Insurance Case Digests: Other Provisions 3B; A.Y.

2018-2019

Claims Settlement: Secs 247-251, IC

CATHAY INSURANCE CO. vs HON. COURT OF APPEALS, and REMINGTON

INDUSTRIAL SALES CORPORATION G.R. No. 76145
DOCTRINE: There is no question that the rusting of steel pipes in the course of a voyage
is a "peril of the sea" in view of the toll on the cargo of wind, water, and salt conditions. If
the insurer cannot be held accountable therefor, it would be contrary to a cardinal rule in
the interpretation of contracts, that any ambiguity therein should be construed against
the maker/issuer/drafter thereof, namely, the insurer.
FACTS: The case originally was a complaint filed by Remington Corporation against
Cathay Company seeking collection of the sum of P868, 339 representing Remington's
losses and damages incurred in a shipment of seamless steel pipes under an insurance
contract in its favor while in transit from Japan to the Philippines on board vessel SS
"Eastern Mariner." The total value of the shipment was P2, 894, 463.83 at the prevailing
rate of P7.95 to a dollar in June and July 1984, when the shipment was made. The trial
court decided in favor of Remington by ordering Cathay Insurance to pay it the sum of
P866, 339.15 equivalent to 30% of the value of the seamless steel pipes, interest on the
aforecited amount at the rate of 34% or double the ceiling prescribed by the Monetary
Board per annum from February 3, 1982 or 90 days from Remington’s submission of
proof of loss to petitioner until paid as provided in the settlement of claim provision of
the policy and certain amounts for marine surveyor's fee, attorney's fees and costs of the
suit.
Cathay appealed to the CA (motion for reconsideration?); CA denied the motion, affirmed
the Trial Court’s decision.
Petitioner’s argument: Remington’s argument that rusting is a peril of the sea is
erroneous. Rusting is not a risk insured against, since a risk to be insured against should
be a casualty or some casualty, something which could not be foreseen as one of the
necessary incidents of adventure.
ISSUE: Whether the rusting of steel pipes in the course of a voyage is a "peril of the sea"
in view of the toll on the cargo of wind, water, and salt conditions.
RULING: There is no question that the rusting of steel pipes in the course of a voyage is
a "peril of the sea" in view of the toll on the cargo of wind, water, and salt conditions. If
the insurer cannot be held accountable therefor, it would be contrary to a cardinal rule in
the interpretation of contracts, that any ambiguity therein should be construed against
the maker/issuer/drafter thereof, namely, the insurer. Also the purpose of insuring cargo
during a voyage would be rendered fruitless.

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Insurance Case Digests: Other Provisions 3B; A.Y. 2018-2019

Zenith Insurance Corporation v. CA, G.R. No. 85296, 14 May 1990

DOCTRINE: It is clear that under the Insurance Code, in case of unreasonable delay in
the payment of the proceeds of an insurance policy, the damages that may be awarded
are: 1) attorney's fees; 2) other expenses incurred by the insured person by reason of such
unreasonable denial or withholding of payment; 3) interest at twice the ceiling prescribed
by the Monetary Board of the amount of the claim due the injured; and 4) the amount of
the claim.
The purpose of moral damages is essentially indemnity or reparation, not punishment or
correction. Moral damages are emphatically not intended to enrich a complainant at the
expense of a defendant, they are awarded only to enable the injured party to obtain means,
diversions or amusements that will serve to alleviate the moral suffering he has
undergone by reason of the defendant's culpable action. On the other hand, exemplary or
corrective damages are imposed by way of example or correction for the public good.
FACTS: Lawrence Fernandez insured his car for “own damage” with Zenith Insurance
Corporation. The car figured in an accident and suffered actual damages. After allegedly
being given a run around by Zenith for two months, Fernandez filed a complaint for sum
of money and damages resulting from the refusal of Zenith to pay the amount claimed.
The trial court decided in favor of Fernandez, ordering Zenith to pay actual damages,
moral damages, exemplary damages, attorney’s fees and litigation expenses. The decision
was affirmed by the CA.
Zenith contends that the award of moral damages, exemplary damages and attorney’s fees
was not proper.
ISSUE: WON the award of moral damages, exemplary damages and attorney’s fees was
proper.
RULING: NO. The purpose of moral damages is essentially indemnity or reparation, not
punishment or correction. In awarding moral damages in case of breach of contract, there
must be a showing that the breach was wanton and deliberately injurious or the one
responsible acted fraudulently or in bad faith. In this case, there was a finding that
Fernandez was given a “run around” for two months, which is the basis for the award of
the damages granted under the Insurance Code for unreasonable delay in the payment of
the claim. However, the act of Zenith of delaying payment for two months cannot be
considered as so wanton or malevolent to justify an award of Php20,000 as moral
damages, taking into consideration also the fact that the actual damage on the car was
only Php3,460. In the pre-trial of the case, it was shown that there was no total disclaimer
by Fernandez. The reason for Zenith’s failure to indemnify Fernandez within the two-
month period was that the parties could not come to an agreement as regards the amount
of the actual damage on the car. Hence, the amount of Php10,000 as moral damages is
equitable.

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Insurance Case Digests: Other Provisions 3B; A.Y. 2018-2019

On the other hand, exemplary or corrective damages are imposed by way of example or
correction for the public good. In this case, exemplary damages may not be awarded as
Zenith had not acted in a wanton, oppressive or malevolent manner.

Mutualization: Sec 268, IC

REPUBLIC OF THE PHILIPPINES, Represented by the COMMISSIONER OF

INTERNAL REVENUE vs. SUNLIFE ASSURANCE COMPANY OF CANADA
G.R. No. 158085. October 14, 2005
DOCTRINE: Having satisfactorily proven to the Court of Tax Appeals, to the Court of
Appeals and to this Court that it is a bona fide cooperative, Sunlife Assurance is entitled
to exemption from the payment of taxes on life insurance premiums and documentary
stamps. Not being governed by the Cooperative Code of the Philippines, it is not required
to be registered with the Cooperative Development Authority in order to avail itself of the
tax exemptions. Significantly, neither the Tax Code nor the Insurance Code mandates this
administrative registration.
FACTS: Sun Life is a mutual life insurance company organized and existing under the
laws of Canada. It is registered and authorized by the Securities and Exchange
Commission and the Insurance Commission to engage in business in the Philippines as a
mutual life insurance company with principal office at Paseo de Roxas, Legaspi Village,
Makati City.
Sun Life filed with the Commissioner of Internal Revenue its insurance premium tax
return for the third quarter of 1997 and paid the premium tax. CTA rendered its decision
in Insular Life Assurance Co. Ltd. vs. CIR, which held that mutual life insurance
companies are purely cooperative companies and are exempt from the payment of
premium tax and DST.
Hence, 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. It prayed for the issuance of a tax credit certificate
representing erroneously paid premium tax for the third quarter of 1997 and of DST on
policies of insurance from August 21 to December 18, 1997. CTA ruled 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. For its failure to register, it could not avail of the exemptions
prayed for.
"Notwithstanding these arguments, the CTA denied the CIR's motion for reconsideration.
In upholding the CTA, the CA reasoned that respondent was a purely cooperative

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Insurance Case Digests: Other Provisions 3B; A.Y. 2018-2019

corporation duly licensed to engage in mutual life insurance business in the Philippines.
Thus, respondent was deemed exempt from premium and documentary stamp taxes,
because its affairs are managed and conducted by its members with money collected from
among themselves, solely for their own protection, and not for profit. Hence, this Petition.
ISSUES: 1. WON Sunlife Assurance Is a Cooperative?
2. WON CDA Registration Is Necessary?
3. WON Sunlife Assurance is exempted from payment of tax on life insurance
premiums and documentary stamp tax?
RULING: 1. 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. 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. Third, it is licensed for the mutual
protection of its members, not for the profit of anyone.
2. 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. First, the Tax Code does not require registration with the CDA. No tax
provision requires a mutual life insurance company to register with that agency in order
to enjoy exemption from both percentage and documentary stamp taxes. Second, the
provisions of the Cooperative Code of the Philippines do not apply. Third, not even the
Insurance Code requires registration with the CDA. The provisions of this Code primarily
govern insurance contracts; only if a particular matter in question is not specifically
provided for shall the provisions of the Civil Code on contracts and special laws govern.
3. Having determined that respondent is a cooperative that does not have to be
registered with the CDA, we hold that it is entitled to exemption from both premium taxes
and documentary stamp taxes (DST). The Tax Code is clear. On the one hand, Section 121
of the Code exempts cooperative companies from the 5 percent percentage tax on
insurance premiums. On the other hand, Section 199 also exempts from the DST, policies
of insurance or annuities made or granted by cooperative companies. Being a cooperative,
respondent is thus exempt from both types of taxes.

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