INSURANCE LAW: I.

GENERAL CONCEPTS
CASE DIGEST

PHILIPPINE HEALTH CARE PROVIDERS, INC vs.  SC: In a decision dated June 12, 2008,
COMMISSIONER OF INTERNAL REVENUE (principal the Court denied the petition and
purpose and object test) affirmed the CAs decision.
 Petitioner filed the present motion for
ACTION: MR and supplemental MR filed by petitioner reconsideration and supplemental
Philippine Health Care Providers, Inc. It stemmed from a motion for reconsideration, asserting
petition for review in (CTA) filed by petitioner seeking the following arguments:
the cancellation of the deficiency VAT and DST
assessments.
(a) The DST under Section 185 of the
FACTS: National Internal Revenue of
1997 is imposed only on a
 Petitioner is a domestic corporation whose
company engaged in the
primary purpose is [t]o establish, maintain,
business of fidelity bonds and
conduct and operate a prepaid group practice
other insurance
health care delivery system or a health
policies. Petitioner, as an HMO, is
maintenance organization(HMO)
a service provider, not an
 Individuals enrolled in its health care programs
insurance company.
pay an annual membership fee and are entitled
xxx
to various preventive, diagnostic and curative
medical services provided by its duly licensed ISSUE: Whether petitioner is engaged in an insurance
physicians, specialists and other professional business whose healthcare agreements are subject to
technical staff participating in the group DST under Sec. 185, NIRC
practice health delivery system at a hospital or
clinic owned, operated or accredited by it. HELD: No. HEALTH MAINTENANCE ORGANIZATIONS
 On January 27, 2000, [CIR] sent petitioner a ARE NOT ENGAGED IN THE INSURANCE BUSINESS
formal demand letter and the corresponding
assessment notices demanding the payment of Two requisites must concur before the DST can apply,
deficiency taxes for the taxable years 1996 and namely: (1) the document must be a policy of insurance
1997 in the total amount of P224,702,641.18. or an obligation in the nature of
 The deficiency [documentary stamp tax (DST)] indemnity and (2) the maker should be transacting
assessment was imposed on petitioners health the business of accident, fidelity, employers liability,
care agreement with the members of its health plate, glass, steam boiler, burglar, elevator, automatic
care program pursuant to Section 185 of the sprinkler, or other branch of insurance (except life,
1997 Tax Code. marine, inland, and fire insurance).
 Petitioner protested the assessment. As
respondent did not act on the protest, Section 2 (2) of PD[20] 1460 (otherwise known
petitioner filed a petition for review in the as the Insurance Code) enumerates what constitutes
Court of Tax Appeals (CTA) seeking the doing an insurance business or transacting an insurance
cancellation of the deficiency VAT and DST business:
assessments.
a) making or proposing to make,
 CTA: rendered a decision, which
as insurer, any
partially granted the petition and
insurance contract;
declared VAT Ruling No. [231]-88 void
and without force and effect. The 1996 b) making or proposing to
and 1997 deficiency DST assessment make, as surety, any
against petitioner were CANCELLED contract of suretyship as a
AND SET ASIDE. vocation and not as merely
 CIR appealed the CTA decision and incidental to any other
claimed that petitioners health care legitimate business or
agreement was a contract of insurance activity of the surety;
subject to DST under Section 185 of the
1997 Tax Code. c) doing any kind of business,
 CA: petitioners health care agreement including a reinsurance
was in the nature of a non-life business, specifically
insurance contract subject to DST. recognized as constituting
Petitioner moved for reconsideration the doing of an insurance
but the CA denied it. Hence, petitioner business within the
filed this case. meaning of this Code;

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 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST
d) doing or proposing to do any
business in substance
equivalent to any of the
foregoing in a manner
designed to evade the
provisions of this Code.
In the application of the
provisions of this Code, the fact that
no profit is derived from the making
of insurance contracts, agreements or
transactions or that no separate or
direct consideration is received
therefore, shall not be deemed
conclusive to show that the making
thereof does not constitute the doing
or transacting of an insurance
business.
Various courts in the United States, whose
jurisprudence has a persuasive effect on our decisions,
have determined that HMOs are not in the insurance
business. One test that they have applied is whether the
assumption of risk and indemnification of loss (which
are elements of an insurance business) are the principal
object and purpose of the organization or whether they
are merely incidental to its business. If these are the
principal objectives, the business is that of insurance. But
if they are merely incidental and service is the principal
purpose, then the business is not insurance.
Applying the principal object and purpose
test, there is significant American case law supporting
the argument that a corporation (such as an HMO,
whether or not organized for profit), whose main object
is to provide the members of a group with health services
[rather than the assumption of insurance risk], is not
engaged in the insurance business.
As an HMO, it is its obligation to maintain the
good health of its members. Accordingly, its health
care programs are designed to prevent or to
minimize thepossibility of any assumption of risk on
its part. Thus, its undertaking under its agreements is
not to indemnify its members against any loss or damage
arising from a medical condition but, on the contrary, to
provide the health and medical services needed to
prevent such loss or damage.
Overall, petitioner appears to provide
insurance-type benefits to its members (with respect to
its curative medical services), but these are incidental to
the principal activity of providing them medical
care. The insurance-like aspect of petitioners business is
miniscule compared to its noninsurance
activities. Therefore, since it substantially provides
health care services rather than insurance services, it
cannot be considered as being in the insurance business.
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Lastly, it is significant that petitioner, as an
HMO, is not part of the insurance industry. This is
evident from the fact that it is not supervised by the
Insurance Commission but by the Department of Health.
Enriquez v. Sun Life Assurance Co. of Canada
Facts: On September 24, 1917, 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 company's Manila office and was given a
receipt reading as follows:
“Provisional Receipt Pesos 6,000
(Written in Spanish in Full Text; Translated by a friend)
“Received the sum of 6,000 pesos from adon Joaquin
Herrer from Manila as downpayment annuity as per
Don J. Herrer now, subject to medical examination and
approbation by the Central Office of the Company.”
The application was immediately forwarded to the head
office of the company at Montreal, Canada. On
November 26, 1917, the head office gave notice of
acceptance by cable to Manila. On December 4, 1917,
the policy was issued at Montreal. On December 18,
1917, attorney Aurelio A. Torres 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 of
November 26, 1917. This letter was received by Mr.
Torres on the morning of December 21, 1917. Mr.
Herrer died on December 20, 1917. The letter dated
November 26, 1917 was never actually mailed and thus
was never received by the applicant.
Herrer estate’s administrator thus brought an action to
recover from the defendant life insurance company the
sum of pesos 6,000 paid by the deceased for a life
annuity.
TC-Favor of defendant. Plaintiff appealed.
Issue: WON contract for a life annuity was perfected.
Ruling: No. Before going to the main issue, it is crucial
to know which law should be applied to the facts. Until
quite recently, all of the provisions concerning life
insurance in the Philippines were found in the Code of
Commerce and the Civil Code. Subsequently, the
Insurance Act emerged concerns life and health
insurance. The Act expressly repealed selected
provisions in the Code of Commerce. The law of
insurance is consequently now found in the Insurance
Act and the Civil Code.
While, as just noticed, the Insurance Act deals with life
insurance, it is silent as to the methods to be followed in
 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST
order that there may be a contract of insurance. On the
other hand, the Civil Code, in article 1802, not only
describes a contact of life annuity markedly similar to
the one we are considering, but in two other articles,
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." On the supposition, therefore,
which is incontestable, that the special law on the
subject of insurance is deficient in enunciating the
principles governing acceptance, the subject-matter 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." This latter article is in opposition to the
provisions of article 54 of the Code of Commerce.
If no mistake has been made in announcing the
successive steps by which we reach a conclusion, then
the only duty remaining is for the court to apply the law
as it is found. The legislature in its wisdom having
enacted a new law on insurance, and expressly repealed
the provisions in the Code of Commerce on the same
subject, and having thus left a void in the commercial
law, it would seem logical to make use of the only
pertinent provision of law found in the Civil code,
closely related to the chapter concerning life annuities.
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, may not be the best
expression of modern commercial usage. Still it must be
admitted that its enforcement avoids uncertainty and
tends to security.
In resume, therefore, 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. The pertinent fact is,
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, through its agent in Manila, 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
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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.
We hold that the contract for a life annuity in the case at
bar was not perfected because it has not been proved
satisfactorily that the acceptance of the application ever
came to the knowledge of the applicant.
Judgment is thus reversed, and the plaintiff shall have
and recover from the defendant.
Fieldmen Insurance Co. v. Vda. Songco
Facts:
Federico Songco, a man of scant education, being only a
first grader, owned a private jeepney. Being the owner
of such, he was induced by Fieldmen Insurance Agent
Benjamin Sambatto to apply for a “COMMON
CARRIER’S LIABILITY INSURANCE POLICY” covering
his private jeepney (insured vehicle).
The insured vehicle while being driven by Rodolfo
Songco, a duly licensed driver and son of Federico,
collided with another car in the municipality of
Calumpit. As a result, Federico Songco and Rodolfo
Songco died, and Carlos Songco (another son of
Federico), and Angelita Songco (wife) and Jose Manuel
(Family Friend sustained physical injuries.
As testified by Amor Songco, 42 y/o son of Federico,
while agent Sambatto was inducing his father to insure
the insured vehicle, Federico said that his vehicle is an
‘owner’ private vehicle and not for passengers,
therefore, it is not covered under the “COMMON
CARRIER’S LIABILITY INSURANCE POLICY, but agent
Sambat said whether the vehicle was a private or for
passengers it could be insured because their company is
not owned by the government, so they could do what
they please whenever they believe a vehicle is
insurable.
RTC - It was held that Fieldmen’s Insurance cannot
escape liability under a common carrier insurance
policy on the pretext that what was insured was a
private vehicle and not a common carrier, the policy
being issued upon the agent’s insistence.
CA - Affirmed RTC
 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST
Issue: WON Fieldmen Insurance shall be held liable
under the Common Carrier Insurance Policy, despite of
the fact that the insured vehicle was a private type.
Held: Yes.
The Supreme Court apply the doctrine laid down under
Qua Chee Gan v. Law Union and Rock Insurance Co.
Ltd. It was held that “where inequitable conduct is
shown by an insurance firm, it is stopped from
enforcing forfeitures in its favor, in order to forestall
fraud or imposition on the insurred”. The Qua Chee Gan
case applied the doctrine of Estoppel. Estoppel is
primarily based on the doctrine of good faith and the
avoidance of harm that will befall the innocent party
due to its injurious reliance.
In this case, after petitioner Fieldmen's Insurance Co.,
Inc. had led the insured Federico Songco to believe that
he could qualify under the common carrier liability
insurance policy, and to enter into contract of insurance
paying the premiums due, it could not, thereafter, in any
litigation arising out of such representation, be
permitted to change its stand to the detriment of the
heirs of the insured. As estoppel is primarily based on
the doctrine of good faith and the avoidance of harm
that will befall the innocent party due to its injurious
reliance, the failure to apply it in this case would result
in a gross travesty of justice.
Fieldmen Insurance incurred legal liability under
the “COMMON CARRIER INSURANCE POLICY”, since
some of the conditions contained in the policy issued by
the defendant-appellant were impossible to comply
with under the existing conditions at the time and
'inconsistent with the known facts,' the insurer 'is
estopped from asserting breach of such conditions.'
From this jurisprudence, we find no valid reason to
deviate and consequently hold that the decision
appealed from should be affirmed. The injured parties,
to wit, Carlos Songco, Angelito Songco and Jose Manuel,
for whose hospital and medical expenses the defendant
company was being made liable, were passengers of the
jeepney at the time of the occurrence, and Rodolfo
Songco, for whose burial expenses the defendant
company was also being made liable was the driver of
the vehicle in question. Except for the fact, that they
were not fare paying passengers, their status as
beneficiaries under the policy is recognized therein."
"The contract of insurance is one of perfect good faith
(uberima fides) not for the insured alone,but equally so
for the insurer; in fact, it is more so for the latter, since
its dominant bargaining position carries with it stricter
responsibility."
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Philamlife v. Ansaldo
G.R. No. 76452
Petitioners: Philippine American Life Insurance
Company and Rodrigo De Los Reyes (Philamlife
President)
Respondents: Hon. Armando Ansaldo (Insurance
Commissioner), and Ramon Montilla Paterno (private
respondent)
Date of Promulgation: July 26, 1994
Ponente: Quason, J.
Facts:
Private respondent Ramon M. Paterno, Jr. through a
letter-complaint to respondent Commissioner, alleging
certain problems encountered by agents, supervisors,
managers and public consumers of the Philamlife as a
result of certain practices by said company.
Private respondent was required by respondent
Commissioner to specify the provisions of the agency
contract which he claimed to be illegal.
On August 4, private respondent submitted a letter of
specification praying that the provisions on charges and
fees stated in the Contract of Agency executed between
Philamlife and its agents, as well as the implementing
provisions as published in the agents' handbook, agency
bulletins and circulars, be declared as null and void. He
also asked that the amounts of such charges and fees
already deducted and collected by Philamlife in
connection therewith be reimbursed to the agents.
Manuel Ortega, Philamlife's Senior Assistant Vice-
President and Executive Assistant to the President,
asked that respondent Commission first rule on the
questions of the jurisdiction of the Insurance
Commissioner over the subject matter of the letters-
complaint and the legal standing of private respondent.
Respondent Commissioner denied the Motion to
Quash.
Issue: WON the resolution of the legality of the Contract
of Agency falls within the jurisdiction of the Insurance
Commissioner.
Held: No. Since the contract of agency entered into
between Philamlife and its agents is not included within
the meaning of an insurance business, Section 2 of the
Insurance Code cannot be invoked to give jurisdiction
over the same to the Insurance Commissioner.
Expressio unius est exclusio alterius.
The general regulatory authority of the Insurance
Commissioner is described in Section 414 of the
Insurance Code, to wit:
The Insurance Commissioner shall have the duty to see
that all laws relating to insurance, insurance companies
and other insurance matters, mutual benefit
associations and trusts for charitable uses are faithfully
 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST
executed and to perform the duties imposed upon him
by this Code, . . .
On the other hand, Section 415 provides:
In addition to the administrative sanctions provided
elsewhere in this Code, the Insurance Commissioner is
hereby authorized, at his discretion, to impose upon
insurance companies, their directors and/or officers
and/or agents, for any willful failure or refusal to
comply with, or violation of any provision of this Code,
or any order, instruction, regulation or ruling of the
Insurance Commissioner, or any commission of
irregularities, and/or conducting business in an unsafe
and unsound manner as may be determined by the the
Insurance Commissioner, the following:
(a) fines not in excess of five hundred pesos a day; and
(b) suspension, or after due hearing, removal of
directors and/or officers and/or agents.
A plain reading of the above-quoted provisions show
that the Insurance Commissioner has the authority to
regulate the business of insurance, which is defined as
follows:
(2) The term "doing an insurance business" or
"transacting an insurance business," within the meaning
of this Code, shall include
(a) making or proposing to make, as insurer, any
insurance contract;
(b) making, or proposing to make, as surety, any
contract of suretyship as a vocation and not as merely
incidental to any other legitimate business or activity of
the surety;
(c) doing any kind of business, including a reinsurance
business, specifically recognized as constituting the
doing of an insurance business within the meaning of
this Code;
(d) doing or proposing to do any business in substance
equivalent to any of the foregoing in a manner designed
to evade the provisions of this Code. (Insurance Code,
Sec. 2[2])
With regard to private respondent's contention that the
quasi-judicial power of the Insurance Commissioner
under Section 416 of the Insurance Code applies in his
case, we likewise rule in the negative. Section 416 of the
Code in pertinent part, provides:
The Commissioner shall have the power to adjudicate
claims and complaints involving any loss, damage or
liability for which an insurer may be answerable under
any kind of policy or contract of insurance, or for which
such insurer may be liable under a contract of
suretyship, or for which a reinsurer may be used under
any contract or reinsurance it may have entered into, or
for which a mutual benefit association may be held
liable under the membership certificates it has issued to
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its members, where the amount of any such loss,
damage or liability, excluding interest, costs and
attorney's fees, being claimed or sued upon any kind of
insurance, bond, reinsurance contract, or membership
certificate does not exceed in any single claim one
hundred thousand pesos.
A reading of the said section shows that the quasi-
judicial power of the Insurance Commissioner is limited
by law "to claims and complaints involving any loss,
damage or liability for which an insurer may be
answerable under any kind of policy or contract of
insurance, . . ." Hence, this power does not cover the
relationship affecting the insurance company and its
agents but is limited to adjudicating claims and
complaints filed by the insured against the insurance
company.
While the subject of Insurance Agents and Brokers is
discussed under Chapter IV, Title I of the Insurance
Code, the provisions of said Chapter speak only of the
licensing requirements and limitations imposed on
insurance agents and brokers.
The Insurance Code does not have provisions governing
the relations between insurance companies and their
agents. It follows that the Insurance Commissioner
cannot, in the exercise of its quasi-judicial powers,
assume jurisdiction over controversies between the
insurance companies and their agents.
We have held in the cases of Great Pacific Life Assurance
Corporation v. Judico, 180 SCRA 445 (1989), and
Investment Planning Corporation of the Philippines v.
Social Security Commission, 21 SCRA 904 (1962), that
an insurance company may have two classes of agents
who sell its insurance policies: (1) salaried employees
who keep definite hours and work under the control
and supervision of the company; and (2) registered
representatives, who work on commission basis.
Under the first category, the relationship between the
insurance company and its agents is governed by the
Contract of Employment and the provisions of the Labor
Code, while under the second category, the same is
governed by the Contract of Agency and the provisions
of the Civil Code on the Agency. Disputes involving the
latter are cognizable by the regular courts.
AMERICAN HOME ASSURANCE COMPANY vs
TANTUCO ENTERPRISES, INC.
GR NO. 138941
Petitioner: American Home Assurance Company
Respondent: Tantuco Enterprises, Inc.
Date of Promulgation: October 8, 2001
Ponente: Puno
Facts:
 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST
 Respondent Tantuco Enterprises, Inc. is
engaged in the coconut oil milling and refining
industry. It owns two oil mills. It appears that
respondent commenced its business
operations with only one oil mill. In 1988, it
started operating its second oil mill. The latter
came to be commonly referred to as the new oil
mill.
 The two oil mills were separately covered by
fire insurance policies issued by petitioner
American Home Assurance Co., Philippine
Branch. Official receipts indicating payment for
the full amount of the premium were issued by
the petitioner's agent.
 September 20, 1991 – a fire broke out and
consumed the new oil mill. Respondent
immediately notified the petitioner of the
incident. The latter then sent its appraisers
who inspected the burned premises and the
properties destroyed
 October 15, 1991 - petitioner rejected
respondents claim for the insurance proceeds
on the ground that no policy was issued by it
covering the burned oil mill. It stated that the
description of the insured establishment
referred to another building thus: Our policy
nos. 306-7432321-9 (Ps 6M) and 306-
7432324-4 (Ps 3M) extend insurance coverage
to your oil mill under Building No. 5, whilst the
affected oil mill was under Building No. 14.
 A complaint for specific performance and
damages was consequently instituted by the
respondent with the RTC, Branch 53 of Lucena
City
 RTC – judgment is in favored of the plaintiff.
 CA – decision of RTC is affirmed. The appeal is
dismissed for lack of merit.
ISSUE: WON THE BURNED OIL MILL IS COVERED BY
INSURANCE POLICY
HELD: Yes. The burned (new) mill is covered by the
insurance policy.
 In construing the words used descriptive of a
building insured, the greatest liberality is
shown by the courts in giving effect to the
insurance. In view of the custom of insurance
agents to examine buildings before writing
policies upon them, and since a mistake as to
the identity and character of the building is
extremely unlikely, the courts are inclined to
consider that the policy of insurance covers any
building which the parties manifestly intended
to insure, however inaccurate the description
may be.Notwithstanding, therefore, the
misdescription in the policy, it is beyond
dispute, to our mind, that what the parties
manifestly intended to insure was the new oil
mill.
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 If the parties really intended to protect the first
oil mill, then there is no need to specify it as
new.
 Petitioner argues that the warranty clearly
obligates the insured to maintain all the
appliances specified therein. The breach
occurred when the respondent failed to install
internal fire hydrants inside the burned
building as warranted. This fact was admitted
by the oil mills expeller operator, Gerardo
Zarsuela.
 Again, the argument lacks merit. We agree with
the appellate courts conclusion that the
aforementioned warranty did not require
respondent to provide for all the fire
extinguishing appliances enumerated
therein. Additionally, we find that neither did it
require that the appliances are restricted to
those mentioned in the warranty. In other
words, what the warranty mandates is that
respondent should maintain in efficient
working condition within the premises of the
insured property, fire fighting equipments such
as, but not limited to, those identified in the list,
which will serve as the oil mills first line of
defense in case any part of it bursts into flame.
 To be sure, respondent was able to comply with
the warranty. Within the vicinity of the new oil
mill can be found the following devices:
numerous portable fire extinguishers, two fire
hoses, fire hydrant, and an emergency fire
engine. All of these equipments were in
efficient working order when the fire occurred.
PEREZ vs. CA
G.R. No. 112329
Petitioners: Virginia Perez
Respondents: Court of Appeals and BF Lifeman
Insurance Corporation (private respondent)
Date of Promulgation: January 28, 2000
Ponente: Ynares- Santiago
Action: Rescission of Insurance Contract; Petition for
Certiorari
Facts:
 Primitivo B. Perez had been insured with the
BF Lifeman Insurance Corporation since 1980
for P20,000.00.
 October 1987, an agent of the insurance
corporation, Rodolfo Lalog, convinced
Primitivo Perez to apply for additional
insurance coverage of P50,000.00 to avail of
the ongoing promotional discount if the
premium were paid annually.
 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST
 October 20, 1987, Primitivo Perez
accomplished an application form for the
additional insurance coverage of P50,000.00.
Petitioner Virginia A. Perez, Primitivos wife,
paid P2,075.00 to Lalog. The receipt issued by
Lalog indicated the amount received was a
"deposit."
 Lalog lost the application form accomplished
by Perez.
 October 28, 1987, Lalog asked the Perez to fill
up another application form.
 November 1, 1987, Perez was made to
undergo the required medical examination,
which he passed.
 Pursuant to the established procedure of the
company, Lalog forwarded the application,
together with all its supporting papers, to the
office of BF Lifeman Insurance Corporation at
Gumaca, Quezon which office was supposed to
forward the papers to the Manila office.
 November 25, 1987, Perez died in an accident.
He was riding in a banca which capsized
during a storm.
 At the time of his death, his application papers
for the additional insurance of P50,000.00
were still with the Gumaca office. Lalog
testified that he went to follow up the papers,
he found them still in the Gumaca 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.
 December 2, 1987, without knowing that
Perez died, BF Lifeman Insurance Corporation
approved the application and issued the
corresponding policy for the P50,000.00.
 Petitioner Virginia Perez went to claim the
benefits under the insurance policy. She was
paid P40,000.00 under the first insurance
policy 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.
 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.
 Private respondent BF Lifeman Insurance
Corporation filed a complaint against Virginia
A. Perez seeking the rescission and declaration
of nullity of the insurance contract in question.
 Petitioner Virginia 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.
 Trial Court: In favor of Petitioner Virginia
Perez.
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 CA: Reversed the decision. In favor of BF
Lifeman. Reason: No perfection of insurance
contract.
 Petitioners MR: Denied. Hence, this petition
for certiorari.
Issue: 1. W/N the additional insurance coverage is
perfected.
2. W/N the condition imposed by BF Lifeman
Insurance in the application form is a potestative
condition.
3. W/N BF Lifeman Insurance can be held
liable for gross negligence due to the delay in acting on
the application.
4. W/N the Insurance Policy for P50,000.00 is
rescinded.
Held:
1. No, it 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.
Under Article 1318 of the Civil Code, there is no
contract unless the following requisites concur: (a)
Consent of the contracting parties; (b) Object certain
which is the subject matter of the contract; (c) Cause of
the obligation which is established. 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. 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.
When Primitivo died on November 25, 1987, his
application papers for additional insurance coverage
 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST
were still with the branch office of respondent
corporation in Gumaca and it was only two days later
(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.
In the case of Enriquez vs. Sun Life Assurance Co. of
Canada, recovery on the life insurance of the deceased
was disallowed on the ground that the contract for
annuity was not perfected since it had not been proved
satisfactorily that the acceptance of the application ever
reached the knowledge of the applicant.
2. No, it is not a potestative condition but a
suspensive condition. A potestative condition depends
upon the exclusive will of one of the parties and is
considered void. In the case at bar, the following
conditions were imposed by the respondent company
for the perfection of the contract of insurance: (a) a
policy must have been issued; (b) the premiums paid;
and (c) the policy must have been delivered to and
accepted by the applicant while he is in good health. The
condition imposed by the corporation that the policy
must have been delivered to and accepted by the
applicant while he is in good health can hardly be
considered as a potestative or facultative condition. On
the contrary, the health of the applicant at the time of
the delivery of the policy is beyond the control or will of
the insurance company. Rather, the condition is a
suspensive one whereby the acquisition of rights
depends upon the happening of an event which
constitutes the condition. In this case, the suspensive
condition was the policy must have been delivered and
accepted by the applicant while he is in good health.
There was non-fulfillment of the condition, however,
inasmuch as the applicant was already dead at the time
the policy was issued. Hence, the non-fulfillment of the
condition resulted in the non-perfection of the contract.
A contract of insurance, like other contracts, must be
assented to by both parties either in person or by their
agents. So long as an application for insurance has not
been either accepted or rejected, it is merely an offer or
proposal to make a contract. The contract, to be binding
from the date of application, must have been a
completed contract, one that leaves nothing to be done,
nothing to be completed, nothing to be passed upon, or
determined, before it shall take effect. There can be no
contract of insurance unless the minds of the parties
have met in agreement.
3. No, BF Lifeman Insurancec cannot be
held liable for gross negligence. An application is a
mere offer which requires the overt act of the insurer
for it to ripen into a contract. Delay in acting on the
application does not constitute acceptance even though
the insured has forwarded his first premium with his
application. The corporation may not be penalized for
8
the delay in the processing of the application papers.
Moreover, while it may have taken some time for the
application papers to reach the main office, in the case
at bar, the same was acted upon less than a week after it
was received. The processing of applications by
respondent corporation normally takes two to three
weeks, the longest being a month. In this case, the
requisite medical examination was undergone by the
deceased on November 1, 1987; the application papers
were forwarded to the head office on November 27,
1987; and the policy was issued on December 2, 1987.
Under these circumstances, delay could not be deemed
unreasonable so as to constitute gross negligence.
4. It is not rescinded but null and void. CA
corrected this in its Resolution of the MR filed by
petitioner. Rescission presupposes the existence of a
valid contract. A contract which is null and void is no
contract at all and hence could not be the subject of
rescission.
MITSUBISHI MOTORS PHILIPPINES SALARIED
EMPLOYEES UNION (MMPSEU) v. MITSUBISHI
MOTORS PHILIPPINES CORPORATION (MMPC)
G.R. No. 175773
Petitioners: MITSUBISHI MOTORS PHILIPPINES
SALARIED EMPLOYEES UNION (MMPSEU)
Respondents: MITSUBISHI MOTORS PHILIPPINES
CORPORATION (MMPC)
Date of Promulgation: June 17, 2013
Facts:
 The parties’ CBA provides for the
hospitalization insurance benefits for the
covered dependents.
 Each employee shall pays one hundred pesos
(₱100.00) per month through salary deduction
as his share in the payment of the insurance
premium for the above coverage with the
balance of the premium to be paid by the
company.
 One of the stipulations in said CBA is that “d.
Payment shall be direct to the hospital and
doctor and must be covered by actual billings.”
 It is further added in the agreement that “the
hospitalization expenses must be covered
by actual hospital and doctor’s bills and
any amount in excess of the above
mentioned level of benefits will be for the
account of the employee.
 On separate occasions, three members of
MMPSEU, namely, Ernesto Calida (Calida),
Hermie Juan Oabel (Oabel) and Jocelyn Martin
(Martin), filed claims for reimbursement of
hospitalization expenses of their dependents.
 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST
 In the case of Calida, the medical expenses
incurred totalled ₱29,967.10. Of this amount,
₱9,000.00 representing professional fees was
paid by MEDICard Philippines, Inc.
(MEDICard) which provides health
maintenance to Lanie. MMPC only paid
₱12,148.63. It did not pay the ₱9,000.00
already paid by MEDICard and the ₱6,278.47
not covered by official receipts.
 In the case of Martin, they incurred medical
expenses amounting to ₱9,101.30. MEDICard
paid ₱8,496.00. Consequently, MMPC only
paid ₱288.40,16 after deducting from the total
medical expenses the amount paid by
MEDICard and the ₱316.90 discount given by
the hospital.
 Claiming that under the CBA, they are entitled
to hospital benefits which should not be
reduced by the amounts paid by MEDICard
and by Prosper, Calida, Oabel and Martin
asked for reimbursement from MMPC.
 However, MMPC denied the claims contending
that double insurance would result if the said
employees would receive from the company
the full amount of hospitalization expenses
despite having already received payment of
portions thereof from other health insurance
providers.
 MMPSEU referred the dispute to the National
Conciliation and Mediation Board and
requested for preventive mediation.
 The case was referred to Voluntary Arbitrator
Rolando Capocyan for resolution of the issue
involving the interpretation of the subject CBA
provision.
 Meanwhile, the parties separately sought for a
legal opinion from the Insurance Commission
relative to the issue at hand.
 However, the Office of the Insurance
Commission opted not to render an opinion,
based on MMPC’s letter, on the matter as the
same may become the subject of a formal
complaint before it.
 On the other hand, when queried by MMPSEU,
the Insurance Commission, through Atty.
Richard David C. Funk II of the Claims
Adjudication Division, rendered an opinion
contained in a letter that “the courts have
uniformly held that an insured is entitled to
receive the insurance benefits without regard
to the amount of total benefits provided by
other insurance. The result is consistent with
the public policy underlying the collateral
source rule – that is, x x x the courts have
usually concluded that the liability of a health
or accident insurer is not reduced by other
possible sources of indemnification or
compensation.”
 Voluntary Arbitrator: in favor of MMPSEU.
It held that the employees may demand
9
simultaneous payment from both the CBA and
their dependents’ separate health insurance
without resulting to double insurance, since
separate premiums were paid for each
contract. He also noted that the CBA does not
prohibit reimbursement in case there are
other health insurers.
 CA: in favor of MMPC. It ruled that despite the
lack of a provision which bars recovery in case
of payment by other insurers, the wordings of
the subject provision of the CBA showed that
the parties intended to make MMPC liable only
for expenses actually incurred by an
employee’s qualified dependent.
 MR is denied.
 Hence, this Petition.
Issue/s: (1) WON the collateral source rule is
applicable to the case at bar
(2) WON the conditions set in the CBA limits
MPPC’s liability
(3) WON Samsel v. Allstate Insurance Co. is
applicable to the case
(4) WON there will be unjust enrichment if
reimbursement of amounts paid under other insurance
policies shall not be allowed
Held: NO. It is not applicable. The Voluntary
Arbitrator based his ruling on the opinion of Atty. Funk
that the employees may recover benefits from different
insurance providers without regard to the amount of
benefits paid by each. According to him, this view is
consistent with the theory of the collateral source rule.
As part of American personal injury law, the collateral
source rule was originally applied to tort cases wherein
the defendant is prevented from benefiting from the
plaintiff’s receipt of money from other sources.38 Under
this rule, if an injured person receives compensation for
his injuries from a source wholly independent of the
tortfeasor, the payment should not be deducted from
the damages which he would otherwise collect from the
tortfeasor.
The Court went on to explain that although the rule
appears to allow a double recovery, the collateral
source will have a lien or subrogation right to prevent
such a double recovery. In Mitchell v. Haldar, the
collateral source rule was rationalized by the Supreme
Court of Delaware:
The collateral source rule is ‘predicated on the theory
that a tortfeasor has no interest in, and therefore no
right to benefit from monies received by the injured
person from sources unconnected with the defendant’.
According to the collateral source rule, ‘a tortfeasor has
no right to any mitigation of damages because of
payments or compensation received by the injured
person from an independent source.’ The rationale for
 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST
the collateral source rule is based upon the quasi-
punitive nature of tort law liability. It has been
explained as follows:
Thus, the tortfeasor is required to bear the cost for the
full value of his or her negligent conduct even if it
results in a windfall for the innocent plaintiff.
As seen, the collateral source rule applies in order to
place the responsibility for losses on the party causing
them. Thus, it finds no application to cases involving
no-fault insurances under which the insured is
indemnified for losses by insurance companies,
regardless of who was at fault in the incident
generating the losses. Here, it is clear that MMPC is a
no-fault insurer. Hence, it cannot be obliged to pay
the hospitalization expenses of the dependents of
its employees which had already been paid by
separate health insurance providers of said
dependents.
(2). Yes. The conditions set forth in the CBA
provision indicate an intention to limit MMPC’s liability
only to actual expenses incurred by the employees’
dependents, that is, excluding the amounts paid by
dependents’ other health insurance providers.
The condition that payment should be direct to the
hospital and doctor implies that MMPC is only liable to
pay medical expenses actually shouldered by the
employees’ dependents. It follows that MMPC’s liability
is limited, that is, it does not include the amounts paid
by other health insurance providers. This condition is
obviously intended to thwart not only fraudulent claims
but also double claims for the same loss of the
dependents of covered employees.
The terms of the subject provision are clear and
provide no room for any other interpretation. As
there is no ambiguity, the terms must be taken in
their plain, ordinary and popular sense.
Consequently, MMPSEU cannot rely on the rule that
a contract of insurance is to be liberally construed
in favor of the insured.
(3) No. It is not applicable. MMPSEU cannot
rely on Samsel v. Allstate Insurance Co. where the
Supreme Court of Arizona allowed the insured to enjoy
medical benefits under an automobile policy insurance
despite being able to also recover from a separate
health insurer.
In that case, the Allstate automobile policy does not
contain any clause restricting medical payment
coverage to expenses actually paid by the insured nor
does it specifically provide for reduction of medical
payments benefits by a coordination of benefits.
However, in the case before us, the dependents’ group
hospitalization insurance provision in the CBA
specifically contains a condition which limits MMPC’s
liability only up to the extent of the expenses that
should be paid by the covered employee’s dependent to
10
the hospital and doctor. This is evident from the portion
which states that "payment by MMPC shall be direct to
the hospital and doctor." In contrast, the Allstate
automobile policy expressly gives Allstate the authority
to pay directly to the insured person or on the latter’s
behalf all reasonable expenses actually incurred.
(4) NO. To constitute unjust enrichment, it
must be shown that a party was unjustly enriched in the
sense that the term unjustly could mean illegally or
unlawfully. A claim for unjust enrichment fails when the
person who will benefit has a valid claim to such
benefit.
The CBA has provided for MMPC’s limited liability
which extends only up to the amount to be paid to the
hospital and doctor by the employees’ dependents,
excluding those paid by other insurers. Consequently,
the covered employees will not receive more than what
is due them.
Moreover, since the subject CBA provision is an
insurance contract, the rights and obligations of the
parties must be determined in accordance with the
general principles of insurance law. Being in the
nature of a non-life insurance contract and
essentially a contract of indemnity, the CBA
provision obligates MMPC to indemnify the covered
employees’ medical expenses incurred by their
dependents but only up to the extent of the
expenses actually incurred. This is consistent with
the principle of indemnity which proscribes the
insured from recovering greater than the loss.
Indeed, to profit from a loss will lead to unjust
enrichment and therefore should not be countenanced.
Sweet Lines Inc. v. Teves
GR L-37750
Petitioners: Sweet Lines, Inc. (Petitioner)
Respondents: Leovigildo Tandog, Jr., Rogelio Tiro
(Private respondents)
Date of Promulgation: May 19, 1978
Ponente: Santos
Action: Prohibition with Injunction
Facts:
 Private respondents Atty. Leovigildo Tandog and
Rogelio Tiro, a contractor by professions, bought tickets
for voyage at the branch office of petitioner, a shipping
company transporting inter-island passengers and
cargoes, at Cagayan de Oro City.
 Respondents were to board petitioner's vessel, M/S
"Sweet Hope" bound for Tagbilaran City via the port of
Cebu.
 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST
o Upon learning that the vessel was not proceeding to
Bohol, since many passengers were bound for Surigao,
private respondents per advice, went to the branch
office for proper relocation to M/S "Sweet Town".
 Because the said vessel was already filled to capacity,
they were forced to agree "to hide at the cargo section
to avoid inspection of the officers of the Philippine
Coastguard."
 Private respondents alleged that they were, during the
trip," "exposed to the scorching heat of the sun and the
dust coming from the ship's cargo of corn grits," and
that the tickets they bought at Cagayan de Oro City for
Tagbilaran were not honored and they were
constrained to pay for other tickets.
 In view thereof, private respondents sued petitioner for
damages and for breach of contract of carriage before
respondents Court of First Instance of Misamis Oriental.
 Petitioner moved to dismiss the complaint on the
ground of improper venue. This motion was premised
on the condition printed at the back of the tickets, i.e.,
Condition No. 14, which reads:
o 14. It is hereby agreed and understood that any and all
actions arising out of the conditions and provisions of
this ticket, irrespective of where it is issued, shall be
filed in the competent courts in the City of Cebu.
 The motion was denied by the trial court. Petitioner
moved to reconsider the order of denial, but no avail.
Hence, this instant petition.
Issue: Is Condition No. 14 printed at the back of the
petitioner's passage tickets purchased by private
respondents, which limits the venue of actions arising
from the contract of carriage to the Court of First
Instance of Cebu, valid and enforceable?
Ruling: No, it is not valid and enforceable. It should
be borne in mind, that with respect to the fourteen (14)
conditions — one of which is "Condition No. 14" which
is in issue in this case — printed at the back of the
passage tickets, these are commonly known as
"contracts of adhesion," the validity and/or
enforceability of which will have to be determined by
the peculiar circumstances obtaining in each case and
the nature of the conditions or terms sought to be
enforced. For, "(W)hile generally, stipulations in a
contract come about after deliberate drafting by the
parties thereto, ... there are certain contracts almost all
the provisions of which have been drafted only by one
party, usually a corporation. Such contracts are called
contracts of adhesion, because the only participation of
the party is the signing of his signature or his 'adhesion'
thereto. Insurance contracts, bills of lading, contracts
of make of lots on the installment plan fall into this
category"
11
By the peculiar circumstances under which contracts of
adhesion are entered into, certain guidelines in the
determination of their validity and/or enforceability
have been formulated in order to that justice and fan
play characterize the relationship of the contracting
parties. Thus, jurisprudence provides —
“Such contracts (of which policies of insurance and
international bill of lading are prime examples)
obviously cap for greater strictness and vigilance on
the part of the courts of justice with a view to protecting
the weaker party from abuses and imposition, and
prevent their becoming traps for the unwary.”
To the same effect and import, and, in recognition of the
character of contracts of this kind, the protection of the
disadvantaged is expressly enjoined by the New Civil
Code —
In all contractual property or other relations, when one
of the parties is at a disadvantage on account of his
moral dependence, ignorance indigence, mental
weakness, tender age and other handicap, the courts
must be vigilant for his protection.
Considered in the light Of the foregoing norms and in
the context Of circumstances Prevailing in the inter-
island ship. ping industry in the country today, We find
and hold that Condition No. 14 printed at the back of
the passage tickets should be held as void and
unenforceable for the following reasons first, under
circumstances obligation in the inter-island shipping
industry, it is not just and fair to bind passengers to the
terms of the conditions printed at the back of the
passage tickets, on which Condition No. 14 is Printed in
fine letters, and second, Condition No. 14 subverts the
public policy on transfer of venue of proceedings of this
nature, since the same will prejudice rights and
interests of innumerable passengers in different s of the
country who, under Condition No. 14, will have to file
suits against petitioner only in the City of Cebu.
Considering that private respondents were relocated
and then suffered the scorching heat of the sun and the
dust coming from the ship’s cargo, it is hardly just and
proper to expect the passengers to examine their tickets
received from crowded/congested counters. Again, it
should be noted that Condition No. 14 was prepared
solely at the instance of the petitioner, respondents had
no say in its preparation. Neither did the latter have the
opportunity to take the into account prior to the
purpose chase of their tickets. For, unlike the small
print provisions of contracts — the common
example of contracts of adherence — which are
entered into by the insured in his awareness of said
conditions, since the insured is afforded the
opportunity to and consider the same, passengers of
inter-island vessels do not have the same chance, since
their alleged adhesion is presumed only from the fact
that they purpose chased the tickets. Petition is
therefore dismissed.
 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST
Sun Life Office Ltd. v. CA
Facts:
Sun Life issued PERSONAL ACCIDENT POLICY to Felix
Lim Jr. with a face value of P200,000.00. Two months
thereafter, he was dead with a bullet wound in his dead.
Nerissa Lim (“Nerissa), his wife and as a beneficiary,
sought payment on the policy but it was rejected.
On October 6, 1982, Lim was in a happy mood, but was
not drunk, and was playing with his handgun, from
which he had previously removed the magazine. Lim
stood in front of Pilar Nalagon (“Nalagon”), his
secretary, and pointed the gun at her. Nalagon pushed
Lim because it might be loaded. Lim assured that the
gun has no bullet and pointed it to his temple.
Thereafter, Nalagon heard an explosion and she saw
Lim slumped to the floor.
Nerissa sued Sun Life before RTC Zamboanga.
RTC - ruled in favour of Nerissa
CA - affirmed.
Issue: Whether the act of Felix Lim Jr., that is the
pointing of the gun at his temple, was covered under
PERSONAL ACCIDENT POLICY. Thus, making Sun Life
Office liable.
Held: Yes.
The words‘accident’ and accident’, when used in the
insurance contract it must be construed and understood
to the ordinary understanding and common usage and
speech of people generally. In substance, the Court
agreed that the words ‘accident and accidental’ mean
that which happens by chance or fortuitously, without
intention or design, and which is unexpected, unusual,
and unforeseen. The definition that has usually been
adopted by the courts is that an accident is an event that
takes place without one's foresight or expectation — an
event that proceeds from an unknown cause, or is an
unusual effect of a known case, and therefore not
expected.
An accident is an event which happens without any
human agency or, if happening through human agency,
an event which, under the circumstances, is unusual to
and not expected by the person to whom it happens. It
has also been defined as an injury which happens by
reason of some violence or casualty to the injured
without his design, consent, or voluntary co-operation.
From the said definitions, the Court is of convinced that
the incident that resulted in Lim’s death was indeed an
accident.
12
The Court also noted that insurance contracts are as a
rule supposed to be interpreted liberally in favour of the
assured. There is no reason to deviate from this rule,
especially in view of the circumstances of this case as
above analyzed.
ALPHA INSURANCE AND SURETY CO. vs. CASTOR
G.R. No. 198174
Petitioners: Alpha Insurance and Surety Co.
Respondents: Arsenia Sonia Castor
Date of Promulgation: September 2, 2013
Ponente: Peralta, J.
Action: Petition for Review on Certiorari under Rule 45
; Complaint for Sum of Money w/ Damages
Facts:
 February 21, 2007: Respondent Castor
entered into a contract of insurance with
petitioner Alpha Insurance, involving her
motor vehicle, a Toyota Revo DLX DSL.
 The contract of insurance obligates petitioner
Alpha Insurance to pay the respondent the
amount of ₱630,000.00 in case of loss or
damage to said vehicle from February 26,
2007-2008.
 April 16, 2007: Respondent instructed her
driver, Jose Joel Salazar Lanuza (Lanuza), to
bring the vehicle to a nearby auto-shop for a
tune-up. However, Lanuza no longer returned
the motor vehicle to respondent and despite
diligent efforts to locate the same, said efforts
proved futile.
 Respondent reported the incident to the police
and notified petitioner of the said loss and
demanded payment of the insurance proceeds.
 Petitioner Alpha Insurance denied the
insurance claim of respondent Castor, stating
that upon verification of the Police Report and
Affidavit, the culprit who stole the insured unit
is employed with the respondent. Petitioner
averred that it is among the Policy Exceptions
that states “The Company shall not be liable for:
Any malicious damage caused by the Insured,
any member of his family or by "A PERSON IN
THE INSURED’S SERVICE.”.
 Respondent argued that the exception refers
to damage of the motor vehicle and not to its
loss. However, petitioner’s denial of
respondent’s insured claim remains firm.
 Respondent Castor filed a Complaint for Sum
of Money with Damages before the RTC.
 RTC: in favor of respondent Castor.
 CA: Affirmed in toto.
 MR: Denied.
 INSURANCE LAW: I. GENERAL CONCEPTS
CASE DIGEST

Issue: W/N the loss of respondent’s vehicle is excluded
under the insurance policy.
Held: (You can check the pertinent portion nung
insurance contract nila. Di ko na sinama)
No. The theft perpetrated by the driver of the
insured is not an exception to the coverage from the
insurance policy, since Section III thereof did not qualify
as to who would commit the theft. This is evident from
the very provision of Section III – "Loss or Damage." The
insurance company, subject to the limits of liability, is
obligated to indemnify the insured against theft. Said
provision does not qualify as to who would commit the
theft. Thus, even if the same is committed by the driver
of the insured, there being no categorical declaration of
exception, the same must be covered. As correctly
pointed out by the plaintiff, "An insurance contract
should be interpreted as to carry out the purpose for
which the parties entered into the contract which is to
insure against risks of loss or damage to the goods. Such
interpretation should result from the natural and
reasonable meaning of language in the policy. Where
restrictive provisions are open to two interpretations,
that which is most favorable to the insured is adopted."
Moreover, contracts of insurance, like other
contracts, are to be construed according to the sense
and meaning of the terms which the parties themselves
have used. If such terms are clear and unambiguous,
they must be taken and understood in their plain,
ordinary and popular sense. Accordingly, in interpreting
the exclusions in an insurance contract, the terms used
specifying the excluded classes therein are to be given
their meaning as understood in common speech.
Basic rule in the interpretation of contracts
that the terms of a contract are to be construed
according to the sense and meaning of the terms which
the parties thereto have used. In the case of property
insurance policies, the evident intention of the
contracting parties, i.e., the insurer and the assured,
determine the import of the various terms and
provisions embodied in the policy. However, when the
terms of the insurance policy are ambiguous,
equivocal or uncertain, such that the parties
themselves disagree about the meaning of particular
provisions, the policy will be construed by the courts
liberally in favor of the assured and strictly against
the insurer.
Lastly, a contract of insurance is a contract
of adhesion. So, when the terms of the insurance
contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer
from non-compliance with his obligation. An insurance
contract is a contract of adhesion which must be
construed liberally in favor of the insured and strictly
against the insurer in order to safeguard the latter’s
interest. Indemnity and liability insurance policies are
construed in accordance with the general rule of
resolving any ambiguity therein in favor of the insured,
where the contract or policy is prepared by the insurer.
A contract of insurance, being a contract of adhesion,
par excellence, any ambiguity therein should be
resolved against the insurer; in other words, it should
be construed liberally in favor of the insured and
strictly against the insurer. Limitations of liability
should be regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer from
non-compliance with its obligations.

The word "loss" refers to the act or fact of

losing, or failure to keep possession, while the word
"damage" means deterioration or injury to property.
Therefore, petitioner cannot exclude the loss of
respondent’s vehicle under the insurance policy under
paragraph 4 of "Exceptions to Section III," since the
same refers only to "malicious damage," or more
specifically, "injury" to the motor vehicle caused by a
person under the insured’s service. Paragraph 4 clearly
does not contemplate "loss of property," as what
happened in the instant case. If the intention of the
defendant-appellant was to include the term "loss"
within the term "damage" then logic dictates that it
should have used the term "damage" alone in the entire
policy or otherwise included a clear definition of the
said term as part of the provisions of the said insurance
contract. This interpretation by the Court is bolstered
by the observation that the subject policy appears to
clearly delineate between the terms "loss" and
"damage" by using both terms throughout the said
policy.

13