Blue Cross v Olivares G.R. No. 169737, February 12, 2008J. Corona

Facts:Neomi Olivares applied for a health care program with Blue Cross for the amount of 12,000 pesos. 38 days after she applied, she suffered from a stroke. Ailments due to “pre-existing conditions” were excluded from the coverage. She was confined in Medical City and discharged with a bill of Php 34,000. Blue Cross refused to pay unless she had her physician’s certification that she was suffering from a pre-existing condition.  When Blue Cross still refused to pay, she filed suit in the MTC. The health care company rebutted by saying that the physician didn’t disclose the condition due to the patient’s invocation of the doctor-client privilege. The MTC dismissed for a lack of cause of action because the physician didn’t disclose the condition. In the RTC, the spouses were awarded the amount of the hospital bills plus 60,000 in damages. This was under the ratio that the burden to prove that Neomi had a pre-existing condition was under Blue Cross. The CA denied the motion for reconsideration of the health care company.Issues:1. Whether petitioner was able to prove that respondent Neomi's stroke was caused by a pre-existing condition and therefore was excluded from the coverage of the health care agreement. 2. Whether it was liable for moral and exemplary damages and attorney's fees.Held: No. Yes. Petition dismissed.Ratio:1. “Philamcare Health Systems, Inc. v. CA- a health care agreement is in the nature of a non-life insurance. It is an established rule in insurance contracts that when their terms contain limitations on liability, they should be construed strictly against the insurer. These are contracts of adhesion the terms of which must be interpreted and enforced stringently against the insurer which prepared the contract. This doctrine is equally applicable to health care agreements.”The agreement defined a pre-existing condition as:“a disability which existed before the commencement date of membership whose natural history can be clinically determined, whether or not the Member was aware of such illness or condition. Such conditions also include disabilities existing prior to reinstatement date in the case of lapse of an Agreement.”“Under this provision, disabilities which existed before the commencement of the agreement are excluded from its coverage if they become manifest within one year from its effectivity.”Petitioners still averred that the non-disclosure of the pre-existing condition made a presumption in its favor. Respondents still maintained that the petitioner had the duty to prove its accusation.Petitioner never presented evidence to prove its presumption that the Doctor’s report would work against Neomi. They only perceived that the

invocation of the privilege made the report adverse to Neomi and such was a disreputable presumption. They should have made an independent assessment of Neomi’s condition when it failed to obtain the report. They shouldn’t have waited for the attending physician’s report to come out.Section 3 (e), Rule 131 of the Rules of Court states:Under the rules of court, Rule 131, Sec. 3.Disputable presumptions. ― The following presumptions are satisfactory if uncontradicted, but may be contradicted and overcome by other evidence:(e) That evidence willfully suppressed would be adverse if produced.The exception on presenting evidence applies when the suppression is an exercise of a privilege.Hence, Neomi had the privilege not to present the Doctor’s report under the doctor-client privilege.2. The court quoted the CA and RTC decision stating that “ the refusal of petitioner to pay respondent Neomi's bills smacks of bad faith, as its refusal [was] merely based on its own perception that a stroke is a pre-existing condition.” Also, there was factual bases in the RTC and CA for the award of the damages.

CONCEALMENT MADE IN GOOD FAITH; VALID INSURACE CONTRACT

PHILAMCARE HEALTH SYSTEMS, INC. VS. CA & JULITA RAMOSG.R. No.125678, March 18, 2002Facts: Ernani Trinos, deceased husband of Julita Ramos, applied for a health care coverage with the petitioner Philamcare. In the standard application form, he delivered no to a question asking him if he had been treated of any of the family member consulted for high blood, heart trouble, diabetes, cancer, liver disease, asthma or ulcer. The application was approved for a period of 1 year from and thus extended to June 1, 1990. During the period of coverage, Ernani suffered a heart attack and was confined for one month. Respondent Julita Ramos tried to claim saying that the health care Agreement was void as there was concealment regarding Ernani’s medical history. On July 24, 1990, after Ernani died, Julita Ramos instituted an action for damages against Philam care with the RTC Manila, which ruled against the latter.Issue: Whether or not there is a valid insurance contract because of alleged concealment of material fact.Held: The Supreme Court ruled that there is a valid insurance contract, after all, all the elements for an insurance contract are contract are present and alleged concealment answers made in good faith and without intent to deceive will not avoid the policy. The insurer, in case of material fact, is not justified in relying upon such statement, but obligated to make further inquiry.

WHITE GOLD MARINE SERVICES, INC. VS. PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD.G.R. No. 154514. July 28, 2005Facts: White Gold Marine Services, Inc. procured a protection and indemnity coverage for its vessels from The Steamship Mutual Underwriting Association Limited through Pioneer Insurance and Surety Corporation. White Gold was issued a Certificate of Entry and Acceptance. Pioneer 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 186 and 187, while Pioneer violated Sections 299, to 301 of the Insurance Code.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. 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.Issues: (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?Held: 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.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.In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the losses incident to a marine adventure. Section 99 of the Insurance Code enumerates the coverage of marine insurance.

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. 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 187 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.On the second issue, Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration issued by the Insurance Commission. It has been licensed to do or transact insurance business by virtue of the certificate of authority 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. Although Pioneer is already licensed as an insurance company, it needs a separate license to act as insurance agent for Steamship Mutual.

PHILIPPINE CHARTER INSURANCE CORPORATION VS. CHEMOIL LIGHTERAGE HITE GOLD CORPORATION

G.R. No. 136888. June 29, 2005Facts: Philippine Charter Insurance Corporation is a domestic corporation engaged in the business of non-life insurance. Respondent Chemoil Lighterage Corporation is also a domestic corporation engaged in the transport of goods. On 24 January 1991, Samkyung Chemical Company, Ltd., based in South Korea, shipped 62.06 metric tons of the liquid chemical DIOCTYL PHTHALATE (DOP) on board MT “TACHIBANA” which was valued at US$90,201.57 and another 436.70 metric tons of DOP valued at US$634,724.89 to the Philippines. The consignee was Plastic Group Phils., Inc. in Manila. PGP insured the cargo with Philippine Charter Insurance Corporation against all risks. The insurance was under Marine Policies No. MRN-30721[5] dated 06 February 1991. Marine Endorsement No. 2786[7] dated 11 May 1991 was attached and formed part of MRN-30721, amending the latter’s insured value to P24,667,422.03, and reduced the premium accordingly. The ocean tanker MT “TACHIBANA” unloaded the cargo to the tanker barge, which shall transport the same to Del Pan Bridge in Pasig River and haul it by land to PGP’s storage tanks in Calamba, Laguna. Upon inspection by PGP, the samples taken from the shipment showed discoloration demonstrating that it was damaged. PGP then sent a letter where it formally made an insurance claim for the loss it sustained.Petitioner requested the GIT Insurance Adjusters, Inc. (GIT), to conduct a Quantity and Condition Survey of the shipment which issued a report stating that DOP samples taken were discolored. Inspection of cargo tanks showed manhole covers of ballast tanks’ ceilings loosely secured and that the rubber gaskets of the manhole covers of the ballast tanks re-acted to the chemical causing shrinkage thus, loosening the covers and cargo ingress. Petitioner paid PGP the full and final payment for the loss and issued a Subrogation Receipt. Meanwhile, PGP paid the respondent the as full payment for the latter’s services. On 15 July 1991, an action for damages was instituted by the petitioner-insurer against respondent-carrier before the RTC, Br.16, City of Manila. Respondent filed an answer which admitted that it undertook to transport the shipment, but alleged that before the DOP was loaded into its barge, the representative of PGP, Adjustment Standard Corporation, inspected it and found the same clean, dry, and fit for loading, thus accepted the cargo without any protest or notice. As carrier, no fault and negligence can be attributed against respondent as it exercised extraordinary diligence in handling the cargo. After due hearing, the trial court rendered a Decision in favor of plaintiff. On appeal, the Court of Appeals promulgated its Decision reversing the trial court. A petition for review on certiorar[ was filed by the petitioner with this Court.Issues: 1. Whether or not the Notice of Claim was filed within the required period.2.Whether or not the damage to the cargo was due to the fault or negligence of the respondent.Held: Article 366 of the Code of Commerce has profound application in the case at bar, which provides that; “Within twenty-four hours following the receipt of the merchandise a claim may be made against the carrier on account of damage or average found upon opening the packages, provided that the indications of the damage or average giving rise to the claim cannot be ascertained from the exterior of said packages, in which case said claim shall only be admitted at the time of the receipt of the packages.” After the periods mentioned have elapsed, or after the transportation charges have been paid, no claim whatsoever shall be admitted against the carrier with regard to the

condition in which the goods transported were delivered.As to the first issue, the petitioner contends that the notice of contamination was given by PGP employee, to Ms. Abastillas, at the time of the delivery of the cargo, and therefore, within the required period. The respondent, however, claims that the supposed notice given by PGP over the telephone was denied by Ms. Abastillas. The Court of Appeals declared: that a telephone call made to defendant-company could constitute substantial compliance with the requirement of notice. However, it must be pointed out that compliance with the period for filing notice is an essential part of the requirement, i.e.. immediately if the damage is apparent, or otherwise within twenty-four hours from receipt of the goods, the clear import being that prompt examination of the goods must be made to ascertain damage if this is not immediately apparent. We have examined the evidence, and We are unable to find any proof of compliance with the required period, which is fatal to the accrual of the right of action against the carrier.[27]Nothing in the trial court’s decision stated that the notice of claim was relayed or filed with the respondent-carrier immediately or within a period of twenty-four hours from the time the goods were received. The Court of Appeals made the same finding. Having examined the entire records of the case, we cannot find a shred of evidence that will precisely and ultimately point to the conclusion that the notice of claim was timely relayed or filed.The requirement that a notice of claim should be filed within the period stated by Article 366 of the Code of Commerce is not an empty or worthless proviso.The object sought to be attained by the requirement of the submission of claims in pursuance of this article is to compel the consignee of goods entrusted to a carrier to make prompt demand for settlement of alleged damages suffered by the goods while in transport, so that the carrier will be enabled to verify all such claims at the time of delivery or within twenty-four hours thereafter, and if necessary fix responsibility and secure evidence as to the nature and extent of the alleged damages to the goods while the matter is still fresh in the minds of the parties.The filing of a claim with the carrier within the time limitation therefore actually constitutes a condition precedent to the accrual of a right of action against a carrier for loss of, or damage to, the goods. The shipper or consignee must allege and prove the fulfillment of the condition. If it fails to do so, no right of action against the carrier can accrue in favor of the former. The aforementioned requirement is a reasonable condition precedent; it does not constitute a limitation of action.[31]We do not believe so. As discussed at length above, there is no evidence to confirm that the notice of claim was filed within the period provided for under Article 366 of the Code of Commerce. Petitioner’s contention proceeds from a false presupposition that the notice of claim was timely filed.Considering that we have resolved the first issue in the negative, it is therefore unnecessary to make a resolution on the second issue.

EXEMPTION SHOULD BE PROVEN IN ORDER TO QUALIFY UNDEREXCEPTION CLAUSE OF INSURANCE POLICYCOUNTRY BANKERS INSURANCE CORP. VS. LIANGA BAY & COMMUNITY MULTI-PURPOSE COOPERATIVE, INC.G.R. No.136914, January 25, 2002Facts: Country Banker’s Insurance Corp. (CBIC) insured the building of respondent Lianga Bay and Community Multi-Purpose Corp., Inc. against fire, loss, damage, or liability during the period starting June 20, 1990 for the sum of Php.200,000.00. On July 1, 1989 at about 12:40 in the morning a fire occurred. The respondent filed the insurance claim but the petition denied the same on the ground that the building was set on fire by two NPA rebels and that such loss was an excepted risk under par.6 of the conditions of the insurance policy that the insurance does not cover any loss or damage occasioned by among others, mutiny, riot, military or any uprising. Respondent filed an action for recovery of loss, damage or liability against petitioner and the Trial Court ordered the petition to pay the full value of the insurance.Issue: Whether or not the insurance corporation is exempted to pay based on the exception clause in the insurance policy.Held: The Supreme Court held that the insurance corporation has the burden of proof to show that the loss comes within the purview of the exception or limitation set-up. But the insurance corporation cannot use a witness to prove that the fire was caused by the NPA rebels on the basis that the witness learned this from others. Such testimony is considered hearsay and may not be received as proof of the truth of what he has learned. The petitioner, failing to prove the exception, cannot rely upon on exemption or exception clause in the fire insurance policy. The petition was granted.

Gaisano Cagayan, Inc. vs Insurance Company of North AmericaFacts:- Intercapitol Marketing Corporation (IMC) is a maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc.(LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss and Co. IMC and LSPI both obtained from respondent fire insurance policies with book debt endorsements. It provides for coverage on book debts in connection with ready-made clothing materials which have been sold or delivered to various customers and dealers of the insured everywhere in the Philippines. The policies defined book debts as the unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered under the said policy.- Petitioner is a customer and dealer of the products of IMC and LSPI. Feb 25, 1991, The Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, burned down. Included in the items lost in the fire were the ready-made clothing materials sold and delivered by IMC and LSPI.- Feb

1992, Respondent filed a complaint for damages against petitioner, alleging that IMC and LSPI filed with respondent their claims, that as of Feb 25, 1991, the unpaid accounts of petitioner on the sale and delivery of the clothing materials with IMC was P2,119,205.00 while with LSPI was P535,613.020, that respondent paid the claims of IMC and LSPI, that respondent made several demands for payment upon petitioner but were ignored.- They failed to reach an amicable settlement. RTC rendered their decision dismissing respondent's complaint stating that the fire was accidental and was not attributable to the negligence of the petitioner, that it has not established that petitioner is the debtor of IMC and LSPI, that since the invoice states that IMC and LSPI retain ownership over the clothing materials until the purchase price is fully paid.- CA reversed the RTC decision.Issue:

1. Whether the petitioner is liable for the unpaid accounts

Held:1. Yes. Petitioner ordered to pay P2,119.205.60 for IMC's claims, but not P535,613 for LSPI's claims for lack of factual basis.- The insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire. Petitioner's obligation is for the payment of money. Where the obligation consists in the payment of money, the failure of the debtor to make the payment even by reason of a fortuitous event shall not relieve him of his liability. The rule that the obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. It does not apply when the obligation is pecuniary in nature.- Under Art 1263, if the obligation is generic in the sense that the object thereof is designated merely by its class or genus without any particular designation or physical segregation from all others of the same class, the loss or destruction of anything of the same kind even without the debtor's fault and before he has incurred in delay will not have the effect of extinguishing the obligation. An obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any specific property of the debtor.

Vicente Ong Lim Sing, Jr. v. Feb Leasing and Finance Corp. GR no. 168115 June 8, 2007FACTS:

FEB Leasing and Finance Corp entered into a lease agreement of equipment and motor vehicles with JVL Food Products. Vicente Ong Lim Sing, Jr. executed an Individual Guarantee Agreement with FEB regarding faithful compliance with the terms of the lease agreement.

JVL defaulted on its obligation. By 2000, the arrears of JVL amounted to P3,414,468.75. Due to the continuous nonpayment despite numerous demands, FEB filed a complaint for sum of money, damages, and replevin against JVL and Lim. JVL and Lim argued before the court that the lease contract was actually a sale on installment basis. They further argued that the contract was a contract of adhesion. The trial court rendered a ruling In favor of Lim and JVL.

The trial court, through logic, ruled that Lim cannot be a mere lessee because of he had an insurable interest over the items. It has also been held that the test of insurable interest in property is whether the assured has a right, title or interest therein that he will be benefited by its preservation and continued existence or suffer a direct pecuniary loss from its destruction or injury by the peril insured against. If Lim and JVL were to be regarded as only a lessee, logically the lessor who asserts ownership will be the one directly benefited or injured and therefore the lessee is not supposed to be the assured as he has no insurable interest.

FEB appealed the decision before the Court of Appeals. The appellate court rendered judgment in favor of FEB. It reversed the earlier decision of the RTC of Manila and ordered Lim and JVL to pay FEB the amount due plus damages. Unsatisfied with the decision, JVL and Lim appealed the case before the Supreme Court.ISSUE:Whether or not a lease agreement was executed by JVL and FEB.RULING:

The Supreme Court dismissed the petition of Lim and affirmed the decision of the Court of Appeals. According to the Court, the agreement was indeed a financial lease agreement and not a sale by installment basis.

The Court also ruled that the lessee, herein petitioner, had an insurable interest in the items even if he was only a lessee. Section 17 of the Insurance Code provides that the measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof. It cannot be denied that JVL will be directly damnified in case of loss, damage, or destruction of any of the properties leased.

Interpretation of insurance contractsVIOLETA LALICAN vs. THE INSULAR LIFE ASSURANCE COMPANYLIMITEDG.R. No. 183526, August 25, 2009, 597 SCRA FACTS: E u l o g i o ,   t h e   h u s b a n d   o f   h e r e i n  p e t i t i o n e r ,   a p p l i e d   f o r   a n insurance policy the value of which is P1,500,000.00. Under

thep o l i c y   t e r m s , E u l o g i o   i s   o b l i g ed   t o   p a y   t h e   p r e m i u m s   o n   a quarterly basis, until the end of the 20-year period of the policy. It was likewise stated therein that the insured has 31-day grace period for the payment of each premium subsequent to the first and that default in any payment of said premiums shall result in the automatic lapse of the said policy. Eulogio fai led to pay a p r e m i u m   e v e n   a f t e r   t h e   l a p s e   o f   t he   3 1 d a y   g r a c e   p e r i o d . H e n c e ,   t h e   p o l i c y   l a p s e d  a n d   b e c a m e   v o i d .   H e   f i l e d  a n A p p l i c a t i o n   f o r   R e i n s t a t e m e n t   o f   s a id   p o l i c y   a n d   p a y i n g   t h e amount of the premium due. However, Insular Life notified him t h a t t h e y c o u l d n o t f u l l y p r o c e s s h i s a p p l i c a t i o n b e c a u s e t h e amount he paid is inadequate to cover the accrued interests. Hence, he again applied for the reinstatement of said policy this t ime, together with the required amount. The husband of the i n s u r a n c e   a g e n t   w a s   t h e   o n e   w h o   re c e i v e d   h i s   a p p l i c a t i o n because the agent was away at that time. Within the same day, the insured died. This fact was unknown to the agent who then submitted Eulogio’s application for reinstatement to the Insular Life Regional Office. Violeta then filed a claim for payment of the full proceeds of the policy. However, the company said that she is not entit led to the insurance proceeds because they claimed that the policy w a s   n o t r e i n s t a t e d   d u r i n g   h e r   h u s b a n d ’ s   l i fe t i m e   a n d   g o o d health.ISSUE: W h e t h e r   o r   n o t   E u l o g i o   w a s  a b l e   t o   r e i n s t a t e   t h e   l a p s e d insurance policy before his death HELD: N O .   T h e   C o u r t   a g r e e s   w i t h   t h e   R T C t h a t   t h e   c o n d i t i o n s   f o r r e i n s t a t e m e n t  u n d e r   t h e   P o l i c y   C o n t r a c t   a n d   A p p l i c a t io n   f o r Reinstatement were written in clear and simple language, which c o u l d n o t a d m i t o f a n y m e a n i n g o r i n t e r p r e t a t i o n o t h e r t h a n t h o s e t h a t t h e y s o o b v i o u s l y e m b o d y . V i o l e t a d i d n o t a d d u c e any evidence that Eulogio might have failed to fully understand the import and meaning of the provisions of his Policy Contracta n d / o r   A p p l i c a t i o n   f o r  R e i n s t a t e m e n t   b o t h   o f   w h ic h   h e voluntari ly signed. While it is a cardinal principle of insurance l a w t h a t a p o l i c y o r c o n t r a c t o f i n s u r a n c e i s t o b e c o n s t r u e d l i b e r a l l y   i n   f a v o r   o f   t h e   i ns u r e d   a n d   s t r i c t l y   a s   a g a i n s t   t h e i ns u r e r   c o m p a n y ,   y e t ,   c o n t r a c ts   o f   i n s u r a n c e ,   l i k e   o t h e r c o nt r a c t s   a r e   t o   b e   c o n s t r u e d   a c c or d i n g   t o   t h e   s e n s e   a n d 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.

Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue GR no. 167330 Sep 18, 2009FACTS:

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 petitioner’s agreement with its members.

Petitioner protested before the CIR but due to the latter’s 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 petitioner’s 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 CA’s decision. The SC held that the petioner’s 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 petitioner’s 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 petitioner’s 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 petitioner’s 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.

G.R. No. 112329           January 28, 2000 VIRGINIA A. PEREZ, petitioner, vs. COURT OF APPEALS and BF LIFEMAN INSURANCE CORPORATION, respondents.FACTS: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, convinced him to apply for additional insurance coverage of P50,000.00. Primitivo B. Perez accomplished an application form for the additional insurance coverage. On the same day, petitioner, paid P2,075. Perez was made to undergo the required medical examination, which he passed. 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 were still with the Gumaca office. It was only on November 27, 1987 that said papers were received in Manila.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.. In its letter' 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. On October 25, 1991, the trial court rendered a decision in favor of petitioner.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. 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.ISSUE: w/n petitioner is entitled to the benefits.HELD:The petition is bereft of merit. 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.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

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.

G.R. No. 156167 ,May 16, 2005 GULF RESORTS, INC., petitioner, vs.PHILIPPINE CHARTER INSURANCE CORPORATION, respondent.For review are the warring interpretations of petitioner and respondent on the scope of the insurance company’s liability for earthquake damage to petitioner’s properties. Petitioner avers that, pursuant to its earthquake shock endorsement rider, Insurance Policy No. 31944 covers all damages to the properties within its resort caused by earthquake. Respondent contends that the rider limits its liability for loss to the two swimming pools of petitioner.

FACTS:The facts as established by the court a quo, and affirmed by the appellate court are as follows:Plaintiff is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in said resort insured originally with the American Home Assurance Company (AHAC-AIU). In the first four insurance policies , the risk of loss from earthquake shock was extended only to plaintiff’s two swimming pools, thus, "earthquake shock endt, and two (2) swimming pools only; that subsequently AHAC(AIU) issued in plaintiff’s favor Policy covering the period March 14, 1988 to March 14, 1989 and in said policy the earthquake endorsement clause, was deleted and the entry under Endorsements/Warranties at the time of issue read that plaintiff renewed its policy with AHAC (AIU) for the period of March 14, 1989 to March 14, 1990 which carried the entry under "Endorsement/Warranties at Time of Issue", which read "Endorsement to Include Earthquake Shock in the amount of P10,700.00 and paid P42,658.14 as premium thereof..In consideration of the payment by the insured to the company of the sum included additional premium the Company agrees, notwithstanding what is stated in the printed conditions of this policy due to the contrary, that this insurance covers loss or damage to shock to any of the property insured by this Policy occasioned by or through or in consequence of earthquake,that in Exhibit "7-C" the word "included" above the underlined portion was deleted;

That on July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiff’s properties covered by Policy issued by defendant, including the two swimming pools in its Agoo Playa Resort were damaged.2

After the earthquake, petitioner advised respondent that it would be making a claim under its Insurance Policy No. 31944 for damages on its properties. On August 7, 1990, Bayne Adjusters and Surveyors, Inc., through its Vice-President A.R. de Leon,4rendered a preliminary report5 finding extensive damage caused by the earthquake to the clubhouse and to the two swimming pools. Mr. de Leon stated that "except for

the swimming pools, all affected items have no coverage for earthquake shocks. Petitioner filed its formal demand7 for settlement of the damage to all its properties in the Agoo Playa Resort. Respondent denied petitioner’s claim on the ground that its insurance policy only afforded earthquake shock coverage to the two swimming pools of the resort.8 Petitioner and respondent failed to arrive at a settlement.9 Thus, petitioner filed a complaint10 with the regional trial court of Pasig. The lower court after trial ruled in favor of the respondent, viz:The above schedule clearly shows that plaintiff paid only a premium of P393.00 against the peril of earthquake shock, the same premium it paid against earthquake shock only on the two swimming pools in all the policies issued by AHAC(AIU). From this fact the Court must consequently agree with the position of defendant that the endorsement rider (Exhibit "7-C") means that only the two swimming pools were insured against earthquake shock.Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence, where the language used in an insurance contract or application is such as to create ambiguity the same should be resolved against the party responsible therefor, i.e., the insurance company which prepared the contract. To the mind of [the] Court, the language used in the policy in litigation is clear and unambiguous hence there is no need for interpretation or construction but only application of the provisions therein.Petitioner’s Motion for Reconsideration was denied. Thus, petitioner filed an appeal with the Court of Appeals. After review, the appellate court affirmed the decision of the trial court.ISSUE: WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER RESPONDENT’S INSURANCE POLICY NO. 31944, ONLY THE TWO (2) SWIMMING POOLS, RATHER THAN ALL THE PROPERTIES COVERED THEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE SHOCK.HELD: We hold that the petition is devoid of merit.In Insurance Policy No. 31944, four key items are important in the resolution of the case at bar.It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance with each other.25 All its parts are reflective of the true intent of the parties. The policy cannot be construed piecemeal. Certain stipulations cannot be segregated and then made to control; neither do particular words or phrases necessarily determine its character. Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other provisions. All the provisions and riders, taken and interpreted together, indubitably show the intention of the parties to extend earthquake shock coverage to the two swimming pools only.A careful examination of the premium recapitulation will show that it is the clear intent of the parties to

extend earthquake shock coverage only to the two swimming pools. Section 2(1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. Thus, an insurance contract exists where the following elements concur:

1. The insured has an insurable interest;2. The insured is subject to a risk of loss by the happening of the designated peril;3. The insurer assumes the risk;4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and5. In consideration of the insurer's promise, the insured pays a premium.26 (Emphasis ours)

An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril.27 In fire, casualty, and marine insurance, the premium payable becomes a debt as soon as the risk attaches.28 In the subject policy, no premium payments were made with regard to earthquake shock coverage, except on the two swimming pools. There is no mention of any premium payable for the other resort properties with regard to earthquake shock. This is consistent with the history of petitioner’s previous insurance policies from AHAC-AIU. In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on the general rule that insurance contracts are contracts of adhesion which should be liberally construed in favor of the insured and strictly against the insurer company which usually prepares it.31 A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the contract, while the other party merely affixes his signature or his "adhesion" thereto. Through the years, the courts have held that in these type of contracts, the parties do not bargain on equal footing, the weaker party's participation being reduced to the alternative to take it or leave it. Thus, these contracts are viewed as traps for the weaker party whom the courts of justice must protect.32 Consequently, any ambiguity therein is resolved against the insurer, or construed liberally in favor of the insured.33

SO ORDERED.

G.R. No. 140349.  June 29, 2005] SULPICIO LINES, INC., petitioner, vs. FIRST LEPANTO-TAISHO

INSURANCE CORPORATION, respondent.

FACTSOn 25 February 1992, Taiyo Yuden Philippines, Inc. (owner of the goods) and Delbros, Inc. (shipper) entered into a contract, evidenced by Bill of Lading issued by the latter in favor of the owner of the goods, for Delbros, Inc. to transport a shipment of goods consisting of three (3) wooden crates containing one hundred thirty-six (136) cartons of inductors and LC compound on board the V Singapore V20 from Cebu City to Singapore in favor of the consignee, Taiyo Yuden Singapore Pte, Ltd.For the carriage of said shipment from Cebu City to Manila, Delbros, Inc. engaged the services of the vessel M/V Philippine Princess, owned and operated by petitioner Sulpicio Lines, Inc. (carrier).  The vessel arrived at the North Harbor, Manila, on 24 February 1992.During the unloading of the shipment, one crate containing forty-two (42) cartons dropped from the cargo hatch to the pier apron.  The owner of the goods examined the dropped cargo, and upon an alleged finding that the contents of the crate were no longer usable for their intended purpose, they were rejected as a total loss and returned to Cebu City.The owner of the goods filed a claim with herein petitioner-carrier for the recovery of the value of the rejected cargo which was refused by the latter.  Thereafter, the owner of the goods sought payment from respondent First Lepanto-Taisho Insurance Corporation (insurer) under a marine insurance policy issued to the former.  Respondent-insurer paid the claim less thirty-five percent (35%) salvage value or P194, 220.31.The payment of the insurance claim of the owner of the goods by the respondent-insurer subrogated the latter to whatever right or legal action the owner of the goods may have against Delbros, Inc. and petitioner-carrier, Sulpicio Lines, Inc.  Thus, respondent-insurer then filed claims for reimbursement from Delbros, Inc. and petitioner-carrier Sulpicio Lines, Inc. which were subsequently denied.On 04 November 1992, respondent-insurer filed a suit for damages with the trial court against Delbros, Inc. and herein petitioner-carrier. petitioner-carrier filed its Answer with Counterclaim.  Delbros, Inc. filed on 15 April 1993 its Answer with Counterclaim and Cross-claim, alleging that assuming the contents of the crate in question were truly in bad order, fault is with herein petitioner-carrier which was responsible for the unloading of the crates.

Petitioner-carrier filed its Answer to Delbros, Inc.’s cross-claim asserting that it observed extraordinary diligence in the handling, storage and general care of the shipment and that subsequent inspection of the shipment by the Manila Adjusters and Surveyors Company showed that the contents of the third crate that had fallen were found to be in apparent sound condition, except that “2 cello bags each of 50 pieces ferri inductors No. LC FL 112270K-60 (c) were unaccounted for and missing as per packaging list.”

After hearing, the trial court dismissed the complaint for damages as well as the counterclaim filed by therein defendant Sulpicio Lines, Inc. and the cross-claim filed by Delbros, Inc. A Motion for Reconsideration

was then filed by herein respondent-insurer and subsequently denied by the trial court.  Thus, respondent-insurer instituted an appeal with the Court of Appeals, which reversed the dismissal of the complaint by the lower court. ISSUES:Whether or not, based on the evidence presented during the trial, the owner of the goods, respondent-insurer’s predecessor-in-interest, did incur damages, and if so, whether or not petitioner-carrier is liable for the same.HELD:It cannot be denied that the shipment sustained damage while in the custody of petitioner-carrier.  It is not disputed that one of the three (3) crates did fall from the cargo hatch to the pier apron while petitioner-carrier was unloading the cargo from its vessel.  Neither is it impugned that upon inspection, it was found that two (2) cartons were torn on the side and the top flaps were open and that two (2) cello bags, each of 50 pieces ferri inductors, were missing from the cargo.

The falling of the crate during the unloading is evidence of petitioner-carrier’s negligence in handling the cargo.  As a common carrier, it is expected to observe extraordinary diligence in the handling of goods placed in its possession for transport.[12] The standard of extraordinary diligence imposed upon common carriers is considerably more demanding than the standard of ordinary diligence, i.e., the diligence of a good pater familias established in respect of the ordinary relations between members of society.[13] A common carrier is bound to transport its cargo and its passengers safely "as far as human care and foresight can provide, using the utmost diligence of a very cautious person, with due regard to all circumstances.”[14] The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common carrier to know and to follow the required precaution for avoiding the damage to, or destruction of, the goods entrusted to it for safe carriage and delivery.[15] It requires common carriers to render service with the greatest skill and foresight and “to use all reasonable means to ascertain the nature and characteristic of goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods as their nature requires.”[16]

Thus, when the shipment suffered damages as it was being unloaded, petitioner-carrier is presumed to have been negligent in the handling of the damaged cargo.  Under Articles 1735[17] and 1752[18] of the Civil Code, common carriers are presumed to have been at fault or to have acted negligently in case the goods transported by them are lost, destroyed or had deteriorated.  To overcome the presumption of liability for loss, destruction or deterioration of goods under Article 1735, the common carrier must prove that they observed extraordinary diligence as required in Article 1733[19] of the Civil Code.[20]

Petitioner-carrier miserably failed to adduce any shred of evidence of the required extraordinary diligence to overcome the presumption that it was negligent in transporting the cargo.

Coming now to the issue of the extent of petitioner-carrier’s liability, it is undisputed that respondent-insurer paid the owner of the goods under the insurance policy the amount of P194,220.31 for the alleged damages the latter has incurred.  Neither is there dispute as to the fact that Delbros, Inc. paid P194,220.31 to respondent-

insurer in satisfaction of the whole amount of the judgment rendered by the Court of Appeals.  The question then is: To what extent is Sulpicio Lines, Inc., as common carrier, liable for the damages suffered by the owner of the goods?

Upon respondent-insurer’s payment of the alleged amount of loss suffered by the insured (the owner of the goods), the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have against the common carrier whose negligence or wrongful act caused the loss.[21] Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities.[22] The rights to which the subrogee succeeds are the same as, but not greater than, those of the person for whom he is substituted, that is, he cannot acquire any claim, security or remedy the subrogor did not have.[23] In other words, a subrogee cannot succeed to a right not possessed by the subrogor.[24] A subrogee in effect steps into the shoes of the insured and can recover only if the insured likewise could have recovered.[25]

Hence, we uphold the ruling of the appellate court that herein petitioner-carrier is liable to pay the amount paid by respondent-insurer for the damages sustained by the owner of the goods.

As stated in the manifestation filed by Delbros, Inc., however, respondent-insurer had already been paid the full amount granted by the Court of Appeals, hence, it will be tantamount to unjust enrichment for respondent-insurer to again recover damages from herein petitioner-carrier.

With respect to Delbros, Inc.’s prayer contained in its manifestation that, in case the decision in the instant case be adverse to petitioner-carrier, a pronouncement as to the matter of reimbursement, indemnification or contribution in favor of Delbros, Inc. be included in the decision, this Court will not pass upon said issue since Delbros, Inc. has no personality before this Court, it not being a party to the instant case.  Notwithstanding, this shall not bar any action Delbros, Inc. may institute against petitioner-carrier Sulpicio Lines, Inc. with respect to the damages the latter is liable to pay.

[G.R. No. 166245, April 09, 2008] ETERNAL GARDENS MEMORIAL PARK CORPORATION, PETITIONER, VS. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, RESPONDENT. 

The Case: 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

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.

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 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, 1984[5] to

Philamlife, which served as an insurance claim for

Chuang's death. 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 which read: that the

deceased was 59 years old when he entered into

Contract 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. 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. The trial court decided in favor of Eternal.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 REVERSED and

SET ASIDE RTC’s ruling.

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 .

ISSUE:

Whether Philamlife assumed the risk of loss without

approving the application.

RULING:

RULING:

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.(1) To pay

Eternal the amount of PhP 100,000 representing the

proceeds of the Life Insurance Policy of Chuang;