IN PARTIAL FULFILLMENT

OF THE REQUIREMENT FOR THE SUBJECT COURSE:

INSURANCE LAW

SUBMITTED TO:
ATTY. RANJAN KALYL WANGET, CPA

SUBMITTED BY:
3JD - SPECIAL SECTION
A.Y. 2019-2020, SECOND SEMESTER
 TABLE OF CONTENTS

1. PAZ LOPEZ DE CONSTANTINO v. ASIA LIFE INSURANCE COMPANY........................................................1

2. RAFAEL ENRIQUEZ, AS ADMINISTRATOR OF THE ESTATE OF THE LATE JOAQUIN MA.
HERRER v. SUN LIFE ASSURANCE COMPANY OF CANADA...........................................................................2
3. PHILIPPINE HEALTH CARE PROVIDERS, INC. v. COMMISSIONER OF INTERNAL REVENUE.........3
4. FORTUNE MEDICARE v. DAVID ROBERT U. AMORIN......................................................................................4
5. THE INSULAR ASSURANCE CO. LTD. v. THE HEIRS OF JOSE H. ALVAREZ...............................................5
6. THE INSULAR LIFE ASSURANCE CO., LTD. v. HEIRS OF ALVAREZ.............................................................5
7. SUN LIFE OF CANADA (PHILIPPINES), INC., v. MA. DAISY'S. SIBYA, JESUS MANUEL S. SIBYA
III, JAIME LUIS S. SIBYA, AND THE ESTATE OF THE DECEASED ATTY. JESUS SIBYA, JR...................7
8. MANULIFE PHILIPPINES, INC. v. HERMENEGILDA YBAÑ EZ.........................................................................8
9. MANILA BANKERS LIFE INSURANCE CORPORATION v. CRESENCIA P. ABAN......................................9
10. THE INSULAR LIFE ASSURANCE COMPANY, LTD, v. PAZ Y. KHU, FELIPE Y. KHU, JR., and
FREDERICK Y. KHU...................................................................................................................................................... 10
12. MALAYAN INSURANCE CO., INC. v. PAP CO., LTD............................................................................................ 12
13. KEIHIN-EVERETT FORWARDING CO v. TOKIO MARINE MALAYAN INSURANCE CO......................13
14. GREAT PACIFIC LIFE ASSURANCE CORP. v. COURT OF APPEALS AND MEDARDA V.
LEUTERIO........................................................................................................................................................................ 16
15. PEDRO ARCE v. THE CAPITAL INSURANCE & SURETY CO., INC...............................................................17
16. UCPB GENERAL INSURANCE CO., INC. v. MASAGANA TELAMART, INC.................................................18
17. JAIME T. GAISANO v. EVELOPMENT INSURANCE AND SURETY CORPORATION..............................19
18. EQUITABLE INSURANCE CORPORATION v. TRANSMODAL INTERNATIONAL, INC.........................21
 1. PAZ LOPEZ DE CONSTANTINO v. ASIA LIFE INSURANCE COMPANY
87 PHIL 248, August 31, 1950
FACTS: Asia Life insured the life of Arcadio Constantino for a term of 20 years. After the payment of
the first premium, no further premiums were paid. The first premium covered the period up to
September 1942. The insured died on September 22, 1944.
Asia Life, being an American corporation, had to close its branch office in Manila by reason of the
Japanese occupation.
The beneficiaries argue that they are entitled to receive the proceeds of the policies minus all sums
due for premiums in arrears. They allege that non-payment of the premiums was caused by the
closing of defendant's offices in Manila during the Japanese occupation and the impossible
circumstances created by war.
Asia Life asserts that the policies had lapsed for non-payment of premiums, in accordance with the
contract of the parties and the law applicable to the situation. The lower court absolved Asia Life.
ISSUE: Whether the beneficiary in a life insurance policy may recover the amount thereof although
the insured died after repeatedly failing to pay the stipulated premiums, such failure having been
caused by the last war in the Pacific.
HELD: NO. Decision of lower court is AFFIRMED.
We are firmly persuaded that the non-payment of premiums is such a vital defense of insurance
companies that since the very beginning, Act no. 2427, and its subsequent amendments, preserved
it. The fundamental character of the undertaking to pay premiums and the high importance of the
defense of non-payment thereof, was specifically recognized.
In keeping with such legislative policy, we feel no hesitation to adopt the United States Rule.
It should be noted that the parties contracted not only for peacetime conditions but also for
times of war, because the policies contained provisions applicable expressly to wartime days.
The logical inference, therefore, is that the parties contemplated uninterrupted operation of
the contract even if armed conflict should ensue.
***
Connecticut Rule: there are two elements in the consideration for which the annual premium is
paid — First, the mere protection for the year, and second, the privilege of renewing the contract
for each succeeding year by paying the premium for that year at the time agreed upon. According to
this view of the contract, the payment of premiums is a condition precedent, the non-performance
would be illegal necessarily defeats the right to renew the contract.
New York Rule: war between states in which the parties reside merely suspends the contracts of
the life insurance, and that, upon tender of all premiums due by the insured or his representatives
after the war has terminated, the contract revives and becomes fully operative.
United States Rule: the contract is not merely suspended, but is abrogated by reason of non-
payments is peculiarly of the essence of the contract. It additionally holds that it would be unjust to
allow the insurer to retain the reserve value of the policy, which is the excess of the premiums paid
over the actual risk carried during the years when the policy had been in force.

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 2. RAFAEL ENRIQUEZ, AS ADMINISTRATOR OF THE ESTATE OF THE LATE
JOAQUIN MA. HERRER v. SUN LIFE ASSURANCE COMPANY OF CANADA
G.R. No. L-15895, November 29, 1920
This is an action brought by the plaintiff ad administrator of the estate of the late Joaquin Ma.
Herrer to recover from the defendant life insurance company the sum of pesos 6,000 paid by the
deceased for a life annuity.
FACTS: On September 24, 1917, Joaquin Herrer made application to the Sun Life Assurance
Company of Canada through its office in Manila for a life annuity. Two days later he paid the sum of
P6,000 to the manager of the company's Manila office and was given a receipt.
The application was immediately forwarded to the head office of the company at Montreal, Canada.
On November 26, 1917, the head office gave notice of acceptance by cable to Manila. On December
4, 1917, the policy was issued at Montreal. On December 18, 1917, attorney Aurelio A. Torres wrote
to the Manila office of the company stating that Herrer desired to withdraw his application. The
following day the local office replied to Mr. Torres, stating that the policy had been issued, and
called attention to the notification of November 26, 1917. This letter was received by Mr. Torres on
the morning of December 21, 1917. Mr. Herrer died on December 20, 1917.
The plaintiff as administrator of Herrer’s estate brought this action to recover the Php. 6,000.00
paid by the deceased. The trial court gave judgment for the defendant. Plaintiff appeals.
ISSUE: Whether or not Herrer received notice of acceptance of his application.
HELD: NO.
The court ruled that the contract for a life annuity in the case at bar was not perfected because it
has not been proved satisfactorily that the acceptance of the application ever came to the
knowledge of the applicant.
The courts who take this view have expressly held that an acceptance of an offer of insurance not
actually or constructively communicated to the proposer does not make a contract. Only the
mailing of acceptance, it has been said, completes the contract of insurance, as the locus
poenitentiae is ended when the acceptance has passed beyond the control of the party.
The law applicable to the case is found to be the second paragraph of article 1262 of the Civil Code
providing that an acceptance made by letter shall not bind the person making the offer except from
the time it came to his knowledge. The pertinent fact is, that according to the provisional receipt,
three things had to be accomplished by the insurance company before there was a contract: (1)
There had to be a medical examination of the applicant; (2) there had to be approval of the
application by the head office of the company; and (3) this approval had in some way to be
communicated by the company to the applicant.
The further admitted facts are that the head office in Montreal did accept the application, did cable
the Manila office to that effect, did actually issue the policy and did, through its agent in Manila,
actually write the letter of notification and place it in the usual channels for transmission to the
addressee. The fact as to the letter of notification thus fails to concur with the essential elements of
the general rule pertaining to the mailing and delivery of mail matter as announced by the
American courts, namely, when a letter or other mail matter is addressed and mailed with postage
prepaid there is a rebuttable presumption of fact that it was received by the addressee as soon as it
could have been transmitted to him in the ordinary course of the mails. But if any one of these
elemental facts fails to appear, it is fatal to the presumption. For instance, a letter will not be
presumed to have been received by the addressee unless it is shown that it was deposited in the
post-office, properly addressed and stamped.

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 3. PHILIPPINE HEALTH CARE PROVIDERS, INC. v. COMMISSIONER OF INTERNAL
REVENUE
G.R. No. 167330, September 18, 2009
FACTS: Philippine Health Care Provider (Philhealth) is a domestic corporation whose primary
purpose is to establish, maintain, conduct and operate a prepaid group practice health care delivery
system or a health maintenance organization to take care of the sick and disabled persons enrolled
in the health care plan and to provide for the administrative, legal, and financial responsibilities of
the organization.
On January 27, 2000, the Commissioner of the Internal Revenue sent Philhealth a formal demand
letter and the corresponding assessment notices demanding the payment of deficiency taxes,
including surcharges and interest, for the taxable years 1996 and 1997 in the total amount of
P224,702,641.18 to which Philhealth protested. As the Commissioner did not act on the protest,
Philhealth filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of
the deficiency VAT and DST assessments.
The CTA ordered Philhealth to pay the deficiency VAT but it cancelled and set aside the collection
DST deficiency tax. The Commissioner appealed to the Court of Appeals and claimed that
petitioner’s health care agreement was a contract of insurance subject to DST under Section 185 of
the 1997 Tax Code. The CA held that Philhealth’s health care agreement was in the nature of a non-
life insurance contract subject to DST.
ISSUE: Whether or not Philippine Health Care Providers, Inc. was engaged in insurance business.
HELD: No, Health Maintenance Organizations are not engaged in the insurance business.
Petitioner is admittedly an HMO. Under RA 7875 (or “The National Health Insurance Act of 1995”),
an HMO is an entity that provides, offers or arranges for coverage of designated health services
needed by plan members for a fixed prepaid premium. To determine whether an HMO is an
insurance business or not, one test – principal object and purpose test – may be applied, that is to
determine whether the assumption of risk and indemnification of loss are the principal object and
purpose of the organization or whether they are merely incidental to its business. If these are the
principal objectives, the business is that of insurance. But if they are merely incidental and service
is the principal purpose, then the business is not insurance. HMO’s principal object and purpose is
service rather than indemnity.
Section 2 (2) of PD 1460 enumerates what constitutes “doing an insurance business” or
“transacting an insurance business” which are:
a. making or proposing to make, as insurer, any insurance contract;
b. making or proposing to make, as surety, any contract of suretyship as a vocation and not
as merely incidental to any other legitimate business or activity of the surety;
c. doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this Code;
d. doing or proposing to do any business in substance equivalent to any of the foregoing in
a manner designed to evade the provisions of this Code.
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 petitioner’s 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. Additionally,
petitioner is not supervised by the Insurance Commission but by the Department of Health.

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 4. FORTUNE MEDICARE v. DAVID ROBERT U. AMORIN
G.R. No. 195872, March 12, 2014
FACTS: Amorin was a cardholder of Fortune Medicare, a corporation engaged in providing health
maintenance services to its members. While Amorin was on a vacation in Hawaii, he underwent
emergency surgery for appendectomy and he incurred expenses of $7242.35 and $1777.79. Amorin
attempted to recover the full amount upon his return to Manila, but he was only approved a
reimbursement of Php 12,151.36 which was based on the average cost of the appendectomy if it
were done in Metro Manila.
Contested provisions in the contract
“EMERGENCY CARE IN NON-ACCREDITED HOSPITAL
1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization
cost including the professional fee (based on the total approved charges) to a member who
receives emergency care in a non-accredited hospital. The above coverage applies only to
Emergency confinement within Philippine Territory. However, if the emergency confinement
occurs in a foreign territory, Fortune Care will be obligated to reimburse or pay eighty (80%)
percent of the approved standard charges which shall cover the hospitalization costs and
professional fees…”
For its part, Fortune Care argued that the Health Care Contract did not cover hospitalization costs
and professional fees incurred in foreign countries, as the contract’s operation was confined to
Philippine territory. Further, it argued that its liability to Amorin was extinguished upon the latter’s
acceptance from the company of the amount of ₱12,151.36.
ISSUE: Whether or not Fortune Medicare is liable.
HELD: Yes. Fortune Medicare is liable.
First, health care agreements such as the subject Health Care Contract, being like insurance
contracts, must be liberally construed in favor of the subscriber. In case its provisions are doubtful
or reasonably susceptible of two interpretations, the construction conferring coverage is to be
adopted and exclusionary clauses of doubtful import should be strictly construed against the
provider.
Second, there was nothing the Health Care Contract which provided that the Philippine standard
should be used even in the event of an emergency confinement in a foreign territory.
The point of dispute now concerns the proper interpretation of the phrase "approved standard
charges". In the absence of any qualifying word that clearly limited Fortune Care's liability to costs
that are applicable in the Philippines, the amount payable by Fortune Care should not be limited to
the cost of treatment in the Philippines, as to do so would result in the clear disadvantage of its
member.
If, as Fortune Care argued, the premium and other charges in the Health Care Contract were merely
computed on assumption and risk under Philippine cost and, that the American cost standard or
any foreign country's cost was never considered, such limitations should have been distinctly
specified and clearly reflected in the extent of coverage which the company voluntarily assumed.

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 5. THE INSULAR ASSURANCE CO. LTD. v. THE HEIRS OF JOSE H. ALVAREZ
GR NO. 207526, October 03, 2018
FACTS: Spouses Jose and Adelina Alvarez owned a residential lot in Caloocan City. Jose applied for
and was granted a housing loan by Union Bank in the amount of P648, 000 which was secured by a
promissory note, a real estate mortgage, and a mortgage redemption insurance taken on the life of
Jose with the bank as beneficiary. Jose was among the mortgagors included in the list of qualified
debtors covered by the Group Mortgage Redemption Insurance that Union Bank had with Insular.
Soon, Jose died and Union Bank filed with Insular a death claim under Jose’s name pursuant to the
Group Mortgage Redemption Insurance. Union bank was required to submit documents, but its
claim was denied by Insular after determining that Alvarez was not eligible for coverage as he was
more than 60 years old at the time his loan was approved.
ISSUE: Whether or not Insular is obliged to pay given the claim that Jose lied about his age.
HELD: Yes.
Fraud is not presumed and Insular erroneously pleaded Section 27 of the Insurance Code because
the case involves a false representation, not fraud. Concealment applies only with respect to
material facts, and absence of the requirement of intention definitely increases the onus on the
insured,
In this case, Jose must have accomplished and submitted many other documents when he applied
for the loan, and a design to defraud would have demanded consistency. Insular solely relied on the
Background Checking Report which was not prepared by Jose himself but by a Union Bank
Employee. Insular Life notes a statement by Union Bank's Josefina Barte that all information in the
Background Checking Report was supplied by Jose. But this is a self-serving statement, wholly
reliant on the assumption of that employee's flawless performance of her duty to record findings.
Precisely, it is a claim that needed to be vetted. It had to be tested under the crucible of a court trial,
that is, through the rigors of presentation and authentication of evidence, cross-examination, and
personal perusal by a judge. Yet, Insular Life would now have this Court sustain its appreciation,
solely on the strength of its own representations.
An erroneous statement's dual occurrence in the Health Statement Form and the Background
Checking Report concededly reduces the likelihood of honest mistakes or overlooked inaccuracies.
However, in the context of so many other documents being available to ascertain the error, a mere
dual occurrence does not definitively establish a fraudulent scheme. This is especially so when the
errors could not be directly and exclusively attributed to a single author.
Pleading just one additional document still fails to establish the consistent fraudulent design that
was Insular Life's burden to prove by clear and convincing evidence. Insular Life had all the
opportunity to demonstrate Alvarez's pattern of consistently indicating erroneous entries for his
age. All it needed to do was to inventory the documents submitted by Alvarez and note the
statements he made concerning his age. This was not a cumbersome task, yet it failed at it. Its
failure to discharge its burden of proving must thwart its plea for relief from this Court.

6. THE INSULAR LIFE ASSURANCE CO., LTD. v. HEIRS OF ALVAREZ

G.R. Nos. 207526 & 210156, October 3, 2018
FACTS: The Heirs of Alvarez filed a complaint for specific performance to demand against Insular
Life to fulfill its obligation as an insurer under the Group Mortgage Redemption Insurance, and for
nullification of foreclosure against Union Bank.
Both Court of Appeals and Regional Trial Court ruled in favor of the Heirs of Alvarez. They noted
that the errors assigned by Insular Life and Union Bank boiled down to the issue of whether or not
Alvarez was guilty of fraudulent misrepresentation as to warrant the rescission of the Group
Mortgage Redemption Insurance obtained by Union Bank on Alvarez's life. Insular Life only relied
on Alvarez's Health Statement Form where he wrote "1942" as his birth year. However, this form
alone was insufficient to prove that he fraudulently intended to misrepresent his age. It noted that

5
aside from the Health Statement Form, Alvarez had to fill out an application for insurance. This
application would have supported the conclusion that he consistently wrote "1942" in all the
documents that he had submitted to Union Bank. However, the records made no reference to this
document.
ISSUE: Whether or not The Insular Life Assurance Co., Ltd. is obliged to pay Union Bank the balance
of Alvarez's loan given the claim that he lied about his age at the time of the approval of his loan.
HELD: Yes, Insular life is liable to pay Union Bank for its failure to prove intent to defraud on the
part of Alvarez.
Citing Section 27 of the Insurance Code, however, Insular Life asserts that in cases of rescission due
to concealment, i.e., when a party "neglect[s] to communicate that which [he or she] knows and
ought to communicate," proof of fraudulent intent is not necessary. Section 27 of the Insurance
Code reads:
“A concealment whether intentional or unintentional entitles the injured party to rescind a contract
of insurance.”
While Insular Life correctly reads Section 27 as making no distinction between intentional and
unintentional concealment, it erroneously pleads Section 27 as the proper statutory anchor of this
case. The Insurance Code distinguishes representations from concealments. What this case
involves, instead, is an allegedly false representation. Section 44 of the Insurance Code states, "A
representation is to be deemed false when the facts fail to correspond with its assertions or
stipulations." If indeed Alvarez misdeclared his age such that his assertion fails to correspond with
his factual age, he made a false representation, not a concealment.
In relation to Section 44, Section 45 of the Insurance Code reads:
“If a representation is false in a material point, whether affirmative or promissory, the injured party
is entitled to rescind the contract from the time when the representation becomes false.”
Alvarez must have accomplished and submitted many other documents when he applied for the
housing loan and executed supporting instruments like the promissory note, real estate mortgage,
and Group Mortgage Redemption Insurance. A design to defraud would have demanded his
consistency. He needed to maintain appearances across all documents. However, the best that
Insular Life could come up with before the Regional Trial Court and the Court of Appeals was a
single document. The Court of Appeals was straightforward, i.e., the most basic document that
Not being similarly qualified as rescission under Section 27, rescission under Section 45 remains
subject to the basic precept of fraud having to be proven by clear and convincing evidence.
Consistent with the requirement of clear and convincing evidence, it was Insular Life's burden to
establish the merits of its own case.
At bar, Insular Life basically relied on the Health Statement form personally accomplished by Jose
Alvarez wherein he wrote that his birth year was 1942. The Court, however posited that Alvarez
accomplished in relation to Insular Life must have been an insurance application form. Strangely,
Insular Life failed to adduce even this document — a piece of evidence that was not only
commonsensical, but also one which has always been in its possession and disposal.
Insular Life had all the opportunity to demonstrate Alvarez's pattern of consistently indicating
erroneous entries for his age. All it needed to do was to inventory the documents submitted by
Alvarez and note the statements he made concerning his age. This was not a cumbersome task, yet
it failed at it. Its failure to discharge its burden of proving must thwart its plea for relief from this
Court.

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 7. SUN LIFE OF CANADA (PHILIPPINES), INC., v. MA. DAISY'S. SIBYA, JESUS
MANUEL S. SIBYA III, JAIME LUIS S. SIBYA, AND THE ESTATE OF THE DECEASED
ATTY. JESUS SIBYA, JR.
GR No. 211212, June 08, 2016
FACTS: On January 10, 2001, Atty. Jesus Sibya, Jr. applied for life insurance with Sun Life. In his
Application for Insurance, he indicated that he had sought advice for kidney problems. Sun Life
approved the application and issued Insurance Policy No. 031097335.
The policy indicated the respondents as beneficiaries and entitles them to a death benefit of
P1,000,000.00 should Atty. Jesus Jr. dies on or before February 5, 2021, or a sum of money if Atty.
Jesus Jr. is still living on the endowment date. On May 11, 2001, Atty. Jesus Jr. died as a result of a
gunshot wound. As such, Ma. Daisy filed a Claimant’s Statement with Sun Life to seek the death
benefits indicated in his insurance policy.
However, Sun Life denied the claim on the ground that the details on Atty. Jesus Jr.’s medical history
were not disclosed in his application. Simultaneously, Sun Life tendered a check representing the
refund of the premiums paid by Atty. Jesus. The respondents claimed that Atty. Jesus Jr. did not
commit misrepresentation in his application for insurance.
The RTC held that Atty. Jesus Jr. did not commit material concealment and misrepresentation when
he applied for life insurance with Sun Life. It observed that given the disclosures and the waiver and
authorization to investigate executed by Atty. Jesus Jr. to Sun Life, the latter had all the means of
ascertaining the facts allegedly concealed by the applicant.
The CA ruled that the evidence on records show that there was no fraudulent intent on the part of
Atty. Jesus Jr. in submitting his insurance application. Instead, it found that Atty. Jesus Jr. admitted
in his application that he had sought medical treatment for kidney ailment.
ISSUE: Whether or not there was concealment or misrepresentation when Atty. Jesus Jr. submitted
his insurance application with Sun Life.
HELD: There was no concealment or representation.
In Manila Bankers Life Insurance Corporation v. Aban, the Court held that if the insured dies within
the two-year contestability period, the insurer is bound to make good its obligation under the
policy, regardless of the presence or lack of concealment or misrepresentation. The Court held:
After the two-year period lapses, or when the insured dies within the period, the insurer must make
good on the policy, even though the policy was obtained by fraud, concealment, or
misrepresentation.
In the present case, Sun Life issued Atty. Jesus Jr.’s policy on February 5, 2001. Thus, it has two
years from its issuance, to investigate and verify whether the policy was obtained by fraud,
concealment, or misrepresentation. Upon the death of Atty. Jesus Jr., however, on May 11, 2001, or a
mere three months from the issuance of the policy, Sun Life loses its right to rescind the policy. As
discussed in Manila Bankers, the death of the insured within the two-year period will render the
right of the insurer to rescind the policy nugatory. As such, the incontestability period will now set
in.
Assuming, however, for the sake of argument, that the incontestability period has not yet set in, the
Court agrees, nonetheless, with the CA when it held that Sun Life failed to show that Atty. Jesus Jr.
committed concealment and misrepresentation.
As correctly observed by the CA, Atty. Jesus Jr. admitted in his application his medical treatment for
kidney ailment. Moreover, he executed an authorization in favor of Sun Life to conduct investigation
in reference with his medical history.
Indeed, the intent to defraud on the part of the insured must be ascertained to merit rescission of
the insurance contract. Concealment as a defense for the insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon

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the provider or insurer. In the present case, Sun Life failed to clearly and satisfactorily establish its
allegations, and is therefore liable to pay the proceeds of the insurance.

8. MANULIFE PHILIPPINES, INC. v. HERMENEGILDA YBAÑEZ

GR No 204736, November 28, 2016
FACTS: Dr. Gumersindo Ybanez applied for life insurance with Manulife which the latter approved,
when one of the insurance policies had been in force for only one year and three months, while the
other for only four months, the insured died. His wife Hermenegilda, filed a claimant’s Statement-
death claim. Manulife denied the claim and instituted a complaint for rescission of Insurance
contracts against Ybanez and the BPI Family Savings Bank. It alleged that the two insurance policies
were void due to concealment or misrepresentation of material facts in the latter’s application on
which the insured did not reveal his confinement, surgery, and other past illnesses prior to his
application for the life insurance.
In her answer, Hermenegilda countered that, Manulife’s own insurance agent, Monteclaros, assured
that there would be no problem regarding the application. In fact, it was the Monteclaros who filled
up everything in the questionnaire, so that all that the insured needed to do was signed and it’s
done. The beneficiary also asserts that Manulife’s company physician Dr. Lumapas examined and
interviewed the insured and rated his health as “below average” as the insured admits his past
illnesses and surgery. The answers in the insurance agent’s form did not jibe with the answers
made by Dr. Lumapas.
In fine, at the time when both insurance policies in question were submitted for approval to
Manulife, the latter had all the forewarnings that should have put it on guard or on notice that
things were not what it wanted to be, reason enough to exercise greater prudence an d caution to
further inquire into the health or medical history of the insured, specially that the insured was at
that time already 65 years old. Manulife accepted the insured’s application, and now that a claim for
the benefit is made, Manulife now says that the insured misrepresented and concealed his past
illnesses.
ISSUE: Whether there is concealment or misrepresentation on the part of the insured
HELD: None.
Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the
duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. In
this case, the one and only witness presented by Manulife utterly failed to prove the basic elements
of the alleged misrepresentation or concealment of material facts imputed by Manulife against the
deceased ensured.
The fraudulent intent on the part of the insured must be established to entitle the ensurer to
rescind the contract. Failure of Manulife to prove intent to defraud on the part of the insured, it
cannot validly sue for rescission of insurance contract.

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 9. MANILA BANKERS LIFE INSURANCE CORPORATION v. CRESENCIA P. ABAN
G.R. No. 175666, July 29, 2013
FACTS: On April 10, 1996, when the insurance policy had been in force for more than two years and
seven months, Sotero died. Cresencia Aban then moved to claim the insurance proceeds on July 9,
1996.
Manila Bankers then conducted an investigation and found out of the following facts:
1. Sotero did not personally apply for insurance coverage, as she was illiterate;
2. Sotero was sickly since 1990;
3. Sotero did not have the financial capability to pay the insurance premiums on her Insurance
Policy;
4. Sotero did not sign the July 3, 1993 application for insurance; and
5. Respondent was the one who filed the insurance application, and designated herself as the
beneficiary.
On April 24, 1997, Manila Bankers filed a civil action for rescission and/or annulment of the policy
on the ground of fraud, concealment and/or misrepresentation under the Insurance Code, which
thus renders it voidable under Article 1390 of the Civil Code.
The Trial Court dismissed the petition of manila Banker because under section 48 of the insurance
code, petitioner had only two years from the effectivity of the policy to question the same; since the
policy had been in force for more than two years, petitioner is now barred from contesting the same
or seeking a rescission or annulment thereof.
The CA also sustained the decision of the trial court. Applying Section 48 to petitioner’s case, the CA
held that petitioner may no longer prove that the subject policy was void ab initio or rescindible by
reason of fraudulent concealment or misrepresentation after the lapse of more than two years from
its issuance.
ISSUE: Whether the Court of Appeals erred in sustaining the application of the incontestability
provision in the Insurance Code by the Trial Court.
HELD: The Supreme Court ruled in favor of Aban.
Section 48 of the Insurance code serves a noble purpose, as it regulates the actions of both the
insurer and the insured. Under the provision, an insurer is given two years from the effectivity of a
life insurance contract and while the insured is alive to discover or prove that the policy is void ab
initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured
or his agent. After the two-year period lapses, or when the insured dies within the period, the
insurer must make good on the policy, even though the policy was obtained by fraud, concealment,
or misrepresentation. This is not to say that insurance fraud must be rewarded, but that insurers
who recklessly and indiscriminately solicit and obtain business must be penalized, for such
recklessness and lack of discrimination ultimately work to the detriment of bona fide takers of
insurance and the public in general.

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 [Link] INSULAR LIFE ASSURANCE COMPANY, LTD, v. PAZ Y. KHU, FELIPE Y. KHU,
JR., and FREDERICK Y. KHU
G.R. No. 195176, April 18, 2016

FACTS: Felipe Khu applied for a life insurance with Insular Life and accomplished the required
medical questionnaire where he did not declare any illness or adverse medical condition.
Thereafter, Insular Life issued Felipe a policy with face value of One Million.

Due to non-payment of premiums for a year, the policy lapsed. Felipe sought to reinstate the
insurance however Insular Life advised Felipe that his application for reinstatement may only be
considered if he agreed to certain conditions such as payment of additional premium and the
cancellation of the riders pertaining to premium waiver and accidental death benefits. Felipe
agreed on the conditions set by Insular Life.

The Letter of Acceptance provides that an increase on the premium is effective June 22, 1999.
However, full payment of the reinstatement premium was made only on December 27, 1999.

On September 22, 2001, Felipe died. His Certificate of Death enumerated the following as causes of
death:

Immediate cause: End stage renal failure, Hepatic failure

Antecedent cause: Congestive heart failure, Diffuse myocardial ischemia.
Underlying cause: Diabetes Neuropathy, Alcoholism, and Pneumonia.

The beneficiaries of Felipe filed a claim for benefit under the reinstated policy. However, Insular
Life denied the claim on the ground that it had decided to rescind the reinstated policy on the
grounds of concealment and misrepresentation by Felipe regarding to his health or adverse medical
condition. Hence, the heirs of Felipe instituted a complaint for specific performance with damages.

In the RTC, the RTC ruled in favor of the beneficiaries of Felipe ruling that the reinstated insurance
policy had already become incontestable by the time of Felipe’s death since more than two years
had already lapsed from the date of the policy’s reinstatement. RTC noted that since it was Insular
Life itself that supplied all the pertinent forms relative to the reinstated policy, then it is barred
from taking advantage of any ambiguity/obscurity perceived therein particularly as regards the
date when the reinstated insurance policy became effective. RTC found that in the letter of
Acceptance that the Reinstatement is effective June 22, 1999 thus ruled that June 22, 1999 must be
the reinstatement date and not December 27, 1999.

On Appeal in the CA, Insular Life claims that the effectivity of the reinstatement is December 27,
1999 thus can still contest the insurance on the ground of concealment and misrepresentation. The
CA upheld the RTC’s ruling on the non-contestability of the reinstated insurance policy on the date
the insured died.

ISSUE: Whether Felipe’s reinstated life insurance policy is already incontestable at the time of his
death.

HELD: The policy is incontestable.

The Insurance Code pertinently provides that:

Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any
provision of this chapter, such right must be exercised previous to the commencement of an
action on the contract.

In the Letter of Acceptance, Khu declared that he was accepting "the imposition of an
extra/additional premium of P5.00 a year per thousand of insurance; effective June 22, 1999". It is
true that the phrase as used in this particular paragraph does not refer explicitly to the effectivity of
the reinstatement. But the Court notes that the reinstatement was conditioned upon the payment of
additional premium not only prospectively, that is, to cover the remainder of the annual period of

10
coverage, but also retroactively, that is for the period starting June 22, 1999. Hence, by paying the
amount of P3,054.50 on December 27, 1999 in addition to the P25,020.00 he had earlier paid on
September 7, 1999, Khu had paid for the insurance coverage starting June 22, 1999. Given the
obscurity of the language, the construction favorable to the insured will be adopted by the courts. 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.

Indeed, more than two years had lapsed from the time the subject insurance policy was reinstated
on June 22, 1999 vis-a-vis Felipe’s death on September 22, 2001. As such, the subject insurance
policy has already become incontestable at the time of Felipe’s death.

[Link]. LOURDES FLORENDO v. PHILAM PLANS INC., PERLA ABCEDE, CELESTE

ABCEDE
G.R. No. 186983 February 22, 2012
FACTS: Manuel Florendo, a civil engineer filed with Philam Plans for comprehensive pension plan
which also provides life insurance coverage to Manuel. Manuel signed the application and left Perla,
the Soliciting Agent the task of supplying the information needed in the application.
Manuel died of blood poisoning on the 11th month after the issuance of his plan. He died before his
pension plan matured.
His wife Lourdes filed a claim with Philam for the payment of benefits, but Philam declined her
claim. Philam found that Manuel was on maintenance medicine for his heart and had an implanted
pacemaker. Further, he suffered from diabetes mellitus and was taking insulin.
The RTC ruled that Manuel was not guilty of concealing the state of his health from his pension plan
application. CA reversed the RTC decision, holding that insurance policies are contracts of utmost
good faith. It required Manuel to disclose to Philam conditions affecting the risk of which he was
aware or material facts that he knew or ought to know.
ISSUES:
1. Whether Manuel is guilty of concealing the state of his health from his application.
2. Whether Philam is allowed to rescind the Insurance contract.
HELD:
1. Yes. Manuel’s medical examination was waived by Philam where it had to rely on Manuel’s
application. He knew more than anyone that he had been under treatment for heart
condition and diabetes for more than five years preceding his submission of the application.
But he kept those crucial facts from Philam Plans. When Manuel signed the application, he
adopted as his own the written representations and declarations embodied in it. It is clear
from these representations that he concealed his chronic heart ailment and diabetes from
Philam.
2. Yes. Pursuant to Section 27 of the Insurance Code, Manuel’s concealment entitles Philam
Plans to rescind its contract of insurance with him.

The comprehensive pension plan that Philam issued contains one-year incontestability
period. The incontestability clause precludes Philam from disowning liability under the
policy it issued on the ground of concealment or misrepresentation regarding the health of
the insured after a year of its issuance. For the reason that Manuel died on the eleventh
month following the issuance of his plan, the one year incontestability period has not yet set
in. Thus, Philam was not barred from questioning Lourdes’ entitlement to the benefits of
Manuel’s pension plan.

The Supreme Court affirms the decision of CA.

11
 [Link] INSURANCE CO., INC. v. PAP CO., LTD
G.R. No. 200784, August 7, 2013, 716 PHIL 155-171
FACTS: On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire Insurance Policy No.
F-00227-000073 to PAP Co., Ltd. (PAP Co.) for the latter’s machineries and equipment located at
Sanyo Precision Phils. Bldg., Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite (Sanyo Building). The
insurance, which was for Fifteen Million Pesos (P15,000,000.00) and effective for a period of one
(1) year, was procured by PAP Co. for Rizal Commercial Banking Corporation (RCBC), the
mortgagee of the insured machineries and equipment.

After the passage of almost a year but prior to the expiration of the insurance coverage, PAP Co.
renewed the policy on an “as is” basis. Pursuant thereto, a renewal policy, Fire Insurance Policy No.
F-00227-000079, was issued by Malayan to PAP Co. for the period May 13, 1997 to May 13, 1998. 

On October 12, 1997 and during the subsistence of the renewal policy, the insured machineries and
equipment were totally lost by fire. Hence, PAP Co. filed a fire insurance claim with Malayan in the
amount insured.

In a letter, dated December 15, 1997, Malayan denied the claim upon the ground that, at the time of
the loss, the insured machineries and equipment were transferred by PAP Co. to a location different
from that indicated in the policy. Specifically, that the insured machineries were transferred in
September 1996 from the Sanyo Building to the Pace Pacific Bldg., Lot 14, Block 14, Phase III, PEZA,
Rosario, Cavite (Pace Pacific). Contesting the denial, PAP Co. argued that Malayan cannot avoid
liability as it was informed of the transfer by RCBC, the party duty-bound to relay such information.
However, Malayan reiterated its denial of PAP Co.’s claim. Distraught, PAP Co. filed the complaint
below against Malayan.

ISSUE: Whether Malayan is liable.

HELD: No.

Condition No. 9 (c) of the renewal policy provides:

9. Under any of the following circumstances the insurance ceases to attach as regards the
property affected unless the insured, before the occurrence of any loss or damage, obtains the
sanction of the company signified by endorsement upon the policy, by or on behalf of the
Company:
(c) If property insured be removed to any building or place other than in that which is
herein stated to be insured.
Evidently, by the clear and express condition in the renewal policy, the removal of the insured
property to any building or place required the consent of Malayan. Any transfer effected by the
insured, without the insurer’s consent, would free the latter from any liability.
The records are bereft of any convincing and concrete evidence that Malayan was notified of the
transfer of the insured properties from the Sanyo factory to the Pace factory. The Court has combed
the records and found nothing that would show that Malayan was duly notified of the transfer of
the insured properties.

It can also be said that with the transfer of the location of the subject properties,  without notice and
without Malayan’s consent, after the renewal of the policy, PAP clearly committed concealment,
misrepresentation and a breach of a material warranty.

12
"Section 26. A neglect to communicate that which a party knows and ought to communicate, is called
a concealment.”

Under Section 27 of the Insurance Code, “a concealment entitles the injured party to rescind a
contract of insurance.”

Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the insurance
contract in case of an alteration in the use or condition of the thing insured.

“Section 168. An alteration in the use or condition of a thing insured from that to which it is limited by
the policy made without the consent of the insurer, by means within the control of the insured, and
increasing the risks, entitles an insurer to rescind a contract of fire insurance.”

In the case at bench, all these circumstances are present. It was clearly established that the renewal
policy stipulated that the insured properties were located at the Sanyo factory; that PAP removed
the properties without the consent of Malayan; and that the alteration of the location increased the
risk of loss.

[Link]-EVERETT FORWARDING CO v. TOKIO MARINE MALAYAN INSURANCE

CO.
G.R. No. 212107, January 28, 2019

FACTS: Honda Trading Phils. Ecozone Corporation (Honda Trading) ordered 80 bundles of
Aluminum Alloy Ingots from PT Molten Aluminum Producer Indonesia (PT Molten). PT Molten
loaded the goods in two container vans with Serial Nos. which were, in turn, received by Nippon
Express Co., Ltd. for shipment to Manila.
Aside from insuring the entire shipment with Tokio Marine & Nichido Fire Insurance Co., Inc.
(TMNFIC), Honda Trading also engaged the services of petitioner Keihin-Everett to clear and
withdraw the cargo from the pier and to transport and deliver the same to its warehouse at Laguna.
Meanwhile, petitioner Keihin-Everett had an Accreditation Agreement with respondent Sunfreight
Forwarders whereby the Sunfreight undertook to render common carrier services for the former
and to transport inland goods within the Philippines.
The shipment arrived in Manila and was, accordingly, offloaded from the ocean liner and
temporarily stored at the CY Area of the Manila International Port pending release by the Customs
Authority.
The shipment was caused to be released from the pier by petitioner Keihin-Everett and turned over
to respondent Sunfreight Forwarders for delivery to Honda Trading. En route to the Honda's
warehouse, the truck carrying the containers was hijacked and the container van was reportedly
taken away. Although said container van was subsequently found in the vicinity of the Manila North
Cemetery and later towed to the compound of the Metro Manila Development Authority (MMDA), it
appears that the contents thereof were no longer retrieved. Only the container van reached the
warehouse. As a consequence, Honda Trading suffered losses in the total amount of P2,121,917.04,
representing the value of the lost 40 bundles of Aluminum Alloy Ingots.
Claiming to have paid Honda Trading's insurance claim for the loss it suffered, respondent Tokio
Marine commenced the instant suit with the filing of its complaint for damages against petitioner
Keihin-Everett. Respondent Tokio Marine maintained that it had been subrogated to all the rights
and causes of action pertaining to Honda Trading.
Keihin-Everett denied liability for the lost shipment on the ground that the loss thereof occurred
while the same was in the possession of respondent Sunfreight Forwarders. Hence, petitioner

13
Keihin-Everett filed a third-party complaint against the Sunfreight, who, in turn, denied liability on
the ground that it was not privy to the contract between Keihin-Everett and Honda Trading.
ISSUE: Whether Keihin-Everett is liable to respondent Tokio Marine
HELD:
First. Keihin-Everett argued that the case should have been dismissed for failure of Tokio Marine to
attach or state in the Complaint the actionable document or the insurance policy between the
insurer and the insured, in clear violation of Section 7, Rule 8 of the 1997 Rules of Court, which
states:

SEC. 7. Action or defense based on document. — Whenever an action or defense is

based upon a written instrument or document, the substance of such instrument or
document shall be set forth in the pleading, and the original or a copy thereof shall be
attached to the pleading as an exhibit, which shall be deemed to be a part of the pleading, or
said copy may with like effect be set forth in the pleading.

It bears to stress that failure of Tokio Marine to attach in the Complaint the contract of insurance
between the insurer (Tokio Marine) and the insured (Honda Trading) is not fatal to its cause of
action.

In the case of Malayan Insurance Co., Inc. v. Regis Brokerage, the Court did not suggest an outright
dismissal of a complaint in case of failure to attach the insurance contract in the complaint.
Promoting a reasonable construction of the rules so as not to work injustice, the Court makes it
clear that failure to comply with the rules does not preclude the plaintiff to offer it as
evidence. Unfortunately, in the Malayan case cited by Keihin-Everett, Malayan not only failed to
attach or set forth in the complaint the insurance policy, it likewise did not present the same as
evidence before the trial court or even in the CA.

The present case cannot be dismissed just like that. Unlike in the Malayan case, Tokio Marine
presented as evidence, not only the Honda Trading Insurance Policy, but also the Subrogation
Receipt evidencing that it paid Honda Trading the sum of US$38,855.83 in full settlement. During
the trial, Keihin-Everett even had the opportunity to examine the said documents and conducted a
cross-examination of the said Contract of Insurance. By presenting the insurance policy constitutive
of the insurance relationship of the parties, Tokio Marine was able to confirm its legal right to
recover as subrogee of Honda Trading.

Second. Keihin-Everett insisted that Tokio Marine is not the insurer but TMNFIC. As it pointed out,
the Insurance Policy shows in its face that Honda Trading procured the insurance from TMNFIC and
not from Tokio Marine.
Insurance Policy itself expressly made Tokio Marine as the party liable to pay the insurance claim
of Honda Trading pursuant to the Agency Agreement entered into by and between Tokio Marine
and TMNFIC. The Agency Agreement shows that TMNFIC had subsequently changed its name to
that of Tokio Marine. By agreeing to this stipulation in the Insurance Policy, Honda Trading binds
itself to file its claim from Tokio Marine and thereafter to accept payment from it.
At any rate, even if we consider Tokio Marine as a third person who voluntarily paid the insurance
claims of Honda Trading, it is still entitled to be reimbursed of what it had paid. The insurer who
may have no rights of subrogation due to "voluntary" payment may nevertheless recover from the
third party responsible for the damage to the insured property under Article 1236 of the Civil Code.
Under this circumstance, Tokio Marine's right to sue is based on the fact that it voluntarily made
payment in favor of Honda Trading and it could go after the third party responsible for the loss
(Keihin-Everett) in the exercise of its legal right of subrogation.
Third. Since the insurance claim for the loss sustained by the insured shipment was paid by Tokio
Marine as proven by the Subrogation Receipt – showing the amount paid and the acceptance made
by Honda Trading, it is inevitable that it is entitle, to exercise its legal right to subrogation.

14
 Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If the amount paid by
the insurance company does not fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing the loss or injury.

It must be stressed that the Subrogation Receipt only proves the fact of payment. This fact of
payment grants Tokio Marine subrogatory right which enables it to exercise legal remedies that
would otherwise be available to Honda Trading as owner of the hijacked cargoes as against the
common carrier (Keihin-Everett). In other words, the right of subrogation accrues simply upon
payment by the insurance company of the insurance claim.  As the Court held:

The payment by the insurer to the insured operates as an equitable assignment to the insurer of all
the remedies which the insured may have against the third party whose negligence or wrongful act
caused the loss. The right of subrogation is not dependent upon, nor does it grow out of any privity
of contract or upon payment by the insurance company of the insurance claim. It accrues simply
upon payment by the insurance company of the insurance claim.

Indeed, the right of subrogation has its roots in equity. It is designed to promote and to accomplish
justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who,
in justice and good conscience, ought to pay. Consequently, the payment made by Tokio Marine to
Honda Trading operates as an equitable assignment to the former of all the remedies which the
latter may have against Keihin-Everett.

15
 [Link] PACIFIC LIFE ASSURANCE CORP. v. COURT OF APPEALS AND MEDARDA
V. LEUTERIO
G.R. No. 113899 October 13, 1999
FACTS: A contract of group insurance was executed between petitioner Great Pacific Life Assurance
Corporation and Development Bank of the Philippines. Grepalife agreed to insure the lives of
eligible housing loan mortgagors of DBP. Dr. Leuterio, a physician and a housing debtor of DBP
applied for membership in the group life insurance plan. Grepalife then issued a Certificate, as
insurance coverage of Dr. Leuterio.
Dr. Leuterio died due to massive cerebral hemorrhage. Consequently, DBP submitted a death claim
to Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when
he applied for an insurance coverage. Grepalife insisted that Dr. Leuterio did not disclose he had
been suffering from hypertension, which caused his death. And such non-disclosure constituted
concealment that justified the denial of the claim.
The widow of the late Dr. Leuterio filed a complaint with the Regional Trial Court of Misamis
Oriental against Grepalife. During the trial, Dr. Hernando Mejia, who issued the death certificate,
was called to testify. Dr. Mejias findings, based partly from the information given by the widow,
stated that Dr. Leuterio complained of headaches presumably due to high blood pressure. The
inference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes were not
ruled out.
ISSUE: Whether Dr. Leuterio concealed that he had hypertension which would vitiate the insurance
contract?
HELD: No.
Grepalife had failed to establish that there was concealment made by the insured. Hence, it cannot
refuse payment of the claim.
Concealment exists where the assured had knowledge of a fact material to the risk, and honesty,
good faith, and fair dealing requires that he should communicate it to the assured, but he
designedly and intentionally withholds the same.
Grepalife merely relied on the testimony of Dr. Mejia. However, the medical findings were not
conclusive because Dr. Mejia did not conduct an autopsy on the body of the decedent. Dr. Mejia also
stated that he had no knowledge of Dr. Leuterios any previous hospital confinement. Dr. Leuterios
death certificate stated that hypertension was only the possible cause of death. Hence, the
statement of the physician was properly considered by the trial court as hearsay.
The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind
the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon
the insurer.

16
 [Link] ARCE v. THE CAPITAL INSURANCE & SURETY CO., INC.
G.R. No. L-28501, September 30, 1982
FACTS: The INSURED (ARCE) was the owner of a residential house in Tondo, Manila, which had
been insured with the COMPANY since 1961 under Fire Policy No. 24204. On November 27, 1965,
the COMPANY sent to the INSURED Renewal Certificate No. 47302 to cover the period December 5,
1965 to December 5, 1966. The COMPANY also requested payment of the corresponding premium
in the amount of P 38.10.
Anticipating that the premium could not be paid on time, the INSURED, thru his wife, promised to
pay it on January 4, 1966. The COMPANY accepted the promise but the premium was not paid on
January 4, 1966. On January 8, 1966, the house of the INSURED was totally destroyed by fire.
On January 10, 1966, INSURED's wife presented a claim for indemnity to the COMPANY. She was
told that no indemnity was due because the premium on the policy was not paid.
Nonetheless the COMPANY tendered a check for P300.00 as financial aid which was received by the
INSURED's daughter, Evelina R. Arce. The voucher for the check which Evelina signed stated that it
was "in full settlement (ex gratia) of the fire loss under Claim No. F-554 Policy No. F-24202."
Thereafter the INSURED and his wife went to the office of the COMPANY to have his signature on
the check Identified preparatory to encashment. At that time the COMPANY reiterated that the
check was given "not as an obligation, but as a concession" because the renewal premium had not
been paid, The INSURED cashed the check but then sued the COMPANY on the policy.
TRIAL COURT: Held that since the COMPANY could have demanded payment of the premium,
mutuality of obligation requires that it should also be liable on its policy. The court a quo also held
that the INSURED was not bound by the signature of Evelina on the check voucher because he did
not authorize her to sign the waiver. Hence,
In Civil Case No. 66466 of the Court of First Instance of Manila, the Capital Insurance and Surety
Co., Inc., (COMPANY) was ordered to pay Pedro Arce (INSURED) the proceeds of a fire insurance
policy.
Not satisfied with the decision, the company appealed to this Court on questions of law.
ISSUES:
1. WHETHER CAPITAL INSURANCE AND SURETY CO. INC. is liable on its policy
2. WHETHER THE INSURED (ARCE) was bound by the signature of EVELINA (daughter) on
the check voucher.
HELD:
1. THE COMPANY IS NOT LIABLE
Section 72 of the Insurance Act, as amended by R.A. No. 3540 reads:
SEC. 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed
to the perils insured against, unless there is clear agreement to grant credit extension for the
premium due. No policy issued by an insurance company is valid and binding unless and until
the premium thereof has been paid.
Moreover, the parties in this case had stipulated:
IT IS HEREBY DECLARED AND AGREED that not. withstanding anything to the contrary contained
in the within policy, this insurance will be deemed valid and binding upon the Company only when
the premium and documentary stamps therefor have actually been paid in full and duly
acknowledged in an official receipt signed by an authorized official/representative of the Company.
It is obvious from both the Insurance Act, as amended, and the stipulation of the parties that time is
of the essence in respect of the payment of the insurance premium so that if it is not paid the
contract does not take effect unless there is still another stipulation to the contrary.

17
In the instant case, the INSURED was given a grace period to pay the premium but the period
having expired with no payment made, he cannot insist that the COMPANY is nonetheless obligated
to him.
2. ON THE SECOND ISSUE
With the foregoing, it is not necessary to dwell at length on the trial court's second proposition that
the INSURED had not authorized his daughter Evelina to make a waiver because the INSURED had
nothing to waive; his policy ceased to have effect when he failed to pay the premium.
WHEREFORE, the decision of the court a quo is reversed; the appellee's complaint is dismissed. No
special pronouncement as to costs.
SO ORDERED.

[Link] GENERAL INSURANCE CO., INC. v. MASAGANA TELAMART, INC.

G.R. No. 137172, April 4, 2001
FACTS: Masagana bought 5 insurance policies from UCPB for its properties in Pasay and Manila,
effective from May 1991 to May 1992. On June 1992, 2 of Masagana’s properties at Pasay were
razed by fire. On July 13, 1992, UCPB accepted the 5 manager’s checks that Masagana tendered as
renewal premium payments. On July 14, 1992, Masagana made its formal demand for
indemnification of the burned properties. On the same day, UCPB returned the 5 manager’s checks,
saying that the policies were not renewed, that Masagana informed it earlier of non-renewal, and
that the properties got burned before the tender of premium payment.
CA affirmed the trial court’s decision with modification, explaining that (1) Masagana was entitled
to a renewed policy upon payment of premiums because he was consistently granted a 60- to 90-
day credit term for the renewal of policies; and (2) there was no timely notice of non-renewal. The
SC reversed and set aside CA’s decision, stating that the insurance policies were not renewed by an
implied credit arrangement though actual payment of premium was tendered on a later date and
after the occurrence of the risk (fire) insured against.
Masagana filed a motion for reconsideration, arguing that (1) the policies were renewed by
operation of law and were effective when the fire occurred; (2) section 77 of the Insurance code is
merely designed to protect the parties to the contract, section 78 [authorizing validity of policy
even with non-payment of premium] is a case in point; and (3) UCPB has implicitly agreed to
modify the policies by giving 60 to 90-day extensions from due date to pay. UCPB opposes, saying
that (1) it sent a notice of non-renewal to Masagana’s broker and Masagana was fully aware of it;
and (2) renewal of a non-life policy is initiated by payment of the premium due on the effective date
of renewal.
ISSUE: Whether section 77 must be strictly applied to UCPB’s advantage despite its practice of
granting a 60- to 90-day credit term for the payment of premiums
HELD: No, it shouldn’t apply to UCPB’s advantage.
It would be unjust and inequitable if recovery on the policy would not be permitted against UCPB,
which had consistently granted a 60- to 90-day credit term for the payment of premiums despite its
full awareness of Section 77. Estoppel bars it from taking refuge under said Section, since Masagana
relied in good faith on such practice. SC reconsiders its first decision and sets it aside, and dismisses
UCPB’s petition.
In sum, Section 77 has 5 exceptions:
1. Life or industrial life policy whenever the grace period provision applies (Sec. 77)
2. Acknowledgment of the receipt of premium in a policy/contract is conclusive evidence
of its payment (Sec. 78)
3. Parties have agreed to pay premium in instalments, and partial payment has been made
at the time of loss (Makati Tuscany Condominium v. CA)

18
 4. Recovery on policy is allowed if the loss occurs during the granted credit extension by
insurer (Tuscany)
5. Estoppel (UCPB v. Masagana)

[Link] T. GAISANO v. EVELOPMENT INSURANCE AND SURETY CORPORATION

G.R. No. 190702, February 27, 2017

DOCTRINE: The law, however, limits the parties' autonomy as to when payment of premium may
be made for the contract to take effect. The general rule in insurance laws is that unless the
premium is paid, the insurance policy is not valid and binding.

FACTS: The respondent Development Insurance And Surety Corporation, issued a comprehensive
commercial vehicle policy to petitioner Jaime T. Gaisano, the registered owner of a 1992 Mitsubishi
Montero, in the amount of P1,500,000.00 over the vehicle for a period of one year. Respondent also
issued two other commercial vehicle policies to petitioner covering two other motor vehicles for
the same period.
To collect the premiums and other charges on the policies, respondent's agent, Trans-Pacific
Underwriters Agency (Trans-Pacific), issued a statement of account to petitioner's company, Noah's
Ark Merchandising (Noah's Ark) who immediately processed the payment dated September 27,
1996. However, nobody from Trans-Pacific picked up the check that day (September 27). Trans-
Pacific informed Noah's Ark that its messenger would get the check the next day, September 28.
In the evening of September 27, 1996, the vehicle was stolen and despite search and retrieval
efforts, the vehicle was not recovered.
Oblivious of the incident, Trans-Pacific picked up the check the next day, September 28. It issued an
official receipt payment. On October 1, 1996, petitioner reported the loss and filed a claim with
respondent for the insurance proceeds of P1,500,000.00. After investigation, respondent denied
petitioner's claim on the ground that there was no insurance contract.
ISSUE: Whether there was a valid and binding insurance contract between the petitioner and
respondent?
HELD: NONE.
The general rule in insurance laws is that unless the premium is paid, the insurance policy is not
valid and binding. Section 77 of the Insurance Code, applicable at the time of the issuance of the
policy, provides:
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is
exposed to the peril insured against. Notwithstanding any agreement to the contrary, no
policy or contract of insurance issued by an insurance company is valid and binding unless
and until the premium thereof has been paid, except in the case of a life or an industrial life
policy whenever the grace period provision applies.
In Tibay v. Court of Appeals, we emphasized the importance of this rule. We explained that in an
insurance contract, both the insured and insurer undertake risks. On one hand, there is the insured, a
member of a group exposed to a particular peril, who contributes premiums under the risk of
receiving nothing in return in case the contingency does not happen; on the other, there is the insurer,
who undertakes to pay the entire sum agreed upon in case the contingency happens. This risk-
distributing mechanism operates under a system where, by prompt payment of the premiums, the
insurer is able to meet its legal obligation to maintain a legal reserve fund needed to meet its
contingent obligations to the public. The premium, therefore, is the elixir vitae or source of life of the
insurance business.
Here, there is no dispute that the check was delivered to and was accepted by respondent's agent,
Trans-Pacific, only on September 28, 1996. No payment of premium had thus been made at the time
of the loss of the vehicle on September 27, 1996. While petitioner claims that Trans-Pacific was
informed that the check was ready for pick-up on September 27, 1996, the notice of the availability

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of the check, by itself, does not produce the effect of payment of the premium. Trans-Pacific could
not be considered in delay in accepting the check because when it informed petitioner that it will
only be able to pick-up the check the next day, petitioner did not protest to this, but instead allowed
Trans-Pacific to do so. Thus, at the time of loss, there was no payment of premium yet to make the
insurance policy effective.
There are, of course, exceptions to the rule that no insurance contract takes effect unless premium is
paid:
(1) in case of life or industrial life policy, whenever the grace period provision applies, as expressly
provided by Section 77 itself;
(2) where the insurer acknowledged in the policy or contract of insurance itself the receipt of
premium, even if premium has not been actually paid, as expressly provided by Section 78 itself;
(3) where the parties agreed that premium payment shall be in installments and partial payment
has been made at the time of loss, as held in Makati Tuscany Condominium Corp. v. Court of
Appeals;
(4) where the insurer granted the insured a credit term for the payment of the premium, and loss
occurs before the expiration of the term, as held in Makati Tuscany Condominium Corp.; and
(5) where the insurer is in estoppel as when it has consistently granted a 60 to 90-day credit term
for the payment of premiums.

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 [Link] INSURANCE CORPORATION v. TRANSMODAL INTERNATIONAL,
INC.
G.R. No. 223592, August 7, 2017
The payment by the insurer to the insured operates as an equitable assignment to the insurer of all
the remedies which the insured may have against the third party whose negligence or wrongful act
caused the loss. The right of subrogation is not dependent upon, nor does it grow out of any privity
of contract or upon payment by the insurance company of the insurance claim. It accrues simply
upon payment by the insurance company of the insurance claim.
FACTS: Sytengco Enterprises Corporation (Sytengco) hired respondent Transmodal International,
Inc. (Transmodal) to clear from the customs authorities and withdraw, transport, and deliver to its
warehouse, cargoes consisting of 200 cartons of gum Arabic with a total weight of 5,000 kilograms
valued at US21,750.00.
The said cargoes arrived in Manila on August 14, 2004 and were brought to Ocean Links Container
Terminal Center, Inc. pending their release by the Bureau of Customs (BOC) and on September 2,
2004, respondent Transmodal withdrew the same cargoes and delivered them to Sytengco's
warehouse. It was noted in the delivery receipt that all the containers were wet.
In a preliminary survey conducted by Elite Surveyors, it was found that 187 cartons had water
marks and the contents of the 13 wet cartons were partly hardened. A re-inspection was conducted
and it was found that the contents of the randomly opened 20 cartons were about 40% to 60%
hardened, while 8 cartons had marks of previous wetting. In its final report, Elite Surveyor fixed the
computed loss payable at P728,712.00 after adjustment of 50% loss allowance.
Thus, Sytengco demanded from respondent Transmodal the payment of P1,457,424.00 as
compensation for total loss of shipment. Petitioner Equitable Insurance, as insurer of the cargoes
per Marine Open Policy paid Sytengco's claim for P728,712.00. Sytengco then signed a subrogation
receipt and loss receipt in favor of petitioner Equitable Insurance. As such, petitioner Equitable
Insurance demanded from respondent Transmodal reimbursement of the payment given to
Sytengco.
Thereafter, petitioner Equitable Insurance filed a complaint for damages invoking its right as
subrogee after paying Sytengco's insurance claim and averred that respondent Transmodal's fault
and gross negligence were the causes of the damages sustained by Sytengco's shipment.
Respondent Transmodal denied knowledge of an insurance policy and claimed that petitioner
Equitable Insurance has no cause of action against it because the damages to the cargoes were not
due to its fault or gross negligence. According to the same respondent, the cargoes arrived at
Sytengco's warehouse around 11:30 in the morning of September 1, 2004, however, Sytengco did
not immediately receive the said cargoes and as a result, the cargoes got wet due to the rain that
occurred on the night of September 1, 2004. Respondent Transmodal also questioned the
timeliness of Sytengco's formal claim for payment which was allegedly made more than 14 days
from the time the cargoes were placed at its disposal in contravention of the stipulations in the
delivery receipts.
RTC ruled in favor of Equitable Insurance. According to the RTC, petitioner Equitable Insurance was
able to prove by substantial evidence its right to institute an action as subrogee of Sytengco. It also
ruled that petitioner Equitable Insurance's non-presentation of the insurance policy and non-
compliance with Section 7, Rule 8 of the Rules of Court on actionable document were raised for the
first time in respondent Transmodal's memorandum and also noted that petitioner Equitable
Insurance had, in fact, submitted a copy of the insurance contract.
Respondent Transmodal appealed to the CA. On September 15, 2015, the CA reversed the RTC’s
decision. The CA ruled that there was no proof of insurance of the cargoes at the time of the loss and
that the subrogation was improper. According to the CA, the insurance contract was neither
attached in the complaint nor offered in evidence for the perusal and appreciation of the RTC, and
what was presented was just the marine risk note.

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ISSUE: Whether or not the petitioner’s subrogation right is improper.
HELD: In ruling that petitioner's subrogation right is improper, the CA stated that it found no proof
of insurance of the cargoes at the time of their loss. It also found that what was presented in court
was the marine risk note and not the insurance contract or policy.
As such, according to the CA, the case of Eastern Shipping Lines, Inc. v. Prudential Guarantee and
Assurance, Inc. is applicable, wherein this Court held that a marine risk note is not an insurance
policy. The CA also found applicable this Court's ruling in Malayan Insurance Co., Inc. v. Regis
Brokerage Corp., stating that a marine policy is constitutive of the insurer-insured relationship,
thus, such document should have been attached to the complaint as mandated by Section 7,12 Rule
8 of the Rules of Court.
Petitioner, however, insists that the CA erred in applying the case of Malayan because the plaintiff
therein did not present the marine insurance policy whereas in the present case, petitioner has
presented not only the marine risk note but also Marine Open Policy No. MN-MOP-HO- 000009913
which were all admitted in evidence.
Indeed, a perusal of the records would show that petitioner is correct in its claim that the marine
insurance policy was offered as evidence. In fact, in the questioned decision of the CA, the latter,
mentioned such policy.
As such, respondent had the opportunity to examine the said documents or to object to its
presentation as pieces of evidence. The records also show that respondent was able to cross-
examine petitioner's witness regarding the said documents. Thus, it was well established that
petitioner has the right to step into the shoes of the insured who has a direct cause of action against
herein respondent on account of the damages sustained by the cargoes. "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." The right of subrogation springs from Article 2207 of the Civil Code which
states:
Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If the amount paid by
the insurance company does not fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing the loss or injury.
The records further show that petitioner was able to accomplish its obligation under the insurance
policy as it has paid the assured of its insurance claim in the amount of P728,712,00 as evidenced
by, among others, the Subrogation Receipt, Loss Receipt, Check Voucher, and Equitable PCI Bank
Check. The payment by the insurer to the insured operates as an equitable assignment to the
insurer of all the remedies which the insured may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out
of any privity of contract or upon payment by the insurance company of the insurance claim. It
accrues simply upon payment by the insurance company of the insurance claim.

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