Blue Cross v Olivares G.R. No.
that when their terms contain limitations
169737, February 12, 2008J. Corona
Facts:
Neomi Olivares applied for a health care
program with Blue Cross for the amount
of 12,000 pesos. 38 days after she
applied, she suffered from a stroke.
Ailments due to pre-existing conditions
were excluded from the coverage. She
was confined in Medical City and
discharged with a bill of Php
34,000. Blue Cross refused to pay
unless she had her physicians
certification that she was suffering from
a pre-existing condition. When Blue
Cross still refused to pay, she filed suit
in the MTC. The health care company
rebutted by saying that the physician
didnt disclose the condition due to the
patients invocation of the doctor-client
privilege. The MTC dismissed for a lack
of cause of action because the
physician didnt disclose the condition.
In the RTC, the spouses
were awarded the amount of the
hospital bills plus 60,000 in damages.
This was under the ratio that the burden
to prove that Neomi had a pre-existing
condition was under Blue Cross. The
CA denied the motion for
reconsideration of the health care
company.
Issues:
1. Whether petitioner was able to prove
that respondent Neomi's stroke was
caused by a pre-existing condition and
therefore was excluded from the
coverage of the health care agreement.
2. Whether it was liable for moral and
exemplary damages and attorney's fees.
Held: No. Yes. Petition dismissed.
Ratio:
1. Philamcare Health Systems, Inc. v.
CA- a health care agreement is in the
nature of a non-life insurance. It is an
established rule in insurance contracts
on liability, they should be construed
strictly against the insurer. These are
contracts of adhesion the terms of which
must be interpreted and enforced
stringently against the insurer which
prepared the contract. This doctrine is
equally applicable to health care
agreements.
The agreement defined a pre-existing
condition as:
a disability which existed before the
commencement date
of membership whose natural history
can be clinically determined, whether or
not the Member was aware of such
illness or condition. Such conditions also
include disabilities existing prior to
reinstatement date in the case of lapse
of an Agreement.
Under this provision, disabilities which
existed before the commencement of
the agreement are excluded from its
coverage if they become manifest within
one year from its effectivity.
Petitioners still averred that the non-
disclosure of the pre-existing condition
made a presumption in its favor.
Respondents still maintained that the
petitioner had the duty to prove its
accusation.
Petitioner never presented evidence to
prove its presumption that the Doctors
report would work against Neomi. They
only perceived that the invocation of the
privilege made the report adverse to
Neomi and such was a disreputable
presumption. They should have made
an independent assessment of Neomis
condition when it failed to obtain the
report. They shouldnt have waited for
the attending physicians report to come
out.
Section 3 (e), Rule 131 of the Rules of
Court states:
Under the rules of court, Rule 131, Sec.
3.
Disputable presumptions. The
following presumptions are satisfactory
if uncontradicted, but may be
contradicted and overcome by other
evidence:
(e) That evidence willfully suppressed
would be adverse if produced.
The exception on presenting evidence
applies when the suppression is an
exercise of a privilege.
Hence, Neomi had the privilege not to
present the Doctors report under the
doctor-client privilege.
2. The court quoted the CA and RTC
decision stating that the refusal of
petitioner to pay respondent Neomi's
bills smacks of bad faith, as its refusal
[was] merely based on its own
perception that a stroke is a pre-existing
condition. Also, there was factual bases
in the RTC and CA for the award of
the damages.
CONCEALMENT MADE IN GOOD
FAITH; VALID INSURACE CONTRACT
PHILAMCARE HEALTH SYSTEMS,
INC. VS. CA & JULITA RAMOS
G.R. No.125678, March 18, 2002
Facts:
Ernani Trinos, deceased husband of
Julita Ramos, applied for a health care
coverage with the petitioner Philamcare.
In the standard application form, he
delivered no to a question asking him if
he had been treated of any of the family
member consulted for high blood, heart
trouble, diabetes, cancer, liver disease,
asthma or ulcer. The application was
approved for a period of 1 year from and
thus extended to June 1, 1990. During
the period of coverage, Ernani suffered
a heart attack and was confined for one
month. Respondent Julita Ramos tried
to claim saying that the health care
Agreement was void as there was
concealment regarding Ernanis medical
history. On July 24, 1990, after Ernani
died, Julita Ramos instituted an action
for damages against Philam care with
the RTC Manila, which ruled against the
latter.
Issue:
Whether or not there is a valid
insurance contract because of alleged
concealment of material fact.
Held:
The Supreme Court ruled that there is a
valid insurance contract, after all, all the
elements for an insurance contract are
contract are present and alleged
concealment answers made in good
faith and without intent to deceive will
not avoid the policy. The insurer, in case
of material fact, is not justified in relying
upon such statement, but obligated to
make further inquiry.
WHITE GOLD MARINE SERVICES,
INC. VS. PIONEER INSURANCE AND
SURETY CORPORATION AND THE
STEAMSHIP MUTUAL
UNDERWRITING ASSOCIATION
(BERMUDA) LTD.
G.R. No. 154514. July 28, 2005
Facts:
White Gold Marine Services, Inc.
procured a protection and indemnity
coverage for its vessels from The
Steamship Mutual Underwriting
Association Limited through Pioneer
Insurance and Surety Corporation.
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,
while Pioneer violated Sections 299, to
301 of the Insurance Code.
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. 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.
The Court of Appeals affirmed the
decision of the Insurance
Commissioner. In its decision, the
appellate court distinguished between P
& I Clubs vis--vis conventional
insurance. The appellate court also held
that Pioneer merely acted as a
collection agent of Steamship Mutual.
Issues:
(1) Is Steamship Mutual, a P & I Club,
engaged in the insurance business in
the Philippines?
(2) Does Pioneer need a license as an
insurance agent/broker for Steamship
Mutual?
Held:
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.
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.
In particular, a marine insurance
undertakes to indemnify the assured
against marine losses, such as the
losses incident to a marine adventure.
Section 99 of the Insurance Code
enumerates the coverage of marine
insurance.
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. We note that Steamship
Mutual even renewed its P & I Club
cover until it was cancelled due to non-
payment of the calls. Thus, to continue
doing business here, Steamship Mutual
or through its agent Pioneer, must
secure a license from the Insurance
Commission.
Since a contract of insurance involves
public interest, regulation by the State is
necessary. Thus, no insurer or
insurance company is allowed to
engage in the insurance business
without a license or a certificate of
authority from the Insurance
Commission.
On the second issue, Pioneer is the
resident agent of Steamship Mutual as
evidenced by the certificate of
registration issued by the Insurance
Commission. It has been licensed to do
or transact insurance business by virtue
of the certificate of authority issued by
the same agency. However, a
Certification from the Commission states
that Pioneer does not have a separate
license to be an agent/broker of
Steamship Mutual. Although Pioneer is
already licensed as an insurance
company, it needs a separate license to
act as insurance agent for Steamship
Mutual.
PHILIPPINE CHARTER INSURANCE
CORPORATION VS. CHEMOIL
LIGHTERAGE HITE GOLD
CORPORATION
G.R. No. 136888. June 29, 2005
Facts:
Philippine Charter Insurance
Corporation is a domestic corporation
engaged in the business of non-life
insurance. Respondent Chemoil
Lighterage Corporation is also a
domestic corporation engaged in the
transport of goods. On 24 January 1991,
Samkyung Chemical Company, Ltd.,
based in South Korea, shipped 62.06
metric tons of the liquid chemical
DIOCTYL PHTHALATE (DOP) on board
MT TACHIBANA which was valued at
US$90,201.57 and another 436.70
metric tons of DOP valued at
US$634,724.89 to the Philippines. The
consignee was Plastic Group Phils., Inc.
in Manila. PGP insured the cargo with
Philippine Charter Insurance
Corporation against all risks. The
insurance was under Marine Policies
No. MRN-30721[5] dated 06 February
1991. Marine Endorsement No.
2786[7] dated 11 May 1991 was
attached and formed part of MRN-
30721, amending the latters insured
value to P24,667,422.03, and reduced
the premium accordingly. The ocean
tanker MT TACHIBANA unloaded the
cargo to the tanker barge, which shall
transport the same to Del Pan Bridge in
Pasig River and haul it by land to PGPs
storage tanks in Calamba, Laguna.
Upon inspection by PGP, the samples
taken from the shipment showed
discoloration demonstrating that it was
damaged. PGP then sent a letter where
it formally made an insurance claim for
the loss it sustained.
Petitioner requested the GIT Insurance
Adjusters, Inc. (GIT), to conduct a
Quantity and Condition Survey of the
shipment which issued a report stating
that DOP samples taken were
discolored. Inspection of cargo tanks
showed manhole covers of ballast tanks
ceilings loosely secured and that the
rubber gaskets of the manhole covers of
the ballast tanks re-acted to the
chemical causing shrinkage thus,
loosening the covers and cargo ingress.
Petitioner paid PGP the full and final
payment for the loss and issued a
Subrogation Receipt. Meanwhile, PGP
paid the respondent the as full payment
for the latters services. On 15 July
1991, an action for damages was
instituted by the petitioner-insurer
against respondent-carrier before the
RTC, Br.16, City of Manila. Respondent
filed an answer which admitted that it
undertook to transport the shipment, but
alleged that before the DOP was loaded
into its barge, the representative of
PGP, Adjustment Standard Corporation,
inspected it and found the same clean,
dry, and fit for loading, thus accepted
the cargo without any protest or notice.
As carrier, no fault and negligence can
be attributed against respondent as it
exercised extraordinary diligence in
handling the cargo. After due hearing,
the trial court rendered a Decision in
favor of plaintiff. On appeal, the Court of
Appeals promulgated its Decision
reversing the trial court. A petition for
review on certiorar[ was filed by the
petitioner with this Court.
Issues:
1. Whether or not the Notice of Claim
was filed within the required period.
2.Whether or not the damage to the
cargo was due to the fault or negligence
of the respondent.
Held:
Article 366 of the Code of Commerce
has profound application in the case at
bar, which provides that; Within twenty-
four hours following the receipt of the
merchandise a claim may be made
against the carrier on account of
damage or average found upon opening
the packages, provided that the
indications of the damage or average
giving rise to the claim cannot be
ascertained from the exterior of said
packages, in which case said claim shall
only be admitted at the time of the
receipt of the packages. After the
periods mentioned have elapsed, or
after the transportation charges have
been paid, no claim whatsoever shall be
admitted against the carrier with regard
to the condition in which the goods
transported were delivered.
As to the first issue, the petitioner
contends that the notice of
contamination was given by PGP
employee, to Ms. Abastillas, at the time
of the delivery of the cargo, and
therefore, within the required period.
The respondent, however, claims that
the supposed notice given by PGP over
the telephone was denied by Ms.
Abastillas. The Court of Appeals
declared: that a telephone call made to
defendant-company could constitute
substantial compliance with the
requirement of notice. However, it must
be pointed out that compliance with the
period for filing notice is an essential
part of the requirement, i.e.. immediately
if the damage is apparent, or otherwise
within twenty-four hours from receipt of
the goods, the clear import being that
prompt examination of the goods must
be made to ascertain damage if this is
not immediately apparent. We have
examined the evidence, and We are
unable to find any proof of compliance
with the required period, which is fatal to
the accrual of the right of action against
the carrier.[27]
Nothing in the trial courts decision
stated that the notice of claim was
relayed or filed with the respondent-
carrier immediately or within a period of
twenty-four hours from the time the
goods were received. The Court of
Appeals made the same finding. Having
examined the entire records of the case,
we cannot find a shred of evidence that
will precisely and ultimately point to the
conclusion that the notice of claim was
timely relayed or filed.
The requirement that a notice of claim
should be filed within the period stated
by Article 366 of the Code of Commerce
is not an empty or worthless proviso.
The object sought to be attained by the
requirement of the submission of claims
in pursuance of this article is to compel
the consignee of goods entrusted to a
carrier to make prompt demand for
settlement of alleged damages suffered
by the goods while in transport, so that
the carrier will be enabled to verify all
such claims at the time of delivery or
within twenty-four hours thereafter, and
if necessary fix responsibility and secure
evidence as to the nature and extent of
the alleged damages to the goods while
the matter is still fresh in the minds of
the parties.
The filing of a claim with the carrier
within the time limitation therefore
actually constitutes a condition
precedent to the accrual of a right of
action against a carrier for loss of, or
damage to, the goods. The shipper or
consignee must allege and prove the
fulfillment of the condition. If it fails to do
so, no right of action against the carrier
can accrue in favor of the former. The
aforementioned requirement is a
reasonable condition precedent; it does
not constitute a limitation of action.[31]
We do not believe so. As discussed at
length above, there is no evidence to
confirm that the notice of claim was filed
within the period provided for under
Article 366 of the Code of Commerce.
Petitioners contention proceeds from a
false presupposition that the notice of
claim was timely filed.Considering that
we have resolved the first issue in the
negative, it is therefore unnecessary to
make a resolution on the second issue.
EXEMPTION SHOULD BE PROVEN IN
ORDER TO QUALIFY
UNDEREXCEPTION CLAUSE OF
INSURANCE POLICY
COUNTRY BANKERS INSURANCE
CORP. VS. LIANGA BAY &
COMMUNITY MULTI-PURPOSE
COOPERATIVE, INC.G.R. No.136914,
January 25, 2002
Facts:
Country Bankers Insurance Corp.
(CBIC) insured the building of
respondent Lianga Bay and Community
Multi-Purpose Corp., Inc. against fire,
loss, damage, or liability during the
period starting June 20, 1990 for the
sum of Php.200,000.00. On July 1, 1989
at about 12:40 in the morning a fire
occurred. The respondent filed the
insurance claim but the petition denied
the same on the ground that the building
was set on fire by two NPA rebels and
that such loss was an excepted risk
under par.6 of the conditions of the
insurance policy that the insurance does
not cover any loss or damage
occasioned by among others, mutiny,
riot, military or any uprising. Respondent
filed an action for recovery of loss,
damage or liability against petitioner and
the Trial Court ordered the petition to
pay the full value of the insurance.
Issue:
Whether or not the insurance
corporation is exempted to pay based
on the exception clause in the insurance
policy.
Held:
 The Supreme Court held that the
insurance corporation has the burden of
proof to show that the loss comes within
the purview of the exception or limitation
set-up. But the insurance corporation
cannot use a witness to prove that the
fire was caused by the NPA rebels on
the basis that the witness learned this
from others. Such testimony is
considered hearsay and may not be
received as proof of the truth of what he
has learned. The petitioner, failing to
prove the exception, cannot rely upon
on exemption or exception clause in the
fire insurance policy. The petition was
granted.
Gaisano Cagayan, Inc. vs Insurance
Company of North America
Facts:-
Intercapitol Marketing Corporation
(IMC) is a maker of Wrangler Blue
Jeans. Levi Strauss (Phils.) Inc.(LSPI) is
the local distributor of products bearing
trademarks owned by Levi Strauss and
Co. IMC and LSPI both obtained from
respondent fire insurance policies with
book debt endorsements. It provides for
coverage on book debts in connection
with ready-made clothing materials
which have been sold or delivered to
various customers and dealers of the
insured everywhere in the Philippines.
The policies defined book debts as the
unpaid account still appearing in the
Book of Account of the Insured 45 days
after the time of the loss covered under
the said policy.- Petitioner is a customer
and dealer of the products of IMC and
LSPI. Feb 25, 1991, The Gaisano
Superstore Complex in Cagayan de Oro
City, owned by petitioner, burned down.
Included in the items lost in the fire
were the ready-made clothing materials
sold and delivered by IMC and LSPI.-
Feb 1992, Respondent filed a complaint
for damages against petitioner, alleging
that IMC and LSPI filed with respondent
their claims, that as of Feb 25, 1991,
the unpaid accounts of petitioner on the
sale and delivery of the clothing
materials with IMC was P2,119,205.00
while with LSPI was P535,613.020, that
respondent paid the claims of IMC and
LSPI, that respondent made several
demands for payment upon petitioner
but were ignored.- They failed to reach
an amicable settlement. RTC rendered
their decision dismissing respondent's
complaint stating that the fire was
accidental and was not attributable
to the negligence of the petitioner, that it
has not established that petitioner is the
debtor of IMC and LSPI, that since the
invoice states that IMC and LSPI retain
ownership over the clothing materials
until the purchase price is fully paid.- CA
reversed the RTC decision.
Issue:
1. Whether the petitioner is liable
for the unpaid accounts
Held:
1. Yes. Petitioner ordered to pay
P2,119.205.60 for IMC's claims, but not
P535,613 for LSPI's claims for lack of
factual basis.- The insurance in this
case is not for loss of goods by fire but
for petitioner's accounts with IMC and
LSPI that remained unpaid 45 days after
the fire. Petitioner's obligation is for the
payment of money. Where the obligation
consists in the payment of money, the
failure of the debtor to make
the payment even by reason of a
fortuitous event shall not relieve him of
his liability. The rule that the obligor
should be held exempt from liability
when the loss occurs thru a fortuitous
event only holds true when the
obligation consists in the delivery of a
determinate thing and there is no
stipulation holding him liable even in
case of fortuitous event. It does not
apply when the obligation is pecuniary in
nature.- Under Art 1263, if the obligation
is generic in the sense that the object
thereof is designated merely by its class
or genus without any particular
designation or physical segregation from
all others of the same class, the loss or
destruction of anything of the same kind
even without the debtor's fault and
before he has incurred in delay will not
have the effect of extinguishing the
obligation. An obligation to pay money is
generic; therefore, it is not excused by
fortuitous loss of any specific property of
the debtor.
Vicente Ong Lim Sing, Jr. v. Feb
Leasing and Finance Corp. GR no.
168115 June 8, 2007
FACTS:
FEB Leasing and Finance Corp
entered into a lease agreement of
equipment and motor vehicles with JVL
Food Products. Vicente Ong Lim Sing,
Jr. executed an Individual Guarantee
Agreement with FEB regarding faithful
compliance with the terms of the lease
agreement.
JVL defaulted on its obligation.
By 2000, the arrears of JVL amounted
to P3,414,468.75. Due to the continuous
nonpayment despite numerous
demands, FEB filed a complaint for sum
of money, damages, and replevin
against JVL and Lim. JVL and Lim
argued before the court that the lease
contract was actually a sale on
installment basis. They further argued
that the contract was a contract of
adhesion. The trial court rendered a
ruling In favor of Lim and JVL.
The trial court, through logic,
ruled that Lim cannot be a mere lessee
because of he had an insurable interest
over the items. It has also been held
that the test of insurable interest in
property is whether the assured has a
right, title or interest therein that he will
be benefited by its preservation and
continued existence or suffer a direct
pecuniary loss from its destruction or
injury by the peril insured against. If Lim
and JVL were to be regarded as only a
lessee, logically the lessor who asserts
ownership will be the one directly
benefited or injured and therefore the
lessee is not supposed to be the
assured as he has no insurable interest.
FEB appealed the decision
before the Court of Appeals. The
appellate court rendered judgment in
favor of FEB. It reversed the earlier
decision of the RTC of Manila and
ordered Lim and JVL to pay FEB the
amount due plus damages. Unsatisfied
with the decision, JVL and Lim appealed
the case before the Supreme Court.
ISSUE:
Whether or not a lease agreement was
executed by JVL and FEB.
RULING:
 The Supreme Court dismissed
the petition of Lim and affirmed the
decision of the Court of Appeals.
According to the Court, the agreement
was indeed a financial lease agreement
and not a sale by installment basis.
The Court also ruled that the
lessee, herein petitioner, had an
insurable interest in the items even if he
was only a lessee. Section 17 of the
Insurance Code provides that the
measure of an insurable interest in
property is the extent to which the
insured might be damnified by loss or
injury thereof. It cannot be denied that
JVL will be directly damnified in case of
loss, damage, or destruction of any of
the properties leased.
Interpretation of insurance contracts
VIOLETA LALICAN vs. THE INSULAR
LIFE ASSURANCE
COMPANYLIMITEDG.R. No. 183526,
August 25, 2009, 597 SCRA
FACTS:
Eulogio, the husband of h
erein petitioner, applied f
o r a n insurance policy the value of
which is P1,500,000.00. Under
thep o l i c y t e r m s , E u l o g i o i s
obliged to pay the premiu
m s o n a quarterly basis, until the
end of the 20-year period of the policy. It
was likewise stated therein that the
insured has 31-day grace period for
the payment of each premium
subsequent to the first and that default
in any payment of said premiums shall
result in the automatic lapse of the
said policy. Eulogio failed to pay a
premium even after the laps
e of the 31
day grace period.
Hence, the policy lap
sed and became void.
H e f i l e d a n Application for
Reinstatement of said policy an
d p a y i n g t h e amount of the premium
due. However, Insular Life notified him
that they could not fully
process his application
b e c a u s e t h e amount he paid is
inadequate to cover the accrued
interests. Hence, he again applied for
the reinstatement of said policy this
time, together with the required
amount. The husband of the
insurance agent was the one
who received his applicatio
n because the agent was away at that
time. Within the same day, the insured
died. This fact was unknown to the
agent who then submitted Eulogios
application for reinstatement to the
Insular Life Regional Office. Violeta then
filed a claim for payment of the full
proceeds of the policy. However, the
company said that she is not
entitled to the insurance proceeds
because they claimed that the
policy w a s n o t
reinstated during her husban
d s l i f e t i m e a n d g o o d health.
ISSUE:
Whether or not Eulogio
was able to reinstate th
e l a p s e d insurance policy before his
death
HELD:
NO. The Court agrees with t
he RTC that the conditions f
o r reinstatement under the Polic
y Contract and Application forR
einstatement were written in clear and simple
language, which c o u l d n o t a d m i t o f
any meaning or interpretation
other than those that they so
obviously embody. Violeta did
n o t a d d u c e any evidence that
Eulogio might have failed to fully
understand the import and meaning of
the provisions of his Policy
Contracta n d / o r A p p l i c a t i o
n for Reinstatement b
oth of which he
voluntarily signed. While it is a
cardinal principle of insurance l a w
that a policy or contract of
insurance is to be
construedl i b e r a l l y i n f a v o r o f
the insured and strictly as a
gainst thei n s u r e r c o m p a n
y, yet, contracts of ins
urance, like othercontra
cts are to be construed a
ccording to the sense and
meaning of the terms, which the parties
themselves have used, if such terms
are clear and unambiguous, they
must be taken and understood in their
plain, ordinary and popular sense.
Philippine Health Care Providers, Inc.
v. Commissioner of Internal Revenue
GR no. 167330 Sep 18, 2009
FACTS:
This is based on a Motion for
Reconsideration filed by the petitioner.
Philippine Health Care Providers,
Inc. is a domestic corporation primarily
engaged in the business of providing
prepaid group practice health care
delivery system. On January 27, 2000,
the Commissioner of Internal Revenue
sent an assessment letter to the
petitioner informing it and demanding
payment of P224, 702, 614. 18 in back
taxes, surcharge, and interests. The
deficiency is composed mostly of unpaid
documentary stamp tax (DST) imposed
on the petitioners agreement with its
members.
Petitioner protested before the CIR
but due to the latters inaction; it filed a
petition for review before the Court of
Tax Appeals. The CTA rendered a
decision partially granting the petition for
review. The petitioner was ordered to
pay P53M instead of the original
P225M. Furthermore, the CIR was
ordered to desist from collecting DST
tax
Respondent CIR appealed the
decision before the Court of Appeals.
According to him, the petitioners
healthcare agreement is a contract of
insurance and as such, is subject to
DST under Section 185 of the 1997 Tax
Code. The CA rendered a decision
reversing the earlier decision of the
CTA. It ordered the petitioner to pay
P123M in DST.
Petitioner appealed the decision
before the Supreme Court which
affirmed the CAs decision. The SC held
that the petioners health care
agreement during the pertinent period
was in the nature of non-life insurance
which is a contact of indemnity. The
Court further ruled that contracts
between companies like petitioner and
its beneficiaries under their plans are
treated as insurance contract. The
petitioner filed a motion for
reconsideration.
ISSUE:
Whether or not the health care
agreement between petitioner and its
beneficiaries is an insurance contract.
RULING:
The Supreme Court ruled in favor of
the petitioner and granted the motion for
reconsideration. The Court ruled that the
health care agreement between the
petitioners and its beneficiaries is not a
contract of insurance.
The Court based its decision on the
fact that the HMO agreement does not
qualify as an insurance business based
on the principal object and purpose
test. The test is based on Section 2 (2)
of the Insurance Code. Accordingly, an
enterprise is considered engaged in an
insurance business when the principal
object of the enterprise is the
assumption of risk and the
indemnification of loss. If the enterprise
assumes risk and indemnifies
beneficiaries for losses, then it is an
insurance company.
American courts have pointed out
that the main difference between an
HMO and an insurance company is that
HMOs undertake to provide or arrange
for the provision of medical services
through participating physicians while
insurance companies simply undertake
to indemnify the insured for medical
expenses incurred up to a pre-agreed
limit.
A substantial portion of petitioners
services covers preventive and
diagnostic medical services intended to
keep members from developing medical
conditions or diseases. As an HMO, it is
its obligation to maintain the good health
of its members. Accordingly, its health
care programs are designed to prevent
or to minimize the possibility of any
assumption of risk on its part. Thus, its
undertaking under its agreements is not
to indemnify its members against any
loss or damage arising from a medical
condition but, on the contrary, to provide
the health and medical services needed
to prevent such loss or damage.
Overall, petitioner appears to
provide insurance-type benefits to its
members (with respect to
its curative medical services), but these
are incidental to the principal activity of
providing them medical care. The
insurance-like aspect of petitioners
business is miniscule compared to its
noninsurance activities. Therefore,
since it substantially provides health
care services rather than insurance
services, it cannot be considered as
being in the insurance business.
Lastly, it is significant that petitioner,
as an HMO, is not part of the insurance
industry. This is evident from the fact
that it is not supervised by the Insurance
Commission but by the Department of
Health. In fact, in a letter dated
September 3, 2000, the Insurance
Commissioner confirmed that petitioner
is not engaged in the insurance
business. This determination of the
commissioner must be accorded great
weight. It is well-settled that the
interpretation of an administrative
agency which is tasked to implement a
statute is accorded great respect and
ordinarily controls the interpretation of
laws by the courts.
G.R. No. 112329 January 28,
2000 VIRGINIA A. PEREZ, petitioner,
vs. COURT OF APPEALS and BF
LIFEMAN INSURANCE
CORPORATION, respondents.
FACTS:
The facts of the case as summarized by
respondent Court of Appeals are not in
dispute.
Primitivo B. Perez had been insured
with the BF Lifeman Insurance
Corporation since 1980 for P20,000.00.
Sometime in October 1987, an agent of
the insurance corporation, convinced
him to apply for additional insurance
coverage of P50,000.00. Primitivo B.
Perez accomplished an application form
for the additional insurance coverage.
On the same day, petitioner, paid
P2,075. Perez was made to undergo the
required medical examination, which he
passed. Pursuant to the established
procedure of the company, Lalog
forwarded the application for additional
insurance of Perez, together with all its
supporting papers, to the office of BF
Lifeman Insurance Corporation at
Gumaca, Quezon which office was
supposed to forward the papers to the
Manila office. On November 25, 1987,
Perez died in an accident. He was riding
in a banca which capsized during a
storm. At the time of his death, his
application papers for the additional
insurance were still with the Gumaca
office. It was only on November 27,
1987 that said papers were received in
Manila.
Petitioner Virginia Perez went to Manila
to claim the benefits under the
insurance policies of the deceased. She
was paid P40,000.00 under the first
insurance policy for P20,000.00 (double
indemnity in case of accident) but the
insurance company refused to pay the
claim under the additional policy
coverage.. In its letter' to Virginia A.
Perez, the insurance company
maintained that the insurance for
P50,000.00 had not been perfected at
the time of the death of Primitivo Perez.
Consequently, the insurance company
refunded the amount of P2,075.00
which Virginia Perez had paid. On
September 21, 1990, private respondent
BF Lifeman Insurance Corporation filed
a complaint against Virginia A. Perez
seeking the rescission and declaration
of nullity of the insurance contract in
question. Petitioner Virginia A. Perez, on
the other hand, averred that the
deceased had fulfilled all his prestations
under the contract and all the elements
of a valid contract are present.
On October 25, 1991, the trial court
rendered a decision in favor of
petitioner.The trial court, in ruling for
petitioner, held that the premium for the
additional insurance of P50,000.00 had
been fully paid and even if the sum of
P2,075.00 were to be considered merely
as partial payment, the same does not
affect the validity of the policy. The trial
court further stated that the deceased
had fully complied with the requirements
of the insurance company. He paid,
signed the application form and passed
the medical examination. He should not
be made to suffer the subsequent delay
in the transmittal of his application form
to private respondent's head office since
these were no longer within his control.
The Court of Appeals, however,
reversed the decision of the trial court
saying that the insurance contract for
P50,000.00 could not have been
perfected since at the time that the
policy was issued, Primitivo was already
dead. The Court of Appeals held that
the contract of insurance had to be
assented to by both parties and so long
as the application for insurance has not
been either accepted or rejected, it is
merely an offer or proposal to make a
contract.
Petitioner's motion for reconsideration
having been denied by respondent
court, the instant petition for certiorari
was filed on the ground that there was a
consummated contract of insurance
between the deceased and BF Lifeman
Insurance Corporation and that the
condition that the policy issued by the
corporation be delivered and received
by the applicant in good health, is
potestative, being dependent upon the
will of the insurance company, and is
therefore null and void.
ISSUE:
w/n petitioner is entitled to the benefits.
HELD:
The petition is bereft of merit. A contract
of insurance, like all other contracts,
must be assented to by both parties,
either in person or through their agents
and so long as an application for
insurance has not been either accepted
or rejected, it is merely a proposal or an
offer to make a contract.
Insurance is a contract whereby, for a
stipulated consideration, one party
undertakes to compensate the other for
loss on a specified subject by specified
perils.7 A contract, on the other hand, is
a meeting of the minds between two
persons whereby one binds himself,
with respect to the other to give
something or to render some
service.8 Under Article 1318 of the Civil
Code, 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.
Consent must be 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.
When Primitivo filed an
application for insurance, paid
P2,075.00 and submitted the results of
his medical examination, his application
was subject to the acceptance of private
respondent BF Lifeman Insurance
Corporation. The perfection of the
contract of insurance between the
deceased and respondent corporation
was further conditioned upon
compliance with the following requisites
stated in the application form: there shall
be no contract of insurance unless and
until a policy is issued on this application
and that the said policy shall not take
effect until the premium has been paid
and the policy delivered to and accepted
by me/us in person while I/We, am/are
in good health.9
A potestative condition depends upon
the exclusive will of one of the parties.
For this reason, it is considered void.
Article 1182 of the New Civil Code
states: When the fulfillment of the
condition depends upon the sole will the
debtor, the conditional obligation shall
be void.
In the case at bar, the following
conditions were imposed by the
respondent company for the perfection
of the contract of insurance:
(a) a policy must have been
issued;
(b) the premiums paid; and
(c) the policy must have been
delivered to and accepted by the
applicant while he is in good
health.
The condition imposed by the
corporation that the policy must have
been delivered to and accepted by the
applicant while he is in good health can
hardly be considered as a potestative or
facultative condition. On the contrary,
the health of the applicant at the time of
the delivery of the policy is beyond the
control or will of the insurance company.
Rather, the condition is a suspensive
one whereby the acquisition of rights
depends upon the happening of an
event which constitutes the condition. In
this case, the suspensive condition was
the policy must have been delivered and
accepted by the applicant while he is in
good health. There was non-fulfillment
of the condition, however, inasmuch as
the applicant was already dead at the
time the policy was issued. Hence, the
non-fulfillment of the condition resulted
in the non-perfection of the contract.
As stated above, a contract of
insurance, like other contracts, must be
assented to by both parties either in
person or by their agents. So long as an
application for insurance has not been
either accepted or rejected, it is merely
an offer or proposal to make a contract.
The contract, to be binding from the
date of application, must have been a
completed contract, one that leaves
nothing to be done, nothing to be
completed, nothing to be passed upon,
or determined, before it shall take effect.
There can be no contract of insurance
unless the minds of the parties have met
in agreement.11
Prescinding from the foregoing,
respondent corporation cannot be held
liable for gross negligence. It should be
noted that an application is a mere offer
which requires the overt act of the
insurer for it to ripen into a contract.
Delay in acting on the application does
not constitute acceptance even though
the insured has forwarded his first
premium with his application. The
corporation may not be penalized for the
delay in the processing of the
application papers. Moreover, while it
may have taken some time for the
application papers to reach the main
office, in the case at bar, the same was
acted upon less than a week after it was
received. The processing of applications
by respondent corporation normally
takes two to three weeks, the longest
being a month.12 In this case, however,
the requisite medical examination was
undergone by the deceased on
November 1, 1987; the application
papers were forwarded to the head
office on November 27, 1987; and the
policy was issued on December 2, 1987.
Under these circumstances, we hold
that the delay could not be deemed
unreasonable so as to constitute gross
negligence.
G.R. No. 156167 ,May 16, 2005 GULF
RESORTS,
INC., petitioner, vs.PHILIPPINE
CHARTER INSURANCE
CORPORATION, respondent.
For review are the warring
interpretations of petitioner and
respondent on the scope of the
insurance companys liability for
earthquake damage to petitioners
properties. Petitioner avers that,
pursuant to its earthquake shock
endorsement rider, Insurance Policy No.
31944 covers all damages to the
properties within its resort caused by
earthquake. Respondent contends that
the rider limits its liability for loss to the
two swimming pools of petitioner.
FACTS:
The facts as established by the court a
quo, and affirmed by the appellate court
are as follows:
Plaintiff is the owner of the Plaza Resort
situated at Agoo, La Union and had its
properties in said resort insured
originally with the American Home
Assurance Company (AHAC-AIU). In
the first four insurance policies , the risk
of loss from earthquake shock was
extended only to plaintiffs two
swimming pools, thus, "earthquake
shock endt, and two (2) swimming pools
only; that subsequently AHAC(AIU)
issued in plaintiffs favor Policy covering
the period March 14, 1988 to March 14,
1989 and in said policy the earthquake
endorsement clause, was deleted and
the entry under
Endorsements/Warranties at the time of
issue read that plaintiff renewed its
policy with AHAC (AIU) for the period of
March 14, 1989 to March 14, 1990
which carried the entry under
"Endorsement/Warranties at Time of
Issue", which read "Endorsement to
Include Earthquake Shock in the
amount of P10,700.00 and
paid P42,658.14 as premium thereof..
In consideration of the payment by the
insured to the company of the
sum included additional premium the
Company agrees, notwithstanding what
is stated in the printed conditions of this
policy due to the contrary, that this
insurance covers loss or damage to
shock to any of the property insured by
this Policy occasioned by or through or
in consequence of earthquake,that in
Exhibit "7-C" the word "included" above
the underlined portion was deleted;
That on July 16, 1990 an
earthquake struck Central Luzon and
Northern Luzon and plaintiffs properties
covered by Policy issued by defendant,
including the two swimming pools in its
Agoo Playa Resort were damaged.2
After the earthquake, petitioner advised
respondent that it would be making a
claim under its Insurance Policy No.
31944 for damages on its properties. On
August 7, 1990, Bayne Adjusters and
Surveyors, Inc., through its Vice-
President A.R. de Leon,4rendered a
preliminary report5 finding extensive
damage caused by the earthquake to
the clubhouse and to the two swimming
pools. Mr. de Leon stated that "except
for the swimming pools, all affected
items have no coverage for earthquake
shocks. Petitioner filed its formal
demand7 for settlement of the damage
to all its properties in the Agoo Playa
Resort. Respondent denied petitioners
claim on the ground that its insurance
policy only afforded earthquake shock
coverage to the two swimming pools of
the resort.8 Petitioner and respondent
failed to arrive at a settlement.9
Thus, petitioner filed a complaint10 with
the regional trial court of Pasig. The
lower court after trial ruled in favor of the
respondent, viz:
The above schedule clearly shows that
plaintiff paid only a premium of P393.00
against the peril of earthquake shock,
the same premium it paid against
earthquake shock only on the two
swimming pools in all the policies issued
by AHAC(AIU). From this fact the Court
must consequently agree with the
position of defendant that the
endorsement rider (Exhibit "7-C") means
that only the two swimming pools were
insured against earthquake shock.
Plaintiff correctly points out that a policy
of insurance is a contract of adhesion
hence, where the language used in an
insurance contract or application is such
as to create ambiguity the same should
be resolved against the party
responsible therefor, i.e., the insurance
company which prepared the contract.
To the mind of [the] Court, the language
used in the policy in litigation is clear
and unambiguous hence there is no
need for interpretation or construction
but only application of the provisions
therein.Petitioners Motion for
Reconsideration was denied. Thus,
petitioner filed an appeal with the Court
of Appeals. After review, the appellate
court affirmed the decision of the trial
court.
ISSUE:
WHETHER THE COURT OF APPEALS
CORRECTLY HELD THAT UNDER
RESPONDENTS INSURANCE POLICY
NO. 31944, ONLY THE TWO (2)
SWIMMING POOLS, RATHER THAN
ALL THE PROPERTIES COVERED
THEREUNDER, ARE INSURED
AGAINST THE RISK OF
EARTHQUAKE SHOCK.
HELD:
We hold that the petition is devoid of
merit.
In Insurance Policy No. 31944, four key
items are important in the resolution of
the case at bar.
It is basic that all the provisions of the
insurance policy should be examined
and interpreted in consonance with each
other.25 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.
A careful examination of the premium
recapitulation will show that it is the
clear intent of the parties to extend
earthquake shock coverage only to the
two swimming pools. Section 2(1) of the
Insurance Code defines a contract of
insurance as an agreement whereby
one undertakes for a consideration to
indemnify another against loss, damage
or liability arising from an unknown or
contingent event. Thus, 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; and
5. In consideration of the
insurer's promise, the insured
pays a premium.26 (Emphasis
ours)
An insurance premium is the
consideration paid an insurer for
undertaking to indemnify the insured
against a specified peril.27 In fire,
casualty, and marine insurance, the
premium payable becomes a debt as
soon as the risk attaches.28 In the
subject policy, no premium payments
were made with regard to 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.
In sum, 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.31 A contract of
adhesion is one wherein a party, usually
a corporation, prepares the stipulations
in the contract, while the other party
merely affixes his signature or his
"adhesion" thereto. Through the years,
the courts have held that in these type
of contracts, the parties do not bargain
on equal footing, the weaker party's
participation being reduced to the
alternative to take it or leave it. Thus,
these contracts are viewed as traps for
the weaker party whom the courts of
justice must protect.32 Consequently,
any ambiguity therein is resolved
against the insurer, or construed
liberally in favor of the insured.33
SO ORDERED.
G.R. No. 140349. June 29, 2005]
SULPICIO LINES, INC., petitioner,
vs. FIRST LEPANTO-TAISHO
INSURANCE
CORPORATION, respondent.
FACTS
On 25 February 1992, Taiyo Yuden
Philippines, Inc. (owner of the goods)
and Delbros, Inc. (shipper) entered into
a contract, evidenced by Bill of Lading
issued by the latter in favor of the owner
of the goods, for Delbros, Inc. to
transport a shipment of goods consisting
of three (3) wooden crates containing
one hundred thirty-six (136) cartons of
inductors and LC compound on board
the V Singapore V20 from Cebu City to
Singapore in favor of the consignee,
Taiyo Yuden Singapore Pte, Ltd.
For the carriage of said shipment from
Cebu City to Manila, Delbros, Inc.
engaged the services of the vessel M/V
Philippine Princess, owned and
operated by petitioner Sulpicio Lines,
Inc. (carrier). The vessel arrived at the
North Harbor, Manila, on 24 February
1992.
During the unloading of the shipment,
one crate containing forty-two (42)
cartons dropped from the cargo hatch to
the pier apron. The owner of the goods
examined the dropped cargo, and upon
an alleged finding that the contents of
the crate were no longer usable for their
intended purpose, they were rejected as
a total loss and returned to Cebu City.
The owner of the goods filed a claim
with herein petitioner-carrier for the
recovery of the value of the rejected
cargo which was refused by the latter.
Thereafter, the owner of the goods
sought payment from respondent First
Lepanto-Taisho Insurance Corporation
(insurer) under a marine insurance
policy issued to the former.
Respondent-insurer paid the claim less
thirty-five percent (35%) salvage value
or P194, 220.31.
The payment of the insurance claim of
the owner of the goods by the
respondent-insurer subrogated the latter
to whatever right or legal action the
owner of the goods may have against
Delbros, Inc. and petitioner-carrier,
Sulpicio Lines, Inc. Thus, respondent-
insurer then filed claims for
reimbursement from Delbros, Inc. and
petitioner-carrier Sulpicio Lines, Inc.
which were subsequently denied.
On 04 November 1992, respondent-
insurer filed a suit for damages with the
trial court against Delbros, Inc. and
herein petitioner-carrier. petitioner-
carrier filed its Answer with
Counterclaim. Delbros, Inc. filed on 15
April 1993 its Answer with Counterclaim
and Cross-claim, alleging that assuming
the contents of the crate in question
were truly in bad order, fault is with
herein petitioner-carrier which was
responsible for the unloading of the
crates.
 Petitioner-carrier filed its Answer to
Delbros, Inc.s cross-claim asserting that
it observed extraordinary diligence in the
handling, storage and general care of
the shipment and that subsequent
inspection of the shipment by the Manila
Adjusters and Surveyors Company
showed that the contents of the third
crate that had fallen were found to be in
apparent sound condition, except that 2
cello bags each of 50 pieces ferri
inductors No. LC FL 112270K-60 (c)
were unaccounted for and missing as
per packaging list.
After hearing, the trial court
dismissed the complaint for damages as
well as the counterclaim filed by therein
defendant Sulpicio Lines, Inc. and the
cross-claim filed by Delbros, Inc. A
Motion for Reconsideration was then
filed by herein respondent-insurer and
subsequently denied by the trial court.
Thus, respondent-insurer instituted an
appeal with the Court of Appeals, which
reversed the dismissal of the complaint
by the lower court.
ISSUES:
Whether or not, based on the evidence
presented during the trial, the owner of
the goods, respondent-insurers
predecessor-in-interest, did incur
damages, and if so, whether or not
petitioner-carrier is liable for the same.
HELD:
It cannot be denied that the shipment
sustained damage while in the custody
of petitioner-carrier. It is not disputed
that one of the three (3) crates did fall
from the cargo hatch to the pier apron
while petitioner-carrier was unloading
the cargo from its vessel. Neither is it
impugned that upon inspection, it was
found that two (2) cartons were torn on
the side and the top flaps were open
and that two (2) cello bags, each of 50
pieces ferri inductors, were missing from
the cargo.
The falling of the crate during the
unloading is evidence of petitioner-
carriers negligence in handling the
cargo. As a common carrier, it is
expected to observe extraordinary
diligence in the handling of goods
placed in its possession for
transport.[12] The standard of
extraordinary diligence imposed upon
common carriers is considerably more
demanding than the standard of
ordinary diligence, i.e., the diligence of a
good pater familias established in
respect of the ordinary relations
between members of society.[13] A
common carrier is bound to transport its
cargo and its passengers safely "as far
as human care and foresight can
provide, using the utmost diligence of a
very cautious person, with due regard to
all circumstances.[14] The extraordinary
diligence in the vigilance over the goods
tendered for shipment requires the
common carrier to know and to follow
the required precaution for avoiding the
damage to, or destruction of, the goods
entrusted to it for safe carriage and
delivery.[15] It requires common carriers
to render service with the greatest skill
and foresight and to use all reasonable
means to ascertain the nature and
characteristic of goods tendered for
shipment, and to exercise due care in
the handling and stowage, including
such methods as their nature
requires.[16]
Thus, when the shipment suffered
damages as it was being unloaded,
petitioner-carrier is presumed to have
been negligent in the handling of the
damaged cargo. Under Articles
1735[17] and 1752[18] of the Civil Code,
common carriers are presumed to have
been at fault or to have acted
negligently in case the goods
transported by them are lost, destroyed
or had deteriorated. To overcome the
presumption of liability for loss,
destruction or deterioration of goods
under Article 1735, the common carrier
must prove that they observed
extraordinary diligence as required in
Article 1733[19] of the Civil Code.[20]
Petitioner-carrier miserably failed to
adduce any shred of evidence of the
required extraordinary diligence to
overcome the presumption that it was
negligent in transporting the cargo.
Coming now to the issue of the
extent of petitioner-carriers liability, it is
undisputed that respondent-insurer paid
the owner of the goods under the
insurance policy the amount of
P194,220.31 for the alleged damages
the latter has incurred. Neither is there
dispute as to the fact that Delbros, Inc.
paid P194,220.31 to respondent-insurer
in satisfaction of the whole amount of
the judgment rendered by the Court of
Appeals. The question then is: To what
extent is Sulpicio Lines, Inc., as
common carrier, liable for the damages
suffered by the owner of the goods?
Upon respondent-insurers payment
of the alleged amount of loss suffered
by the insured (the owner of the goods),
the insurer is entitled to be
subrogated pro tanto to any right of
action which the insured may have
against the common carrier whose
negligence or wrongful act caused the
loss.[21] Subrogation is the substitution of
one person in the place of another with
reference to a lawful claim or right, so
that he who is substituted succeeds to
the rights of the other in relation to a
debt or claim, including its remedies or
securities.[22] The rights to which the
subrogee succeeds are the same as,
but not greater than, those of the person
for whom he is substituted, that is, he
cannot acquire any claim, security or
remedy the subrogor did not have.[23] In
other words, a subrogee cannot
succeed to a right not possessed by the
subrogor.[24] A subrogee in effect steps
into the shoes of the insured and can
recover only if the insured likewise could
have recovered.[25]
Hence, we uphold the ruling of the
appellate court that herein petitioner-
carrier is liable to pay the amount paid
by respondent-insurer for the damages
sustained by the owner of the goods.
As stated in the manifestation filed
by Delbros, Inc., however, respondent-
insurer had already been paid the full
amount granted by the Court of
Appeals, hence, it will be tantamount to
unjust enrichment for respondent-
insurer to again recover damages from
herein petitioner-carrier.
With respect to Delbros, Inc.s
prayer contained in its manifestation
that, in case the decision in the instant
case be adverse to petitioner-carrier, a
pronouncement as to the matter of
reimbursement, indemnification or
contribution in favor of Delbros, Inc. be
included in the decision, this Court will
not pass upon said issue since Delbros,
Inc. has no personality before this Court,
it not being a party to the instant case.
Notwithstanding, this shall not bar any
action Delbros, Inc. may institute against
petitioner-carrier Sulpicio Lines, Inc. with
respect to the damages the latter is
liable to pay.
[G.R. No. 166245, April 09, 2008]
ETERNAL GARDENS MEMORIAL
PARK CORPORATION, PETITIONER,
VS. THE PHILIPPINE AMERICAN LIFE
INSURANCE COMPANY,
RESPONDENT.

The Case: May the inaction of the
insurer on the insurance application be
considered as approval of the
application?
The Facts
On December 10, 1980, respondent
Philippine American Life Insurance
Company (Philamlife) entered into an
agreement denominated as Creditor
Group Life Policy with petitioner Eternal
Gardens Memorial Park Corporation
(Eternal). Under the policy, the clients of
Eternal who purchased burial lots from it
on installment basis would be insured by
Philamlife. The amount of insurance
coverage depended upon the existing
balance of the purchased burial lots.
The policy was to be effective for a
period of one year, renewable on a
yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who
is at least 18 but not more than 65 years
of age, is indebted to the Assured for
the unpaid balance of his loan with the
Assured, and is accepted for Life
Insurance coverage by the Company on
its effective date is eligible for insurance
under the Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be
required for amounts of insurance up to
P50,000.00. However, a declaration of
good health shall be required for all Lot
Purchasers as part of the application.
The Company reserves the right to
require further evidence of insurability
satisfactory to the Company in respect
of the following:
1.Any amount of insurance in excess of
P50,000.00.
2.Any lot purchaser who is more than 55
years of age.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot
Purchaser at any time shall be the
amount of the unpaid balance of his
loan (including arrears up to but not
exceeding 2 months) as reported by the
Assured to the Company or the sum of
P100,000.00, whichever is smaller.
Such benefit shall be paid to the
Assured if the Lot Purchaser dies while
insured under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot
Purchaser shall be effective on the date
he contracts a loan with the Assured.
However, there shall be no insurance if
the application of the Lot Purchaser is
not approved by the Company.
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. In
relation to the instant petition, Eternal
complied by submitting a
letter containing a list of insurable
balances of its lot buyers for October
1982. 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 dated August 20,
1984[5] to Philamlife, which served as an
insurance claim for Chuang's death.
After more than a year, Philamlife had
not furnished Eternal with any reply to
the latter's insurance claim. This
prompted Eternal to demand from
Philamlife the payment of the claim for
PhP 100,000 on April 25, 1986.[8]
In response to Eternal's demand,
Philamlife denied Eternal's insurance
claim in a letter which read: that the
deceased was 59 years old when he
entered into Contract with Eternal
Gardens Memorial Park in October 1982
for the total maximum insurable amount
of P100,000.00 each. No application for
Group Insurance was submitted in our
office prior to his death on August 2,
1984. In accordance with our Creditor's
Group Life Policy No. P-1920, under
Evidence of Insurability provision, "a
declaration of good health shall be
required for all Lot Purchasers as party
of the application." We cite further the
provision on Effective Date of Coverage
under the policy which states that "there
shall be no insurance if the application is
not approved by the Company." Since
no application had been submitted by
the Insured/Assured, prior to his death,
for our approval but was submitted
instead on November 15, 1984, after his
death, Mr. John Uy Chuang was not
covered under the Policy. With regard to
our acceptance of premiums, these do
not connote our approval per se of the
insurance coverage but are held by us
in trust for the payor until the
prerequisites for insurance coverage
shall have been met. We will however,
return all the premiums which have
been paid in behalf of John Uy Chuang.
Consequently, Eternal filed a case
before the Makati City Regional Trial
Court (RTC) for a sum of money against
Philamlife. The trial court decided in
favor of Eternal.The RTC found that
Eternal submitted Chuang's application
for insurance which he accomplished
before his death, as testified to by
Eternal's witness and evidenced by the
letter dated December 29, 1982, stating,
among others: "Encl: Phil-Am Life
Insurance Application Forms &
Cert."[10] It further ruled that due to
Philamlife's inaction from the submission
of the requirements of the group
insurance on December 29, 1982 to
Chuang's death on August 2, 1984, as
well as Philamlife's acceptance of the
premiums during the same period,
Philamlife was deemed to have
approved Chuang's application. The
RTC said that since the contract is a
group life insurance, once proof of death
is submitted, payment must follow.
Philamlife appealed to the CA, which
REVERSED and SET ASIDE RTCs
ruling.
The CA based its Decision on the
factual finding that Chuang's application
was not enclosed in Eternal's letter
dated December 29, 1982. It further
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 Philamlife's insurance.
Hence, we have this petition .
ISSUE:
Whether Philamlife assumed the risk of
loss without approving the application.
RULING:
RULING:
This question must be answered in the
affirmative.
As earlier stated, Philamlife and Eternal
entered into an agreement denominated
as Creditor Group Life Policy No. P-
1920 dated December 10, 1980. In the
policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot
Purchaser shall be effective on the date
he contracts a loan with the Assured.
However, there shall be no insurance if
the application of the Lot Purchaser is
not approved by the Company.
An examination of the above provision
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 latter's interest. Thus,
in Malayan Insurance Corporation v.
Court of Appeals, this Court held that:
Indemnity and liability insurance policies
are construed in accordance with the
general rule of resolving any ambiguity
therein in favor of the insured, where the
contract or policy is prepared by the
insurer. A contract of insurance,
being a contract of adhesion,par
excellence, any ambiguity therein
should be resolved against the
insurer; in other words, it should be
construed liberally in favor of the insured
and strictly against the insurer.
Limitations of liability should be
regarded with extreme jealousy and
must be construed in such a way as to
preclude the insurer from
noncompliance with its
obligations.[19] (Emphasis supplied.)
In the more recent case of Philamcare
Health Systems, Inc. v. Court of
Appeals, we reiterated the above ruling,
stating that:
When the terms of insurance contract
contain limitations on liability, courts
should construe them in such a way as
to preclude the insurer from non-
compliance with his obligation. Being a
contract of adhesion, the terms of an
insurance contract are to be construed
strictly against the party which prepared
the contract, the insurer. By reason of
the exclusive control of the insurance
company over the terms and
phraseology of the insurance contract,
ambiguity must be strictly interpreted
against the insurer and liberally in favor
of the insured, especially to avoid
forfeiture.[20]
Clearly, the vague contractual provision,
in Creditor Group Life Policy No. P-1920
dated December 10, 1980, must be
construed in favor of the insured and in
favor of the effectivity of the insurance
contract.
On the other hand, the seemingly
conflicting provisions must be
harmonized to mean that upon a party's
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
Creditor Group Life Policy No. P-1920
on the Effective Date of Benefit is in the
nature of a resolutory condition which
would lead to the cessation of the
insurance contract. Moreover, the mere
inaction of the insurer on the insurance
application must not work to prejudice
the insured; it cannot be interpreted as a
termination of the insurance contract.
The termination of the insurance
contract by the insurer must be explicit
and unambiguous.
As a final note, 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 laypersons, 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.[21]
WHEREFORE, we GRANT the
petition.(1) To pay Eternal the amount of
PhP 100,000 representing the proceeds
of the Life Insurance Policy of Chuang;