Insurance Law Digest (Updated Cases 9, 23, 28)

INSURANCE LAW
CASE DIGESTS
COMMERCIAL LAW REVIEW
FEU JD4401
2ND Semester, S.Y. 2017-2018
(20) Alpha Insurance and Surety Co. vs.
TABLE OF CONTENTS Castor ...............................................21
(21) First Lepanto-Taisho Insurance Corp.
(1) Medicard Philippines v. CIR ............. 1
v. Chevron Philippines .........................22
(2) Gaisano v. Development Insurance
(22) Florendo v. Philam Plans, Inc. .......23
and Surety Corp. ................................. 2
(23) Malayan Insurance Co. v. Philippines
(3) Communication and Information
First Insurance Co., Inc. ......................24
System Corp. v. Mark Sensing Austrial
PTY ................................................... 3 (24) UNITED MERCHANTS CORP v.
COUNTRY BANKERS INSURANCE CORP .25
(4) Malayan Insurance Company, Inc. v.
PAP CO., LTD ...................................... 4 (25) Paramount Insurance vs
Remondeulaz .....................................26
(5) THE INSULAR LIFE ASSURANCE CO
LTD v. PAZ Y. KHU et. al. ..................... 5 (26) Country Bankers Insurance Corp. v.
Lagman .............................................27
(06) Sun Life of Canada vs Sibya .......... 6
(27) NEW WORLD INTERNATIONAL
(7) Bank of Philippines Islands v. Laingo 7
DEVELOPMENT (PHILS.), INC., vs.NYK-
(8) PARAMOUNT LIFE & GENERAL FILJAPAN SHIPPING CORP. ..................28
INSURANCE CORPORATION, Petitioner,
(28) The Heirs of George Y. Poe v.
vs. CHERRY T. CASTRO and GLENN
Malayan Insurance Co., Inc. ................29
ANTHONY T. CASTRO, Respondents. ...... 8
(29) Heirs of Loreto Maramag v. Maramag
(09) Capital Insurance and Surety Co.,
........................................................30
Inc. v. Del Monte Motor Works, Inc. ...... 9
(30) Lalican vs. Insular Life Assurance
(10) Loadstar Shipping Company v
Company ...........................................31
Malayan Insurance Incorporated .......... 10
(31) Eastern Shipping Lines, Inc. vs
(11) Sun Life of Canada (Philippines) vs.
Prudential Guarantee and Assurance Inc.
Tan Kit .............................................. 11
........................................................32
(12) Erlinda V. Alvarez II vs Sun Life of
(32) Philippine Health Care Providers Inc.
Canada (Philippines), Inc. ................... 12
vs. Commission on Internal Revenue
(13) H.H. Hollero Construction, Inc. vs. (CIR) ................................................33
Government Service Insurance System
(33) Keppel Cebu Shipyard, Inc. vs.
(GSIS) .............................................. 13
Pioneer Insurance and Surety Corporation
(14) Fortune Medicare, Inc. v. Amorin .. 14 ........................................................35
(15) Mitsubishi Motors Philippines Salaried (34) Blue Cross Health Care, Inc. vs.
Employees Union (MMPSEU) vs. ........... 15 Neomi and Danilo Olivares ...................36
Mitsubishi Motors Philippines Corporation (35) Eternal Gardens Memorial Park
(MMPC) ............................................. 15 Corporation v. The Philippine American
(16) Vector Shipping Corporation v. Life Insurance Company ......................37
American Home Assurance Company .... 16 (36) International Container Terminal
(17) Asian Terminals, Inc. vs. Philam Services Inc. vs. FGU Insurance ...........38
Insurance Co., Inc. ............................. 17 (37) Ong Lim Sing, Jr. vs. FEB Leasing &
(18) Manila Bankers Life Insurance Finance Corporation ............................39
Corporation vs. Cresencia Aban............ 18 (38) PRUDENTIAL GUARANTEE and
(19) MALAYAN INSURANCE COMPANY, ASSURANCE, INC. v. EQUINOX LAND
INC. v. PAP CO., LTD. (PHIL. BRANCH) . 19 CORPORATION ...................................40
INSURANCE LAW CASE DIGESTS |1
FEU JD4401 | 2nd SEMESTER, S.Y. 2017-2018
(1) Medicard Philippines v. CIR

G.R. No. 222743, April 05, 2017
By: Alba, Ma. Angela
Topic: Health Maintenance Organization v. Non-life Insurance Company
Doctrine: The main difference between an HMO and an insurance company is that HMOs undertake to provide or
arrange for the provision of medical services through participating physicians while insurance companies simply
undertake to indemnify the insured for medical expenses incurred up to a pre-agreed limit.
Medicard, a Health Maintenance Organization, was assessed by the CIR with deficiency Value-Added Tax (VAT) in
the aggregate amount of P220,234,609.48. According to the CIR, the taxable base of HMOs for VAT purposes is its
gross receipts without any deduction. It argues that since Medicard does not actually provide medical and/or
hospital services, but merely arranges for the same, its services are not VAT exempt. Medicard counters that the
services it render is not limited merely to arranging for the provision of medical and/or hospital services by
hospitals and/or clinics but include actual and direct rendition of medical and laboratory services.
Can Medicard be classified as a non-life insurance company such that its sale of services is subject to
VAT?
No. The main difference between an HMO and an insurance company is that HMOs undertake to provide or arrange
for the provision of medical services through participating physicians while insurance companies simply undertake
to indemnify the insured for medical expenses incurred up to a pre-agreed limit.
An HMO engaged in preventive, diagnostic and curative medical services is not engaged in the business of an
insurance. The distinctive features of the cooperative are the rendering of service, its extension, the bringing of
physician and patient together, the preventive features, the regularization of service as well as payment, the
substantial reduction in cost by quantity purchasing in short, getting the medical job done and paid for; not, except
incidentally to these features, the indemnification for cost after the services is rendered. Except the last, these are
not distinctive or generally characteristic of the insurance arrangement. There is, therefore, a substantial difference
between contracting in this way for the rendering of service, even on the contingency that it be needed, and
contracting merely to stand its cost when or after it is rendered.
(2) Gaisano v. Development Insurance and Surety Corp.

G.R. No. 190702, February 27, 2017
By: Arid, Hannah Mhae G.
Topic: Insurance Contract; Payment of Premium
Doctrine: Section 77 of the Insurance Code, provides: ”A n 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.”
Petitioner was issued a comprehensive commercial vehicle policy by respondent in the amount of P1.5 million for a
period of one year commencing on September 27, 1996 up to September 27, 1997 over the former’s Mitsubishi
Montero sport vehicle. To collect the premiums and other charges on the policies, respondent's agent, Trans-Pacific
issued a statement of account to petitioner's company, Noah's Ark. Noah's Ark immediately processed the
payments and issued a Far East Bank check dated September 27, 1996 payable to Trans-Pacific on the same day.
he check bearing the amount of P140,893.50 represents payment for the three insurance policies, with P55,620.60
for the premium and other charges over the vehicle. However, nobody from Trans-Pacific picked up the check that
day (September 27) because its president and general manager, Rolando Herradura, was celebrating his birthday.
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, while under the official custody of Noah's Ark marketing manager Achilles
Pacquing as a service company vehicle, the vehicle was stolen. Pacquing reported the loss to the police but 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 numbered 124713 dated September 28, 1996,
acknowledging the receipt of P55,620.60 for the premium and other charges over the vehicle. The check issued to
Trans--Pacific for P140,893.50 was deposited with Metrobank for encashment on October 1, 1996. On October 1,
1996, Pacquing informed petitioner of the vehicle's loss. Thereafter, 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. Upon demand by the petitioner, no payment was made
which prompted the petitioner to file a case against the respondent for the collection of a sum of money and
damages.
Is the insurance contract between the petitioner and respondent binding?
No, the insurance contract between the parties is not binding.
Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. Just like any other contract, it requires a cause or
consideration. The consideration is the premium, which must be paid at the time and in the way and manner
specified in the policy. If not so paid, the policy will lapse and be forfeited by its own terms. 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 that “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 this case, 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 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.
(3) Communication and Information System Corp. v. Mark Sensing Austrial PTY
G.R. No. 192159, January 25, 2017
By: Bernardo, Michael Gerard T.
Topic: Insurance retention limit and reinsurance
Doctrine: In computing the retention limit, risks that have been ceded to authorized reinsurers are ipso jure
deducted.
Facts: Communication and Information Systems Corporation (CISC) and Mark Sensing Australia Pty. Ltd. (MSAPL)
entered into a Memorandum of Agreement whereby MSAPL appointed CISC as "the exclusive AGENT of MSAPL to
PCSO during the lifetime of the recently concluded Memorandum of Agreement entered into between MSAPL, PCSO
and other parties."
After initially complying with its obligation under the MOA, MSAPL stopped remitting commissions to CISC by
claiming that the President of CISC violated the MOA.
CISC filed a complaint before the specific performance against MSAPL. CISC applied for issuance of a writ of
preliminary attachment because MSAPL is a foreign corporation based in Australia, and its Philippine subsidiary,
MSPI, has no other asset except for its collectibles from PCSO. The RTC granted the application.
CISC posted a bond in the amount of P113, 197,309.10 through Plaridel Surety and Insurance Company (Plaridel)
in favor of MSAPL, which the RTC approved on the same date.
MSAPL moved to recall and set aside the approval of the attachment bond on the ground that Plaridel had no
capacity to underwrite the bond pursuant to Section 215 of the old Insurance Code because its net worth was only
P214,820,566.00 and could therefore only underwrite up to P42,964,113.20.
CISC argued that although Plaridel cannot underwrite the bond by itself, the amount covered by the attachment
bond "was likewise re insured to sixteen other insurance companies."
Issue: Whether or not Plaridel Surety has the capacity to underwrite an attachment bond whose face amount
exceeds the retention limit of the surety by reinsuring the bond to other companies.
Held: Yes. In computing the retention limit, risks that have been ceded to authorized reinsurers are ipso jure
deducted.
Sec. 215. No insurance company other than life, whether foreign or domestic, shall retain any risk on any one
subject of insurance in an amount exceeding twenty per centum of its net worth. For purposes of this section, the
term "subject of insurance" shall include all properties or risks insured by the same insurer that customarily are
considered by non-life company underwriters to be subject to loss or damage from the same occurrence of any
hazard insured against.
Reinsurance ceded as authorized under the succeeding title shall be deducted in determining the risk retained. As
to surety risk, deduction shall also be made of the amount assumed by any other company authorized to transact
surety business and the value of any security mortgage, pledged, or held subject to the surety's control and for the
surety's protection.
In mathematical terms, the amount of retained risk is computed by deducting ceded/reinsured risk from insurable
risk. If the resulting amount is below 20% of the insurer's net worth, then the retention limit is not breached.
In this case, based on Plaridel's financial statement that was attached to its certificate of authority issued by the
Insurance Commission, its net worth is P289,332,999.00. Plaridel's retention limit is therefore P57,866,599.80,
which is below the P113,197,309.10 face value of the attachment bond. However, it only retained an insurable risk
of P17,377,938.19 because the remaining amount of P98,819,770.91 was ceded to 16 other insurance companies.
Thus, the risk retained by Plaridel Surety is actually P40 Million below its maximum retention limit.
(4) Malayan Insurance Company, Inc. v. PAP CO., LTD

G.R. No. 200784, August 7, 2013
By: Bigornia, Donna
Topic: Fire; Alteration
Doctrine: An insurer can exercise its right to rescind an insurance contract when the following conditions are
present, to wit: 1) the policy limits the use or condition of the thing insured; 2) there is an alteration in said use or
condition; 3) the alteration is without the consent of the insurer; 4) the alteration is made by means within the
insured’s control; and 5) the alteration increases the risk of loss.
Facts: On May 13, 1996, PAP, Co. obtained a P15 M fire insurance policy from Ilocano Insurance covering its
machineries and equipment effective for 1 year or until May 14, 1997. The policy expressly stated that the insured
properties were located at “Sanyo Precision Phils. Building, Phase III, Lots 4 and 6, Block 15, PEZA, Rosario
Cavite.” Before its expiration, the policy was renewed on “as is” basis for another year until May, 13, 1998. The
subject properties were later transferred to Pace Factory also in PEZA. On October 12, 1997, during the effectivity
of the renewed policy, a fire broke out at the Pace Factory which totally burned the insured properties.
The policy forbade the removal of the insured properties unless sanctioned by Malayan Insurance Company, Inc.
Condition 9(c) of the policy provides that “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 x x x (c) if the property insured is removed to any building or place other than in that
which is herein stated to be insured.” PAM claims that it has substantially complied with notifying Ilocano for the
insurance coverage.
Issue: Whether or not Malayan Co is liable under the insurance.
Held: No. Malayan is not liable.
Section 68 of the Insurance Code provides that 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.
(5) THE INSULAR LIFE ASSURANCE CO LTD v. PAZ Y. KHU et. al.
G.R. No. 195176, April 18, 2016
By: Corona, Jose Enrico V.
TOPIC: Incontestability of a Policy
DOCTRINE: ‘The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or
misrepresentation within a period of two (2) years. It is not fair for the insurer to collect the premiums as long as
the insured is still alive, only to raise the issue of fraudulent concealment or misrepresentation when the insured
dies in order to defeat the right of the beneficiary to recover under the policy.
FACTS: Khu applied for a life insurance policy with Insular Life. The policy then took effect. Subsequently, the
policy lapsed due to non-payment by Khu. Khu then applied for reinstatement. Insular Life demanded for additional
premium payment and cancellation of riders pertaining to some benefits. Khu agreed. Insular Life reinstated the
policy with the understanding that Accidental Death Benefit and Waiver of Premium Disability was cancelled. Khu
died. The beneficiaries claimed for the benefit under the policy. The claim was denied. Insular Life advised Khu’s
beneficiaries that it had decided to rescind the reinstated policy on the grounds of concealment and
misrepresentation by Khu.
Insular alleged that Khu did not disclose his ailments hence, they would not have reinstated the policy if such facts
were disclosed. It contended that when Felipe Khu died, the policy was still contestable.
ISSUE: Whether or not Felipe’s reinstated life insurance policy is already incontestable at the time of his death.
HELD: No. The policy was incontestable hence, Insular Life shall pay the beneficiaries.
The law provides that “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.” After a
policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the
insured for a period of two years from the date of its issue or of its last reinstatement, the insurer cannot 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. ‘The insurer is deemed to have the necessary facilities to discover such fraudulent
concealment or misrepresentation within a period of two (2) years. It is not fair for the insurer to collect the
premiums as long as the insured is still alive, only to raise the issue of fraudulent concealment or
misrepresentation when the insured dies in order to defeat the right of the beneficiary to recover under the policy.
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.
Therefore, the policy was incontestable.

(06) Sun Life of Canada vs Sibya

G.R. No. 211212, June 8, 2016
By: Kathrina De Castro
Topic: Concealment; Misrepresentation; Contestability Period

DOCTRINE: if the insured dies within the two (2)-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
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 the provider or insurer
The insured did not disclose in his insurance application his previous medical treatment at the National Kidney
Transplant Institute that the insured was in “renal failure” and at a high risk medical condition. If the insurer knows
of such fact, it would not issue the insurance policy.
Is such non-disclosure of medical condition in the application constitute concealment or

misrepresentation hence, insurer cannot be held liable
No, insurer is liable. The Supreme Court have previously 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.” 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 the insured, 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 that the incontestability period has not yet set in, Sun Life failed to show that the insured committed
concealment and misrepresentation. The insured admitted on its application that he had medical treatment for
kidney ailment. 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 the provider or insurer.
(7) Bank of Philippines Islands v. Laingo

G.R. No. 205206, March 16, 2016
By: Gaite, Rhio Angeline
Topic: Duty of an Insurance Agent
Doctrine: An insurance company has the duty to communicate with the beneficiary upon receipt of notice of the
death of the insured. This notification is how a good father of a family should have acted within the scope of its
business dealings with its clients.
Facts: In 1999, Rheozel Laingo, the son of Yolanda Laingo, opened a "Platinum 2-in-1 Savings and Insurance"
account with BPI in its Claveria, Davao City branch. The Platinum 2-in-1 Savings and Insurance account is a
savings account where depositors are automatically covered by an insurance policy against disability or death
issued by petitioner FGU Insurance, now known as BPI/MS Insurance Corporation. BPI issued a passbook to
Rheozel corresponding to Savings Account No. 2233-0251-11. A Personal Accident Insurance Coverage Certificate
was also issued by FGU Insurance in the name of Rheozel with Yolanda as his named beneficiary. In 2000, Rheozel
died due to a vehicular accident as evidenced by a Certificate of Death issued by the Office of the Civil Registrar
General of Tagum City, Davao del Norte. Since Rheozel came from a reputable and affluent family, the Daily Mirror
headlined the story in its newspaper on 26 September 2000. By the next day, Yolanda instructed the family's
personal secretary, Alice Torbanos to go to BPI, Claveria, Davao City branch and inquire about the savings account
of Rheozel. Yolanda wanted to use the money in the savings account for Rheozel's burial and funeral expenses.
Alice went to BPI and talked to Jaime Ibe Rodriguez, BPI's Branch Manager regarding Yolanda's request. Due to
Yolanda's credit standing and relationship with BPI, BPI accommodated Yolanda who was allowed to withdraw
P995,000 from the account of Rheozel. A certain Ms. Laura Cabico, an employee of BPI, went to Rheozel's wake at
the Cosmopolitan Funeral Parlor to verify some information from Alice and brought with her a number of
documents for Laingo to sign for the withdrawal of the P995,000. More than two years later or on 2003, Rheozel's
sister, Rhealyn, while arranging Rheozel's personal things in his room at their residence in Ecoland, Davao City,
found the Personal Accident Insurance Coverage Certificate issued by FGU Insurance. Rhealyn immediately
conveyed the information to Laingo. Laingo sent two letters dated 11 September 2003 and 7 November 2003 to
BPI and FGU Insurance requesting them to process her claim as beneficiary of Rheozel's insurance policy. On 19
February 2004, FGU Insurance sent a reply-letter to Laingo denying her claim. FGU Insurance stated that Laingo
should have filed the claim within three calendar months from the death of Rheozel as required under Paragraph 15
of the Personal Accident Certificate of Insurance which states: “15. Written notice of claim shall be given to and
filed at FGU Insurance Corporation within three calendar months of death or disability.”
Issue: Whether or not Yolanda, as named beneficiary who had no knowledge of the existence of the insurance
contract, is bound by the three calendar month deadline for filing a written notice of claim upon the death of the
insured
Held: No. Yolanda, as beneficiary who had no knowledge of the existence of the insurance contract, is not bound
by the three calendar month deadline for filing a written notice of claim upon the death of the insured. In this case,
BPI had the obligation to carry out the agency by informing the beneficiary, who appeared before BPI to withdraw
funds of the insured who was BPI's depositor, not only of the existence of the insurance contract but also the
accompanying terms and conditions of the insurance policy in order for the beneficiary to be able to properly and
timely claim the benefit.
Upon Rheozel's death, which was properly communicated to BPI by his mother Yolanda, BPI, in turn, should have
fulfilled its duty, as agent of FGU Insurance, of advising Laingo that there was an added benefit of insurance
coverage in Rheozel's savings account. An insurance company has the duty to communicate with the beneficiary
upon receipt of notice of the death of the insured. This notification is how a good father of a family should have
acted within the scope of its business dealings with its clients. BPI is expected not only to provide utmost customer
satisfaction in terms of its own products and services but also to give assurance that its business concerns with its
partner entities are implemented accordingly.
There is a rationale in the contract of agency, which flows from the "doctrine of representation," that notice to the
agent is notice to the principal, Here, BPI had been informed of Rheozel's death by the latter's family. Since BPI is
the agent of FGU Insurance, then such notice of death to BPI is considered as notice to FGU Insurance as well. FGU
Insurance cannot now justify the denial of a beneficiary's insurance claim for being filed out of time when notice of
death had been communicated to its agent within a few days after the death of the depositor-insured. In short,
there was timely notice of Rheozel's death given to FGU Insurance within three months from Rheozel's death as
required by the insurance company.
Since BPI, as agent of FGU Insurance, fell short in notifying Laingo of the existence of the insurance policy, Laingo
had no means to ascertain that she was entitled to the insurance claim. It would be unfair for Laingo to shoulder
the burden of loss when BPI was remiss in its duty to properly notify her that she was a beneficiary.
(8) PARAMOUNT LIFE & GENERAL INSURANCE CORPORATION, Petitioner, vs. CHERRY T. CASTRO and
GLENN ANTHONY T. CASTRO, Respondents.
G.R. No. 195728 April 19, 2016
By: Grande, Jonicocel
Topic: mortgage redemption insurance.
Doctrine: Mortgage redemption insurance is a device for the protection of both the mortgagee and the mortgagor.
On the part of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected
demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be
applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the
obligation. In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event
of death, the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage
indebtedness.
Facts: PPSBI applied for and obtained insurance from Paramount, which accordingly issued Group Master Policy
No. G-086. Under Section 20, Article IV of the said policy, "all death benefits shall be payable to the creditor,
PPSBI, as its interest may appeal." Meanwhile, Virgilio J. Castro (Virgilio) - Cherry's husband and Glenn's father -
obtained a housing loan from the PPSBI. PPSBI required Virgilio to apply for a mortgage redemption insurance
(MRI) from Paramount to cover the loan. Paramount issued Certificate subject to the terms and conditions of
Group Master Policy No. G-086. Virgilio died of septic shock. Consequently, a claim was filed for death benefits
under the individual insurance coverage issued under the group policy. Paramount however denied the claim.
Paramount filed a complaint. It prayed that Application and Insurance Certificate covering the individual insurance
of Virgilio be declared null and void by reason of material concealment and misrepresentation. The Castros filed a
motion to include the PPSBI as an indispensible party-defendant They theorized that by virtue of the death of
Virgilio and the mandate of the group insurance policy in relation to his individual insurance policy, the PPSBI
stepped into the shoes of the Castros. According to the Castro’s, upon Virgilio's death, the obligation to pay the
third-party defendant (PPSBI) passed on to Paramount by virtue of the Mortgage Redemption Insurance, and not to
them as Virgilio's heirs.
Should PPSBI be considered as an indispensible party-defendant?
YES.
Mortgage redemption insurance is a device for the protection of both the mortgagee and the mortgagor. On the
part of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise of
the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be applied
to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. In a
similar vein, ample protection is given to the mortgagor under such a concept so that in the event of death, the
mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage
indebtedness.
In this case, the PPSBI, as the mortgagee-bank, required Virgilio to obtain an MRI from Paramount to cover his
housing loan. The issuance of the MRI, as evidenced by the Individual Insurance Certificate in Virgilio's favor, was
derived from the group insurance policy issued by Paramount in favor of the PPSBI. Paramount undertook to pay
the PPSBI "the benefits in accordance with the Insurance Schedule, upon receipt and approval of due proof that the
member has incurred a loss for which benefits are payable."
Should Paramount succeed in having the individual insurance certificate nullified, the PPSBI shall then proceed
against the Castro’s. This would contradict the provisions of the group insurance policy that ensure the direct
payment by the insurer to the bank.
In allowing the inclusion of the PPSBI as a third-party defendant, the Court recognizes the inseparable interest of
the bank (as policyholder of the group policy) in the validity of the individual insurance certificates issued by
Paramount. The PPSBI need not institute a separate case, considering that its cause of action is intimately related
to that of Paramount as against the Castro’s. The soundness of admitting a third-party complaint hinges on causal
connection between the claim of the plaintiff in his complaint and a claim for contribution, indemnity or other relief
of the defendant against the third-party defendant. In this case, the Castro’s stand to incur a bad debt to the
PPSBI - the exact event that is insured against by Group Master Policy No. G-086 - in the event that Paramount
succeeds in nullifying Virgilio's Individual Insurance Certificate. Hence, PPSBI should be impleaded as an
indispensible party.
(09) Capital Insurance and Surety Co., Inc. v. Del Monte Motor Works, Inc.
G.R. No. 159979, Dec. 09, 2015
By: Jovero, John Tristram V.
Doctrine: The securities are held as a contingency fund to answer for the claims against the insurance company by
all its policy holders and their beneficiaries. Thus, a single claimant may not lay stake on the securities to the
exclusion of all others.
Facts: On March 3, 1997, the respondent sued Vilfran Liner, Inc., Hilaria F. Villegas and Maura F. Villegas in the
Regional Trial Court in Quezon City (RTC) to recover the unpaid billings related to the fabrication and construction
of 35 passenger bus bodies. It applied for the issuance of a writ of preliminary attachment. Branch 221 of the RTC,
to which the case was assigned, issued the writ of preliminary attachment, which the sheriff served on the
defendants, resulting in the levy of 10 buses and three parcels of land belonging to the defendants.
On January 15, 2002, the RTC rendered its decision in favor of the respondent.
To enforce the decision against the counterbond dated June 10, 1997, the respondent moved for execution. The
RTC granted the motion, over the petitioner's opposition. Serving the writ of execution, the sheriff levied against
the petitioner's personal properties, and later issued the notice of auction sale. On August 15, 2002, the sheriff also
served a notice of garnishment against the security deposit of the petitioner in the Insurance Commission.
Issue: Are the securities deposited by the insurance company pursuant to Section 203 of the Insurance Code
subject of levy by a creditor?
Held: No. The security deposit is exempt from levy by a judgment creditor or any other claimant.
This exemption has been recognized in several rulings, particularly in Republic v. Del Monte Motors, Inc., the
prequel case for this ruling, where the Court has ruled:
x x x As worded, the law expressly and clearly states that the security deposit shall be (1) answerable for all the
obligations of the depositing insurer under its insurance contracts; (2) at all times free from any liens or
encumbrance; and (3) exempt from levy by any claimant.
Republic v. Del Monte Motors, Inc. also spelled out the purpose for the enactment of Section 203 of the Insurance
Code, to wit:
Basic is the statutory construction rule that provisions of a statute should be construed in accordance with the
purpose for which it was enacted. That is, the securities are held as a contingency fund to answer for the claims
against the insurance company by all its policy holders and their beneficiaries. This step is taken in the event that
the company becomes insolvent or otherwise unable to satisfy the claims against it. Thus, a single claimant may
not lay stake on the securities to the exclusion of all others. The other parties may have their own claims against
the insurance company under other insurance contracts it has entered into.
The Insurance Commissioner's refusal to release was legally justified. Under Section 191 and Section 203 of the
Insurance Code, the Insurance Commissioner had the specific legal duty to hold the security deposits for the
benefit of all policy holders.
INSURANCE LAW CASE DIGESTS | 10
(10) Loadstar Shipping Company v Malayan Insurance Incorporated

G.R. No. 185565, November 26, 2014
By: Lapuz, Jesus Jr. Ros
Topic: Subrogation
Doctrine: The rights of a subrogee cannot be superior to the rights possessed by a subrogor. In other words, a
subrogee cannot succeed to a right not possessed by the subrogor. A subrogee in effect steps into the shoes of the
insured and can recover only if the insured likewise could have recovered. Consequently, an insurer indemnifies the
insured based on the loss or injury the latter actually suffered from. If there is no loss or injury, then there is no
obligation on the part of the insurer to indemnify the insured
Loadstar Shipping and Philippine Associated Smelting and Refining Corporation (PASAR) entered into a Contract of
Affreightment for domestic bulk transport of the latter’s copper concentrates which were loaded in Cargo Hold Nos.
1 and 2 of MV “Bobcat”, a marine vessel owned by Loadstar International Shipping Co., Inc. (Loadstar
International) and operated by Loadstar Shipping under a charter party agreement. The cargo was insured with
Malayan Insurance Company, Inc. (Malayan).
The vessel’s chief officer on routine inspection found a crack on starboard side of the main deck which caused
seawater to enter and wet the cargo. Upon inspection, the Elite Adjusters and Surveyor, Inc. (Elite Surveyor)
confirmed that samples of copper concentrates from Cargo Hold No. 2 were contaminated by seawater.
PASAR sent a formal notice of claim in the amount of P 37,477,361.31 to Loadstar Shipping. On the basis of the
Elite Surveyor’s recommendation, Malayan paid PASAR the amount of P 32,351,102.32. PASAR signed a
subrogation receipt in favor of Malayan. To recover the amount paid and in the exercise of its right of subrogation,
Malayan demanded reimbursement from Loadstar Shipping, which refused to comply. Consequently, on
September 19, 2001, Malayan instituted with the RTC a complaint for damages. In its complaint, Malayan mainly
alleged that as a direct and natural consequence of the unseaworthiness of the vessel, PASAR suffered loss of the
cargo. Loadstar Shipping and Loadstar International denied respondent’s allegations and averred that respondent’s
payment to PASAR, on the basis of the latter’s fraudulent claim, does not entitle respondent automatic right of
recovery by virtue of subrogation.
Is Malayan Insurance automatically entitled to the right of recovery by virtue of subrogation against
petitioners, merely on the basis of PASAR’s claim?
No, Malayan should first adduce proof of pecuniary loss to PASAR.
Malayan’s claim against the petitioners is based on subrogation to the rights possessed by PASAR as consignee of
the allegedly damaged goods. The right of subrogation stems from Article 2207 of the New Civil Code. The rights of
a subrogee cannot be superior to the rights possessed by a subrogor. In other words, a subrogee cannot succeed
to a right not possessed by the subrogor. A subrogee in effect steps into the shoes of the insured and can recover
only if the insured likewise could have recovered. Consequently, an insurer indemnifies the insured based on the
loss or injury the latter actually suffered from. If there is no loss or injury, then there is no obligation on the part
of the insurer to indemnify the insured. Should the insurer pay the insured and it turns out that indemnification is
not due, or if due, the amount paid is excessive, the insurer takes the risk of not being able to seek recompense
from the alleged wrongdoer. This is because the supposed subrogor did not possess the right to be indemnified
and therefore, no right to collect is passed on to the subrogee.
As regards the determination of actual damages, “[i]t is axiomatic that actual damages must be proved with
reasonable degree of certainty and a party is entitled only to such compensation for the pecuniary loss that was
duly proven. As Malayan is claiming for actual damages, it bears the burden of proof to substantiate its claim.
Actual damages are not presumed. The claimant must prove the actual amount of loss with a reasonable degree of
certainty premised upon competent proof and on the best evidence obtainable. Specific facts that could afford a
basis for measuring whatever compensatory or actual damages are borne must be pointed out. Actual damages
cannot be anchored on mere surmises, speculations or conjectures.
It is not disputed that the copper concentrates carried by M/V Bobcat from Poro Point, La Union to Isabel, Leyte
were indeed contaminated with seawater. The issue lies on whether such contamination resulted to damage, and
the costs thereof, if any, incurred by the insured PASAR. In this case, Malayan, as the insurer of PASAR, neither
stated nor proved that the goods are rendered useless or unfit for the purpose intended by PASAR due to
contamination with seawater. Hence, there is no basis for the goods’ rejection under Article 365 of the Code of
Commerce. Clearly, it is erroneous for Malayan to reimburse PASAR as though the latter suffered from total loss of
goods in the absence of proof that PASAR sustained such kind of loss.
(11) Sun Life of Canada (Philippines) vs. Tan Kit

G.R. No. 183272, October 15, 2014
By: Mano, Razna I.
Topic: Insurance Proceeds v. Insurance Premium; Compensatory Interest
Doctrine: As a form of damages, compensatory interest is due only if the obligor is proven to have failed to
comply with his obligation.
Respondent Tan Kit is the widow and designated beneficiary of Norberto Tan Kit (Norberto), whose application for a
life insurance policy was granted by petitioner Sun Life. Within the two-year contestability period, Norberto died of
disseminated gastric carcinoma. Consequently, respondent Tan Kit filed a claim under the subject policy, but
petitioner denied respondent Tan Kit’s claim on account of Norberto’s failure to fully and faithfully disclose in his
insurance application certain material and relevant information about his health and smoking history. Specifically,
Norberto answered "No" to the question inquiring whether he had smoked cigarettes or cigars within the last 12
months prior to filling out said application. Believing that the policy is null and void, petitioner opined that its
liability is limited to the refund of all the premiums paid. Accordingly, it enclosed in a letter a check representing
the premium refund. Respondent Tan Kit refused to accept the check and insisted on the payment of the insurance
proceeds. Petitioner filed a Complaint for Rescission of Insurance Contract before the Regional Trial Court. RTC
ordered petitioner to refund the face value of the insurance policy with interest at 6% per annum. CA increased the
interest rate to 12% per annum from the time of the death of the insured until fully paid.
Is the Tio Khe Cho ruling applicable insofar as it pointed to Sections 243 and 244 of the Insurance Code
which explicitly provide for payment of interest when there is unjustified refusal or withholding of
payment of the claim by the insurer, and to Article 2209 of the New Civil Code which likewise provides
for payment of interest when the debtor is in delay?
No. Tio Khe Chio is not applicable in this case.
Tio Khe Chio is not applicable here as it deals with payment of interest on the insurance proceeds in which the
claim therefor was either unreasonably denied or withheld or the insurer incurred delay in the payment thereof.
In this case, what is involved is an order for petitioner to refund to respondents the insurance premium paid by
Norberto as a consequence of the rescission of the insurance contract on account of the latter’s concealment of
material information in his insurance application. Moreover, petitioner did not unreasonably deny or withhold the
insurance proceeds as it was satisfactorily established that Norberto was guilty of concealment.
What kind of interest was imposed by the CA?
There are two kinds of interest – monetary and compensatory.
Monetary interest refers to the compensation set by the parties for the use or forbearance of money. No such
interest shall be due unless it has been expressly stipulated in writing. On the other hand, compensatory interest
refers to the penalty or indemnity for damages imposed by law or by the courts.
Clearly, the interest imposed by the CA is not monetary interest because aside from the fact that there is no use or
forbearance of money involved in this case, the subject interest was not one which was agreed upon by the parties
in writing. Hence, the interest imposed by the CA is compensatory interest.
Did the CA correctly impose compensatory interest on the premium refund reckoned from the time of
death of the insured until fully paid?
No. The CA incorrectly imposed compensatory interest on the premium refund reckoned from the time of death of
the insured until fully paid.
In this case, it is undisputed that simultaneous to its giving of notice to respondents that it was rescinding the
policy due to concealment, petitioner tendered the refund of premium by attaching to the said notice a check
representing the amount of refund. However, respondents refused to accept the same since they were seeking for
the release of the proceeds of the policy. Moreover, petitioner did not incur delay or unjustifiably deny the claim.
Based on the foregoing, petitioner properly complied with its obligation under the law and contract. Hence, it
should not be made liable to pay compensatory interest.
(12) Erlinda V. Alvarez II vs Sun Life of Canada (Philippines), Inc.

G.R. No. 200674, September 29, 2014
By: Marasigan, Mariz Angelle R.
Topic: Concealment or Misrepresentation
Doctrine: A party to an insurance contract is obliged to communicate all facts within his knowledge which are
material to the same, to be determined by the probable and reasonable influence of the facts upon the party to
whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in
making his inquiries.
Sun Life of Canada (Philippines), Inc. issued Participating Life Insurance Policy to Erlinda V. Alvarez II covering the
life of her mother Erlinda V. Alvarez (the insured) with a face value of P500,000.00 payable upon the death of the
insured. Since the insured was found to have been suffering from high blood pressure, she was classified as high-
risk, which required payment of a higher premium. On April 27, 2005, the insured passed away. Thereafter, Sun
Life sent Erlinda a letter requiring the submission of documents to facilitate claim under the policy. Discovering
several medical conditions which pre-dated the application for the policy, Sun Life sent Erlinda another letter
declaring the policy void and denying Erlinda’s claim therefrom. Specifically, it discovered that in 2003, the insured
sought consultations with the following: (1) University of Santo Tomas (UST Hospital), which found her to be
suffering from stable angina, atherosclerosis, and lateral wall ischemia; and (2) AIM Imaging Medical Services,
which likewise found her to be suffering from lateral wall ischemia. On December 6, 2005, Erlinda, through its
counsel, sent a letter to Sun Life demanding the payment of the insurance claim on the policy, which Sun Life
denied. Erlinda filed a complaint for breach of contract and damages against Sun Life before the RTC of Makati City.
RTC found no concealment or misrepresentation on the part of the insured and ruled in favor of Erlinda. On appeal,
the CA reversed the lower court’s decision. It ruled that the insured’s concealment of her chest pain, lateral wall
ischemia, and stable angina entitled Sun Life to rescind the contract of insurance, especially because the
information that the insured failed to disclose were material and relevant to the approval and issuance of the
insurance policy. Furthermore, it took consideration the 2-year incontestability clause in the contract of insurance
and held that since the insured died on April 27, 2005, the incontestability period of 2 years from the issuance of
the policy on December 1, 2003 had not yet set in. Thus, Sun Life was not barred from rescinding the contract on
the ground of concealment or misrepresentation.
Can Sun Life rescind the contract of insurance on the ground of concealment or misrepresentation of
medical condition on the part of the insured?
Yes. Sec. 27 of the Insurance Code provides that a concealment, whether intentional or unintentional, entitles the
injured party to rescind a contract of insurance. Concealment according to the same Code, is a neglect to
communicate that which a party knows and ought to communicate. A party to an insurance contract, therefore, is
obliged to communicate all facts within his knowledge which are material to the same, to be determined by the
probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his
estimate of the disadvantages of the proposed contract, or in making his inquiries.
In the case at hand, it is undisputed that prior to the approval of the insured’s insurance policy and during the
stage of her application, she did not disclose the fact that she consulted with the UST Hospital and the AIM Imaging
Medical Services which diagnosed her to be suffering from stable angina, atherosclerosis, and lateral wall ischemia.
Such fact, as the CA aptly noted, is material to the contract in view of its effect on the respondent in forming its
estimate of whether to deny or approve the application as well as in prescribing the amount of premium thereon.
Given this materiality of the UST Hospital’s and AIM’s findings, the insured was necessarily obliged to disclose the
same to the insurer. She, however, failed to do so.
(13) H.H. Hollero Construction, Inc. vs. Government Service Insurance System (GSIS)
G.R. No. 152334, September 24, 2014
By: Pangilinan, Gene Alexis
Topic: Contracts of insurance
Doctrine: Contracts of insurance, like other contracts, are to be construed according to the sense and meaning of
the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken
and understood in their plain, ordinary, and popular sense.
GSIS and petitioner H.H. Hollero Construction, Inc. entered into a Project Agreement whereby the latter undertook
the development of a GSIS housing project. Petitioner obligated itself to insure the Project upon the execution of
the Agreement under a Contractors’ All Risks (CAR) Insurance. Pursuant to its undertaking, petitioner secured two
CAR Policies, and under both policies, it was provided that all benefits thereunder shall be forfeited if no action is
instituted within twelve (12) months after the rejection of the claim for loss, damage or liability.
During the construction, three (3) typhoons hit which caused considerable damage to the Project on June 4, 1988,
July 29, 1988, and October 11, 1989. Thus, petitioner filed several claims for indemnity with the GSIS. The GSIS
rejected petitioner’s indemnity claims for the damages wrought by the typhoons through two letters on April 26,
1990 and June 21, 1990. Petitioner filed a Complaint for Sum of Money and Damages on September 27, 1991
which was opposed by the GSIS on the ground that the causes of action stated therein are barred by the twelve-
month limitation provided under the policies.
The RTC declared the GSIS liable for petitioner’s indemnity claims. The CA reversed the RTC, ruling that the
complaint filed on September 27, 1991 was barred by prescription, having been commenced beyond the twelve-
month limitation provided under the policies, reckoned from the final rejection of the indemnity claims on April 26,
1990 and June 21, 1990.
Is the complaint filed on September 27, 1991 barred by prescription?
YES, the complaint filed on September 27, 1991 is barred by prescription.
Contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms
which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and
understood in their plain, ordinary, and popular sense.
Section 10 of the General Conditions of the subject CAR Policies provide that if a claim is made and rejected and no
action or suit is commenced within twelve months after such rejection all benefit under the Policy shall be forfeited.
The prescriptive period for the insured’s action for indemnity should be reckoned from the “final rejection” of the
claim, which was made manifest through the two letters of GSIS dated April 26, 1990 and June 21, 1990. The
Court held that “final rejection” simply means denial by the insurer of the claims of the insured and not the
rejection or denial by the insurer of the insured’s motion or request for reconsideration. The rejection referred to
should be construed as the rejection in the first instance. The right of the insured to the payment of his loss
accrues from the happening of the loss. However, the cause of action in an insurance contract does not accrue until
the insured’s claim is finally rejected by the insurer. This is because before such final rejection there is no real
necessity for bringing suit.
Thus, petitioner’s causes of action for indemnity accrued from its receipt of the letters dated April 26, 1990 and
June 21, 1990, or the date the GSIS rejected its claims in the first instance. Consequently, given that it allowed
more than twelve (12) months to lapse before filing the necessary complaint on September 27, 1991, its causes of
action had already prescribed.
(14) Fortune Medicare, Inc. v. Amorin

By: Radovan, Althea
Doctrine: Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the
party which prepared the contract — the insurer
Amorin is a cardholder/member of Fortune Medicare, Inc. While on vacation in Honolulu, Hawaii, United States of
America (U.S.A.) in May 1999, Amorin underwent an emergency surgery, specifically appendectomy, at the St.
Francis Medical Center, causing him to incur professional and hospitalization expenses of US$7,242.35 and
US$1,777.79, respectively. He attempted to recover from Fortune Care the full amount thereof upon his return to
Manila, but the company merely approved a reimbursement of P12,151.36, an amount that was based on the
average cost of appendectomy, net of medicare deduction, if the procedure were performed in an accredited
hospital in Metro Manila. Amorinm under protest received the approved amount but asked for its adjustment to
cover the total amount of professional fees which he had paid, and eighty percent (80%) of the approved standard
charges based on “American standard,” considering that the emergency procedure occurred in the U.S.A. The point
of dispute now concerns the proper interpretation of the phrase “approved standard charges,” as stated in the
health care agreement, which shall be the base for the allowable 80% benefit.
Fortune Care argues that its liability to Amorin should be limited to the amount that he would have incurred had his
emergency treatment been performed in an accredited hospital in the Philippines.
Is the contention of Fortune care that its liability be limited by the amount that Amorin would have
incurred if his emergency treatment had been performed in an accredited hospital in the Philippines
correct?
No. Fortune Care’s liability to Amorin under the subject Health Care Contract should be based on the expenses for
hospital and professional fees which he actually incurred, and should not be limited by the amount that he would
have incurred had his emergency treatment been performed in an accredited hospital in the Philippines.
A health care agreement is in the nature of nonlife 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.
When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as
to preclude the insurer from noncompliance with his obligation. Being a contract of adhesion, the terms of an
insurance contract are to be construed strictly against the party which prepared the contract — the insurer.
This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service
contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if 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.
As may be gleaned from the Health Care Contract, the parties thereto contemplated the possibility of emergency
care in a foreign country. As the contract recognized Fortune Care’s liability for emergency treatments even in
foreign territories, it expressly limited its liability only insofar as the percentage of hospitalization and professional
fees that must be paid or reimbursed was concerned, pegged at a mere 80% of the approved standard charges.
(15) Mitsubishi Motors Philippines Salaried Employees Union (MMPSEU) vs.

Mitsubishi Motors Philippines Corporation (MMPC)
G.R. No. 175773, June 17, 2013
By: Rosario, Patricia Kaye T.
Topic: Double Insurance
Doctrine: To allow reimbursement of amounts paid under other insurance policies shall constitute double recovery
which is not sanctioned by law.
The CBA of the parties provides that the company shall shoulder the hospitalization expenses of the dependents of
covered employees up to a maximum amount of ₱50,000 per confinement, subject to certain conditions. Covered
employees pay part of the hospitalization insurance premium through monthly salary deduction. Three members of
MMPSEU filed claims for reimbursement of hospitalization expenses of their dependents. A portion of the
hospitalization expenses were paid by the dependents’ own health insurance policies. MMPC denied the claims
contending that double insurance would result if the employees would receive the full amount of hospitalization
expenses despite having already received payment of portions thereof from other health insurance providers.
MMPSEU countered that under the CBA, member-employees are entitled to full reimbursement of medical expenses
incurred by their dependents regardless of any amounts paid by the latter’s health insurance provider. Otherwise,
MMPC would be unjustly benefited from the monthly premium contributed by the employees through salary
deduction.
A. Is the collateral source rule, which was cited by the voluntary arbitrator to justify the full
reimbursement of the hospital expenses to respondents, applicable to MMPC?
NO, the collateral source does not apply to MMPC.
The collateral source rule provides that a tortfeasor has no right to any mitigation of damages because of payments
or compensation received by the injured person from an independent source. The collateral source rule is designed
to strike a balance between two competing principles of tort law: (1) a plaintiff is entitled to compensation
sufficient to make him whole, but no more; and (2) a defendant is liable for all damages that proximately result
from his wrong. The collateral source rule applies in order to place the responsibility for losses on the party causing
them. Its application is justified so that the wrongdoer should not benefit from the expenditures made by the
injured party or take advantage of contracts or other relations that may exist between the injured party and third
persons. However, it finds no application to cases involving no-fault insurances under which the insured is
indemnified for losses by insurance companies, regardless of who was at fault in the incident generating the losses.
Here, it is clear that MMPC is a no-fault insurer. Hence, it cannot be obliged to pay the hospitalization expenses of
the dependents of its employees which had already been paid by separate health insurance providers of said
dependents.
B. Should MMPC pay the full amount to respondents considering the fact that the CBA has no express
provision barring claims for hospitalization expenses already paid by other insurers?
NO, the conditions set forth in the CBA provision indicate an intention to limit MMPC’s liability only to actual
expenses incurred by the employees’ dependents.
Since the subject CBA provision is an insurance contract, the rights and obligations of the parties must be
determined in accordance with the general principles of insurance law. Being in the nature of a non-life insurance
contract and essentially a contract of indemnity, the CBA provision obligates MMPC to indemnify the covered
employees’ medical expenses incurred by their dependents, but only up to the extent of the expenses actually
incurred. This is consistent with the principle of indemnity which proscribes the insured from recovering greater
than the loss.
Here, the dependents’ group hospitalization insurance provision in the CBA specifically contains a condition which
limits MMPC’s liability only up to the extent of the expenses that should be paid by the covered employee’s
dependent to the hospital and doctor. This is evident from the portion which states that "payment by MMPC shall
be direct to the hospital and doctor." To allow reimbursement of amounts paid under other insurance policies shall
constitute double recovery which is not sanctioned by law.
(16) Vector Shipping Corporation v. American Home Assurance Company

G.R. No. 159213, July 3, 2013
By: Samson, Maria Johanna Ilyssa
Topic: Subrogation
Doctrine: Payment by the insurer to the assured operates as an equitable assignment to the former of all
remedies which the latter 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 written
assignment of claim. It accrues simply upon payment of the insurance claim by the insurer.
Vector was the operator of the motor tanker M/T Vector, while Soriano was the registered owner of the M/T Vector.
Respondent is a domestic insurance corporation. Caltex entered into a contract of affreightment with Vector for the
transport of Caltex’s petroleum cargo through the M/T Vector. Caltex insured the petroleum cargo with respondent
for P7,455,421.08 under Marine Open Policy No. 34-5093-6. The M/T Vector and the M/V Doña Paz, the latter a
vessel owned and operated by Sulpicio Lines, Inc., collided in the open sea near Dumali Point in Tablas Strait,
located between the Provinces of Marinduque and Oriental Mindoro. The collision led to the sinking of both vessels.
The entire petroleum cargo of Caltex on board the M/T Vector perished. Respondent indemnified Caltex for the loss
of the petroleum cargo. Respondent filed a complaint against Vector, Soriano, and Sulpicio Lines, Inc. to recover
the full amount it paid to Caltex. RTC issued a resolution dismissing the case based on the ground that the action
filed by Respondent had already prescribed, since the action is upon a quasi-delict and must be commenced within
four (4) years from the day they may be brought. However, CA reversed the earlier ruling of the RTC, and held
Vector and Soriano jointly and severally liable to respondent for the reimbursement of the amount paid to Caltex.
The CA is constrained to rule that the relationship that existed between Caltex and M/V Doña Paz is that of a quasi-
delict while that between Caltex and M/T Vector is culpa contractual based on a Contract of affreightment or a
charter party. Therefore, the prescriptive period is ten (10) years.
Is the action of Respondent already barred by prescription for bringing it only on March 5, 1992?
No, Respondent’s action did not yet prescribe. The court finds and holds that the present action was not upon a
written contract nor upon a quasi-delict, but upon an obligation created by law. Hence, it came under Article 1144
(2) of the Civil Code. This is because the subrogation of respondent to the rights of Caltex as the insured was by
virtue of the express provision of law embodied in Article 2207 of the Civil Code, to wit: “Article 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.”
Payment by the insurer to the assured operates as an equitable assignment to the former of all remedies which the
latter 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 written assignment of claim. It
accrues simply upon payment of the insurance claim by the insurer
Considering that the cause of action accrued as of the time respondent actually indemnified Caltex in the amount of
P7,455,421.08 on July 12, 1988, the action was not yet barred by the time of the filing of its complaint on March 5,
1992, which was well within the 10-year period prescribed by Article 1144 of the Civil Code. The payment made to
Caltex as the insured being thereby duly documented, respondent became subrogated as a matter of course
pursuant to Article 2207 of the Civil Code. In legal contemplation, subrogation is the “substitution of another
person in the place of the creditor, to whose rights he succeeds in relation to the debt”; and is “independent of any
mere contractual relations between the parties to be affected by it, and is broad enough to cover every instance in
which one party is required to pay a debt for which another is primarily answerable, and which in equity and
conscience ought to be discharged by the latter.”
(17) Asian Terminals, Inc. vs. Philam Insurance Co., Inc.

G.R. No. 181163, July 24, 2013
By: Torres, Ma. Roma
Topic: Right of subrogation
Doctrine: The right of subrogation accrues simply upon payment by the insurance company of the insurance
claim.
FACTS: Nichimen shipped to Universal Motors (UM) 219 packages containing 120 units of brand new Nissan Pickup
Truck, on board the vessel S/S “Calayan Iris” from Japan to Manila. The shipment was insured with Philam against
all risks. Upon arrival, the shipment was unloaded by the staff of ATI, but later it found that the package was in
bad order. The Turn Over Survey of Bad Order Cargoes identified two packages as being dented and broken. The
shipment was then withdrawn by R.F. Revilla, the authorized broker of UM, and delivered to the latter’s warehouse.
Upon the request of UM, a bad order survey was conducted on the cargoes and it was found that one Frame Axle
Sub was deeply dented, deformed and misaligned. Owing to the extent of the damage to said cargoes, UM declared
them a total loss.
UM filed a formal claim for damages against Westwind, ATI and RF Revilla, which went unheeded. UM was then
compensated by Philam, which later filed a complaint against Westwind, ATI and RF Revilla as a subrogee of UM.
ISSUE: WON Philam has established the basis of its claim against ATI and Westwind
HELD:
Yes, Philam has adequately established the basis of its claim against petitioners ATI and Westwind. Philam, as
insurer, was subrogated to the rights of the consignee, UM, pursuant to the Subrogation Receipt executed by the
latter in favor of the former. The right of subrogation accrues simply upon payment by the insurance company of
the insurance claim. Petitioner Philam’s action finds support in Article 2207 of the Civil Code, which provides as
follows: 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.
(18) Manila Bankers Life Insurance Corporation vs. Cresencia Aban

G.R. No. 175666 July 29, 2013
By: Valencia, Emmanuelle Nicole L.
Topic: Fraudulent Intent; Incontestability Clause
Doctrines: Fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract.
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.
Delia Sotero took out a life insurance policy from Manila Bankers Life Insurance Corporation, designating Cresencia
Aban, her niece, as her beneficiary. Bankers Life issued a policy with a PhP 100,000.00 face value in Delia’s favor,
after the requisite medical examination and payment of the insurance premium.
After more than two years and seven months, Delia passed away, and Cresencia filed a claim for the insurance
proceeds. Bankers Life conducted an investigation into the claim, and found that Delia had not personally applied
for the insurance coverage, since she was illiterate; she had been sickly since 1990; she did not have the financial
capability to pay the premiums; she did not sign the application for insurance; and that Cresencia had been the
one to file the application, and designated herself as the beneficiary.
For these reasons, Bankers Life denied Cresencia’s claim, and refunded the premiums paid on the policy. Bankers
Life then filed a civil case for rescission and/or annulment of the policy, claiming that the policy was obtained by
fraud, concealment and/or misrepresentation under the Insurance Code, thus rendering the contract voidable
under Art. 1390 of the Civil Code.
Cresencia moved for dismissal, claiming that under Sec. 48 of the Insurance Code, “after a policy of life insurance
made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of
two years from the date of its issue or of its latest reinstatement, the insurer cannot prove that the policy is void
ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured of his
agent.”
Should Bankers Life be permitted to rescind the contract of insurance?
No, Bankers Life should not be permitted to rescind the contract of insurance.
Sec. 48 of the Insurance Code provides that “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. After a policy of life insurance made payable on the death of the insured shall have been in force
during the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement, the
insurer cannot 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.”
Sec. 48 regulates the actions of both the insurer and the insured. The 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 fraudulent concealment or misrepresentation. After the 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.
The so-called “incontestability clause” precludes the insurer from raising the defenses of false representations or
concealment of material facts insofar as health and previous diseases are concerned if the insurance has been in
force for at least two years during the insured’s lifetime. The phrase “during the lifetime” found in Section 48
simply means that the policy is no longer considered in force after the insured has died. The key phrase in the
second paragraph of Section 48 is “for a period of two years.”
In this case, the insurance policy was thus in force for a period of 3 years, 7 months, and 24 days. Considering that
the insured died after the two-year period, Bankers Life is, therefore, barred from proving that the policy is void ab
initio by reason of the insured’s fraudulent concealment or misrepresentation or want of insurable interest on the
part of the beneficiary, herein defendant-appellee.
(19) MALAYAN INSURANCE COMPANY, INC. v. PAP CO., LTD. (PHIL. BRANCH)
G.R. No. 200784 7 August 2013
By: Valencia, Mary Clydeen L.
TOPIC: Concealment; Alteration
DOCTRINE: (1) When an original policy is renewed on an "as is basis", the renewal policy carries with
it the same stipulations and limitations specified in the original policy. (2) An insurer can exercise its
right to rescind an insurance contract when the following conditions are present, to wit: (a) The policy
limits the use or condition of the thing insured; (b) There is an alteration in said use or condition; (c)
The alteration is without the consent of the insurer; (d) The alteration is made by means within the
insured’s control; and (e) The alteration increases the risk of loss.
On 13 May 1996, PAP Co. obtained a PHP15,000,000.00 fire insurance policy from Malayan Insurance
covering its machineries and equipment effective for one (1) year or until 13 May 1997. The policy
expressly stated (1) that the insured properties were located at "Sanyo Precision Phils. Building, Phase
III, Lots 4 & 6, Block 15, EPZA, Rosario, Cavite and (2) that 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 Malayan
Insurance] if the property insured be removed to any building or place other than in that which is
therein stated to be insured. Before its expiration, the policy was renewed on an "as is" basis for
another year or 13 until May 1998. Later, the subject properties were transferred to the Pace Factory
also in PEZA. Pap Co. relayed such fact of transfer to RCBC, the entity which made the referral and the
named beneficiary in the policy. On 12 October 1997, during the effectivity of the renewal policy, a fire
broke out at the Pace Factory which totally burned the insured properties. PAP Co. filed a fire insurance
claim with Malayan in the amount insured, but Malayan Insurance Company denied it.
(A) Is Malayan liable for the loss of the insured properties under the subject fire insurance policy?
No. The original policy was renewed on an "as is basis". Thus, the renewal policy carried with it the same
stipulations and limitations. The terms and conditions in the renewal policy provided, among others, that the
location of the risk insured against is at the Sanyo factory in PEZA. However, the subject insured properties were
totally burned at the Pace Factory. Although it was also located in PEZA, Pace Factory was not the location
stipulated in the renewal policy. There being an unconsented removal, the transfer was at PAP Co.’s own risk.
Consequently, it must suffer the consequences of the fire.
Pap Co. failed to notify and to obtain the consent of Malayan Insurance regarding the removal. What PAP did to
prove that Malayan was notified was to show that it relayed the fact of transfer to RCBC. Malayan Insurance and
RCBC might have been sister companies, but such fact did not make one an agent of the other. The fact that RCBC
referred PAP Co. to Malayan Insurance did not clothe it with authority to represent and bind the said insurance
company. After the referral, PAP Co. dealt directly with Malayan Insurance. [Granting that any notice to RCBC was
binding on Malayan Insurance, PAP Co.’s claim that it notified RCBC and Malayan Insurance was not indubitably
established. At best, PAP could only come up with the hearsay testimony of its principal witness.]
(B) Is Malayan entitled to rescind the subject fire insurance contract?
Yes. The transfer of the location of the subject properties without notice and without Malayan Insurance Company’s
consent after the renewal of the policy, PAP Co. committed concealment, misrepresentation and a breach of a
material warranty. In this regard, Sections 26 of the Insurance Code provides that a neglect to communicate that
which a party knows and ought to communicate is called a concealment, and Section 27 of the same Code provides
that a concealment entitles the injured party to rescind a contract of insurance.
Further, based on 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 of the Insurance Code provides, as
follows:
Section 68. 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.
Accordingly, an insurer can exercise its right to rescind an insurance contract when the following conditions are
present, to wit:
1) The policy limits the use or condition of the thing insured;

2) There is an alteration in said use or condition;
3) The alteration is without the consent of the insurer;
4) The alteration is made by means within the insured’s control; and
5) The alteration increases the risk of loss.20
In the instant case, all the foregoing 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.
(20) Alpha Insurance and Surety Co. vs. Castor

G.R. No. 198174, September 2, 2013
By: Alba, Ma. Angela
Doctrine: A contract of insurance is a contract of adhesion. So, when the terms of the insurance contract contain
limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance
with his obligation.
Arsenia Castor entered into a contract of insurance with Alpha Insurance involving her motor vehicle, a Toyota
Revo. The contract of insurance obligates the petitioner to pay the respondent the amount P630,000.00 in case of
loss or damage to said vehicle during the period covered. Within the period covered, Castor’s driver, Lanuza, stole
her car. Castor promptly reported the incident to the police and concomitantly notified Alpha Insurance of the said
loss and demanded payment of the insurance proceeds. Alpha Insurance denied the insurance claim of Castor
stating that in the insurance contract, the insurer is not liable to pay for “Any malicious damage caused by the
Insured, any member of his family or by a person in the Insured’s service.” The pertinent provisions of the
insurance contract are herein reproduced:
SECTION III — LOSS OR DAMAGE

The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to the
Schedule Vehicle and its accessories and spare parts whilst thereon:
(a) by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or
consequent upon wear and tear;
(b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;
(c) by malicious act;
(d) whilst in transit (including the processes of loading and unloading) incidental to such transit by road, rail, inland
waterway, lift or elevator.
EXCEPTIONS TO SECTION III

The Company shall not be liable to pay for:
1. Loss or Damage in respect of any claim or series of claims arising out of one event, the first amount of each and
every loss for each and every vehicle insured by this Policy, such amount being equal to one percent (1.00%) of
the Insured’s estimate of Fair Market Value as shown in the Policy Schedule with a minimum deductible amount of
Php3,000.00;
2. Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or breakages;
3. Damage to tires, unless the Schedule Vehicle is damaged at the same time;
4. Any malicious damage caused by the Insured, any member of his family or by a person in the Insured’s service.
Is the loss of Castor’s vehicle excluded under the insurance policy?
No. A contract of insurance is a contract of adhesion. So, when the terms of the insurance contract contain
limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance
with his obligation.
The theft perpetrated by the driver of the insured is not an exception to the coverage from the insurance policy,
since Section III thereof did not qualify as to who would commit the theft.
Contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms
which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and
understood in their plain, ordinary and popular sense. Accordingly, in interpreting the exclusions in an insurance
contract, the terms used specifying the excluded classes therein are to be given their meaning as understood in
common speech.
(21) First Lepanto-Taisho Insurance Corp. v. Chevron Philippines

G.R. No. 177839, January 18, 2012
By: Arid, Hannah Mhae G.
Topic: Contract: Insurance Surety
Doctrine: Section 175 of the Insurance Code defines a suretyship as a contract or agreement whereby a party,
called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or
undertaking in favor of a third party, called the obligee. It includes official recognizances, stipulations, bonds or
undertakings issued under Act 536, as amended. Suretyship arises upon the solidary binding of a person –
deemed the surety – with the principal debtor, for the purpose of fulfilling an obligation. Such undertaking makes
a surety agreement an ancillary contract as it presupposes the existence of a principal contract. Although the
contract of a surety is in essence secondary only to a valid principal obligation, the surety becomes liable for the
debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive
any benefit therefrom. And notwithstanding the fact that the surety contract is secondary to the principal
obligation, the surety assumes liability as a regular party to the undertaking.
Chevron Philippines sued First Lepanto for the payment of unpaid oil and petroleum purchases made by its
distributor, Fumitechniks. Fumitechniks had applied for and was issued a surety bond by First Lepanto for 15.7M
which was in compliance with the requirement for the grant of a credit line with Chevron to guarantee payment of
the cost of fuel. (Executed on Oct 15, 2001, will expire on Oct 15, 2002). When Fumitechniks defaulted on its
obligation because the check it issued was dishonoured, Chevron then notified First Lepanto of Fumitechniks’
unpaid purchases (15.08M) through a letter. Chevron also sent copies of invoices showing the deliveries of fuel as
requested by First Lepanto. Simultaneously, a letter was sent to Fumitechniks demanding that it submit to First
Lepanto 1)its comment on Chevron’s notification letter, 2) copy of the agreement secured by the Bond plus the
delivery receipts, etc 3) information on the particulars including terms and conditions. However Fumitechniks
replied that it cannot submit the requested agreement since there was no such agreement executed between
Fumitechniks and Chevron. However it enclosed a copy of another surety bond issued by CICI General Insurance
Corporation in favor of Chevron to secure the obligation of Fumitechniks and/or Prime Asia Sales and Services in
the amount of 15M. First Lepanto then advised Chevron of the non-existence of the principal agreement as
confirmed by Fumitechniks. It explained that being an accessory contract, the bond cannot exist without a principal
agreement as it is essential that the copy of the basic contract be submitted to the surety. Chevron then formally
demanded from First Lepanto the payment of its claim under the surety bond. First Lepanto refused to pay thereby
prompting Chevron to file a case against First Lepanto for payment of sum of money in the amount of
15,080,030.30 pesos plus interest, cost and attorney’s fees.
Is First Lepanto acting as a surety liable to the creditor in the absence of a written contract with the
principal?
No, First Lepanto is not liable as surety to the creditor absent a written agreement with the principal.
Sec 175 of the Insurance Code defines suretyship as “contract or agreement whereby a party, called the surety,
guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in
favor of a third party, called the obligee.” The extent of the surety’s liability is determined by the language of the
suretyship contract or bond itself. It cannot be extended by implication, beyond the terms of the contract. The law
is clear that a surety contract should be read and interpreted together with the contract entered into between the
creditor and the principal. Section 176 of the Insurance Code states that “the liability of the surety or sureties shall
be joint and several with the obligor and shall be limited to the amount of the bond. It is determined strictly by the
terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee.”
In this case, a reading of Surety Bond FLTICG (16) No. 01012 shows that petitioner First-Lepanto secures the
payment of purchases on credit by Fumitechniks in accordance with the terms and conditions of the agreement it
entered into with respondent. The word agreement has reference to the distributorship agreement, the principal
contract and by implication included the credit agreement mentioned in the rider. However, it turned out that
respondent has executed written agreements only with its direct customers but not distributors like Fumitechniks
and it also never relayed the terms and conditions of its distributorship agreement to the petitioner after the
delivery of the bond. It bears stressing that a surety contract is merely a collateral one, its basis is the principal
contract or undertaking which it secures. Necessarily, the stipulations in such principal agreement must at least be
communicated or made known to the surety particularly in this case where the bond expressly guarantees the
payment of respondents fuel products withdrawn by Fumitechniks in accordance with the terms and conditions of
their agreement. The bond specifically makes reference to a written agreement. It is basic that if the terms of a
contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control.
(22) Florendo v. Philam Plans, Inc.

666 SCRA 18 (20120)
By: Bernardo, Michael Gerard T.
Topic: Concealment
Doctrine: By signing the application, the applicant adopted as his own the written representations and declarations
embodied in it.
Facts: Manuel Florendo filed an application for comprehensive pension plan with Philam Plans, Inc. Manuel signed
the application and left to Perla the task of supplying the information needed in the application. Philam Plans issued
Pension Plan Agreement to Manuel with Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his
quarterly premiums. Eleven months later, Manuel died of blood poisoning. Subsequently, Lourdes filed a claim with
Philam Plans for the payment of the benefits under her husband’s plan but Philam Plans 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.
Issues: Whether Philam is entitled to rescind its contract of insurance with Manuel.
Held: YES, Philam is entitled to rescind its contract of insurance with Manuel.
Jurisprudence provides that by signing the application, the applicant adopted as his own the written
representations and declarations embodied in it. Also, as provided by Section 27 of the Insurance Code a
concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance.
In this case, 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. Thus, Philam Plans is entitled to rescind its contract of insurance with Manuel.
(23) Malayan Insurance Co. v. Philippines First Insurance Co., Inc.

G.R. No. 184300, July 11, 2012
By: Donna Bigornia
Topic: Double Insurance
Doctrine: The requisites in order for double insurance to arise are: (1) the person insured is the same; (2) two or
more insurers insuring separately; (3) there is identity of subject matter; (4) there is identity of interest insured;
and (5) there is identity of the risk or peril insured against.
Facts: Wyeth procured Marine Policy from respondent Philippines First Insurance Co., Inc. (Philippines First) to
secure its interest over its own products. Philippines First thereby insured Wyeth’s nutritional, pharmaceutical and
other products usual or incidental to the insured’s business while the same were being transported or shipped in
the Philippines. The policy covers all risks of direct physical loss or damage from any external cause, if by land, and
provides a limit of P6,000,000.00 per any one land vehicle. On December 1, 1993, Wyeth executed its annual
contract of carriage with Reputable. Under the contract, Reputable undertook to answer for “all risks with respect
to the goods and shall be liable to the COMPANY (Wyeth), for the loss, destruction, or damage of the
goods/products due to any and all causes whatsoever, including theft, robbery, flood, storm, earthquakes,
lightning, and other force majeure while the goods/products are in transit and until actual delivery to the
customers, salesmen, and dealers of the COMPANY”. The contract also required Reputable to secure an insurance
policy on Wyeth’s goods. Thus, Reputable signed a Special Risk Insurance Policy with petitioner Malayan for the
amount of P1,000,000.00. The truck carrying Wyeth’s products was hijacked by about 10 armed men. They
threatened to kill the truck driver and two of his helpers should they refuse to turn over the truck and its contents
to the said highway robbers. The hijacked truck was recovered two weeks later without its cargo. Disclaiming any
liability, Malayan argued that under Section 5 of the SR Policy, the insurance does not cover any loss or damage to
property which at the time of the happening of such loss or damage is insured by any marine policy and that the
SR Policy expressly excluded third-party liability.
Issue: Whether or not there is double insurance, such that Malayan is not liable under the insurance
policy
Ruling: No, there was no double insurance. Hence, Malayan is liable.
Section 93 of the Insurance Code, double insurance exists where the same person is insured by several insurers
separately in respect to the same subject and interest. The requisites in order for double insurance to arise are: (1)
the person insured is the same; (2) two or more insurers insuring separately; (3) there is identity of subject
matter; (4) there is identity of interest insured; and (5) there is identity of the risk or peril insured against.
In the present case, while it is true that the Marine Policy and the SR Policy were both issued over the same
subject matter, i.e. goods belonging to Wyeth, and both covered the same peril insured against, the said policies
were issued to two different persons or entities. Wyeth is the recognized insured of Philippines First under its
Marine Policy, while Reputable is the recognized insured of Malayan under the SR Policy. The fact that Reputable
procured Malayan’s SR Policy over the goods of Wyeth pursuant merely to the stipulated requirement under its
contract of carriage with the latter does not make Reputable a mere agent of Wyeth in obtaining the said SR Policy.
Furthermore, the interest of Wyeth over the property subject matter of both insurance contracts is also different
and distinct from that of Reputable’s. The policy issued by Philippines First was in consideration of the legal and/or
equitable interest of Wyeth over its own goods. On the other hand, what was issued by Malayan to Reputable was
over the latter’s insurable interest over the safety of the goods.
Therefore, there is no double insurance.

(24) UNITED MERCHANTS CORP v. COUNTRY BANKERS INSURANCE CORP

G.R. No. 198588, July 11, 2012
By: Corona, Jose Enrico V.
TOPIC: Void claim in a Policy
DOCTRINE: It has long been settled that a false and material statement made with an intent to deceive or defraud
voids an insurance policy.
FACTS: United Merchants Corporation (UMC) leased a warehouse to assemble and sotre its product. UMC insured
its stocks against fire with Country Bankers. A Fire Insurance Policy was then issued. Subsequently, a fire guttered
the warehouse rented by UMC. UMC submitted to Country Bankers its Sworn Statement of Formal Claim. Country
Bankers refused to pay and alleged that UMC breached a condition in the Policy stating that “If the claim be in any
respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or
devices are used by the Insured or anyone acting in his behalf to obtain any benefit under this Policy; or if the loss
or damage be occasioned by the willful act, or with the connivance of the Insured, all the benefits under this Policy
shall be forfeited.”
UMC then filed a complaint against Country Bankers. RTC granted the claim of UMC. However the CA reversed and
ruled in favor of Country Bankers. The CA ruled that UMCs claim under the Insurance Policy is void. The CA found
that the fire was intentional in origin, considering the array of evidence submitted by CBIC, particularly the pictures
taken and the reports of Cabrera and Lazaro, as opposed to UMCs failure to explain the details of the alleged fire
accident. In addition, it found that UMCs claim was overvalued through fraudulent transactions.
ISSUE: Whether or not UMC can claim under the Fire Insurance Policy.
HELD: No. UMC cannot claim under the Insurance Policy.
Jurisprudence provides that where a fire insurance policy provides that if the claim be in any respect fraudulent, or
if any false declaration be made or used in support thereof, or if any fraudulent means or devices are used by the
Insured or anyone acting on his behalf to obtain any benefit under this Policy, and the evidence is conclusive that
the proof of claim which the insured submitted was false and fraudulent both as to the kind, quality and amount of
the goods and their value destroyed by the fire, such a proof of claim is a bar against the insured from recovering
on the policy even for the amount of his actual loss.
In the case at bar, invoices for raw materials were attached by UMC. UMC alleged that it did not include as stocks
in trade the raw materials to be assembled as Christmas lights, which it had on 31 December 1995. However, as
proof of its loss, UMC submitted invoices for raw materials, knowing that the insurance covers only stocks in trade.
Submission of false invoices to the adjusters establishes a clear case of fraud and misrepresentation which voids
the insurer’s liability as per condition of the policy.
Therefore, UMC cannot claim under the Fire Insurance Policy.

(25) Paramount Insurance vs Remondeulaz

G.R. No. 1173773, November 28, 2012
By: Kathrina De Castro
Topic: Comprehensive Motor Vehicle Insurance; Theft Clause
DOCTRINE: Since, Theft can also be committed through misappropriation, the fact that Sales failed to return the
subject vehicle to respondents constitutes Qualified Theft. Hence, since respondents’ car is undeniably covered by a
Comprehensive Motor Vehicle Insurance Policy that allows for recovery in cases of theft, petitioner is liable under
the policy for the loss of respondents’ vehicle under the “theft clause.”
Respondents insured their 1994 Toyota Corolla sedan under comprehensive motor vehicle insurance policy with
Paramount Insurance for a year. When the said car was unlawfully taken, respondents claim for reimbursement but
the insurer argues that the loss of respondent’s vehicle is not a peril covered by the policy. It maintains that it is
not liable for the loss, since the car cannot be classified as stolen as respondents entrusted the possession thereof
to another person.
A. whether the loss of respondents’ vehicle falls within the concept of the “theft clause” under the
insurance policy
Yes. In People v. Bustinera, this Court had the occasion to interpret the “theft clause” of an insurance policy. In this
case, the Court explained that when one takes the motor vehicle of another without the latter’s consent even if the
motor vehicle is later returned, there is theft—there being intent to gain as the use of the thing unlawfully taken
constitutes gain. Also, in Malayan Insurance Co., Inc. v. Court of Appeals, this Court held that the taking of a
vehicle by another person without the permission or authority from the owner thereof is sufficient to place it within
the ambit of the word theft as contemplated in the policy, and is therefore, compensable.
In the instant case, Sales did not have juridical possession over the vehicle. Here, it is apparent that the taking of
respondents’ vehicle by Sales is without any consent or authority from the former. Records would show that
respondents entrusted possession of their vehicle only to the extent that Sales will introduce repairs and
improvements thereon, and not to permanently deprive them of possession thereof. Since, Theft can also be
committed through misappropriation, the fact that Sales failed to return the subject vehicle to respondents
constitutes Qualified Theft. Hence, since respondents’ car is undeniably covered by a Comprehensive Motor Vehicle
Insurance Policy that allows for recovery in cases of theft, petitioner is liable under the policy for the loss of
respondents’ vehicle under the “theft clause.”
(26) Country Bankers Insurance Corp. v. Lagman

653 SCRA 765 (2011)
By: Gaite, Rhio Angeline
Topic: Continuing Bond; Indemnity Agreement
Doctrines: (1) A continuing bond, as in this case where there is no fixed expiration date, may be cancelled only by
the obligee, by the Insurance Commissioner, and by the court. By law and by the specific contract involved in this
case, the effectivity of the bond required for the obtention of a license to engage in the business of receiving rice
for storage is determined not alone by the payment of premiums but principally by the NFA Administrator.
(2) Co-signors to an Indemnity Agreement bind themselves jointly and severally to the bonding company to
indemnify it for any damage or loss sustained on the account of the execution of the bond, among others
Facts: Nelson Santos applied for a license with the NFA to engage in the business of storing not more than 30,000
sacks of palay valued at P5,250,000.00 in his warehouse at Tarlac. Under Act No. 3893 or the General Bonded
Warehouse Act, as amended, the approval for said license was conditioned upon posting of a cash bond, a bond
secured by real estate, or a bond signed by a duly authorized bonding company, the amount of which shall be fixed
by the NFA Administrator at not less than 33 1/3% of the market value of the maximum quantity of rice to be
received. Accordingly, Country Bankers Insurance Corporation issued Warehouse Bond No. 03304 for
P1,749,825.00 on 5 November 1989 and Warehouse Bond No. 02355 for P749,925.00 on 13 December 1989
through its agent, Antonio Lagman. Santos was the bond principal, Lagman was the surety and the Republic of the
Philippines, through the NFA was the obligee. In consideration of these issuances, corresponding Indemnity
Agreements were executed by Santos, as bond principal, together with Ban Lee Lim Santos, Rhosemelita Reguine
and Lagman, as co-signors. The latter bound themselves jointly and severally liable to Country Bankers for any
damages, prejudice, losses, costs, payments, advances and expenses of whatever kind and nature, including
attorney’s fees and legal costs, which it may sustain as a consequence of the said bond; to reimburse Country
Bankers of whatever amount it may pay or cause to be paid or become liable to pay thereunder; and to pay
interest at the rate of 12% per annum computed and compounded monthly, as well as to pay attorney’s fees of
20% of the amount due it. Santos then secured a loan using his warehouse receipts as collateral. When the loan
matured, Santos defaulted in his payment. The sacks of palay covered by the warehouse receipts were no longer
found in the bonded warehouse. By virtue of the surety bonds, Country Bankers was compelled to pay
P1,166,750.37.
Issues: (1) Whether the bonds issued by Country Bankers were continuing bonds?
(2) Whether Lagman is solidarily liable with Santos, Ban Lee Lim and Reguine, to Country Bankers to indemnify it
for any damage or loss sustained on the account of the execution of the bond?
Held: (1) Yes. Sec. 177 of the Insurance Code provides that: “The surety is entitled to payment of the premium as
soon as the contract of suretyship or bond is perfected and delivered to the obligor. No contract of suretyship or
bonding shall be valid and binding unless and until the premium therefor has been paid, except where the
obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of
whether or not the premium has been paid by the obligor to the surety x x x” In this case, the bonds
issued by Country Bankers in 1989 have provisions which stated that: “x x x This bond shall remain in force until
cancelled by the Administrator of National Food Authority.” This provision in the bonds is but in compliance with the
second paragraph of Section 177 of the Insurance Code, which specifies that a continuing bond, as in this case
where there is no fixed expiration date, may be cancelled only by the obligee, which is the NFA, by the Insurance
Commissioner, and by the court.
(2) Yes. The Supreme Court held that co-signors to an Indemnity Agreement bind themselves jointly and severally
to the bonding company to indemnify it for any damage or loss sustained on the account of the execution of the
bond, among others. In this case, the liability of Lagman is expressed in Indemnity Agreements executed in
consideration of the 1989 Bonds which were considered as continuing contracts. Under both Indemnity
Agreements, Lagman, as co-signor, together with Santos, Ban Lee Lim and Reguine, bound themselves jointly and
severally to Country Bankers to indemnify it for any damage or loss sustained on the account of the execution of
the bond, among others. Thus, Lagman is solidarily liable.
(27) NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., vs.NYK-FILJAPAN SHIPPING CORP.
G.R. No. 171468 August 24, 2011
By: Grande, Jonicocel M.
Doctrine: No insurance company doing business in the Philippines shall refuse without just cause to pay or settle
claims arising under coverages provided by its policies.
Facts:
Petitioner New World International Development Inc.bought from DMT Corporation three emergency generator sets
for delivery to petitioner New World in Manila. it was loaded on S/S California, owned and operated by NYK Fil-
Japan Shipping Corporation (NYK). On its journey to Manila, however, ACX Ruby encountered typhoon Kadiang
whose captain filed a sea protest on arrival at the Manila South Harbor respecting the loss and damage that the
goods on board his vessel suffered.
Since Seaboard covered the goods with a marine insurance policy, petitioner New World sent it a formal claim.
Seaboard required petitioner New World to submit to it an itemized list of the damaged units but petitioner New
World did not submit what was required of it, insisting that the insurance policy did not include the submission of
such a list in connection with an insurance claim. Reacting to this, Seaboard refused to process the claim. COGSA
provides that the carrier and the ship shall be discharged from all liability in case of loss or damage unless the suit
is brought within one year after delivery of the goods or the date when the goods should have been delivered. The
last day for filing such a suit fell on October 7, 1994. The record shows that petitioner New World filed its formal
claim for its loss with Seaboard, its insurer, a remedy it had the right to take, as early as November 16, 1993 or
about 11 months before the suit against NYK would have fallen due.
Whose fault was it that the suit against NYK, the common carrier, was not brought to court on time?
The insurer, Seaboard.
Section 241 of the Insurance Code provides that no insurance company doing business in the Philippines shall
refuse without just cause to pay or settle claims arising under coverages provided by its policies.
In the ordinary course, if Seaboard had processed that claim and paid the same, Seaboard would have been
subrogated to petitioner New World’s right to recover from NYK. And it could have then filed the suit as a subrogee.
But, as discussed above, Seaboard made an unreasonable demand on February 14, 1994 for an itemized list of the
damaged units, parts, and accessories, with corresponding values when it appeared settled that New World’s loss
was total and when the insurance policy did not require the production of such a list in the event of a claim.
Besides, when petitioner New World declined to comply with the demand for the list, Seaboard against whom a
formal claim was pending should not have remained obstinate in refusing to process that claim. It should have
examined the same, found it unsubstantiated by documents if that were the case, and formally rejected it. That
would have at least given petitioner New World a clear signal that it needed to promptly file its suit directly against
NYK and the others. Ultimately, the fault for the delayed court suit could be brought to Seaboard’s doorstep.
What will be the insurer’s liability when it failed to pay the claim of the insured after proof of loss is
received?
Under Section 243, the insurer has 30 days after proof of loss is received and ascertainment of the loss or damage
within which to pay the claim. If such ascertainment is not had within 60 days from receipt of evidence of loss, the
insurer has 90 days to pay or settle the claim. And, in case the insurer refuses or fails to pay within the prescribed
time, the insured shall be entitled to interest on the proceeds of the policy for the duration of delay at the rate of
twice the ceiling prescribed by the Monetary Board.
Notably, Seaboard already incurred delay when it failed to settle petitioner New World’s claim as Section 243
required. Under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is created by
the failure of the insurer to pay the claim within the time fixed in Section 243.
Consequently, Seaboard should pay interest on the proceeds of the policy for the duration of the delay until the
claim is fully satisfied at the rate of twice the ceiling prescribed by the Monetary Board.
(28) The Heirs of George Y. Poe v. Malayan Insurance Co., Inc.

G.R. No. 156302, Apr. 07, 2009
By: Jovero, John Tristram V.
Topic: Liability of Insurer
Doctrine: Without the presentation of the insurance policy, the Court cannot determine the existence of any
limitation on the liability of respondent MICI under said policy, and the extent or amount of such limitation.
Facts: George Y. Poe (George) while waiting for a ride to work, was run over by a ten-wheeler Isuzu hauler truck
owned by Rhoda Santos (Rhoda), and then being driven by Willie Labrador (Willie). The said truck was insured with
respondent MICI. To seek redress for George’s untimely death, his heirs and herein petitioners filed with the RTC a
Complaint for damages against Rhoda and respondent MICI.
MICI denied liability for George’s death averring, among other defenses, that the liability of MICI should be based
on the extent of the insurance coverage as embodied in Rhoda’s policy.
Issue: Is MICI liable only up to the extent of the insurance coverage?
Held: No. MICI is liable for the full amount of damages.
In Vda. de Maglana v. Consolacion, it was ruled that an insurer in an indemnity contract for third-party liability is
directly liable to the injured party up to the extent specified in the agreement, but it cannot be held solidarily liable
beyond that amount. Any award beyond the insurance coverage would already be the sole liability of the insured
and/or the other parties at fault. The Court, though, is precluded from applying its ruling in Vda. de Maglana by the
difference in one vital detail between the said case and the one at bar. The insurer was able to sufficiently establish
its limited liability in Vda. de Maglana, while the same cannot be said for respondent MICI herein.
The Court highlights that in this case, the insurance policy between Rhoda and respondent MICI, covering the truck
involved in the accident which killed George, was never presented. There is no means, therefore, for this Court to
ascertain the supposed limited liability of respondent MICI under said policy. Without the presentation of the
insurance policy, the Court cannot determine the existence of any limitation on the liability of respondent MICI
under said policy, and the extent or amount of such limitation.
Given the admission of respondent MICI that it is the insurer of the truck involved in the accident that killed
George, and in the utter absence of proof to establish both the existence and the extent/amount of the alleged
limited liability of respondent MICI as insurer, the Court could only conclude that respondent MICI had agreed to
fully indemnify third-party liabilities. Consequently, there is no more difference in the amounts of damages which
petitioners can recover from Rhoda or respondent MICI; petitioners can recover the said amounts in full from either
of them, thus, making their liabilities solidary or joint and several.
(29) Heirs of Loreto Maramag v. Maramag

G.R. No. 181132, June 5, 2009
By: Lapuz, Jesus Jr. Ros
Topic: Indemnity
Doctrine: If a concubine is made the beneficiary, it is believed that the insurance contract will still remain valid,
but the indemnity must go to the legal heirs and not to the concubine, for evidently, what is prohibited under Art.
2012 is the naming of the improper beneficiary.
Loreto Maramag designated, as beneficiary his concubine Eva de Guzman Maramag. After Loreto’s unfortunate
death, Vicenta Maramag and Odessa, Karl Brian, and Trisha Angelie (heirs of Loreto Maramag) and his concubine
Eva de Guzman Maramag, were all considered as suspects in killing. The illegitimate children of Loreto later on
contested Eva’s qualification as a beneficiary based from the fact that she is merely Loreto’s concubine who should
not be given over Loreto’s legal heir and also because she is one of the suspects in Loreto’s murder.
Does Eva have legal right to claim despite being disqualified?
Yes, Eva may still claim.
Any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life
insurance policy of the person who cannot make any donation to him. If a concubine is made the beneficiary, it is
believed that the insurance contract will still remain valid, but the indemnity must go to the legal heirs and not to
the concubine, for evidently, what is prohibited under Art. 2012 is the naming of the improper beneficiary.
SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose
name or for whose benefit it is made unless otherwise specified in the policy.
GR: only persons entitled to claim the insurance proceeds are either the insured, if still alive; or the beneficiary, if
the insured is already deceased, upon the maturation of the policy. EX: situation where the insurance contract was
intended to benefit third persons who are not parties to the same in the form of favourable stipulations or
indemnity. In such a case, third parties may directly sue and claim from the insurer.
It is only in cases where the insured has not designated any beneficiary, or when the designated beneficiary is
disqualified by law to receive the proceeds, that the insurance policy proceeds shall redound to the benefit of the
estate of the insured.
(30) Lalican vs. Insular Life Assurance Company

G.R. 183526, August 25, 2009
By: Mano, Razna I.
Topic: Reinstatement of Insurance Policy
Doctrine: Cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in
favor of the insured and strictly as against the insurer company, yet, contracts of insurance, like other contracts,
are to be construed according to the sense and meaning of the terms, which the parties themselves have used.
During his lifetime, Eulogio applied for an insurance policy with Insular Life. Insular Life, through Josephine
Malaluan (Malaluan), its agent, issued in favor of Eulogio Policy No. 9011992 (Policy). Violeta (the widow of the
deceased) was named as the primary beneficiary. According to the Policy Contract, if the premium remained
unpaid until the end of the grace period, the policy would automatically lapse and become void. Eulogio failed to
pay the premium, even after the lapse of the grace period. The Policy, therefore, lapsed and became void. Eulogio
submitted to the Insular Life, through Malaluan, an Application for Reinstatement of the Policy. Insular Life notified
Eulogio that his Application for Reinstatement could not be fully processed because he left unpaid the overdue
interest thereon. Several months thereafter, Eulogio went to Malaluan’s house and submitted a second Application
for Reinstatement of the Policy. A while later, Eulogio died of cardio-respiratory arrest secondary to electrocution.
Insular Life no longer acted upon Eulogio’s second Application for Reinstatement, as it was informed that Eulogio
had already passed away. Thereafter, Violeta filed with Insular Life a claim for payment of the full proceeds of the
Policy.
The conditions for reinstatement of a lapsed policy were stated in the Application for Reinstatement which Eulogio
signed and submitted:
I/We agree that said Policy shall not be considered reinstated until this application is approved
by the Company during my/our lifetime and good health and until all other Company
requirements for the reinstatement of said Policy are fully satisfied.
Was Eulogio able to reinstate the lapsed insurance policy on his life before his death?
No. Eulogio was not able to reinstate the Policy.
To reinstate a policy means to restore the same to premium-paying status after it has been permitted to lapse.
Both the Policy Contract and the Application for Reinstatement provide for specific conditions for the reinstatement
of a lapsed policy.
The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon written application
does not give the insured absolute right to such reinstatement by the mere filing of an application. The
insurer has the right to deny the reinstatement if it is not satisfied as to the insurability of the insured and if
the latter does not pay all overdue premium and all other indebtedness to the insurer. After the death of the
insured the insurance Company cannot be compelled to entertain an application for reinstatement of the
policy because the conditions precedent to reinstatement can no longer be determined and satisfied.
In the instant case, Eulogio’s death rendered impossible full compliance with the conditions for reinstatement of the
Policy. The Policy could only be considered reinstated after the Application for Reinstatement had been processed
and approved by Insular Life during Eulogio’s lifetime and good health.
Moreover, Violeta did not adduce any evidence that Eulogio might have failed to fully understand the import and
meaning of the provisions of his Policy Contract and/or Application for Reinstatement, both of which he voluntarily
signed. While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed
liberally in favor of the insured and strictly as against the insurer company, yet, contracts of insurance, like other
contracts, are to be construed according to the sense and meaning of the terms, which the parties themselves
have used.
Eulogio’s death, just hours after filing his second Application for Reinstatement and depositing his payment for
overdue premiums and interests with Malaluan, does not constitute a special circumstance to already consider the
Policy reinstated. Said circumstance cannot override the clear and express provisions of the Policy Contract and
Application for Reinstatement, and operate to remove the prerogative of Insular Life thereunder to approve or
disapprove the Application for Reinstatement.
Thus, the Policy remained lapsed and void, not having been reinstated in accordance with the Policy Contract and
Application for Reinstatement before Eulogio’s death. Violeta, therefore, cannot claim any death benefits from
Insular Life on the basis of the Policy; but she is entitled to receive the full refund of the payments made by
Eulogio thereon.
(31) Eastern Shipping Lines, Inc. vs Prudential Guarantee and Assurance Inc.
G.R. No. 174116, September 11, 2009
By: Marasigan, Mariz Angelle R.
Topic: Marine risk note vs marine insurance policy
Doctrine: A marine risk note is not an insurance policy—it is only an acknowledgment or declaration of the insurer
confirming the specific shipment covered by its marine open policy, the evaluation of the cargo and the chargeable
premium; It is the marine open policy which is the main insurance contract.
Fifty-six cases of completely knock-down auto parts of Nissan motor vehicle (cargoes) were loaded on board M/V
Apollo Tujuh at Nagoya, Japan, to be shipped to Manila. The shipment was consigned to Nissan Motor Philippines,
Inc. (Nissan) and was covered by Bill of Lading No. NMA-1. The carrier was owned and operated by petitioner
Eastern Shipping Lines, Inc. On November 16, 1995, the carrier arrived at the port of Manila. On November 22,
1995, the shipment was then discharged from the vessel onto the custody of the arrastre operator, Asian
Terminals, Inc. (ATI), complete and in good condition, except for four cases. On November 24 to 28, 1995, the
shipment was withdrawn by Seafront Customs and Brokerage from the pier and delivered to the warehouse of
Nissan in Quezon City. A survey of the shipment was then conducted at Nissan’s warehouse. The surveyor
submitted its report with a finding that there were “short (missing)” items in Cases No. 10/A26/T3K and 10/A26/7K
and “broken/scratched” and “broken” items in Case No. 10/A26/70K; and that “(i)n (its) opinion, the “shortage and
damage sustained by the shipment were due to pilferage and improper handling, respectively while in the custody
of the vessel and/or Arrastre Contractors. As a result, Nissan demanded the cost of damages sustained by the
shipment from Eastern Shipping, the owner of the vessel, and ATI, the arrastre operator. However, the demands
were not heeded. As insurer of the shipment against all risks, Prudential Guarantee and Assurance, Inc. paid
Nissan the sum of P1,047,298.34. Philippine sued Eastern Shipping and ATI for reimbursement of the amount paid
to Nissan before the RTC claiming that it was subrogated to the rights of Nissan by virtue of said payment. In order
to prove its claim, Prudential presented a marine cargo risk note and a subrogation receipt. Eastern Shipping
argues that Prudential was not properly subrogated because of the non-presentation of the marine insurance
policy.
Is Eastern Shipping Lines correct?
Yes. Before anything else, it must be emphasized that a marine risk note is not an insurance policy. It is only an
acknowledgment or declaration of the insurer confirming the specific shipment covered by its marine open policy,
the evaluation of the cargo and the chargeable premium.
In International Container Terminal Services, Inc. v. FGU Insurance Corporation (International), the nature of a
marine cargo risk note was explained, thus:
“xxx It is the marine open policy which is the main insurance contract. In other words, the marine open policy is
the blanket insurance to be undertaken by FGU on all goods to be shipped by RAGC during the existence of the
contract, while the marine risk note specifies the particular goods/shipment insured by FGU on that specific
transaction, including the sum insured, the shipment particulars as well as the premium paid for such shipment.
xxx.”
The Marine Risk Note relied upon by Prudential as the basis for its claim for subrogation is insufficient to prove said
claim. The Marine Risk Note was issued only on November 16, 1995; hence, without a copy of the marine
insurance policy, it would be impossible and simply guesswork to know whether the cargo was insured during the
voyage which started on November 8, 1995. Again, without the marine insurance policy, it would be impossible for
this Court to know the following: first, the specifics of the “Institute Cargo Clauses A and other terms and
conditions per Marine Open Policy-86-168” as alluded to in the Marine Risk Note; second, if the said terms and
conditions were actually complied with before respondent paid Nissan’s claim.
As plaintiff, it was Prudential’s burden to present the evidence necessary to substantiate its claim. Other than the
marine cargo risk note, Prudential should have also presented the marine insurance policy, as the same also served
as the basis for its complaint. Since Prudential alluded to an actionable document in its complaint, the contract of
insurance between it and Nissan, as integral to its cause of action against Eastern Shipping, the Marine Insurance
Policy should have been attached to the Complaint. (Sec. 7, Rule 9, 1997 Rules of Court)
It is significant that the date when the alleged insurance contract was constituted cannot be established with
certainty without the contract itself. Said point is crucial because there can be no insurance on a risk that had
already occurred by the time the contract was executed. Surely, the Marine Risk Note on its face does not specify
when the insurance was constituted. In conclusion, this Court rules that based on the applicable jurisprudence,
because of the inadequacy of the Marine Cargo Risk Note for the reasons already stated, it was incumbent on
respondent to present in evidence the Marine Insurance Policy, and having failed in doing so, its claim of
subrogation must necessarily fail.
(32) Philippine Health Care Providers Inc. vs. Commission on Internal Revenue (CIR)
G.R. No. 167330, September 18, 2009
By: Pangilinan, Gene Alexis
Topic: Health Maintenance Organizations
Doctrine: Even if a contract contains all the elements of a contract, if its primary purpose is the rendering of
service; it is not a contract of insurance.
Petitioner 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.” Individuals enrolled in its health care programs pay an annual membership fee
and are entitled to various preventive, diagnostic and curative medical services provided by its duly licensed
physicians, specialists and other professional technical staff participating in the group practice health delivery
system at a hospital or clinic owned, operated or accredited by it.
The CIR sent petitioner a formal demand letter and the corresponding assessment notices demanding the payment
of deficiency Documentary Stamp Tax (DST). The assessment was imposed on petitioner’s health care agreement
with the members of its health care program pursuant to Section 185 of the 1997 Tax Code. Thus, petitioner filed a
petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency DST assessments,
which was granted. On appeal, the CA rendered a decision, holding that petitioner’s health care agreement was in
the nature of a non-life insurance contract subject to DST.
A. Is petitioner, as a health maintenance organization (HMO), an insurance company.
No, health maintenance organizations are not engaged in the insurance business.
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.”
The main difference between an HMO and an insurance company is that HMOs undertake to provide prepaid
medical services through participating physicians, thus relieving subscribers of any further financial burden, while
the latter only undertake to indemnify an insured for medical expenses up to, but not beyond, the schedule of rates
contained in the policy.
The mere presence of risk would be insufficient to override the primary purpose of the business to provide medical
services as needed, with payment made directly to the provider of these services. In short, even if petitioner
assumes the risk of paying the cost of these services even if significantly more than what the member has prepaid,
it nevertheless cannot be considered as being engaged in the insurance business. As an HMO, it is its obligation to
maintain the good health of its members. Accordingly, its health care programs are designed to prevent or to
minimize the possibility of any assumption of risk on its part.
Also, any indemnification resulting from the payment for services rendered in case of emergency by non-
participating health providers would still be incidental to petitioner’s purpose of providing and arranging for health
care services and does not transform it into an insurer. To fulfill its obligations to its members under the
agreements, petitioner is required to set up a system and the facilities for the delivery of such medical services.
This indubitably shows that indemnification is not its sole object.
Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is evident from the fact
that it is not supervised by the Insurance Commission but by the Department of Health.
B. Is a Health Care Agreement an insurance contract contemplated under section 185 of the NIRC of
1997?
No, a Health Care Agreement is not an insurance contract contemplated under section 185 of the NIRC of 1997.
Under Section 185, two requisites must concur before the DST can apply, namely: (1) the document must be a
policy of insurance or an obligation in the nature of indemnity and (2) the maker should be transacting the
business of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler,
or other branch of insurance (except life, marine, inland, and fire insurance).
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.
An insurance contract exists where the following elements concur:
“1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons
bearing a similar risk and
5. In consideration of the insurer’s promise, the insured pays a premium.”
Even if a contract contains all the elements of an insurance contract, if its primary purpose is the rendering of
service, it is not a contract of insurance.
Not all the necessary elements of a contract of insurance are present in petitioner’s agreements. To begin with,
there is no loss, damage or liability on the part of the member that should be indemnified by petitioner as an HMO.
There is nothing in petitioner’s agreements that gives rise to a monetary liability on the part of the member to any
third party-provider of medical services which might in turn necessitate indemnification from petitioner. The terms
“indemnify” or “indemnity” presuppose that a liability or claim has already been incurred. There is no indemnity
precisely because the member merely avails of medical services to be paid or already paid in advance at a pre-
agreed price under the agreements.
According to the agreement, a member can take advantage of the bulk of the benefits anytime even in the absence
of any peril, loss or damage on his or her part. The assumption of the expense by petitioner is not confined to the
happening of a contingency but includes incidents even in the absence of illness or injury.
Petitioner, as an HMO, undertakes a business risk when it offers to provide health services: the risk that it might
fail to earn a reasonable return on its investment. But it is not the risk of the type peculiar only to insurance
companies. Insurance risk, also known as actuarial risk, is the risk that the cost of insurance claims might be
higher than the premiums paid. The amount of premium is calculated on the basis of assumptions made relative to
the insured
(33) Keppel Cebu Shipyard, Inc. vs. Pioneer Insurance and Surety Corporation
By: Radovan, Althea
Topic: Subrogation
Doctrine: The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract—it
accrues simply upon payment by the insurance company of the insurance claim
KCSI and WG&A Jebsens Shipmanagement, Inc. (WG&A) executed a Shiprepair Agreement wherein KCSI would
renovate and reconstruct WG&A’s M/V “Superferry 3” using its dry docking facilities pursuant to its restrictive
safety and security rules and regulations. The Superferry 3(ship) was insured with Pioneer. In the course of its
repair, M/V “Superferry 3” was gutted by fire. WG&A declared the vessel’s damage as a “total constructive loss”
and, hence, filed an insurance claim with Pioneer. Pioneer paid the insurance claim of WG&A in the amount of
US$8,472,581.78. WG&A, in turn, executed a Loss and Subrogation Receipt in favor of Pioneer. Armed with the
subrogation receipt, Pioneer tried to collect from KCSI, but the latter denied any responsibility for the loss of the
subject vessel. Thus, Pioneer filed a Request for Arbitration before the Construction Industry Arbitration
Commission (CIAC). KCSI and WG&A reached an amicable settlement, leading the latter to file a Notice of
Withdrawal of Claim with the CIAC, thereby dismissing the claim of WG&A against KCSI. Hence, the arbitration
proceeded with Pioneer as the remaining claimant.
Pioneer asseverates that there existed a total constructive loss so that it had to pay WG&A the full amount of the
insurance coverage and, by operation of law, it was entitled to be subrogated to the rights of WG&A to claim the
amount of the loss. KCSI counters that a total constructive loss was not adequately proven by Pioneer, and that
there is no proof of payment of the insurance proceeds. KCSI insists on the validity of the limited-liability clause up
to P50,000,000.00, because WG&A acceded to the provision when it executed the Ship repair Agreement. KCSI
also claims that the salvage value of the vessel should be deducted from whatever amount it will be made to pay to
Pioneer.
Whether Pioneer was entitled to be subrogated to the rights of WG&A to claim the amount of the loss?
Yes. Subrogation is the substitution of one person by 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 principle covers a situation wherein an insurer has paid a loss under an insurance policy is entitled
to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the
policy. It contemplates full substitution such that it places the party subrogated in the shoes of the creditor, and he
may use all means that the creditor could employ to enforce payment. Payment by the insurer to the insured
operates as an equitable assignment to the insurer of all the remedies that 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. It accrues simply upon payment by the insurance company of the insurance
claim. The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice; and
is the mode that equity adopts to compel the ultimate payment of a debt by one who, in justice, equity, and good
conscience, ought to pay.
(34) Blue Cross Health Care, Inc. vs. Neomi and Danilo Olivares
G.R. No. 169737, February 12, 2008
By: Rosario, Patricia Kaye T.
Topic: Nature of an Insurance Contract (Contract of Adhesion)
Doctrine: It is an established rule in insurance contracts that when their terms contain limitations on liability, they
should be construed strictly against the insurer. Limitations of liability on the part of the insurer or health care
provider must be construed in such a way as to preclude it from evading its obligations. These are contracts of
adhesion the terms of which must be interpreted and enforced stringently against the insurer which prepared the
contract.
Respondent Neomi T. Olivares applied for a health care program with petitioner. In the health care agreement,
ailments due to "pre-existing conditions" were excluded. Under this provision, disabilities which existed before the
commencement of the agreement shall be excluded from its coverage if they become manifest within one year
from its effectivity. Barely 38 days from the effectivity of her health insurance, respondent Neomi suffered a stroke
and was admitted at the Medical City which was one of the hospitals accredited by petitioner. She incurred hospital
expenses, hence, she requested from the representative of Blue Cross at Medical City a letter of authorization in
order to settle her medical bills. However, petitioner refused to issue the letter without a certification from her
attending physician that the stroke she suffered was not caused by a pre-existing condition. In a letter to
petitioner, Dr. Saniel stated that respondent stated that she is invoking patient-physician confidentiality and that
he should not release any medical information concerning her neurologic status to anyone without her approval.
When petitioner refused to pay, she and her husband were constrained to settle the bill. They thereafter filed a
complaint for collection of sum of money against petitioner. Respondents argued that the burden was on petitioner
to prove that Neomi's stroke was excluded from the coverage of their agreement. Petitioner countered that
respondents prevented Dr. Saniel from submitting his report regarding the medical condition of Neomi, thus, the
presumption that “evidence willfully suppressed would be adverse if produced” should apply in petitioner’s favor.
Which party has the burden of proving that Neomi's stroke was caused by a pre-existing condition?
Was such fact proven and therefore excluded from the coverage of the health care agreement?
Petitioner Blue Cross has the burden of proving the exception to its liability. NO, petitioner failed to prove that
respondent’s stroke was caused by a pre-existing condition.
In Philamcare Health Systems, Inc. v. CA, the SC ruled that a health care agreement is in the nature of a non-life
insurance. It is an established rule in insurance contracts that when their terms contain limitations on liability, they
should be construed strictly against the insurer. Limitations of liability on the part of the insurer or health care
provider must be construed in such a way as to preclude it from evading its obligations. These are contracts of
adhesion the terms of which must be interpreted and enforced stringently against the insurer which prepared the
contract. This doctrine is equally applicable to health care agreements.
Here, petitioner never presented any evidence to prove that respondent Neomi's stroke was due to a pre-existing
condition. It merely speculated that Dr. Saniel's report would be adverse to Neomi, based on her invocation of the
doctor-patient privilege. Furthermore, since petitioner had the burden of proving exception to liability, it should
have made its own assessment of whether respondent Neomi had a pre-existing condition when it failed to obtain
the attending physician's report. It could not just passively wait for Dr. Saniel's report to bail it out. The mere
reliance on a disputable presumption does not meet the strict standard required under our jurisprudence.
(35) Eternal Gardens Memorial Park Corporation v. The Philippine American Life Insurance Company
G.R. No. 166245, April 9, 2008
By: Samson, Maria Johanna Ilyssa
Topic: Nature of an Insurance Contract (Contract of Adhesion)
Doctrine: A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be
resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly
against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such
a way as to preclude the insurer from noncompliance with its obligations.
Respondent Philamlife entered into an agreement denominated as Creditor Group Life Policy No. P-1920 with
Petitioner Eternal. Under the policy, the clients of Eternal who purchased burial lots from it on installment basis
would be insured by Philamlife. The amount of insurance coverage depended upon the existing balance of the
purchased burial lots. The policy was to be effective for a period of one year, renewable on a yearly basis. Eternal
was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy of the
application of each purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers. One
of those included in the list as “new business” was a certain John Chuang. His balance of payments was PhP
100,000. On August 2, 1984, Chuang died. Eternal sent a letter to Philamlife, which served as an insurance claim
for Chuang’s death. After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s
insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000. In
response to Eternal’s demand, Philamlife denied Eternal’s insurance claim. Consequently, Eternal filed a case before
the RTC for a sum of money against Philamlife. The trial court decided in favor of Eternal. It ruled that due to
Philamlife’s inaction from the submission of the requirements of the group insurance on December 29, 1982 to
Chuang’s death on August 2, 1984, as well as Philamlife’s acceptance of the premiums during the same period,
Philamlife was deemed to have approved Chuang’s application. The RTC said that since the contract is a group life
insurance, once proof of death is submitted, payment must follow. However, the CA reversed the earlier decision of
the RTC, CA based its decision on the factual finding that Chuang’s application was not enclosed in Eternal’s letter
dated December 29, 1982. It further ruled that the non-accomplishment of the submitted application form violated
Section 26 of the Insurance Code. Thus, the CA concluded, there being no application form, Chuang was not
covered by Philamlife’s insurance.
May the inaction of the insurer on the insurance application be considered as approval of the
application?
YES, the fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received, states
that the insurance forms for the attached list of burial lot buyers were attached to the letter. Such stamp of receipt
has the effect of acknowledging receipt of the letter together with the attachments. Such receipt is an admission by
Philamlife against its own interest. The burden of evidence has shifted to Philamlife, which must prove that the
letter did not contain Chuang’s insurance application. However, Philamlife failed to do so; thus, Philamlife is
deemed to have received Chuang’s insurance application.
Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy No. P-1920 dated
December 10, 1980. In the policy, it is provided that: “EFFECTIVE DATE OF BENEFIT. The insurance of any eligible
Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However, there shall be no
insurance if the application of the Lot Purchaser is not approved by the Company.” An examination of the said
provision would show ambiguity between its two sentences. The first sentence appears to state that the insurance
coverage of the clients of Eternal already became effective upon contracting a loan with Eternal while the second
sentence appears to require Philamlife to approve the insurance contract before the same can become effective.
Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10, 1980, must
be construed in favor of the insured and in favor of the effectivity of the insurance contract.
A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved
against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the
insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as
to preclude the insurer from noncompliance with its obligations. Hence, in order to protect the interest of insurance
applicants, insurance companies must be obligated to act with haste upon insurance applications, to either deny or
approve the same, or otherwise be bound to honor the application as a valid, binding, and effective insurance
contract.
(36) International Container Terminal Services Inc. vs. FGU Insurance

G.R. No. 161539, June 27, 2008
By: Torres, Ma. Roma
Topic: Marine risk note and marine policy
Doctrine: A marine risk note is not an insurance policy. It is only an acknowledgment or declaration of the insurer
confirming the specific shipment covered by its marine open policy, the evaluation of the cargo and the chargeable
premium. It is the marine open policy which is the main insurance contract.
Hapag-Lloyd shipped 400 kgs. of Silver Nitrate with RAGC as consignee. The shipment was insured by FGU. When
the customs broker of RAGC was about to claim the shipment, petitioner, the arrastre contractor could not find it in
its storage area. The NBI and a surveyor found that the shipment was lost while it was in the custody of petitioner.
Because of its payment to RAGC under the insurance, FGU sought to claim from petitioner but the latter refused.
FGU filed a sum of money case against petitioner in the RTC. The RTC found petitioner liable, and said decision was
affirmed by the CA.
Petitioner insists that marine policy under which the shipment was insured was no longer in force at the time it was
loaded on board the vessel on June 10, 1994, as provided in the Endorsement portion of the policy, which states:
IT IS HEREBY DECLARED AND AGREED that effective June 10, 1994, this policy is deemed CANCELLED.
Was the marine policy still in force at the time the shipment was loaded on the vessel?
Yes.
It must be emphasized that a marine risk note is not an insurance policy. It is only an acknowledgment or
declaration of the insurer confirming the specific shipment covered by its marine open policy, the evaluation of the
cargo and the chargeable premium. It is the marine open policy which is the main insurance contract. In other
words, the marine open policy is the blanket insurance to be undertaken by FGU on all goods to be shipped by
RAGC during the existence of the contract, while the marine risk note specifies the particular goods/shipment
insured by FGU on that specific transaction, including the sum insured, the shipment particulars as well as the
premium paid for such shipment.
Indeed, jurisprudence has it that the marine insurance policy needs to be presented in evidence before the trial
court or even belatedly before the appellate court. However, as in every general rule, there are admitted
exceptions. In Delsan Transport Lines, Inc. v. Court of Appeals, the Court stated that the presentation of the
insurance policy was not fatal because the loss of the cargo undoubtedly occurred while on board the petitioner's
vessel.
(37) Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corporation
G.R. No. 168115 June 8, 2007
By: Valencia, Emmanuelle Nicole L.
Topic: Insurable Interest
Doctrines: A lessee has an insurable interest in the equipment and motor vehicles leased, and the measure
of its insurable interest is the extent to which it may be damnified by loss or injury thereof.
FEB Leasing and Finance Corporation entered into a lease of equipment and motor vehicles with JVL Food Products.
On the same date, Vicente Ong Lim Sing, Jr. 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 monthly rentals. FEB sent a demand letter to JVL, but the latter failed to pay.
FEB filed a complaint with the RTC for recovery of sum of money, damages and replevin. In their amended answer,
JVL and Ong Lim Sing admitted the existence of the lease agreement, but asserted that it was a sale on
installment, with FEB acting as the financier. They claimed that the intention was apparent from the fact that they
were made to believe that when full payment had been effected, a Deed of Sale would be executed by FEB as
vendor, in favor of JVL and Ong Lim Sing as vendees. They contended that the lease agreement was a contract of
adhesion, which should be construed against FEB, which prepared it.
The trial court discussed the contradictory terms of the lease agreement, including the provision that “the alleged
lessee was required to insure the thing against loss, damage or destruction. In property insurance against loss or
other accidental causes, the assured must have an insurable interest. It has also been held that the test of
insurable interest in property is whether the assured has a right, title or interest therein that he will be benefited
by its preservation and continued existence or suffer a direct pecuniary loss from its destruction or injury by the
peril insured against. If the defendants were to be regarded as only a lessee, logically the lessor who asserts
ownership will be the one directly benefited or injured and therefore the lessee is not supposed to be the assured
as he has no insurable interest.”
The trial court held that the contract was for a sale on installment. The Court of Appeals reversed the decision.
Was the Court of Appeals correct in ruling that the contract is one of financial lease and not a contract
of sale?
To allow the transaction involving the pick-up to be read into the terms of the lease agreement would expand the
coverage of the agreement, in violation of Article 1372 of the New Civil Code. The lease contract subject of the
complaint speaks only of a lease. Any agreement between the parties after the lease contract has ended is a
different transaction altogether and should not be included as part of the lease. Furthermore, it is a cardinal rule in
the interpretation of contracts that if the terms of a contract are clear and leave no doubt as to the intention of the
contracting parties, the literal meaning of its stipulations shall control. No amount of extrinsic aid is necessary in
order to determine the parties’ intent
Was the Court of Appeals correct in ruling that Ong Lim Sing is a lessee, with insurable interest over
the properties?
Ong Lim Sing, as a lessee, has an insurable interest in the equipment and motor vehicles leased. Section 17 of the
Insurance Code provides that the measure of an insurable interest in property is the extent to which the insured
might be damnified by loss or injury thereof. It cannot be denied that JVL will be directly damnified in case of loss,
damage, or destruction of any of the properties leased.
(38) PRUDENTIAL GUARANTEE and ASSURANCE, INC. v. EQUINOX LAND CORPORATION

G.R. Nos. 152505-06 13 September 2007
By: Valencia, Mary Clydeen L.
TOPIC: Suretyship
DOCTRINE: Suretyship is a contract or agreement whereby a party, called the surety, guarantees the
performance by another party, called the principal or obligor, of an obligation or undertaking in favor of
a third party, called the obligee. The surety assumes liability as a regular party to the undertaking and
hence its obligation is direct, primary and absolute.
In 1996, Equinox Land Corporation (Equinox) decided to construct five additional floors to its existing
building in Mandaluyong City. Finding the bid of J’Marc to be the most advantageous, Equinox offered
the construction project to it. On 22 February 1997, J’Marc accepted the offer. Two days later, J’Marc
submitted to Equinox two (2) bonds, namely: (1) a surety bond issued by Prudential Guarantee and
Assurance, Inc. (Prudential) in the amount of P9,250,000.00 to guarantee the unliquidated portion of
the advance payment payable to J’Marc; and (2) a performance bond likewise issued by Prudential in
the amount of P7,400,000.00 to guarantee J’Marc’s faithful performance of its obligations under the
construction agreement. However, J’Marc did not adhere to the terms of the contract. It failed to
submit the required monthly progress billings for several months. Equinox filed a case against
Prudential so it be ordered to pay its liability under the mentioned bonds, but the latter denied the
former’s claims against its bonds.
Is Prudential solidarily liable with J’Marc under its bonds?
Yes, Prudential is solidarily liable with J’Marc under its bonds.
Section 175 of the Insurance Code defines suretyship as "a contract or agreement whereby a party, called the
surety, guarantees the performance by another party, called the principal or obligor, of an obligation or
undertaking in favor of a third party, called the obligee. It includes official recognizances, stipulations, bonds, or
undertakings issued under Act 536, as amended." Corollarily, Article 2047 of the Civil Code provides that
suretyship arises upon the solidary binding of a person deemed the surety with the principal debtor for the purpose
of fulfilling an obligation. Further, in Castellvi de Higgins and Higgins v. Seliner, the Supreme Court ruled that while
a surety and a guarantor are alike in that each promises to answer for the debt or default of another, the surety
assumes liability as a regular party to the undertaking and hence its obligation is primary. Furthermore, in Security
Pacific Assurance Corporation v. Tria-Infante, the Supreme Court reiterated the rule that while a contract of surety
is secondary only to a valid principal obligation, the surety’s liability to the creditor is said to be direct, primary,
and absolute. In other words, the surety is directly and equally bound with the principal.
Thus, Prudential is barred from disclaiming its solidary liability with J’Marc in favor of Equinox.

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INSURANCE LAW

COMMERCIAL LAW REVIEW

(1) Medicard Philippines v. CIR

Topic: Health Maintenance Organization v. Non-life Insurance Company

(2) Gaisano v. Development Insurance and Surety Corp.

Topic: Insurance Contract; Payment of Premium

Is the insurance contract between the petitioner and respondent binding?

No, the insurance contract between the parties is not binding.

Topic: Insurance retention limit and reinsurance

(4) Malayan Insurance Company, Inc. v. PAP CO., LTD

Issue: Whether or not Malayan Co is liable under the insurance.

Held: No. Malayan is not liable.

TOPIC: Incontestability of a Policy

Therefore, the policy was incontestable.

(06) Sun Life of Canada vs Sibya

Topic: Concealment; Misrepresentation; Contestability Period

Is such non-disclosure of medical condition in the application constitute concealment or

(7) Bank of Philippines Islands v. Laingo

Topic: Duty of an Insurance Agent

Topic: mortgage redemption insurance.

Should PPSBI be considered as an indispensible party-defendant?

(10) Loadstar Shipping Company v Malayan Insurance Incorporated

No, Malayan should first adduce proof of pecuniary loss to PASAR.

(11) Sun Life of Canada (Philippines) vs. Tan Kit

Topic: Insurance Proceeds v. Insurance Premium; Compensatory Interest

No. Tio Khe Chio is not applicable in this case.

What kind of interest was imposed by the CA?

There are two kinds of interest – monetary and compensatory.

(12) Erlinda V. Alvarez II vs Sun Life of Canada (Philippines), Inc.

Topic: Concealment or Misrepresentation

Topic: Contracts of insurance

Is the complaint filed on September 27, 1991 barred by prescription?

YES, the complaint filed on September 27, 1991 is barred by prescription.

(14) Fortune Medicare, Inc. v. Amorin

(15) Mitsubishi Motors Philippines Salaried Employees Union (MMPSEU) vs.

Topic: Double Insurance

NO, the collateral source does not apply to MMPC.

(16) Vector Shipping Corporation v. American Home Assurance Company

(17) Asian Terminals, Inc. vs. Philam Insurance Co., Inc.

(18) Manila Bankers Life Insurance Corporation vs. Cresencia Aban

Topic: Fraudulent Intent; Incontestability Clause

Should Bankers Life be permitted to rescind the contract of insurance?

TOPIC: Concealment; Alteration

(B) Is Malayan entitled to rescind the subject fire insurance contract?

1) The policy limits the use or condition of the thing insured;

(20) Alpha Insurance and Surety Co. vs. Castor

SECTION III — LOSS OR DAMAGE

EXCEPTIONS TO SECTION III

Is the loss of Castor’s vehicle excluded under the insurance policy?

(21) First Lepanto-Taisho Insurance Corp. v. Chevron Philippines

Topic: Contract: Insurance Surety

(22) Florendo v. Philam Plans, Inc.

(23) Malayan Insurance Co. v. Philippines First Insurance Co., Inc.

Ruling: No, there was no double insurance. Hence, Malayan is liable.

Therefore, there is no double insurance.

(24) UNITED MERCHANTS CORP v. COUNTRY BANKERS INSURANCE CORP

TOPIC: Void claim in a Policy

HELD: No. UMC cannot claim under the Insurance Policy.

Therefore, UMC cannot claim under the Fire Insurance Policy.

(25) Paramount Insurance vs Remondeulaz

Topic: Comprehensive Motor Vehicle Insurance; Theft Clause

(26) Country Bankers Insurance Corp. v. Lagman

Topic: Continuing Bond; Indemnity Agreement