G.R. No.

212107, January 28, 2019

KEIHIN-EVERETT FORWARDING CO., INC., PETITIONER, v. TOKIO MARINE MALAYAN
INSURANCE CO., INC.** AND SUNFREIGHT FORWARDERS & CUSTOMS BROKERAGE, INC.,
RESPONDENTS.

ISSUES:
1. Whether the case should be dismissed for failure of Tokio Marine to attach or state in the Complaint the
actionable document or the insurance policy between the insurer and the insured, in clear violation of Section
7, Rule 8 of the 1997 Rules of Court;
2. Whether Tokio Marine has no right to institute the present action; and
3. Are Keihin-Everett and Sunfreight Forwarders solidarily liable?

RULING:
1. No, failure of Tokio Marine to attach in the Complaint the contract of insurance between the insurer (Tokio
Marine) and the insured (Honda Trading) is NOT fatal to its cause of action. The Court did not suggest an
outright dismissal of a complaint in case of failure to attach the insurance contract in the complaint. Promoting
a reasonable construction of the rules so as not to work injustice, the Court makes it clear that failure to
comply with the rules does not preclude the plaintiff to offer it as evidence.

(Note! Comparison between this case and Malayan Case- In the Malayan case cited by Keihin-Everett, Malayan not
only failed to attach or set forth in the complaint the insurance policy, it likewise did not present the same as evidence
before the trial court or even in the CA. As the Court metaphorically described, the very insurance contract emerges as
the white elephant in the room — an obdurate presence which everybody reacts to, yet legally invisible as a matter of
evidence since no attempt had been made to prove its corporeal existence in the court of law. Hence, there was
sufficient reason for the Court to dismiss the case for it has no legal basis from which to consider the pre-existence of
an insurance contract between Malayan and ABB Koppel and the former's right of subrogation.)

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

2. Tokio Marine has a right of action. While the Insurance Policy shows in its face that Honda Trading procured
the insurance from TMNFIC and not from Tokio Marine, it expressly made Tokio Marine as the party liable to
pay the insurance claim of Honda Trading pursuant to the Agency Agreement entered into by and between Tokio
Marine and TMNFIC. As properly appreciated by both the RTC and the CA, the Agency Agreement shows that
TMNFIC had subsequently changed its name to that of Tokio Marine. Also, even if we consider Tokio Marine as
a third person who voluntarily paid the insurance claims of Honda Trading, it is still entitled to be reimbursed of
what it had paid. As held by this Court in the case of Pan Malayan Insurance Corp. v. Court of Appeals, the
insurer who may have no rights of subrogation due to "voluntary" payment may nevertheless recover from the
third party responsible for the damage to the insured property under Article 1236 of the Civil Code. Under this
circumstance, Tokio Marine's right to sue is based on the fact that it voluntarily made payment in favor of Honda
Trading and it could go after the third party responsible for the loss (Keihin-Everett) in the exercise of its legal
right of subrogation.

3. No, Keihin-Everett and Sunfreight Forwarders are not solidarily liable. There is solidary liability only when the
obligation expressly so states, when the law so provides, or when the nature of the obligation so requires. Thus,
under Article 2194 of the Civil Code, liability of two or more persons is solidary in quasi-delicts. But in this case,
Keihin-Everett's liability to Honda Trading (to which Tokio Marine had been subrogated as an insurer) stemmed
not from quasi-delict,  but from its breach of contract of carriage.   Keihin-Everett has a right to be reimbursed
based on its Accreditation Agreement with Sunfreight Forwarders. By accrediting Sunfreight Forwarders to render
common carrier services to it, Keihin-Everett in effect entered into a contract of carriage with a fellow common
carrier, Sunfreight Forwarders.

G.R. No. 207526, October 03, 2018

THE INSULAR ASSURANCE CO., LTD., Petitioner, v. THE HEIRS OF JOSE H.
ALVAREZ, Respondents.
ISSUE:
Whether or not Alvarez was guilty of fraudulent misrepresentation as to warrant the rescission of the Group
Mortgage Redemption Insurance obtained by UnionBank on Alvarez's life

RULING:
No, Alvarez’s guilt was not sufficiently proven. Fraud is not to be presumed, for "otherwise, courts would be
indulging in speculations and surmises. "[i]t must be established by clear and convincing evidence. Clear and
convincing proof is "more than mere preponderance, but not to extent of such certainty as is required beyond
reasonable doubt as in criminal cases "while substantial evidence " consists of more than a mere scintilla of evidence
but may be somewhat less than a preponderance." Consistent with the requirement of clear and convincing
evidence, it was Insular Life's burden to establish the merits of its own case. Relative strength as against respondents'
evidence does not suffice. A single piece of evidence hardly qualifies as clear and convincing. Its contents could just
as easily have been an isolated mistake.
Alvarez must have accomplished and submitted many other documents when he applied for the housing loan
and executed supporting instruments like the promissory note, real estate mortgage, and Group Mortgage Redemption
Insurance. A design to defraud would have demanded his consistency. Insular Life was well in a position to verify
information, whether through simple cross referencing or through concerted queries with UnionBank. Despite these
circumstances, the best that Insular Life could come up with before the Regional Trial Court and the Court of Appeals
was a single document. Rather than demonstrate Alvarez's consistent fraudulent design, Insular Life pleads nothing
but just one other instance when Alvarez supposedly declared himself to have been 55 years old in his Health
Statement Form.

NOTE BENE: For purposes of rescission, Section 27 of the Insurance Code, which provides that “A concealment
whether intentional or unintentional entitles the injured party to rescind a contract of insurance’, unequivocally
negates any distinction between intentional and unintentional concealments. (It does not escape this Court's attention
that there have been decisions that maintained that in cases of concealment, "fraudulent intent on the part of the
insured must be established to entitle the insurer to rescind the contract.". In this case, the court clarified and pointed
out the unfortunate error in the interpretation made by the court in the cases of Argente and Joyce, Ng Gan Zee, Great
Pacific Life, and Philamcare which contradict Section 27's plain text. Section 27's clear and unmistakable text must
prevail.)

G.R. No. 210156, October 3, 2018

UNION BANK OF THE PHILIPPINES, Petitioner, v. HEIRS OF JOSE H. ALVAREZ, Respondents.

RULING:
Country Bankers are liable to IPAMS. Failure to attach official receipts and other documents evidencing the
expenses incurred by petitioner IPAMS, even assuming that it can be considered a defect on the required proof of loss,
is considered waived as ground for objecting the claims of petitioner IPAMS.
Under Section 92 of the Insurance Code, all defects in the proof of loss, which the insured might
remedy, are waived as grounds for objection when the insurer omits to specify to him without unnecessary
delay. It is the duty of the insurer to indicate the defects on the proofs of loss given, so that the deficiencies may be
supplied by the insured. When the insurer recognizes his liability to pay the claim, there is waiver by the insurer of
any defect in the proof of loss.
In the instant case, respondent Country Bankers, through its General Manager, on the outset, has already
acknowledged the obligations of Country Bankers under the surety agreement, apologized for the delay in the
payment of claims, and proposed to amortize the settlement of claims by paying a semi-monthly amount of
P850,000.00. Hence, it can no longer point out the defect on the proof of loss as the same was effectively waived.

G.R. No. 189526. August 9, 2017.*

 
FGU INSURANCE CORPORATION, petitioner, vs. SPOUSES FLORO ROXAS and EUFEMIA ROXAS,
respondents.
 
G.R. No. 189656. August 9, 2017.*
 
SPOUSES FLORO ROXAS and EUFEMIA ROXAS, petitioners, vs. ROSENDO P. DOMINGUEZ, JR.,
PHILIPPINE TRUST COMPANY, and FGU INSURANCE CORPORATION, respondents.
Civil Law; Suretyship; Performance Bond; A performance bond is a kind of suretyship agreement. It is “designed to
afford the project owner security that the . . . contractor, will faithfully comply with the requirements of the
contract . . . and make good [on the] damages sustained by the project owner in case of the contractor’s failure to so
perform.”—Under Section 175 of Presidential Decree No. 612 or the Insurance Code, a contract of suretyship is
defined as an agreement where “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.” A performance bond is
a kind of suretyship agreement. It is “designed to afford the project owner security that the .  . . contractor, will
faithfully comply with the requirements of the contract . . . and make good [on the] damages sustained by the project
owner in case of the contractor’s failure to so perform.”

Same; Same; Solidary Obligations; A surety’s liability is joint and several with the principal.—A surety’s liability is
joint and several with the principal. “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.” Although the surety’s obligation is merely secondary or collateral to the obligation contracted by the
principal, this Court has nevertheless characterized the surety’s liability to the creditor of the principal as “direct,
primary, and absolute[;] [i]n other words, the surety is directly and equally bound with the principal.”

Same; Same; Contract of Adhesion; A suretyship agreement is a contract of adhesion ordinarily prepared by the
surety or insurance company.—A suretyship agreement is a contract of adhesion ordinarily prepared by the surety or
insurance company. Therefore, its provisions are interpreted liberally in favor of the insured and strictly against the
insurer who, as the drafter of the bond, had the opportunity to state plainly the terms of its obligation.

G.R. No. 190702. February 27, 2017.*

 
JAIME T. GAISANO, petitioner, vs. DEVELOPMENT INSURANCE AND SURETY CORPORATION,
respondent.

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

Same; Same; The notice of the availability of the check, by itself, does not produce the effect of payment of the
premium.—Here, there is no dispute that the check was delivered to and was accepted by respondent’s agent, Trans-
Pacific, only on September 28, 1996. No payment of premium had thus been made at the time of the loss of the
vehicle on September 27, 1996. While petitioner claims that Trans-Pacific was informed that the check was ready for
pickup 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. There are, of course, exceptions to the rule that no insurance contract takes effect unless
premium is paid.

Same; Same; 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.—We cannot sustain
petitioner’s claim that the parties agreed that the insurance contract is immediately effective upon issuance despite
nonpayment of the premiums. Even if there is a waiver of prepayment of premiums, that in itself does not become an
exception to Section 77, unless the insured clearly gave a credit term or extension. This is the clear import of the
fourth exception in the UCPB General Insurance Co., Inc. v. Masagana Telemart, Inc., 356 SCRA 307 (2001). To
rule otherwise would render nugatory the requirement in Section 77 that “[n]otwithstanding 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.

RULING:
No, insurer is not liable, 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.
In this case, there is no doubt that at the time of loss occurred, the premium had not been paid. In UCPB
General Insurance Co. Inc. v. Masagana Telamart Inc., we summarized the exceptions of Section 77 of the Insurance
Code as follows: (1) in case of life or industrial life policy, whenever the grace period provision applies, as expressly
provided by Section 77 itself; (2) where the insurer acknowledged in the policy or contract of insurance itself the
receipt of premium, even if premium has not been actually paid, as expressly provided by Section 78 itself; (3) where
the parties agreed that premium payment shall be in installments and partial payment has been made at the time of
loss, as held in Makati Tuscany Condominium Corp. v. Court of Appeals; (4) where the insurer granted the insured a
credit term for the payment of the premium, and loss occurs before the expiration of the term, as held in Makati
Tuscany Condominium Corp.; and (5) where the insurer is in estoppel as when it has consistently granted a 60 to 90-
day credit term for the payment of premiums.
The insurance policy in question does not fall under the first to third exceptions laid out in UCPB General
Insurance Co., Inc. Also, Petitioner argues that his case falls under the fourth and fifth exceptions because the parties
intended the contract of insurance to be immediately effective upon issuance, despite non-payment of the premium.
This waiver to a pre-payment in full of the premium places respondent in estoppel. We do not agree.
The fourth and fifth exceptions to Section 77 operate under the facts obtaining in Makati Tuscany
Condominium Corp. and UCPB General Insurance Co., Inc. Both contemplate situations where the insurers have
consistently granted the insured a credit extension or term for the payment of the premium. Here, however, petitioner
failed to establish the fact of a grant by respondent of a credit term in his favor, or that the grant has been consistent.
While there was mention of a credit agreement between Trans-Pacific and respondent, such arrangement was not
proven and was internal between agent and principal. Under the principle of relativity of contracts, contracts bind the
parties who entered into it. It cannot favor or prejudice a third person, even if he is aware of the contract and has acted
with knowledge.
We cannot sustain petitioner's claim that the parties agreed that the insurance contract is immediately effective
upon issuance despite nonpayment of the premiums. Even if there is a waiver of pre-payment of premiums, that in
itself does not become an exception to Section 77, unless the insured clearly gave a credit term or extension. This is
the clear import of the fourth exception. To rule otherwise would render nugatory the requirement in Section 77 that
"[n]otwithstanding 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.

G.R. No. 183272. October 15, 2014.*

 
SUN LIFE OF CANADA (PHILIPPINES), INC., petitioner, vs. SANDRA TAN KIT and The Estate of the
Deceased NORBERTO TAN KIT, respondents.

Civil Law; Interest Rates; Monetary Interest; Compensatory Interest; Words and Phrases; Monetary interest refers to
the compensation set by the parties for the use or forbearance of money; On the other hand, compensatory interest
refers to the penalty or indemnity for damages imposed by law or by the courts.—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.” The
interest mentioned in Articles 2209 and 2212 of the Civil Code applies to compensatory interest.

Same; Same; Damages; Compensatory Interest; As a form of damages, compensatory interest is due only if the
obligor is proven to have failed to comply with his obligation.—As a form of damages, compensatory interest is due
only if the obligor is proven to have failed to comply with his obligation. 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. Because
of this discord, petitioner filed for judicial rescission of the contract. Petitioner, after receiving an adverse judgment
from the RTC, appealed to the CA. And as may be recalled, the appellate court  found Norberto guilty of concealment
and thus upheld the rescission of the insurance contract and consequently decreed the obligation of petitioner to return
to respondents the premium paid by Norberto. Moreover, we find that petitioner did not incur delay or unjustifiably
deny the claim. Based on the foregoing, we find that petitioner properly complied with its obligation under the law
and contract. Hence, it should not be made liable to pay compensatory interest. Considering the prevailing
circumstances of the case, we hereby direct petitioner to reimburse the premium paid within 15 days from date of
finality of this Decision. If petitioner fails to pay within the said period, then the amount shall be deemed equivalent to
a forbearance of credit. In such a case, the rate of interest shall be 6% per annum.

G.R. No. 207277. January 16, 2017.*

 
MALAYAN INSURANCE CO., INC., YVONNE S. YUCHENGCO, ATTY. EMMANUEL G.
VILLANUEVA, SONNY RUBIN,1 ENGR. FRANCISCO MONDELO, and MICHAEL
REQUIJO,  petitioners, vs. EMMA CONCEPCION L. LIN,  respondent.
2 3

Administrative Proceedings; The settled rule is that criminal and civil cases are altogether different from
administrative matters, such that the disposition in the first two will not inevitably govern the third and vice versa.
—“The settled rule is that criminal and civil cases are altogether different from administrative matters, such that the
disposition in the first two will not inevitably govern the third and vice versa.” In the context of the case at bar,
matters handled by the IC are delineated as either regulatory or adjudicatory, both of which have distinct
characteristics, as postulated in Almendras Mining Corporation v. Office of the Insurance Commission, 160 SCRA
656 (1988): The provisions of the Insurance Code (Presidential Decree [P.D.] No. 1460), as amended, clearly indicate
that the Office of the [IC] is an administrative agency vested with regulatory power as well as
with adjudicatory authority. Among the several regulatory or non-quasi-judicial duties of the Insurance Commissioner
under the Insurance Code is the authority to issue, or refuse issuance of, a Certificate of Authority to a person or entity
desirous of engaging in insurance business in the Philippines, and to revoke or suspend such Certificate of Authority
upon a finding of the existence of statutory grounds for such revocation or suspension. The grounds for revocation or
suspension of an insurer’s Certificate of Authority are set out in Section 241 and in Section 247 of the Insurance Code
as amended. The general regulatory authority of the Insurance Commissioner is described in Section 414 of the
Insurance Code, as amended.

G.R. No. 181132. June 5, 2009.*

HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA PANGILINAN
MARAMAG, petitioners, vs. EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN
MARAMAG, KARL BRIAN DE GUZMAN MARAMAG, TRISHA ANGELIE MARAMAG, THE
INSULAR LIFE ASSURANCE COMPANY, LTD., and GREAT PACIFIC LIFE ASSURANCE
CORPORATION, respondents.

Same; Same; Same; No legal proscription exists in naming as beneficiaries the children of illicit relationships by the
insured.—The revocation of Eva as a beneficiary in one policy and her disqualification as such in another are of no
moment considering that the designation of the illegitimate children as beneficiaries in Loreto’s insurance policies
remains valid. Because no legal proscription exists in naming as beneficiaries the children of illicit relationships by the
insured, the shares of Eva in the insurance proceeds, whether forfeited by the court in view of the prohibition on
donations under Article 739 of the Civil Code or by the insurers themselves for reasons based on the insurance
contracts, must be awarded to the said illegitimate children, the designated beneficiaries, to the exclusion of
petitioners. 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.

G.R. No. 185964. June 16, 2014.*

ASIAN TERMINALS, INC., petitioner, vs. FIRST LEPANTO-TAISHO INSURANCE CORPORATION,
respondent. 

Civil Law; Obligations; Subrogation; Words and Phrases; Subrogation is the substitution of one person in the place
of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in
relation to a debt or claim, including its remedies or securities.—“Subrogation is the substitution of one person in the
place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the
other in relation to a debt or claim, including its remedies or securities.” The right of subrogation springs from Article
2207 of the Civil Code which states: Art. 2207. If the plaintiff’s property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained
of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

Mercantile Law; Marine Insurance; As a general rule, the marine insurance policy needs to be presented in evidence
before the insurer may recover the insured value of the lost/damaged cargo in the exercise of its subrogatory right.—
As a general rule, the marine insurance policy needs to be presented in evidence before the insurer may recover the
insured value of the lost/damaged cargo in the exercise of its subrogatory right. In Malayan Insurance Co., Inc. v.
Regis Brokerage Corp., 538 SCRA 681 (2007), the Court stated that the presentation of the contract constitutive of the
insurance relationship between the consignee and insurer is critical because it is the legal basis of the latter’s right to
subrogation.

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

G.R. No. 152334. September 24, 2014.*

 
H.H. HOLLERO CONSTRUCTION, INC., petitioner, vs. GOVERNMENT SERVICE INSURANCE
SYSTEM and POOL OF MACHINERY INSURERS, respondents.

Insurance Law; Contracts; 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.—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.

Same; Prescription; Case law illumines that the prescriptive period for the insured’s action for indemnity should be
reckoned from the “final rejection” of the claim.—Section 10 of the General Conditions of the subject CAR Policies
commonly read: 10. If a claim is in any respect fraudulent, or if any false declaration is 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, or if a claim is made and rejected and no action or suit is commenced within twelve
months after such rejection or, in case of arbitration taking place as provided herein, within twelve months after the
Arbitrator or Arbitrators or Umpire have made their award, all benefit under this Policy shall be forfeited.
(Emphases supplied) In this relation, case law illumines that the prescriptive period for the insured’s action for
indemnity should be reckoned from the “final rejection” of the claim.

Same; Same; Final Rejection; Words and Phrases; “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. —
As correctly observed by the CA, “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, as in the two instances above discussed.

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 in surer. This is
because before such final rejection there is no real necessity for bringing suit.

G.R. No. 198174. September 2, 2013.*

ALPHA INSURANCE AND SURETY CO., petitioner, vs. ARSENIA SONIA CASTOR, respondent.

Insurance Law; 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.—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.
Same; Contract of Adhesion; 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.—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. Thus, in Eternal Gardens Memorial Park Corporation v. Philippine
American Life Insurance Company, 551 SCRA 1 (2008), this Court ruled — It must be remembered that an insurance
contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly against the
insurer in order to safeguard the latter’s interest.

[No. 47593. December 29, 1943]

THE INSULAR LIFE ASSURANCE CO., LTD., petitioner, vs. SERAFIN D. FELICIANO ET AL., respondents. 

LIFE INSURANCE; VALIDITY OF POLICY CONTAINING FALSE STATEMENTS REGARDING HEALTH OF THE
INSURED.—The policies were issued on the basis of the statement subscribed by the applicant to the
effect that he was and had been in good health, when as a matter of fact he was then suffering from
advanced pulmonary tuberculosis. Held: Altho the agent and the medical examiner knew that statement
to be false, no valid contract of insurance was entered into because there was no real meeting of the
minds of the parties.

ID.; ID.—When Evaristo Feliciano, the applicant for insurance, signed the application in blank and
authorized the soliciting agent and/or the medical examiner of the Company to write the answers for him,
he made them his own agents for that purpose, and he was responsible for their acts in that connection. If
they falsified the answers for him, he could not evade the responsibility for the falsification. He was not
supposed to sign the application in blank. He knew that the answers to the questions therein, contained
would be "the basis of the policy," and for that very reason he was required with his signature to vouch
for the truth thereof.

ID.; ID.; CONNIVANCE WITH SOLICITING AGENT AND MEDICAL EXAMINER.—From all the facts and
circumstances of the case, we are constrained to conclude that the insured was a coparticipant, and
coresponsible with Agent David and Medical Examiner Valdez, in the fraudulent procurement of the
policies in question and that by reason thereof said policies are void ab initio.

[No. L-1669. August 31, 1950]

PAZ LOPEZ DE CONSTANTINO, plaintiff and appellant, vs. ASIA LlFE INSURANCE COMPANY,
defendant and appellee.
[No. L-1670, August 31, 1950]
AGUSTINA PERALTA, plaintiff and appellant, vs. ASIA LIFE INSURANCE COMPANY, defendant and
appellee.

INSURANCE; EFFECT OF NON-PAYMENT OF PREMIUM DUE TO WAR; LIFE INSURANCE; FORFEITURE

OF POLICY.—When the life insurance policy provides that non-payment of premiums will cause its forfeiture, war
does not excuse non-payment, and does not avoid forf eiture.
ID.; EFFECT OF WAR ON NON-PAYMENT OF PREMIUMS; COURT REJECTS CONNECTICUT AND NEW
YORK RULES AND ADOPTS UNITED STATES RULE.—Rejecting the Connecticut Rule, and the New York
Rule, the court adopts the United States Rule about the effects of war upon non-payment of premiums.

ID.; LIFE INSURANCE; PERIODIC PAYMENT OF PREMIUMS Is NOT AN ACTIONABLE OBLIGATION.—

The periodic payment of premiums in life insurance policies is not an obligation of the insured enforceable by action.

[No. L-2294. May 25, 1951]

FILIPINAS COMPAÑÍA DE SEGUROS, petitioner, vs. CHRISTERN, HUENEFELD & Co., INC.,
respondent.
CORPORATIONS J NATIONALITY OF PRIVATE CORPORATION; CONTROL TEST.—The nationality of a
private corporation is determined by the character or citizenship of its controlling stockholders.

 INTERNATIONAL LAW; EFFECT OF WAR.—Where majority of the stockholders of a corporation were German

subjects, the corporation became an enemy corporation upon the outbreak of the war between the United States and
Germany.

INSURANCE; TERMINATION OF POLICY OF PUBLIC ENEMY.—As the Philippine Insurance Law (Act No.
2427, as amended), in its section 8, provides that "anyone except a public enemy may be insured," an insurance policy
ceases to be allowable as soon as an insured becomes a public enemy.

ID.; ID.; RETURN OF PREMIUMS UPON TERMINATION OF POLICY BY REASON OF WAR.—Where an

insurance policy ceases to be effective by reason of war, which has made the insured an enemy, the premiums paid for
the period covered by the policy from the date war is declared, should be returned.

No. L-16163. February 28, 1963.

IGNACIO SATURNINO, in his own behalf and as the JUDICIAL GUARDIAN OF CARLOS
SATURNINO, minor, plaintiffs-appellants, vs. THE PHILIPPINE AMERICAN LIFE INSURANCE
COMPANY, defendant-appellee.

Insurance; Non-medical insurance; Medical history material to insurability of applicant.—In non-medical insurance,
the waiver of medical examination renders even more material the information required of the applicant concerning
previous condition of health and diseases suffered, for such information necessarily constitutes an important factor
which the insurer takes into consideration in deciding whether to issue the policy or not.

Same; Same; Concealment of previous operation.—The concealment of the fact of the operation itself is fraudulent,
as there could not have been any mistake about it, no matter what the ailment.

Same; Same; Concealment, whether intentional or unintentional; Ground for rescission.—In this jurisdiction, a con-
cealment, whether intentional or unintentional, entitles the insurer to rescind the contract of insurance, concealment
being defined as “negligence to communicate that which a party knows and ought to communicate” (Sections 24 and
26, Act No. 2427).

No. L-44059. October 28, 1977. *

THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee, vs. CARPONIA T. EBRADO

and PASCUALA VDA. DE EBRADO, defendants-appellants.

Commercial Law; Insurance; Insurance Code; Word “Interest” in Sec. 50 of Insurance Act which provides that
insurance shall be applied exclusively to the proper interest of the person in whose name it is made refers only to the
insured and not to the beneficiary; contract of insurance personal in character.—Section 50 of the Insurance Act
which provides that “(t)he insurance shall be applied exclusively to the proper interest of the person in whose name it
is made” cannot be validly seized upon to hold that the same includes the beneficiary. The word “interest” highly
suggests that the provision refers only to the “insured” and not the beneficiary, since a contract of insurance is
personal in character. Otherwise, the prohibitory laws against illicit relationships especially on property and descent
will be rendered nugatory, as the same could easily be circumvented by modes of insurance.

Same; Same; On matters not otherwise specifically provided for by the Insurance Law, the contract of life insurance
is governed by general rules of civil law.—Rather the general rules of civil law should be applied to resolve this void
in the Insurance Law. Article 2011 of the New Civil Code states: “The contract of insurance is governed by special
laws. Matters not expressly provided for in such special laws shall be regulated by this Code.” When not otherwise
specifically provided for by the Insurance Law, the contract of life insurance is governed by the general rules of the
civil law regulating contracts. And under Article 2012 of the same Code, “any person who is forbiden from receiving
any donation under Article 739 cannot be named beneficiary of a life insurance policy by the person who cannot make
a donation to him.” Common-law spouses are, definitely, barred from receiving donations from each other.

Same; Same; Life Insurance policy no different from civil donation as far as beneficiary is concerned; Both are
founded on liberality; Common-law spouses designated as beneficiary barred from receiving life insurance proceeds
from a legally married person; Reasons therefor.—In essence, a life insurance policy is no different from a civil
donation insofar as the beneficiary is concerned. Both are founded upon the same consideration: liberality. A
beneficiary is like a donee, because from the premiums of the policy which the insured pays out of liberality, the
beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of
the new Civil Code should equally operate in life insurance contracts. The mandate of Article 2012 cannot be laid
aside: any person who cannot receive a donation cannot be named as beneficiary in the life insurance policy of the
person who cannot make the donation. Under American law, a policy of life insurance is considered as a testament
and in construing it, the courts will, so far as possible treat it as a will and determine the effect of a clause designating
the beneficiary by rules under which wills are interpreted.

Same; Same; Conviction for adultery or concubinage for those barred from receiving donations or life insurance not
required as only preponderance of evidence is necessary.—We do not think that a conviction for adultery or
concubinage is exacted before the disabilities mentioned in Article 739 may effectuate. More specifically, with regard
to the disability on “persons who were guilty of adultery or concubinage at the time of the donation,” x x x The
underscored clause neatly conveys that no criminal conviction for the disqualifying offense is a condition precedent.
In fact, it cannot even be gleaned from the aforequoted provision that a criminal prosecution is needed. On the
contrary, the law plainly states that the guilt of the party may be proved “in the same action” for declaration of nullity
of donation. And, it would be sufficient if evidence preponderates upon the guilt of the consort for the offense
indicated. The quantum of proof in criminal cases is not demanded.

No. L-34200. September 30, 1982. *

REGINA L. EDILLON, as assisted by her husband, MARCIAL EDILLON, petitioners-

appellants, vs. MANILA BANKERS LIFE INSURANCE CORPORATION and the COURT OF FIRST
INSTANCE OF RIZAL, BRANCH V, QUEZON CITY, respondents-appellees.

Commercial Law; Insurance; Concealment of age, not a case of; Estoppel; Acceptance by insurance corporation of
the premium and issuance of corresponding certificate of insurance in favor of the insured was deemed a waiver of
the exclusionary condition of overage stated in said certificate of insurance.—The age of the insured Carmen O.
Lapuz was not concealed to the insurance company. Her application for insurance coverage which was on a printed
form furnished by private respondent and which contained very few items of information clearly indicated her age at
the time of filing the same to be almost 65 years of age. Despite such information which could hardly be overlooked in
the application form, considering its prominence thereon and its materiality to the coverage applied for, the respondent
insurance corporation received her payment of premium and issued the corresponding certificate of insurance without
question. The accident which resulted in the death of the insured, a risk covered by the policy, occurred on May 31,
1969 or FORTY-FIVE (45) DAYS after the insurance coverage was applied for. There was sufficient time for the
private respondent to process the application and to notice that the application was over 60 years of age and thereby
cancel the policy on that ground if it was minded to do so. If the private respondent failed to act, it is either because it
was willing to waive such disqualification; or, through the negligence or incompetence of its employees for which it
has only itself to blame, it simply overlooked such fact. Under the circumstances, the insurance corporation is already
deemed in estoppel. Its inaction to revoke the policy despite a departure from the exclusionary condition contained in
the said policy constituted a waiver of such condition.

No. L-30685. May 30, 1983. *

NG GAN ZEE, plaintiff-appellee, vs. ASIAN CRUSADER LIFE ASSURANCE CORPORATION,

defendant-appellant.

Mercantile Law; Insurance; Concealment; When concealment exists; Nature of concealment.—Thus, “concealment

exists where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires
that he should communicate it to the assurer, but he designedly and intentionally withholds the same.” It has also been
held “that the concealment must, in the absence of inquiries, be not only material, but fraudulent, or the fact must have
been intentionally withheld.”

Same; Same; Same; Misrepresentation; Fraudulent intent of insured must be established to entitle insurer to rescind

insurance contract; Misrepresentation, as defense of insurer, is an affirmative defense which must be proved .—Sec.
27 of the Insurance Law, abovequoted, nevertheless requires that fraudulent intent on the part of the insured be
established to entitle the insurer to rescind the contract. And as correctly observed by the lower court,
“misrepresentation as a defense of the insurer to avoid liability is an ‘affirmative’ defense. The duty to establish such a
defense by satisfactory and convincing evidence rests upon the defendant. The evidence before the Court does not
clearly and satisfactorily establish that defense.”
Same; Same; Same; Statement of insured that tumor he was operated on was associated with ulcer of the stomach, an
expression made in good faith as to the nature of his ailment and operation and without knowledge of its
incorrectness and without any deliberate intent to mislead the insurer.—It bears emphasis that Kwong Nam had
informed the appellant’s medical examiner that the tumor for which he was operated on was “associated with ulcer of
the stomach.” In the absence of evidence that the insured had sufficient medical knowledge as to enable him to
distinguish between “peptic ulcer” and “a tumor”, his statement that said tumor was “associated with ulcer of the
stomach,” should be construed as an expression made in good faith of his belief as to the nature of his ailment and
operation. Indeed, such statement must be presumed to have been made by him without knowledge of its incorrectness
and without any deliberate intent on his part to mislead the appellant.

Same; Same; Same; Failure of insurer to undertake a further inquiry on insurance application on the question of the
insured’s ailment and operation which is important in determination of grant of insurance or not, constitutes waiver
by insurer of imperfection in the answer and renders omission to answer more fully immaterial; Case at bar.—Where,
“upon the face of the application, a question appears to be not answered at all or to be imperfectly answered, and the
insurers issue a policy without any further inquiry, they waive the imperfection of the answer and render the omission
to answer more fully immaterial. As aptly noted by the lower court, “if the ailment and operation of Kwong Nam had
such an important bearing on the question of whether the defendant would undertake the insurance or not, the court
cannot understand why the defendant or its medical examiner did not make any further inquiries on such matters from
the Chinese General Hospital or require copies of the hospital records from the appellant before acting on the
application for insurance. The fact of the matter is that the defendant was too eager to accept the application and
receive the insured’s premium. It would be inequitable now to allow the defendant to avoid liability under the
circumstances.”

G.R. No. 92492. June 17, 1993. *

THELMA VDA. DE CANILANG, petitioner, vs. HON. COURT OF APPEALS and GREAT PACIFIC LIFE
ASSURANCE CORPORATION, respondents.

Insurance Law; Concealment; The information which Jaime Canilang failed to disclose was material to the ability of
Great Pacific to estimate the probable risk he presented as a subject of life insurance.—We agree with the Court of
Appeals that the information which Jaime Canilang failed to disclose was material to the ability of Great Pacific to
estimate the probable risk he presented as a subject of life insurance. Had Canilang disclosed his visits to his doctor,
the diagnosis made and the medicines prescribed by such doctor, in the insurance application, it may be reasonably
assumed that Great Pacific would have made further inquiries and would have probably refused to issue a non-medical
insurance policy or, at the very least, required a higher premium for the same coverage. The materiality of the
information withheld by Great Pacific did not depend upon the state of mind of Jaime Canilang. A man’s state of mind
or subjective belief is not capable of proof in our judicial process, except through proof of external acts or failure to
act from which inferences as to his subjective belief may be reasonably drawn. Neither does materiality depend upon
the actual or physical events which ensue. Materiality relates rather to the “probable and reasonable influence of the
facts” upon the party to whom the communication should have been made, in assessing the risk involved in making or
omitting to make further inquiries and in accepting the application for insurance; that “probable and reasonable
influence of the facts” concealed must, of course, be determined objectively, by the judge ultimately.

G.R. No. 105135. June 22, 1995. *

SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner, vs. The Hon. COURT OF APPEALS and

Spouses ROLANDO and BERNARDA BACANI, respondents.

Insurance Law; Concealment; Words and Phrases; A neglect to communicate that which a party knows and ought to
communicate is called concealment.—In weighing the evidence presented, the trial court concluded that indeed there
was concealment and misrepresentation, however, the same was made in “good faith” and the facts concealed or
misrepresented were irrelevant since the policy was “non-medical.” We disagree. Section 26 of The Insurance Code is
explicit in requiring a party to a contract of insurance to communicate to the other, in good faith, all facts within his
knowledge which are material to the contract and as to which he makes no warranty, and which the other has no
means of ascertaining. Said Section provides: “A neglect to communicate that which a party knows and ought to
communicate, is called concealment.”
Same; Same; Materiality; Matters relating to the health of the insured are material and relevant to the approval and
issuance of the life insurance policy as these definitely affect the insurer’s action on the application.—The terms of
the contract are clear. The insured is specifically required to disclose to the insurer matters relating to his health. The
information which the insured failed to disclose were material and relevant to the approval and issuance of the
insurance policy. The matters concealed would have definitely affected petitioner’s action on his application, either by
approving it with the corresponding adjustment for a higher premium or rejecting the same. Moreover, a disclosure
may have warranted a medical examination of the insured by petitioner in order for it to reasonably assess the risk
involved in accepting the application.

Same; Same; Good faith is no defense in concealment.—Thus, “good faith” is no defense in concealment. The

insured’s failure to disclose the fact that he was hospitalized for two weeks prior to filing his application for insurance,
raises grave doubts about his bona fides. It appears that such concealment was deliberate on his part.

Same; Same; Non-Medical Insurance Contracts; The waiver of a medical examination in a non-medical insurance

contract renders even more material the information required of the applicant concerning previous condition of
health and diseases suffered.—The argument, that petitioner’s waiver of the medical examination of the insured
debunks the materiality of the facts concealed, is untenable. We reiterate our ruling in Saturnino v. Philippine
American Life Insurance Company, 7 SCRA 316 (1963), that “x x x the waiver of a medical examination [in a non-
medical insurance contract] renders even more material the information required of the applicant concerning previous
condition of health and diseases suffered, for such information necessarily constitutes an important factor which the
insurer takes into consideration in deciding whether to issue the policy or not x x x.”

Same; Same; It is well-settled that the insured need not die of the disease he had failed to disclose to the insurer, as it
is sufficient that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance
policy or in making inquiries.—Anent the finding that the facts concealed had no bearing to the cause of death of the
insured, it is well settled that the insured need not die of the disease he had failed to disclose to the insurer. It is
sufficient that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance
policy or in making inquiries (Henson v. The Philippine American Life Insurance Co., 56. O.G. No. 48 [1960]).

G.R. No. 82036. May 22, 1997. *

TRAVELLERS INSURANCE & SURETY CORPORATION, petitioner, vs. HON. COURT OF APPEALS

and VICENTE MENDOZA, respondents.

Insurance; The prescriptive period to bring suit in court under an insurance policy, begins to run from the date of the
insurer’s rejection of the claim filed by the insured, the beneficiary or any person claiming under an insurance
contract.—We have certainly ruled with consis tency that the pres criptive period to bring suit in court under an
insurance policy, begins to run from the date of the insurer’s rejection of the claim filed by the insured, the beneficiary
or any person claiming under an insurance contract. This ruling is premised upon the compliance by the persons suing
under an insurance contract, with the indispensable requirement of having filed the written claim mandated by Section
384 of the Insurance Code before and after its amendment. Absent such written claim filed by the person suing under
an insurance contract, no cause of action accrues under such insurance contract, considering that it is the rejection of
that claim that triggers the running of the one-year prescriptive period to bring suit in court, and there can be no
opportunity for the insurer to even reject a claim if none has been filed in the first place, as in the instant case.

Same; Respondent appellate court committed reversible error in finding petitioner liable under an insurance contract
the existence of which had not at all been proven in court.—When petitioner asseverates, thus, that no written claim
was filed by private respondent and rejected by petitioner, and private respondent does not dispute such asseveration
through a denial in his pleadings, we are constrained to rule that respondent appellate court committed reversible error
in finding petitioner liable under an insurance contract the existence of which had not at all been proven in court. Even
if there were such a contract, private respondent’s cause of action can not prevail because he failed to file the written
claim mandated by Section 384 of the Insurance Code. He is deemed, under this legal provision, to have waived his
rights as against petitioner-insurer.

“While it is true that where the insurance contract provides for indemnity against liability to third persons, such third
persons can directly sue the insurer, however, the direct liability of the insurer under indemnity contracts against
third-party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties
found at fault. The liability of the insurer is based on contract; that of the insured is based on tort.”

G.R. No. 113899. October 13, 1999. *

GREAT PACIFIC LIFE ASSURANCE CORP., petitioner, vs. COURT OF APPEALS AND MEDARDA V.
LEUTERIO, respondents.

Insurance; Mortgages; Mortgage Redemption Insurance; Words and Phrases; The rationale of a group insurance

policy of mortgagors, otherwise known as the “mortgage redemption insurance,” is a device for the protection of both
the mortgagee and the mortgagor; Where the mortgagor pays the insurance premium under the group insurance
policy, making the loss payable to the mortgagee, the insurance is on the mortgagor’s interest, and the mortgagor
continues to be a party to the contract.—We must consider the insurable interest in mortgaged properties and the
parties to this type of contract. The rationale of a group insurance policy of mortgagors, otherwise known as the
“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.
Consequently, where the mortgagor pays the insurance premium under the group insurance policy, making the loss
payable to the mortgagee, the insurance is on the mortgagor’s interest, and the mortgagor continues to be a party to the
contract. In this type of policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-
payable clause does not make the mortgagee a party to the contract.

Same; Same; Same; Parties; Real Party in Interest; The insured may be regarded as the real party in interest,
although he has assigned the policy for the purpose of collection, or has assigned as collateral security any judgment
he may obtain.—The insured private respondent did not cede to the mortgagee all his rights or interests in the
insurance, the policy stating that: “In the event of the debtor’s death before his indebtedness with the Creditor [DBP]
shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor and the
balance of sum assured, if there is any, shall then be paid to the beneficiary/ies designated by the debtor.” When DBP
submitted the insurance claim against petitioner, the latter denied payment thereof, interposing the defense of
concealment committed by the insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary
action of foreclosure on the residential lot of private respondent. In Gonzales La O vs. Yek Tong Lin Fire & Marine
Ins. Co. we held: “Insured, being the person with whom the contract was made, is primarily the proper person to bring
suit thereon. * * * Subject to some exceptions, insured may thus sue, although the policy is taken wholly or in part for
the benefit of another person named or unnamed, and although it is expressly made payable to another as his interest
may appear or otherwise. * * * Although a policy issued to a mortgagor is taken out for the benefit of the mortgagee
and is made payable to him, yet the mortgagor may sue thereon in his own name, especially where the mortgagee’s
interest is less than the full amount recoverable under the policy, * * *.’ And in volume 33, page 82, of the same work,
we read the following: ‘Insured may be regarded as the real party in interest, although he has assigned the policy for
the purpose of collection, or has assigned as collateral security any judgment he may obtain.

Same; Concealment; Words and Phrases; Concealment exists where the assured had knowledge of a fact material to
the risk, and honesty, good faith, and fair dealing requires that he should communicate it to the assured, but he
designedly and intentionally withholds the same.—The second assigned error refers to an alleged concealment that the
petitioner interposed as its defense to annul the insurance contract. Petitioner contends that Dr. Leuterio failed to
disclose that he had hypertension, which might have caused his death. Concealment exists where the assured had
knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that he should communicate
it to the assured, but he designedly and intentionally withholds the same.

Same; Same; The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract.—The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to
establish such defense by satisfactory and convincing evidence rests upon the insurer. In the case at bar, the petitioner
failed to clearly and satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance.

Same; Life Insurance; Unless the interest of a person insured is susceptible of exact pecuniary measurement, the
measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy.—And that brings
us to the last point in the review of the case at bar. Petitioner claims that there was no evidence as to the amount of Dr.
Leuterio’s outstanding indebtedness to DBP at the time of the mortgagor’s death. Hence, for private respondent’s
failure to establish the same, the action for specific performance should be dismissed. Petitioner’s claim is without
merit. A life insurance policy is a valued policy. Unless the interest of a person insured is susceptible of exact
pecuniary measurement, the measure of indemnity under a policy of insurance upon life or health is the sum fixed in
the policy.
Same; Mortgages; Mortgage Redemption Insurance; Where the mortgagee under a mortgage redemption insurance
has already foreclosed on the mortgage, it cannot collect the insurance proceeds—the proceeds then rightly belong to
the heirs of the mortgagor.—We noted that the Court of Appeals’ decision was promulgated on May 17, 1993. In
private respondent’s memorandum, she states that DBP foreclosed in 1995 their residential lot, in satisfaction of
mortgagor’s outstanding loan. Considering this supervening event, the insurance proceeds shall inure to the benefit of
the heirs of the deceased person or his beneficiaries. Equity dictates that DBP should not unjustly enrich itself at the
expense of another (Nemo cum alterius detrimenio protest). Hence, it cannot collect the insurance proceeds, after it
already foreclosed on the mortgage. The proceeds now rightly belong to Dr. Leuterio’s heirs represented by his
widow, herein private respondent Medarda Leuterio.

G.R. No. 137172. June 15, 1999. *

UCPB GENERAL INSURANCE CO., INC., petitioner, vs. MASAGANA TELAMART, INC., respondent.

Insurance; Premiums; Exceptions to the rule in Section 77 of the Insurance Code of 1978 that there be prepayment of
premiums as a condition to the validity of the insurance contract.—It can be seen at once that Section 77 does not
restate the portion of Section 72 expressly permitting an agreement to extend the period to pay the premium. But are
there exceptions to Section 77? The answer is in the affirmative. The first exception is provided by Section 77 itself,
and that is, in case of a life or industrial life policy whenever the grace period provision applies. The second is that
covered by Section 78 of the Insurance Code, which provides: SEC. 78. Any acknowledgment in a policy or contract
of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until premium is actually paid. A third exception
was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals, wherein we ruled that Section 77
may not apply if the parties have agreed to the payment in installments of the premium and partial payment has been
made at the time of loss, x x x Not only that. In Tuscany, we also quoted with approval the following pronouncement
of the Court of Appeals in its Resolution denying the motion for reconsideration of its decision: x x x By the approval
of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has provided a fourth exception to
Section 77, namely, that the insurer may grant credit extension for the payment of the premium. This simply means
that if the insurer has granted the insured a credit term for the payment of the premium and loss occurs before the
expiration of the term, recovery on the policy should be allowed even though the premium is paid after the loss but
within the credit term.

Same; Same; There is nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit
term within which to pay the premiums.—Moreover, there is nothing in Section 77 which prohibits the parties in an
insurance contract to provide a credit term within which to pay the premiums. That agreement is not against the law,
morals, good customs, public order or public policy. The agreement binds the parties.

Same; Same; Estoppel; Where an insurer had consistently granted a 60- to 90-day credit term for the payment of
premiums despite its full awareness of Section 77, and the assured had relied in good faith on such practice, estoppel
bars it from taking refuge under said Section.—Finally in the instant case, it would be unjust and inequitable if
recovery on the policy would not be permitted against Petitioner, which had consistently panted a 60- to 90-day credit
term for the payment of premiums despite its full awareness of Section 77. Estoppel bars it from taking refuge under
said Section, since Respondent relied in good faith on such practice. Estoppel then is the fifth exception to Section 77.

G.R. No. 125678. March 18, 2002. *

PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITA TRINOS,

respondents.

Insurance; Elements; Words and Phrases; A contract of insurance is an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.—
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 designated peril; 3. The insurer assumes the risk; 4. Such
assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a
similar risk; and 5. In consideration of the insurer’s promise, the insured pays a premium.

Same; Every person has an insurable interest in the life and health of himself.—Section 3 of the Insurance Code states
that any contingent or unknown event, whether past or future, which may damnify a person having an insurable
interest against him, may be insured against. Every person has an insurable interest in the life and health of himself.
Section 10 provides: Every person has an insurable interest in the life and health: (1) of himself, of his spouse and of
his children; (2) of any person on whom he depends wholly or in part for education or support, or in whom he has a
pecuniary interest; (3) of any person under a legal obligation to him for the payment of money, respecting property or
service, of which death or illness might delay or prevent the performance; and (4) of any person upon whose life any
estate or interest vested in him depends.

Same; Health Care Agreements; A health care agreement is in the nature of non-life insurance, which is primarily a
contract of indemnity.—In the case at bar, the insurable interest of respondent’s husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a
contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or
other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the
contract.

Same; Same; Misrepresentation; Where matters of opinion are called for, answers made in good faith and without
intent to deceive will not avoid a policy even though they are untrue.—The answer assailed by petitioner was in
response to the question relating to the medical history of the applicant. This largely depends on opinion rather than
fact, especially coming from respondent’s husband who was not a medical doctor. Where matters of opinion or
judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though
they are untrue. Thus, (A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of
the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance
at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement
is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such statement,
but is obligated to make further inquiry. There is a clear distinction between such a case and one in which the insured
is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be
actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent
to deceive the insurer is obvious and amounts to actual fraud. (Italics ours)

Same; Same; Concealment; Concealment as a defense for the health care provider or 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 liability of the health care provider attaches once the member is hospitalized for the disease
or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid .—The
fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract.
Concealment as a defense for the health care provider or 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. In any case,
with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a
responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the
liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the
agreement or whenever he avails of the covered benefits which he has prepaid.

Same; Same; Same; Rescission; The right to rescind should be exercised previous to the commencement of an

action on the contract.—Under Section 27 of the Insurance Code, “a concealment entitles the injured party to rescind
a contract of insurance.” The right to rescind should be exercised previous to the commencement of an action on the
contract. In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance
policies require the concurrence of the following conditions: 1. Prior notice of cancellation to insured; 2. Notice must
be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; 3. Must be in
writing, mailed or delivered to the insured at the address shown in the policy; 4. Must state the grounds relied upon
provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is
based.

Same; Same; Contracts; The rule that by reason of the exclusive control of the insurance company over the terms
and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in
favor of the insured, especially to avoid forfeiture, is equally applicable to Health Care Agreements .—None of the
above preconditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability,
courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. Being a
contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared
the contract—the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology
of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the
insured, especially to avoid forfeiture. 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.
Same; Same; Since a health care agreement is in the nature of a contract of indemnity, payment should be made to
the party who incurred the expenses.—Petitioner alleges that respondent was not the legal wife of the deceased
member considering that at the time of their marriage, the deceased was previously married to another woman who
was still alive. The health care agreement is in the nature of a contract of indemnity. Hence, payment should be made
to the party who incurred the expenses. It is not controverted that respondent paid all the hospital and medical
expenses. She is therefore entitled to reimbursement. The records adequately prove the expenses incurred by
respondent for the deceased’s hospitalization, medication and the professional fees of the attending physicians.

G.R. No. 195872. March 12, 2014.*

FORTUNE MEDICARE, INC., petitioner, vs. DAVID ROBERT U. AMORIN, respondent. 

Civil Law; Contracts; Health Care Providers; For purposes of determining the liability of a health care provider to
its members, jurisprudence holds that a health care agreement is in the nature of nonlife insurance, which is primarily
a contract of indemnity.—We emphasize that for purposes of determining the liability of a health care provider to its
members, jurisprudence holds that 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.

Same; Same; Same; Contract of Adhesion; 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.—To aid in the interpretation of health care agreements, the Court laid down the following
guidelines in Philamcare Health Systems v. CA, 379 SCRA 356 (2002): 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. By reason of the exclusive control of the insurance
company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the
insurer and liberally in favor of the insured, especially to avoid forfeiture. 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.

Same; Same; Same; Interpretation of Contracts; Ambiguities in a contract are interpreted against the party that
caused the ambiguity.—Settled is the rule that ambiguities in a contract are interpreted against the party that caused
the ambiguity. “[A]ny ambiguity in a contract whose terms are susceptible of different interpretations must be read
against the party who drafted it.” 

G.R. No. 154514. July 28, 2005. *

WHITE GOLD MARINE SERVICES, INC., petitioner, vs. PIONEER INSURANCE AND SURETY

CORPORATION AND THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA)
LTD., respondents.

Insurance Law; Section 2(2) of the Insurance Code enumerates what constitutes “doing an insurance business” or
“transacting an insurance business”; The fact that no profit is derived from the making of insurance contracts,
agreements or transactions or that no separate or direct consideration is received therefor, shall not preclude the
existence of an insurance business.—Section 2(2) of the Insurance Code enumerates what constitutes “doing an
insurance business” or “transacting an insurance business.” These are: (a) making or proposing to make, as insurer,
any insurance contract; (b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not
as merely incidental to any other legitimate business or activity of the surety; (c) doing any kind of business, including
a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning
of this Code; (d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code. . . . The same provision also provides, the fact that no profit is derived
from the making of insurance contracts, agreements or transactions, or that no separate or direct consideration is
received therefor, shall not preclude the existence of an insurance business.
Same; Test to determine if a contract is an insurance contract or not.—The test to determine if a contract is an
insurance contract or not, depends on the nature of the promise, the act required to be performed, and the exact nature
of the agreement in the light of the occurrence, contingency, or circumstances under which the performance becomes
requisite. It is not by what it is called.

Same; An insurance contract is a contract of indemnity basically.—Basically, an insurance contract is a contract of

indemnity. In it, one undertakes for a consideration to indemnify another against loss, damage or liability arising from
an unknown or contingent event.

Same; A marine insurance undertakes to indemnify the assured against marine losses, such as the losses incident to a
marine adventure.—In particular, a marine insurance undertakes to indemnify the assured against marine losses, such
as the losses incident to a marine adventure. Section 99 of the Insurance Code enumerates the coverage of marine
insurance.

Same; Steamship Mutual as a P & I Club is a mutual insurance association engaged in the marine insurance
business.—A P & I Club is “a form of insurance against third party liability, where the third party is anyone other than
the P & I Club and the members.” By definition then, Steamship Mutual as a P & I Club is a mutual insurance
association engaged in the marine insurance business.

Same; To continue doing business here, Steamship Mutual or through its agent Pioneer, must secure a license from
the Insurance Commission.—The records reveal Steamship Mutual is doing business in the country albeit without the
requisite certificate of authority mandated by Section 187 of the Insurance Code. It maintains a resident agent in the
Philippines to solicit insurance and to collect payments in its behalf. We note that Steamship Mutual even renewed its
P & I Club cover until it was cancelled due to non-payment of the calls. Thus, to continue doing business here,
Steamship Mutual or through its agent Pioneer, must secure a license from the Insurance Commission. Since a
contract of insurance involves public interest, regulation by the State is necessary. Thus, no insurer or insurance
company is allowed to engage in the insurance business without a license or a certificate of authority from the
Insurance Commission.

Same; Although Pioneer is already licensed as an insurance company, it needs a separate license to act as insurance
agent for Steamship Mutual.—Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of
registration issued by the Insurance Commission. It has been licensed to do or transact insurance business by virtue of
the certificate of authority issued by the same agency. However, a Certification from the Commission states that
Pioneer does not have a separate license to be an agent/broker of Steamship Mutual. Although Pioneer is already
licensed as an insurance company, it needs a separate license to act as insurance agent for Steamship Mutual.

G.R. No. 156167. May 16, 2005. *

GULF RESORTS, INC., petitioner, vs. PHILIPPINE CHARTER INSURANCE CORPORATION,

respondent.

Insurance; It is basic that all the provisions of the insurance policy should be examined and interpreted in
consonance with each other.—It is basic that all the provisions of the insurance policy should be examined and
interpreted in consonance with each other. All its parts are reflective of the true intent of the parties. The policy cannot
be construed piecemeal. Certain stipulations cannot be segregated and then made to control; neither do particular
words or phrases necessarily determine its character. Petitioner cannot focus on the earthquake shock endorsement to
the exclusion of the other provisions. All the provisions and riders, taken and interpreted together, indubitably show
the intention of the parties to extend earthquake shock coverage to the two swimming pools only.

Same; Elements; Words and Phrases; A contract of insurance is an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.—A
careful examination of the premium recapitulation will show that it is the clear intent of the parties to extend
earthquake shock coverage only to the two swimming pools. Section 2(1) of the Insurance Code defines a contract of
insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. Thus, an insurance contract exists where the following elements
concur: 1. The insured has an insurable interest; 2. The insured is subject to a risk of loss by the happening of the
designated peril; 3. The insurer assumes the risk; 4. Such assumption of risk is part of a general scheme to distribute
actual losses among a large group of persons bearing a similar risk; and 5. In consideration of the insurer’s promise,
the insured pays a premium.
Same; Same; Same; Premium; An insurance premium is the consideration paid an insurer for undertaking to
indemnify the insured against a specified peril.—An insurance premium is the consideration paid an insurer for
undertaking to indemnify the insured against a specified peril. In fire, casualty, and marine insurance, the premium
payable becomes a debt as soon as the risk attaches. In the subject policy, no premium payments were made with
regard to earthquake shock coverage, except on the two swimming pools. There is no mention of any premium
payable for the other resort properties with regard to earthquake shock. This is consistent with the history of
petitioner’s previous insurance policies from AHAC-AIU.

Same; Contracts of Adhesion; Words and Phrases; A contract of adhesion is one wherein a party, usually a
corporation, prepares the stipulations in the contract, while the other party merely affixes his signature or his
“adhesion” thereto; The Supreme Court will only rule out blind adherence to terms where facts and circumstances
will show that they are basically one-sided.—In sum, there is no ambiguity in the terms of the contract and its riders.
Petitioner cannot rely on the general rule that insurance contracts are contracts of adhesion which should be liberally
construed in favor of the insured and strictly against the insurer company which usually prepares it. A contract of
adhesion is one wherein a party, usually a corporation, prepares the stipulations in the contract, while the other party
merely affixes his signature or his “adhesion” thereto. Through the years, the courts have held that in these type of
contracts, the parties do not bargain on equal footing, the weaker party’s participation being reduced to the alternative
to take it or leave it. Thus, these contracts are viewed as traps for the weaker party whom the courts of justice must
protect. Consequently, any ambiguity therein is resolved against the insurer, or construed liberally in favor of the
insured. The case law will show that this Court will only rule out blind adherence to terms where facts and
circumstances will show that they are basically one-sided. Thus, we have called on lower courts to remain careful in
scrutinizing the factual circumstances behind each case to determine the efficacy of the claims of contending parties.
In Development Bank of the Philippines v. National Merchandising Corporation, et al., the parties, who were acute
businessmen of experience, were presumed to have assented to the assailed documents with full knowledge.

G.R. No. 156956. October 9, 2006. *

REPUBLIC OF THE PHILIPPINES, Represented by EDUARDO T. MALINIS in His Capacity as

Insurance Commissioner, petitioner, vs. DEL MONTE MOTORS, INC., respondent.

Insurance; Statutes; Statutory Construction; Basic is the statutory construction rule that provisions of a statute

should be construed in accordance with the purpose for which it was enacted; Thus, a single claimant may not lay
stake on the securities to the exclusion of all others.—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.

Same; Same; Same; The insurance commissioner has been given a wide latitude of discretion to regulate the
insurance industry so as to protect the insuring public; An implied trust is created by the law for the benefit of all
claimants under subsisting insurance contracts issued by the insurance company.—The insurance commissioner has
been given a wide latitude of discretion to regulate the insurance industry so as to protect the insuring public. The law
specifically confers custody over the securities upon the commissioner, with whom these investments are required to
be deposited. An implied trust is created by the law for the benefit of all claimants under subsisting insurance
contracts issued by the insurance company.

Powers of the Commissioner

The Insurance Code has vested the Office of the Insurance Commission with
both regulatory and adjudicatory authority over insurance matters. 15

The general regulatory authority of the insurance commissioner is described in Section 414 of the Code
as follows:
“Sec. 414. The Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance
companies and other insurance matters, mutual benefit associations, and trusts for charitable uses are faithfully
executed and to perform the duties imposed upon him by this Code, and shall, notwithstanding any existing laws to the
contrary, have sole and exclusive authority to regulate the issuance and sale of variable contracts as defined in section
two hundred thirty-two and to provide for the licensing of persons selling such contracts, and to issue such reasonable
rules and regulations governing the same.
 “The Commissioner may issue such rulings, instructions, circulars, orders and decisions as he may deem
necessary to secure the enforcement of the provisions of this Code, subject to the approval of the Secretary of Finance.
Except as otherwise specified, decisions made by the Commissioner shall be appealable to the Secretary of Finance.”
(Emphasis supplied)
Pursuant to these regulatory powers, the commissioner is authorized to (1) issue (or to refuse to issue)
certificates of authority to persons or entities desiring to engage in insurance business in the Philippines;  (2) 16

revoke or suspend these certificates of authority upon finding grounds for the revocation or suspension;  (3) 17

impose upon insurance companies, their directors and/or officers and/or agents appropriate pen-alties—
fines, suspension or removal from office—for failing to comply with the Code or with any of the
commissioner’s orders, instructions, regulations or rulings, or for otherwise conducting business in an unsafe
or unsound manner. 18

Included in the above regulatory responsibilities is the duty to hold the security deposits under Sections
191  and 203 of the Code, for the benefit and security of all policy holders. In relation to these provisions,
19

Section 192 of the Insurance Code states:

“Sec. 192. The Commissioner shall hold the securities, deposited as aforesaid, for the benefit and security of all the
policyholders of the company depositing the same, but shall as long as the company is solvent, permit the company to
collect the interest or dividends on the securities so deposited, and, from time to time, with his assent, to withdraw any
of such securities, upon depositing with said Commissioner other like securities, the market value of which shall be
equal to the market value of such as may be withdrawn. In the event of any company ceasing to do business in the
Philippines the securities deposited as aforesaid shall be returned upon the company’s making application therefor
and proving to the satisfaction of the Commissioner that it has no further liability under any of its policies in the
Philippines.” (Emphasis supplied)
Undeniably, the insurance commissioner has been given a wide latitude of discretion to regulate the
insurance industry so as to protect the insuring public. The law specifically confers custody over the
securities upon the commissioner, with whom these investments are required to be deposited. An implied
trust  is created by the law for the benefit of all claimants under subsisting insurance contracts issued by the
20

insurance company. 21

As the officer vested with custody of the security deposit, the insurance commissioner is in the best
position to determine if and when it may be released without prejudicing the rights of other policy holders.
Before allowing the withdrawal or the release of the deposit, the commissioner must be satisfied that the
conditions contemplated by the law are met and all policy holders protected.

G.R. No. 147839. June 8, 2006. *

GAISANO CAGAYAN, INC., petitioner, vs. INSURANCE COMPANY OF NORTH AMERICA,

respondent.

Same; Same; Insurance; Insurable Interest; Kinds; An insurable interest in property may consist in the following.—

Section 13 of our Insurance Code defines insurable interest as “every interest in property, whether real or personal, or
any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the
insured.” Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a) an
existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing
interest in that out of which the expectancy arises.

Same; Same; Same; Same; Anyone has an insurable interest in property who derives a benefit from its existence or
would suffer loss from its destruction.—An insurable interest in property does not necessarily imply a property interest
in, or a lien upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is
requisite to the existence of such an interest, it is sufficient that the insured is so situated with reference to the property
that he would be liable to loss should it be injured or destroyed by the peril against which it is insured. Anyone has an
insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction. Indeed,
a vendor or seller retains an insurable interest in the property sold so long as he has any interest therein, in other
words, so long as he would suffer by its destruction, as where he has a vendor’s lien. In this case, the insurable interest
of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the time of the loss
covered by the policies.

Same; Same; Subrogation; There is no evidence that respondent has been subrogated to any right which Levi Strauss
(Phils.) Inc. (LSPI) may have against petitioner.—There is no proof of full settlement of the insurance claim of LSPI;
no subrogation receipt was offered in evidence. Thus, there is no evidence that respondent has been subrogated to any
right which LSPI may have against petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner’s
case for recovery of the amount of P535,613.00.

G.R. No. 168115. June 8, 2007. *

VICENTE ONG LIM SING, JR., petitioner, vs. FEB LEASING & FINANCE CORPORATION,
respondent.

Contracts; Contracts of Adhesion; A contract of adhesion is not void per se—it is as binding as any ordinary
contract.—While we affirm that the subject lease agreement is a contract of adhesion, such a contract is not void  per
se. It is as binding as any ordinary contract. A party who enters into an adhesion contract is free to reject the
stipulations entirely. If the terms thereof are accepted without objection, then the contract serves as the law between
the parties.

Same; Financial Leasing Transactions; Words and Phrases; Financial leasing is a mode of extending credit through
a noncancelable lease contract under which the lessor purchases or acquires, at the instance of the lessee, machinery,
equipment, motor vehicles, appliances, business and office machines, and other movable or immovable property in
consideration of the periodic payment by the lessee of a fixed amount of money sufficient to amortize at least seventy
(70%) of the purchase price or acquisition cost, including any incidental expenses and a margin of profit over an
obligatory period of not less than two (2) years during which the lessee has the right to hold and use the leased
property with the right to expense the lease rentals paid to the lessor and bears the cost of repairs, maintenance,
insurance and preservation thereof, but with no obligation or option on his part to purchase the leased property from
the owner-lessor at the end of the lease contract.—The Lease Contract with corresponding Lease Schedules with
Delivery and Acceptance Certificates is, in point of fact, a financial lease within the purview of R.A. No. 8556.
Section 3(d) thereof defines “financial leasing” as: [A] mode of extending credit through a non-cancelable lease
contract under which the lessor purchases or acquires, at the instance of the lessee, machinery, equipment, motor
vehicles, appliances, business and office machines, and other movable or immovable property in consideration of the
periodic payment by the lessee of a fixed amount of money sufficient to amortize at least seventy (70%) of the
purchase price or acquisition cost, including any incidental expenses and a margin of profit over an obligatory period
of not less than two (2) years during which the lessee has the right to hold and use the leased property with the right to
expense the lease rentals paid to the lessor and bears the cost of repairs, maintenance, insurance and preservation
thereof, but with no obligation or option on his part to purchase the leased property from the owner-lessor at the end of
the lease contract.

Same; Same; The basic purpose of a financial leasing transaction is to enable the prospective buyer of equipment,
who is unable to pay for such equipment in cash in one lump sum, to lease such equipment in the meantime for his
use, at a fixed rental sufficient to amortize at least 70% of the acquisition cost (including the expenses and a margin
of profit for the financial lessor) with the expectation that at the end of the lease period the buyer/financial lessee will
be able to pay any remaining balance of the purchase price.—FEB leased the subject equipment and motor vehicles
to JVL in consideration of a monthly periodic payment of P170,494.00. The periodic payment by petitioner is
sufficient to amortize at least 70% of the purchase price or acquisition cost of the said movables in accordance with
the Lease Schedules with Delivery and Acceptance Certificates. “The basic purpose of a financial leasing transaction
is to enable the prospective buyer of equipment, who is unable to pay for such equipment in cash in one lump sum, to
lease such equipment in the meantime for his use, at a fixed rental sufficient to amortize at least 70% of the acquisition
cost (including the expenses and a margin of profit for the financial lessor) with the expectation that at the end of the
lease period the buyer/financial lessee will be able to pay any remaining balance of the purchase price.”

Same; Same; It is settled that the parties are free to agree to such stipulations, clauses, terms, and conditions as they
may want to include in a contract, and as long as such agreements are not contrary to law, morals, good customs,
public policy, or public order, they shall have the force of law between the parties.—The validity of Lease No.
27:95:20 between FEB and JVL should be upheld. JVL entered into the lease contract with full knowledge of its terms
and conditions. The contract was in force for more than four years. Since its inception on March 9, 1995, JVL and
Lim never questioned its provisions. They only attacked the validity of the contract after they were judicially made to
answer for their default in the payment of the agreed rentals. It is settled that the parties are free to agree to such
stipulations, clauses, terms, and conditions as they may want to include in a contract. As long as such agreements are
not contrary to law, morals, good customs, public policy, or public order, they shall have the force of law between the
parties. Contracting parties may stipulate on terms and conditions as they may see fit and these have the force of law
between them.
Same; Same; Insurance; 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. —The stipulation
in Section 14 of the lease contract, that the equipment shall be insured at the cost and expense of the lessee against
loss, damage, or destruction from fire, theft, accident, or other insurable risk for the full term of the lease, is a binding
and valid stipulation. Petitioner, 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.

G.R. No. 166245. April 9, 2008.*

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner, vs. THE PHILIPPINE
AMERICAN LIFE INSURANCE COMPANY, respondent.

Contracts; Insurance Law; It must be remembered that an insurance contract is a contract of adhesion which must be
construed liberally in favor of the insured and strictly against the insurer in order to safeguard the latter’s interest. —
It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor
of the insured and strictly against the insurer in order to safeguard the latter’s interest. Thus, in  Malayan Insurance
Corporation v. Court of Appeals, 270 SCRA 242 (1997), this Court held that: Indemnity and liability insurance
policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured,
where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par
excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed
liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded with
extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its
obligations. (Emphasis supplied.)

Same; Same; The mere inaction of the insurer on the insurance application must not work to prejudice the insured; it
cannot be interpreted as a termination of the insurance contract.—The seemingly conflicting provisions must be
harmonized to mean that upon a party’s purchase of a memorial lot on installment from Eternal, an insurance contract
covering the lot purchaser is created and the same is effective, valid, and binding until terminated by Philamlife by
disapproving the insurance application. The second sentence of Creditor Group Life Policy No. P-1920 on the
Effective Date of Benefit is in the nature of a resolutory condition which would lead to the cessation of the insurance
contract. Moreover, the mere inaction of the insurer on the insurance application must not work to prejudice the
insured; it cannot be interpreted as a termination of the insurance contract. The termination of the insurance contract
by the insurer must be explicit and unambiguous.

Same; Same; Insurance contracts are imbued with public interest that must be considered whenever the rights and
obligations of the insurer and the insured are to be delineated.—To characterize the insurer and the insured as
contracting parties on equal footing is inaccurate at best. Insurance contracts are wholly prepared by the insurer with
vast amounts of experience in the industry purposefully used to its advantage. More often than not, insurance contracts
are contracts of adhesion containing technical terms and conditions of the industry, confusing if at all understandable
to laypersons, that are imposed on those who wish to avail of insurance. As such, insurance contracts are imbued with
public interest that must be considered whenever the rights and obligations of the insurer and the insured are to be
delineated. Hence, in order to protect the interest of insurance applicants, insurance companies must be obligated to
act with haste upon insurance applications, to either deny or approve the same, or otherwise be bound to honor the
application as a valid, binding, and effective insurance contract.

G.R. No. 183526. August 25, 2009.*

VIOLETA R. LALICAN, petitioner, vs. THE INSULAR LIFE ASSURANCE COMPANY LIMITED, AS
REPRESENTED BY THE PRESIDENT VICENTE R. AVILON, respondent.

Mercantile Law; Insurance Law; Insurable Interest; An insurable interest is that interest which a person is deemed to
have in the subject matter insured, where he has a relation or connection with or concern in it, such that the person
will derive pecuniary benefit or advantage from the preservation of the subject matter insured and will suffer
pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against.—
An insurable interest is one of the most basic and essential requirements in an insurance contract. In general, an
insurable interest is that interest which a person is deemed to have in the subject matter insured, where he has a
relation or connection with or concern in it, such that the person will derive pecuniary benefit or advantage from the
preservation of the subject matter insured and will suffer pecuniary loss or damage from its destruction, termination,
or injury by the happening of the event insured against. The existence of an insurable interest gives a person the legal
right to insure the subject matter of the policy of insurance. Section 10 of the Insurance Code indeed provides that
every person has an insurable interest in his own life. Section 19 of the same code also states that an interest in the life
or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss
occurs.

Insurance Law; Statutory Construction; 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.—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. If such terms are clear and unambiguous, they must be taken and understood in their
plain, ordinary and popular sense.
RULING:

Upon more extensive study of the Petition, it becomes evident that the matter of insurable interest is
entirely irrelevant in the case at bar. It is actually beyond question that while Eulogio was still alive, he had
an insurable interest in his own life, which he did insure under Policy No. 9011992. The real point of
contention herein is whether Eulogio was able to reinstate the lapsed insurance policy on his life before his
death on 17 September 1998.
The Court rules in the negative.
Before proceeding, the Court must correct the erroneous declaration of the RTC in its 30 August 2007
Decision that Policy No. 9011992 lapsed because of Eulogio’s non-payment of the premiums which became
due on 24 April 1998 and 24 July 1998. Policy No. 9011992 had lapsed and become void earlier, on 24
February 1998, upon the expiration of the 31-day grace period for payment of the premium, which fell due
on 24 January 1998, without any payment having been made.
That Policy No. 9011992 had already lapsed is a fact beyond dispute. Eulogio’s filing of his first
Application for Reinstatement with Insular Life, through Malaluan, on 26 May 1998, constitutes an
admission that Policy No. 9011992 had lapsed by then. Insular Life did not act on Eulogio’s first
Application for Reinstatement, since the amount Eulogio simultaneously deposited was sufficient to cover
only the P8,062.00 overdue premium for 24 January 1998, but not the P322.48 overdue interests thereon. On
17 September 1998, Eulogio submitted a second Application for Reinstatement to Insular Life, again
through Malaluan, depositing at the same time P17,500.00, to cover payment for the overdue interest on the
premium for 24 January 1998, and the premiums that had also become due on 24 April 1998 and 24 July
1998. On the very same day, Eulogio passed away.
To reinstate a policy means to restore the same to premium-paying status after it has been permitted to
lapse.39 Both the Policy Contract and the Application for Reinstatement provide for specific conditions for
the reinstatement of a lapsed policy.
The Policy Contract between Eulogio and Insular Life identified the following conditions for
reinstatement should the policy lapse:
10. REINSTATEMENT
“You may reinstate this policy at any time within three years after it lapsed if the following conditions are
met: (1) the policy has not been surrendered for its cash value or the period of extension as a term insurance has
not expired; (2) evidence of insurability satisfactory to [Insular Life] is furnished; (3) overdue premiums are
paid with compound interest at a rate not exceeding that which would have been applicable to said premium
and indebtedness in the policy years prior to reinstatement; and (4) indebtedness which existed at the time of
lapsation is paid or renewed.” 40

Additional conditions for reinstatement of a lapsed policy were stated in the Application for
Reinstatement which Eulogio signed and submitted, to wit:
“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.
I/We further agree that any payment made or to be made in connection with this application shall be considered
as deposit only and shall not bind the Company until this application is finally approved by the Company
during my/our lifetime and good health. If this application is disapproved, I/We also agree to accept the refund of
all payments made in connection herewith, without interest, and to surrender the receipts for such
payment.”  (Emphases ours.)
41

 
In the instant case, Eulogio’s death rendered impossible full compliance with the conditions for
reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed to file his Application for
Reinstatement and deposit the amount for payment of his overdue premiums and interests thereon with
Malaluan; but Policy No. 9011992 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.

G.R. No. 167330. September 18, 2009.*

PHILIPPINE HEALTH CARE PROVIDERS, INC., petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, respondent.

Health Maintenance Organizations; Various courts in the United States, whose jurisprudence has a persuasive effect
on our decisions, have determined that Health Maintenance Organizations (HMOs) are not in the insurance business.
—Various courts in the United States, whose jurisprudence has a persuasive effect on our decisions, have determined
that HMOs are not in the insurance business. One test that they have applied is whether the assumption of risk and
indemnification of loss (which are elements of an insurance business) are the principal object and purpose of the
organization or whether they are merely incidental to its business. If these are the principal objectives, the business is
that of insurance. But if they are merely incidental and service is the principal purpose, then the business is not
insurance. Applying the “principal object and purpose test,” there is significant American case law supporting the
argument that a corporation (such as an HMO, whether or not organized for profit), whose main object is to provide
the members of a group with health services, is not engaged in the insurance business.

Insurance Law; 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.—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.

Contracts; Insurance Law; 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.—In our jurisdiction, a commentator of our insurance laws has
pointed out that, 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: It does not necessarily follow however, that a contract containing
all the four elements mentioned above would be an insurance contract. The primary purpose of the parties in
making the contract may negate the existence of an insurance contract. For example, a law firm which enters into
contracts with clients whereby in consideration of periodical payments, it promises to represent such clients in all suits
for or against them, is not engaged in the insurance business. Its contracts are simply for the purpose of rendering
personal services. On the other hand, a contract by which a corporation, in consideration of a stipulated amount,
agrees at its own expense to defend a physician against all suits for damages for malpractice is one of insurance, and
the corporation will be deemed as engaged in the business of insurance. Unlike the lawyer’s retainer contract, the
essential purpose of such a contract is not to render personal services, but to indemnify against loss and damage
resulting from the defense of actions for malpractice.

Same; Same; Although risk is a primary element of an insurance contract, it is not necessarily true that risk alone is
sufficient to establish it.—Although risk is a primary element of an insurance contract, it is not necessarily true that
risk alone is sufficient to establish it. Almost anyone who undertakes a contractual obligation always bears a certain
degree of financial risk. Consequently, there is a need to distinguish prepaid service contracts (like those of petitioner)
from the usual insurance contracts.

Health Maintenance Organizations; Documentary Stamp Tax; If it had been the intent of the legislature to impose
Documentary Stamp Tax (DST) on health care agreements, it could have done so in clear and categorical terms. —We
can clearly see from these two histories (of the DST on the one hand and HMOs on the other) that when the law
imposing the DST was first passed, HMOs were yet unknown in the Philippines. However, when the various
amendments to the DST law were enacted, they were already in existence in the Philippines and the term had in fact
already been defined by RA 7875. If it had been the intent of the legislature to impose DST on health care agreements,
it could have done so in clear and categorical terms. It had many opportunities to do so. But it did not. The fact that
the NIRC contained no specific provision on the DST liability of health care agreements of HMOs at a time they were
already known as such, belies any legislative intent to impose it on them. As a matter of fact, petitioner was
assessed its DST liability only on January 27, 2000, after more than a decade in the business as an HMO.

Health Maintenance Organizations; Taxation; Taking into account that health care agreements are clearly not within
the ambit of Section 185 of the National Internal Revenue Code (NIRC) and there was never any legislative intent to
impose the same on Health Maintenance Organization (HMO) like petitioner, the same should not be arbitrarily and
unjustly included in its coverage.—Taking into account that health care agreements are clearly not within the ambit of
Section 185 of the NIRC and there was never any legislative intent to impose the same on HMOs like petitioner, the
same should not be arbitrarily and unjustly included in its coverage. It is a matter of common knowledge that there is a
great social need for adequate medical services at a cost which the average wage earner can afford. HMOs arrange,
organize and manage health care treatment in the furtherance of the goal of providing a more efficient and inexpensive
health care system made possible by quantity purchasing of services and economies of scale. They offer advantages
over the pay-for-service system (wherein individuals are charged a fee each time they receive medical services),
including the ability to control costs. They protect their members from exposure to the high cost of hospitalization and
other medical expenses brought about by a fluctuating economy. Accordingly, they play an important role in society
as partners of the State in achieving its constitutional mandate of providing its citizens with affordable health services.

G.R. No. 171468. August 24, 2011.*

NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., petitioner, vs. NYK-FILJAPAN
SHIPPING CORP., LEP PROFIT INTERNATIONAL, INC. (ORD), LEP INTERNATIONAL
PHILIPPINES, INC., DMT CORP., ADVATECH INDUSTRIES, INC., MARINA PORT SERVICES,
INC., SERBROS CARRIER CORPORATION, and SEABOARD-EASTERN INSURANCE CO., INC.,
respondents.
G.R. No. 174241. August 24, 2011.*
NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., petitioner, vs. SEABOARD-
EASTERN INSURANCE CO., INC., respondent.

Insurance Law; Under Section 243 of the Insurance Code, 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.—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.

Same; Section 244 of the Insurance Code also provides for an award of attorney’s fees and other expenses incurred
by the assured due to the unreasonable withholding of payment of his claim.—The term “ceiling prescribed by the
Monetary Board” means the legal rate of interest of 12% per annum provided in Central Bank Circular 416, pursuant
to Presidential Decree 116. Section 244 of the Insurance Code also provides for an award of attorney’s fees and other
expenses incurred by the assured due to the unreasonable withholding of payment of his claim.

RULING:
The marine open policy that Seaboard issued to New World was an all-risk policy. Such a policy insured against all
causes of conceivable loss or damage except when otherwise excluded or when the loss or damage was due to fraud or
intentional misconduct committed by the insured. The policy covered all losses during the voyage whether or not
arising from a marine peril.5
Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay in voyage,
or vessels unseaworthiness, among others.6 But Seaboard had been unable to show that petitioner New
World’s loss or damage fell within some or one of the enumerated exceptions.
What is more, Seaboard had been unable to explain how it could not verify the damage that New World’s
goods suffered going by the documents that it already submitted, namely, (1) copy of the Supplier’s Invoice
KL2504; (2) copy of the Packing List; (3) copy of the Bill of Lading 01130E93004458; (4) the Delivery of
Waybill Receipts 1135, 1222, and 1224; (5) original copy of Marine Insurance Policy MA-HO-000266; (6)
copies of Damage Report from Supplier and Insurance Adjusters; (7) Consumption Report from the
Customs Examiner; and (8) Copies of Received Formal Claim from the following: a) LEP International
Philippines, Inc.; b) Marina Port Services, Inc.; and c) Serbros Carrier Corporation. 7 Notably, Seaboard’s
own marine surveyor attended the inspection of the generator sets.
Seaboard cannot pretend that the above documents are inadequate since they were precisely the
documents listed in its insurance policy. 8 Being a contract of adhesion, an insurance policy is construed
strongly against the insurer who prepared it. The Court cannot read a requirement in the policy that was not
there.

G.R. No. 186983.  February 22, 2012.*

MA. LOURDES S. FLORENDO, petitioner, vs. PHILAM PLANS, INC., PERLA ABCEDE and MA.
CELESTE ABCEDE, respondents.

Insurance Law; Concealment; Manuel had been taking medicine for his heart condition and diabetes when he
submitted his pension plan application; Pursuant to Section 27 of the Insurance Code, Manuel’s concealment entitles
Philam Plans to rescind its contract of insurance with him.—As already stated, Manuel had been taking medicine for
his heart condition and diabetes when he submitted his pension plan application. These clearly fell within the five-year
period. More, even if Perla’s knowledge of Manuel’s pacemaker may be applied to Philam Plans under the theory of
imputed knowledge, it is not claimed that Perla was aware of his two other afflictions that needed medical treatments.
Pursuant to Section 27 of the Insurance Code, Manuel’s concealment entitles Philam Plans to rescind its contract of
insurance with him.

Same; Same; Insured persons may accept policies without reading them, and that this is not negligence per se.
But, this is not without any exception.—As the Court said in New Life Enterprises v. Court of Appeals, 207 SCRA 669
(1992): It may be true that x x x insured persons may accept policies without reading them, and that this is not
negligence per se. But, this is not without any exception. It is and was incumbent upon petitioner Sy to read the
insurance contracts, and this can be reasonably expected of him considering that he has been a businessman since
1965 and the contract concerns indemnity in case of loss in his money-making trade of which important consideration
he could not have been unaware as it was precisely the reason for his procuring the same. The same may be said of
Manuel, a civil engineer and manager of a construction company. He could be expected to know that one must read
every document, especially if it creates rights and obligations affecting him, before signing the same. Manuel is not
unschooled that the Court must come to his succor. It could reasonably be expected that he would not trifle with
something that would provide additional financial security to him and to his wife in his twilight years.

Same; Same; Incontestability Clause; An incontestability clause precludes the insurer from disowning liability
under the policy it issued on the ground of concealment or misrepresentation.—In a final attempt to defend her claim
for benefits under Manuel’s pension plan, Lourdes points out that any defect or insufficiency in the information
provided by his pension plan application should be deemed waived after the same has been approved, the policy has
been issued, and the premiums have been collected. The Court cannot agree. The comprehensive pension plan that
Philam Plans issued contains a one-year incontestability period. It states: VIII. INCONTESTABILITY After this
Agreement has remained in force for one (1) year, we can no longer contest for health reasons any claim for insurance
under this Agreement, except for the reason that installment has not been paid (lapsed), or that you are not insurable at
the time you bought this pension program by reason of age. If this Agreement lapses but is reinstated afterwards, the
one (1) year contestability period shall start again on the date of approval of your request for reinstatement. The above
incontestability clause precludes the insurer from disowning liability under the policy it issued on the ground of
concealment or misrepresentation regarding the health of the insured after a year of its issuance. Since Manuel died on
the eleventh month following the issuance of his plan, the one year incontestability period has not yet set in.
Consequently, Philam Plans was not barred from questioning Lourdes’ entitlement to the benefits of her husband’s
pension plan.

G.R. No. 198588. July 11, 2012.*

UNITED MERCHANTS CORPORATION, petitioner, vs. COUNTRY BANKERS INSURANCE
CORPORATION, respondent.

Insurance Law; In insurance cases, once an insured makes out a prima facie case in its favor, the burden of evidence
shifts to the insurer to controvert the insured’s prima facie case.―Burden of proof is the duty of any party to present
evidence to establish his claim or defense by the amount of evidence required by law, which is preponderance of
evidence in civil cases. The party, whether plaintiff or defendant, who asserts the affirmative of the issue has the
burden of proof to obtain a favorable judgment. Particularly, in insurance cases, once an insured makes out a  prima
facie case in its favor, the burden of evidence shifts to the insurer to controvert the insured’s prima facie case. In the
present case, UMC established a prima facie case against CBIC. CBIC does not dispute that UMC’s stocks in trade
were insured against fire under the Insurance Policy and that the warehouse, where UMC’s stocks in trade were
stored, was gutted by fire on 3 July 1996, within the duration of the fire insurance. However, since CBIC alleged an
excepted risk, then the burden of evidence shifted to CBIC to prove such exception.

Same; An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the burden of
establishing that the loss comes within the purview of the exception or limitation.―An insurer who seeks to defeat a
claim because of an exception or limitation in the policy has the burden of establishing that the loss comes within the
purview of the exception or limitation. If loss is proved apparently within a contract of insurance, the burden is upon
the insurer to establish that the loss arose from a cause of loss which is excepted or for which it is not liable, or from a
cause which limits its liability. In the present case, CBIC failed to discharge its primordial burden of establishing that
the damage or loss was caused by arson, a limitation in the policy.

Insurance Law; The 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.―In Yu Ban Chuan v. Fieldmen’s
Insurance, Co., Inc., 14 SCRA 491 (1965), the Court ruled that the 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. Their falsity is the best evidence of the fraudulent character of plaintiff’s claim. In Verendia v. Court of
Appeals, 217 SCRA 417 (1993), where the insured presented a fraudulent lease contract to support his claim for
insurance benefits, the Court held that by its false declaration, the insured forfeited all benefits under the policy
provision similar to Condition No. 15 of the Insurance Policy in this case.

Same; It has long been settled that a false and material statement made with an intent to deceive or defraud
voids an insurance policy.―It has long been settled that a false and material statement made with an intent to deceive
or defraud voids an insurance policy. In Yu Cua v. South British Insurance Co., the claim was fourteen times bigger
than the real loss; in Go Lu v. Yorkshire Insurance Co., eight times; and in Tuason v. North China Insurance Co., six
times. In the present case, the claim is twenty five times the actual claim proved.

Same; While it is a cardinal principle of insurance law that a contract of insurance is to be construed liberally in
favor of the insured and strictly against the insurer company, 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. ―While it is a
cardinal principle of insurance law that a contract of insurance is to be construed liberally in favor of the insured and
strictly against the insurer company, 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. Courts are not permitted to make contracts
for the parties; the function and duty of the courts is simply to enforce and carry out the contracts actually made.
G.R. No. 173773. November 28, 2012.*
PARAMOUNT INSURANCE CORPORATION, petitioner, vs.  SPOUSES YVES and MARIA TERESA
REMONDEULAZ, respondents.

Same; Qualified Theft; Insurance Law; Theft Clause; 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.”—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.”

G.R. No. 184300. July 11, 2012.*

MALAYAN INSURANCE CO., INC., petitioner, vs. PHILIPPINES FIRST INSURANCE CO., INC. and
REPUTABLE FORWARDER SERVICES, INC., respondents.

Insurance Law; Double Insurance; Double insurance exists where the same person is insured by several insurers
separately in respect to the same subject and interest.—By the express provision of 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 and risk. The requisites in order for double insurance to arise are as follows: 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, it is,
however, beyond cavil that the said policies were issued to two different persons or entities. It is undisputed
that 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.
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, which may become the basis
of the latter’s liability in case of loss or damage to the property and falls within the contemplation of Section
15 of the Insurance Code.39
Therefore, even though the two concerned insurance policies were issued over the same goods and cover
the same risk, there arises no double insurance since they were issued to two different persons/entities
having distinct insurable interests. Necessarily, over insurance by double insurance cannot likewise exist.
Hence, as correctly ruled by the RTC and CA, neither Section 5 nor Section 12 of the SR Policy can be
applied.

Same; Third Party Liability; Where the insurance contract provides for indemnity against liability to third persons,
the liability of the insurer is direct and such third persons can directly sue the insurer. —There is solidary liability
only when the obligation expressly so states, when the law so provides or when the nature of the obligation so
requires. In Heirs of George Y. Poe v. Malayan Insurance Company, Inc., 584 SCRA 152 (2009), the Court ruled that:
[Where the insurance contract provides for indemnity against liability to third persons, the liability of the insurer is
direct and such third persons can directly sue the insurer. The direct liability of the insurer under indemnity contracts
against third party[-]liability does not mean, however, that the insurer can be held solidarily liable with the insured
and/or the other parties found at fault, since they are being held liable under different obligations. The liability of the
insured carrier or vehicle owner is based on tort, in accordance with the provisions of the Civil Code; while
that of the insurer arises from contract, particularly, the insurance policy.

G.R. No. 175773. June 17, 2013.*

MITSUBISHI MOTORS PHlLIPPINES SALARIED EMPLOYEES UNION (MMPSEU),
petitioner, vs. MITSUBISHI MOTORS PHILIPPINES CORPORATION, respondent.

Insurance Law; Collateral Source Rule; As part of American personal injury law, the collateral source rule was
originally applied to tort cases wherein the defendant is prevented from benefitting from the plaintiff’s receipt of
money from other sources. Under this rule, if an injured person receives compensation for his injuries from a source
wholly independent of the tortfeasor, the payment should not be deducted from the damages which he would otherwise
collect from the tortfeasor.―As part of American personal injury law, the collateral source rule was originally applied
to tort cases wherein the defendant is prevented from benefitting from the plaintiff’s receipt of money from other
sources. Under this rule, if an injured person receives compensation for his injuries from a source wholly independent
of the tortfeasor, the payment should not be deducted from the damages which he would otherwise collect from the
tortfeasor. In a recent Decision by the Illinois Supreme Court, the rule has been described as “an established exception
to the general rule that damages in negligence actions must be compensatory.” The Court went on to explain that
although the rule appears to allow a double recovery, the collateral source will have a lien or subrogation right to
prevent such a double recovery. In Mitchell v. Haldar, 883 A.2d 32, 37-38 (Del. 2005), the collateral source rule was
rationalized by the Supreme Court of Delaware: The collateral source rule is ‘predicated on the theory that a tortfeasor
has no interest in, and therefore no right to benefit from monies received by the injured person from sources
unconnected with the defendant.’ According to the collateral source rule, ‘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
rationale for the collateral source rule is based upon the quasi-punitive nature of tort law liability. It has been
explained as follows: 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. A plaintiff who receives a double recovery for a single
tort enjoys a windfall; a defendant who escapes, in whole or in part, liability for his wrong enjoys a windfall. Because
the law must sanction one windfall and deny the other, it favors the victim of the wrong rather than the wrongdoer.
Thus, the tortfeasor is required to bear the cost for the full value of his or her negligent conduct even if it results in a
windfall for the innocent plaintiff. (Citations omitted) As seen, 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.” Thus, 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.

Labor Law; Collective Bargaining Agreement (CBA); The Collective Bargaining Agreement (CBA) constitutes a
contract between the parties and as such, it should be strictly construed for the purpose of limiting the amount of the
employer’s liability.―It is well to note at this point that the CBA constitutes a contract between the parties and as
such, it should be strictly construed for the purpose of limiting the amount of the employer’s liability. The terms of the
subject provision are clear and provide no room for any other interpretation. As there is no ambiguity, the terms must
be taken in their plain, ordinary and popular sense. Consequently, MMPSEU cannot rely on the rule that a contract of
insurance is to be liberally construed in favor of the insured. Neither can it rely on the theory that any doubt must be
resolved in favor of labor.

G.R. No. 175666. July 29, 2013.*

MANILA BANKERS LIFE INSURANCE CORPORATION, petitioner, vs. CRESENCIA P. ABAN,
respondent

Insurance Law; Fraud; Fraudulent intent on the part of the insured must be established to entitle the insurer to
rescind the contract.―Allegations of fraud, which are predicated on respondent’s alleged posing as Sotero and
forgery of her signature in the insurance application, are at once belied by the trial and appellate courts’ finding that
Sotero herself took out the insurance for herself. “[F]raudulent intent on the part of the insured must be established to
entitle the insurer to rescind the contract.” In the absence of proof of such fraudulent intent, no right to rescind arises.

Same; Incontestability Clause; 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.―Section 48 serves a noble purpose, as it
regulates the actions of both the insurer and the insured. Under the provision, an insurer is given two years – from the
effectivity of a life insurance contract and while the insured is alive — to discover or prove that the policy is void  ab
initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent. After
the two-year period lapses, or when the insured dies within the period, the insurer must make good on the policy, even
though the policy was obtained by fraud, concealment, or misrepresentation. This is not to say that insurance fraud
must be rewarded, but that insurers who recklessly and indiscriminately solicit and obtain business must be penalized,
for such recklessness and lack of discrimination ultimately work to the detriment of bona fide takers of insurance and
the public in general.

Same; Insurance Business; Insurers cannot be allowed to collect premiums on insurance policies, use these
amounts collected and invest the same through the years, generating profits and returns therefrom for their own
benefit, and thereafter conveniently deny insurance claims by questioning the authority or integrity of their own
agents or the insurance policies they issued to their premium-paying clients.―If insurers cannot vouch for the
integrity and honesty of their insurance agents/salesmen and the insurance policies they issue, then they should cease
doing business. If they could not properly screen their agents or salesmen before taking them in to market their
products, or if they do not thoroughly investigate the insurance contracts they enter into with their clients, then they
have only themselves to blame. Otherwise said, insurers cannot be allowed to collect premiums on insurance policies,
use these amounts collected and invest the same through the years, generating profits and returns therefrom for their
own benefit, and thereafter conveniently deny insurance claims by questioning the authority or integrity of their own
agents or the insurance policies they issued to their premium-paying clients. This is exactly one of the schemes which
Section 48 aims to prevent.

Same; Same; Contract of Adhesion; An insurance contract is a contract of adhesion which must be construed liberally
in favor of the insured and strictly against the insurer in order to safeguard the former’s interest.―Insurers may not
be allowed to delay the payment of claims by filing frivolous cases in court, hoping that the inevitable may be put off
for years — or even decades — by the pendency of these unnecessary court cases. In the meantime, they benefit from
collecting the interest and/or returns on both the premiums previously paid by the insured and the insurance proceeds
which should otherwise go to their beneficiaries. The business of insurance is a highly regulated commercial activity
in the country, and is imbued with public interest. “[A]n insurance contract is a contract of adhesion which must be
construed liberally in favor of the insured and strictly against the insurer in order to safeguard the [former’s] interest.”

G.R. Nos. 128833, 128834, and 128866. April 20, 1998. *

RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D. LAO,

petitioners, vs. COURT OF APPEALS and GOYU & SONS, INC., respondents.
RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. COURT OF APPEALS, ALFREDO
C. SEBASTIAN, GOYU & SONS, INC., GO SONG HIAP, SPOUSES GO TENG KOK and BETTY CHIU
SUK YING alias BETTY GO, respondents.
MALAYAN INSURANCE, INC., petitioner, vs. GOYU & SONS, INC., respondent.

Civil Law; Insurance Law; Mortgages; It is settled that a mort-gagor and a mortgagee have separate and distinct
insurable interests in the same mortgaged property, such that each one of them may insure the same property for his
own sole benefit; The intentions of the parties as shown by their contemporaneous acts, must be given due
consideration in order to better serve the interest of justice and equity.—It is settled that a mortgagor and a mortgagee
have separate and distinct insurable interests in the same mortgaged property, such that each one of them may insure
the same property for his own sole benefit. There is no question that GOYU could insure the mortgaged property for
its own exclusive benefit. In the present case, although it appears that GOYU obtained the subject insurance policies
naming itself as the sole payee, the intentions of the parties as shown by their contemporaneous acts, must be given
due consideration in order to better serve the interest of justice and equity.

Same; Same; Section 53 of the Insurance Code ordains that the insurance proceeds of the endorsed policies shall be
applied exclusively to the proper interest of the person for whose benefit it was made. —The proceeds of the 8
insurance policies endorsed to RCBC aggregate to P89,974,488.36. Being exclusively payable to RCBC by reason of
the endorsement by Alchester to RCBC, which we already ruled to have the force and effect of an endorsement by
GOYU itself, these 8 policies can not be attached by GOYU’s other creditors up to the extent of the GOYU’s
outstanding obligation in RCBC’s favor. Section 53 of the Insurance Code ordains that the insurance proceeds of the
endorsed policies shall be applied exclusively to the proper interest of the person for whose benefit it was made. In
this case, to the extent of GOYU’s obligation with RCBC, the interest of GOYU in the subject policies had been
transferred to RCBC effective as of the time of the endorsement.

Same; Same; For an insurance company to be held liable for unreasonably delaying and withholding payment of
insurance proceeds, the delay must be wanton, oppressive, or malevolent.—For an insurance company to be held
liable for unreasonably delaying and withholding payment of insurance proceeds, the delay must be wan ton,
oppressive, or malevolent (Zenith Insurance Corporation vs. CA, 185 SCRA 403 [1990]). It is generally agreed,
however, that an insurer may in good faith and honesty entertain a difference of opinion as to its liability.
Accordingly, the statutory penalty for vexatious refusal of an insurer to pay a claim should not be inflicted unless the
evidence and circumstances show that such refusal was willful and without reasonable cause as the facts appear to a
reasonable and prudent man (Buffalo Ins. Co. vs. Bommarito [CCA 8th] 42 F [2d] 53, 70 ALR 1211; Phoenix Ins. Co.
vs. Clay, 101 Ga. 331, 28 SE 853, 65 Am St Rep 307; Kusnetsky vs. Security Ins. Co., 313 Mo. 143, 281 SW 47, 45
ALR 189). The case at bar does not show that MICO wantonly and in bad faith delayed the release of the proceeds.

G.R. No. 185565. November 26, 2014.*

 
LOADSTAR SHIPPING COMPANY, INCORPORATED and LOADSTAR INTERNATIONAL
SHIPPING COMPANY, INCORPORATED, petitioners, vs. MALAYAN INSURANCE COMPANY,
INCORPORATED, respondent.

Mercantile Law; Common Carriers; Code of Commerce; If the goods are rendered useless for sale, consumption or
for the intended purpose, the consignee may reject the goods and demand the payment of such goods at their market
price on that day pursuant to Article 365. In case the damaged portion of the goods can be segregated from those
delivered in good condition, the consignee may reject those in damaged condition and accept merely those which are
in good condition.—If the goods are delivered but arrived at the destination in damaged condition, the remedies to be
pursued by the consignee depend on the extent of damage on the goods. If the goods are rendered useless for sale,
consumption or for the intended purpose, the consignee may reject the goods and demand the payment of such goods
at their market price on that day pursuant to Article 365. In case the damaged portion of the goods can be segregated
from those delivered in good condition, the consignee may reject those in damaged condition and accept merely those
which are in good condition. But if the consignee is able to prove that it is impossible to use those goods which were
delivered in good condition without the others, then the entire shipment may be rejected. To reiterate, under Article
365, the nature of damage must be such that the goods are rendered useless for sale, consumption or intended purpose
for the consignee to be able to validly reject them. If the effect of damage on the goods consisted merely of diminution
in value, the carrier is bound to pay only the difference between its price on that day and its depreciated value as
provided under Article 364.

Same; Insurance Law; Right of Subrogation; 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.—“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.” The right of
subrogation is however, not absolute. “There are a few recognized exceptions to this rule. For instance, if the
assured by his own act releases the wrongdoer or third party liable for the loss or damage, from liability, the
insurer’s right of subrogation is defeated. x x x Similarly, where the insurer pays the assured the value of the
lost goods without notifying the carrier who has in good faith settled the assured’s claim for loss, the settlement
is binding on both the assured and the insurer, and the latter cannot bring an action against the carrier on his
right of subrogation. x x x And where the insurer pays the assured for a loss which is not a risk covered by the
policy, thereby effecting ‘voluntary payment,’ the former has no right of subrogation against the third party
liable for the loss x x x.”

Same; Same; Same; Words and Phrases; Subrogation is the substitution of one person in the place of another with
reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a
debt or claim, including its remedies or securities.—The rights of a subrogee cannot be superior to the rights
possessed by a subrogor. “Subrogation is the substitution of one person in the place of another with reference to a
lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim,
including its remedies or securities. The rights to which the subrogee succeeds are the same as, but not greater than,
those of the person for whom he is substituted, that is, he cannot acquire any claim, security or remedy the subrogor
did not have. 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.”

Same; Same; Same; An insurer indemnifies the insured based on the loss or injury the latter actually suffered from. —
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.