17. White Gold Marine Service Inc. vs. Pioneer Insurance and Surety Co.

Facts: Petitioner White Gold bought a protection and indemnity coverage for its ships from Steamship Mutual through Respondent Pioneer. Certificates and receipts thus were given. However, Petitioner failed to fulfill its payments thus Steamship refused to renew its coverage. Steamship then filed for collection against Petitioner for recovery of unpaid balance. Thereafter, Petitioner also filed a complaint against Steamship and Respondent before the Insurance Commission for violations (186,187 for Steamship and 299,300,301 in relation to 302 and 303 for Respondent) of the Insurance Code-license requirements as an Insurance company for the former and as insurance agent for the latter. Said commission dismissed the complaint which decision was affirmed by the CA. Issue: Whether or not Steamship Mutual is a Protection and Indemnity Club engaged in the insurance business in the Philippines Held: Steamship Mutual as a P & I Club is a mutual insurance company engaged in the marine insurance business. An insurance contract is a contract of indemnity. This means that one party undertakes for a consideration to indemnify another party against loss, damage, or liability arising from an unknown or contingent event. While to determine if a contract is an insurance contract we can look at the nature of the promise, the act to be performed, exact nature of the agreement in view of the entire occurrence, contingency or circumstance where the performance is mandated. The label is not controlling. While under Section 2(2) of the Insurance Code the phrase doing an insurance business constitutes the following: 1) making or proposing to make, as insurer, any insurance contract; 2) 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; 3) 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; 4) doing or proposing to do any business in substance to any of the foregoing in a manner designed to evade the provision of this code. Taking all of these in to consideration, Steamship Mutual engaged in marine insurance business undertook to indemnify Petitioner White Gold against marine losses as enumerated under sec. 99 of the Insurance Code. It is immaterial whether profit is derived from making insurance contract and that no separate or direct consideration is received since these does not preclude the existence of an insurance business. NOTES: *Mutual Insurance company- cooperative enterprise where the members are both the insurer and insured.

*Protection and Indemnity Club- a form of insurance against third party liability where the third party is anyone other than the P & I Club and its members.

18. Republic vs. Sunlife Assurance Company of Canada [GR No. 15805; October 14, 2005] Facts: On December 29, 1997, the [Court of Tax Appeals] (CTA) rendered its decision in Insular Life Assurance Co. Ltd. v. [CIR], which held that mutual life insurance companies are purely cooperative companies and are exempt from the payment of premium tax and DST. This pronouncement was later affirmed by this court in [CIR] v. Insular Life Assurance Company, Ltd. Sun Life surmised that[,] being a mutual life insurance company, it was likewise exempt from the payment of premium tax and DST. Hence, on August 20, 1999, Sun Life filed with the CIR an administrative claim for tax credit of its alleged erroneously paid premium tax and DST for the aforestated tax periods. For failure of the CIR to act upon the administrative claim for tax credit and with the 2-year period to file a claim for tax credit or refund dwindling away and about to expire, Sun Life filed with the CTA a petition for review. The CTA found in favor of Sun Life. Seeking reconsideration of the decision of the CTA, the CIR argued that Sun Life ought to have registered, foremost, with the Cooperative Development Authority before it could enjoy the exemptions from premium tax and DST extended to purely cooperative companies or associations under [S]ections 121 and 199 of the Tax Code. For its failure to register, it could not avail of the exemptions prayed for. The CTA denied the CIRs motion for reconsideration. Issue: Whether or not respondent is exempted from payment of tax on life insurance premiums and documentary stamp tax Held: YES. The Tax Code defines a cooperative as an association conducted by the members thereof with the money collected from among themselves and solely for their own protection and not for profit. Without a doubt, respondent is a cooperative engaged in a mutual life insurance business. First, it is managed by its members. Both the CA and the CTA found that the management and affairs of respondent were conducted by its member-policyholders. SUNLIFE has been mutualized or converted from a stock life insurance company to a nonstock mutual life insurance corporation pursuant to Section 266 of the Insurance Code of 1978. On the basis of its bylaws, its ownership has been vested in its memberpolicyholders who are each entitled to one vote; and who, in turn, elect from among themselves the members of its board of trustees. Second, it is operated with money collected from its members. Since respondent is composed entirely of members who are also its policyholders, all premiums collected obviously come only from them. The member-policyholders constitute both

insurer and insured who contribute, by a system of premiums or assessments, to the creation of a fund from which all losses and liabilities are paid. Third, it is licensed for the mutual protection of its members, not for the profit of anyone. A mutual life insurance company is conducted for the benefit of its member-policyholders, who pay into its capital by way of premiums. Under the Tax Code although respondent is a cooperative, registration with the Cooperative Development Authority (CDA) is not necessary in order for it to be exempt from the payment of both percentage taxes on insurance premiums, under Section 121; and documentary stamp taxes on policies of insurance or annuities it grants, under Section 199. 19. PHILAMCARE V. CA- HEALTH CARE AGREEMENT 379 SCRA 356 (2002) Facts: > Ernani Trinos, applied for a health care coverage with Philamcare. In the standard application form, he answered NO to the following question: Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details) > The application was approved for a period of one year from March 1, 1988 to March 1, 1989. He was a issued Health Care Agreement, and under such, he was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services. > Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. > During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990. > While her husband was in the hospital, Julita tried to claim the benefits under the health care agreement. However, Philamcare denied her claim saying that the Health Care Agreement was void. > According to Philamcare, there was concealment regarding Ernani's medical history. Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. > Julita had no choice but to pay the hospitalization expenses herself, amounting to about P76,000.00 > After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital (CGH). Due to financial difficulties, Julita brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Julita was constrained to bring him back to the CGH where he died on the same day.

> Julita instituted, an action for damages against Philamcare. She asked for reimbursement of her expenses plus moral damages and attorney's fees. RTC decided in favor of Julita. CA affirmed. Issues and Resolutions: Philamcare brought the instant petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code Title 6, Sec. 48 does not apply. SC held that 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. Under the title Claim procedures of expenses, Philamcare. had 12 mos from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie. Petitioner argues that respondent's husband concealed a material fact in his application. It appears that in the application for health coverage, petitioners required respondent's husband to sign an express authorization for any person, organization or entity that has any record or knowledge of his health to furnish any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination. Philamcare cannot rely on the stipulation regarding "Invalidation of agreement" which reads: Failure to disclose or misrepresentation of any material information by the member in the application or medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for. 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. 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. 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. None of the above pre-conditions 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. 20. Commissioner of Internal Revenue vs Lincoln Philippine Life Insurance Company, Inc. Insurance Law The Policy Automatic Increase in the Coverage Documentary Stamp Tax Prior to 1984, Lincoln Philippine Life Insurance Company, Inc. (now called Jardine-CMA Life Insurance Company, Inc.) used to issue policies called Junior Estate Builder Policy. A clause therein provides for an automatic increase in the amount of life insurance coverage upon attainment of a certain age by the insured without the need of issuing a new policy. The clause was to take effect in the year 1984. Documentary stamp taxes due on the policy were paid by Lincoln Philippine only on the initial sum assured. When the clause became effective in 1984, the Commissioner of Internal Revenue assessed an additional tax on the increased amount of the coverage of the said policies. Said tax was to cover the deficiency documentary stamps tax for said year. The Court of Appeals ruled that there is only one policy and the automatic increase is not a separate policy; that said increase of coverage is not covered by another documentary stamp tax. ISSUE: Whether or not there is only one policy. HELD: Yes. Section 49, Title VI of the Insurance Code defines an insurance policy as the written instrument in which a contract of insurance is set forth. Section 50 of the same Code provides that the policy, which is required to be in printed form, may contain any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance. It is thus clear that any rider, clause, warranty or endorsement pasted or attached to the policy is considered part of such policy or contract of insurance. The subject insurance policy at the time it was issued contained an automatic increase clause. Although the clause was to take effect only in 1984, it was written into the policy at the time of its issuance. The distinctive feature of the junior estate builder policy called the automatic increase clause already formed part and parcel of the insurance contract, hence, there was no need for an execution of a separate agreement for the increase in the coverage that took effect in 1984 when the assured reached a certain age. The said increase however is imposable with documentary stamp taxes. The original documentary stamps tax paid by Lincoln Philippine covers the original amount of the policies without the projected increase. The said increase was already definite at the time of the issuance of the policy. Thus, the amount insured by the policy at the time of its issuance necessarily included the additional sum covered by the automatic increase clause because it was already determinable at the time the transaction was entered into and formed part of the policy.

While tax avoidance schemes and arrangements are not prohibited, tax laws cannot be circumvented in order to evade the payment of just taxes. In the case at bar, to claim that the increase in the amount insured (by virtue of the automatic increase clause incorporated into the policy at the time of issuance) should not be included in the computation of the documentary stamp taxes due on the policy would be a clear evasion of the law requiring that the tax be computed on the basis of the amount insured by the policy.

PERFECTION OF INSURANCE CONTRACT 21. Enriquez v Sunlife November 29, 1920 G.R. No. L-15895 Malcolm, J.: Facts: This is an action brought by the plaintiff ad administrator of the estate of the late Joaquin Ma. Herrer to recover from the defendant life insurance company the sum of pesos 6,000 paid by the deceased for a life annuity. The trial court gave judgment for the defendant. Plaintiff appeals. Joaquin Herrer made application to the Sun Life Assurance Company of Canada through its office in Manila for a life annuity. Two days later he paid the sum of P6,000 to the manager of the companys Manila office and was given a receipt. The application was given to the head office in Canada. The oofice gave acceptance by cable on November 26, 1917. The policy was issued on December 4. The attorney, Mr. Torres then wrote to the Manila office of the company stating that Herrer desired to withdraw his application. The following day the local office replied to Mr. Torres, stating that the policy had been issued, and called attention to the notification. This letter was received by Mr. Torres on the morning of December 21, 1917 and Mr. Herrer died on December 20, 1917. (Whether on the same day the cable was received notice was sent by the Manila office of Herrer that the application had been accepted, is a disputed point, which will be discussed later.) Issue: WON Herrer received notice of acceptance of his application. Held: No. Judgment reversed. Ratio: Sunlife averred that that they prepared the letter on November 26, 1917, and handed it to the local manager for signature. The manager said that he received the application November 26, 1917. He said that on the same day he signed a letter notifying Mr. Herrer of this acceptance. They said that these letters, after being signed, were sent to the chief clerk and placed on the mailing desk for transmission. The witness could not tell if the letter had every actually been placed in the mails. The plaintiffs attorney testified to having prepared Herrers will, and his client mentioned his application for a life annuity. He said that the only document relating to the transaction in

his possession was the provisional receipt. Rafael Enriquez, the administrator of the estate, testified that he had gone through the effects of the deceased and had found no letter of notification from the insurance company to Mr. Herrer. Our deduction from the evidence on this issue must be that the letter of November 26, 1917, notifying Mr. Herrer that his application had been accepted, prepared, and signed in the local office of the insurance company and was placed in the ordinary channels for transmission. But this was never actually mailed and thus was never received by the applicant. The law that applies here is the Civil Code Art 1802, because the Insurance Act is silent as to the methods followed to create a contract of insurance. Article 1802, not only describes a contact of life annuity, but but in two other articles, also gives strong clues as to the proper disposition of the case. For instance, article 16 of the Civil Code provides that In matters which are governed by special laws, any deficiency of the latter shall be supplied by the provisions of this Code. The special law on the subject of insurance is deficient in enunciating the principles governing acceptance, the subjectmatter of the Civil code, if there be any, would be controlling. In the Civil Code is found article 1262 providing that Consent is shown by the concurrence of offer and acceptance with respect to the thing and the consideration which are to constitute the contract. An acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge. The contract, in such case, is presumed to have been entered into at the place where the offer was made. The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only from the date it came to his knowledge avoids uncertainty and tends to security. Also, U.S. jurisprudence states that the courts who take this view have expressly held that an acceptance of an offer of insurance not actually or constructively communicated to the proposer does not make a contract. Only the mailing of acceptance, it has been said, completes the contract of insurance. The law applicable to the case is found to be the second paragraph of article 1262 of the Civil Code providing that an acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge. Also, that according to the provisional receipt, three things had to be accomplished by the insurance company before there was a contract: (1) There had to be a medical examination of the applicant; (2) there had to be approval of the application by the head office of the company; and (3) this approval had in some way to be communicated by the company to the applicant. The further admitted facts are that the head office in Montreal did accept the application, did cable the Manila office to that effect, did actually issue the policy and did actually write the letter of notification and place it in the usual channels for transmission to the addressee. The fact as to the letter of notification thus fails to concur with the essential elements of the general rule pertaining to the mailing and delivery of mail matter as announced by the American courts, namely, when a letter or other mail matter is addressed and mailed with postage prepaid there is a rebuttable presumption of fact that it was received by the addressee as soon as it could have been transmitted to him in the ordinary course of the mails. But if any one of these

elemental facts fails to appear, it is fatal to the presumption. For instance, a letter will not be presumed to have been received by the addressee unless it is shown that it was deposited in the post-office, properly addressed and stamped. The contract for a life annuity was not perfected because it has not been proved satisfactorily that the acceptance of the application ever came to the knowledge of the applicant. 22. Great Pacific Life Assurance Co. vs Court of Appeals Facts: Respondent Ngo Hing filed an application with petitioner Great Pacific Life Assurance Company (Pacific Life) for a twenty-year endowment policy in the life of Helen Go, his one year old daughter. Petitioner Lapulapu D. Mondragon, the branch manager, prepared application form using the essential data supplied by respondent. The latter paid the annual premium and Mondragon retained a portion of it as his commission. The binding deposit receipt was issued to respondent. Mondragon wrote his strong recommendation for the approval of the insurance application. However, Pacific Life disapproved the application since the plan was not available for minors below 7 years old but it can consider the same under another plan. The non-acceptance of the insurance plan was allegedly not communicated by Mondragon to respondent. Mondragon again asserted his strong recommendation. Helen Go died of influenza. Thereupon, respondent sought the payment of the proceeds of the insurance, but having failed in his effort, he filed an action for the recovery of the same. Hence the case at bar. Issue: Whether the binding deposit receipt constituted a temporary contract of the life insurance in question, and thus negate the claim that the insurance contract was perfected. Held: YES. The provisions printed on the binding deposit receipt show that the binding deposit receipt is intended to be merely a provisional or temporary insurance contract and only upon compliance of the following conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates; (2) that if the company does not accept the application and offers to issue a policy for a different plan, the insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the deposit shall be refunded; and (3) that if the applicant is not insurable according to the standard rates, and the company disapproves the application, the insurance applied for shall not be in force at any time, and the premium paid shall be returned to the applicant. Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an acknowledgment, on behalf of the company, that the latter's branch office had received from the applicant the insurance premium and had accepted the application subject for processing by the insurance company; and that the latter will either approve or reject the same on the basis of whether or not the applicant is "insurable on standard rates." Since Pacific Life disapproved the insurance application of Ngo Hing, the binding deposit receipt in question had never become in force at any time. Upon this premise, the binding deposit receipt is, manifestly, merely conditional and does not insure outright.

Where an agreement is made between the applicant and the agent, no liability shall attach until the principal approves the risk and a receipt is given by the agent. The acceptance is merely conditional, and is subordinated to the act of the company in approving or rejecting the application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself. It bears repeating that through the intra-company communication of 30 April 1957, Pacific Life disapproved the insurance application in question on the ground that it is not offering the 20-year endowment insurance policy to children less than 7 years of age. What it offered instead is another plan known as the Juvenile Triple Action, which Ngo Hing failed to accept. In the absence of a meeting of the minds between Pacific Life and Ngo Hing over the 20-year endowment life insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter, and with the non-compliance of the abovequoted conditions stated in the disputed binding deposit receipt, there could have been no insurance contract duly perfected between them. Accordingly, the deposit paid by Ngo Hing shall have to be refunded by Pacific Life.

23. Development Bank of the Philippines v CA 231 SCRA 370 March 21, 1994 Facts: Juan B. Dans, together with his family applied for a loan of P500,000 with DBP. As principal mortgagor, Dans, then 76 years of age was advised by DBP to obtain a mortgage redemption insurance (MRI) with DBP MRI pool. A loan in the reduced amount was approved and released by DBP. From the proceeds of the loan, DBP deducted the payment for the MRI premium. The MRI premium of Dans, less the DBP service fee of 10%, was credited by DBP to the savings account of DBP MRI-Pool. Accordingly, the DBP MRI Pool was advised of the credit. Dans died of cardiac arrest. DBP MRI Pool notified DBP that Dans was not eligible for MRI coverage, being over the acceptance age limit of 60 years at the time of application. DBP apprised Candida Dans of the disapproval of her late husbands MRI application. DBP offered to refund the premium which the deceased had paid, but Candida Dans refused to accept the same demanding payment of the face value of the MRI or an amount equivalent of the loan. She, likewise, refused to accept an ex gratia settlement which DBP later offered. Hence the case at bar. Issue: Whether or not the DBP MRI Pool should be held liable on the ground that the contract was already perfected?

Held: No, it is not liable. The power to approve MRI application is lodged with the DBP MRI Pool. The pool, however, did not approve the application. There is also no showing that it accepted the sum which DBP credited to its account with full knowledge that it was payment for the premium. There was as a result no perfected contract of insurance hence the DBP MRI Pool cannot be held liable on a contract that does not exist In dealing with Dans, DBP was wearing 2 legal hats: the first as a lender and the second as an insurance agent. As an insurance agent, DBP made Dans go through the motion of applying for said insurance, thereby leading him and his family to believe that they had already fulfilled all the requirements for the MRI and that the issuance of their policy was forthcoming. DBP had full knowledge that the application was never going to be approved. The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age. Knowing all the while that Dans was ineligible, DBP exceeded the scope of its authority when it accepted the application for MRI by collecting the insurance premium and deducting its agents commission and service fee. Since the third person dealing with an agent is unaware of the limits of the authority conferred by the principal on the agent and he has been deceived by the non-disclosure thereof by the agent, then the latter is liable for damages to him. 24. PEREZ V. CA- PERFECTION OF THE CONTRACT OF INSURANCE 323 SCRA 613 (2000) Facts: > Primitivo Perez had been insured with the BF Lifeman Insurance Corporation since 1980 for P20,000.00. > In October 1987, an agent of Lifeman, Rodolfo Lalog, visited Perez in Quezon and convinced him to apply for additional insurance coverage of P50,000.00, to avail of the ongoing promotional discount of P400.00 if the premium were paid annually. > Primitivo B. Perez accomplished an application form for the additional insurance coverage. Virginia A. Perez, his wife, paid P2,075.00 to Lalog. The receipt issued by Lalog indicated the amount received was a "deposit." > Unfortunately, Lalog lost the application form accomplished by Perez and so on October 28, 1987, he asked the latter to fill up another application form. On November 1, 1987, Perez was made to undergo the required medical examination, which he passed. > Lalog forwarded the application for additional insurance of Perez, together with all its supporting papers, to the office of BF Lifeman Insurance Corporationn in Quezon which office was supposed to forward the papers to the Manila office. > On November 25, 1987, Perez died while he was riding a banca which capsized during a storm. > At the time of his death, his application papers for the additional insurance were still with the Quezon office. Lalog testified that when he went to follow up the papers, he found them still in the Quezon office and so he personally brought the papers to the Manila office of BF Lifeman Insurance

Corporation. It was only on November 27, 1987 that said papers were received in Manila. > Without knowing that Perez died on November 25, 1987, BF Lifeman Insurance Corporation approved the application and issued the corresponding policy for the P50,000.00 on December 2, 1987 > Virginia went to Manila to claim the benefits under the insurance policies of the deceased. She was paid P40,000.00 under the first insurance policy for P20,000.00 (double indemnity in case of accident) but the insurance company refused to pay the claim under the additional policy coverage of P50,000.00, the proceeds of which amount to P150,000.00 in view of a triple indemnity rider on the insurance policy. > In its letter of January 29, 1988 to Virginia A. Perez, the insurance company maintained that the insurance for P50,000.00 had not been perfected at the time of the death of Primitivo Perez. Consequently, the insurance company refunded the amount of P2,075.00 which Virginia Perez had paid > Lifeman filed for the rescission and the declaration of nullity. Perez, on the other hand, averred that the deceased had fulfilled all his prestations under the contract and all the elements of a valid contract are present. > RTC ruled in favor of Perez. CA reversed. Issue: Whether or not there was a perfected additional insurance contract. Held: The contract was not perfected. Insurance is a contract whereby, for a stipulated consideration, one party undertakes to compensate the other for loss on a specified subject by specified perils. A contract, on the other hand, is a meeting of the minds between two persons whereby one binds himself, with respect to the other to give something or to render some service. Consent must be manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. When Primitivo filed an application for insurance, paid P2,075.00 and submitted the results of his medical examination, his application was subject to the acceptance of private respondent BF Lifeman Insurance Corporation. The perfection of the contract of insurance between the deceased and respondent corporation was further conditioned upon compliance with the following requisites stated in the application form: "there shall be no contract of insurance unless and until a policy is issued on this application and that the said policy shall not take effect until the premium has been paid and the policy delivered to and accepted by me/us in person while I/We, am/are in good health." The assent of private respondent BF Lifeman Insurance Corporation therefore was not given when it merely received the application form and all the requisite supporting papers of the applicant. Its assent was given when it issues a corresponding policy to the applicant. Under the abovementioned provision, it is only when the applicant pays

the premium and receives and accepts the policy while he is in good health that the contract of insurance is deemed to have been perfected. It is not disputed, however, that when Primitivo died on November 25, 1987, his application papers for additional insurance coverage were still with the branch office of respondent corporation in Gumaca and it was only two days later, or on November 27, 1987, when Lalog personally delivered the application papers to the head office in Manila. Consequently, there was absolutely no way the acceptance of the application could have been communicated to the applicant for the latter to accept inasmuch as the applicant at the time was already dead. 25. PHILAM CARE VS CA (supra)

swimming pools owned by Gulf Resorts and does not extend to all properties damaged therein Held: YES. 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. 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 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 petitioners insurance policies with AHAC.

SUBROGATION 26. gulf resorts inc vs phil charter insurance corp 27. MLAYAN INSURANCE CO VS COURT OF APPEALS Facts: Gulf Resorts is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in said resort insured originally with the American Home Assurance Company (AHAC). In the first 4 policies issued, the risks of loss from earthquake shock was extended only to petitioners two swimming pools. Gulf Resorts agreed to insure with Phil Charter the properties covered by the AHAC policy provided that the policy wording and rates in said policy be copied in the policy to be issued by Phil Charter. Phil Charter issued Policy No. 31944 to Gulf Resorts covering the period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for a total premium of P45,159.92. the break-down of premiums shows that Gulf Resorts paid only P393.00 as premium against earthquake shock (ES). In Policy No. 31944 issued by defendant, the shock endorsement provided that In consideration of the payment by the insured to the company of the sum included additional premium the Company agrees, notwithstanding what is stated in the printed conditions of this policy due to the contrary, that this insurance covers loss or damage to shock to any of the property insured by this Policy occasioned by or through or in consequence of earthquake (Exhs. "1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C"). In Exhibit "7-C" the word "included" above the underlined portion was deleted. On July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiffs properties covered by Policy No. 31944 issued by defendant, including the two swimming pools in its Agoo Playa Resort were damaged. Petitioner advised respondent that it would be making a claim under its Insurance Policy 31944 for damages on its properties. Respondent denied petitioners claim on the ground that its insurance policy only afforded earthquake shock coverage to the two swimming pools of the resort. The trial court ruled in favor of respondent. In its ruling, the schedule clearly shows that petitioner paid only a premium of P393.00 against the peril of earthquake shock, the same premium it had paid against earthquake shock only on the two swimming pools in all the policies issued by AHAC. Issue: Whether or not the policy covers only the two FACTS: Malayan Insurance Co. Inc. (MALAYAN) issued a Private Car Comprehensive Policy covering a Willys jeep. The insurance coverage was for "own damage" not to exceed P600.00 and "third-party liability" in the amount of P20,000.00. During the effectivity of the insurance policy, , the insured jeep, while being driven by one Juan P. Campollo an employee of the respondent San Leon Rice Mill, Inc., (SAN LEON) collided with a passenger bus belonging to the respondent Pangasinan Transportation Co., Inc. (PANTRANCO) at the national highway in Barrio San Pedro, Rosales, Pangasinan, causing damage to the insured vehicle and injuries to the driver, Juan P. Campollo, and the respondent Martin C. Vallejos, who was riding in the ill-fated jeep. Martin C. Vallejos filed an action for damages against Sio Choy, Malayan Insurance Co., Inc. and the PANTRANCO before the Court of First Instance of Pangasinan. The trial court rendered judgment holding Sio Choy, SAN LEON, and MALAYAN jointly and severally liable. However, MALAYANs liability will only be up to P20,000. On appeal, CA affirmed the decision of the trial court. However, it ruled that SAN LEON has no obligation to indemnify or reimburse the petitioner insurance company for whatever amount it has been ordered to pay on its policy, since the San Leon Rice Mill, Inc. is not a privy to the contract of insurance between Sio Choy and the insurance company. MALAYAN appealed to the SC by way of review on certiorari. Issues: (1) Whether or not MALAYAN is solidarily liable to Vallejos, along with Sio Choy and SAN LEON (2) Whether or not MALAYAN is entitled to be reimbursed by SAN LEON for whatever amount petitioner has been adjudged to pay respondent Vallejos on its insurance policy.

Held: (1) Only Sio Choy and SAN LEON are solidarily liable to Vallejos for the award of damages. Sio Choy is liable as owner of the jeep pursuant to Article 2184, while SAN LEON is liable as the employer of the driver of the jeep at the time of the accident pursuant to Art 2180. MALAYANs liability, however, arose only out of the insurance policy with Sio Choy. Petitioner as insurer of Sio Choy, is liable to respondent Vallejos, but it cannot, as incorrectly held by the trial court, be made "solidarily" liable with the two principal tortfeasors namely respondents Sio Choy and SAN LEON. (2) MALAYAN is entitled to be reimbursed. Upon payment of the loss, the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have against the third person whose negligence or wrongful act caused the loss. When the insurance company pays for the loss, such payment operates as an equitable assignment to the insurer of the property and all remedies which the insured may have for the recovery thereof. That right is not dependent upon , nor does it grow out of any privity of contract or upon written assignment of claim, and payment to the insured makes the insurer assignee in equity. 28. MANILA MAHOGANY MANUFACTURING CORPORATION vs. COURT OF APPEALS AND ZENITH INSURANCE CORPORATION (G.R. No. L -52756 (October 12, 1987) FACTS: Petitioner Manila Mahogany Manufacturing Corporation insured its Mercedes Benz 4-door sedan with respondent Zenith Insurance Corporation. The insured vehicle was bumped and damaged by a truck owned by S a n M i g u e l C o r p o rat i o n . Fo r t h e d a m a g e ca u s e d , r e s p o n d e n t co m p a ny p a i d p e t i t i o n e r f i ve t h o u s a n d p e s o s (P5,000.00) in amicable settlement. Petitioner's general manager executed a Release of Claim, subrogating respondent company to all its right to action against San Miguel Corporation. Thereafter, respondent company wrote Insurance Adjusters, Inc. to demand reimbursement from San Miguel Corporation of the amount it had paid petitioner. Insurance Adjusters, Inc. refused reimbursement, alleging that San Miguel Corporation had already paid petitioner P4,500.00 for the damages to petitioner's motor vehicle, as evidenced by a cash voucher and a Release of Claim executed by the General Manager of petitioner discharging San Miguel Corporation from "all actions, claims, demands the rights of action that now exist or hereafter develop arising out of or as a consequence of the accident." Respondent insurance company thus demanded from petitioner r e i m b u r s e m e n t o f t h e s u m o f P4,500.00 paid by San Miguel Corporation. Petitioner refused; hence, the instant case.

ISSUE: Whether or not the respondent insurance company is subrogated to the rights of the petitioner against San Miguel Corporation. HELD: YES RULING: The Supreme Court held that if a property is insured and the owner receives the indemnity from the i n s u r e r, i t i s p ro v i d e d i n * Ar t i c l e 2 2 0 7 o f t h e Ne w C i v i l C o d e + t h at t h e i n s u re r i s deemed subrogated to t h e rights of the insured against the wrongdoer and if the amount paid by the insurer does not fully cover the loss, then the aggrieved party is the one entitled to recover the deficiency. Under this legal provision, the real party in interest with regard to the portion of the indemnity paid is the insurer and not the insured. Hence, petitioner is entitled to keep the sum of P4,500.00 paid by San Miguel Corporation under its c l e a r r i g h t to f i l e a d ef i c i e n c y c l a i m fo r d a m a ge s i n c u r re d , a g a i n st t h e w ro n gd o e r, s h o u l d t h e i n s u ra n c e co m p a ny n o t f u l l y p a y fo r t h e i n j u r y ca u s e d ( Ar t i c l e 2 2 0 7 , Ne w Civil Code). H ow e ve r, w h e n p e t i t i on e r released San Miguel Corporation from any liability, petitioner's right to retain the sum of P5,000.00 no longer existed, thereby entitling private respondent to recover the same. The right of subrogation can only exist after the insurer has paid the insured otherwise the insured will be deprived of his right to full indemnity. If the insurance proceeds are not sufficient to cover the damages suffered by the insured, then he may sue the party responsible for the damage for the remainder. To the extent of the amount he has already received from, the insurer enjoys the right of subrogation. Since the insurer can be subrogated to only such rights as the insured may have, should the insured, a f te r r e c e i vi n g p a y m e nt f r o m t h e i n s u r e r, r e l e a s e t h e w r on g d oe r w h o c a u s e d t h e l o s s , t h e i n s u r e r l os e s h i s rights against the latter. But in such a case, the insurer will be entitled to recover from the insured whatever it has paid to the latter, unless the release was made with the consent of the insurer

29. PAN MALAYAN INSURANCE CORP. v CA April 3, 1990 FACTS: Canlubang Automotive Resources Corp. obtained from PanMalay an insurance for its Mitsubishi Colt Lancer . While the policy was still in effect, the insured car was hit by a pick-up owned by Erlinda Fabie but driven by another person. The car suffered damages in the amount of P42K.

2. Panmalay defrayed the cost of repair of the insured car. It then demanded reimbursement from Fabie and her driver of said amount, but to no avail. Panmalay filed a complaint for damages with the RTC of Makati against Fabie and the driver. Panmalay averred that the damages caused to the insured car was settled under the own damage coverage of the insurance policy. Private respondents filed a motion to dismiss alleging that Panmalay had no cause of action since the won damage clause of the policy precluded subrogation under Art. 2207 of the CC. Indemnification under said article is on the rd assumption that there was no wrongdoer or no 3 party at fault. RTC dismissed Panmalays complaint. RTC held that payment by Panmalay under the own damage clause was an admission by the insurer that the damage was caused by the assured and/or its representatives. CA affirmed, albeit on a somewhat different ground. Applying the ejusdem generis rule, CA held that Section III-I of the pplicy, which was the basis for the settlement of the claim against insurance, did not cover damage arising from rd collision or overturning due to the negligence of 3 parties as one of the insurable risks. Both tribunals concluded that Panmalay could not now invoke Art 2207 and claim reimbursement. ISSUE: WON Panmalay was subrogated to the rights of Canlubang against the driver and his employer HELD: Yes Article 2207 of the CC is founded on the well-settled principle of subrogation. If the insured property is destroyed or damages through the fault or negligence of a party other than the assured, then the insurer, upon payment to the assured, will be subrogated to the right of the assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to the assured operates as an equitable assignment to the former of all the remedies rd which the latter may have against the 3 party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon any privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer. There are exceptions to this rule: 1. if the assured by his won act releases the wrongdoer or rd 3 party liable for the loss or damage, from liability

3.

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 where the insurer pays the assured for a loss which is not a risk covered by the policy (voluntary pymt)

None of the exceptions are availing in the present case. AS TO LC RULING: When Panmalay utilized the phrase own damage-- a pharase which, incidentally, is not found in the insurance policyto define the basis for its settlement, it simply meant that it had assumed to reimburse the costs for repairing the damage to the insured vehicle. It is in this sense that the so-called own damage coverage rd of policy is different from the 3 party liability coverage and from the property damae coverage. AS TO CA RULING: CAs ruling that the coverage of the insured risks under Section III-I of the policy does not include damage to the insured vehicle arising from collision or rd overturning due to negligent acts of a 3 party, has no merit. Not only is it an erroneous interpretation of the provisions of the section, but it also violates a fundamental rule on the interpretation of property insurance contracts where interpretation should be liberally in favor of the assured and strictly against the insurer in cases of disagreement between the parties. The meaning advanced by Panmalay regarding the coverage of Section III-I of the policy is undeniable more beneficial to Canlubang than that insisted upon by the CA. In any case, the very parties to the policy, Canlubang and Panmalay, were not shown to be in disagreement regarding the meaning and coverage of Section III-I. Hence, it was improper for CA to assert its own interpretation of the contract that is contrary to the clear understanding and intention of the parties to it. Thus, SC held that Panmalay, as subrogee, has no legal obstacle from filing the complaint for damages against the rd 3 parties responsible for the damage to the car.

30. Cebu Shipyard v William G.R. No. 132607. May 5, 1999 J. Purisima Facts: Cebu Shipyard and Engineering Works, Inc. repaired marine vessels while the Prudential is in the non-life insurance business. William Lines, Inc., the owner of M/V Manila City, a luxury passenger-cargo vessel, which caught fire and sank. At the time of the incident, subject vessel was insured with Prudential for P45M for hull and machinery. CSEW was insured for only Php 10 million for the shiprepairers liability policy. They entered into a contract where negligence was the only factor that could make CSEW liable for damages. Moreover,

liability of CSEW was limited to only Php 1million for damages. The Hull Policy included an Additional Perils (INCHMAREE) Clause covering loss of or damage to the vessel through the negligence of, among others, ship repairmen. William brought Manila City to the dry dock of CSEW for repairs. The officers and cabin crew stayed at the ship while it was being repaired. After the vessel was transferred to the docking quay, it caught fire and sank, resulting to its total loss. William brought suit against CSEW alleging that it was through the latters negligence that the ship caught fire and sank. Prudential was impleaded as co-plaintiff after it had paid the value of insured items. It was subrogated to 45 million, or the value it claimed to indemnify. The trial court brought judgment against CSEW 45 million for the ship indemnity, 65 million for loss of income, and more than 13 million in other damages. The CA affirmed the TC decision. CSEW contended that the cause of the fire was due to Williams hot works on the said portion of the ship which they didnt ask CSEW permission for. Prudential, on the other hand, blamed the negligence of the CSEW workers in the instance when they didnt mind rubber insulation wire coming out of the air-conditioning unit that was already burning. Hence this MFR. Issue: 1. 2. 3. 4.

cannot be entertained. 2. For the doctrine of res ipsa loquitur to apply to a given situation, the following conditions must concur: (1) the accident was of a kind which does not ordinarily occur unless someone is negligent; and (2) that the instrumentality or agency which caused the injury was under the exclusive control of the person charged with negligence. The facts and evidence reveal the presence of these conditions. First, the fire would not have happened in the ordinary course of things if reasonable care and diligence had been exercised. Second, the agency charged with negligence, as found by the trial court and the CA and as shown by the records, is CSEW, which had control over subject vessel when it was docked for annual repairs. What is more, in the present case the trial court found direct evidence to prove that the workers didnt exercise due diligence in the care of subject vessel. The direct evidence substantiates the conclusion that CSEW was really negligent even without applying such doctrine. 3. Petitioner contends that Prudential is not entitled to be subrogated to the rights of William Lines, Inc., theorizing that (1) the fire which gutted M/V Manila City was an excluded risk and (2) it is a co-assured under the Marine Hull Insurance Policy. This was wrong. The one who caused the fire has already been adjudicated by the courts as CSEW. Upon proof of payment by Prudential to William Lines, Inc., the former was subrogated to the right of the latter to indemnification from CSEW. As aptly ruled by the Court of Appeals, the law says: Art. 2207. If the plaintiffs 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. When Prudential paid the latter the total amount covered by its insurance policy, it was subrogated to the right of the latter to recover the insured loss from the liable party, CSEW. Petitioner theorizes further that there can be no right of subrogation as it is deemed a co-assured under the subject insurance policy with reliance on Clause 20 of the Work Order which states: 20. The insurance on the vessel should be maintained by the customer and/or owner of the vessel during the period the contract is in effect.

WON CSEW had management and supervisory control of the ship at the time the fire broke out yes WON the doctrine of res ipsa loquitur applies against the crew yes WON Prudential has the right of subrogation against its own insured yes WON the provisions limiting CSEWs liability for negligence to a maximum of Php 1 million are valid No

Held: Petition denied. Ratio: 1.

The that factual findings by the CA are conclusive on the parties and are not reviewable by this Court. They are entitled to great weight and respect when the CA affirmed the factual findings arrived at by the trial court.

The CA and the Cebu RTC are agreed that the fire which caused the total loss of subject M/V Manila City was due to the negligence of the employees and workers of CSEW. Furthermore, in petitions for review on certiorari, only questions of law may be put into issue. Questions of fact

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Clause 20 of the Work Order in question is clear in the sense that it requires William Lines to maintain insurance on the vessel during the period of dry-docking or repair. However, the fact that CSEW benefits from the said stipulation does not automatically make it as a co-assured of William Lines. The intention of the parties to make each other a co-assured under an insurance policy is to be read from the insurance contract or policy itself and not from any other contract or agreement because the insurance policy denominates the beneficiaries of the insurance. The hull and machinery insurance procured by William Lines, Inc. from Prudential named only William Lines, Inc. as the assured. There was no manifestation of any intention of William Lines, Inc. to constitute CSEW as a coassured under subject policy. The claim of CSEW that it is a coassured is unfounded. Then too, in the Additional Perils Clause of the same Marine Insurance Policy, it is provided that this insurance also covers loss of or damage to vessel directly caused by the negligence of charterers and repairers who are not assured. As correctly pointed out by respondent Prudential, if CSEW were deemed a co-assured under the policy, it would nullify any claim of William Lines, Inc. from Prudential for any loss or damage caused by the negligence of CSEW. Certainly, no ship owner would agree to make a ship repairer a co-assured under such insurance policy; otherwise, any claim for loss or damage under the policy would be invalidated. 4. Although in this jurisdiction, contracts of adhesion have been consistently upheld as valid per se; as binding as an ordinary contract, the Court recognizes instances when reliance on such contracts cannot be favored especially where the facts and circumstances warrant that subject stipulations be disregarded. Thus, in ruling on the validity and applicability of the stipulation limiting the liability of CSEW for negligence to P1M only, the facts and circumstances vis-a-vis the nature of the provision sought to be enforced should be considered, bearing in mind the principles of equity and fair play. It is worthy to note that M/V Manila City was insured with Prudential for P45M. Upon thorough investigation by its hull surveyor, M/V Manila City was found to be beyond economical salvage and repair. The evaluation of the average adjuster also reported a constructive total loss. The said claim of William Lines, Inc., was then found to be valid and compensable such that Prudential paid the latter the total value of its insurance claim. Furthermore, it was ascertained that the replacement cost of the vessel, amounts to P55M. Considering the circumstances, it would unfair to limit the liability of petitioner to One Million Pesos only. To allow CSEW to limit its liability to P1M notwithstanding the fact that the total loss suffered by the assured and paid for by Prudential amounted to P45M would sanction the exercise of a degree of diligence short of what is ordinarily required because, then, it would not be difficult for petitioner to escape liability by the simple expedient of paying an amount very much lower than the actual damage suffered by William. 31. DELSAN TRANSPORT vs. CA FACTS

Caltex engaged into a contract of affreightment with the petitioner, Delsan Transport Lines, Inc.(Delsan), for a period of one year whereby the said common carrier agreed to transport Caltexs industrial fuel oil from the Batangas-Bataan Refinery to different parts of the country. Under the contract, petitioner took on board its vessel, MT Maysun, 2,277.314 kiloliters of industrial fuel oil of Caltex to be delivered to the Caltex Oil Terminal in Zamboanga City. The shipment was insured with private respondent, American Home Assurance Corporation (American Home) The vessel sank in the early morning of August 15, 1986 near Panay Gulf in the Visayas taking with it the entire cargo of fuel oil. Subsequently, American Home paid Caltex the sum of Php 5,096,635.57 representing the insured value of the cargo. Exercising its right to subrogation under Article 2207 of the New Civil Code, the American Home demanded the Delsan the same amount it paid to Caltex. Due to its failure to collect from Delsan despite prior demand, American Home filed a complaint with the RTC of Makati for collection of a sum of money. The trial court dismissed the complaint against Delsan. It ruled that the vessel, MT Maysun, was seaworthy and that the incident was caused by unexpected inclement weather condition or force majeure, thus exempting the common carrier from liability for the loss of its cargo. The CA reversed. It gave credence to the weather report issued by PAGASA which stated that the waves were only .7 to 2 meters in height in the vicinity of the Panay Gulf at the day the ship sank, in contrast to the claim of the crew of the ship that the waves were 20 feet high. Delsan contends the following 1. Delsan theorized that when the American Home paid Caltex the value of its lost cargo, the act of American Home is equivalent to a tacit recognition that the ill-fated vessel was seaworthy; otherwise, American Home was not legally liable to Caltex due to the latters breach of implied warranty under the marine insurance policy that the vessel was seaworthy. 2. Delsan avers that although chief officer had nd merely a 2 officers license, he was qualified to act as the vessels chief officer. In fact, all the crew and officers of MTT Maysun were exonerated in the administrative investigation. ISSUES 1. W/N the payment made by American Home to Caltex for the insured value of the lost cargo amounted to an admission that the vessel was seaworthy, thus precluding any action for recovery against the petitioner. NO

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2.

W/N the non-presentation of the marine insurance policy bars the complaint for recovery of sum of money for lack of cause of action. NO

RULING First Issue: The payment made by American Home for the insured value of the lost cargo operates as waiver of its right to enforce the term of the implied warranty against Caltex under the marine insurance policy. However, the same cannot be validly interpreted as an automatic admission of the vessels seaworthiness by American Home as to foreclose recourse against Delsan for any liability under its contractual obligation as a common carrier. The fact of payment grants American Home subrogatory right which enables it to exercise legal remedies that would otherwise be available to Caltex as owner of the lost cargo against Delsan, the common carrier. From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of passengers transported by them, according to all the circumstances of each case. In the event of loss, destruction or deterioration of the insured goods, common carriers shall be responsible unless the same is brought about, among others, by flood, storm, earthquake, lightning or other natural disaster or calamity. In all other cases, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove they observed extraordinary diligence. In order to escape liability for the loss of its cargo of industrial fuel oil belonging to Caltex, Delsan attributes the sinking of MT Maysun to fortuitous event or force majeure. Although the testimony of the captain and chief mate that there were strong winds and waves 20 feet high was effectively rebutted and belied by the weather report of PAGASA. Thus, as the CA correctly ruled, Delsans vessel, MT Maysun, sank with its entire cargo for the reason that it was not seaworthy. There was no squall or bad weather or extremely poor sea condition in the vicinity where the said vessel sank. Additionally, the exoneration of MT Maysuns officers and crew merely concern their respective administrative liabilities. It does not in any way operate to absolve Delsan the common carrier from its civil liability arising from its failure to observe extraordinary diligence in the vigilance over the goods it was transporting and for the negligent acts or omissions of its employees, the determination of which properly belongs to the courts. In the case at bar, Delsan is liable for the insured value of the lost cargo of industrial fuel oil belonging to Caltex for its failure to rebut the presumption of fault or negligence as common carrier occasioned by the unexplained sinking of its vessel, MT Maysun, while in transit. Second Issue:

It is the view of the SC that the presentation in evidence of the marine insurance policy is not indispensable in this case before the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the relationship of American Home as insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim.

32. FEDEX vs. AHAC and PHILAM INSURANCE COMPANY, INC G.R. No. 150094 August 18, 2004

FACTS: shipper SMITHKLINE USA delivered to carrier Burlington Air Express (BURLINGTON), an agent of [Petitioner] Federal Express Corporation, a shipment of 109 cartons of veterinary biologicals for delivery to consignee SMITHKLINE and French Overseas Company in Makati City. The shipment was covered by Burlington Airway Bill No. 11263825 with the words, REFRIGERATE WHEN NOT IN TRANSIT and PERISHABLE stamp marked on its face. That same day, Burlington insured the cargoes with American Home Assurance Company (AHAC). The following day, Burlington turned over the custody of said cargoes to FEDEX which transported the same to Manila. The shipments arrived in Manila and was immediately stored at *Cargohaus Inc.s+ warehouse. Prior to the arrival of the cargoes, FEDEX informed GETC Cargo International Corporation, the customs broker hired by the consignee to facilitate the release of its cargoes from the Bureau of Customs, of the impending arrival of its clients cargoes. 12 days after the cargoes arrived in Manila, DIONEDA, a nonlicensed customs broker who was assigned by GETC, found out, while he was about to cause the release of the said cargoes, that the same [were] stored only in a room with 2 air conditioners running, to cool the place instead of a refrigerator. DIONEDA, upon instructions from GETC, did not proceed with the withdrawal of the vaccines and instead, samples of the same were taken and brought to the Bureau of Animal Industry of the Department of Agriculture in the Philippines by SMITHKLINE for examination wherein it was discovered that the ELISA reading of vaccinates sera are below the positive reference serum. As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE abandoned the shipment and, declaring total loss for the unusable shipment, filed a claim with AHAC through its representative in the Philippines, the Philam Insurance Co., Inc. (PHILAM) which recompensed

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SMITHKLINE for the whole insured amount. Thereafter, PHILAM filed an action for damages against the FEDEX imputing negligence on either or both of them in the handling of the cargo. Trial ensued and ultimately concluded with the FEDEX being held solidarily liable for the loss. Aggrieved, petitioner appealed to the CA. The appellate court ruled in favor of PHILAM and held that the shipping Receipts were a prima facie proof that the goods had indeed been delivered to the carrier in good condition. ISSUE: Is FEDEX liable for damage to or loss of the insured goods

receipt in the case of goods. xx (3) Every complaint must be made in writing upon the document of transportation or by separate notice in writing dispatched within the times aforesaid. (4) Failing complaint within the times aforesaid, no action shall lie against the carrier, save in the case of fraud on his part. xxx The requirement of giving notice of loss of or injury to the goods is not an empty formalism. The fundamental reasons for such a stipulation are (1) to inform the carrier that the cargo has been damaged, and that it is being charged with liability therefor; and (2) to give it an opportunity to examine the nature and extent of the injury. This protects the carrier by affording it an opportunity to make an investigation of a claim while the matter is fresh and easily investigated so as to safeguard itself from false and fraudulent claims. NOTES: as to proper payee: The Certificate specifies that loss of or damage to the insured cargo is payable to order x x x upon surrender of this Certificate. Such wording conveys the right of collecting on any such damage or loss, as fully as if the property were covered by a special policy in the name of the holder itself. At the back of the Certificate appears the signature of the representative of Burlington. This document has thus been duly indorsed in blank and is deemed a bearer instrument. Since the Certificate was in the possession of Smithkline, the latter had the right of collecting or of being indemnified for loss of or damage to the insured shipment, as fully as if the property were covered by a special policy in the name of the holder. Hence, being the holder of the Certificate and having an insurable interest in the goods, Smithkline was the proper payee of the insurance proceeds. Subrogation Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a subrogation Receipt in favor of respondents. The latter were thus authorized to file claims and begin suit against any such carrier, vessel, person, corporation or government. Undeniably, the consignee had a legal right to receive the goods in the same condition it was delivered for transport to petitioner. If that right was violated, the consignee would have a cause of action against the person responsible therefor.

HELD: petition granted. Assailed decision reversed insofar as it pertains to FEDEX Prescription of Claim From the initial proceedings in the trial court up to the present, petitioner has tirelessly pointed out that respondents claim and right of action are already barred. Indeed, this fact has never been denied by respondents and is plainly evident from the records. Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states: 6. No action shall be maintained in the case of damage to or partial loss of the shipment unless a written notice, sufficiently describing the goods concerned, the approximate date of the damage or loss, and the details of the claim, is presented by shipper or consignee to an office of Burlington within (14) days from the date the goods are placed at the disposal of the person entitled to delivery, or in the case of total loss (including non-delivery) unless presented within (120) days from the date of issue of the [Airway Bill]. xxx Relevantly, petitioners airway bill states: 12./12.1 The person entitled to delivery must make a complaint to the carrier in writing in the case: 12.1.1 of visible damage to the goods, immediately after discovery of the damage and at the latest within fourteen (14) days from receipt of the goods; xxx Article 26 of the Warsaw Convention, on the other hand, provides: Xxx (2) In case of damage, the person entitled to delivery must complain to the carrier forthwith after the discovery of the damage, and, at the latest, within 3 days from the date of receipt in the case of baggage and 7 days from the date of

INSURABLE INTEREST 33. SPOUSES Cha vs CA Facts:

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Petitioner spouses Nilo Cha and Stella Uy-Cha, as lessees entered into a lease contract with private respondent CKS Development Corporation as lessor. A stipulation of the lease contract provides that the Lessee is not allowed to insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store or space in the leased premises without first obtaining the written consent and approval of the Lessor. If the Lessee violates this the policy is deemed assigned and transferred to the Lessor for his own benefit. Petitioner took out a policy of fire insurance over the merchandise inside the leased premises with United Insurance without consent of CKS. On the day the lease contract was to expire a fire broke out inside the leased premises. CKS, wrote a letter to United asking that the proceeds of the fire insurance be paid directly to CKS. United refused. Hence, the latter filed a complaint against the Cha spouses and United. RTC ruled in favor of CKS. CA affirmed, hence the petition. Issue: Whether or not CKS can recover from the

insured or that the policy shall be received as proof of such interest and every policy executed by way of gaming or wagering is void.

34. Great Pacific Life Assurance Corp vs Court of Appeals Facts: A contract of group life insurance was executed between Grepalife and DBP. The former agreed to insure the lives of eligible housing loan mortgagors of DBP. Dr. Leuterio applied membership in the group life insurance plan. He answered in the application form that he has never consulted a physician for heart condition, high blood pressure, cancer, diabetes, lung, kidney, or stomach disorder or any other physical impairment, and that to the best of his knowledge he is in good condition. During the subsistence of the insurance he died from massive cerebral hemorrhage. Grepalife denied the claim because of concealment since it was discovered that he had high blood. His widow filed a claim. Issue: Whether or not there was misrepresentaion so as to warrant denial of claim; Whether or not the widow of Leuterio is a real party in interest Held: The Supreme Court ruled that there was no sufficient proof that the insured suffered from hypertension. It is a wellsettled ruled that the fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. As regards the second issue, the widow can be regarded as real party in interest because in mortgage redemption insurance the mortgagor and not the mortgagee is the contracting party. The mortgagor merely assigns the proceeds to the mortgagee. Therefore, since by principle of succession the widow may claim. 35. HARVARDIAN COLLEGES V. COUNTRY BANKERS INSURANCE CORP. 1 CARA 2 Facts: > Harvardian is a family corporation, the stockholders of which are Ildefonso Yap, Virginia King Yap and their children. > Prior to Aug. 9, 1979, an agent of Country Bankers proposed to Harvardian to insure its school building. Although at first reluctant, Harvardian agreed. > Country Banks sent an inspector to inspect the school building and agreed to insure the same for P500,000 for which Harvardian paid an annual premium of P2,500. > On Aug. 9, 1979, Country Bankers issued to Harvardian a fire insurance policy. On March 12, 1980, (39 days before I was born hehehehe )during the effectivity of said insurance policy, the insured property was totally burned rendering it a total loss. > A claim was made by plaintiff upon defendant but defendant denied it contending that plaintiff had no insurable interest over the building constructed on the piece of land in the name of the late Ildefonso Yap as owner. > It was contended that both the lot and the building were owned by Ildefonso Yap and NOT by the Harvardian Colleges.

insurance policy. Held: No. Section 18 of the Insurance Code provides that: No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured. In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code: The measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof. Therefore, CKS cannot be validly a beneficiary of the fire insurance policy taken by petitionerspouses. The insurable interest remains with the Cha spouses. The stipulation in the lease contract is void for being contrary to law and public policy. This is in keeping with the provision under Sec. 25 of the Insurance Code that: Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has or has not any interest in the property

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Issue: Whether or not Harvardian colleges has a right to the proceeds. Held: Harvardian has a right to the proceeds. Regardless of the nature of the title of the insured or even if he did not have title to the property insured, the contract of fire insurance should still be upheld if his interest in or his relation to the property is such that he will be benefited in its continued existence or suffer a direct pecuniary loss from its destruction or injury. The test in determining insurable interest in property is whether one will derive pecuniary benefit or advantage from its preservation, or will suffer pecuniary loss or damage from its destruction, termination or injury by the happening of the event insured against. Here Harvardian was not only in possession of the building but was in fact using the same for several years with the knowledge and consent of Ildefonso Yap. It is reasonably fair to assume that had the building not been burned, Harvardian would have been allowed the continued use of the same as the site of its operation as an educational institution. Harvardian therefore would have been directly benefited by the preservation of the property, and certainly suffered a pecuniary loss by its being burned.

parties, said person still has insurable interest, because he stands either to benefit from their continued existence or to be prejudiced by their destruction. Petitioners insurable interest is not limited to their liability to the owners of insured materials. They are interested in the safety and preservation of said materials. Destruction of the textiles would mean a pecuniary loss to petitioners because they were deprived of the compensation they will receive or are entitled to for dyeing the same

CONCEALMENT 37. THE INSULAR LIFE ASSURANCE CO., LTD., vs. SERAFIN D. FELICIANO and ANGEL, FLORENDA, EUGENIO, HERMINIO and LETICIA, all surnamed FELICIANO, represented by their guardian ad litem SERAFIN D. FELICIANO Facts: One Evaristo Feliciano filed an application for insurance with the herein petitioner upon the solicitation of one of its agents. Two insurance policies to the aggregate amount of P25,000 were issued to him. Feliciano died on September 29, 1935. The defendant company refused to pay on the ground that the policies were fraudulently obtained, the insured having given false answers and statements in the application as well as in the medical report. The present action was brought to recover on said policies. The lower court rendered judgment in favor of the plaintiffs. The lower court found that at the time Feliciano filed his application and at the time he was subjected to physical examination by the medical examiner of the herein petitioner, he was already suffering from tuberculosis. This fact appears in the negative both in the application and in the medical report. The lower court, after an exhaustive examination of the conflicting testimonies, also found that Feliciano was made to sign the application and the examiner's report in blank, and that afterwards the blank spaces therein were filled in by the agent and the medical examiner, who made it appear therein that Feliciano was a fit subject for insurance. The lower court also held that neither the insured nor any member of his family concealed the real state of health of the insured. That as a matter of fact the insured, as well as the members of his family, told the agent and the medical examiner that the applicant had been sick and coughing for sometime and that he had also gone three times to the Santol Sanatorium. On appeal, this finding of facts of the lower court was sustained by the Court of Appeals. Issue: Whether the insurance company has no right to avoid a policy where its agent knowingly and intentionally wrote down the answers in the application differing from those made by the insured, in disregard of the exception that when the agent, instead of serving the interests of his principal, acts in his own or another's interest and adversely to that of his principal, the said principal is not bound by said acts of the agent." Ruling: Insurance companies send detailed instructions to their agents to solicit and procure applications. These agents

36. ANG KA YU v. PHOENIX ASSURANCE CO. G.R. No. 27881; September 28, 1961 FACTS: Ang Ka Yu and Kee Boc are joint owners of a business establishment, known as Ang Ka Yu Dyeing and Bleaching Factory, in Malabon Rizal. (building) A deed of sale was allegedly made in favor of Francisco Monroy covering the building of said business establishment. Ang Ka Yu and Kee Boc obtained a fire insurance policy covering the property from Phoenix Assurance Co. Franciso Monroy likewise insured the same property with British Traders Insurance Co., Commonwealth Insurance Co., and Great American insurance Co. The insured property was consumed by fire, so Ang Ka Yu sought to claim the proceeds of the policy. Phoenix Assurance Co. denied liability on the ground that petitioner was not the owner but a mere possessor and as such, had no insurable interest over the property. ISSUE: Whether or not a mere possessor has insurable interest over the property? HELD: YES. A person having a mere right or possession of property may insure it to its full value and in his own name, even when he is not responsible for its safekeeping. The reason is that even if a person is NOT interested in the safety and preservation of material in his possession because they belong to third

15

are to be found all over the length and breadth of the land. They are stimulated to more active efforts by contests and by the keen competition offered by other rival insurance companies. They are supplied with blank applications and paid large commissions on the policies secured by them. All transactions are generally done through these agents. They act, in fact and in theory, as the general representatives of the insurance companies. They supply all the information, prepare and answer the applications, submit the applications to their companies, conclude the transactions, and otherwise smooth out all difficulties. The agents, in short, do what the company set them out to do. In the present case, the agent knew all the time the true state of health of the insured. The insurer's medical examiner approved the application knowing full well that the applicant was sick. The situation is one in which one of two innocent parties must bear a loss for his reliance upon a third person. In this case, it was the insurer who gave the agent authority to deal with the applicant. It was the one who selected the agent, thus implying that the insured could put his trust on him. It was the one who drafted and accepted the policy and consummated the contract. It seems reasonable that as between the two of them, the one who employed and gave character to the third person as its agent should be the one to bear the loss. The company received the money of the applicant as the price of the risk to be taken by it. If the policy should be avoided, it must be because it was void from the very beginning, and the result would be that the insurer, while it received the money, never assumed any risk. The result would be, in the language of one of the cases, "to place every simple or uneducated person seeking insurance at the mercy of the insurer who could, through its agent, insert in every application, unknown to the applicant and over his signature, some false statements which would enable him to avoid all liability while retaining the price paid for the supposed insurance." The weight of authority is that if an agent of the insurer, after obtaining from an applicant for insurance a correct and truthful answer to interrogatories contained in the application for insurance, without knowledge of the applicant fills in false answers, either fraudulently or otherwise, the insurer cannot assert the falsity of such answers as a defense to liability on the policy, and this is true generally without regard to the subject matter of the answers or the nature of the agent's duties or limitations on his authority, at least if not brought to the attention of the applicant. The fact that the insured did not read the application which he signed, is not indicative of bad faith. It has been held that it is not negligence for the insured to sign an application without first reading it if the insurer by its conduct in appointing the agent influenced the insured to place trust and confidence in the agent. "Nor can it be said that the assured, who has fully, frankly, truthfully and in good faith answered all the required questions, is guilty of negligence in signing, without reading, the application which is thereupon prepared by the agent. He is justified in assuming that the agent has, with equal good

faith, truthfully recorded the answers given him. He may well say to the company: 'You accredited this man to me as your representative and I signed the application thus prepared by him, relying upon the character which you gave him when you commissioned him to come to me as your agent. If he acted dishonestly in the matter, you and not I must suffer the consequences.' . . . " In the instant case, it has been proved that the insured could not read English, the language in which the application was written, and that after the contract was signed, it was kept by his mother. As a consequence, the insured had no opportunity to read or correct any misstatement therein. (Bill of Exceptions, pp. 60-61.) We have not been insensible to the appeal that the course we have followed may lead to fraud and work hardship on insurance companies, for it would be easy for insurance agents and applicants to insert false answers in their applications for insurance. This means that it is to the particular interest of these companies to exercise greater care in the selection of their agents and examiners. Their protection is still in their own hands and which may be achieved by other means. Withal, the attainment of a common good may involve impairment and even sacrifice of beneficial interests of a particular group, but in life compromise is inevitable until the hour of doom strikes. The petition is hereby dismissed and the judgment sought to be reviewed is affirmed with costs against the petitioner. So ordered. 38. THE INSULAR LIFE ASSURANCE CO., LTD., , vs. SERAFIN D. FELICIANO ET AL.,. Facts: Evaristo Feliciano, who died on September 29, 1935, was suffering with advanced pulmonary tuberculosis when he signed his application for insurance with the petitioner on October 12, 1934. On that same date Doctor Trepp, who had taken X-ray pictures of his lungs, informed the respondent Dr. Serafin D. Feliciano, brother of Evaristo, that the latter "was already in a very serious and practically hopeless condition." Nevertheless the question contained in the application "Have you ever suffered from any ailment or disease of the lungs, pleurisy, pneumonia or asthma?" appears to have been answered, "No." And above the signature of the applicant The false answer above referred to, as well as the others, was written by the Company's soliciting agent Romulo M. David, in collusion with the medical examiner Dr. Gregorio Valdez, for the purpose of securing the Company's approval of the application so that the policy to be issued thereon might be credited to said agent in connection with the interprovincial contest which the Company was then holding among its soliciting agents to boost the sales of its policies. Agent David bribed Medical Examiner Valdez with money which the former borrowed from the applicant's mother by way of advanced payment on the premium, according to the finding of the Court of Appeals. Said court also found that before the insured signed the application he, as well as the members of his family, told the agent and the medical examiner that he had been sick and coughing for some time and that he had gone three times to the Santol Sanatorium and had X-ray pictures of his lungs taken; but that in spite of

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such information the agent and the medical examiner told them that the applicant was a fit subject for insurance. Issue: WON the insurance policy is enforceable? WON there is concealment? Ruling: The petitioner insists that upon the facts of the case the policies in question are null and void ab initio and that all that the respondents are entitled to is the refund of the premiums paid thereon. 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. the conclusion that the insured acted in connivance with the soliciting agent and the medical examiner of the Company in accepting the policies in question. We cannot bring ourselves to believe that the insured did not take the trouble to read the answers contained in the photostatic copy of the application attached to and made a part of the policy before he accepted it and paid the premium thereon. He must have noticed that the answers to the questions therein asked concerning his clinical history were false, and yet he accepted the first policy and applied for another. By accepting the policy he became charged with knowledge of its contents, whether he actually read it or not. He could not ostrich-like hide his head from it in order to avoid his part of the bargain and at the same time claim the benefit thereof. He knew, or was chargeable with knowledge, from the very terms of the two policies sued upon (one of which is printed in English and the other in Spanish) that the soliciting agent and the medical examiner had no power to bind the Company by any verbal promise or oral representation. The insured, therefore, had no right to rely and we cannot believe he relied in good faith upon the oral representation of said agent and medical examiner that he (the applicant) was a fit subject for insurance notwithstanding that he had been and was still suffering with advanced pulmonary tuberculosis. Wherefore, the motion for reconsideration is sustained and the judgment of the Court of Appeals is hereby reversed. Let another judgment be entered in favor of the respondents and against the petitioner for the refund of the premiums amounting to P1,389, with legal interest thereon from the date of the complaint, and without any finding as to costs. Note: 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.

39. SUNLIFE ASSURANCE COMPANY OF CANADA, , vs. The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA BACANI Facts: On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from petitioner. He was issued Policy No. 3-903-766-X valued P100,000.00, with double indemnity in case of accidental death. The designated beneficiary was his mother, respondent. On June 26, 1987, the insured died in a plane crash. Respondent filed a claim with petitioner, seeking the benefits of the insurance policy taken by her son. Petitioner conducted an investigation and its findings prompted it to reject the claim. In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not disclosed material facts relevant to the issuance of the policy, thus rendering the contract of insurance voidable. A check representing the total premiums paid in the amount of P10,172.00 was attached to said letter. Petitioner claimed that the insured gave false statements in his application when he answered the following questions: "5.Within the past 5 years have you: a)consulted any doctor or other health practitioner? b)submitted to: ECG? X-rays? blood tests? other tests? c)attended or been admitted to any hospital or other medical facility? "6.Have you ever had or sought advice for: xxx xxx xxx b)urine, kidney or bladder disorder?" (Rollo, p. 53). The deceased answered question No. 5(a) in the affirmative but limited his answer to a consultation with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on February 1986, for cough and flu complications. The other questions were answered in the negative (Rollo, p. 53). Petitioner discovered that two weeks prior to his application for insurance, the insured was examined and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure. During his confinement, the deceased was subjected to urinalysis, ultra-sonography and hematology tests. On November 17, 1988, respondents filed an action for specific performance against petitioner with RTC. RTC concluded that the facts concealed by the insured were made in good faith and under the belief that they need not be disclosed. Moreover, it held that the health history of the insured was immaterial since the insurance policy was "nonmedical." Petitioner appealed to the CA, which affirmed the decision of the RTC. Issue: Whether the concealment and misrepresentation was made in in "good faith" and the facts concealed or

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misrepresented were irrelevant since the policy was "nonmedical. Ruling: No. 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." Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom communication is due, in forming his estimate of the disadvantages of the proposed contract or in making his inquiries (The Insurance Code, Sec 31). 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 the 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. In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of the information withheld does not depend on the state of mind of the insured. Neither does it depend on the actual or physical events which ensue. 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 bonafides. It appears that such concealment was deliberate on his part. On the argument that petitioners waiver of the medical exam of the insured debunks the materiality of the facts concealed, Saturnino v. Philippine American Life Insurance Company, 7 SCRA 316 (1963), that ". . . the waiver of a medical examination [in a nonmedical 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 . . . ." 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]). We, therefore, rule that petitioner properly exercised its right to rescind the contract of insurance by reason of the concealment employed by the insured. It must be emphasized that rescission was exercised within

the two-year contestability period as recognized in Section 48 of The Insurance Code. WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED and SET ASIDE. 40. THELMA VDA. DE CANILANG vs. HON. COURT OF APPEALS and GREAT PACIFIC LIFE INSURANCE CORPORATION Facts: 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as suffering from "sinus tachycardia." Mr. Canilang consulted the same doctor again on 3 August 1982 and this time was found to have "acute bronchitis On the next day, 4 August 1982, Jaime Canilang applied for a "non-medical" insurance policy with Grepalife naming his wife as his beneficiary. Jaime Canilang was issued ordinary life insurance Policy No. 345163, with the face value of P19,700, effective as of 9 August 1982. 5 August 1983, Jaime Canilang died of "congestive heart failure," "anemia," and "chronic anemia." Petitioner filed a claim with Grepalife which the insurer denied on 5 December 1983 upon the ground that the insured had concealed material information from it. Petitioner then filed a complaint against Grepalife with the Insurance Commission for recovery of the insurance proceeds. During the hearing petitioner testified that she was not aware of any serious illness suffered by her late husband and that, as far as she knew, her husband had died because of a kidney disorder. A deposition given by Dr. Wilfredo Claudio was presented by petitioner wherein it was stated that the doctor had previously treated him for "sinus tachycardia" and "acute bronchitis." Grepalife presented Dr. Esperanza Quismorio, a physician and a medical underwriter working for Grepalife. She testified that the deceased's insurance application had been approved on the basis of his medical declaration. She explained that as a rule, medical examinations are required only in cases where the applicant has indicated in his application for insurance coverage that he has previously undergone medical consultation and hospitalization. 5 November 1985, Insurance Commissioner ordered Grepalife to pay P19,700.00 plus legal interest and P2,000.00 as attorney's fees after holding that the ailment of Canilang was not so serious that, even if it had been disclosed, it would not have affected Great Pacific's decision to insure him; Great Pacific had waived its right to inquire into the health condition of the applicant by the issuance of the policy despite the lack of answers to "some of the pertinent questions" in the insurance application; there was no intentional concealment on the part of the insured Jaime Canilang as he had thought that he was merely suffering from a minor ailment and simple cold; CA reversed and set aside the decision of the Insurance Commissioner and dismissed Thelma Canilang's complaint and Great Pacific's counterclaim. CA found that the use of the word "intentionally" by the Insurance Commissioner was not supported by the evidence; that the failure of

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Jaime Canilang to disclose previous medical consultation and treatment constituted material information which should have been communicated to Great Pacific to enable the latter to make proper inquiries. Issues: 1. Whether or not Jaime Canilang `intentionally' made material concealment in stating his state of health; 2. Whether the non-disclosure of certain facts about Canilangs previous health conditions does not amount to fraud and private respondent is deemed to have waived inquiry thereto." Ruling: P.D. No. 1460, also known as the Insurance Code of 1978 "Sec. 26.A neglect to communicate that which a party knows and ought to communicate, is called a concealment." xxx xxx xxx Sec. 28.Each party to a contract of insurance must communicate to the other, in good faith, all factors within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining." Under the foregoing provisions, the information concealed must be information which the concealing party knew and "ought to [have] communicate[d]," that is to say, information which was "material to the contract." The test of materiality is contained in Section 31 of the Insurance Code of 1978 which reads: "Sec. 31.Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries." (Emphases supplied) "Sinus tachycardia" is considered present "when the heart rate exceeds 100 beats per minute." The symptoms of this condition include pounding in the chest and sometimes faintness and weakness of the person affected. We agree with the Court of Appeals that the information which Jaime Canilang failed to discloses was material to the ability of Grepalife 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. 15 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. Saturnino v. Philippine-American Life Insurance Company, SC held that:". . . if anything, the waiver of 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 . . .." Section 27 of the Insurance Code of 1978 so as to read as follows: A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance. As a simple matter of grammar, it may be noted that "intentional" and "unintentional" cancel each other out. The net result therefore of the phrase "whether intentional or unintentional" is precisely to leave unqualified the term "concealment." Thus, Section 27 of the Insurance Code of 1978 is properly read as referring to "any concealment" without regard to whether such concealment is intentional or unintentional. The phrase "whether intentional or unintentional" was in fact superfluous. The deletion of the phrase "whether intentional or unintentional" could not have had the effect of imposing an affirmative requirement that a concealment must be intentional if it is to entitle the injured party to rescind a contract of insurance. The restoration in 1985 by B.P. Blg. 874 of the phrase "whether intentional or unintentional" merely underscored the fact that all throughout (from 1914 to 1985), the statute did not require proof that concealment must be "intentional" in order to authorize rescission by the injured party. In any case, in the case at bar, the nature of the facts not conveyed to the insurer was such that the failure to communicate must have been intentional rather than merely inadvertent. For Jaime Canilang could not have been unaware that this heart beat would at times rise to high and alarming levels and that he had consulted a doctor twice in the two (2) months before applying for non-medical insurance. Indeed, the last medical consultation took place just the day before the insurance application was filed. In all probability, Jaime Canilang went to visit his doctor precisely because of the discomfort and concern brought about by his experiencing "sinus tachycardia." We find it difficult to take seriously the argument that Great Pacific had waived inquiry into the concealment by issuing the insurance policy notwithstanding Canilang's failure to set out answers to some of the questions in the insurance application. Such failure precisely constituted concealment on the part of Canilang. Petitioner's argument, if accepted, would obviously erase Section 27 from the Insurance Code of 1978. WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the Court of Appeals dated 16 October 1989 in C.A-G.R. SP No. 08696 is hereby AFFIRMED. No pronouncement as to costs.

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41. PHILAMCARE HEALTH SYSTEMS, INC., , vs. COURT OF APPEALS and JULITA TRINOS,. Facts: Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner Philamcare Health Systems, Inc. In the standard application form, he answered no to the following question: Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details). The application was approved for a period of one year from March 1, 1988 to March 1, 1989 Upon the termination of the agreement, the same was extended for another year. During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990. While her husband was in the hospital, respondent tried to claim the benefits under the health care agreement. However, petitioner denied her claim saying that the Health Care Agreement was void. According to petitioner, there was a concealment regarding Ernani's medical history. Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus, respondent paid the hospitalization expenses herself, amounting to about P76,000.00. After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties, however, respondent brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent was constrained to bring him back to the Chinese General Hospital where he died on the same day. After trial, the lower court ruled against petitioners the Court of Appeals affirmed the decision of the trial court but deleted all awards for damage Argument of Philam care: Petitioner argues that the agreement grants "living benefits," such as medical check-ups and hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of the agreement until its expiration one-year thereafter. Petitioner also points out that only medical and hospitalization benefits are given under the agreement without any indemnification, unlike in an insurance contract where the insured is indemnified for his loss. Moreover, since Health Care Agreements are only for a period of one year Petitioner further argues that it is not an insurance company, which is governed by the Insurance Commission, but a Health Maintenance Organization under the authority of the Department of Health. Petitioner argues that respondent's husband concealed a material fact in his application. Issue:WON there was concealment of the material fact which is the health of the insured

Ruling: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. 8 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. 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 nonlife insurance, which is primarily a contract of indemnity. Petitioner cannot rely on the stipulation "Invalidation of Agreement" which reads: regarding

Failure to disclose or misrepresentation of any material information by the member in the application or medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for. 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

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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. The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. 16 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. 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. 17 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. 18 None of the above pre-conditions 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. 19 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 the defendant Philamcare Health Systems Inc. had twelve months from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie. 23 Finally, 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. 24 WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals dated December 14, 1995 is AFFIRMED. SO ORDERED.

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