Ong Lim Sing V. FEB Leasing And Finance Corp. (2007) G.R. No.

168115 June 8, 2007 Lessons Applicable: Existing Interest (Insurance) Laws Applicable: FACTS: FEB Leasing and Finance Corporation (FEB) leased equipment and motor vehicles to JVL Food Products with a monthly rental of P170,494 At the same date, Vicente Ong Lim Sing, Jr. (Lim) an executed an Individual Guaranty Agreement with FEB to guarantee the prompt and faithful performance of the terms and conditions of the lease agreement JVL defaulted in the payment of the monthly rentals resulting to arrears of P3,414,468.75 and refused to pay despite demands FEB filed a complaint for damages and replevin against JVL, Lim and John Doe JVL and Lim admitted the existence of the lease agreement but asserted that it is in reality a sale of equipment on installment basis, with FEB acting as the financier RTC: Sale on installment and the FEB elected full payment of the obligation so for the unreturned units and machineries the JVL and Lim are jointly and severally liable to pay CA: granted FEB appeal that it is a financial lease agreement under Republic Act (R.A.) No. 8556 and ordered JVL and Lim jointly and severally to pay P3,414,468.75 ISSUE: W/N JVL and Lim should jointly and severally be liable for the insured financial lease HELD: YES. CA affirmed. contract of adhesion is as binding as any ordinary contract The Lease Contract with corresponding Lease Schedules with Delivery and Acceptance Certificates is, in point of fact, a financial lease within the purview of R.A. No. 8556 FEB leased the subject equipment and motor vehicles to JVL in consideration of a monthly periodic payment of P170,494.00. The periodic payment by petitioner is sufficient to amortize at least 70% of the purchase price or acquisition cost of the said movables in accordance with the Lease Schedules with Delivery and Acceptance Certificates. JVL entered into the lease contract with full knowledge of its terms and conditions. Lim, as a lessee, has an insurable interest in the equipment and motor vehicles leased. In the financial lease agreement, FEB did not assume responsibility as to the quality, merchantability, or capacity of the equipment. This stipulation provides that, in case of defect of any kind that will be found by the lessee in any of the equipment, recourse should be made to the manufacturer. The financial lessor, being a financing company, i.e., an extender of credit rather than an ordinary equipment rental company, does not extend a warranty ofthe fitness of the equipment for any particular use. Thus, the financial lessee was precisely in a position to enforce such warranty directly against the supplier of the equipment and not against the financial lessor. We find nothing contra legem or contrary to public policy in such a contractual arrangement Gaisano Cagayan, Inc. V. Insurance Company Of North America (2006) G.R. No. 147839 June 8, 2006

Lessons Applicable: Existing Interest (Insurance) Laws Applicable: Article 1504,Article 1263, Article 2207 of the Civil Code, Section 13 of Insurance Code FACTS: Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. while Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co IMC and LSPI separately obtained from Insurance Company of North America fire insurance policies for their book debt endorsements related to their ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines which are unpaid 45 days after the time of the loss

February 25, 1991: Gaisano Superstore Complex in Cagayan de Oro City, owned by Gaisano Cagayan, Inc., containing the ready-made clothing materials sold and delivered by IMC and LSPI was consumed by fire. February 4, 1992: Insurance Company of North America filed a complaint for damages against Gaisano Cagayan, Inc. alleges that IMC and LSPI filed their claims under their respective fire insurance policies which it paid thus it was subrogated to their rights Gaisano Cagayan, Inc: not be held liable because it was destroyed due to fortuities event or force majeure RTC: IMC and LSPI retained ownership of the delivered goods until fully paid, it must bear the loss (res perit domino) CA: Reversed - sales invoices is an exception under Article 1504 (1) of the Civil Code to res perit domino ISSUE: W/N Insurance Company of North America can claim against Gaisano Cagayan for the debt that was isnured HELD: YES. petition is partly GRANTED. order to pay P535,613 is DELETED insurance policy is clear that the subject of the insurance is the book debts and NOT goods sold and delivered to the customers and dealers of the insured ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that: (1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery; IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of who bears the risk of loss, in property insurance, one's interest is not determined by concept of title, but whether insured has substantial economic interest in the property Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction. it is sufficient that the insured is so situated with reference to the property that he would be liable to loss should it be injured or destroyed by the peril against which it is insured an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such an interest insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire- obligation is pecuniary in nature obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event

Article 1263 of the Civil Code in an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation (Genus nunquan perit) The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as insurer and IMC as the insured, but also the amount paid to settle the insurance claim 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. As to LSPI, no subrogation receipt was offered in evidence. Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amount of P535,613 Gaisano v Insurance G.R. No. 147839 June 8, 2006 J. Martinez

Facts: IMC and Levi Strauss (Phils.) Inc. (LSPI) separately obtained from respondent fire insurancepolicies with book debt endorsements. The insurance policies provide for coverage on "book debts in connection with ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines." The policies defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered under this Policy." The policies also provide for the following conditions: 1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise sold and delivered by the Insured which are outstanding at the date of loss for a period in excess of six (6) months from the date of the covering invoice or actual delivery of the merchandise whichever shall first occur. 2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of every calendar month all amount shown in their books of accounts as unpaid and thus become receivable item from their customers and dealers. Gaisano is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items lost or destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI. Insurance of America filed a complaint for damages against Gaisano. It alleges that IMC and LSPI were paid for their claims and that the unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00. The RTC rendered its decision dismissing Insurance's complaint. It held that the fire was purely accidental; that the cause of the fire was not attributable to the negligence of the petitioner. Also, it said that IMC and LSPI retained ownership of the delivered goods and must bear the loss. The CA rendered its decision and set aside the decision of the RTC. It ordered Gaisano to pay Insurance the P 2 million and the P 500,000 the latter paid to IMC and Levi Strauss. Hence this petition. Issues: 1. WON the CA erred in construing a fire insurance policy on book debts as one covering the unpaid accounts of IMC and LSPI since such insurance applies to loss of the ready-made clothing materials sold and delivered to petitioner 2. WON IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of securing the payment of the purchase price the above described merchandise remains the property of the vendor until the purchase price thereof is fully paid." 3. WON petitioner is liable for the unpaid accounts 4. WON it has been established that petitioner has outstanding accounts with IMC and LSPI. Held: No. Yes. Yes. Yes but account with LSPI unsubstantiated. Petition partly granted. Ratio: 1. Nowhere is it provided in the questioned insurance policies that the subject of the insurance is the goods sold and delivered to the customers and dealers of the insured. Thus, what were insured against were the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after the loss through fire, and not the loss or destruction of the goods delivered. 2. The present case clearly falls under paragraph (1), Article 1504 of the Civil Code: ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that: (1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by the buyer. Petitioner bears the risk of loss of the goods delivered.

IMC and LSPI had an insurable interest until full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of who bears the risk of loss, in property insurance, one's interest is not determined by concept of title, but whether insured has substantial economic interest in the property. Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction. Indeed, a vendor or seller retains an insurable interest in the property sold so long as he has any interest therein, in other words, so long as he would suffer by its destruction, as where he has a vendor's lien. In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the time of the loss covered by the policies. 3. Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 117432 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code. Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the payment of money. As correctly stated by the CA, where the obligation consists in the payment of money, the failure of the debtor to make the payment even by reason of a fortuitous event shall not relieve him of his liability. The rationale for this is that the rule that an obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. It does not apply when the obligation is pecuniary in nature. Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation." This rule is based on the principle that the genus of a thing can never perish. An obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any specific property of the debtor. 4. With respect to IMC, the respondent has adequately established its claim. The P 3 m claim has been proven. The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as insurer and IMC as the insured, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim Respondent's action against petitioner is squarely sanctioned by Article 2207 of the Civil Code which provides: 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. As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. There was no evidence that respondent has been subrogated to any right which LSPI may have against petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of P535,613.00. 21. GREAT PACIFIC LIFE v. CA (LEUTERIO)

316 SCRA 677 QUISUMBING; October 13, 1999 NATURE Petition for Review of CA decision FACTS - A contract of group life insurance was executed between petitioner Great Pacific Life Assurance Corporation (hereinafter Grepalife) and Development Bank of the Philippines (hereinafter DBP). Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP. - In Nov. 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group life insurance plan. In an application form, Dr. Leuterio answered Qs concerning his health condition as follows: Q: Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any other physical impairment? No. Q: Are you now, to the best of your knowledge, in good health? Yes. - Grepalife issued an insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness of P86,200.00. In Aug. 1984, Dr. Leuterio died due to "massive cerebral hemorrhage." DBP submitted a death claim to Grepalife. Grepalife denied the claim because Dr. Leuterio was not physically healthy when he applied for an insurance. Grepalife insisted that Dr. Leuterio did not disclose he had been suffering from hypertension, which caused his death. Allegedly, such nondisclosure constituted concealment that justified the denial of the claim.

- Herein respondent Medarda Leuterio, widow, filed a complaint with RTC against Grepalife for "Specific Performance with Damages." Dr. Mejia, who issued the death certificate, testified 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. - RTC ruled in favor of respondent widow and against Grepalife. CA sustained the RTC decision. Hence, the present petition. ISSUES 1. WON CA erred in holding petitioner liable to DBP as beneficiary in a group life insurance contract from a complaint filed by the widow of the decedent/mortgagor 2. WON CA erred in not finding that Dr. Leuterio concealed that he had hypertension, which would vitiate the insurance contract 3. WON CA erred in holding Grepalife liable for P86,200.00 without proof of the actual outstanding mortgage payable by the mortgagor to DBP HELD 1. NO Ratio Insured, being the person with whom the contract was made, is primarily the proper person to bring suit. Subject to some exceptions, insured may thus sue, although the policy is taken wholly or in part for the benefit of another person named or unnamed, and although it is expressly made payable to another as his interest may appear or otherwise. Although a policy issued to a mortgagor is taken out for the benefit of the mortgagee and is made payable to him, yet the mortgagor may sue thereon in his own name, especially where the mortgagee's interest is less than the full amount recoverable under the policy. (See Sec. 8, Insurance Code) Reasoning [a] The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy stating that: In the event of the debtor's death before his indebtedness with the Creditor (DBP) shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies designated by the debtor. When DBP submitted the insurance claim against Grepalife, the latter denied payment thereof, interposing the defense of concealment committed by the insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary action of foreclosure on the residential lot of private respondent. [b] Since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover it whatever the insured might have recovered, the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife. 2. NO Ratio 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. In the case at bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance. Reasoning [a] The insured, Dr. Leuterio, had answered in his insurance application that he was in good health and that he had not consulted a doctor or any of the enumerated ailments, including hypertension; when he died the attending physician had certified in the death certificate that the former died of cerebral hemorrhage, probably secondary to hypertension. From this report, petitioner Grepalife refused to pay the insurance claim. It alleged that the insured had concealed the fact that he had hypertension. *b+ Contrary to Grepalifes allegations, there was no sufficient proof that the insured had suffered from hypertension. Aside from the statement of the insured's widow who was not even sure if the medicines taken by Dr. Leuterio were for hypertension, the appellant had not proven nor produced any witness who could attest to Dr. Leuterio's medical history. [c] Grepalife had failed to establish that there was concealment made by the insured, hence, it cannot refuse payment of the claim. 3. NO - Considering the supervening event that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor's outstanding loan, the insurance proceeds shall inure to the benefit of the heirs of the deceased person or his beneficiaries. Equity dictates that DBP should not unjustly enrich itself at the expense of another. Hence, it cannot collect the insurance proceeds, after it already foreclosed on the mortgage. The proceeds now rightly belong to Dr. Leuterio's heirs represented by his widow, herein private respondent. - The Court ruled this issue based on the clear provisions of the policy. The mortgagor paid the premium according to the coverage of his insurance, which states that: "The policy states that upon receipt of due proof of the Debtor's death during the terms of this insurance, a death benefit in the amount of P86,200.00 shall be paid In the event of the debtor's death before his indebtedness with the creditor shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the Creditor and the balance of the Sum Assured, if there is any shall then be paid to the beneficiary/ies designated by the debtor." From this, it is clear that Grepalife is liable and that Dr. Leuterios heirs must get the proceeds.

Disposition Petition DENIED. CA Decision AFFIRMED with modification. 22. Grepalife v. CA

89 SCRA 543 Facts: -yr endowment policy for 50T on the life of his one year old daughter Helen Go. elen was supplied by Ngo to Lapu-Lapu Mondragon, the branch manager of Grepalife-Cebu.Mondragon then typed the data on the application form which was later signed by Ngo. The binding receipt contained the following provision: If the applicant shall not have been insurable xxx and the Company declines to approve the application, the insurance applied for shall not have been in force at any time and the sum paid shall be returned to the applicant upon the surrender of this receipt. n. fice disapproving the insurance application of Ngo for the simple reason that the 20yr endowment plan is not available for minors below 7 yrs old. ife of Helen, adding that Grepalife was the only insurance company NOT selling endowment plans to children. r denied liability on the ground that there was no contract between the insurer and the insured and a binding receipt is NOT evidence of such contract. Issue: WON the binding deposit receipt, constituted a temporary contract of life insurance. Held: NO. The binding receipt in question was merely an acknowledgement on behalf of the company, that the latters branch office had received from the applicant, the insurance premium and had accepted the application subject for processing by the insurance company, and that the latter will either approve or reject the same on the basis of whether or not the applicant is insurable on standard rates. Since Grepalife disapproved the insurance application of Ngo, the binding deposit receipt had never became on force at any time, pursuant to par. E of the said receipt. A binding receipt is manifestly merely conditional and does NOT insure outright. Where an agreement is made between the applicant and the agent, NO liability shall attach until the principal approves the risk and a receipt is given by the agent. The acceptance is merely conditional, and is subordinated to the act of the company in approving or rejecting the application. Thus in life insurance, a binding slip or binding receipt does NOT insure by itself. 22. GREAT PACIFIC LIFE v. CA (NGO HING)

89 SCRA 543 DE CASTRO, J; April 30, 1979 NATURE Petition for certiorari FACTS - On March 14, 1957, private respondent Ngo Hing filed an application with the Great Pacific Life Assurance Co. (Pacific Life) for a 20 year endowment policy of P50k on the life of his 1 year old daughter, Helen. Ngo Hing supplied the essetntial data which petitioner Mondragon, branch manager of the Pacific Life in Cebu, wrote on the corresponding form in his own handwriting, later typing the data on an application form signed by Ngo Hing. The latter paid the P1077.75 annual premium but retained P1,317 as commission as he was also a duly authorized agent of Pacific Life. The binding deposit receipt was then issued to Ngo Hing; Mondragon handwrote his strong recommendation for the approval of the application on the back of the form. - On April 30, Mondragon received a letter from Pacific Life which stated that the 20 year endowment plan was not available for minors below 7, but that Pacific Life could consider the same under the Juvenile Triple Action Plan, advising that if the offer was acceptable, the Juvenile Non-Medical Declaration be sent to the company. -Mondragon allegedly failed to inform Ngo Hing of the non-acceptance of the insurance plan, instead writing Pacific Life again, recommending the approval of the endowment plan to children since customers had been asking for such coverage since 1954.

-On May 28, 1957, Helen died of influenza. Ngo Hing sought the payment of the proceeds of the insurance, but having failed to do so, filed an action for recovery with the CFI of Cebu. The Court ordered Pacific Life to pay P50k with 6% interest, hence this petition. ISSUE WON the binding deposit receipt constituted a temporary contract of the life insurance in question HELD NO - The binding deposit receipt is merely a provisional contract and only upon compliance with the ff conditions: (1) that the company be satisfied that the applicant was insurable on standard rates (2) that if the company does not accept the application and offers a different policy, the insurance contract shall not be binding until the applicant accepts the new policy (3) that if the applicant is not found to be insurable on standard rates and the application is disapproved, the insurance shall not be in force at any time and the premium be returned to the applicant. -This implies the receipt is merely an acknowledgement, on behalf of the company, that the Cebu branch of Pacific Life had received the premium and had accepted the application subject to processing by the insurance company, which will approve or reject it depending on whether the applicant is insurable on standard rates. As such, the receipt was never in forceit does not insure outright. No liability attaches until the principal approves the risk and a receipt is given by the agent; because private respondent failed to accept Pacific Lifes offer for the Juvenile Triple Action plan, there was no meeting of the minds and thus no contract. Also, being an authorized agent of Pacific Life, Ngo Hing must have known the company did not offer the insurance applied for and merely too k a chance on Mondragons recommendation. Disposition the decision appealed from is set aside, absolving Pacific Life from their civil liabilities 23. PHILAMCARE HEALTH SYSTEMS, INC. V CA (TRINOS)

379 SCRA 357 YNARES-SANTIAGO; March 18, 2002 NATURE Petition for review of CA decision FACTS - Ernani TRINOS, deceased husband of respondent Julita, applied for a health care coverage with Philamcare Health Systems, Inc. In the standard application form, he answered no to the question: Have you or any of your family members ever consulted or been treated for hig h blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details). - The application was approved for period of one year; upon termination, it was extended for another 2 years. Amount of coverage was increased to a maximum sum of P75T per disability. - During this period, Ernani suffered a HEART ATTACK and was confined at the Manila Medical Center (MMC) for one month. While her husband was in the hospital, Julita tried to claim the hospitalization benefits. - Petitioner treated the Health Care Agreement (HCA) as void since there was a concealment regarding Ernanis medical history. Doctors at the MMC allegedly discovered at the time of his confinement, he was hypertensive, diabetic and asthmatic. Julita then paid the hospitalization expenses herself, amounting to about P76T. - After her husband died, Julita instituted action for damages against Philamcare and its Pres. After trial, the lower court ruled in her favor and ordered Philamcare to reimburse medical and hospital coverage amounting to P76T plus interest, until fully paid; pay moral damages of P10T; pay exemplary damages of P10T; attys fees of P20T. - CA affirmed the decision of the trial court but deleted all awards for damages and absolved petitioner Reverente. Petitioners Claims (1) Agreement grants living benefits such as medical check-ups and hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of the agreement until its expiration. (2) Only medical and hospitalization benefits are given under the agreement without any indemnification, unlike in an insurance contract where the insured is indemnified for his loss. (3) HCAs are only for a period of one year; therefore, incontestability clause does not apply, as it requires effectivity period of at least 2 yrs.

(4) It is not an insurance company, governed by Insurance Commission, but a Health Maintenance Organization under the authority of DOH. (5) Trinos concealed a material fact in his application. (6) Julita was not the legal wife since at the time of their marriage, the deceased was previously married to another woman who was still alive.* ISSUES 1. WON a health care agreement is an insurance contract (If so, incontestability clause under the Insurance Code is applicable) 2. WON the HCA can be invalidated on the basis of alleged concealment HELD YES Ratio Every person has an insurable interest in the life and health of himself . The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract. Reasoning - A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. - An insurance contract exists where the following elements concur: (a) The insured has an insurable interest; (b) The insured is subject to a risk of loss by the happening of the peril; (c) The insurer assumes the risk; (d) Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and (e) In consideration of the insurers promise, the insured pays a premium. 2. NO Ratio Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue; since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. Reasoning - The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. The right to rescind should be exercised previous to the commencement of an action on the contract. No rescission was made. Besides, the cancellation of health care agreements as in insurance policies requires: (a) Prior notice of cancellation to insured; (b) Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; (c) Must be in writing, mailed or delivered to the insured at the address shown in the policy; (d) Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based. - These conditions have not been met. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude insurer from non-compliance of obligation. Being a contract of adhesion, terms of an insurance contract are to be construed strictly against the party which prepared it the insurer. - Also, Philamcare had 12 months from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. * The health care agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred the expenses. It is clear that respondent paid all the hospital and medical bills; thus, she is entitled to reimbursement.

Disposition Petition DENIED.

G.R. No. 186983

February 22, 2012

MA. LOURDES S. FLORENDO, Petitioner, vs.PHILAM PLANS, INC., PERLA ABCEDE MA. CELESTE ABCEDE, Respondents. D E C I S I O N ABAD, J.: This case is about an insureds alleged concealment in his pension plan application of his true state of health and its effect on the life insurance portion of that plan in case of death. The Facts and the Case On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan with respondent Philam Plans, Inc. (Philam Plans) after some convincing by respondent Perla Abcede. The plan had a pre-need price of P997,050.00, payable in 10 years, and had a maturity value of P2,890,000.00 after 20 years.1 Manuel signed the application and left to Perla the task of supplying the information needed in the application.2 Respondent Ma. Celeste Abcede, Perlas daughter, signed the application as sales counselor.3 Aside from pension benefits, the comprehensive pension plan also provided life insurance coverage to Florendo.4 This was covered by a Group Master Policy that Philippine American Life Insurance Company (Philam Life) issued to Philam Plans.5 Under the master policy, Philam Life was to automatically provide life insurance coverage, including accidental death, to all who signed up for Philam Plans comprehensive pension plan.6 If the plan holder died before the maturity of the plan, his beneficiary was to instead receive the proceeds of the life insurance, equivalent to the pre-need price. Further, the life insurance was to take care of any unpaid premium until the pension plan matured, entitling the beneficiary to the maturity value of the pension plan.7 On October 30, 1997 Philam Plans issued Pension Plan Agreement PP430055848 to Manuel, with petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his quarterly premiums.9 Eleven months later or on September 15, 1998, Manuel died of blood poisoning. Subsequently, Lourdes filed a claim with Philam Plans for the payment of the benefits under her husbands plan.10 Because Manuel died before his pension plan matured and his wife was to get only the benefits of his life insurance, Philam Plans forwarded her claim to Philam Life.11 On May 3, 1999 Philam Plans wrote Lourdes a letter,12 declining her claim. Philam Life 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. Lourdes renewed her demand for payment under the plan13 but Philam Plans rejected it,14 prompting her to file the present action against the pension plan company before the Regional Trial Court (RTC) of Quezon City.15 On March 30, 2006 the RTC rendered judgment,16 ordering Philam Plans, Perla and Ma. Celeste, solidarily, to pay Lourdes all the benefits from her husbands pension plan, namely: P997,050.00, the proceeds of his term insurance, and P2,890,000.00 lump sum pension benefit upon maturity of his plan; P100,000.00 as moral damages; and to pay the costs of the suit. The RTC ruled that Manuel was not guilty of concealing the state of his health from his pension plan application. On December 18, 2007 the Court of Appeals (CA) reversed the RTC decision,17 holding that insurance policies are traditionally contracts uberrimae fidae or contracts of utmost good faith. As such, it required Manuel to disclose to Philam Plans conditions affecting the risk of which he was aware or material facts that he knew or ought to know.18 Issues Presented The issues presented in this case are: 1. Whether or not the CA erred in finding Manuel guilty of concealing his illness when he kept blank and did not answer questions in his pension plan application regarding the ailments he suffered from; 2. Whether or not the CA erred in holding that Manuel was bound by the failure of respondents Perla and Ma. Celeste to declare the condition of Manuels health in the pension plan application; and 3. Whether or not the CA erred in finding that Philam Plans approval of Manuels pension plan application and acceptance of his premium payments precluded it from denying Lourdes claim. Rulings of the Court One. Lourdes points out that, seeing the unfilled spaces in Manuels pension plan application relating to his medical history, Philam Plans should have returned it to him for completion. Since Philam Plans chose to approve the application just as it was, it cannot cry concealment on Manuels part. Further, Lourdes adds that Philam Plans never queried Manuel directly regarding the state of his health. Consequently, it could not blame him for not mentioning it.19 But Lourdes is shifting to Philam Plans the burden of putting on the pension plan application the true state of Manuels health. She forgets that since Philam Plans waived medical examination for Manuel, it had to rely largely on his stating the truth regarding his health in his application. For, after all, 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 that application. But he kept those crucial facts from Philam Plans.

Besides, when Manuel signed the pension plan 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 Plans. The pertinent portion of his representations and declarations read as follows: I hereby represent and declare to the best of my knowledge that: xxxx (c) I have never been treated for heart condition, high blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any other physical impairment in the last five years. (d) I am in good health and physical condition. If your answer to any of the statements above reveal otherwise, please give details in the space provided for: Date of confinement : ____________________________ Name of Hospital or Clinic : ____________________________ Name of Attending Physician : ____________________________ Findings : ____________________________ Others: (Please specify) : ____________________________ x x x x.20 (Emphasis supplied) Since Manuel signed the application without filling in the details regarding his continuing treatments for heart condition and diabetes, the assumption is that he has never been treated for the said illnesses in the last five years preceding his application. This is implicit from the phrase "If your answer to any of the statements above (specifically, the statement: I have never been treated for heart condition or diabetes) reveal otherwise, please give details in the space provided for." But this is untrue since he had been on "Coumadin," a treatment for venous thrombosis,21 and insulin, a drug used in the treatment of diabetes mellitus, at that time.22 Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent, knew that Manuel had a pacemaker implanted on his chest in the 70s or about 20 years before he signed up for the pension plan.23 But by its tenor, the responsibility for preparing the application belonged to Manuel. Nothing in it implies that someone else may provide the information that Philam Plans needed. Manuel cannot sign the application and disown the responsibility for having it filled up. If he furnished Perla the needed information and delegated to her the filling up of the application, then she acted on his instruction, not on Philam Plans instruction. Lourdes next points out that it made no difference if Manuel failed to reveal the fact that he had a pacemaker implant in the early 70s since this did not fall within the five-year timeframe that the disclosure contemplated.24 But a pacemaker is an electronic device implanted into the body and connected to the wall of the heart, designed to provide regular, mild, electric shock that stimulates the contraction of the heart muscles and restores normalcy to the heartbeat.25 That Manuel still had his pacemaker when he applied for a pension plan in October 1997 is an admission that he remained under treatment for irregular heartbeat within five years preceding that application. Besides, as already stated, Manuel had been taking medicine for his heart condition and diabetes when he submitted his pension plan application. These clearly fell within the five-year period. More, even if Perlas knowledge of Manuels pacemaker may be applied to Philam Plans under the theory of imputed knowledge,26 it is not claimed that Perla was aware of his two other afflictions that needed medical treatments. Pursuant to Section 2727 of the Insurance Code, Manuels concealment entitles Philam Plans to rescind its contract of insurance with him. Two. Lourdes contends that the mere fact that Manuel signed the application in blank and let Perla fill in the required details did not make her his agent and bind him to her concealment of his true state of health. Since there is no evidence of collusion between them, Perlas fault must be considered solely her own and cannot prejudice Manuel.28 But Manuel forgot that in signing the pension plan application, he certified that he wrote all the information stated in it or had someone do it under his direction. Thus: APPLICATION FOR PENSION PLAN (Comprehensive) I hereby apply to purchase from PHILAM PLANS, INC. a Pension Plan Program described herein in accordance with the General Provisions set forth in this application and hereby certify that the date and other information stated herein are written by me or under my direction. x x x.29 (Emphasis supplied) Assuming that it was Perla who filled up the application form, Manuel is still bound by what it contains since he certified that he authorized her action. Philam Plans had every right to act on the faith of that certification.

Lourdes could not seek comfort from her claim that Perla had assured Manuel that the state of his health would not hinder the approval of his application and that what is written on his application made no difference to the insurance company. But, indubitably, Manuel was made aware when he signed the pension plan application that, in granting the same, Philam Plans and Philam Life were acting on the truth of the representations contained in that application. Thus: DECLARATIONS AND REPRESENTATIONS xxxx I agree that the insurance coverage of this application is based on the truth of the foregoing representations and is subject to the provisions of the Group Life Insurance Policy issued by THE PHILIPPINE AMERICAN LIFE INSURANCE CO. to PHILAM PLANS, INC.30 (Emphasis supplied) As the Court said in New Life Enterprises v. Court of Appeals:31 It may be true that x x x insured persons may accept policies without reading them, and that this is not negligence per se. But, this is not without any exception. It is and was incumbent upon petitioner Sy to read the insurance contracts, and this can be reasonably expected of him considering that he has been a businessman since 1965 and the contract concerns indemnity in case of loss in his money-making trade of which important consideration he could not have been unaware as it was precisely the reason for his procuring the same.32 The same may be said of Manuel, a civil engineer and manager of a construction company.33 He could be expected to know that one must read every document, especially if it creates rights and obligations affecting him, before signing the same. Manuel is not unschooled that the Court must come to his succor. It could reasonably be expected that he would not trifle with something that would provide additional financial security to him and to his wife in his twilight years. Three. In a final attempt to defend her claim for benefits under Manuels pension plan, Lourdes points out that any defect or insu fficiency in the information provided by his pension plan application should be deemed waived after the same has been approved, the policy has been issued, and the premiums have been collected. 34 The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a one-year incontestability period. It states: VIII. INCONTESTABILITY After this Agreement has remained in force for one (1) year, we can no longer contest for health reasons any claim for insurance under this Agreement, except for the reason that installment has not been paid (lapsed), or that you are not insurable at the time you bought this pension program by reason of age. If this Agreement lapses but is reinstated afterwards, the one (1) year contestability period shall start again on the date of approval of your request for reinstatement.351wphi1 The above incontestability clause precludes the insurer 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. Since Manuel died on the eleventh month following the issuance of his plan,36 the one year incontestability period has not yet set in. Consequently, Philam Plans was not barred from questioning Lourdes entitlement to the benefits of her husbands pension plan. WHEREFORE, the Court AFFIRMS in its entirety the decision of the Court of Appeals in CA-G.R. CV 87085 dated December 18, 2007.

24.

NG v. ASIAN CRUSADER LIFE ASSURANCE CORP

122 SCRA 461 ESCOLIN; May 30, 1983 FACTS - On May 12, 1962, Kwong Nam applied for a 20-year endowment insurance on his life for the sum of P20,000, with his wife, Ng Gan Zee, as beneficiary. - He died on Dec 1963 of cancer of the liver with metastasis. All premiums had been paid at the time of his death. - Ng presented a claim for payment of the face value of the policy. Appellant (Asian Crusader) denied the claim on the ground that the answers given by the insured to the questions appearing in his application for life insurance were untrue. -Appellant: the insured was guilty of misrepresentation when 1) he answered "No" to the question (in the application) of "Has any life insurance company ever refused your application for insurance or for reinstatement of a lapsed policy or offered you a policy different from that applied for?" when in fact, Insular Life denied his application for reinstatement of his lapsed life insurance policy 2) he gave the appellant's medical examiner false and misleading information as to his ailment and previous operation when he said he was

operated on for a Tumor *mayoma+ of the stomach associated with ulcer of stomach. Tumor taken out was hard and of a hen's egg size. Operation was two years ago in Chinese General Hospital by Dr. Yap. Claims he is completely recovered. Medical report show that insured was operated on for "peptic ulcer", involving the excision of a portion of the stomach, not tumor. ISSUE WON there was concealment (Was appellant, because of insured's aforesaid representation, misled or deceived into entering the contract or in accepting the risk at the rate of premium agreed upon?) HELD NO -"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 assurer, but he designedly and intentionally withholds the same." - It has also been held "that the concealment must, in the absence of inquiries, be not only material, but fraudulent, or the fact must have been intentionally withheld." Reasoning 1) The evidence shows that the Insular Life Assurance Co., Ltd. approved Kwong Nam's request for reinstatement and amendment of his lapsed insurance policy on April 24, 1962. It results, therefore, that when on May 12, 1962 Kwong Nam answered `No' to the question whether any life insurance company ever refused his application for reinstatement of a lapsed policy he did not misrepresent any fact. 2) Assuming that the aforesaid answer given by the insured is false, Sec. 27 of the Insurance Law nevertheless requires that fraudulent intent on the part of the insured be established to entitle the insurer to rescind the contract. And as correctly observed by the lower court, "misrepresentation as a defense of the insurer to avoid liability is an `affirmative defense. The duty to establish such a defense by satisfactory and convincing evidence rests upon the defendant. The evidence before the Court does not clearly and satisfactorily establish that defense." -Kwong Nam had informed the appellant's medical examiner that the tumor for which he was operated on was ''associated with ulcer of the stomach." In the absence of evidence that the insured had sufficient medical knowledge as to enable him to distinguish between "peptic ulcer" and "a tumor", his statement that said tumor was "associated with ulcer of the stomach" should be construed as an expression made in good faith of his belief as to the nature of his ailment and operation. Indeed, such statement must be presumed to have been made by him without knowledge of its incorrectness and without any deliberate intent on his part to mislead the appellant. 3) Waiver: While it may be conceded that, from the viewpoint of a medical expert, the information communicated was imperfect, the same was nevertheless sufficient to have induced appellant to make further inquiries about the ailment and operation of the insured. Section 32 of Insurance Law [Act No. 2427] provides: The right to information of material facts may be waived either by the terms of insurance or by neglect to make inquiries as to such facts where they are distinctly implied in other facts of which information is communicated. It has been held that where, "upon the face of the application, a question appears to be not answered at all or to be imperfectly answered, and the insurers issue a policy without any further inquiry, they waive the imperfection of the answer and render the omission to answer more fully immaterial. Disposition the judgment appealed from is hereby affirmed, with costs against appellant

24.

NG v. ASIAN CRUSADER LIFE ASSURANCE CORP

122 SCRA 461 FACTS - On May 12, 1962, Kwong Nam applied for a 20-year endowment insurance on his life for the sum ofP20,000, with his wife, Ng Gan Zee, as beneficiary. - He died on Dec 1963 of cancer of the liver with metastasis. All premiums had been paid at the time of his death. - Ng presented a claim for payment of the face value of the policy. Appellant (Asian Crusader) denied the claim on the ground that the answers given by the insured to the questions appearing in his application for life insurance were untrue. -Appellant:

The insured was guilty of misrepresentation when: 1) he answered "No" to the question (in the application) of "Has any life insurance company ever refused your application for insurance or for reinstatement of a lapsed policy or offered you a policy different from that applied for?" when in fact, Insular Life denied his application for reinstatement of his lapsed life insurance policy 2) he gave the appellant's medical examiner false and misleading information as to his ailment and previous operation when he said he was operated on for a Tumor *mayoma+ of the stomach associated with ulcer of stomach. Tumor taken out was hard and of a hen's egg size. Operation was tw o years ago in Chinese General Hospital by Dr. Yap. Claims he is completely recovered. Medical report show that insured was operated on for "peptic ulcer", involving the excision of a portion of the stomach, not tumor. ISSUE WON there was concealment (Was appellant, because of insured's aforesaid representation, misled or deceived into entering the contract or in accepting the risk at the rate of premium agreed upon?) HELD NO. -"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 assurer, but he designedly and intentionally withholds the same." - It has also been held "that the concealment must, in the absence of inquiries, be not only material, but fraudulent, or the fact must have been intentionally withheld." Reasoning 1) The evidence shows that the Insular Life Assurance Co., Ltd. approved Kwong Nam's request for reinstatement and amendment of his lapsed insurance policy on April 24, 1962. It results, therefore, that when on May 12, 1962 Kwong Nam answered `No' to the question whether any life insurance company ever refused his application for reinstatement of a lapsed policy he did not misrepresent any fact. 2) Assuming that the aforesaid answer given by the insured is false, Sec. 278 of the Insurance Law nevertheless requires that fraudulent intent on the part of the insured be established to entitle the insurer to rescind the contract. And as correctly observed by the lower court, "misrepresentation as a defense of the insurer to avoid liability is an `affirmative defense. The duty to establish such a defense by satisfactory and convincing evidence rests upon the defendant. The evidence before the Court does not clearly and satisfactorily establish that defense." -Kwong Nam had informed the appellant's medical examiner that the tumor for which he was operated on was ''associated with ulcer of the stomach." In the absence of evidence that the insured had sufficient medical knowledge as to enable him to distinguish between "peptic ulcer" and "a tumor", his statement that said tumor was "associated with ulcer of the stomach" should be construed as an expression made in good faith of his belief as to the nature of 8 "Sec. 27.Such party to a contract of insurance must communicate to the other, in good faith, all facts within his knowledge which are material to the contract, and which the other has not the means of ascertaining, and as to which he makes no warranty." his ailment and operation. Indeed, such statement must be presumed to have been made by him without knowledge of its incorrectness and without any deliberate intent on his part to mislead the appellant. 3) Waiver: While it may be conceded that, from the viewpoint of a medical expert, the information communicated was imperfect, the same was nevertheless sufficient tohave induced appellant to make further inquiries about the ailment and operation of the insured. Section 32 of Insurance Law [Act No. 2427] provides: The right to information of material facts may be waived either by the terms of insurance or by neglect to make inquiries as to such facts where they are distinctly implied in other facts of which information is communicated.

It has been held that where, "upon the face of the application, a question appears to be not answered at all or to be imperfectly answered, and the insurers issue a policy without any further inquiry, they waive the imperfection of the answer and render the omission to answer more fully immaterial. Disposition the judgment appealed from is hereby affirmed, with costs against appellant

25.

DE LIM v. SUN LIFE ASSURANCE COMPANY OF CANADA

41 PHIL 263

MALCOLM; November 29, 1920 NATURE Appeal from an order of the CFI of Zamboanga sustaining a demurrer to plaintiff's complaint upon the ground that it fails to state a cause of action. FACTS - On July 6, 1917, Luis Lim of Zamboanga made application to the Sun Life Assurance Company of Canada for a policy of insurance on his life in the sum of P5,000. In his application Lim designated his wife, Pilar de Lim, the plaintiff herein, as the beneficiary. The first premium of P433 was paid by Lim, and upon such payment the company issued what was called a ''provisional policy." Luis Lim died on August 23, 1917, after the issuance of the provisional policy but before approval of the application by the home office of the insurance company. Pilar de Lim brought an action to recover from the Sun Life sum of P5,000, the amount named in the provisional policy. - The "provisional policy" reads: "Received (subject to the following stipulations and agreements) the sum of P433, being the amount of the first year's premium for a Life Assurance Policy on the life of Mr. Luis D. Lim of Zamboanga for P5,000, for which an application dated the 6th day of July, 1917, has been made to the Sun Life Assurance Company of Canada. - The above-mentioned life is to be assured in accordance with the terms and conditions contained or inserted by the Company in the policy which may be granted by it in this particular case for four months only from the date of the application, provided that the Company shall confirm this agreement by issuing a policy on said application when the same shall be submitted to the Head Office in Montreal. Should the Company not issue such a policy, then this agreement shall be null and void ab initio, and the Company shall be held not to have been on the risk at all, but in such case the amount herein acknowledged shall be returned. ISSUE WON the contract of insurance between Luis Lim and Sun Life Assurance Company of Canada was perfected HELD NO. - The document it is to be a provisional policy "for four months only from the date of this application." Immediately following the words fixing the four months period comes the word "provided" which has the meaning of "if." Otherwise stated, the policy for four months is expressly made subject to the affirmative condition that the company shall confirm this agreement by issuing a policy on said application when the same shall be submitted to the head office in Montreal. To re-enforce the same there follows the negative condition - "Should the company not issue such a policy, then this agreement shall be null and void ab initio, and the company shall be held not to have been on the risks." Certainly language could hardly be used which would more clearly stipulate that the agreement should not go into effect until the home office of the company should confirm it by issuing a policy. As we read and understand the so-called provisional policy, it amounts to nothing but an acknowledgment on behalf of the company, that it has received from the person named therein the sum of money agreed upon as the first year's premium upon a policy to be issued upon the application, if the application is accepted by the company. - It is of course a primary rule that a contract of insurance, like other contracts, must be assented to by both parties either in person or by their agents. So long as an application for insurance has not been either accepted or rejected, it is merely an offer or proposal to make a contract. The contract, to be binding from the date of the application must have been a completed contract, one that leaves nothing to be done, nothing to be completed, nothing to be passed upon, or determined, before it shall take effect. There can be no contract of insurance unless the minds of the parties have met in agreement. Our view is, that a contract of insurance was not here consummated by the parties. - The trial court committed no error in sustaining the demurrer and dismissing the case. It is to be noted, however that counsel for appellee admits the liability of the company for the return of the first premium to the estate of the deceased.

26.

PACIFIC TIMBER EXPORT CORPORATION v. CA (WORKMENS INSURANCE CO)

112 SCRA 199 DE CASTRO; February 25, 1982 FACTS - March 19, 1963 - the plaintiff secured temporary insurance from the defendant for its exportation of 1,250,000 board feet of Philippine Lauan and Apitong logs to be shipped from the Diapitan Bay, Quezon to Okinawa and Tokyo, Japan. The defendant issued on said date Cover Note No. 1010, insuring the said cargo of the plaintiff "Subject to the Terms and Conditions of the WORKMEN'S INSURANCE COMPANY, INC. printed Marine Policy form as filed with and approved by the Office of the Insurance Commissioner. - April 2, 1963 - The two (2) regular marine cargo policies were issued by the defendant in favor of the plaintiff. The total cargo insured under the two marine policies accordingly consisted of 1,395 logs, or the equivalent of 1,195,498 bd. ft.

- After the issuance of cover note but before the issuance of the two marine policies some of the logs intended to be exported were lost during loading operations in the Diapitan Bay due to bad weather. - April 4, 1963 - The plaintiff informed the defendant about the loss of 'approximately 32 pieces of logs' during loading through a letter. - The plaintiff subsequently submitted a 'Claim Statement' demanding payment of the loss under the second marine cargo policy. - July 17, 1963 - the defendant requested the First Philippine Adjustment Corporation to inspect the loss and assess the damage. - August 23, 1963 - the adjuster reported that 'the loss of 30 pieces of logs is not covered by the two policies inasmuch as said policies covered the actual number of logs loaded on board. But it is covered by Cover Note. - On January 13, 1964 - the defendant wrote the plaintiff denying the latter's claim, on the ground that defendant's investigation revealed that the entire shipment of logs covered by the two marines policies were received in good order at their point of destination. It was further stated that the said loss may not be considered as covered under cover note because the said note had become 'null and void by virtue of the issuance of two marine policies. - The CFI of Manila ruled in favour of the petitioner. - The Court of Appeals reversed the decision of the CFI. ISSUES 1. WON the cover note is null and void for lack of valuable consideration because no separate premiums are collected by private respondent on all its cover notes 2. WON the court of appeals erred in holding that private respondent was released from liability under the cover note due to unreasonable delay in giving notice of loss because the court disregarded the proven fact that private respondent did not promptly and specifically object to the claim on the ground of delay in giving notice of loss and, consequently, objections on that ground are waived under section 84 of the insurance act HELD 1. NO Ratio Cover note is issued with a consideration when, by express stipulation, the cover note is made subject to the terms and conditions of the marine policies, and the payment of premiums is one of the terms of the policies. Reasoning a. the cover note in question is subject to the terms and conditions of the marine policies b. Nature of the Cover Note: The fact that no separate premium was paid on the Cover Note before the loss insured against occurred, does not militate against the validity of petitioner's contention, for no such premium could have been paid, since by the nature of the Cover Note, it did not contain, as all Cover Notes do not contain particulars of the shipment that would serve as basis for the computation of the premiums. As a logical consequence, no separate premiums are intended or required to be paid on a Cover Note. c. The petitioner paid in full all the premiums as called for by the statement issued by private respondent after the issuance of the two regular marine insurance policies, thereby leaving no account unpaid by petitioner due on the insurance coverage, which must be deemed to include the Cover Note. If the Note is to be treated as a separate policy instead of integrating it to the regular policies subsequently issued, the purpose and function of the Cover Note would be set at naught or rendered meaningless, for it is in a real sense a contract, not a mere application for insurance which is a mere offer. Had all the logs been lost during the loading operations, but after the issuance of the Cover Note, liability on the note would have already arisen even before payment of premium. This is how the cover note as a "binder" should legally operate; otherwise, it would serve no practical purpose in the realm of commerce, and is supported by the doctrine that where a policy is delivered without requiring payment of the premium, the presumption is that a credit was intended and policy is valid. 2. NO - The private respondent company never raised this ground in the proceedings. It must be because it did not find any delay, as this Court fails to find a real and substantial sign thereof. But even on the assumption that there was delay, this Court is satisfied and convinced that as expressly provided by law, waiver can successfully be raised against private respondent. Thus Section 84 of the Insurance Act provides: "Section 84. - Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any act of his or if he omits to take objection promptly and specifically upon that ground." - From what has been said, We find duly substantiated petitioner's assignments of error. Disposition The appealed decision is set aside and the decision of the Court of First Instance is reinstated in toto with the affirmance of this Court.

27.

EAGLE STAR INSURANCE CO LTD v. CHIA YU

96 PHIL 696 REYES; March 31, 1955 NATURE Certiorari FACTS - Atkin, Kroll & Co., loaded on the S. S. Roeph Silverlight owned and operated by Leigh Hoegh & Co., A/S, of San Francisco California, 14 bales of assorted underwear valued at P8,085.23 consigned to Chia Yu in the City of Manila. - The shipment was insured against all risks by Eagle Star Ins. Co. of San Francisco, California, under a policy issued to the shipper and by the latter assigned to the consignee. - The vessel arrived in Manila but of the 14 bales (a.k.a. freights =p) consigned to Chia Yu only 10 were delivered to him as the remaining 3 could not be found.3 of those delivered were also found damaged to the extent of 50 per cent. -Chia Yu claimed indemnity for the missing and damaged bales. But the claim was declined, first, by the carrier and afterward by the insurer, whereupon Chia Yu brought the present action against both, including their respective agents in the Philippines. - An action was filed at the CFI after more than 2 years after delivery of the damaged bales and the date when the missing bales should have been delivered, the action was resisted by the Atkins and Eagle Star principally on the ground of prescription. -TC favored Chia Yu and CA affirmed. *** CARRIERs defense of prescription is made to rest on the following stipulation of the bill of lading: In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after the delivery of the goods or the date when the goods should have been delivered. (This stipulation is but a repetition of a provision in the CA 65 which says that bills of lading covering shipments from the US to the Phils should be brought w/in one year after the delivery of the goods or the date when the goods should have been delivered to hold the carrier liable.) *** INSURERs claim of prescription is founded upon the terms of the policy and not upon the bill of lading. (But in our jurisdiction, as per A1144, prescription is 10 years after action accrues.) No suit action on this Policy, for the recovery of any claim, shall be sustainable in any Court of law or equity unless the insured shall have fully complied with all the terms and conditions of this Policy nor unless commenced with twelve (12) months next after the happening of the loss . . . ISSUE WON ATKIN s action has prescribed HELD NO - Being contrary to the law of the forum, the stipulation in the policy cannot be given effect as it would reduce the period allowed the insured for bringing his action to less than one year (because the prescription period begins from the happening of the loss and that before any suit could be sustained the insured shall have to comply with the terms and conditions of the policy first TF lessening the period to less than a year. ) - Insular Government vs. Frank(13 Phil. 236)~ "matters respecting a remedy, such as the bringing of suit, admissibility of evidence, and statute of limitations, depend upon the law of the place where the suit is brought" TF any policy clause repugnant to this amendment to the Insurance Act cannot be given effect in an action in our courts. SEC. 61-A. (Insurance Code) ~ Any condition, stipulation or agreement in any policy of 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. - The prescription clause could be harmonized with section 61-A of the Insurance Act by taking it to mean that the time given the insured for bringing his suit is twelve months after the cause of action accrues. - If so, when did the cause of action accrue? Chia Yus action did not accrue until his claim was finally rejected by the insurance company. This is because, before such final rejection, there was no real necessity for bringing suit.

- As the policy provides that the insured should file his claim, first, with the carrier and then with the insurer, he had a right to wait for his claim to be finally decided before going to court. - Furthermore, there is nothing in the record to show that the claim was rejected in the year 1947, either by the insurance company in London or its settling agents in the Philippines. - For the purpose of this action, Chia Yu's claim was considered to have been finally rejected by the insurer on April 22, 1948. Having been filed within twelve months form that date, the action cannot be deemed to have prescribed even on the supposition that the period given the insured for bringing suit under the prescriptive clause of the policy is twelve months after the accrual of the cause of action. - Contractual limitations contained in insurance policies are regarded with extreme jealousy by courts and will be strictly construed against the insurer and should not be permitted to prevent a recovery when their just and honest application would not produce that result. (46 C. J. S. 273.) Disposition Judgment appealed from is REVERSED with respect to the carrier and its agents but AFFIRMED with respect to the insurance company and its agents.

28.

ACCFA v. ALPHA INSURANCE

24 SCRA 151 REYES; July 29, 1968

FACTS - In order to guarantee the Asingan Farmers' Cooperative Marketing Association, Inc. (FACOMA) against loss on account of "personal dishonesty, amounting to larceny or estafa of its Secretary-Treasurer, Ladines, the appellee, Alpha Insurance & Surety Company had issued, on 14 February 1958, its bond, No. P-FID-15-58, for the sum of P5,000 with said Ladines as principal and the appellee as solidary surety. On the same date, the Asingan FACOMA assigned its rights to the appellant, Agricultural Credit Cooperative and Financing Administration (ACCFA for short), with approval of the principal and the surety. - During the effectivity of the bond, Ladines converted and misappropriated, to his personal benefit, some P11,513.22 of the FACOMA funds, of which P6,307.33 belonged to the ACCFA. Upon discovery of the loss, ACCFA immediately notified in writing the survey company on 10 October 1958, and presented the proof of loss within the period fixed in the bond; but despite repeated demands the surety company refused and failed to pay. Whereupon, ACCFA filed suit against appellee on 30 May 1960. - Defendant Alpha Insurance & Surety Co., Inc., (now appellee) moved to dismiss the complaint for failure to state a cause of action, giving as reason that (1) the same was filed more than one year after plaintiff made claim for loss, contrary to the eighth condition of the bond, providing as follows: EIGHT LIMITATION OF ACTION: No action, suit or proceeding shall be had or maintained upon this Bond unless the same be commenced within one year from the time of making claim for the loss upon which such action, suit or proceeding, is based, in accordance with the fourth section hereof. (2) the complaint failed to show that plaintiff had filed civil or criminal action against Ladines, as required by conditions 4 and 11 of the bond; and (3) that Ladines was a necessary and indispensable party but had not been joined as such. - At first, the Court of First Instance denied dismissal; but, upon reconsideration, the court reversed its original stand, and dismissed the complaint on the ground that the action was filed beyond the contractual limitation period. Hence, this appeal. ISSUE WON the provision of a fidelity bond that no action shall be had or maintained thereon unless commenced within one year from the making of a claim for the loss upon which the action is based, is valid, in view of Section 61-A of the Insurance Act invalidating stipulations limiting the time for commencing an action thereon to less than one year from the time the cause of action accrues HELD NO - A fidelity bond is, in effect, in the nature of a contract of insurance against loss from misconduct, and is governed by the same principles of interpretation. Consequently, the condition of the bond in question, limiting the period for bringing action thereon, is subject to the provisions of Section 61-A of the Insurance Act (No. 2427), as amended by Act 4101 of the pre-Commonwealth Philippine Legislature, prescribing that: SEC. 61-A: A condition, stipulation or agreement in any policy of 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.

- Since a "cause of action" requires, as essential elements, not only a legal right of the plaintiff and a correlative obligation of the defendant but also "an act or omission of the defendant in violation of said legal right," the cause of action does not accrue until the party obligated refuses, expressly or impliedly, to comply with its duty (in this case, to pay the amount of the bond). The year for instituting action in court must be reckoned, therefore, from the time of appellee's refusal to comply with its bond; it can not be counted from the creditor's filing of the claim of loss, for that does not import that the surety company will refuse to pay. In so far, therefore, as condition eight of the bond requires action to be filed within one year from the filing of the claim for loss, such stipulation contradicts the public policy expressed in Section 61-A of the Philippine Insurance Act. - Condition eight of the bond, therefore, is null and void, and the appellant is not bound to comply with its provisions. The discouraging of unnecessary litigation must be deemed a rule of public policy, considering the unrelieved congestion in the courts. As a consequence of the foregoing, action may be brought within the statutory period of limitation for written contracts (New Civil Code, Article 1144). 29. SUN INSURANCE OFFICE LTD. V CA (TAN)

195 SCRA 193 PARAS; March 13, 1991 NATURE Petition for certiorari to review the decision of the CA FACTS - Private respondent Emilio Tan took from the petitioner a Peso 300,000 property insurance policy to cover his interest in the electrical insurance store of his brother housed in a building in Iloilo City on August 15, 1983. Four days after the issuance of the policy, the building including the insured store burned. - On August 20, 1983, Tan filed his claim for fire loss. Sun Insurance, on February 29, 1984, wrote the private respondent denying the claim. On April 3, 1984, private respondent wrote another letter to the insurance company requesting reconsideration of the denial. Tans lawyer wrote another letter to the insurance company inquiring about the April 3 letter which sought for a reconsideration of the denial. In its reply to the lawyers letter, Sun Insurance reiterated its denial of the claim and enclosed therein copies of the two previous denials dated February 29, 1984 and May 17, 1985. - On November 20, 1985, Tan filed a civil case with the RTC. Petition filed a motion to dismiss on the alleged ground that the action has already prescribed based on Condition 27 of the Insurance Policy which stated that the window to file the appropriate action with either the Insurance Commission or in any court of competent jurisdiction is twelve months from the rejection of the claim. RTC denied the motion and the subsequent motion for reconsideration. The CA likewise denied the petition of Sun Insurance. ISSUE 1. WON the court the filing of a motion for reconsideration interrupts the 12 months prescription period to contest the denial of the insurance claim 2. WON the rejection of the claim shall be deemed final only if it contains words to the effect that the denial is final HELD 1. NO - The SC held that Condition 27 of the Insurance policy is very clear and free from any doubt or ambiguity. It has to be taken in its plain, ordinary, and popular sense. The rejection letter of February 29, 1984 was clear and plain. The Court noted that the one year period is likewise in accord with Section 23 of the Insurance Code which states that any condition which limits the time for commencing an action to a period of less than one year when the cause of action accrues is void. The right of action, according to the SC, accrues at the time that the claim is rejected at the first instance. A request for reconsideration of the denial cannot suspend the running of the prescriptive period. The Court noted that the rationale for the one year period is to ensure that the evidence as to the origin and cause of the destruction have not yet disappeared. 2. NO - The Court clarified its ruling in Eagle Star Insurance Co. vs Chia Yu where it ruled that the cause of action in an insurance contract does not accrue until the Insureds claim is finally rejected by the Insurer by stating the use of the word finally cannot be construed to mean the rejection of a petition for reconsideration. What the court referred to in effect is the rejection in the first instance as claimed by Sun Insurance Disposition The decision of the CA is reversed and set aside. The case is dismissed