from the petitioner. However, elementary rules of justice (in the absence of specific provision in the Insurance Law) require that the premium paid by the respondent for the period covered by its policy from December 11, 1941, should be returned by the petitioner.


INSURANCE LAW

4. Trustee or Agent Sec 54, I.C.

Sec. 54. When an insurance contract is executed with an agent or trustee as the insured, the fact that his principal or beneficiary is the real party in interest may be indicated by describing the insured as agent or trustee, or by other general words in the policy.

5. Partner Sec 55, I.C.

Sec. 55. To render an insurance effected by one partner or part-owner, applicable to the interest of his co-partners or other part-owners, it is necessary that the terms of the policy should be such as are applicable to the joint or common interest.

B. INSURER

1. Definition the person who undertakes to indemnify another by a contract of insurance; Sec 184, I.C.

Sec. 184. For purposes of this Code, the term "insurer" or "insurance company" shall include all individuals, partnerships, associations, or corporations, including government-owned or controlled corporations or entities, engaged as principals in the insurance business, excepting mutual benefit associations. Unless the context otherwise requires, the terms shall also include professional reinsurers defined in section two hundred eighty. "Domestic company" shall include companies formed, organized or existing under the laws of the Philippines. "Foreign company" when used without limitation shall include companies formed, organized, or existing under any laws other than those of the Philippines.

a. Insurance Corporations Sec 185, par 1, I.C.

Sec. 185. Corporations formed or organized to save any person or persons or other corporations harmless from loss, damage, or liability arising from any unknown or future or contingent event, or to indemnify or to compensate any person or persons or other corporations for any such loss, damage, or liability, or to guarantee the performance of or compliance with contractual obligations or the payment of debt of others shall be known as "insurance corporations".

The provisions of the Corporation Law shall apply to all insurance corporations now or hereafter engaged in business in the Philippines insofar as they do not conflict with the provisions of this chapter.

b. Mutual Insurance Companies Sec 262, I.C.

Sec. 262. Any domestic stock life insurance company doing business in the Philippines may convert itself into an incorporated mutual life insurer. To that end it may provide and carry out a plan for the acquisition of the outstanding shares of its capital stock for the benefit of its policyholders, or any class or classes of its policyholders, by complying with the requirements of this chapter.

c. Professional Reinsurers Sec 280, I.C.

Sec. 280 . Except as otherwise provided in this Code, no person, partnership, association or corporation shall transact any business in the Philippines as a professional reinsurer until it shall have obtained a certificate of authority for that purpose from the Commissioner upon the application therefor and payment by such person, partnership, association or corporation of the fees hereinafter prescribed. As used in this Code, the term "professional reinsurer" shall mean any person, partnership, association or corporation that transacts solely and exclusively reinsurance business in the Philippines.

The Commissioner may refuse to issue a certificate of authority to any such person, partnership, association or corporation if, in his judgment, such refusal will best promote public interest. No such certificate of authority shall be granted to any such person, partnership, association or corporation unless and until the Commissioner shall have satisfied himself by such examination as he may make and such evidence as he may require that such person, partnership, association or corporation is qualified by the laws of the Philippines to transact business therein as a professional reinsurer.


INSURANCE LAW

Before issuing such certificate of authority of the Commissioner must be satisfied that the name of the applicant is not that of any other known company transacting insurance or reinsurance business in the Philippines, or a name so similar as to be calculated to mislead the public.

Such certificate of authority shall expire on the last day of June of each year and shall be renewed annually if such person, partnership, association, or corporation is continuing to comply with provisions of this Code, or the circulars, instructions, rulings, or decisions of the Commissioner and such other pertinent law, rules and regulations.

Every such person, partnership, association, or corporation receiving such certificate of authority shall be subject to the provisions of this Code and other related laws, and to the jurisdiction and supervision of the Commissioner.

d. Mutual Benefit Associations (excluded from definition, but still subject to I.C. regulation) Sec 390, I.C.

Sec. 390. Any society, association or corporation, without capital stock, formed or organized not for profit but mainly for the purpose of paying sick benefits to members, or of furnishing financial support to members while out of employment, or of paying to relatives of deceased members of fixed or any sum of money, irrespective of whether such aim or purpose is carried out by means of fixed dues or assessments collected regularly from the members, or of providing, by the issuance of certificates of insurance, payment of its members of accident or life insurance benefits out of such fixed and regular dues or assessments, but in no case shall include any society, association, or corporation with such mutual benefit features and which shall be carried out purely from voluntary contributions collected not regularly and or no fixed amount from whomsoever may contribute, shall be known as a mutual benefit association within the intent of this Code.

Any society, association, or corp

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