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such case, ambiguous provisions are construed strictissimi juris or of strictest terms6 against the
insurer.
An insurance contract, being a contract of adhesion, 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. Limitations of liability should be regarded with extreme jealousy and must
be construed in such a way as to preclude the insurer from noncompliance with its obligations.7
Q. Are contracts of insurance entered into by the insurer and insured on equal footing?
A. To characterize the insurer and the insured as contracting parties on equal footing is
inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts of
experience in the industry purposefully used to its advantage. More often than not, insurance
contracts are contracts of adhesion containing technical terms and conditions of the industry
confusing if at all understandable to lay persons, that are imposed on those who wish to avail of
insurance. As such, insurance contracts are imbued with public interest that must be considered
whenever the rights and obligations of the insurer and the insured are to be delineated. Hence, in
order to protect the interest of insurance applicants, insurance companies must be obligated to act
with haste upon insurance applications, to either deny or approve the same, or otherwise be
bound to honor the application as a valid, binding and effective insurance contract.8
Q. Why are insurance contracts called contracts by adhesion or adherence?
A. Insurance contracts are prepared only by the insurer and imposed upon parties dealing
with it which may not be changed, the latters participation in the agreement being reduced to the
alternative to take it or leave it, in contrast to those entered into by parties bargaining on an
equal footing and, therefore, any ambiguity thereon must be resolved against the insurer, the
party preparing the contract.9
Q. Philamlife and Eternal Gardens entered into a Group Life Policy under which the
clients of Eternal who purchased burial lots from it on installment would be insured by
5 Calanoc vs. Court of Appeals, 52 O. G. 191; Qua Chee Gan vs. Law Union Rock
Ins. Co., Ltd., 52 O. G. 1982.
6 Mc Cullough & Co. vs. Taylor, 25 Phil. 113; Asked, No. V (2), 2003 Bar Exams.
7 DBP Pool of Accredited Insurance Companies vs. Radio Mindanao Network, Inc., 480 SCRA
314 315, January 27, 2006.
8 Eternal Gardens Memorial Park Corporation vs. The Phil. American Life Insurance Co., G. R.
No. 166245, April 9, 2008.
9 (Qua Chee Gan vs. Law Union Rock Ins. Co., Ltd., 52 O. G. 1982).
Philamlife. Eternal was required under the policy to submit a list of new lot purchasers ,
together with a copy of the application of each purchasers and the amounts of the
respective unpaid balances of all insured lot purchasers. Eternal sent a letter dated
December 29, 1982, containing a list of insurable balances of its lot buyers. On of those
included in the list was John Chuang. Philamlife did not reply to the said letter. On August
2, 1984 Chuang died. Eternal demanded payment from Philamlife of the insurance claim
for Chuangs death. Philamlife denied the claim on the ground that no application for
Group Insurance was submitted to Philamlife prior to Chuangs death. The contact
between Philamlife and Eternal stated that the insurance of any eligible Lot Purchaser
shall be effective on the date he contracts a loan with the Assured (Eternal). It was further
stated that there shall be no insurance if the application of the Lot Purchaser is not
approved by the Company (Philamlife). Was there a valid contract of insurance covering
Chuangs life considering the conflicting provisions of the policy?
A. The seemingly conflicting provisions must be harmonized to mean that upon a partys
purchase of a memorial lot on installment basis 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. Insurance is a contract by adhesion which
must be construed liberally in favor of the insured and strictly against the insurer.10
Q. Are HMOs or Health Maintenance Organizations whose primary objection is to provide
medical services as needed, engaged in insurance business?
A. The test to determine whether a company is engaged in the insurance business or not is
whether the assumption of risk and indemnification of lass are the principal object and purpose
of the organization or whether they are merely incidental to its business. If these are the principal
objectives, the business is that of insurance. But if they are merely incidental and service is the
principal purpose then the business is not insurance. HMO whose main object is to provide the
members of a group with health services, is not engaged in the insurance business.11
Q. How should ambiguities in a Health Care Agreement be interpreted?
A. Health Care Agreement is in the nature of a non-life insurance which is primarily a
contract of indemnity12 and hence, it is a contract of adhesion the terms of which must be
interpreted and enforced stringently against the insurer which prepared the contract.13
Q. Who may be a beneficiary in life insurance?
10 Eternal Gardens Memorial Park Corp. vs. Philamlife, G. R. 166245, April 9, 2008.
11 Phlippine Health Care Providers, Inc. vs. Commissioner of Internal Revenue, 600 SCRA 413,
Sept. 19, 2009.
12 Philamcare Health Systems, Inc. vs. CA, 379 SCRA 356 (2002).
13 Blue Cross Health Care, Inc. vs. Olivares, 544 SCRA 580, 586, February 12, 2008.
4 Couch 2d, 504; Asked, 1946 (Aug.) and 1969 Bar Exams.; No. IV, 1987 Bar Exams.
15 Art. 2012, Civil Code; Asked, 1955 & 1962 Bar Exams.; No. 4, 1981 Bar Exams., No. 13, 1985 Bar Exams.; No. X, 1998
Bar Exams.
18 Heirs of Loreto C. Maramag vs. Maramag, 588 SCRA 774, June 5, 2009.
However, a person who cannot receive donation from the insured under Article 739 of the Civil
Code cannot be designated as beneficiary.20
Q. May the wife who abandoned her husband be a beneficiary of Social Security Benefits?
A. In the case of Social Security System, et al., vs. Gloria de los Santos 21 the Supreme
Court ruled that a wife who left her husband and lived with another man is no longer entitled to
receive Social Security benefits upon the death of the husband because she was no longer
dependent upon him for her support.
Q. Less than a year after the marriage of Antonio de los Santos and Gloria de los Santos,
the latter left Antonio and contracted another marriage with Domingo Talens in 1965. In
1969, Gloria went back to Antonio and lived with him until 1983 when she again left
Antonio and went to the United States where she obtained a divorce from Antonio. In the
meantime, Antonio married Cirila de los Santos and amended his SSS records by changing
his beneficiary from Gloria to Cirila. Antonio died and Gloria claimed the SSS insurance
benefits. The Court of Appeals ruled that the marriage between Antonio and Gloria still
subsisted and the subsequent marriages contracted by them were void. Thus, the Court of
Appeals ruled that Gloria was still the legal wife of Antonio and hence entitled to the SSS
benefits. Should Gloria be entitled to the SSS benefits?
A. The divorce obtained by Gloria against Antonio was not binding in this jurisdiction.
Under Philippine law, only aliens may obtain divorces abroad provided they are valid according
to their national law. The divorce was obtained by Gloria while she was still a Filipino citizen,
hence it did not sever her marriage with Antonio. However, although Gloria was the legal
spouse, she is still disqualified to be his primary beneficiary under the SSS law. A wife who left
her family until her husband died and lived with other men was not dependent upon her husband
for support, financial or otherwise, during the same period. Gloria left the conjugal abode and
lived with two different men. These facts remove her from qualifying as a primary beneficiary of
her deceased husband.22
19
4 Couch 2d. 504; In re Saymanakis Estate, 167 A. 420, 109 Pa. Super, 555; Asked 1949 Bar Exams.; No. IV,
1987 Bar Exams.
Q. The insurer issued a common carrier accident insurance policy to Manila Yellow
Taxicab wherein it was stipulated that the insurer will indemnify any authorized driver
who was driving the motor vehicle insured. A taxicab of the insured, driven by Coquia met
a vehicular accident which caused the death of Coquia. May the heirs of Coquia hold the
insurer liable?
A. The policy under consideration is typical of contracts pour autrui and therefore, the
enforcement thereof may be demanded by a third party for whose benefit it was made, although
not a party to the contract.29
Q. Aguilar insured his jeepneys against accidents and third-party liability. In the policy,
the insurer agreed to indemnify the insured against all sums which the insured shall
become legally liable to pay in respect of death of or bodily injury to any person. One of
the jeepneys insured bumped Guingon who had just alighted from another jeepney.
Guingon died. Can the insurer be made directly liable for the death of Guingon who was
not a party to the insurance contract?
A. The insurance taken was one for indemnity for liability to third persons and, therefore,
such third person is entitled to sue the insurer.30
Q. What are the statutory exceptions to the rule that the insurer is entitled to the payment
of premium as soon as the thing insured is exposed to the peril insured against?
A. Notwithstanding any agreement to the contrary, no policy or contract of insurance is
valid and binding unless and until the premium thereof has been paid.31
The statutory exceptions wherein the policy shall be binding notwithstanding the non-payment of
premiums are:
1. In case of life or industrial life insurance whenever the grace period applies;32
2. When the insurer makes a written acknowledgment of the receipt of premium, such
acknowledgment is a conclusive evidence of payment of premium to make the policy binding;33
29 Coquia vs. Fieldmens Ins. Co., Inc., 26 SCRA 179.
30 Guingon vs. del Monte, 20 SCRA 1043.
3. Where the obligee has accepted the bond or suretyship contract in which case such bond or
suretyship becomes valid and enforceable irrespective of whether or not the premium has been
paid by the obligor to the surety.34
Q. Aside from the statutory exceptions mentioned above wherein the policy is valid and
binding notwithstanding the non-payment of premiums, what are the other exceptions that
evolved from cases decided by the Supreme Court:
A. Aside from the statutory exceptions, the following are the instances when the Supreme
Court ruled that the policy is valid and binding notwithstanding the non-payment of premiums:
1. In case of cover notes which are binding even if premiums are not paid thereon
because no premium could be fixed on the cover note until all the particulars of the insurance are
known. Cover notes should be integrated to the regular policies so that the premiums on the
regular policies include the consideration for the cover notes.35
2. When the parties agreed to have the premiums paid by installments or payment by installments
is an established practice by the parties, acceptance of the payment of premium by installments
would suffice to make the policy binding.36
3. When the insurer has granted the insured a credit term for the payment of premium, the insurer
is barred by estoppel from claiming forfeiture of the policy due to non-payment of premium
within the credit term.37
Q. Olivares obtained a health care coverage from Blue Cross Health Care, Inc.. In
the health care agreement of the parties, ailments due to pre-existing conditions were
excluded from the coverage. Barely 38 days from the effectivity of her health care coverage,
Olivares suffered a stroke and was admitted at the Medical City hospital. She was treated
by Dr. Saniel, her attending physician. She asked Blue Cross to pay her medical expenses
but the latter suspended payment pending submission of a certification from her attending
physician that the stroke she suffered was not caused by a pre-existing condition. After
being discharged from the hospital, Olivares again claimed payment from Blue Cross but
the latter insisted on Dr. Saniels report. Blue Cross asked for a report from Dr. Saniel
34 Section 177.
35 Pacific Timber and Export Corporation vs. Court of Appeals, 112 SCRA 199.
36 Makati Tuscany Condominium Corp. vs. Court of Appeals, 215 SCRA 462; Asked, No. V,
2006 Bar Exams.
37 UCPB vs. Masagana Telamart, Inc., 356 SCRA 307. There are however, strong dissenting
opinions in this case.
which was refused on the ground that Olivares invoked the patient-physician
confidentiality. During the trial, Blue Cross never presented any evidence to prove that
Olivares stroke was due to a pre-existing condition. It merely speculated that Dr. Saniels
report would be adverse to Olivares, based on her invocation of the doctor-patient
privilege. Should Blue Cross be exempted from liability?
A. The rule that evidence willfully suppressed would be adverse if produced does not
apply if the suppression is an exercise of a privilege. The refusal of Olivares was justified. It
was privileged communication between physician and patient. Furthermore, limitations of
liability on the part of the insurer or health care provider must be construed in such a way as to
preclude it from evading its obligations. Since Blue Cross had the burden of proving exception to
liability, it should have made its own assessment of whether Olivares had a pre-existing
condition when it failed to obtain the attending physicians report. It could not just passively wait
for Dr. Saniels report to bail it out.38
Q. In an insurance suit, what is the actionable document, the policy or a
thereof or a Marine Risk Note?
memorandum
A. In an insurance suit, the actionable document is the policy which must be attached to
the complaint pursuant to Section 7, Rule 9 of the Rules of Court. However, there is no specific
provision in the Rules of Court which prohibits the admission in evidence of an actionable
document in the event a party fails to comply with the requirement of the rule on actionable
document under Section 7, Rule 9. But what must be presented as evidence is the policy itself
and not a mere Marine Risk Note.39
Q. 120 pieces of motors were air shipped from the US to ABB Koppel, Inc. in Manila. At
the NAIA, the cargo was discharged and forwarded to the warehouse of Paircargo for
temporary storage pending release by the Bureau of Customs. Later, Regis Brokerage
withdrew the cargo and delivered it to ABB Koppel. However, it was discovered that only
65 of the 120 pieces of motors were actually delivered and the remaining 55 motors could
not be accounted for. Paircargo and Regis both refused to pay the value of the missing
motors. Thus, Malayan Insurance with which ABB Koppel insured the cargo paid ABB
Koppel the insurance claim. Claiming subrogation to the right of ABB Koppel, Malayan
Insurance filed an action against Paircargo and Regis at the MeTC of Manila where it
38 Blue Cross Health Care, Inc. vs. Olivares, 544 SCRA 580, February 12, 2008.
39 Malayan Insurance Co., Inc. vs. Regis Brokerage Corporation, G. R. No. 172156, Nov. 23,
2007.
presented Marine Risk Note as proof that Malayan Insurance insured the cargo. The
complaint was dismissed on the ground that the Marine Risk Note presented as proof that
the cargo was insured was invalid. (a) Was the Marine Risk Note sufficient to prove the
existence of the insurance contract? (b) Was Malayan Insurance subrogated to the rights of
ABB Koppel against the party responsible for the loss of the shipment?
A. (a) The Marine Risk Note was not the insurance contract itself, but merely a
complementary or supplementary document to the contract of insurance that may have existed
between Malayan and ABB Koppel. (b) Since Malayan failed to introduce in evidence the
Marine Insurance Policy itself as the main insurance contract, or even advert to said document in
the complaint, it failed to establish its cause of action for restitution as a subrogee of ABB
Koppel. Malayans right to recovery is derived from contractual subrogation as an incident to an
insurance relationship, and not from any proximate injury to it inflicted by the defendants. It is
critical that Malayan establish the legal basis of such right to subrogation by presenting the
contract constitutive of the insurance relationship between it and ABB Koppel. Without such
legal basis, its cause of action cannot survive. The dismissal of the complaint is correct.40
Q. When may abandonment be made?
A. Abandonment may be made in any of the following cases:41
(a) If more than of the value of the thing insured is actually lost;
(b) If more than of the value of the thing insured would have to be expended to recover
it from the peril;42
(c) If it is injured to such an extent as to reduce its value by more than ;
(d) If the thing insured is a ship and the contemplated voyage cannot be lawfully
performed without an expense to the insured of more than of the value of the thing abandoned;
(e) If the thing insured is a ship and the contemplated voyage cannot be lawfully
performed without incurring risk which a prudent man would not take under the circumstances;
(f) If the thing insured, being cargo or freightage, and the voyage cannot be performed
nor another ship procured by the master within a reasonable time and with reasonable diligence,
to forward the cargo without incurring an expense of more than of the value of the thing43 or
without incurring a risk which a prudent man would not under take under the circumstances.
40 Malayan Insurance Co., Inc. vs. Regis Brokerage Corporation, supra.
41 Section 139; Asked, X (b), 2005 Bar Exams.
42 Asked, 1971 Bar Exams.
43 Asked, No. 5, 1982 Bar Exams.
45 Section 139.
46 Section 131.
47 Keppel Cebu Shipyard, Inc. vs. Pioneer Insurance & Surety Corp., G. R. 180880-81, Sept. 25,
2009, 601 SCRA 96.
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 violated the contract. It
contemplates full substitution such that it places the party subrogated in the shoes of the creditor,
and he may use all means that the creditor could employ to enforce payment.48
(c) Clause 20 is a stipulation that may be considered contrary to public policy. To allow
KCSI to limit its liability to only P50,000,000.00, notwithstanding the fact that there was a
constructive total loss in the amount of P360,000,000.00, would sanction the exercise of a degree
of diligence short of what is ordinarily required. It would not be difficult for a negligent party to
escape liability by the simple expedient of paying an amount very much lower than the actual
damage or loss sustained by the other.49
Q. How can the insurer be held liable under the no fault indemnity clause in motor
vehicle third party liability insurance?
A. An insurer may be held liable under the no fault indemnity provision without the
necessity of proving fault or negligence of any kind provided the following requisites are
present:50
(a) The claim is for death or injury to any passenger or third party;
(b) The total indemnity in respect of any one person does not exceed P5,000; and
(c) The necessary proof of loss under oath to substantiate the claim must be submitted.
Q. Which insurer is liable under the no fault indemnity provision?
A. A claim under the no fault indemnity provision may be made against the insurer of
one motor vehicle only. Such claim may be made directly by the injured party against the insurer
as follows:
(a) In case of an occupant of a vehicle, claim shall lie against the insurer of the vehicle in
which the occupant is riding, mounting or dismounting from.
(b) In any other case, claim shall lie against the insurer of the directly offending vehicle.51
48 Ibid.
49 Ibid.
50 Section 378; Asked, 1977 Bar Exams.; No. 6, 1983 Bar Exams.; No. III (1), 1989
Bar Exams.; No. 1 (1), 1994 Bar Exams.
51 Section 378; Asked, No. III (1), 1989 Bar Exams; No. 1 (1), 1994 Bar Exams.