G.R. No.
198174 September 2, 2013
ALPHA INSURANCE AND SURETY CO., PETITIONER,
vs.
ARSENIA SONIA CASTOR, RESPONDENT.
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court assailing the Decision1 dated May 31, 2011 and
Resolution2 dated August 10, 2011 of the Court of Appeals (CA) in CA-
G.R. CV No. 93027.
The facts follow.
On February 21, 2007, respondent entered into a contract of insurance,
Motor Car Policy No. MAND/CV-00186, with petitioner, involving her
motor vehicle, a Toyota Revo DLX DSL. The contract of insurance
obligates the petitioner to pay the respondent the amount of Six Hundred
Thirty Thousand Pesos (₱630,000.00) in case of loss or damage to said
vehicle during the period covered, which is from February 26, 2007 to
February 26, 2008.
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver,
Jose Joel Salazar Lanuza (Lanuza), to bring the above-described 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. Resultantly, respondent promptly
reported the incident to the police and concomitantly notified petitioner of
the said loss and demanded payment of the insurance proceeds in the
total sum of ₱630,000.00.
In a letter dated July 5, 2007, petitioner denied the insurance claim of
respondent, stating among others, thus:
Upon verification of the documents submitted, particularly the Police
Report and your Affidavit, which states that the culprit, who stole the
Insure[d] unit, is employed with you. We would like to invite you on the
provision of the Policy under Exceptions to Section-III, which we quote:
1.) The Company shall not be liable for:
xxxx
(4) Any malicious damage caused by the Insured, any member of his
family or by "A PERSON IN THE INSURED’S SERVICE."
In view [of] the foregoing, we regret that we cannot act favorably on your
claim.
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated
her claim and 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.
Accordingly, respondent filed a Complaint for Sum of Money with
Damages against petitioner before the Regional Trial Court (RTC) of
Quezon City on September 10, 2007.
In a Decision dated December 19, 2008, the RTC of Quezon City ruled in
favor of respondent in this wise:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff and against the defendant ordering the latter as
follows:
To pay plaintiff the amount of ₱466,000.00 plus legal interest of 6% per
annum from the time of demand up to the time the amount is fully settled;
To pay attorney’s fees in the sum of ₱65,000.00; and
To pay the costs of suit.
All other claims not granted are hereby denied for lack of legal and
factual basis.3
Aggrieved, petitioner filed an appeal with the CA.
On May 31, 2011, the CA rendered a Decision affirming in toto the RTC
of Quezon City’s decision. The fallo reads:
WHEREFORE, in view of all the foregoing, the appeal is DENIED.
Accordingly, the Decision, dated December 19, 2008, of Branch 215 of
the Regional Trial Court of Quezon City, in Civil Case No. Q-07-61099, is
hereby AFFIRMED in toto.
SO ORDERED.4
Petitioner filed a Motion for Reconsideration against said decision, but
the same was denied in a Resolution dated August 10, 2011.
Hence, the present petition wherein petitioner raises the following
grounds for the allowance of its petition:
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT
ERRED AND GROSSLY OR GRAVELY ABUSED ITS DISCRETION
WHEN IT ADJUDGED IN FAVOR OF THE PRIVATE RESPONDENT
AND AGAINST THE PETITIONER AND RULED THAT EXCEPTION
DOES NOT COVER LOSS BUT ONLY DAMAGE BECAUSE 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.
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT
ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT
[AFFIRMED] IN TOTO THE JUDGMENT OF THE TRIAL COURT.5
Simply, the core issue boils down to whether or not the loss of
respondent’s vehicle is excluded under the insurance policy.
We rule in the negative.
Significant portions of Section III of the Insurance Policy states:
SECTION III – LOSS OR DAMAGE
The Company will, subject to the Limits of Liability, indemnify the Insured
against loss of or damage to the Schedule Vehicle and its accessories
and spare parts whilst thereon:
(a)
by accidental collision or overturning, or collision or overturning
consequent upon mechanical breakdown or consequent upon wear and
tear;
(b)
by fire, external explosion, self-ignition or lightning or burglary,
housebreaking or theft;
(c)
by malicious act;
(d)
whilst in transit (including the processes of loading and unloading)
incidental to such transit by road, rail, inland waterway, lift or elevator.
xxxx
EXCEPTIONS TO SECTION III
The Company shall not be liable to pay for:
Loss or Damage in respect of any claim or series of claims arising out of
one event, the first amount of each and every loss for each and every
vehicle insured by this Policy, such amount being equal to one percent
(1.00%) of the Insured’s estimate of Fair Market Value as shown in the
Policy Schedule with a minimum deductible amount of Php3,000.00;
Consequential loss, depreciation, wear and tear, mechanical or electrical
breakdowns, failures or breakages;
Damage to tires, unless the Schedule Vehicle is damaged at the same
time;
Any malicious damage caused by the Insured, any member of his family
or by a person in the Insured’s service.6
In denying respondent’s claim, petitioner takes exception by arguing that
the word "damage," under paragraph 4 of "Exceptions to Section III,"
means loss due to injury or harm to person, property or reputation, and
should be construed to cover malicious "loss" as in "theft." Thus, it
asserts that the loss of respondent’s vehicle as a result of it being stolen
by the latter’s driver is excluded from the policy.
We do not agree.
Ruling in favor of respondent, the RTC of Quezon City scrupulously
elaborated that 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. Thus:
Theft perpetrated by a driver of the insured is not an exception to the
coverage from the insurance policy subject of this case. 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, "(A)n 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." The defendant would argue that if the person
employed by the insured would commit the theft and the insurer would be
held liable, then this would result to an absurd situation where the insurer
would also be held liable if the insured would commit the theft. This
argument is certainly flawed. Of course, if the theft would be committed
by the insured himself, the same would be an exception to the coverage
since in that case there would be fraud on the part of the insured or
breach of material warranty under Section 69 of the Insurance Code.7
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.8 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.9
Adverse to petitioner’s claim, the words "loss" and "damage" mean
different things in common ordinary usage. 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. 1âwphi1
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.
Further, the CA aptly ruled that "malicious damage," as provided for in
the subject policy as one of the exceptions from coverage, is the damage
that is the direct result from the deliberate or willful act of the insured,
members of his family, and any person in the insured’s service, whose
clear plan or purpose was to cause damage to the insured vehicle for
purposes of defrauding the insurer, viz.:
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. x x x
xxxx
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. Which is why the Court finds it puzzling that in the said policy’s
provision detailing the exceptions to the policy’s coverage in Section III
thereof, which is one of the crucial parts in the insurance contract, the
insurer, after liberally using the words "loss" and "damage" in the entire
policy, suddenly went specific by using the word "damage" only in the
policy’s exception regarding "malicious damage." Now, the defendant-
appellant would like this Court to believe that it really intended the word
"damage" in the term "malicious damage" to include the theft of the
insured vehicle.
The Court does not find the particular contention to be well taken.
True, it is a 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.10
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. Thus, in Eternal Gardens Memorial Park
Corporation v. Philippine American Life Insurance Company,11 this Court
ruled –
It must be remembered that an insurance contract is a contract of
adhesion which must be construed liberally in favor of the insured and
strictly against the insurer in order to safeguard the latter’s interest. Thus,
in Malayan Insurance Corporation v. Court of Appeals, this Court held
that:
Indemnity and liability insurance policies are construed in accordance
with the general rule of resolving any ambiguity therein in favor of the
insured, where the contract or policy is prepared by the insurer. A
contract of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other words,
it should be construed liberally in favor of the insured and strictly against
the insurer. Limitations of liability should be regarded with extreme
jealousy and must be construed in such a way as to preclude the insurer
from non-compliance with its obligations.
In the more recent case of Philamcare Health Systems, Inc. v. Court of
Appeals, we reiterated the above ruling, stating that:
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.12
WHEREFORE, premises considered, the instant Petition for Review on
Certiorari is DENIED. Accordingly, the Decision dated May 31, 2011 and
Resolution dated August 10, 2011 of the Court of Appeals are hereby
AFFIRMED.
SO ORDERED.
G.R. No. L-21574 June 30, 1966
SIMON DE LA CRUZ, plaintiff and appellee,
vs.
THE CAPITAL INSURANCE and SURETY CO., INC., defendant and
appellant.
Achacoso, Nera and Ocampo for defendant and appellant.
Agustin M. Gramata for plaintiff and appellee.
BARRERA, J.:
This is an appeal by the Capital Insurance & Surety Company, Inc., from
the decision of the Court of First Instance of Pangasinan (in Civ Case No.
U-265), ordering it to indemnify therein plaintiff Simon de la Cruz for the
death of the latter's son, to pay the burial expenses, and attorney's fees.
Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines,
Inc. in Baguio, was the holder of an accident insurance policy (No. ITO-
BFE-170) underwritten by the Capital Insurance & Surety Co., Inc., for
the period beginning November 13, 1956 to November 12, 1957. On
January 1, 1957, in connection with the celebration of the New Year, the
Itogon-Suyoc Mines, Inc. sponsored a boxing contest for general
entertainment wherein the insured Eduardo de la Cruz, a non-
professional boxer participated. In the course of his bout with another
person, likewise a non-professional, of the same height, weight, and size,
Eduardo slipped and was hit by his opponent on the left part of the back
of the head, causing Eduardo to fall, with his head hitting the rope of the
ring. He was brought to the Baguio General Hospital the following day.
The cause of death was reported as hemorrhage, intracranial, left.
Simon de la Cruz, the father of the insured and who was named
beneficiary under the policy, thereupon filed a claim with the insurance
company for payment of the indemnity under the insurance policy. As the
claim was denied, De la Cruz instituted the action in the Court of First
Instance of Pangasinan for specific performance. Defendant insurer set
up the defense that the death of the insured, caused by his participation
in a boxing contest, was not accidental and, therefore, not covered by
insurance. After due hearing the court rendered the decision in favor of
the plaintiff which is the subject of the present appeal.
It is not disputed that during the ring fight with another non-professional
boxer, Eduardo slipped, which was unintentional. At this opportunity, his
opponent landed on Eduardo's head a blow, which sent the latter to the
ropes. That must have caused the cranial injury that led to his death.
Eduardo was insured "against death or disability caused by accidental
means". Appellant insurer now contends that while the death of the
insured was due to head injury, said injury was sustained because of his
voluntary participation in the contest. It is claimed that the participation in
the boxing contest was the "means" that produced the injury which, in
turn, caused the death of the insured. And, since his inclusion in the
boxing card was voluntary on the part of the insured, he cannot be
considered to have met his death by "accidental means". 1äwphï1.ñët
The terms "accident" and "accidental", as used in insurance contracts,
have not acquired any technical meaning, and are construed by the
courts in their ordinary and common acceptation. Thus, the terms have
been taken to mean that which happen by chance or fortuitously, without
intention and design, and which is unexpected, unusual, and unforeseen.
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 cause and, therefore, not expected.1
Appellant however, would like to make a distinction between "accident or
accidental" and "accidental means", which is the term used in the
insurance policy involved here. It is argued that to be considered within
the protection of the policy, what is required to be accidental is
the means that caused or brought the death and not the death itself. It
may be mentioned in this connection, that the tendency of court decisions
in the United States in recent years is to eliminate the fine distinction
between the terms "accidental" and "accidental means" and to consider
them as legally synonymous.2 But, even if we take appellant's theory, the
death of the insured in the case at bar would still be entitled to
indemnification under the policy. The generally accepted rule is that,
death or injury does not result from accident or accidental means within
the terms of an
accident-policy if it is the natural result of the insured's voluntary act,
unaccompanied by anything unforeseen except the death or
injury.3 There is no accident when a deliberate act is performed unless
some additional, unexpected, independent, and unforeseen happening
occurs which produces or brings about the result of injury or death.4 In
other words, where the death or injury is not the natural or probable result
of the insured's voluntary act, or if something unforeseen occurs in the
doing of the act which produces the injury, the resulting death is within
the protection of policies insuring against death or injury from accident.
In the present case, while the participation of the insured in the boxing
contest is voluntary, the injury was sustained when he slid, giving
occasion to the infliction by his opponent of the blow that threw him to the
ropes of the ring. Without this unfortunate incident, that is, the
unintentional slipping of the deceased, perhaps he could not have
received that blow in the head and would not have died. The fact that
boxing is attended with some risks of external injuries does not make any
injuries received in the course of the game not accidental. In boxing as in
other equally physically rigorous sports, such as basketball or baseball,
death is not ordinarily anticipated to result. If, therefore, it ever does, the
injury or death can only be accidental or produced by some unforeseen
happening or event as what occurred in this case.
Furthermore, the policy involved herein specifically excluded from its
coverage —
(e) Death or disablement consequent upon the Insured engaging
in football, hunting, pigsticking, steeplechasing, polo-playing,
racing of any kind, mountaineering, or motorcycling.
Death or disablement resulting from engagement in boxing contests was
not declared outside of the protection of the insurance contract. Failure of
the defendant insurance company to include death resulting from a
boxing match or other sports among the prohibitive risks leads inevitably
to the conclusion that it did not intend to limit or exempt itself from liability
for such death.5
Wherefore, in view of the foregoing considerations, the decision appealed
from is hereby affirmed, with costs against appellant. so ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon,
J.P., Zaldivar and Sanchez, JJ., concur.
Footnotes
G.R. No. L-16138 April 29, 1961
DIOSDADO C. TY, plaintiff-appellant, DIOSDADO C. TY, plaintiff-appellant,
vs. vs.
FIRST NATIONAL SURETY & ASSURANCE CO., INC., defendant- FAR EASTERN SURETY & INSURANCE CO., INC., defendant-
appellee. appellee.

x---------------------------------------------------------x x---------------------------------------------------------x

G.R. No. L-16139 April 29, 1961. G.R. No. L-16144 April 29, 1961

DIOSDADO C. TY, plaintiff-appellant, DIOSDADO C. TY, plaintiff-appellant,

vs. vs.
ASSOCIATED INSURANCE & SURETY CO., INC., defendant-appellee. CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.

x---------------------------------------------------------x x---------------------------------------------------------x

G.R. No. L-16140 April 29, 1961 G.R. No. L-16145 April 29, 1961

DIOSDADO C. TY, plaintiff-appellant, DIOSDADO C. TY, plaintiff-appellant,

vs. vs.
UNITED INSURANCE CO., INC., defendant-appellee. CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.

x---------------------------------------------------------x V. B. Gesunundo for plaintiff-appellant.

M. Perez Cardenas for defendant-appellee.
G.R. No. L-16141 April 29, 1961.
LABRADOR, J.:
DIOSDADO C. TY. plaintiff-appellant,
vs. Appeal from a judgment of the Court of First Instance of Manila, Hon.
PHILIPPINE SURETY & INSURANCE CO., INC., defendant-appellee. Gregorio S. Narvasa, presiding, dismissing the actions filed in the above-
entitled cases.
x---------------------------------------------------------x
The facts found by the trial court, which are not disputed in this appeal,
G.R. No. L-16142 April 29, 1961. are as follows:

DIOSDADO C. TY, plaintiff-appellant, At different times within a period of two months prior to December
vs. 24, 1953, the plaintiff herein Diosdado C. Ty, employed as
RELIANCE SURETY & INSURANCE CO., INC., defendant-appellee. operator mechanic foreman in the Broadway Cotton Factory, in
Grace Park, Caloocan, Rizal, at a monthly salary of P185.00,
x---------------------------------------------------------x insured himself in 18 local insurance companies, among which
being the eight above named defendants, which issued to him
personal accident policies, upon payment of the premium of
G.R. No. L-16143 April 29, 1961
P8.12 for each policy. Plaintiff's beneficiary was his employer,
Broadway Cotton Factory, which paid the insurance premiums.
On December 24, 1953, a fire broke out which totally destroyed
the Broadway Cotton Factory. Fighting his way out of the factory,
plaintiff was injured on the left hand by a heavy object. He was
brought to the Manila Central University hospital, and after
receiving first aid there, he went to the National Orthopedic
Hospital for treatment of his injuries which were as follows:
1. Fracture, simple, proximal phalanx index finger, left;
2. Fracture, compound, comminuted, proximal phalanx, middle
finger, left and 2nd phalanx, simple;
3. Fracture, compound, comminute phalanx, 4th finger, left;
4. Fracture, simple, middle phalanx, middle finger, left;
5. Lacerated wound, sutured, volar aspect, small finger, left;
6. Fracture, simple, chip, head, 1st phalanx, 5th digit, left. He
underwent medical treatment in the Orthopedic Hospital from
December 26, 1953 to February 8, 1954. The above-described
physical injuries have caused temporary total disability of
plaintiff's left hand. Plaintiff filed the corresponding notice of
accident and notice of claim with all of the abovenamed
defendants to recover indemnity under Part II of the policy, which
is similarly worded in all of the policies, and which reads
pertinently as follows:
INDEMNITY FOR TOTAL OR PARTIAL DISABILITY
If the Insured sustains any Bodily Injury which is effected solely
through violent, external, visible and accidental means, and which
shall not prove fatal but shall result, independently of all other
causes and within sixty (60) days from the occurrence thereof, in
Total or Partial Disability of the Insured, the Company shall pay,
subject to the exceptions as provided for hereinafter, the amount
set opposite such injury:
PARTIAL DISABILITY
LOSS OF:
xxx xxx xxx
Either hand ............................................................................
P650.00
xxx xxx xxx
... The loss of a hand shall mean the loss by amputation through
the bones of the wrist....
Defendants rejected plaintiff's claim for indemnity for the reason
that there being no severance of amputation of the left hand, the
disability suffered by him was not covered by his policy. Hence,
plaintiff sued the defendants in the Municipal Court of this City,
and from the decision of said Court dismissing his complaints,
plaintiff appealed to this Court. (Decision of the Court of First
Instance of Manila, pp. 223-226, Records).
In view of its finding, the court absolved the defendants from the
complaints. Hence this appeal.
The main contention of appellant in these cases is that in order that he
may recover on the insurance policies issued him for the loss of his left
hand, it is not necessary that there should be an amputation thereof, but
that it is sufficient if the injuries prevent him from performing his work or
labor necessary in the pursuance of his occupation or business.
Authorities are cited to the effect that "total disability" in relation to one's
occupation means that the condition of the insurance is such that
common prudence requires him to desist from transacting his business or
renders him incapable of working. (46 C.J.S., 970). It is also argued that
obscure words or stipulations should be interpreted against the person
who caused the obscurity, and the ones which caused the obscurity in
the cases at bar are the defendant insurance companies.
While we sympathize with the plaintiff or his employer, for whose benefit
the policies were issued, we can not go beyond the clear and express
conditions of the insurance policies, all of which define partial disability as
loss of either hand by amputation through the bones of the wrist." There
was no such amputation in the case at bar. All that was found by the trial
court, which is not disputed on appeal, was that the physical injuries
"caused temporary total disability of plaintiff's left hand." Note that the
disability of plaintiff's hand was merely temporary, having been caused by
fracture of the index, the middle and the fourth fingers of the left hand.
We might add that the agreement contained in the insurance policies is issued, the duplicate original of which is
the law between the parties. As the terms of the policies are clear, hereto attached as Exhibit "A";
express and specific that only amputation of the left hand should be
considered as a loss thereof, an interpretation that would include the 2. An armored car of the plaintiff, while in
mere fracture or other temporary disability not covered by the policies the process of transferring cash in the
would certainly be unwarranted. sum of P725,000.00 under the custody of
its teller, Maribeth Alampay, from its
WHEREFORE, the decision appealed from is hereby affirmed, with costs Pasay Branch to its Head Office at 8737
against the plaintiff-appellant. Paseo de Roxas, Makati, Metro Manila on
June 29, 1987, was robbed of the said
G.R. No. 115278 May 23, 1995 cash. The robbery took place while the
armored car was traveling along Taft
FORTUNE INSURANCE AND SURETY CO., INC., petitioner, Avenue in Pasay City;
vs.
COURT OF APPEALS and PRODUCERS BANK OF THE 3. The said armored car was driven by
PHILIPPINES, respondents. Benjamin Magalong Y de Vera, escorted
by Security Guard Saturnino Atiga Y
Rosete. Driver Magalong was assigned by
PRC Management Systems with the
DAVIDE, JR., J.: plaintiff by virtue of an Agreement
executed on August 7, 1983, a duplicate
original copy of which is hereto attached
The fundamental legal issue raised in this petition for review as Exhibit "B";
on certiorari is whether the petitioner is liable under the Money, Security,
and Payroll Robbery policy it issued to the private respondent or whether
recovery thereunder is precluded under the general exceptions clause 4. The Security Guard Atiga was assigned
thereof. Both the trial court and the Court of Appeals held that there by Unicorn Security Services, Inc. with the
should be recovery. The petitioner contends otherwise. plaintiff by virtue of a contract of Security
Service executed on October 25, 1982, a
duplicate original copy of which is hereto
This case began with the filing with the Regional Trial Court (RTC) of attached as Exhibit "C";
Makati, Metro Manila, by private respondent Producers Bank of the
Philippines (hereinafter Producers) against petitioner Fortune Insurance
and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of 5. After an investigation conducted by the
the sum of P725,000.00 under the policy issued by Fortune. The sum Pasay police authorities, the driver
was allegedly lost during a robbery of Producer's armored vehicle while it Magalong and guard Atiga were charged,
was in transit to transfer the money from its Pasay City Branch to its head together with Edelmer Bantigue Y Eulalio,
office in Makati. The case was docketed as Civil Case No. 1817 and Reynaldo Aquino and John Doe, with
violation of P.D. 532 (Anti-Highway
assigned to Branch 146 thereof.
Robbery Law) before the Fiscal of Pasay
City. A copy of the complaint is hereto
After joinder of issues, the parties asked the trial court to render judgment attached as Exhibit "D";
based on the following stipulation of facts:
6. The Fiscal of Pasay City then filed an
1. The plaintiff was insured by the information charging the aforesaid
defendants and an insurance policy was
 persons with the said crime before Branch
112 of the Regional Trial Court of Pasay
City. A copy of the said information is
hereto attached as Exhibit "E." The case
is still being tried as of this date;
7. Demands were made by the plaintiff
upon the defendant to pay the amount of
the loss of P725,000.00, but the latter
refused to pay as the loss is excluded
from the coverage of the insurance policy,
attached hereto as Exhibit "A," specifically
under page 1 thereof, "General
Exceptions" Section (b), which is marked
as Exhibit "A-1," and which reads as
follows:
GENERAL EXCEPTIONS
The company shall not be liable under this
policy in report of
xxx xxx xxx
(b) any loss caused by any
dishonest, fraudulent or
criminal act of the insured
or any officer, employee,
partner, director, trustee or
authorized
representative of the
Insured whether acting
alone or in conjunction
with others. . . .
8. The plaintiff opposes the contention of
the defendant and contends that Atiga and
Magalong are not its "officer, employee, . .
. trustee or authorized representative . . .
at the time of the robbery.1
On 26 April 1990, the trial court rendered its decision in favor of
Producers. The dispositive portion thereof reads as follows:
WHEREFORE, premises considered, the Court finds for
plaintiff and against defendant, and
(a) orders defendant to
pay plaintiff the net
amount of P540,000.00 as
liability under Policy No.
0207 (as mitigated by the
P40,000.00 special clause
deduction and by the
recovered sum of
P145,000.00), with interest
thereon at the legal rate,
until fully paid;
(b) orders defendant to
pay plaintiff the sum of
P30,000.00 as and for
attorney's fees; and
(c) orders defendant to
pay costs of suit.
All other claims and counterclaims are accordingly
dismissed forthwith.
SO ORDERED. 2
The trial court ruled that Magalong and Atiga were not employees or
representatives of Producers. It Said:
The Court is satisfied that plaintiff may not be said to have
selected and engaged Magalong and Atiga, their services
as armored car driver and as security guard having been
merely offered by PRC Management and by Unicorn
Security and which latter firms assigned them to plaintiff.
The wages and salaries of both Magalong and Atiga are
presumably paid by their respective firms, which alone
wields the power to dismiss them. Magalong and Atiga
are assigned to plaintiff in fulfillment of agreements to
provide driving services and property protection as such
— in a context which does not impress the Court as
translating into plaintiff's power to control the conduct of
 any assigned driver or security guard, beyond perhaps
entitling plaintiff to request are replacement for such
driver guard. The finding is accordingly compelled that
neither Magalong nor Atiga were plaintiff's "employees" in
avoidance of defendant's liability under the policy,
particularly the general exceptions therein embodied.
Neither is the Court prepared to accept the proposition
that driver Magalong and guard Atiga were the
"authorized representatives" of plaintiff. They were merely
an assigned armored car driver and security guard,
respectively, for the June 29, 1987 money transfer from
plaintiff's Pasay Branch to its Makati Head Office. Quite
plainly — it was teller Maribeth Alampay who had
"custody" of the P725,000.00 cash being transferred
along a specified money route, and hence plaintiff's then
designated "messenger" adverted to in the policy. 3
Fortune appealed this decision to the Court of Appeals which docketed
the case as CA-G.R. CV No. 32946. In its decision 4 promulgated on 3
May 1994, it affirmed in toto the appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that
Magalong and Atiga were neither employees nor authorized
representatives of Producers and ratiocinated as follows:
A policy or contract of insurance is to be construed
liberally in favor of the insured and strictly against the
insurance company (New Life Enterprises vs. Court of
Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs.
Court of Appeals, 211 SCRA 554). 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 (New Life
Enterprises Case, supra, p. 676; Sun Insurance Office,
Ltd. vs. Court of Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above
quoted stipulation is plain, ordinary and simple. No other
interpretation is necessary. The word "employee" must be
taken to mean in the ordinary sense.
The Labor Code is a special law specifically dealing
with/and specifically designed to protect labor and
therefore its definition as to employer-employee
relationships insofar as the application/enforcement of
said Code is concerned must necessarily be inapplicable
to an insurance contract which defendant-appellant itself
had formulated. Had it intended to apply the Labor Code
in defining what the word "employee" refers to, it
must/should have so stated expressly in the insurance
policy.
Said driver and security guard cannot be considered as
employees of plaintiff-appellee bank because it has no
power to hire or to dismiss said driver and security guard
under the contracts (Exhs. 8 and C) except only to ask for
their replacements from the contractors.5
On 20 June 1994, Fortune filed this petition for review on certiorari. It
alleges that the trial court and the Court of Appeals erred in holding it
liable under the insurance policy because the loss falls within the general
exceptions clause considering that driver Magalong and security guard
Atiga were Producers' authorized representatives or employees in the
transfer of the money and payroll from its branch office in Pasay City to
its head office in Makati.
According to Fortune, when Producers commissioned a guard and a
driver to transfer its funds from one branch to another, they effectively
and necessarily became its authorized representatives in the care and
custody of the money. Assuming that they could not be considered
authorized representatives, they were, nevertheless, employees of
Producers. It asserts that the existence of an employer-employee
relationship "is determined by law and being such, it cannot be the
subject of agreement." Thus, if there was in reality an employer-
employee relationship between Producers, on the one hand, and
Magalong and Atiga, on the other, the provisions in the contracts of
Producers with PRC Management System for Magalong and with Unicorn
Security Services for Atiga which state that Producers is not their
employer and that it is absolved from any liability as an employer, would
not obliterate the relationship.
Fortune points out that an employer-employee relationship depends upon
four standards: (1) the manner of selection and engagement of the
putative employee; (2) the mode of payment of wages; (3) the presence
or absence of a power to dismiss; and (4) the presence and absence of a
power to control the putative employee's conduct. Of the four, the right-
of-control test has been held to be the decisive factor. 6 It asserts that the
power of control over Magalong and Atiga was vested in and exercised
by Producers. Fortune further insists that PRC Management System and
Unicorn Security Services are but "labor-only" contractors under Article
106 of the Labor Code which provides:
Art. 106. Contractor or subcontractor. — There is "labor-
only" contracting where the person supplying workers to
an employer does not have substantial capital or
investment in the form of tools, equipment, machineries,
work premises, among others, and the workers recruited
and placed by such persons are performing activities
which are directly related to the principal business of such
employer. In such cases, the person or intermediary shall
be considered merely as an agent of the employer who
shall be responsible to the workers in the same manner
and extent as if the latter were directly employed by him.
Fortune thus contends that Magalong and Atiga were employees of
Producers, following the ruling in International Timber
Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only"
contractor is equivalent to a finding that there is an employer-employee
relationship between the owner of the project and the employees of the
"labor-only" contractor.
On the other hand, Producers contends that Magalong and Atiga were
not its employees since it had nothing to do with their selection and
engagement, the payment of their wages, their dismissal, and the control
of their conduct. Producers argued that the rule in International Timber
Corp. is not applicable to all cases but only when it becomes necessary
to prevent any violation or circumvention of the Labor Code, a social
legislation whose provisions may set aside contracts entered into by
parties in order to give protection to the working man.
Producers further asseverates that what should be applied is the rule
in American President Lines vs. Clave, 8 to wit:
In determining the existence of employer-employee
relationship, the following elements are generally
considered, namely: (1) the selection and engagement of
the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employee's
conduct.
Since under Producers' contract with PRC Management Systems it is the
latter which assigned Magalong as the driver of Producers' armored car
and was responsible for his faithful discharge of his duties and
responsibilities, and since Producers paid the monthly compensation of
P1,400.00 per driver to PRC Management Systems and not to Magalong,
it is clear that Magalong was not Producers' employee. As to Atiga,
Producers relies on the provision of its contract with Unicorn Security
Services which provides that the guards of the latter "are in no sense
employees of the CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is
a theft or robbery insurance policy which is a form of casualty insurance.
Section 174 of the Insurance Code provides:
Sec. 174. Casualty insurance is insurance covering loss
or liability arising from accident or mishap, excluding
certain types of loss which by law or custom are
considered as falling exclusively within the scope of
insurance such as fire or marine. It includes, but is not
limited to, employer's liability insurance, public liability
insurance, motor vehicle liability insurance, plate glass
insurance, burglary and theft insurance, personal accident
and health insurance as written by non-life insurance
companies, and other substantially similar kinds of
insurance. (emphases supplied)
Except with respect to compulsory motor vehicle liability insurance, the
Insurance Code contains no other provisions applicable to casualty
insurance or to robbery insurance in particular. These contracts are,
therefore, governed by the general provisions applicable to all types of
insurance. Outside of these, the rights and obligations of the parties must
be determined by the terms of their contract, taking into consideration its
purpose and always in accordance with the general principles of
insurance law. 9
It has been aptly observed that in burglary, robbery, and theft insurance,
"the opportunity to defraud the insurer — the moral hazard — is so great
that insurers have found it necessary to fill up their policies with countless
restrictions, many designed to reduce this hazard. Seldom does the
insurer assume the risk of all losses due to the hazards insured
against." 10 Persons frequently excluded under such provisions are those
in the insured's service and employment. 11 The purpose of the exception
is to guard against liability should the theft be committed by one having
unrestricted access to the property. 12 In such cases, the terms specifying
the excluded classes are to be given their meaning as understood in
common speech. 13 The terms "service" and "employment" are generally
associated with the idea of selection, control, and compensation. 14
A contract of insurance is a contract of adhesion, thus any ambiguity
therein should be resolved against the insurer, 15 or it should be construed
liberally in favor of the insured and strictly against the
insurer. 16 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
obligation. 17 It goes without saying then that if the terms of the contract
are clear and unambiguous, there is no room for construction and such
terms cannot be enlarged or diminished by judicial construction. 18
An insurance contract is a contract of indemnity upon the terms and
conditions specified therein. 19 It is settled that the terms of the policy
constitute the measure of the insurer's liability. 20 In the absence of
statutory prohibition to the contrary, insurance companies have the same
rights as individuals to limit their liability and to impose whatever
conditions they deem best upon their obligations not inconsistent with
public policy.
With the foregoing principles in mind, it may now be asked whether
Magalong and Atiga qualify as employees or authorized representatives
of Producers under paragraph (b) of the general exceptions clause of the
policy which, for easy reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in
respect of
xxx xxx xxx
(b) any loss caused by any dishonest,
fraudulent or criminal act of the insured or
any officer, employee, partner,
director, trustee or authorized
representative of the Insured whether
acting alone or in conjunction with others.
. . . (emphases supplied)
There is marked disagreement between the parties on the correct
meaning of the terms "employee" and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to
exclude and exempt from protection and coverage losses arising from
dishonest, fraudulent, or criminal acts of persons granted or having
unrestricted access to Producers' money or payroll. When it used then
the term "employee," it must have had in mind any person who qualifies
as such as generally and universally understood, or jurisprudentially
established in the light of the four standards in the determination of the
employer-employee relationship, 21 or as statutorily declared even in a
limited sense as in the case of Article 106 of the Labor Code which
considers the employees under a "labor-only" contract as employees of
the party employing them and not of the party who supplied them to the
employer. 22
Fortune claims that Producers' contracts with PRC Management Systems
and Unicorn Security Services are "labor-only" contracts.
Producers, however, insists that by the express terms thereof, it
is not the employer of Magalong. Notwithstanding such express
assumption of PRC Management Systems and Unicorn Security
Services that the drivers and the security guards each shall
supply to Producers are not the latter's employees, it may, in fact,
be that it is because the contracts are, indeed, "labor-only"
contracts. Whether they are is, in the light of the criteria provided
for in Article 106 of the Labor Code, a question of fact. Since the
parties opted to submit the case for judgment on the basis of their
stipulation of facts which are strictly limited to the insurance
policy, the contracts with PRC Management Systems and
Unicorn Security Services, the complaint for violation of P.D. No.
532, and the information therefor filed by the City Fiscal of Pasay
City, there is a paucity of evidence as to whether the contracts
between Producers and PRC Management Systems and Unicorn
Security Services are "labor-only" contracts.
But even granting for the sake of argument that these contracts were not
"labor-only" contracts, and PRC Management Systems and Unicorn
Security Services were truly independent contractors, we are satisfied
that Magalong and Atiga were, in respect of the transfer of Producer's
money from its Pasay City branch to its head office in Makati, its
"authorized representatives" who served as such with its teller Maribeth
Alampay. Howsoever viewed, Producers entrusted the three with the
specific duty to safely transfer the money to its head office, with Alampay
to be responsible for its custody in transit; Magalong to drive the armored
vehicle which would carry the money; and Atiga to provide the needed
security for the money, the vehicle, and his two other companions. In
short, for these particular tasks, the three acted as agents of Producers.
A "representative" is defined as one who represents or stands in the
place of another; one who represents others or another in a special
capacity, as an agent, and is interchangeable with "agent." 23
In view of the foregoing, Fortune is exempt from liability under the
general exceptions clause of the insurance policy.
WHEREFORE , the instant petition is hereby GRANTED. The decision of
the Court of Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well
as that of Branch 146 of the Regional Trial Court of Makati in Civil Case
No. 1817 are REVERSED and SET ASIDE. The complaint in Civil Case
No. 1817 is DISMISSED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 167330 June 12, 2008
PHILIPPINE HEALTH CARE PROVIDERS, INC., petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
CORONA, J.:
Is a health care agreement in the nature of an insurance contract and
therefore subject to the documentary stamp tax (DST) imposed under
Section 185 of Republic Act 8424 (Tax Code of 1997)?
This is an issue of first impression. The Court of Appeals (CA) answered
it affirmatively in its August 16, 2004 decision1 in CA-G.R. SP No. 70479.
Petitioner Philippine Health Care Providers, Inc. believes otherwise and
assails the CA decision in this petition for review under Rule 45 of the
Rules of Court.
Petitioner is a domestic corporation whose primary purpose is "[t]o
establish, maintain, conduct and operate a prepaid group practice health
care delivery system or a health maintenance organization to take care of
the sick and disabled persons enrolled in the health care plan and to
provide for the administrative, legal, and financial responsibilities of the
organization."2 Individuals enrolled in its health care programs pay an
annual membership fee and are entitled to various preventive, diagnostic
and curative medical services provided by its duly licensed physicians,
specialists and other professional technical staff participating in the group
practice health delivery system at a hospital or clinic owned, operated or
accredited by it.3
The pertinent part of petitioner's membership or health care
agreement4 provides:
VII BENEFITS
Subject to paragraphs VIII [on pre-existing medical condition] and
X [on claims for reimbursement] of this Agreement, Members
shall have the following Benefits under this Agreement:
In-Patient Services. In the event that a Member contract[s]
sickness or suffers injury which requires confinement in a
participating Hospital[,] the services or benefits stated below shall
be provided to the Member free of charge, but in no case shall
[petitioner] be liable to pay more than P75,000.00 in benefits with
respect to anyone sickness, injury or related causes. If a member
has exhausted such maximum benefits with respect to a
particular sickness, injury or related causes, all accounts in
excess of P75,000.00 shall be borne by the enrollee. It is[,]
however, understood that the payment by [petitioner] of the said
maximum in In-Patient Benefits to any one member shall
preclude a subsequent payment of benefits to such member in
respect of an unrelated sickness, injury or related causes
happening during the remainder of his membership term.
(a) Room and Board
(b) Services of physician and/or surgeon or specialist
 (c) Use of operating room and recovery room
(d) Standard Nursing Services
(e) Drugs and Medication for use in the hospital except
those which are used to dissolve blood clots in the
vascular systems (i.e., trombolytic agents)
(f) Anesthesia and its administration
(g) Dressings, plaster casts and other miscellaneous
supplies
administered either in [petitioner's] Clinic or in a Participating
Hospital under the direction or supervision of [petitioner's]
Physician, Participating Physician or [petitioner's] Medical
Coordinator.
(a) Gold Plan Standard Annual Physical Examination on
the anniversary date of membership, to be done at
[petitioner's] designated hospital/clinic, to wit:
(i) Taking a medical history
(ii) Physical examination

(h) Laboratory tests, x-rays and other necessary (iii) Chest x-ray
diagnostic services
(iv) Stool examination
(i) Transfusion of blood and other blood elements
(v) Complete Blood Count
Condition for in-Patient Care. The provision of the services or
benefits mentioned in the immediately preceding paragraph shall (vi) Urinalysis
be subject to the following conditions:
(vii) Fasting Blood Sugar (FBS)
(a) The Hospital Confinement must be approved by
[petitioner's] Physician, Participating Physician or (viii) SGPT
[petitioner's] Medical Coordinator in that Hospital prior to
confinement. (ix) Creatinine

(b) The confinement shall be in a Participating Hospital (x) Uric Acid

and the accommodation shall be in accordance with the
Member[']s benefit classification.
(xi) Resting Electrocardiogram
(c) Professional services shall be provided only by the
(xii) Pap Smear (Optional for women 40 years and
[petitioner's] Physicians or Participating Physicians.
above)
(d) If discharge from the Hospital has been authorized by
(b) Platinum Family Plan/Gold Family Plan and Silver
[petitioner's] attending Physician or Participating
Annual Physical Examination.
Physician and the Member shall fail or refuse to do so,
[petitioner] shall not be responsible for any charges
incurred after discharge has been authorized. The following tests are to be done as part of the
Member[']s Annual check-up program at [petitioner's]
designated clinic, to wit:
Out-Patient Services. A Member is entitled free of charge to the
following services or benefits which shall be rendered or
1) Routine Physical Examination
 2) CBC (Complete Blood Count)
* Hemoglobin * Hematocrit
* Differential * RBC/WBC
3) Chest X-ray
4) Urinalysis
5) Fecalysis
(c) Preventive Health Care, which shall include:
(i) Periodic Monitoring of Health Problems
(ii) Family planning counseling
(iii) Consultation and advices on diet, exercise
and other healthy habits
(iv) Immunization but excluding drugs for vaccines
used
(d) Out-Patient Care, which shall include:
(i) Consultation, including specialist evaluation
(ii) Treatment of injury or illness
(iii) Necessary x-ray and laboratory examination
(iv) Emergency medicines needed for the
immediate
relief of symptoms
(v) Minor surgery not requiring confinement
Emergency Care. Subject to the conditions and limitations in this
Agreement and those specified below, a Member is entitled to
receive emergency care [in case of emergency. For this purpose,
all hospitals and all attending physician(s) in the Emergency
Room automatically become accredited. In participating hospitals,
the member shall be entitled to the following services free of
charge: (a) doctor's fees, (b) emergency room fees, (c) medicines
used for immediate relief and during treatment, (d) oxygen,
intravenous fluids and whole blood and human blood products,
(e) dressings, casts and sutures and (f) x-rays, laboratory and
diagnostic examinations and other medical services related to the
emergency treatment of the patient.]5 Provided, however, that in
no case shall the total amount payable by [petitioner] for said
Emergency, inclusive of hospital bill and professional fees,
exceed P75,000.00.
If the Member received care in a non-participating hospital,
[petitioner] shall reimburse [him]6 80% of the hospital bill or the
amount of P5,000.00[,] whichever is lesser, and 50% of the
professional fees of non-participating physicians based on
[petitioner's] schedule of fees provided that the total amount[,]
inclusive of hospital bills and professional fee shall not exceed
P5,000.00.
On January 27, 2000, respondent Commissioner of Internal Revenue
sent petitioner a formal demand letter and the corresponding assessment
notices demanding the payment of deficiency taxes, including surcharges
and interest, for the taxable years 1996 and 1997 in the total amount
of P224,702,641.18. The assessment represented the following:
Value Added Tax (VAT) DST
1996 P 45,767,596.23 P 55,746,352.19
1997 54,738,434.03 68,450,258.73
P 100,506,030.26 P 124,196,610.92
The deficiency DST assessment was imposed on petitioner's health care
agreement with the members of its health care program pursuant to
Section 185 of the 1997 Tax Code which provides:
Section 185. Stamp tax on fidelity bonds and other insurance
policies. - On all policies of insurance or bonds or obligations of
the nature of indemnity for loss, damage, or liability made or
renewed by any person, association or company or
corporation transacting the business of accident, fidelity,
 employer's liability, plate, glass, steam boiler, burglar, elevator,
automatic sprinkler, or other branch of insurance (except life,
marine, inland, and fire insurance), and all bonds,
undertakings, or recognizances, conditioned for the performance
of the duties of any office or position, for the doing or not doing of
anything therein specified, and on all obligations guaranteeing the
validity or legality of any bond or other obligations issued by any
province, city, municipality, or other public body or organization,
and on all obligations guaranteeing the title to any real estate, or
guaranteeing any mercantile credits, which may be made or
renewed by any such person, company or corporation, there shall
be collected a documentary stamp tax of fifty centavos (P0.50) on
each four pesos (P4.00), or fractional part thereof, of the premium
charged. (emphasis supplied)
Petitioner protested the assessment in a letter dated February 23, 2000.
As respondent did not act on the protest, petitioner filed a petition for
review in the Court of Tax Appeals (CTA) seeking the cancellation of the
deficiency VAT and DST assessments.
On April 5, 2002, the CTA rendered a decision,7 the dispositive portion of
which read:
WHEREFORE, in view of the foregoing, the instant Petition for
Review is PARTIALLY GRANTED. Petitioner is hereby
ORDERED to PAY the deficiency VAT amounting
to P22,054,831.75 inclusive of 25% surcharge plus 20% interest
from January 20, 1997 until fully paid for the 1996 VAT deficiency
and P31,094,163.87 inclusive of 25% surcharge plus 20%
interest from January 20, 1998 until fully paid for the 1997 VAT
deficiency. Accordingly, VAT Ruling No. [231]-88 is declared void
and without force and effect. The 1996 and 1997 deficiency DST
assessment against petitioner is hereby CANCELLED AND SET
ASIDE. Respondent is ORDERED to DESIST from collecting the
said DST deficiency tax.
SO ORDERED.8
Respondent appealed the CTA decision to the CA9 insofar as it cancelled
the DST assessment. He claimed that petitioner's health care agreement
was a contract of insurance subject to DST under Section 185 of the
1997 Tax Code.
On August 16, 2004, the CA rendered its decision.10 It held that
petitioner's health care agreement was in the nature of a non-life
insurance contract subject to DST:
WHEREFORE, the petition for review is GRANTED. The Decision
of the Court of Tax Appeals, insofar as it cancelled and set aside
the 1996 and 1997 deficiency documentary stamp tax
assessment and ordered petitioner to desist from collecting the
same is REVERSED and SET ASIDE.
Respondent is ordered to pay the amounts of P55,746,352.19
and P68,450,258.73 as deficiency Documentary Stamp Tax for
1996 and 1997, respectively, plus 25% surcharge for late
payment and 20% interest per annum from January 27, 2000,
pursuant to Sections 248 and 249 of the Tax Code, until the same
shall have been fully paid.
SO ORDERED.11
Petitioner moved for reconsideration but the CA denied it. Hence, this
petition.
Petitioner essentially argues that its health care agreement is not a
contract of insurance but a contract for the provision on a prepaid basis
of medical services, including medical check-up, that are not based on
loss or damage. Petitioner also insists that it is not engaged in the
insurance business. It is a health maintenance organization regulated by
the Department of Health, not an insurance company under the
jurisdiction of the Insurance Commission. For these reasons, petitioner
asserts that the health care agreement is not subject to DST.
We do not agree.
The DST is levied on the exercise by persons of certain privileges
conferred by law for the creation, revision, or termination of specific legal
relationships through the execution of specific instruments.12 It is an
excise upon the privilege, opportunity, or facility offered at exchanges for
the transaction of the business.13 In particular, the DST under Section
185 of the 1997 Tax Code is imposed on the privilege of making or
renewing any policy of insurance (except life, marine, inland and fire
insurance), bond or obligation in the nature of indemnity for loss,
damage, or liability.
Under the law, a contract of insurance is an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage
or liability arising from an unknown or contingent event.14 The event
insured against must be designated in the contract and must either be
unknown or contingent.15
Petitioner's health care agreement is primarily a contract of indemnity.
And in the recent case of Blue Cross Healthcare, Inc. v. Olivares,16 this
Court ruled that a health care agreement is in the nature of a non-life
insurance policy.
Contrary to petitioner's claim, its health care agreement is not a contract
for the provision of medical services. Petitioner does not actually provide
medical or hospital services but merely arranges for the same17 and pays
for them up to the stipulated maximum amount of coverage. It is also
incorrect to say that the health care agreement is not based on loss or
damage because, under the said agreement, petitioner assumes the
liability and indemnifies its member for hospital, medical and related
expenses (such as professional fees of physicians). The term "loss or
damage" is broad enough to cover the monetary expense or liability a
member will incur in case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and
professional services to the member in case of sickness, injury or
emergency or his availment of so-called "out-patient services" (including
physical examination, x-ray and laboratory tests, medical consultations,
vaccine administration and family planning counseling) is the contingent
event which gives rise to liability on the part of the member. In case of
exposure of the member to liability, he would be entitled to
indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from liability
by paying for expenses arising from the stipulated contingencies belies
its claim that its services are prepaid. The expenses to be incurred by
each member cannot be predicted beforehand, if they can be predicted at
all. Petitioner assumes the risk of paying for the costs of the services
even if they are significantly and substantially more than what the
member has "prepaid." Petitioner does not bear the costs alone but
distributes or spreads them out among a large group of persons bearing
a similar risk, that is, among all the other members of the health care
program. This is insurance.
Petitioner's health care agreement is substantially similar to that involved
in Philamcare Health Systems, Inc. v. CA.18 The health care agreement
in that case entitled the subscriber to avail of the hospitalization benefits,
whether ordinary or emergency, listed therein. It also provided for "out-
patient benefits" such as annual physical examinations, preventive health
care and other out-patient services. This Court ruled in Philamcare Health
Systems, Inc.:
[T]he insurable interest of [the subscriber] 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 contingency, the health care provider must pay
for the same to the extent agreed upon under the
contract.19 (emphasis supplied)
Similarly, the insurable interest of every member of petitioner's health
care program in obtaining the health care agreement is his own health.
Under the agreement, petitioner is bound to indemnify any member who
incurs hospital, medical or any other expense arising from sickness,
injury or other stipulated contingency to the extent agreed upon under the
contract.
Petitioner's contention that it is a health maintenance organization and
not an insurance company is irrelevant. Contracts between companies
like petitioner and the beneficiaries under their plans are treated as
insurance contracts.20
Moreover, DST is not a tax on the business transacted but an excise on
the privilege, opportunity, or facility offered at exchanges for the
transaction of the business.21 It is an excise on the facilities used in the
transaction of the business, separate and apart from the business
itself.22
WHEREFORE, the petition is hereby DENIED. The August 16, 2004
decision of the Court of Appeals in CA-G.R. SP No. 70479 is AFFIRMED.
Petitioner is ordered to pay the amounts of P55,746,352.19
and P68,450,258.73 as deficiency documentary stamp tax for 1996 and
1997, respectively, plus 25% surcharge for late payment and 20%
interest per annum from January 27, 2000 until full payment thereof.
Costs against petitioner.
SO ORDERED.
G.R. No. 154514. July 28, 2005
WHITE GOLD MARINE SERVICES, INC., Petitioners,
vs.
PIONEER INSURANCE AND SURETY CORPORATION AND THE
STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA)
LTD., Respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the Decision1 dated July 30, 2002 of the
Court of Appeals in CA-G.R. SP No. 60144, affirming
the Decision2 dated May 3, 2000 of the Insurance Commission in I.C.
Adm. Case No. RD-277. Both decisions held that there was no violation
of the Insurance Code and the respondents do not need license as
insurer and insurance agent/broker.
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protection and
indemnity coverage for its vessels from The Steamship Mutual
Underwriting Association (Bermuda) Limited (Steamship Mutual) through
Pioneer Insurance and Surety Corporation (Pioneer). Subsequently,
White Gold was issued a Certificate of Entry and Acceptance.3Pioneer
also issued receipts evidencing payments for the coverage. When White
Gold failed to fully pay its accounts, Steamship Mutual refused to renew
the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection
of sum of money to recover the latter’s unpaid balance. White Gold on
the other hand, filed a complaint before the Insurance Commission
claiming that Steamship Mutual violated Sections 1864 and 1875 of the
Insurance Code, while Pioneer violated Sections 299,63007 and 3018 in
relation to Sections 302 and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there
was no need for Steamship Mutual to secure a license because it was
not engaged in the insurance business. It explained that Steamship
Mutual was a Protection and Indemnity Club (P & I Club). Likewise,
Pioneer need not obtain another license as insurance agent and/or a
broker for Steamship Mutual because Steamship Mutual was not
engaged in the insurance business. Moreover, Pioneer was already
licensed, hence, a separate license solely as agent/broker of Steamship
Mutual was already superfluous.
The Court of Appeals affirmed the decision of the Insurance
Commissioner. In its decision, the appellate court distinguished between
P & I Clubs vis-à-vis conventional insurance. The appellate court also
held that Pioneer merely acted as a collection agent of Steamship
Mutual.
In this petition, petitioner assigns the following errors allegedly committed
by the appellate court,
FIRST ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT
STEAMSHIP IS NOT DOING BUSINESS IN THE PHILIPPINES ON THE
GROUND THAT IT COURSED . . . ITS TRANSACTIONS THROUGH ITS
AGENT AND/OR BROKER HENCE AS AN INSURER IT NEED NOT
SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE
PHILIPPINES.
SECOND ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS
BEREFT OF ANY EVIDENCE THAT RESPONDENT STEAMSHIP IS
ENGAGED IN INSURANCE BUSINESS.
THIRD ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT
PIONEER NEED NOT SECURE A LICENSE WHEN CONDUCTING ITS
AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP.
FOURTH ASSIGNMENT OF ERROR
THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF
RESPONDENT PIONEER AND [IN NOT REMOVING] THE OFFICERS
AND DIRECTORS OF RESPONDENT PIONEER.9
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I
Club, engaged in the insurance business in the Philippines? (2) Does
Pioneer need a license as an insurance agent/broker for Steamship
Mutual?
The parties admit that Steamship Mutual is a P & I Club. Steamship
Mutual admits it does not have a license to do business in the Philippines
although Pioneer is its resident agent. This relationship is reflected in the
certifications issued by the Insurance Commission.
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the
insurance business. To buttress its assertion, it cites the definition of a P
& I Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals10 as "an
association composed of shipowners in general who band together for
the specific purpose of providing insurance cover on a mutual basis
against liabilities incidental to shipowning that the members incur in favor
of third parties." It stresses that as a P & I Club, Steamship Mutual’s
primary purpose is to solicit and provide protection and indemnity
coverage and for this purpose, it has engaged the services of Pioneer to
act as its agent.
Respondents contend that although Steamship Mutual is a P & I Club, it
is not engaged in the insurance business in the Philippines. It is merely
an association of vessel owners who have come together to provide
mutual protection against liabilities incidental to
shipowning.11 Respondents aver Hyopsung is inapplicable in this case
because the issue in Hyopsung was the jurisdiction of the court
over Hyopsung.
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes "doing
an insurance business" or "transacting an insurance business". These
are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as
a vocation and not as merely incidental to any other legitimate business
or activity of the surety;
(c) doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an insurance business
within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any
of the foregoing in a manner designed to evade the provisions of this
Code.
...
The same provision also provides, the fact that no profit is derived from
the making of insurance contracts, agreements or transactions, or that no
separate or direct consideration is received therefor, shall not preclude
the existence of an insurance business.12
The test to determine if a contract is an insurance contract or not,
depends on the nature of the promise, the act required to be performed,
and the exact nature of the agreement in the light of the occurrence,
contingency, or circumstances under which the performance becomes
requisite. It is not by what it is called.13
Basically, an insurance contract is a contract of indemnity. In it, one
undertakes for a consideration to indemnify another against loss, damage
or liability arising from an unknown or contingent event.14
In particular, a marine insurance undertakes to indemnify the assured
against marine losses, such as the losses incident to a marine
adventure.15 Section 9916 of the Insurance Code enumerates the
coverage of marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where
the members are both the insurer and insured. In it, the members all
contribute, by a system of premiums or assessments, to the creation of a
fund from which all losses and liabilities are paid, and where the profits
are divided among themselves, in proportion to their
interest.17 Additionally, mutual insurance associations, or clubs, provide
three types of coverage, namely, protection and indemnity, war risks, and
defense costs.18
A P & I Club is "a form of insurance against third party liability, where
the third party is anyone other than the P & I Club and the
members."19 By definition then, Steamship Mutual as a P & I Club is a
mutual insurance association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country
albeit without the requisite certificate of authority mandated by Section
18720 of the Insurance Code. It maintains a resident agent in the
Philippines to solicit insurance and to collect payments in its behalf. We
note that Steamship Mutual even renewed its P & I Club cover until it was
cancelled due to non-payment of the calls. Thus, to continue doing
business here, Steamship Mutual or through its agent Pioneer, must
secure a license from the Insurance Commission.
Since a contract of insurance involves public interest, regulation by the
State is necessary. Thus, no insurer or insurance company is allowed to
engage in the insurance business without a license or a certificate of
authority from the Insurance Commission.21
Does Pioneer, as agent/broker of Steamship Mutual, need a special
license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the
certificate of registration22 issued by the Insurance Commission. It has
been licensed to do or transact insurance business by virtue of the
certificate of authority23 issued by the same agency. However, a
Certification from the Commission states that Pioneer does not have a
separate license to be an agent/broker of Steamship Mutual.24
Although Pioneer is already licensed as an insurance company, it needs
a separate license to act as insurance agent for Steamship Mutual.
Section 299 of the Insurance Code clearly states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in
the solicitation or procurement of applications for insurance, or receive for
services in obtaining insurance, any commission or other compensation
from any insurance company doing business in the Philippines or any
agent thereof, without first procuring a license so to act from the
Commissioner, which must be renewed annually on the first day of
January, or within six months thereafter. . .
Finally, White Gold seeks revocation of Pioneer’s certificate of authority
and removal of its directors and officers. Regrettably, we are not the
forum for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision
dated July 30, 2002 of the Court of Appeals affirming the Decision dated
May 3, 2000 of the Insurance Commission is hereby REVERSED AND
SET ASIDE. The Steamship Mutual Underwriting Association (Bermuda)
Ltd., and Pioneer Insurance and Surety Corporation are ORDERED to
obtain licenses and to secure proper authorizations to do business as
insurer and insurance agent, respectively. The petitioner’s prayer for the
revocation of Pioneer’s Certificate of Authority and removal of its directors
and officers, is DENIED. Costs against respondents.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ.,
concur.
G.R. No. 113899 October 13, 1999
GREAT PACIFIC LIFE ASSURANCE CORP., petitioner,
vs.
COURT OF APPEALS AND MEDARDA V. LEUTERIO, respondents.
QUISUMBING, J.:
This petition for review, under Rule 45 of the Rules of Court, assails the
Decision 1 dated May 17, 1993, of the Court of Appeals and its
Resolution 2 dated January 4, 1994 in CA-G.R. CV No. 18341. The
appellate court affirmed in toto the judgment of the Misamis Oriental
Regional Trial Court, Branch 18, in an insurance claim filed by private
respondent against Great Pacific Life Assurance Co. The dispositive
portion of the trial court's decision reads:
WHEREFORE, judgment is rendered adjudging the
defendant GREAT PACIFIC LIFE ASSURANCE
CORPORATION as insurer under its Group policy No. G-
1907, in relation to Certification B-18558 liable and
ordered to pay to the DEVELOPMENT BANK OF THE
PHILIPPINES as creditor of the insured Dr. Wilfredo
Leuterio, the amount of EIGHTY SIX THOUSAND TWO
HUNDRED PESOS (P86,200.00); dismissing the claims
for damages, attorney's fees and litigation expenses in
the complaint and counterclaim, with costs against the
defendant and dismissing the complaint in respect to the
 plaintiffs, other than the widow-beneficiary, for lack of
cause of action. 3
The facts, as found by the Court of Appeals, are as follows:
A contract of group life insurance was executed between petitioner Great
Pacific Life Assurance Corporation (hereinafter Grepalife) and
Development Bank of the Philippines (hereinafter DBP). Grepalife agreed
to insure the lives of eligible housing loan mortgagors of DBP.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent
Medarda V. Leuterio, filed a complaint with the Regional Trial Court of
Misamis Oriental, Branch 18, against Grepalife for "Specific Performance
with Damages." 5During the trial, Dr. Hernando Mejia, who issued the
death certificate, was called to testify. Dr. Mejia's findings, based partly
from the information given by the respondent widow, stated that Dr.
Leuterio complained of headaches presumably due to high blood
pressure. The inference was not conclusive because Dr. Leuterio was not
autopsied, hence, other causes were not ruled out.

On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing On February 22, 1988, the trial court rendered a decision in favor of
debtor of DBP applied for membership in the group life insurance plan. In respondent widow and against Grepalife. On May 17, 1993, the Court of
an application form, Dr. Leuterio answered questions concerning his Appeals sustained the trial court's decision. Hence, the present petition.
health condition as follows: Petitioners interposed the following assigned errors:

7. Have you ever had, or consulted, a 1. THE LOWER COURT ERRED IN

physician for a heart condition, high blood HOLDING DEFENDANT-APPELLANT
pressure, cancer, diabetes, lung; kidney or LIABLE TO THE DEVELOPMENT BANK
stomach disorder or any other physical OF THE PHILIPPINES (DBP) WHICH IS
impairment? NOT A PARTY TO THE CASE FOR
PAYMENT OF THE PROCEEDS OF A
MORTGAGE REDEMPTION
Answer: No. If so give details
INSURANCE ON THE LIFE OF
_____________.
PLAINTIFF'S HUSBAND WILFREDO
LEUTERIO ONE OF ITS LOAN
8. Are you now, to the best of your BORROWERS, INSTEAD OF
knowledge, in good health? DISMISSING THE CASE AGAINST
DEFENDANT-APPELLANT [Petitioner
Answer: [x] Yes [ ] NO. 4 Grepalife] FOR LACK OF CAUSE OF
ACTION.
On November 15, 1983, Grepalife issued Certificate No. B-18558, as
insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage 2. THE LOWER COURT ERRED IN NOT
indebtedness amounting to eighty-six thousand, two hundred DISMISSING THE CASE FOR WANT OF
(P86,200.00) pesos. 1âwphi1.nêt

JURISDICTION OVER THE SUBJECT

OR NATURE OF THE ACTION AND
On August 6, 1984, Dr. Leuterio died due to "massive cerebral OVER THE PERSON OF THE
hemorrhage." Consequently, DBP submitted a death claim to Grepalife. DEFENDANT.
Grepalife denied the claim alleging that Dr. Leuterio was not physically
healthy when he applied for an insurance coverage on November 15, 3. THE LOWER COURT ERRED IN
1983. Grepalife insisted that Dr. Leuterio did not disclose he had been ORDERING DEFENDANT-APPELLANT
suffering from hypertension, which caused his death. Allegedly, such TO PAY TO DBP THE AMOUNT OF
non-disclosure constituted concealment that justified the denial of the P86,200.00 IN THE ABSENCE OF ANY
claim. EVIDENCE TO SHOW HOW MUCH WAS
THE ACTUAL AMOUNT PAYABLE TO
 DBP IN ACCORDANCE WITH ITS
GROUP INSURANCE CONTRACT WITH
DEFENDANT-APPELLANT.
4. THE LOWER COURT ERRED IN
HOLDING THAT THERE WAS NO
CONCEALMENT OF MATERIAL
INFORMATION ON THE PART OF
WILFREDO LEUTERIO IN HIS
APPLICATION FOR MEMBERSHIP IN
THE GROUP LIFE INSURANCE PLAN
BETWEEN DEFENDANT-APPELLANT
OF THE INSURANCE CLAIM ARISING
FROM THE DEATH OF WILFREDO
LEUTERIO. 6
Synthesized below are the assigned errors for our resolution:
1. Whether the Court of Appeals erred in
holding petitioner liable to DBP as
beneficiary in a group life insurance
contract from a complaint filed by the
widow of the decedent/mortgagor?
2. Whether the Court of Appeals erred in
not finding that Dr. Leuterio concealed that
he had hypertension, which would vitiate
the insurance contract?
3. Whether the Court of Appeals erred in
holding Grepalife liable in the amount of
eighty six thousand, two hundred
(P86,200.00) pesos without proof of the
actual outstanding mortgage payable by
the mortgagor to DBP.
Petitioner alleges that the complaint was instituted by the widow of Dr.
Leuterio, not the real party in interest, hence the trial court acquired no
jurisdiction over the case. It argues that when the Court of Appeals
affirmed the trial court's judgment, Grepalife was held liable to pay the
proceeds of insurance contract in favor of DBP, the indispensable party
who was not joined in the suit.
To resolve the issue, we must consider the insurable interest in
mortgaged properties and the parties to this type of contract. The
rationale of a group insurance policy of mortgagors, otherwise known as
the "mortgage redemption insurance," is a device for the protection of
both the mortgagee and the mortgagor. On the part of the mortgagee, it
has to enter into such form of contract so that in the event of the
unexpected demise of the mortgagor during the subsistence of the
mortgage contract, the proceeds from such insurance will be applied to
the payment of the mortgage debt, thereby relieving the heirs of the
mortgagor from paying the obligation. 7 In a similar vein, ample protection
is given to the mortgagor under such a concept so that in the event of
death; the mortgage obligation will be extinguished by the application of
the insurance proceeds to the mortgage indebtedness. 8 Consequently,
where the mortgagor pays the insurance premium under the group
insurance policy, making the loss payable to the mortgagee, the
insurance is on the mortgagor's interest, and the mortgagor continues to
be a party to the contract. In this type of policy insurance, the mortgagee
is simply an appointee of the insurance fund, such loss-payable clause
does not make the mortgagee a party to the contract. 9
Sec. 8 of the Insurance Code provides:
Unless the policy provides, where a mortgagor of property
effects insurance in his own name providing that the loss
shall be payable to the mortgagee, or assigns a policy of
insurance to a mortgagee, the insurance is deemed to be
upon the interest of the mortgagor, who does not cease to
be a party to the original contract, and any act of his, prior
to the loss, which would otherwise avoid the insurance,
will have the same effect, although the property is in the
hands of the mortgagee, but any act which, under the
contract of insurance, is to be performed by the
mortgagor, may be performed by the mortgagee therein
named, with the same effect as if it had been performed
by the mortgagor.
The insured private respondent did not cede to the mortgagee all his
rights or interests in the insurance, the policy stating that: "In the event of
the debtor's death before his indebtedness with the Creditor [DBP] shall
have been fully paid, an amount to pay the outstanding indebtedness
shall first be paid to the creditor and the balance of sum assured, if there
is any, shall then be paid to the beneficiary/ies designated by the
debtor." 10 When DBP submitted the insurance claim against petitioner,
the latter denied payment thereof, interposing the defense of
concealment committed by the insured. Thereafter, DBP collected the
debt from the mortgagor and took the necessary action of foreclosure on
the residential lot of private respondent. 11 In Gonzales La O vs. Yek Tong
Lin Fire & Marine Ins. Co. 12 we held:
Insured, being the person with whom the contract was
made, is primarily the proper person to bring suit
thereon. * * * Subject to some exceptions, insured may
thus sue, although the policy is taken wholly or in part for
the benefit of another person named or unnamed, and
although it is expressly made payable to another as his
interest may appear or otherwise. * * * Although a policy
issued to a mortgagor is taken out for the benefit of the
mortgagee and is made payable to him, yet the mortgagor
may sue thereon in his own name, especially where the
mortgagee's interest is less than the full amount
recoverable under the policy, * * *.
And in volume 33, page 82, of the same work, we read
the following:
Insured may be regarded as the real party in interest,
although he has assigned the policy for the purpose of
collection, or has assigned as collateral security any
judgment he may obtain. 13
And since a policy of insurance upon life or health may pass by transfer,
will or succession to any person, whether he has an insurable interest or
not, and such person may recover it whatever the insured might have
recovered, 14the widow of the decedent Dr. Leuterio may file the suit
against the insurer, Grepalife.
The second assigned error refers to an alleged concealment that the
petitioner interposed as its defense to annul the insurance contract.
Petitioner contends that Dr. Leuterio failed to disclose that he had
hypertension, which might have caused his death. Concealment exists
where the assured had knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he should communicate
it to the assured, but he designedly and intentionally withholds the
same. 15
Petitioner merely relied on the testimony of the attending physician, Dr.
Hernando Mejia, as supported by the information given by the widow of
the decedent. Grepalife asserts that Dr. Mejia's technical diagnosis of the
cause of death of Dr. Leuterio was a duly documented hospital record,
and that the widow's declaration that her husband had "possible
hypertension several years ago" should not be considered as hearsay,
but as part of res gestae.
On the contrary the medical findings were not conclusive because Dr.
Mejia did not conduct an autopsy on the body of the decedent. As the
attending physician, Dr. Mejia stated that he had no knowledge of Dr.
Leuterio's any previous hospital confinement. 16 Dr. Leuterio's death
certificate stated that hypertension was only "the possible cause of
death." The private respondent's statement, as to the medical history of
her husband, was due to her unreliable recollection of events. Hence, the
statement of the physician was properly considered by the trial court as
hearsay.
The question of whether there was concealment was aptly answered by
the appellate court, thus:
The insured, Dr. Leuterio, had answered in his insurance
application that he was in good health and that he had not
consulted a doctor or any of the enumerated ailments,
including hypertension; when he died the attending
physician had certified in the death certificate that the
former died of cerebral hemorrhage, probably secondary
to hypertension. From this report, the appellant insurance
company refused to pay the insurance claim. Appellant
alleged that the insured had concealed the fact that he
had hypertension.
Contrary to appellant's allegations, there was no sufficient
proof that the insured had suffered from hypertension.
Aside from the statement of the insured's widow who was
not even sure if the medicines taken by Dr. Leuterio were
for hypertension, the appellant had not proven nor
produced any witness who could attest to Dr. Leuterio's
medical history . . .
xxx xxx xxx
Appellant insurance company had failed to establish that
there was concealment made by the insured, hence, it
cannot refuse payment of the claim. 17
The fraudulent intent on the part of the insured must be established to
entitle the insurer to rescind the contract.18Misrepresentation as a defense
of the insurer to avoid liability is an affirmative defense and the duty to
establish such defense by satisfactory and convincing evidence rests
upon the insurer. 19 In the case at bar, the petitioner failed to clearly and
satisfactorily establish its defense, and is therefore liable to pay the
proceeds of the insurance. 1âwphi1.nêt
And that brings us to the last point in the review of the case at bar.
Petitioner claims that there was no evidence as to the amount of Dr.
Leuterio's outstanding indebtedness to DBP at the time of the
mortgagor's death. Hence, for private respondent's failure to establish the
same, the action for specific performance should be dismissed.
Petitioner's claim is without merit. A life insurance policy is a valued
policy. 20 Unless the interest of a person insured is susceptible of exact
pecuniary measurement, the measure of indemnity under a policy of
insurance upon life or health is the sum fixed in the policy. 21 The
mortgagor paid the premium according to the coverage of his insurance,
which states that:
The policy states that upon receipt of due proof of the
Debtor's death during the terms of this insurance, a death
benefit in the amount of P86,200.00 shall be paid.
In the event of the debtor's death before his indebtedness
with the creditor shall have been fully paid, an amount to
pay the outstanding indebtedness shall first be paid to the
Creditor and the balance of the Sum Assured, if there is
any shall then be paid to the beneficiary/ies designated by
the debtor." 22(Emphasis omitted)
However, we noted that the Court of Appeals' decision was promulgated
on May 17, 1993. In private respondent's memorandum, she states that
DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor's
outstanding loan. Considering this supervening event, the insurance
proceeds shall inure to the benefit of the heirs of the deceased person or
his beneficiaries. Equity dictates that DBP should not unjustly enrich itself
at the expense of another (Nemo cum alterius detrimenio protest).
Hence, it cannot collect the insurance proceeds, after it already
foreclosed on the mortgage. The proceeds now rightly belong to Dr.
Leuterio's heirs represented by his widow, herein private respondent
Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The Decision and
Resolution of the Court of Appeals in CA-G.R. CV 18341 is AFFIRMED
with MODIFICATION that the petitioner is ORDERED to pay the
insurance proceeds amounting to Eighty-six thousand, two hundred
(P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo Leuterio
(deceased), upon presentation of proof of prior settlement of mortgagor's
indebtedness to Development Bank of the Philippines. Costs against
petitioner.
1âwphi1.nêt
SO ORDERED.
G.R. No. 112329 January 28, 2000
VIRGINIA A. PEREZ, petitioner,
vs.
COURT OF APPEALS and BF LIFEMAN INSURANCE
CORPORATION, respondents.
YNARES-SANTIAGO, J.:
A contract of insurance, like all other contracts, must be assented to by
both parties, either in person or through their agents and so long as an
application for insurance has not been either accepted or rejected, it is
merely a proposal or an offer to make a contract.
Petitioner Virginia A. Perez assails the decision of respondent Court of
Appeals dated July 9, 1993 in CA-G.R. CV 35529 entitled, "BF Lifeman
Insurance Corporations; Plaintiff-Appellant versus Virginia A. Perez.
Defendant-Appellee," which declared Insurance Policy 056300 for
P50,000.00 issued by private respondent corporation in favor of the
deceased Primitivo B. Perez, null and void and rescinded, thereby
reversing the decision rendered by the Regional Trial Court of Manila,
Branch XVI.
The facts of the case as summarized by respondent Court of Appeals are
not in dispute.
Primitivo B. Perez had been insured with the BF Lifeman Insurance
Corporation since 1980 for P20,000.00. Sometime in October 1987, an
agent of the insurance corporation, Rodolfo Lalog, visited Perez in
Guinayangan, 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. 1âw phi1.nêt
On October 20, 1987, Primitivo B. Perez accomplished an application
form for the additional insurance coverage of P50,000.00. On the same
day, petitioner Virginia A. Perez, Primitivo's wife, paid P2,075.00 to Lalog.
The receipt issued by Lalog indicated the amount received was a
"deposit."1 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.2 On November 1, 1987, Perez was made to undergo the
required medical examination, which he passed.3
Pursuant to the established procedure of the company, Lalog forwarded
the application for additional insurance of Perez, 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.
On 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 when 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.
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, 1987.4
Petitioner Virginia Perez 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.
On September 21, 1990, 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 A. 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. She then filed a counterclaim against private
respondent for the collection of P150,000.00 as actual damages,
P100,000.00 as exemplary damages, P30,000.00 as attorney's fees and
P10,000.00 as expenses for litigation.
On October 25, 1991, the trial court rendered a decision in favor of
petitioner, the dispositive portion of which reads as follows:
WHEREFORE PREMISES CONSIDERED, judgment is hereby
rendered in favor of defendant Virginia A. Perez, ordering the
plaintiff BF Lifeman Insurance Corporation to pay to her the face
value of BF Lifeman Insurance Policy No. 056300, plus double
indemnity under the SARDI or in the total amount of P150,000.00
(any refund made and/or premium deficiency to be deducted
therefrom).
SO ORDERED.5
The trial court, in ruling for petitioner, held that the premium for the
additional insurance of P50,000.00 had been fully paid and even if the
sum of P2,075.00 were to be considered merely as partial payment, the
same does not affect the validity of the policy. The trial court further
stated that the deceased had fully complied with the requirements of the
insurance company. He paid, signed the application form and passed the
medical examination. He should not be made to suffer the subsequent
delay in the transmittal of his application form to private respondent's
head office since these were no longer within his control.
The Court of Appeals, however, reversed the decision of the trial court
saying that the insurance contract for P50,000.00 could not have been
perfected since at the time that the policy was issued, Primitivo was
already dead.6Citing the provision in the application form signed by
Primitivo which states that:
. . . there shall be no contract of insurance unless and until a
policy is issued on this application and that the policy shall not
take effect until the first premium has been paid and the policy
has been delivered to and accepted by me/us in person while
I/we, am/are in good health
the Court of Appeals held that the contract of insurance had to be
assented to by both parties and so long as the application for insurance
has not been either accepted or rejected, it is merely an offer or proposal
to make a contract.
Petitioner's motion for reconsideration having been denied by respondent
court, the instant petition for certiorari was filed on the ground that there
was a consummated contract of insurance between the deceased and
BF Lifeman Insurance Corporation and that the condition that the policy
issued by the corporation be delivered and received by the applicant in
good health, is potestative, being dependent upon the will of the
insurance company, and is therefore null and void.
The petition is bereft of merit.
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.7 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.8 Under Article 1318 of
the Civil Code, there is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) 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.9
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. In the
case of Enriquez vs.Sun Life Assurance Co. of Canada,10 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.
Petitioner insists that the condition imposed by respondent corporation
that a policy must have been delivered to and accepted by the proposed
insured in good health is potestative being dependent upon the will of the
corporation and is therefore null and void.
We do not agree.
A potestative condition depends upon the exclusive will of one of the
parties. For this reason, it is considered void. Article 1182 of the New
Civil Code states: When the fulfillment of the condition depends upon the
sole will the debtor, the conditional obligation shall be 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.
As stated above, 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.11
Prescinding from the foregoing, respondent corporation cannot be held
liable for gross negligence. It should be noted that 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 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.12 In this case, however,
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, we hold that the delay could not be
deemed unreasonable so as to constitute gross negligence.
A final note. It has not escaped our notice that the Court of Appeals
declared Insurance Policy 056300 for P50,000.00 null and void and
rescinded. The Court of Appeals corrected this in its Resolution of the
motion for reconsideration filed by petitioner, thus:
Anent the appearance of the word "rescinded" in the dispositive
portion of the decision, to which defendant-appellee attaches
undue significance and makes capital of, it is clear that the use of
the words "and rescinded" is, as it is hereby declared, a
superfluity. It is apparent from the context of the decision that the
insurance policy in question was found null and void, and did not
have to be "rescinded".13
True, 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.
WHEREFORE, the decision rendered by the Court of Appeals in CA-G.R.
CV No. 35529 is AFFIRMED insofar as it declared Insurance Policy No.
056300 for P50,000.00 issued by BF Lifeman Insurance Corporation of
no force and effect and hence null and void. No costs. 1âw phi1.nêt
SO ORDERED.
G.R. No. L-15895 November 29, 1920
RAFAEL ENRIQUEZ, as administrator of the estate of the late
Joaquin Ma. Herrer, plaintiff-appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.
Jose A. Espiritu for appellant.
Cohn, Fisher and DeWitt for appellee.
MALCOLM, J.:
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.
The undisputed facts are these: 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:
MANILA, I. F., 26 de septiembre, 1917.
PROVISIONAL RECEIPT Pesos 6,000
Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como
prima dela Renta Vitalicia solicitada por dicho Don Joaquin Herrer hoy,
sujeta al examen medico y aprobacion de la Oficina Central de la
Compañia.
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. (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.) 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.
As above suggested, the issue of fact raised by the evidence is whether
Herrer received notice of acceptance of his application. To resolve this
question, we propose to go directly to the evidence of record.
The chief clerk of the Manila office of the Sun Life Assurance Company
of Canada at the time of the trial testified that he prepared the letter
introduced in evidence as Exhibit 3, of date November 26, 1917, and
handed it to the local manager, Mr. E. E. White, for signature. The
witness admitted on cross-examination that after preparing the letter and
giving it to he manager, he new nothing of what became of it. The local
manager, Mr. White, testified to having received the cablegram accepting
the application of Mr. Herrer from the home office on November 26, 1917.
He said that on the same day he signed a letter notifying Mr. Herrer of
this acceptance. The witness further said that 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. Mr. Tuason, who was the chief clerk, on
November 26, 1917, was not called as a witness. For the defense,
attorney Manuel Torres testified to having prepared the will of Joaquin
Ma. Herrer, that on this occasion, Mr. Herrer mentioned his application for
a life annuity, and that 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, was prepared and signed in the local office of the insurance
company, was placed in the ordinary channels for transmission, but as
far as we know, was never actually mailed and thus was never received
by the applicant.
Not forgetting our conclusion of fact, it next becomes necessary to
determine the law which should be applied to the facts. In order to reach
our legal goal, the obvious signposts along the way must be noticed.
Until quite recently, all of the provisions concerning life insurance in the
Philippines were found in the Code of Commerce and the Civil Code. In
the Code of the Commerce, there formerly existed Title VIII of Book III
and Section III of Title III of Book III, which dealt with insurance contracts.
In the Civil Code there formerly existed and presumably still exist,
Chapters II and IV, entitled insurance contracts and life annuities,
respectively, of Title XII of Book IV. On the after July 1, 1915, there was,
however, in force the Insurance Act. No. 2427. Chapter IV of this Act
concerns life and health insurance. The Act expressly repealed Title VIII
of Book II and Section III of Title III of Book III of 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 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.
Not only this, but in order that the principle may not be taken too lightly,
let it be noticed that it is identical with the principles announced by a
considerable number of respectable courts in the United States. 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, as the locus
poenitentiae is ended when the acceptance has passed beyond the
control of the party. (I Joyce, The Law of Insurance, pp. 235, 244.)
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 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.
(See 22 C.J., 96, and 49 L. R. A. [N. S.], pp. 458, et seq., notes.)
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.lawph!l.net
Judgment is reversed, and the plaintiff shall have and recover from the
defendant the sum of P6,000 with legal interest from November 20, 1918,
until paid, without special finding as to costs in either instance. So
ordered.
Mapa, C.J., Araullo, Avanceña and Villamor, JJ., concur.
Johnson, J., dissents.
G.R. No. 166245 April 9, 2008
ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE
COMPANY, respondent.
DECISION
VELASCO, JR., J.:
 The Case
Central to this Petition for Review on Certiorari under Rule 45 which
seeks to reverse and set aside the November 26, 2004 Decision1 of the
Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the
inaction of the insurer on the insurance application be considered as
approval of the application?
The Facts
On December 10, 1980, respondent Philippine American Life Insurance
Company (Philamlife) entered into an agreement denominated as
Creditor Group Life Policy No. P-19202 with petitioner Eternal Gardens
Memorial Park Corporation (Eternal). Under the policy, the clients of
Eternal who purchased burial lots from it on installment basis would be
insured by Philamlife. The amount of insurance coverage depended upon
the existing balance of the purchased burial lots. The policy was to be
effective for a period of one year, renewable on a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more
than 65 years of age, is indebted to the Assured for the unpaid
balance of his loan with the Assured, and is accepted for Life
Insurance coverage by the Company on its effective date is
eligible for insurance under the Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of
insurance up to P50,000.00. However, a declaration of good
health shall be required for all Lot Purchasers as part of the
application. The Company reserves the right to require further
evidence of insurability satisfactory to the Company in respect of
the following:
1. Any amount of insurance in excess of P50,000.00.
2. Any lot purchaser who is more than 55 years of age.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot Purchaser at any time
shall be the amount of the unpaid balance of his loan (including
arrears up to but not exceeding 2 months) as reported by the
Assured to the Company or the sum of P100,000.00, whichever is
smaller. Such benefit shall be paid to the Assured if the Lot
Purchaser dies while insured under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on
the date he contracts a loan with the Assured. However, there
shall be no insurance if the application of the Lot Purchaser is not
approved by the Company.3
Eternal was required under the policy to submit to Philamlife a list of all
new lot purchasers, together with a copy of the application of each
purchaser, and the amounts of the respective unpaid balances of all
insured lot purchasers. In relation to the instant petition, Eternal complied
by submitting a letter dated December 29, 1982,4 containing a list of
insurable balances of its lot buyers for October 1982. One of those
included in the list as "new business" was a certain John Chuang. His
balance of payments was PhP 100,000. On August 2, 1984, Chuang
died.
Eternal sent a letter dated August 20, 19845 to Philamlife, which served
as an insurance claim for Chuang’s death. Attached to the claim were the
following documents: (1) Chuang’s Certificate of Death; (2) Identification
Certificate stating that Chuang is a naturalized Filipino Citizen; (3)
Certificate of Claimant; (4) Certificate of Attending Physician; and (5)
Assured’s Certificate.
In reply, Philamlife wrote Eternal a letter on November 12,
1984,6 requiring Eternal to submit the following documents relative to its
insurance claim for Chuang’s death: (1) Certificate of Claimant (with form
attached); (2) Assured’s Certificate (with form attached); (3) Application
for Insurance accomplished and signed by the insured, Chuang, while
still living; and (4) Statement of Account showing the unpaid balance of
Chuang before his death.
Eternal transmitted the required documents through a letter dated
November 14, 1984,7 which was received by Philamlife on November 15,
1984.
After more than a year, Philamlife had not furnished Eternal with any
reply to the latter’s insurance claim. This prompted Eternal to demand
from Philamlife the payment of the claim for PhP 100,000 on April 25,
1986.8
In response to Eternal’s demand, Philamlife denied Eternal’s insurance
claim in a letter dated May 20, 1986,9 a portion of which reads:
The deceased was 59 years old when he entered into Contract
#9558 and 9529 with Eternal Gardens Memorial Park in October
1982 for the total maximum insurable amount of P100,000.00
each. No application for Group Insurance was submitted in our
office prior to his death on August 2, 1984.
In accordance with our Creditor’s Group Life Policy No. P-1920,
under Evidence of Insurability provision, "a declaration of good
health shall be required for all Lot Purchasers as party of the
application." We cite further the provision on Effective Date of
Coverage under the policy which states that "there shall be no
insurance if the application is not approved by the Company."
Since no application had been submitted by the Insured/Assured,
prior to his death, for our approval but was submitted instead on
November 15, 1984, after his death, Mr. John Uy Chuang was not
covered under the Policy. We wish to point out that Eternal
Gardens being the Assured was a party to the Contract and was
therefore aware of these pertinent provisions.
With regard to our acceptance of premiums, these do not connote
our approval per se of the insurance coverage but are held by us
in trust for the payor until the prerequisites for insurance coverage
shall have been met. We will however, return all the premiums
which have been paid in behalf of John Uy Chuang.
Consequently, Eternal filed a case before the Makati City Regional Trial
Court (RTC) for a sum of money against Philamlife, docketed as Civil
Case No. 14736. The trial court decided in favor of Eternal, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of Plaintiff ETERNAL, against Defendant
PHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay the
sum of P100,000.00, representing the proceeds of the Policy of
John Uy Chuang, plus legal rate of interest, until fully paid; and, to
pay the sum of P10,000.00 as attorney’s fees.
SO ORDERED.
The RTC found that Eternal submitted Chuang’s application for insurance
which he accomplished before his death, as testified to by Eternal’s
witness and evidenced by the letter dated December 29, 1982, stating,
among others: "Encl: Phil-Am Life Insurance Application Forms &
Cert."10 It further ruled that due to Philamlife’s inaction from the
submission of the requirements of the group insurance on December 29,
1982 to Chuang’s death on August 2, 1984, as well as Philamlife’s
acceptance of the premiums during the same period, Philamlife was
deemed to have approved Chuang’s application. The RTC said that since
the contract is a group life insurance, once proof of death is submitted,
payment must follow.
Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial Court of Makati
in Civil Case No. 57810 is REVERSED and SET ASIDE, and the
complaint is DISMISSED. No costs.
SO ORDERED.11
The CA based its Decision on the factual finding that Chuang’s
application was not enclosed in Eternal’s letter dated December 29,
1982. It further ruled that the non-accomplishment of the submitted
application form violated Section 26 of the Insurance Code. Thus, the CA
concluded, there being no application form, Chuang was not covered by
Philamlife’s insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of
substance, not therefore determined by this Honorable Court, or
has decided it in a way not in accord with law or with the
applicable jurisprudence, in holding that:
 I. The application for insurance was not duly submitted to
respondent PhilamLife before the death of John Chuang;
II. There was no valid insurance coverage; and
III. Reversing and setting aside the Decision of the
Regional Trial Court dated May 29, 1996.
The Court’s Ruling
As a general rule, this Court is not a trier of facts and will not re-examine
factual issues raised before the CA and first level courts, considering
their findings of facts are conclusive and binding on this Court. However,
such rule is subject to exceptions, as enunciated in Sampayan v. Court of
Appeals:
(1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are
conflicting; (6) when in making its findings the [CA] went beyond
the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the
findings [of the CA] are contrary to the trial court; (8) when
the findings are conclusions without citation of specific evidence
on which they are based; (9) when the facts set forth in the
petition as well as in the petitioner’s main and reply briefs are not
disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted
by the evidence on record; and (11) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a different
conclusion.12(Emphasis supplied.)
In the instant case, the factual findings of the RTC were reversed by the
CA; thus, this Court may review them.
Eternal claims that the evidence that it presented before the trial court
supports its contention that it submitted a copy of the insurance
application of Chuang before his death. In Eternal’s letter dated
December 29, 1982, a list of insurable interests of buyers for October
1982 was attached, including Chuang in the list of new businesses.
Eternal added it was noted at the bottom of said letter that the
corresponding "Phil-Am Life Insurance Application Forms & Cert." were
enclosed in the letter that was apparently received by Philamlife on
January 15, 1983. Finally, Eternal alleged that it provided a copy of the
insurance application which was signed by Chuang himself and executed
before his death.
On the other hand, Philamlife claims that the evidence presented by
Eternal is insufficient, arguing that Eternal must present evidence
showing that Philamlife received a copy of Chuang’s insurance
application.
The evidence on record supports Eternal’s position.
The fact of the matter is, the letter dated December 29, 1982, which
Philamlife stamped as received, states that the insurance forms for the
attached list of burial lot buyers were attached to the letter. Such stamp
of receipt has the effect of acknowledging receipt of the letter together
with the attachments. Such receipt is an admission by Philamlife against
its own interest.13 The burden of evidence has shifted to Philamlife, which
must prove that the letter did not contain Chuang’s insurance application.
However, Philamlife failed to do so; thus, Philamlife is deemed to have
received Chuang’s insurance application.
To reiterate, it was Philamlife’s bounden duty to make sure that before a
transmittal letter is stamped as received, the contents of the letter are
correct and accounted for.
Philamlife’s allegation that Eternal’s witnesses ran out of credibility and
reliability due to inconsistencies is groundless. The trial court is in the
best position to determine the reliability and credibility of the witnesses,
because it has the opportunity to observe firsthand the witnesses’
demeanor, conduct, and attitude. Findings of the trial court on such
matters are binding and conclusive on the appellate court, unless some
facts or circumstances of weight and substance have been overlooked,
misapprehended, or misinterpreted,14 that, if considered, might affect the
result of the case.15
An examination of the testimonies of the witnesses mentioned by
Philamlife, however, reveals no overlooked facts of substance and value.
Philamlife primarily claims that Eternal did not even know where the
original insurance application of Chuang was, as shown by the testimony
of Edilberto Mendoza:
Atty. Arevalo:
Q Where is the original of the application form which is required in
case of new coverage?
[Mendoza:]
A It is [a] standard operating procedure for the new client to fill up
two copies of this form and the original of this is submitted to
Philamlife together with the monthly remittances and the second
copy is remained or retained with the marketing department of
Eternal Gardens.
Atty. Miranda:
We move to strike out the answer as it is not responsive as
counsel is merely asking for the location and does not [ask] for
the number of copy.
Atty. Arevalo:
Q Where is the original?
[Mendoza:]
A As far as I remember I do not know where the original but when
I submitted with that payment together with the new clients all the
originals I see to it before I sign the transmittal letter the originals
are attached therein.16
In other words, the witness admitted not knowing where the original
insurance application was, but believed that the application was
transmitted to Philamlife as an attachment to a transmittal letter.
As to the seeming inconsistencies between the testimony of Manuel
Cortez on whether one or two insurance application forms were
accomplished and the testimony of Mendoza on who actually filled out
the application form, these are minor inconsistencies that do not affect
the credibility of the witnesses. Thus, we ruled in People v. Paredes that
minor inconsistencies are too trivial to affect the credibility of witnesses,
and these may even serve to strengthen their credibility as these negate
any suspicion that the testimonies have been rehearsed.17
We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not impair the essential
integrity of the prosecution’s evidence as a whole or reflect on the
witnesses’ honesty. The test is whether the testimonies agree on
essential facts and whether the respective versions corroborate
and substantially coincide with each other so as to make a
consistent and coherent whole.18
In the present case, the number of copies of the insurance application
that Chuang executed is not at issue, neither is whether the insurance
application presented by Eternal has been falsified. Thus, the
inconsistencies pointed out by Philamlife are minor and do not affect the
credibility of Eternal’s witnesses.
However, the question arises as to whether Philamlife assumed the risk
of loss without approving the application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an agreement
denominated as Creditor Group Life Policy No. P-1920 dated December
10, 1980. In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on
the date he contracts a loan with the Assured. However, there
shall be no insurance if the application of the Lot Purchaser is not
approved by the Company.
An examination of the above provision would show ambiguity between its
two sentences. The first sentence appears to state that the insurance
coverage of the clients of Eternal already became effective upon
contracting a loan with Eternal while the second sentence appears to
require Philamlife to approve the insurance contract before the same can
become effective.
It must be remembered that an insurance contract is a contract of
adhesion which must be construed liberally in favor of the insured and
strictly against the insurer in order to safeguard the latter’s interest. Thus,
in Malayan Insurance Corporation v. Court of Appeals, this Court held
that:
Indemnity and liability insurance policies are construed in
accordance with the general rule of resolving any ambiguity
therein in favor of the insured, where the contract or policy is
prepared by the insurer. A contract of insurance, being a
contract of adhesion, par excellence, any ambiguity therein
should be resolved against the insurer; in other words, it
should be construed liberally in favor of the insured and strictly
against the insurer. Limitations of liability should be regarded with
extreme jealousy and must be construed in such a way as to
preclude the insurer from noncompliance with its
obligations.19 (Emphasis supplied.)
In the more recent case of Philamcare Health Systems, Inc. v. Court of
Appeals, we reiterated the above ruling, stating that:
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.20
Clearly, the vague contractual provision, in Creditor Group Life Policy No.
P-1920 dated December 10, 1980, must be construed in favor of the
insured and in favor of the effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions must be
harmonized to mean that upon a party’s purchase of a memorial lot on
installment from Eternal, an insurance contract covering the lot purchaser
is created and the same is effective, valid, and binding until terminated by
Philamlife by disapproving the insurance application. The second
sentence of Creditor Group Life Policy No. P-1920 on the Effective Date
of Benefit is in the nature of a resolutory condition which would lead to
the cessation of the insurance contract. Moreover, the mere inaction of
the insurer on the insurance application must not work to prejudice the
insured; it cannot be interpreted as a termination of the insurance
contract. The termination of the insurance contract by the insurer must be
explicit and unambiguous.
As a final note, to characterize the insurer and the insured as contracting
parties on equal footing is inaccurate at best. Insurance contracts are
wholly prepared by the insurer with vast amounts of experience in the
industry purposefully used to its advantage. More often than not,
insurance contracts are contracts of adhesion containing technical terms
and conditions of the industry, confusing if at all understandable to
laypersons, that are imposed on those who wish to avail of insurance. As
such, insurance contracts are imbued with public interest that must be
considered whenever the rights and obligations of the insurer and the
insured are to be delineated. Hence, in order to protect the interest of
insurance applicants, insurance companies must be obligated to act with
haste upon insurance applications, to either deny or approve the same,
or otherwise be bound to honor the application as a valid, binding, and
effective insurance contract.21
WHEREFORE, we GRANT the petition. The November 26, 2004 CA
Decision in CA-G.R. CV No. 57810 is REVERSED and SET ASIDE. The
May 29, 1996 Decision of the Makati City RTC, Branch 138
is MODIFIED. Philamlife is hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the
proceeds of the Life Insurance Policy of Chuang;
(2) To pay Eternal legal interest at the rate of six percent (6%) per
annum of PhP 100,000 from the time of extra-judicial demand by
Eternal until Philamlife’s receipt of the May 29, 1996 RTC
Decision on June 17, 1996;
(3) To pay Eternal legal interest at the rate of twelve percent
(12%) per annum of PhP 100,000 from June 17, 1996 until full
payment of this award; and
(4) To pay Eternal attorney’s fees in the amount of PhP 10,000.
No costs.
SO ORDERED.
G.R. No. 158085 October 14, 2005
REPUBLIC OF THE PHILIPPINES, Represented by the
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
SUNLIFE ASSURANCE COMPANY OF CANADA, Respondent.
DECISION
PANGANIBAN, J.:
aving satisfactorily proven to the Court of Tax Appeals, to the Court of
Appeals and to this Court that it is a bona fide cooperative, respondent 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.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court,
seeking to nullify the January 23, 2003 Decision2 and the April 21, 2003
Resolution3 of the Court of Appeals (CA) in CA-GR SP No. 69125. The
dispositive portion of the Decision reads as follows:
"WHEREFORE, the petition for review is hereby DENIED."4
The Facts
The antecedents, as narrated by the CA, are as follows:
"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.
"On October 20, 1997, Sun Life filed with the [Commissioner of Internal
Revenue] (CIR) its insurance premium tax return for the third quarter of
1997 and paid the premium tax in the amount of ₱31,485,834.51. For the
period covering August 21 to December 18, 1997, petitioner filed with the
CIR its [documentary stamp tax (DST)] declaration returns and paid the
total amount of ₱30,000,000.00.
"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
on August 23, 1999. In its petition, it prayed for the issuance of a tax
credit certificate in the amount of ₱61,485,834.51 representing
₱31,485,834.51 of erroneously paid premium tax for the third quarter of
1997 and ₱30,000[,000].00 of DST on policies of insurance from August
21 to December 18, 1997. Sun Life stood firm on its contention that it is a
mutual life insurance company vested with all the characteristic features
and elements of a cooperative company or association as defined in
[S]ection 121 of the Tax Code. Primarily, the management and affairs of
Sun Life were conducted by its members; secondly, it is operated with
money collected from its members; and, lastly, it has for its purpose the
mutual protection of its members and not for profit or gain.
"In its answer, the CIR, then respondent, raised as special and affirmative
defenses the following:
‘7. Petitioner’s (Sun Life’s) alleged claim for refund is subject to
administrative routinary investigation/examination by respondent’s (CIR’s)
Bureau.
‘8. Petitioner must prove that it falls under the exception provided for
under Section 121 (now 123) of the Tax Code to be exempted from
premium tax and be entitled to the refund sought.
‘9. Claims for tax refund/credit are construed strictly against the claimants
thereof as they are in the nature of exemption from payment of tax.
‘10. In an action for tax credit/refund, the burden is upon the taxpayer to
establish its right thereto, and failure to sustain this burden is fatal to said
claim x x x.
‘11. It is incumbent upon petitioner to show that it has complied with the
provisions of Section 204[,] in relation to Section 229, both in the 1997
Tax Code.’
"On November 12, 2002, the CTA found in favor of Sun Life. Quoting
largely from its earlier findings in Insular Life Assurance Company, Ltd. v.
[CIR], which it found to be on all fours with the present action, the CTA
ruled:
‘The [CA] has already spoken. It ruled that a mutual life insurance
company is a purely cooperative company[;] thus, exempted from the
payment of premium and documentary stamp taxes. Petitioner Sun Life is
without doubt a mutual life insurance company. x x x.
‘xxxxxxxxx
‘Being similarly situated with Insular, Petitioner at bar is entitled to the
same interpretation given by this Court in the earlier cases of The Insular
Life Assurance Company, Ltd. vs. [CIR] (CTA Case Nos. 5336 and 5601)
and by the [CA] in the case entitled [CIR] vs. The Insular Life Assurance
Company, Ltd., C.A. G.R. SP No. 46516, September 29, 1998. Petitioner
Sun Life as a mutual life insurance company is[,] therefore[,] a
cooperative company or association and is exempted from the payment
of premium tax and [DST] on policies of insurance pursuant to Section
121 (now Section 123) and Section 199[1]) (now Section 199[a]) of the
Tax Code.’
"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.
Moreover, the CIR alleged that Sun Life failed to prove that ownership of
the company was vested in its members who are entitled to vote and
elect the Board of Trustees among [them]. The CIR further claimed that
change in the 1997 Tax Code subjecting mutual life insurance companies
to the regular corporate income tax rate reflected the legislature’s
recognition that these companies must be earning profits.
"Notwithstanding these arguments, the CTA denied the CIR’s motion for
reconsideration.
"Thwarted anew but nonetheless undaunted, the CIR comes to this
court via this petition on the sole ground that:
‘The Tax Court erred in granting the refund[,] because respondent does
not fall under the exception provided for under Section 121 (now 123) of
the Tax Code to be exempted from premium tax and DST and be entitled
to the refund.’
"The CIR repleads the arguments it raised with the CTA and proposes
further that the [CA] decision in [CIR] v. Insular Life Assurance Company,
Ltd. is not controlling and cannot constitute res judicata in the present
action. At best, the pronouncements are merely persuasive as the
decisions of the Supreme Court alone have a universal and mandatory
effect."5
Ruling of the Court of Appeals
In upholding the CTA, the CA reasoned that respondent was a purely
cooperative 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. Its members
or policyholders constituted 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 were paid. The dividends it distributed to them
were not profits, but returns of amounts that had been overcharged them
for insurance.
For having satisfactorily shown with substantial evidence that it had
erroneously paid and seasonably filed its claim for premium and
documentary stamp taxes, respondent was entitled to a refund, the CA
ruled.
Hence, this Petition.6
The Issues
Petitioner raises the following issues for our consideration:
 "I.
"Whether or not respondent is a purely cooperative company or
association under Section 121 of the National Internal Revenue Code
and a fraternal or beneficiary society, order or cooperative company on
the lodge system or local cooperation plan and organized and conducted
solely by the members thereof for the exclusive benefit of each member
and not for profit under Section 199 of the National Internal Revenue
Code.
"II.
"Whether or not registration with the Cooperative Development Authority
is a sine qua non requirement to be entitled to tax exemption.
"III.
"Whether or not respondent is exempted from payment of tax on life
insurance premiums and documentary stamp tax."7
We shall tackle the issues seriatim.
The Court’s Ruling
The Petition has no merit.
First Issue:
Whether Respondent Is a Cooperative
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."8 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.9
A stock insurance company doing business in the Philippines may "alter
its organization and transform itself into a mutual insurance
company."10 Respondent has been mutualized or converted from a stock
life insurance company to a nonstock mutual life insurance
corporation11 pursuant to Section 266 of the Insurance Code of
1978.12 On the basis of its bylaws, its ownership has been vested in its
member-policyholders who are each entitled to one vote;13and who, in
turn, elect from among themselves the members of its board of
trustees.14 Being the governing body of a nonstock corporation, the board
exercises corporate powers, lays down all corporate business policies,
and assumes responsibility for the efficiency of management.15
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.16
The member-policyholders constitute "both insurer and insured"17 who
"contribute, by a system of premiums or assessments, to the creation of a
fund from which all losses and liabilities are paid."18 The
premiums19 pooled into this fund are earmarked for the payment of their
indemnity and benefit claims.
Third, it is licensed for the mutual protection of its members, not for the
profit of anyone.
As early as October 30, 1947, the director of commerce had already
issued a license to respondent -- a corporation organized and existing
under the laws of Canada -- to engage in business in the
Philippines.20 Pursuant to Section 225 of Canada’s Insurance Companies
Act, the Canadian minister of state (for finance and privatization) also
declared in its Amending Letters Patent that respondent would be a
mutual company effective June 1, 1992.21 In the Philippines, the
insurance commissioner also granted it annual Certificates of Authority to
transact life insurance business, the most relevant of which were dated
July 1, 1997 and July 1, 1998.22
A mutual life insurance company is conducted for the benefit of its
member-policyholders,23 who pay into its capital by way of premiums. To
that extent, they are responsible for the payment of all its losses.24 "The
cash paid in for premiums and the premium notes constitute their assets
x x x."25 In the event that the company itself fails before the terms of the
policies expire, the member-policyholders do not acquire the status of
creditors.26 Rather, they simply become debtors for whatever premiums
that they have originally agreed to pay the company, if they have not yet
paid those amounts in full, for "[m]utual companies x x x depend solely
upon x x x premiums."27 Only when the premiums will have accumulated
to a sum larger than that required to pay for company losses will the
member-policyholders be entitled to a "pro rata division thereof as
profits."28
Contributing to its capital, the member-policyholders of a mutual company
are obviously also its owners.29Sustaining a dual relationship inter se,
they not only contribute to the payment of its losses, but are also entitled
to a proportionate share30 and participate alike31 in its profits and surplus.
Where the insurance is taken at cost, it is important that the rates of
premium charged by a mutual company be larger than might reasonably
be expected to carry the insurance, in order to constitute a margin of
safety. The table of mortality used will show an admittedly higher death
rate than will probably prevail; the assumed interest rate on the
investments of the company is made lower than is expected to be
realized; and the provision for contingencies and expenses, made greater
than would ordinarily be necessary.32 This course of action is taken,
because a mutual company has no capital stock and relies solely upon its
premiums to meet unexpected losses, contingencies and expenses.
Certainly, many factors are considered in calculating the insurance
premium. Since they vary with the kind of insurance taken and with the
group of policyholders insured, any excess in the amount anticipated by a
mutual company to cover the cost of providing for the insurance over its
actual realized cost will also vary. If a member-policyholder receives an
excess payment, then the apportionment must have been based upon a
calculation of the actual cost of insurance that the company has provided
for that particular member-policyholder. Accordingly, in apportioning
divisible surpluses, any mutual company uses a contribution method that
aims to distribute those surpluses among its member-policyholders, in the
same proportion as they have contributed to the surpluses by their
payments.33
Sharing in the common fund, any member-policyholder may choose to
withdraw dividends in cash or to apply them in order to reduce a
subsequent premium, purchase additional insurance, or accelerate the
payment period. Although the premium made at the beginning of a year
is more than necessary to provide for the cost of carrying the insurance,
the member-policyholder will nevertheless receive the benefit of the
overcharge by way of dividends, at the end of the year when the cost is
actually ascertained. "The declaration of a dividend upon a policy
reduces pro tanto the cost of insurance to the holder of the policy. That is
its purpose and effect."34
A stipulated insurance premium "cannot be increased, but may be
lessened annually by so much as the experience of the preceding year
has determined it to have been greater than the cost of carrying the
insurance x x x."35 The difference between that premium and the cost of
carrying the risk of loss constitutes the so-called "dividend" which,
however, "is not in any real sense a dividend."36 It is a technical term that
is well understood in the insurance business to be widely different from
that to which it is ordinarily attached.
The so-called "dividend" that is received by member-policyholders is not
a portion of profits set aside for distribution to the stockholders in
proportion to their subscription to the capital stock of a
corporation.37 One, a mutual company has no capital stock
to which subscription is necessary; there are no stockholders to speak of,
but only members. And, two, the amount they receive does not partake of
the nature of a profit or income. The quasi-appearance of profit will not
change its character. It remains an overpayment, a benefit to which the
member-policyholder is equitably entitled.38
Verily, a mutual life insurance corporation is a cooperative that promotes
the welfare of its own members. It does not operate for profit, but for the
mutual benefit of its member-policyholders. They receive their insurance
at cost, while reasonably and properly guarding and maintaining the
stability and solvency of the company.39 "The economic benefits filter to
the cooperative members. Either equally or proportionally, they are
distributed among members in correlation with the resources of the
association utilized."40
It does not follow that because respondent is registered as a nonstock
corporation and thus exists for a purpose other than profit, the company
can no longer make any profits.41 Earning profits is merely its secondary,
not primary, purpose. In fact, it may not lawfully engage in any business
activity for profit, for to do so would change or contradict its nature42 as a
non-profit entity.43 It may, however, invest its corporate funds in order to
earn additional income for paying its operating expenses and meeting
benefit claims. Any excess profit it obtains as an incident to its operations
can only be used, whenever necessary or proper, for the furtherance of
the purpose for which it was organized.44
Second Issue:
Whether CDA Registration Is Necessary
Under the Tax Code although respondent is a cooperative, registration
with the Cooperative Development Authority (CDA)45 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.
A provision of Section 8 of Revenue Memorandum Circular (RMC) No.
48-91 requires the submission of the Certificate of Registration with the
CDA,46 before the issuance of a tax exemption certificate. That provision
cannot prevail over the clear absence of an equivalent requirement under
the Tax Code. One, as we will explain below, the Circular does not apply
to respondent, but only to cooperatives that need to be registered under
the Cooperative Code. Two, it is a mere issuance directing all internal
revenue officers to publicize a new tax legislation. Although the Circular
does not derogate from their authority to implement the law, it cannot add
a registration requirement,47when there is none under the law to begin
with.
Second, the provisions of the Cooperative Code of the Philippines48 do
not apply. Let us trace the Code’s development in our history.
As early as 1917, a cooperative company or association was already
defined as one "conducted by the members thereof with money collected
from among themselves and solely for their own protection and not
profit."49 In 1990, it was further defined by the Cooperative Code as a
"duly registered association of persons, with a common bond of interest,
who have voluntarily joined together to achieve a lawful common social
or economic end, making equitable contributions to the capital required
and accepting a fair share of the risks and benefits of the undertaking in
accordance with universally accepted cooperative principles."50
The Cooperative Code was actually an offshoot of the old law on
cooperatives. In 1973, Presidential Decree (PD) No. 175 was
signed into law by then President Ferdinand E. Marcos in order to
strengthen the cooperative movement.51 The promotion of cooperative
development was one of the major programs of the "New Society" under
his administration. It sought to improve the country’s trade and commerce
by enhancing agricultural production, cottage industries, community
development, and agrarian reform through cooperatives.52
The whole cooperative system, with its vertical and horizontal linkages --
from the market cooperative of agricultural products to cooperative rural
banks, consumer cooperatives and cooperative insurance -- was
envisioned to offer considerable economic opportunities to people who
joined cooperatives.53 As an effective instrument in redistributing income
and wealth,54 cooperatives were promoted primarily to support the
agrarian reform program of the government.55
Notably, the cooperative under PD 175 referred only to an organization
composed primarily of small producers and consumers who voluntarily
joined to form a business enterprise that they themselves owned,
controlled, and patronized.56 The Bureau of Cooperatives Development --
under the Department of Local Government and Community
Development (later Ministry of Agriculture)57 -- had the authority to
register, regulate and supervise only the following cooperatives: (1) barrio
associations involved in the issuance of certificates of land transfer; (2)
local or primary cooperatives composed of natural persons and/or barrio
associations; (3) federations composed of cooperatives that may or may
not perform business activities; and (4) unions of cooperatives that did
not perform any business activities.58 Respondent does not fall under any
of the above-mentioned types of cooperatives required to be registered
under PD 175.
When the Cooperative Code was enacted years later, all cooperatives
that were registered under PD 175 and previous laws were also deemed
registered with the CDA.59 Since respondent was not required to be
registered under the old law on cooperatives, it followed that it was not
required to be registered even under the new law.
Furthermore, only cooperatives to be formed or organized under the
Cooperative Code needed registration with the CDA.60 Respondent
already existed before the passage of the new law on cooperatives. It
was not even required to organize under the Cooperative Code, not only
because it performed a different set of functions, but also because it did
not operate to serve the same objectives under the new law -- particularly
on productivity, marketing and credit extension.61
The insurance against losses of the members of a cooperative referred to
in Article 6(7) of the Cooperative Code is not the same as the life
insurance provided by respondent to member-policyholders. The former
is a function of a service cooperative,62 the latter is not. Cooperative
insurance under the Code is limited in scope and local in character. It is
not the same as mutual life insurance.
We have already determined that respondent is a cooperative. The
distinguishing feature of a cooperative enterprise63 is the mutuality of
cooperation among its member-policyholders united for that
purpose.64 So long as respondent meets this essential feature, it does not
even have to use65 and carry the name of a cooperative to operate its
mutual life insurance business. Gratia argumenti that registration is
mandatory, it cannot deprive respondent of its tax exemption privilege
merely because it failed to register. The nature of its operations is clear;
its purpose well-defined. Exemption when granted cannot prevail over
administrative convenience.
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.66
True, the provisions of the Insurance Code relative to the organization
and operation of an insurance company also apply to cooperative
insurance entities organized under the Cooperative Code.67 The latter
law, however, does not apply to respondent, which already existed as a
cooperative company engaged in mutual life insurance prior to the laws
passage of that law. The statutes prevailing at the time of its organization
and mutualization were the Insurance Code and the Corporation Code,
which imposed no registration requirement with the CDA.
Third Issue:
Whether Respondent Is Exempted
from Premium Taxes and DST
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.
It is worthy to note that while RA 8424 amending the Tax Code has
deleted the income tax of 10 percent imposed upon the gross investment
income of mutual life insurance companies -- domestic68 and foreign69 --
the provisions of Section 121 and 199 remain unchanged.70
Having been seasonably filed and amply substantiated, the claim for
exemption in the amount of ₱61,485,834.51, representing percentage
taxes on insurance premiums and documentary stamp taxes on policies
of insurance or annuities that were paid by respondent in 1997, is in
order. Thus, the grant of a tax credit certificate to respondent as ordered
by the appellate court was correct.
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision
and Resolution are AFFIRMED. No pronouncement as to costs.
SO ORDERED.
G.R. No. 112360 July 18, 2000
RIZAL SURETY & INSURANCE COMPANY, petitioner,
vs.
COURT OF APPEALS and TRANSWORLD KNITTING MILLS,
INC., respondents.
DECISION
PURISIMA, J.:
At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court seeking to annul and set aside the July 15, 1993 Decision1 and
October 22, 1993 Resolution2 of the Court of Appeals3 in CA-G.R. CV NO.
28779, which modified the Ruling4 of the Regional Trial Court of Pasig,
Branch 161, in Civil Case No. 46106.
The antecedent facts that matter are as follows:
On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance)
issued Fire Insurance Policy No. 45727 in favor of Transworld Knitting
Mills, Inc. (Transworld), initially for One Million (₱1,000,000.00) Pesos
and eventually increased to One Million Five Hundred Thousand
(₱1,500,000.00) Pesos, covering the period from August 14, 1980 to
March 13, 1981.
Pertinent portions of subject policy on the buildings insured, and location
thereof, read:
"‘On stocks of finished and/or unfinished products, raw materials and
supplies of every kind and description, the properties of the Insureds
and/or held by them in trust, on commission or on joint account with
others and/or for which they (sic) responsible in case of loss whilst
contained and/or stored during the currency of this Policy in the premises
occupied by them forming part of the buildings situate (sic) within own
Compound at MAGDALO STREET, BARRIO UGONG, PASIG, METRO
MANILA, PHILIPPINES, BLOCK NO. 601.’
xxx xxx xxx
‘Said building of four-span lofty one storey in height with mezzanine
portions is constructed of reinforced concrete and hollow blocks and/or
concrete under galvanized iron roof and occupied as hosiery mills,
garment and lingerie factory, transistor-stereo assembly plant, offices,
warehouse and caretaker's quarters.
'Bounds in front partly by one-storey concrete building under galvanized
iron roof occupied as canteen and guardhouse, partly by building of two
and partly one storey constructed of concrete below, timber above
undergalvanized iron roof occupied as garage and quarters and partly by
open space and/or tracking/ packing, beyond which is the
aforementioned Magdalo Street; on its right and left by driveway, thence
open spaces, and at the rear by open spaces.'"5
The same pieces of property insured with the petitioner were also insured
with New India Assurance Company, Ltd., (New India).
On January 12, 1981, fire broke out in the compound of Transworld,
razing the middle portion of its four-span building and partly gutting the
left and right sections thereof. A two-storey building (behind said four-
span building) where fun and amusement machines and spare parts
were stored, was also destroyed by the fire.
Transworld filed its insurance claims with Rizal Surety & Insurance
Company and New India Assurance Company but to no avail.
On May 26, 1982, private respondent brought against the said insurance
companies an action for collection of sum of money and damages,
docketed as Civil Case No. 46106 before Branch 161 of the then Court of
First Instance of Rizal; praying for judgment ordering Rizal Insurance and
New India to pay the amount of ₱2,747, 867.00 plus legal interest,
₱400,000.00 as attorney's fees, exemplary damages, expenses of
litigation of ₱50,000.00 and costs of suit.6
Petitioner Rizal Insurance countered that its fire insurance policy sued
upon covered only the contents of the four-span building, which was
partly burned, and not the damage caused by the fire on the two-storey
annex building.7
On January 4, 1990, the trial court rendered its decision; disposing as
follows:
"ACCORDINGLY, judgment is hereby rendered as follows:
(1)Dismissing the case as against The New India Assurance Co.,
Ltd.;
(2) Ordering defendant Rizal Surety And Insurance Company to
pay Transwrold (sic) Knitting Mills, Inc. the amount of P826,
500.00 representing the actual value of the losses suffered by it;
and
(3) Cost against defendant Rizal Surety and Insurance Company.
SO ORDERED."8
Both the petitioner, Rizal Insurance Company, and private respondent,
Transworld Knitting Mills, Inc., went to the Court of Appeals, which came
out with its decision of July 15, 1993 under attack, the decretal portion of
which reads:
"WHEREFORE, and upon all the foregoing, the decision of the court
below is MODIFIED in that defendant New India Assurance Company
has and is hereby required to pay plaintiff-appellant the amount of
P1,818,604.19 while the other Rizal Surety has to pay the plaintiff-
appellant P470,328.67, based on the actual losses sustained by plaintiff
Transworld in the fire, totalling P2,790,376.00 as against the amounts of
fire insurance coverages respectively extended by New India in the
amount of P5,800,000.00 and Rizal Surety and Insurance Company in
the amount of P1,500,000.00.
No costs.
SO ORDERED." 9 THAT TRANSWORLD HAD ACTED IN PALPABLE BAD FAITH
On August 20, 1993, from the aforesaid judgment of the Court of Appeals
New India appealed to this Court theorizing inter alia that the private
respondent could not be compensated for the loss of the fun and
amusement machines and spare parts stored at the two-storey building
because it (Transworld) had no insurable interest in said goods or items.
On February 2, 1994, the Court denied the appeal with finality in G.R. No.
L-111118 (New India Assurance Company Ltd. vs. Court of Appeals).
Petitioner Rizal Insurance and private respondent Transworld, interposed
a Motion for Reconsideration before the Court of Appeals, and on
October 22, 1993, the Court of Appeals reconsidered its decision of July
15, 1993, as regards the imposition of interest, ruling thus:
"WHEREFORE, the Decision of July 15, 1993 is amended but only
insofar as the imposition of legal interest is concerned, that, on the
assessment against New India Assurance Company on the amount of
P1,818,604.19 and that against Rizal Surety & Insurance Company on
the amount of P470,328.67, from May 26, 1982 when the complaint was
filed until payment is made. The rest of the said decision is retained in all
other respects.
SO ORDERED."10
Undaunted, petitioner Rizal Surety & Insurance Company found its way
to this Court via the present Petition, contending that:
I.....SAID DECISION (ANNEX A) ERRED IN ASSUMING THAT
THE ANNEX BUILDING WHERE THE BULK OF THE BURNED
PROPERTIES WERE STORED, WAS INCLUDED IN THE
COVERAGE OF THE INSURANCE POLICY ISSUED BY RIZAL
SURETY TO TRANSWORLD.
II.....SAID DECISION AND RESOLUTION (ANNEXES A AND B)
ERRED IN NOT CONSIDERING THE PICTURES (EXHS. 3 TO
7-C-RIZAL SURETY), TAKEN IMMEDIATELY AFTER THE FIRE,
WHICH CLEARLY SHOW THAT THE PREMISES OCCUPIED
BY TRANSWORLD, WHERE THE INSURED PROPERTIES
WERE LOCATED, SUSTAINED PARTIAL DAMAGE ONLY.
III. SAID DECISION (ANNEX A) ERRED IN NOT HOLDING
AND WITH MALICE IN FILING ITS CLEARLY UNFOUNDED
CIVIL ACTION, AND IN NOT ORDERING TRANSWORLD TO
PAY TO RIZAL SURETY MORAL AND PUNITIVE DAMAGES
(ART. 2205, CIVIL CODE), PLUS ATTORNEY'S FEES AND
EXPENSES OF LITIGATION (ART. 2208 PARS. 4 and 11, CIVIL
CODE).11
The Petition is not impressed with merit.
It is petitioner's submission that the fire insurance policy litigated upon
protected only the contents of the main building (four-span),12 and did not
include those stored in the two-storey annex building. On the other hand,
the private respondent theorized that the so called "annex" was not an
annex but was actually an integral part of the four-span building13 and
therefore, the goods and items stored therein were covered by the same
fire insurance policy.
Resolution of the issues posited here hinges on the proper interpretation
of the stipulation in subject fire insurance policy regarding its coverage,
which reads:
"xxx contained and/or stored during the currency of this Policy in the
premises occupied by them forming part of the buildings situate (sic)
within own Compound xxx"
Therefrom, it can be gleaned unerringly that the fire insurance policy in
question did not limit its coverage to what were stored in the four-span
building. As opined by the trial court of origin, two requirements must
concur in order that the said fun and amusement machines and spare
parts would be deemed protected by the fire insurance policy under
scrutiny, to wit:
"First, said properties must be contained and/or stored in the areas
occupied by Transworld and second, said areas must form part of the
building described in the policy xxx"14
'Said building of four-span lofty one storey in height with mezzanine
portions is constructed of reinforced concrete and hollow blocks and/or
concrete under galvanized iron roof and occupied as hosiery mills,
garment and lingerie factory, transistor-stereo assembly plant, offices,
ware house and caretaker's quarter.'
The Court is mindful of the well-entrenched doctrine that factual findings
by the Court of Appeals are conclusive on the parties and not reviewable
by this Court, and the same carry even more weight when the Court of
Appeals has affirmed the findings of fact arrived at by the lower court.15
In the case under consideration, both the trial court and the Court of
Appeals found that the so called "annex " was not an annex building but
an integral and inseparable part of the four-span building described in the
policy and consequently, the machines and spare parts stored therein
were covered by the fire insurance in dispute. The letter-report of the
Manila Adjusters and Surveyor's Company, which petitioner itself cited
and invoked, describes the "annex" building as follows:
"Two-storey building constructed of partly timber and partly concrete
hollow blocks under g.i. roof which is adjoining and intercommunicating
with the repair of the first right span of the lofty storey building and thence
by property fence wall."16
Verily, the two-storey building involved, a permanent structure which
adjoins and intercommunicates with the "first right span of the lofty storey
building",17 formed part thereof, and meets the requisites for
compensability under the fire insurance policy sued upon.
So also, considering that the two-storey building aforementioned was
already existing when subject fire insurance policy contract was entered
into on January 12, 1981, having been constructed sometime in
1978,18 petitioner should have specifically excluded the said two-storey
building from the coverage of the fire insurance if minded to exclude the
same but if did not, and instead, went on to provide that such fire
insurance policy covers the products, raw materials and supplies stored
within the premises of respondent Transworld which was an integral part
of the four-span building occupied by Transworld, knowing fully well the
existence of such building adjoining and intercommunicating with the
right section of the four-span building.
After a careful study, the Court does not find any basis for disturbing what
the lower courts found and arrived at.
Indeed, the stipulation as to the coverage of the fire insurance policy
under controversy has created a doubt regarding the portions of the
building insured thereby. Article 1377 of the New Civil Code provides:
"Art.1377. The interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the obscurity"
Conformably, it stands to reason that the doubt should be resolved
against the petitioner, Rizal Surety Insurance Company, whose lawyer or
managers drafted the fire insurance policy contract under scrutiny. Citing
the aforecited provision of law in point, the Court in Landicho vs.
Government Service Insurance System,19 ruled:
"This is particularly true as regards insurance policies, in respect of which
it is settled that the 'terms in an insurance policy, which are ambiguous,
equivocal, or uncertain x x x are to be construed strictly and most strongly
against the insurer, and liberally in favor of the insured so as to effect the
dominant purpose of indemnity or payment to the insured, especially
where forfeiture is involved' (29 Am. Jur., 181), and the reason for this is
that the 'insured usually has no voice in the selection or arrangement of
the words employed and that the language of the contract is selected
with great care and deliberation by experts and legal advisers employed
by, and acting exclusively in the interest of, the insurance company.' (44
C.J.S., p. 1174).""20
Equally relevant is the following disquisition of the Court in Fieldmen's
Insurance Company, Inc. vs. Vda. De Songco,21 to wit:
"'This rigid application of the rule on ambiguities has become necessary
in view of current business practices. The courts cannot ignore that
1âwphi 1
nowadays monopolies, cartels and concentration of capital, endowed
with overwhelming economic power, manage to impose upon parties
dealing with them cunningly prepared 'agreements' that the weaker party
may not change one whit, his participation in the 'agreement' being
reduced to the alternative to 'take it or leave it' labelled since Raymond
Saleilles 'contracts by adherence' (contrats [sic] d'adhesion), in contrast
to these entered into by parties bargaining on an equal footing, such
contracts (of which policies of insurance and international bills of lading
are prime example) obviously call for greater strictness and vigilance on
the part of courts of justice with a view to protecting the weaker party
from abuses and imposition, and prevent their becoming traps for the
unwary (New Civil Code, Article 24; Sent. of Supreme Court of Spain, 13
Dec. 1934, 27 February 1942.)'"22
The issue of whether or not Transworld has an insurable interest in the The controversy at bar is on all fours with the aforecited case.
fun and amusement machines and spare parts, which entitles it to be Considering that private respondent's insurable interest in, and
indemnified for the loss thereof, had been settled in G.R. No. L-111118, compensability for the loss of subject fun and amusement machines and
entitled New India Assurance Company, Ltd., vs. Court of Appeals, spare parts, had been adjudicated, settled and sustained by the Court of
where the appeal of New India from the decision of the Court of Appeals Appeals in CA-G.R. CV NO. 28779, and by this Court in G.R. No. L-
under review, was denied with finality by this Court on February 2, 1994. 111118, in a Resolution, dated February 2, 1994, the same can no longer
be relitigated and passed upon in the present case. Ineluctably, the
The rule on conclusiveness of judgment, which obtains under the petitioner, Rizal Surety Insurance Company, is bound by the ruling of the
premises, precludes the relitigation of a particular fact or issue in another Court of Appeals and of this Court that the private respondent has an
action between the same parties based on a different claim or cause of insurable interest in the aforesaid fun and amusement machines and
action. "xxx the judgment in the prior action operates as estoppel only as spare parts; and should be indemnified for the loss of the same.
to those matters in issue or points controverted, upon the determination
of which the finding or judgment was rendered. In fine, the previous So also, the Court of Appeals correctly adjudged petitioner liable for the
judgment is conclusive in the second case, only as those matters actually amount of P470,328.67, it being the total loss and damage suffered by
and directly controverted and determined and not as to matters merely Transworld for which petitioner Rizal Insurance is liable.26
involved therein."23
All things studiedly considered and viewed in proper perspective, the
Applying the abovecited pronouncement, the Court, in Smith Bell and Court is of the irresistible conclusion, and so finds, that the Court of
Company (Phils.), Inc. vs. Court of Appeals,24held that the issue of Appeals erred not in holding the petitioner, Rizal Surety Insurance
negligence of the shipping line, which issue had already been passed Company, liable for the destruction and loss of the insured buildings and
upon in a case filed by one of the insurers, is conclusive and can no articles of the private respondent.
longer be relitigated in a similar case filed by another insurer against the
same shipping line on the basis of the same factual circumstances. WHEREFORE, the Decision, dated July 15, 1993, and the Resolution,
Ratiocinating further, the Court opined: dated October 22, 1993, of the Court of Appeals in CA-G.R. CV NO.
28779 are AFFIRMED in toto. No pronouncement as to costs.
"In the case at bar, the issue of which vessel ('Don Carlos' or 'Yotai
Maru') had been negligent, or so negligent as to have proximately caused SO ORDERED.
the collision between them, was an issue that was actually, directly and
expressly raised, controverted and litigated in C.A.-G.R. No. 61320-R. Melo, (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.
Reyes, L.B., J., resolved that issue in his Decision and held the 'Don
Carlos' to have been negligent rather than the 'Yotai Maru' and, as
already noted, that Decision was affirmed by this Court in G.R. No. L-
48839 in a Resolution dated 6 December 1987. The Reyes Decision thus
became final and executory approximately two (2) years before the Sison
Decision, which is assailed in the case at bar, was promulgated. Applying
the rule of conclusiveness of judgment, the question of which vessel had
been negligent in the collision between the two (2) vessels, had long
been settled by this Court and could no longer be relitigated in C.A.-G.R.
No. 61206-R. Private respondent Go Thong was certainly bound by the
ruling or judgment of Reyes, L.B., J. and that of this Court. The Court of
Appeals fell into clear and reversible error when it disregarded the
Decision of this Court affirming the Reyes Decision."25