21

Our Insurance Code was based on California and (CTA) seeking the cancellation of the deficiency
New York laws. When a statute has been adopted VAT and DST assessments.
from some other state or country and said statute has  CTA: PARTIALLY GRANTED
previously been construed by the courts of such state
or country, the statute is deemed to have been adopted  to pay VAT
with the construction given. (Prudential Guarantee
 DST assessment CANCELLED AND SET
and Assurance Inc. v. Trans-Asia Shipping Lines,
ASIDE
Inc., G.R. No. 151890, 20 June 200
 CIR: health care agreement was a contract of
Philippine Health Care Providers, Inc. V. CIR (2009) insurance subject to DST under Section 185 of the
1997 Tax Code
G.R. No. 167330 September 18, 2009
 CA: health care agreement was in the nature of a
non-life insurance contract subject to DST
FACTS:
 Court Affirmed CA
 Philippine Health Care Providers, Inc. is a
ISSUE:
domestic corporation whose primary purpose is
"[t]o establish, maintain, conduct and operate a 1. W/N the Philippine Health Care Providers, Inc
prepaid group practice health care delivery (HMO) was engaged in the business of
system or a health maintenance organization to insurance during the pertinent taxable years -
take care of the sick and disabled persons enrolled NO
in the health care plan and to provide for the 2. W/N the Philippine Health Care Providers,
administrative, legal, and financial Inc enters into an insurance contract - NO
responsibilities of the organization." Individuals
enrolled in its health care programs pay an annual
HELD: motion for reconsideration is GRANTED
membership fee and are entitled to various
preventive, diagnostic and curative medical
services provided by its duly licensed physicians, 1. NO
specialists and other professional technical staff
participating in the group practice health delivery
system at a hospital or clinic owned, operated or
P.D. 612 Insurance Code
accredited by it.
 January 27, 2000: Commissioner of Internal Sec. 2 (2)
Revenue (CIR) sent petitioner a formal demand
(2) The term "doing an insurance business" or
letter and the corresponding assessment notices "transacting an insurance business", within the
demanding the payment of deficiency taxes, meaning of this Code, shall include:
including surcharges and interest, for the taxable
years 1996 and 1997 in the total amount of
(a) making or proposing to make, as insurer, any
P224,702,641.18
insurance contract;
 Petitioner protested the assessment in a letter (b) making or proposing to make, as surety, any
dated February 23, 2000. contract of suretyship as a vocation and not as
merely incidental to any other legitimate business
 CIR did not act on the protest, petitioner filed a or activity of the surety;
petition for review in the Court of Tax Appeals
  any indemnification resulting from the payment
(c) doing any kind of business, including a for services rendered in case of emergency by
reinsurance business, specifically recognized as non-participating health providers would still be
constituting the doing of an insurance business incidental to petitioner’s purpose of providing and
within the meaning of this Code;
arranging for health care services and does not
transform it into an insurer.
(d) doing or proposing to do any business in  As an HMO, it is its obligation to maintain the
substance equivalent to any of the foregoing in a
manner designed to evade the provisions of this good health of its members
Code.  its undertaking under its agreements is not to
indemnify its members against any loss or
In the application of the provisions of this Code the damage arising from a medical condition but, on
fact that no profit is derived from the making of the contrary, to provide the health and medical
insurance contracts, agreements or transactions or services needed to prevent such loss or damage
that no separate or direct consideration is received
therefor, shall not be deemed conclusive to show  Overall, petitioner appears to provide insurance-
that the making thereof does not constitute the type benefits to its members (with respect to its
doing or transacting of an insurance business. curative medical services), but these are
incidental to the principal activity of providing
 no profit is derived from the making of insurance
them medical care. The "insurance-like" aspect of
contracts, agreements or transactions or that no
petitioner’s business is miniscule compared to its
separate or direct consideration is received
noninsurance activities. Therefore, since it
therefore, shall not be deemed conclusive to show
substantially provides health care services rather
that the making thereof does not constitute the
than insurance services, it cannot be considered as
doing or transacting of an insurance business
being in the insurance business.
2. NO
 principal purpose test
 basic distinction between medical service
 purpose of determining what "doing an insurance
corporations and ordinary health and accident
business" means, we have to scrutinize the
insurers is that the former undertake to provide
operations of the business as a whole and not its
prepaid medical services through participating
mere components
physicians, thus relieving subscribers of any
further financial burden, while the latter only  letter dated September 3, 2000, the Insurance
undertake to indemnify an insured for medical Commissioner confirmed that petitioner is not
expenses up to, but not beyond, the schedule of engaged in the insurance business. This
rates contained in the policy determination of the commissioner must be
accorded great weight
 A participating provider of health care services is
one who agrees in writing to render health care  Section 2 (1) of the Insurance Code defines a
services to or for persons covered by a contract contract of insurance as an agreement whereby
issued by health service corporation in return for one undertakes for a consideration to indemnify
which the health service corporation agrees to another against loss, damage or liability arising
make payment directly to the participating from an unknown or contingent event. An
provider insurance contract exists where the following
elements concur: - NOT present
 1. The insured has an insurable interest;  health care agreements are clearly not within the
ambit of Section 185 of the NIRC and there was
2. The insured is subject to a risk of loss by the
never any legislative intent to impose the same on
happening of the designed peril;
HMOs
3. The insurer assumes the risk;
UCPB v Masagana
4. Such assumption of risk is part of a general
Separate Opinions
scheme to distribute actual losses among a large
VITUG, J .:
group of persons bearing a similar risk and
An essential characteristic of an insurance is its being
5. In consideration of the insurer’s promise, the synallagmatic, a highly reciprocal contract where the
insured pays a premium. rights and obligations of the parties correlate and
mutually correspond. The insurer assumes the risk of
 no indemnity
loss which an insured might suffer in consideration of
 member can take advantage of the bulk of the premium payments under a risk-distributing device.
benefits anytime even in the absence of any peril, Such assumption of risk is a component of a general
scheme to distribute actual losses among a group of
loss or damage on his or her part.
persons, bearing similar risks, who make ratable
 assumption of the expense by petitioner is not contributions to a fund from which the losses incurred
confined to the happening of a contingency but due to exposures to the peril insured against are
assured and compensated.
includes incidents even in the absence of illness
or injury It is generally recognized that the business of
insurance is one imbued with public interest. 1 For the
 Since indemnity of the insured was not the focal general good and mutual protection of all the parties,
point of the agreement but the extension of it is aptly subjected to regulation and control by the
medical services to the member at an affordable State by virtue of an exercise of its police
power. 2 The State may regulate in various respects
cost, it did not partake of the nature of a contract
the relations between the insurer and the insured,
of insurance including the internal affairs of an insurance
 HMO, undertakes a business risk when it offers to company, without being violative of due process. 3
provide health services. But it is not the risk of the A requirement imposed by way of State regulation
type peculiar only to insurance companies. upon insurers is the maintenance of an adequate legal
reserve in favor of those claiming under their
Insurance risk, also known as actuarial risk, is the
policies. 4 The law generally mandates that insurance
risk that the cost of insurance claims might be companies should retain an amount sufficient to
higher than the premiums paid. The amount of guarantee the security of its policyholders in the
premium is calculated on the basis of assumptions remote future, as well as the present, and to cover any
made relative to the insured. contingencies that may arise or may be fairly
anticipated. The integrity of this legal reserve is
 In our jurisdiction, a commentator of our threatened and undermined if a credit arrangement on
insurance laws has pointed out that, even if a the payment of premium were to be sanctioned.
contract contains all the elements of an insurance Calculations and estimations of liabilities under the
risk insured against are predicated on the basis of the
contract, if its primary purpose is the rendering of
payment of premiums, the vital element that
service, it is not a contract of insurance. The establishes the juridical relation between the insured
primary purpose of the parties in making the and the insurer. By legislative fiat, any agreement to
contract may negate the existence of an insurance the contrary notwithstanding, the payment of
contract. premium is a condition precedent to, and essential for,
the efficaciousness of the insurance contract, except
(a) in case of life or industrial life insurance where a
grace period applies, or (b) in case of a written 78). Thus, the Supreme Court took note that
acknowledgment by the insurer of the receipt of under the present law, Section 77 of the
premium, such as by a deposit receipt, the written Insurance Code of 1978 has deleted the clause
acknowledgment being conclusive evidence of the 'unless there is a clear agreement to grant the
premium payment so far as to make the policy insured credit extension of the premium due'
binding. 5 (Velasco vs. Apostol, 173 SCRA 228)." 6
Section 77 of the Insurance Code provides: By weight of authority, estoppel cannot create a
contract of insurance, 7 neither can it be successfully
"SECTION 77. An insurer is entitled to
invoked to create a primary liability, 8 nor can it give
payment of the premium as soon as the thing
validity to what the law so proscribes as a matter of
insured is exposed to the peril insured against.
public policy. 9 So essential is the premium payment
Notwithstanding any agreement to the
to the creation of the vinculum juris between the
contrary, no policy or contract of insurance
insured and the insurer that it would be doubtful to
issued by an insurance company is valid and
have that payment validly excused even for a
binding unless and until the premium thereof
fortuitous event. 10
has been paid, except in the case of a life or an
industrial life policy whenever the grace The law, however, neither requires for the
period provision applies." establishment of the juridical tie, nor measures the
strength of such tie by, any specific amount of
This provision amended Section 72 of the then
premium payment. A part payment of the premium, if
Insurance Act by deleting the phrase, "unless there is
accepted by the insurer, can thus perfect the contract
a clear agreement to grant the insured credit extension
and bring the parties into an obligatory
of the premium due," and adding at the beginning of
relation. 11 Such a payment puts the contract into full
the second sentence the phrase, "[n]otwithstanding
binding force, not merely pro tanto, thereby entitling
any agreement to the contrary." Commenting on the
and obligating the parties by their agreement. Hence,
new provision, Dean Hernando B. Perez states:
in case of loss, full recovery less the unpaid portion
"Under the former rule, whenever the insured of the premium (by the operative act of legal
was granted credit extension of the premium compensation), can be had by the insured and,
due or given a period of time to pay the correlatively, if no loss occurs the insurer can demand
premium on the policy issued, such policy was the payment of the unpaid balance of the premium. 12
binding although premiums had not been paid
In the instant case, no juridical tie appears to have
(Section 72, Insurance Act; 6 Couch 2d. 67).
been established under any of the situations
This rule was changed when the present
hereinabove discussed.
provision eliminated the portion concerning
credit agreement, and added the phrase WHEREFORE, I vote to deny the motion for
'notwithstanding any agreement to the reconsideration.
contrary' which precludes the parties from
Blue Cross v Olivares G.R. No. 169737, February 12,
stipulating that the policy is valid even if
premiums are not paid. Hence, under the 2008
present law, the policy is not valid and binding J. Corona
unless and until the premium is paid (Arce vs.
Capital Insurance & Surety Co., Inc., 117
SCRA 63). If the insurer wants to favor the Facts:
insured by making the policy binding
notwithstanding the non-payment of Neomi Olivares applied for a health care program
premium, a mere credit agreement would not with Blue Cross for the amount of 12,000 pesos. 38
be sufficient. The remedy would be for the days after she applied, she suffered from a stroke.
insurer to acknowledge in the policy that Ailments due to “pre-existing conditions” were
premiums were paid although they were not, excluded from the coverage. She was confined in
in which case the policy becomes binding Medical City and discharged with a bill of Php
because such acknowledgment is a conclusive 34,000. Blue Cross refused to pay unless she had her
evidence of payment of premium (Section physician’s certification that she was suffering from a
pre-existing condition. When Blue Cross still refused excluded from its coverage if they become manifest
to pay, she filed suit in the MTC. The health care within one year from its effectivity.”
company rebutted by saying that the physician didn’t
Petitioners still averred that the non-disclosure of the
disclose the condition due to the patient’s invocation pre-existing condition made a presumption in its
of the doctor-client privilege. The MTC dismissed for favor. Respondents still maintained that the petitioner
a lack of cause of action because the physician didn’t had the duty to prove its accusation.
disclose the condition. In the RTC, the spouses were
awarded the amount of the hospital bills plus 60,000 Petitioner never presented evidence to prove its
in damages. This was under the ratio that the burden presumption that the Doctor’s report would work
to prove that Neomi had a pre-existing condition was against Neomi. They only perceived that the
under Blue Cross. The CA denied the motion for invocation of the privilege made the report adverse to
reconsideration of the health care company. Neomi and such was a disreputable presumption.
They should have made an independent assessment of
Neomi’s condition when it failed to obtain the report.
Issues: They shouldn’t have waited for the attending
physician’s report to come out.
1. Whether petitioner was able to prove that
respondent Neomi's stroke was caused by a pre- Section 3 (e), Rule 131 of the Rules of Court states:
existing condition and therefore was excluded from Under the rules of court, Rule 131, Sec. 3.
the coverage of the health care agreement.
Disputable presumptions. ― The following
2. Whether it was liable for moral and exemplary presumptions are satisfactory if uncontradicted, but
damages and attorney's fees. may be contradicted and overcome by other evidence:
(e) That evidence willfully suppressed would be
Held: No. Yes. Petition dismissed. adverse if produced.
The exception on presenting evidence applies when
the suppression is an exercise of a privilege.
Ratio:
Hence, Neomi had the privilege not to present the
1. “Philamcare Health Systems, Inc. v. CA- a health
Doctor’s report under the doctor-client privilege.
care agreement is in the nature of a non-life insurance.
It is an established rule in insurance contracts that 2. The court quoted the CA and RTC decision stating
when their terms contain limitations on liability, they that “ the refusal of petitioner to pay respondent
should be construed strictly against the insurer. These Neomi's bills smacks of bad faith, as its refusal [was]
are contracts of adhesion the terms of which must be merely based on its own perception that a stroke is a
interpreted and enforced stringently against the pre-existing condition.” Also, there was factual bases
insurer which prepared the contract. This doctrine is in the RTC and CA for the award of the damages.
equally applicable to health care agreements.”
The agreement defined a pre-existing condition as:
Strict implementation of terms
“a disability which existed before the commencement
Cebu Shipyard v William G.R. No. 132607. May 5,
date of membership whose natural history can be
1999
clinically determined, whether or not the Member was
aware of such illness or condition. Such conditions J. Purisima
also include disabilities existing prior to reinstatement
date in the case of lapse of an Agreement.”
Facts:
“Under this provision, disabilities which existed
before the commencement of the agreement are Cebu Shipyard and Engineering Works, Inc. repaired
marine vessels while the Prudential is in the non-life
insurance business. William Lines, Inc., the owner of 3. WON Prudential has the right of subrogation
M/V Manila City, a luxury passenger-cargo vessel, against its own insured
which caught fire and sank. At the time of the
4. WON the provisions limiting CSEW’s liability for
incident, subject vessel was insured with Prudential negligence to a maximum of Php 1 million are valid
for P45M for hull and machinery. CSEW was insured
for only Php 10 million for the shiprepairer’s liability
policy. They entered into a contract where negligence Held: Yes. Yes. Yes. No. Petition denied.
was the only factor that could make CSEW liable for
damages. Moreover, liability of CSEW was limited to
only Php 1million for damages. The Hull Policy Ratio:
included an “Additional Perils (INCHMAREE)”
1. The that factual findings by the CA are conclusive
Clause covering loss of or damage to the vessel
on the parties and are not reviewable by this Court.
through the negligence of, among others, ship
They are entitled to great weight and respect when the
repairmen.
CA affirmed the factual findings arrived at by the trial
William brought Manila City to the dry dock of court.
CSEW for repairs. The officers and cabin crew stayed
The CA and the Cebu RTC are agreed that the fire
at the ship while it was being repaired. After the
which caused the total loss of subject M/V Manila
vessel was transferred to the docking quay, it caught
City was due to the negligence of the employees and
fire and sank, resulting to its total loss.
workers of CSEW.
William brought suit against CSEW alleging that it
Furthermore, in petitions for review on certiorari,
was through the latter’s negligence that the ship
only questions of law may be put into issue. Questions
caught fire and sank. Prudential was impleaded as co-
of fact cannot be entertained.
plaintiff after it had paid the value of insured items. It
was subrogated to 45 million, or the value it claimed 2. For the doctrine of res ipsa loquitur to apply to a
to indemnify. given situation, the following conditions must concur:
(1) the accident was of a kind which does not
The trial court brought judgment against CSEW 45
ordinarily occur unless someone is negligent; and (2)
million for the ship indemnity, 65 million for loss of
that the instrumentality or agency which caused the
income, and more than 13 million in other damages.
injury was under the exclusive control of the person
The CA affirmed the TC decision.
charged with negligence.
CSEW contended that the cause of the fire was due to
The facts and evidence reveal the presence of these
William’s hotworks on the said portion of the ship
conditions. First, the fire would not have happened in
which they didn’t ask CSEW permission for.
the ordinary course of things if reasonable care and
Prudential, on the other hand, blamed the negligence diligence had been exercised.
of the CSEW workers in the instance when they didn’t
Second, the agency charged with negligence, as
mind rubber insulation wire coming out of the air-
found by the trial court and the CA and as shown by
conditioning unit that was already burning.
the records, is CSEW, which had control over subject
Hence this MFR. vessel when it was docked for annual repairs.
What is more, in the present case the trial court found
Issue: direct evidence to prove that the workers didn’t
exercise due diligence in the care of subject vessel.
1. WON CSEW had “management and supervisory The direct evidence substantiates the conclusion that
control“ of the ship at the time the fire broke out CSEW was really negligent even without applying
2. WON the doctrine of res ipsa loquitur applies such doctrine.
against the crew 3. Petitioner contends that Prudential is not entitled to
be subrogated to the rights of William Lines, Inc.,
theorizing that (1) the fire which gutted M/V Manila of William Lines, Inc. to constitute CSEW as a co-
City was an excluded risk and (2) it is a co-assured assured under subject policy. The claim of CSEW
under the Marine Hull Insurance Policy. This was that it is a co-assured is unfounded.
wrong. The one who caused the fire has already been Then too, in the Additional Perils Clause of the same
adjudicated by the courts as CSEW. Marine Insurance Policy, it is provided that this
Upon proof of payment by Prudential to William insurance also covers loss of or damage to vessel
Lines, Inc., the former was subrogated to the right of directly caused by the negligence of charterers and
the latter to indemnification from CSEW. As aptly repairers who are not assured.
ruled by the Court of Appeals, the law says: As correctly pointed out by respondent Prudential, if
Art. 2207. If the plaintiff’s property has been insured, CSEW were deemed a co-assured under the policy, it
and he has received indemnity from the insurance would nullify any claim of William Lines, Inc. from
company for the injury or loss arising out of the Prudential for any loss or damage caused by the
wrong or breach of contract complained of, the negligence of CSEW. Certainly, no shipowner would
insurance company shall be subrogated to the rights agree to make a shiprepairer a co-assured under such
of the insured against the wrongdoer or the person insurance policy; otherwise, any claim for loss or
who has violated the contract. If the amount paid by damage under the policy would be invalidated.
the insurance company does not fully cover the injury 4. Although in this jurisdiction, contracts of adhesion
or loss, the aggrieved party shall be entitled to recover have been consistently upheld as valid per se; as
the deficiency from the person causing the loss or binding as an ordinary contract, the Court recognizes
injury. instances when reliance on such contracts cannot be
When Prudential paid the latter the total amount favored especially where the facts and circumstances
covered by its insurance policy, it was subrogated to warrant that subject stipulations be disregarded. Thus,
the right of the latter to recover the insured loss from in ruling on the validity and applicability of the
the liable party, CSEW. stipulation limiting the liability of CSEW for
negligence to P1M only, the facts and circumstances
Petitioner theorizes further that there can be no right
vis-a-vis the nature of the provision sought to be
of subrogation as it is deemed a co-assured under the
enforced should be considered, bearing in mind the
subject insurance policy with reliance on Clause 20 of
principles of equity and fair play.
the Work Order which states:
It is worthy to note that M/V Manila City was insured
20. The insurance on the vessel should be maintained
with Prudential for P45M. Upon thorough
by the customer and/or owner of the vessel during the
investigation by its hull surveyor, M/V Manila City
period the contract is in effect.
was found to be beyond economical salvage and
Clause 20 of the Work Order in question is clear in repair. The evaluation of the average adjuster also
the sense that it requires William Lines to maintain reported a constructive total loss. The said claim of
insurance on the vessel during the period of dry- William Lines, Inc., was then found to be valid and
docking or repair. However, the fact that CSEW compensable such that Prudential paid the latter the
benefits from the said stipulation does not total value of its insurance claim. Furthermore, it was
automatically make it as a co-assured of William ascertained that the replacement cost of the vessel,
Lines. The intention of the parties to make each other amounts to P55M.
a co-assured under an insurance policy is to be read
Considering the circumstances, it would unfair to
from the insurance contract or policy itself and not
limit the liability of petitioner to One Million Pesos
from any other contract or agreement because the
insurance policy denominates the beneficiaries of the only. To allow CSEW to limit its liability to P1M
notwithstanding the fact that the total loss suffered by
insurance. The hull and machinery insurance
the assured and paid for by Prudential amounted to
procured by William Lines, Inc. from Prudential
P45M would sanction the exercise of a degree of
named only “William Lines, Inc.” as the
diligence short of what is ordinarily required because,
assured. There was no manifestation of any intention
then, it would not be difficult for petitioner to escape Facts:
liability by the simple expedient of paying an amount Tan took from Sun Insurance a Php 300,000 policy to
very much lower than the actual damage suffered by
cover his electrical store in Iloilo city. Tan’s request
William. for an indemnity in 1983 was repeatedly denied,
firstly in 1984. He wrote for a reconsideration in the
same year. This was rejected in 1985, prompting him
First Quezon City v CA GR. 98414 Feb 8, 1993
to file a civil case in the same year. The insurance
J. Grino-Aquino company filed a motion to dismiss due to prescription
in 1987, but this was denied. The company went to
the court of appeals to petition the same thing, but this
Facts: was denied.
One Jose del Rosario was injured while boarding a
bus owned by DMTC in the Manila International
Airport. He was hospitalized for forty days. He filed Issue:
suit against the bus company and the court granted 1. WON the filing of a motion for reconsideration
him of over 100,000 pesos in damages. The appellate interrupts the twelve months prescriptive period to
court reduced damages to 55,090 pesos. The contest the denial of the insurance claim.
insurance company’s liability was limited to 12,000.
2. WON the rejection of the claim shall be deemed
The amount for insurance was made Php 50,000 in the
final only if it contains words to the effect that denial
appellate court’s decision.
is final. (ie. the first letter in 1984)
First Quezon City, the insurer of DTMC, filed a
3. When does the cause of action accrue?
motion for reconsideration to limit the damages back
to 12,000 pesos, the amount stipulated in the contract.
This was denied hence this petition for review. Held:
[Link]
Issue: Can the amount of the insurance [Link]
company’s liability be limited to Php 12,000?
3. At the time of the first rejection of the insurance
company
Held: Yes

Ratio:
Ratio: The contract stipulated liability at Php 12,000 1. The policy states in section 27.
per passenger and at Php 50,000 as the maximum
liability per accident. This means that the insurer’s Action or suit clause — If a claim be made and
liability for a single accident will not exceed 50,000 rejected and an action or suit be not commenced either
pesos. The court gave the example of 10 persons in the Insurance Commission or in any court of
injured leaving a total of Php 120,000 in insurance competent jurisdiction within twelve (12) months
liability payments. But with the Php 50,000 limit, from receipt of notice of such rejection, or in case of
only such value was to be paid by the company to the arbitration taking place as provided herein, within
insured. twelve (12) months after due notice of the award
made by the arbitrator or arbitrators or umpire, then
the claim shall for all purposes be deemed to have
Sun v CA G.R. No. 89741 March 13, 1991 been abandoned and shall not thereafter be
recoverable hereunder.
J. Paras
Respondent Tan admitted that he received a copy of Producers Bank’s money was stolen while it was
the letter of rejection on April 2, 1984. Thus, the 12- being transported from Pasay to Makati. The people
month prescriptive period started to run from the said guarding the money were charged with the theft. The
date of April 2, 1984, under section 27. bank filed a claim for the amount of Php 725,000, and
such was refused by the insurance corporation due to
2. It was clear in the letter.
the stipulation:
Ang v. Fulton Fire Insurance Co.- The condition
GENERAL EXCEPTIONS
contained in an insurance policy that claims must be
presented within one year after rejection is not merely The company shall not be liable under this policy in
a procedural requirement but an important matter report of
essential to a prompt settlement of claims against (b) any loss caused by any dishonest, fraudulent or
insurance companies as it demands that insurance criminal act of the insured or any officer, employee,
suits be brought by the insured while the evidence as partner, director, trustee or authorized representative
to the origin and cause of destruction have not yet of the Insured whether acting alone or in conjunction
disappeared. with others. . . .
Therefore, there was a necessity of bringing suits In the trial court, the bank claimed that the suspects
against the Insurer within one year from the rejection were not any of the above mentioned. They won the
of the claim. (1984) The contention of the respondents case. The appellate court affirmed on the basis that the
that the one-year prescriptive period does not start to bank had no power to hire or dismiss the guard and
run until the petition for reconsideration had been could only ask for replacements from the security
resolved by the insurer (1985), runs counter to the agency.
doctrine.
The provision in the contract was pursuant to Sec.
63. Issue: Did the guards fall under the general exceptions
clause of the insurance policy and thus absolved the
A condition, stipulation or agreement in any policy of insurance company from liability?
insurance, limiting the time for commencing an action
thereunder to a period of less than one year from the
time when the cause of action accrues, is void. Held: Yes to both. Petition granted.
3. Eagle star- The right of the insured to the payment
of his loss accrues from the happening of the loss.
However, the cause of action in an insurance contract Ratio:
does not accrue until the insured's claim is finally The insurance agency contended that the guards
rejected by the insurer. This is because before such automatically became the authorized representatives
final rejection there is no real necessity for bringing of the bank when they cited International Timber
suit. Corp. vs. NLRC where a contractor is a "labor-only"
The cause of action, then, started when the insurer contractor in the sense that there is an employer-
denied his claim in the first instance(1984). This employee relationship between the owner of the
rejection of a petition for reconsideration as insisted project and the employees of the "labor-only"
by respondents wasn’t the beginning of the cause of contractor.
action. They cited Art. 106. Of the Labor Code which said:
Fortune v CA G.R. No. 115278 May 23, 1995 Contractor or subcontractor. — There is "labor-only"
contracting where the person supplying workers to an
J. Davide Jr.
employer does not have substantial capital or
investment in the form of tools, equipment,
Facts: machineries, work premises, among others, and the
workers recruited and placed by such persons are
performing activities which are directly related to the TKC Marketing imported 3,000 metric tons of soya
principal business of such employer. In such cases, from Brazil to Manila. It was insured by Malayan at
the person or intermediary shall be considered merely the value of almost 20 million pesos. The vessel,
as an agent of the employer who shall be responsible however, was stranded on South Africa because of a
to the workers in the same manner and extent as if the lawsuit regarding the possession of the soya. TKC
latter were directly employed by him. consulted Malayan on recovery of the amount, but the
latter claimed that it wasn’t covered by the policy.
The bank asserted that the guards were not its
The soya was sold in Africa for Php 10 million, but
employees since it had nothing to do with their
TKC wanted Malayan to shoulder the remaining
selection and engagement, the payment of their
value of 10 million as well.
wages, their dismissal, and the control of their
conduct. Petitioner filed suit due to Malayan’s reticence to pay.
Malayan claimed that arrest by civil authorities
They cited a case where an employee-employer
wasn’t covered by the policy. The trial court ruled in
relationship was governed by (1) the selection and
TKC’s favor with damages to boot. The appellate
engagement of the employee; (2) the payment of
court affirmed the decision under the reason that
wages; (3) the power of dismissal; and (4) the power
clause 12 of the policy regarding an excepted risk due
to control the employee's conduct.
to arrest by civil authorities was deleted by Section
The case was governed by Article 174 of the 1.1 of the Institute War Clauses which covered
Insurance Code where it stated that casualty insurance ordinary arrests by civil authorities. Failure of the
awarded an amount to loss cause by accident or cargo to arrive was also covered by the Theft,
mishap. Pilferage, and Non-delivery Clause of the contract.
“The term "employee," should be read as a person Hence this petition.
who qualifies as such as generally and universally
understood, or jurisprudentially established in the
Issues:
light of the four standards in the determination of the
employer-employee relationship, or as statutorily 1. WON the arrest of the vessel was a risk covered
declared even in a limited sense as in the case of under the subject insurance policies.
Article 106 of the Labor Code which considers the 2. WON the insurance policies must strictly
employees under a "labor-only" contract as construed against the insurer.
employees of the party employing them and not of the
party who supplied them to the employer.”
But even if the contracts were not labor-only, the bank Held: Yes. Yes. Petition dismissed.
entrusted the suspects with the duty to safely transfer
the money to its head office, thus, they were
representatives. According to the court, “a Ratio:
‘representative’ is defined as one who represents or 1. Section 12 or the "Free from Capture & Seizure
stands in the place of another; one who represents Clause" states: "Warranted free of capture, seizure,
others or another in a special capacity, as an agent, arrest, restraint or detainment, and the consequences
and is interchangeable with ‘agent.’” thereof or of any attempt thereat… Should Clause 12
be deleted, the relevant current institute war clauses
Liberal Interpretation of Terms
shall be deemed to form part of this insurance.”
Malayan Insurance Corp vs CA G.R. 119599 March
This was really replaced by the subsection 1.1 of
20, 1997
section 1 of Institute War Clauses (Cargo) which
J. Romero included “the risks excluded from the standard form
of English Marine Policy by the clause warranted free
of capture, seizure, arrest, restraint or detainment, and
Facts:
the consequences thereof of hostilities or warlike Western Guaranty v CA G.R. No. 91666 July 20,
operations, whether there be a declaration of war or 1990
not.”
J. Feliciano
The petitioner’s claim that the Institute War Clauses
can be operative in case of hostilities or warlike
operations on account of its heading "Institute War Facts:
Clauses" is not tenable. It reiterated the CA’s stand Priscilla Rodriguez was struck by a bus owned by De
that “its interpretation in recent years to include Dios. She was hospitalized and her face was
seizure or detention by civil authorities seems permanently disfigured. Western Guaranty, the
consistent with the general purposes of the clause.” insurance company of the bus line, was obliged to pay
This interpretation was regardless of the fact whether due to the bodily injury caused by the bus. Rodriguez
the arrest was in war or by civil authorities. was able to earn a money judgment from the court to
The petitioner was said to have confused the Institute the tune of 3000 for actual damages, 1500 for loss of
War clauses and the F.C.S. in English law. earning capacity, and 20000 for moral damages and
attorney’s fees. De Dios filed a complaint against
“It stated that "the F.C. & S. Clause was "originally Western to indemnify the amount. Western lost the
incorporated in insurance policies to eliminate the case in the appellate court, hence this petition.
risks of warlike operations". It also averred that the
F.C. & S. Clause applies even if there be no war or
warlike operations. In the same vein, it contended Issue: Is Western liable for paying loss of earnings,
that subsection 1.1 of Section 1 of the Institute War moral damages and attorney's fees even if these items
Clauses (Cargo) "pertained exclusively to warlike are not among those included in the Schedule of
operations" and yet it also stated that "the deletion of Indemnities set forth in the insurance policy.
the F.C. & S. Clause and the consequent
incorporation of subsection 1.1 of Section 1 of the
Institute War Clauses (Cargo) was to include "arrest, Held: Yes. Petition dismissed.
etc. even if it were not a result of hostilities or warlike
operations."
Ratio:
The court found that the insurance agency tried to
interpret executive and political acts as those not The policy states:
including ordinary arrests in the exceptions of the Section 1. Liability to the Public — Company will,
FCS clause , and claims that the War Clauses now subject to the Limits of Liability, pay all sums
included executive and political acts without necessary to discharge liability of the insured in
including ordinary arrests in the new stipulation. respect of —
“A strained interpretation which is unnatural and (a) death of or bodily injury to or damage to
forced, as to lead to an absurd conclusion or to render property of any passenger as defined herein.
the policy nonsensical, should, by all means, be
avoided.” There was also a schedule of indemnities that
specified a certain amount for a certain type of injury
2. Indemnity and liability insurance policies are as well as hospital service payments.
construed in accordance with the general rule of
resolving any ambiguity therein in favor of the In this case, the limits on the amount payable for
insured, where the contract or policy is prepared by certain kinds of expenses were not considered by the
the insurer. A contract of insurance, being a contract court as “excluding liability for any other type of
of adhesion, means that any ambiguity should be expense or damage or loss even though actually
resolved against the insurer. sustained or incurred by the third party victim.”
The court noted that the limits of the liability was at the appellee should have 11 fire hydrants in the
50,000 per person per accident. Construing this with compound, and that he actually had only 2, with a
section 1 means that all kinds of damages allowable further pair.
by law were also to be covered by the policy once it
was shown that liability has arisen.
Issues:
The schedule of indemnities was not a closed
enumeration of the kinds of damages Western can 1. WON the insurance company can void the policies
award. it had issued
Western should have used far more specific language, 2. WON the insured violated the "Hemp Warranty"
not the “pay all sums necessary to discharge liability” provisions of the policy against the storage of
clause. gasoline
Insurance contracts must be read by the courts with a 3. WON the insured planned the destruction of the
jaundiced eye to prevent the insurer from escaping bodega
from its obligation. Also, contracts of adhesion such
as policies msut be construed against the party who
made them, in this case western. Held: No. No. No.

Qua v Law Union. G.R. No. L-4611 December 17,

1955 Ratio:
J. Reyes 1. The insurer, who at the time of issuance, has
knowledge of existing facts which would invalidate
the contract from the beginning, such constitutes a
Facts: waiver of conditions in the contract inconsistent with
Qua owned 4 warehouses used for the storage of the facts, and the insurer is stopped thereafter from
copra and hemp. They were insured with the Law asserting the breach of such conditions. Also, an
Union. insurance company intends to executed a valid
contract in return for the premium received; and when
Fire broke out and completely destroyed 3 bodegas. the policy contains a condition which renders it
The plaintiff submitted claims totalling P398,562.81. voidable at its inception, and this result is known to
The Insurance Company resisted payment on the the insurer, it will be presumed to have intended to
grounds that the fire had been deliberately caused by waive the conditions and to execute a binding
the insured or by other persons in connivance with contract, rather than to have deceived the insured into
him. thinking he is insured when in fact he is not.
Que Chee Gan and his brother were tried for arson, The appellant is barred estoppel to claim violation of
but were acquitted by the trial court. As regards the the so-called fire hydrants warranty, because it
insurance claim, the trial court ruled in favor of Qua knew the number of hydrants demanded therein
and entitled him to recover more than Php 300,000 for never existed from the very beginning and issued the
indemnities from the insurance company. Hence, the policies.
company appealed to the SC.
To allow a company to accept one's money for a
In its first assignment of error, the insurance company policy of insurance which it then knows to be void
alleged that the trial Court should have held that the and of no effect, though it knows as it must, that the
policies were avoided for breach of warranty. The assured believes it to be valid and binding, is so
contract noted that fire hydrants were required in a contrary to the dictates of honesty and fair dealing,
particular measurement of space (every 150 and so closely related to positive fraud, as to the
feet). Hence, they argued that since the bodegas abhorrent to fair-minded men.
insured had an external wall perimeter of 500 meters,
The appellant company so worded the policies that dominant bargaining position carries with it stricter
while exacting the greater number of fire hydrants and responsibility.
appliances, it kept the premium discount at the
Also, the gasoline kept in Bodega No. 2 was only
minimum of 2 1/2%, thereby giving the insurance incidental to his business, being no more than a
company a double benefit. Such abnormal treatment customary 2 day's supply for the five or six motor
of the insured strongly points at an abuse of the vehicles used for transporting of the stored
insurance company's selection of the words and terms merchandise. "It is well settled that the keeping of
of the contract, over which it had absolute control. inflammable oils on the premises though prohibited
Receipt of Premiums or Assessments after Cause for by the policy does not void it if such keeping is
Forfeiture Other than Nonpayment. — It is a well incidental to the business."
settled rule of law that an insurer which with 3. It was unlikely that Qua burned the warehouse to
knowledge of facts entitling it to treat a policy as no defraud the company because he had the resources to
longer in force, receives and accepts a premium on the pay off the National Bank in a short time. Also, no
policy, estopped to take advantage of the forfeiture. It motive appears for attempt to defraud the insurer.
cannot treat the policy as void for the purpose of While the acquittal of the insured in the arson case is
defense to an action to recover for a loss thereafter
not res judicata on the present civil action, the
occurring and at the same time treat it as valid for the insurer's evidence, to judge from the decision in the
purpose of earning and collecting further premiums. criminal case, is practically identical in both cases and
Moreover, taking into account the well known rule must lead to the same result, since the proof to
that ambiguities or obscurities must be strictly establish the defense of connivance at the fire in order
interpreted against the party that caused them, the to defraud the insurer "cannot be materially less
"memo of warranty" invoked by appellant bars the convincing than that required in order to convict the
latter from questioning the existence of the appliances insured of the crime of arson."
called for in the insured premises As to the defense that the burned bodegas could not
2. The ambiguity must be held strictly against the possibly have contained the quantities of copra and
insurer and liberally in favor of the insured, specially hemp stated in the fire claims, the insurer relied on its
to avoid a forfeiture. So long as insurance companies adjuster investigator who examined the premises
insist upon the use of ambiguous, intricate and during and after the fire. His testimony, however, was
technical provisions, which conceal rather than based on inferences from the photographs and traces
frankly disclose, their own intentions, the courts must, found after the fire, and must yield to the
in fairness to those who purchase insurance, construe contradictory testimony of those who actually saw the
every ambiguity in favor of the insured. contents of the bodegas shortly before the fire, while
inspecting them for the mortgagee Bank.
Appellee admitted that there were 36 cans of gasoline
in the building designed. It However, gasoline is not Geagonia v CA G.R. No. 114427 February 6, 1995
specifically mentioned among the prohibited articles
Facts:
listed in the so-called "hemp warranty." The cause
relied upon by the insurer speaks of "oils", and is Geagonia, owner of a store, obtained from Country
uncertain because, "Oils" usually mean "lubricants" Bankers fire insurance policy for P100,000.00. The 1
and not gasoline or kerosene. year policy and covered thestock trading of dry goods.
The policy noted the requirement that "3. The insured
If the company intended to rely upon a condition of
shall give notice to the Company of any insurance or
that character, it ought to have been plainly expressed
insurances already effected, or which may
in the policy.
subsequently be effected, covering any of the
The contract of insurance is one of perfect good faith property or properties consisting of stocks in trade,
not for the insured alone, but equally so for the goods in process and/or inventories only hereby
insurer; in fact, it is mere so for the latter, since its insured, and unless notice be given and the particulars
of such insurance or insurances be stated therein or
endorsed in this policy pursuant to Section 50 of the Ratio:
Insurance Code, by or on behalf of the Company
before the occurrence of any loss or damage, all 1. The court agreed with the CA that the petitioner
benefits under this policy shall be deemed forfeited, knew of the prior policies issued by the PFIC. His
provided however, that this condition shall not apply letter of 18 January 1991 to the private respondent
when the total insurance or insurances in force at the conclusively proves this knowledge. His testimony to
time of the loss or damage is not more than the contrary before the Insurance Commissioner and
P200,000.00." The petitioners’ stocks were destroyed which the latter relied upon cannot prevail over a
by fire. He then filed a claim which was subsequently written admission made ante litem motam. It was,
denied because the petitioner’s stocks were covered indeed, incredible that he did not know about the prior
by two other fire insurance policies for Php 200,000 policies since these policies were not new or original.
issued by PFIC. The basis of the private respondent's
denial was the petitioner's alleged violation of
Condition 3 of the policy. Geagonia then filed a 2. Stated differently, provisions, conditions or
complaint against the private respondent in the exceptions in policies which tend to work a forfeiture
Insurance Commission for the recovery of of insurance policies should be construed most
P100,000.00 under fire insurance policy and strictly against those for whose benefits they are
damages. He claimed that he knew the existence of inserted, and most favorably toward those against
the other two policies. But, he said that he had no whom they are intended to operate. With these
knowledge of the provision in the private respondent's principles in mind, Condition 3 of the subject policy
policy requiring him to inform it of the prior policies is not totally free from ambiguity and must be
and this requirement was not mentioned to him by the meticulously analyzed. Such analysis leads us to
private respondent's agent. The Insurance conclude that (a) the prohibition applies only to
Commission found that the petitioner did not violate double insurance, and (b) the nullity of the policy
Condition 3 as he had no knowledge of the existence shall only be to the extent exceeding P200,000.00 of
of the two fire insurance policies obtained from the the total policies obtained. Furthermore, by stating
PFIC; that it was Cebu Tesing Textiles w/c procured within Condition 3 itself that such condition shall not
the PFIC policies w/o informing him or securing his apply if the total insurance in force at the time of loss
consent; and that Cebu Tesing Textile, as his creditor, does not exceed P200,000.00, the private respondent
had insurable interest on the stocks. The Insurance was amenable to assume a co-insurer's liability up to
Commission then ordered the respondent company to a loss not exceeding P200,000.00. What it had in
pay complainant the sum of P100,000.00 with interest mind was to discourage over-insurance. Indeed, the
and attorney’s fees. CA reversed the decision of the rationale behind the incorporation of "other
Insurance Commission because it found that the insurance" clause in fire policies is to prevent over-
petitioner knew of the existence of the two other insurance and thus avert the perpetration of fraud.
policies issued by the PFIC. When a property owner obtains insurance policies
from two or more insurers in a total amount that
exceeds the property's value, the insured may have an
Issues: inducement to destroy the property for the purpose of
collecting the insurance. The public as well as the
1. WON the petitioner had not disclosed the two insurer is interested in preventing a situation in which
insurance policies when he obtained the fire insurance a fire would be profitable to the insured.
and thereby violated Condition 3 of the policy.
2. WON he is prohibited from recovering

Held: Yes. No. Petition Granted