Mayer Steel Pipe vs.

CA 273 SCRA 432 (1997)

INSURANCE LAW: Contract of Insurance

FACTS: Hong Kong Government Supplies Department contracted Mayer Steel Pipe Corporation to manufacture and supply various steel pipes and fittings. Prior to the shipping, Mayer insured these pipes and fittings against all risks with South Sea Surety and Insurance Co., Inc. and Charter Insurance Corp., with Industrial Inspection Inc. appointed as third-party inspector. After examining the pipes and fittings, Industrial Inspection certified that they are in good order condition. However, when the goods reached Hong Kong, it was discovered that a substantial portion thereof was damaged. The trial court found in favor of the insured. However, when the case was elevated to the CA, it set aside the decision of the trial court and dismissed the complaint on the ground of prescription. It held that the action was barred under Sec. 3(6) of the Carriage of Goods by Sea Act (COGSA) since it was filed only on April 17, 1986, more than two years from the time the goods were unloaded from the vessel. ISSUE:

Whether or not the action is barred by prescription

HELD: Sec. 3(6) of the COGSA states that the carrier and the ship shall be discharged from all liability for loss or damage to the goods if no suit is filed within one year after delivery of the goods or the date when they should have been delivered. Under this provision, only the carriers liability is extinguished if no suit is brought within one year. But the liability of theinsurer is not extinguished because the insurers liability is based not on the contract of carriage but on the contract of insurance. An insurance contract is a contract whereby one party, for a consideration known as the premium, agrees to indemnify another for loss or damage which he may suffer from a specified peril. An all risks insurance policy covers all kinds of loss other than those due to willful and fraudulent act of the insured. Thus, when private respondents issued the all risks policies to

Mayer, they bound themselves to indemnify the latter in case of loss or damage to the goods insured. Such obligation prescribes in ten years, in accordance with Article 1144 of the New Civil Code. Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue GR no. 167330 September 18, 2009 Corona, J. FACTS: This is based on a Motion for Reconsideration filed by the petitioner. Philippine Health Care Providers, Inc. is a domestic corporation primarily engaged in the business of providing prepaid group practice health care delivery system. On January 27, 2000, the Commissioner of Internal Revenue sent an assessment letter to the petitioner informing it and demanding payment of P224, 702, 614. 18 in back taxes, surcharge, and interests. The deficiency is composed mostly of unpaid documentary stamp tax (DST) imposed on the petitioners agreement with its members. Petitioner protested before the CIR but due to the latters inaction; it filed a petition for review before the Court of Tax Appeals. The CTA rendered a decision partially granting the petition for review. The petitioner was ordered to pay P53M instead of the original P225M. Furthermore, the CIR was ordered to desist from collecting DST tax Respondent CIR appealed the decision before the Court of Appeals. According to him, the petitioners healthcare agreement is a contract of insurance and as such, is subject to DST under Section 185 of the 1997 Tax Code. The CA rendered a decision reversing the earlier decision of the CTA. It ordered the petitioner to pay P123M in DST. Petitioner appealed the decision before the Supreme Court which affirmed the CAs decision. The SC held that the petioners health care agreement during the pertinent period was in the nature of non-life insurance which is a contact of indemnity. The Court further ruled that contracts between companies like petitioner and its beneficiaries under their

plans are treated as insurance contract. The petitioner filed a motion for reconsideration. ISSUE Whether or not the health care agreement between petitioner and its beneficiaries is an insurance contract. RULING The Supreme Court ruled in favor of the petitioner and granted the motion for reconsideration. The Court ruled that the health care agreement between the petitioners and its beneficiaries is not a contract of insurance. The Court based its decision on the fact that the HMO agreement does not qualify as an insurance business based on the principal object and purpose test. The test is based on Section 2 (2) of the Insurance Code. Accordingly, an enterprise is considered engaged in an insurance business when the principal object of the enterprise is the assumption of risk and the indemnification of loss. If the enterprise assumes risk and indemnifies beneficiaries for losses, then it is an insurance company. American courts have pointed out that the main difference between an HMO and an insurance company is that HMOs undertake to provide or arrange for the provision of medical services through participating physicians while insurance companies simply undertake to indemnify the insured for medical expenses incurred up to a pre-agreed limit. A substantial portion of petitioners services covers preventive and diagnostic medical services intended to keep members from developing medical conditions or diseases. As an HMO, it is its obligation to maintain the good health of its members. Accordingly, its health care programs are designed to prevent or to minimize the possibility of any assumption of risk on its part. Thus, its undertaking under its agreements is not to indemnify its members against any loss or damage arising from a medical condition but, on the contrary, to provide the health and medical services needed to prevent such loss or damage. Overall, petitioner appears to provide insurance-type benefits to its members (with respect to its curative medical services), but these are incidental to the principal activity of providing them medical care. The

insurance-like aspect of petitioners business is miniscule compared to its noninsurance activities. Therefore, since it substantially provides health care services rather than insurance services, it cannot be considered as being in the insurance business. Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is evident from the fact that it is not supervised by the Insurance Commission but by the Department of Health. In fact, in a letter dated September 3, 2000, the Insurance Commissioner confirmed that petitioner is not engaged in the insurance business. This determination of the commissioner must be accorded great weight. It is well-settled that the interpretation of an administrative agency which is tasked to implement a statute is accorded great respect and ordinarily controls the interpretation of laws by the courts. 3.Topic: Contract of Adhesion or Fine Print Rule Eternal Garden Memorial vs. Phil American Life Insurance GR. No. 166245, April 9, 2008 Facts: Philippine American Life Insurance Company (Philamlife) entered into an agreement under Creditor Group Life Policy No. P-1920 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 which depends upon the existing balance of the purchased lots. One of the lot purchasers of Eternal was John Chuang, and with a balance of P100,000 died in 1984. Eternal sent a letter to Philamlife which served as an insurance claim for Chuangs death. Philamlife denied Eternals claim alleging that no application for group insurance was submitted to their office for their approval prior to the death of Chuang. RTC found that Eternal submitted Chuangs application before his death as an enclosure to a letter dated December 29, 1982. However CA reversed RTCs factual findings ruling that said application was not enclosed and that non-accomplishment of the application is a violation of the Insurance Code. Thus Chuang was not covered by Philamlifes insurance. Issue: Whether or not Philamlife assumed the risk of loss without approving the application. SC Ruling:

The Court ruled in favor of the insured Eternal. One of the provisions in the group policy 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. shows ambiguity. The first sentence appears that the coverage becomes effective upon contracting a loan with Eternal, while the second sentence appears that it needs prior approval for its effectivity. The Court ruled that 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 interest of the insured. In Malayan Insurance Corporation v. CA, the 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. The Court also held that 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. 4.Topic: Contract of Adhesion or Fine Print Rule Western Guaranty Corporation vs. CA 187 SCRA 652 (1990) Facts: While crossing Airport Road on a pedestrian lane, Priscilla Rodriguez was struck by a passenger bus owned by respondent De Dios Transport Co. and driven by Walter Saga y Aspero. Rodriguez was thrown to the ground , hitting her forehead. She was then hospitalized and her face was permanently disfigured causing her serious anxiety and moral distress.

Meanwhile, respondent bus company was insured with petitioner Western Guaranty Corporation (Western). And under its Master Policy which enumerated specific liabilities of the insurance company and ended with a clause to clarify the limitations of the amount which could be granted as indemnity. Respondent Priscilla Rodriguez filed a complaint for damages before the Regional Trial Court of Makati against De Dios Transportation Co. and Walter A. Saga. Respondent De Dios Transportation Co., in turn, filed a third-party complaint against its insurance carrier, petitioner Western. RTC decided in favor of Rodriguez. On appeal, the CA affirmed the decision of the RTC in toto. Thus this petition by Western alleging that the Court of Appeals erred in holding petitioner liable to pay beyond the limits set forth in the Schedule Indemnities and in finding it liable for loss of earnings, moral damages and attorney's fees. Succinctly stated, it is petitioner Western's position that it cannot be held liable for loss of earnings, moral damages and attorney's fees because these items are not among those included in the Schedule Indemnities set forth in the insurance policy. Petitioner Western in effect contends, as it did before the Court of Appeals, that because the Schedule of Indemnities limits the amount payable for certain kinds of expenses "hospital room", "surgical expenses", "an aesthesiologists' fee", "operating room" and "medical expenses" that Schedule should be read as excluding liability for any other type of expense or damage or loss even though actually sustained or incurred by the third party victim Issue: Whether or not the Schedule of indemnities as stated in the insurance policy should be construed strictly to exclude all others not explicitly stated therein. SC Ruling: The Court ruled that the Schedule of Indemnities does not purport to restrict the kinds of damages that may be awarded against Western once liability has arisen. Section 1, quoted above, does refer to certain "Limits of Liability" which in the case of the third party liability section of the Master Policy, is apparently P50,000.00 per person per accident. Within this over-all quantitative limit, all kinds of damages allowable by law "actual or compensatory damages"; "moral damages"; "nominal damages"; "temperate or moderate damages"; "liquidated damages"; and "exemplary damages" may be awarded by a competent court against the insurer once liability is shown to have arisen, and the essential requisites or conditions for grant of each species of damages are present. It appears that the schedule was not intended to be an enumeration, much less a closed enumeration, of the specific kinds of damages which may be awarded under the Master Policy Western has issued. The Court further ruled that the schedule should be construed as comprising contractual limitations of liability which, as already noted, is comprehensively defined in Section 1 "Liability to the Public" of the Master

Policy. It is well-settled, however, that contractual limitations of liability found in insurance contracts should be regarded by courts with a jaundiced eye and extreme care and should be so construed as to preclude the insurer from evading compliance with its just obligations. Finally, an insurance contract is a contract of adhesion. The rule is well entrenched in our jurisprudence that the terms of such contract are to be construed strictly against the party which prepared the contract, which in this case happens to be petitioner Western.

Rizal Surety vs. CA 336 SCRA 12 (2000)

INSURANCE LAW: Interpretation of Insurance Contracts

FACTS: Rizal Surety & Insurance Company issued a fire insurance policy in favor of Transworld Knitting Mills, Inc. The subject policy stated that Rizal Surety is 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 situated within own Compound xxx. The policy also described therein the four-span building covered by the same. On Jan. 12, 1981, fire broke out in the compound, 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) was also destroyed by the fire. ISSUE:

Whether or not Rizal Surety is liable for loss of the two-storey building considering that the fire insurance policy sued upon covered only the contents of the four-span building

HELD: Both the trial court and the CA found that the so-called annex as 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. So also, considering that the two-storey building aforementioned was already existing when subject fire insurance policy contract was entered into on Jan. 12, 1981, having been constructed some time in 1978, 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 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. Also, in case of doubt in the stipulation as to the coverage of the fire insurance policy, under Art. 1377 of the New Civil Code, the doubt should be resolved against the Rizal Surety, whose layer or managers drafted the fire insurance policy contract under scrutiny. In Landicho vs. Government Service Insurance System, the Court ruled 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, 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.

Great Pacific Life vs. CA 316 SCRA 677 (1999)

INSURANCE LAW: Parties in Insurance Contract

FACTS:

Great Pacific Life Assurance Corporation (Grepalife) executed a contract of group life insurance with Development Bank of the Philippines (DBP) wherein Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP. One such loan mortgagor is Dr. Wilfredo Leuterio. In an application form, Dr. Leuterio answered questions concerning his test, attesting among others that he does not have any heart conditions and that he is in good health to the best of his knowledge. However, after about a year, Dr. Leuterio died due to massive cerebral hemorrhage. When DBP submitted a death claim to Grepalife, the latter denied the claim, alleging that Dr. Leuterio did not disclose he had been suffering from hypertension, which caused his death. Allegedly, such nondisclosure constituted concealment that justified the denial of the claim. Hence, the widow of the late Dr. Leuterio filed a complaint against Grepalife for Specific Performance with Damages. Both the trial court and the Court of Appeals found in favor of the widow and ordered Grepalife to pay DBP. ISSUE:

Whether the CA erred in holding Grepalife liable to DBP as beneficiary in a group life insurance contract from a complaint filed by the widow of the decedent/mortgagor

HELD: The rationale of a group of insurance policy of mortgagors, otherwise known as the mortgage redemption insurance, is a device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event of death, the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness. 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. The 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, such as a mortgagee. 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, the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife. G.R. No. 138941 October 8, 2001 AMERICAN HOME ASSURANCE vs. TANTUCO ENTERPRISES, INC., respondent. FACTS: Before us is a Petition for Review on Certiorari assailing the Decision of the Court of which affirmed in toto the Decision of the Regional Trial Court, Civil Case No. 92-51 dated October 16, 1995. Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refining industry. It owns two oil mills. Both are located at factory compound at Iyam, Lucena City. It appears that respondent commenced its business operations with only one oil mill. In 1988, it started operating its second oil mill. The latter came to be commonly referred to as the new oil mill. The two oil mills were separately covered by fire insurance policies issued by petitioner American Home Assurance Co., Philippine Branch. The first oil mill was insured for three million pesos (P3,000,000.00). The new oil mill was insured for six million pesos (P6,000,000.00). Official receipts indicating payment for the full amount of the premium were issued by the petitioner's agent. A fire that broke out in the early morning of September 30,1991 gutted and consumed the new oil mill. Respondent immediately notified the petitioner of the incident. The latter then sent its appraisers who inspected the burned premises and the properties destroyed. Thereafter, in a letter dated October COMPANY, petitioner,

15, 1991, petitioner rejected respondent's claim for the insurance proceeds on the ground that no policy was issued by it covering the burned oil mill. It stated that the description of the insured establishment referred to another building. A case was filed by Tantunco against American Assurance Company in the regional Trial Court which decided the case ih his favor and was duly affirmed in toto by the Court of Appeals, hence this petition. ISSUE: Whether or not the new oil mill of Tantunco is covered by insurance notwithstanding the discrepancy of the description of the establishment subject of such insurance. HELD: In construing the words used descriptive of a building insured, the greatest liberality is shown by the courts in giving effect to the insurance. In view of the custom of insurance agents to examine buildings before writing policies upon them, and since a mistake as to the identity and character of the building is extremely unlikely, the courts are inclined to consider that the policy of insurance covers any building which the parties manifestly intended to insure, however inaccurate the description may be. Moreover, the description which indicated new oil mill clearly represents the new mill albeit the technical description. It would be absurd to assume that respondent would protect its first oil mill for different amounts and leave uncovered its second one. As mentioned earlier, the first oil mill is already covered under Policy No. 306-7432324-4 issued by the petitioner. It is unthinkable for respondent to obtain the other policy from the very same company. The latter ought to know that a second agreement over that same realty results in its over insurance. The decision was affirmed.

G.R. No. 81026 April 3, 1990 PAN MALAYAN INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, ERLINDA FABIE AND HER UNKNOWN DRIVER, respondents. FACTS:

On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of Makati against private respondents Erlinda Fabie and her driver. PANMALAY averred the following: that it insured a Mitsubishi Colt Lancer car with plate No. DDZ-431 and registered in the name of Canlubang Automotive Resources Corporation [CANLUBANG]; that on May 26, 1985, due to the "carelessness, recklessness, and imprudence" of the unknown driver of a pick-up with plate no. PCR-220, the insured car was hit and suffered damages in the amount of P42,052.00; that PANMALAY defrayed the cost of repair of the insured car and, therefore, was subrogated to the rights of CANLUBANG against the driver of the pick-up and his employer, Erlinda Fabie; and that, despite repeated demands, defendants, failed and refused to pay the claim of PANMALAY. Private respondents filed a Motion to Dismiss alleging that PANMALAY had no cause of action against them. They argued that payment under the "own damage" clause of the insurance policy precluded subrogation under Article 2207 of the Civil Code, since indemnification thereunder was made on the assumption that there was no wrongdoer or no third party at fault. ISSUE: Whether or not the insurer PANMALAY may institute an action to recover the amount it had paid its assured in settlement of an insurance claim against private respondents as the parties allegedly responsible for the damage caused to the insured vehicle. HELD: Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is destroyed or damaged through the fault or negligence of a party other than the assured, then the insurer, upon payment to the assured, will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to the assured operates as an equitable assignment to the former of all remedies which the latter may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer. 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. It is only when the terms of the policy are ambiguous, equivocal or

uncertain, such that the parties themselves disagree about the meaning of particular provisions, that the courts will intervene. In such an event, the policy will be construed by the courts liberally in favor of the assured and strictly against the insurer. The Court, furthermore. finds it noteworthy that the meaning advanced by PANMALAY regarding the coverage of Section III-1(a) of the policy is undeniably more beneficial to CANLUBANG than that insisted upon by respondents herein. By arguing that this section covers losses or damages due not only to malicious, but also to negligent acts of third parties, PANMALAY in effect advocates for a more comprehensive coverage of insured risks. And this, in the final analysis, is more in keeping with the rationale behind the various rules on the interpretation of insurance contracts favoring the assured or beneficiary so as to effect the dominant purpose of indemnity or payment. The present petition is GRANTED. Petitioner's complaint for damages against private respondents is hereby REINSTATED. Let the case be remanded to the lower court for trial on the merits.