Phil. Health Care Providers, Inc. vs. CIRJune 12, 2008

Facts: Petitioner is a domestic corporation which is a health maintenance organization. Petitioner was assessed by the CIR with tax deficiencies, which include the DST for the years 1996 and 1997. The DST was imposed on petitioner’s health care agreements with its members of its health care program pursuant to Section 185 of the 1997 Tax Code. Such agreements were considered by the CIR as insurance contracts.

Petitioner protested the assessment, but since respondent did not act, petitioner filed a petition for review in the CTA seeking the cancellation of the deficiency assessments. The CTA ordered petitioner to pay a reduced deficiency VAT but cancelled the deficiency DST assessment. Respondent appealed, claiming that petitioner’s health care agreement was a contract of insurance subject to DST. In 2004, the Court of Appeals held that petitioner’s health care agreements was in the nature of non-life insurance contracts subject to DST.

Petitioner argues, however, that such agreements are not contracts of insurance but contracts for the provision on a prepaid basis of medical services, and thus, not subject to DST. It said that it is a health maintenance organization regulated by the Department of Health, not an insurance company under the jurisdiction of the Insurance Commission.

Issue: Is a health care agreement in the nature of an insurance contract and therefore subject to the documentary stamp tax (DST) imposed under Section 185 of RA 8424 (Tax Code of 1997)?

Held: Yes. Under the law, a contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability from an unknown or contingent event. Petitioner’s health care agreement is primarily a contract of indemnity. A healthcare agreement is in the nature of a non-life insurance policy.

The term “loss” or “damage” is broad enough to cover the monetary expense or liability a member will incur in case of illness or injury. Also in case of exposure of a member to liability, he would be entitled to indemnification by petitioner. Furthermore, the fact that petitioner must relieve its member form liability by paying for expenses arising from the stipulated contingencies belies its claim that its services are prepaid. Petitioner does not bear the costs alone but distributes or spreads them out among a large group of persons bearing a similar risk, that is, among all the other members of the health care program.

Petitioner’s contention that it is a health maintenance organization and not a n insurance company is irrelevant. Contracts between companies like petitioner and the beneficiaries under the plans are treated as insurance contracts. The DST is not a tax on the business transacted but an excise on the privilege, opportunity, or facility offered at exchanges for the transaction of the business.

Eternal Gardens Memorial Park vs. Philamlife InsuranceG.R. No. 166245 April 9, 2008

Facts: Respondent insurance company entered into a Creditor Group Life Policy agreement with Eternal Gardens Memorial. Under said 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. As required under the said policy, Eternal submitted a list of all new lot purchasers, including the application of each purchaser and their corresponding unpaid balances. Included in this list is a certain John Chuang.

When Chuang died, Eternal sent a letter, together with the pertinent papers, to Philamlife which served as an insurance claim for Chuang’s death. Philamlife required that Eternal submit certain documents relative to its insurance claim for Chuang’s death. Eternal transmitted said documents which Philamlife was able to received. However, after more than one year, Philamlife did not anymore reply to Eternal’s insurance claim. This prompted Eternal to demand the insurance claims. However, Philamlife denied the said claim, prompting Eternal to file a case before the RTC of Makati.

Issue: Whether or not Philamlife assumed the risk of loss without approving the application.

Held: Yes. 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.

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.

Keppel Cebu Shipyard vs. Pioneer Insurance and SuretySeptember 25, 2009

Facts:

Eastern Shipping Lines vs. Prudential GuaranteeSeptember 11, 2009

Facts:

Blue Cross Health Care v. Neomi and Danilo OlivaresFebruary 12, 2008

Facts: Neomi suffered a stroke and applied for reimbursement of her medical bills from petitioner, her health care provider. Petitioner refused until a certification could be issued that her stroke was not due to pre-existing conditions. Dr. Saniel, her physician, however, was not able to issue such a certification, stating that because the patient invoked the doctor-patient confidentiality, such information could not be given to the petitioner.

Issue: Whether or not petitioner was able to prove that Neomi’s stroke was caused by pre-existing conditions and was therefore outside the coverage of her plan.

Held: 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. Petitioner never presented any evidence to prove that respondent Neomi's stroke was due to a pre-existing condition. It merely speculated that Dr. Saniel's report would be adverse to Neomi, based on her invocation of the doctor-patient privilege. This was a disputable presumption at best. Suffice it to say that this presumption does not apply if the suppression is an exercise of a privilege. Here, respondents' refusal to present or allow the presentation of Dr. Saniel's report was justified. It was privileged communication between physician and patient. Furthermore, limitations of liability on the part of the insurer or health care provider must be construed in such a way as to preclude it from evading its obligations. Accordingly, they should be scrutinized by the courts with “extreme jealousy” and “care” and with a “jaundiced eye.” Since petitioner had the burden of proving exception to liability, it should have made its own assessment of whether respondent Neomi had a pre-existing condition when it failed to obtain the attending physician's report. It could not just passively wait for Dr. Saniel's report to bail it out. The mere reliance on a disputable presumption does not meet the strict standard required under our jurisprudence.

Phil. Health Care Providers vs. CIRSeptember 18, 2009

Facts: This case is a resolution on the motion for reconsideration filed by petitioner in the 2008 case. Petitioner is a domestic corporation which is a health maintenance organization. Petitioner was assessed by the

CIR with tax deficiencies, which include the DST for the years 1996 and 1997. The DST was imposed on petitioner’s health care agreements with its members of its health care program pursuant to Section 185 of the 1997 Tax Code. Such agreements were considered by the CIR as insurance contracts.

Petitioner protested the assessment, but since respondent did not act, petitioner filed a petition for review in the CTA seeking the cancellation of the deficiency assessments. The CTA ordered petitioner to pay a reduced deficiency VAT

but cancelled the deficiency DST assessment. Respondent appealed, claiming that petitioner’s health care agreement was a contract of insurance subject to DST. In 2004, the Court of Appeals held that petitioner’s health care agreements was in the nature of non-life insurance contracts subject to DST.

Petitioner argues, however, that such agreements are not contracts of insurance but contracts for the provision on a prepaid basis of medical services, and thus, not subject to DST. It said that it is a health maintenance organization regulated by the Department of Health, not an insurance company under the jurisdiction of the Insurance Commission.

Issue: Is a health care agreement in the nature of an insurance contract and therefore subject to the documentary stamp tax (DST) imposed under Section 185 of RA 8424 (Tax Code of 1997)?

Held: No. Health maintenance organizations are not engaged in the insurance business.It is a cardinal rule of statutory construction that no word, clause, sentence, provision or part of a statute

shall be considered surplusage or superfluous, meaningless, void and insignificant. From the language of Section 185, two requisites must concur before the DST can apply: (1) the document must be a policy of insurance or an obligation in the nature of indemnity and (2) the maker should be transacting the business of insurance.

Petitioner is an HMO, an entity that provides, offers or arranges for coverage of designated health services needed by plan members for a fixed prepaid premium. The payments do not vary with the extent, frequency or type of service provided. Petitioner, as an HMO, was not engaged in the business of insurance during 1996 and 1997.

Section 2(2) of the Insurance Code enumerates what constitutes “doing an insurance business”:(1) Making or proposing to make, as insurer, any insurance contract(2) Making or proposing to make, as surety, any contract of suretyship as a vocation and not as

merely incidental to any other legitimate business or activity of the sirety(3) Doing any kind of business, including a reinsurance business, specifically recognized as

constituting the doing of an insurance business within the meaning of this Code(4) Doing or proposing to do any business in substance equivalent to any of the foregoing in a

manner designed to evade the provisions of this Code.US courts are of the view that HMOs are not in the insurance business. They are of the view 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.

“Principal object and purpose test”: whether the assumption of risk and indemnification of loss are the principal object and purpose of the organization or whether they are merely incidental to its business. If these are the principal objects, the business is that of insurance. But if they are merely incidental and service is the principal purpose, then the business is not insurance.

For the purposes of determining what “doing an insurance business” means, there is a need to scrutinize the operations of the business as a whole and not its mere components. A health case agreement is not an insurance contract contemplated under Section 185 of the 1997 Tax Code. Section 185 of the 1997 Tax Code, as a tax statute, must be strictly construed against the taxing authority.

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. The following are its elements:

1. The insured has an insurable interest2. The insured is subject to a risk of loss by the happening of the designed peril3. The insurer assumes the risk4. Such assumption of risk is part of a general scheme to distribute actual losses among a large

group of persons bearing a similar risk5. In consideration of the insurer’s promise, the insured pays a premium.

Not all the necessary elements of a contract of insurance are present in petitioner’s agreements. There is no loss, damage or liability on the part of the member that should be indemnified by petitioner as HMO. Although risk is a primary element of an insurance contract, it is not necessarily true that risk alone is sufficient to establish it. Almost anyone who undertakes a contractual obligation always bears a certain degree of financial risk. Insurance risk, or actuarial risk, is the risk that the cost of insurance claims might be higher than the premiums paid. In our jurisdiction, even if a contract contains all the elements of an insurance contract, if its primary purpose is the rendering of service, it is not a contract of insurance.

There was no legislative intent to impose DST on health care agreements of HMOs The DST history and the HMO history clearly show that when the law imposing the DST was first passed, HMOs were unknown in the Philippines. However, when the various amendments to the DST law were enacted, they were already in existence in the Philippines. If it had been the intent of the legislature to impose DST on health care agreements, it could have done so in clear and categorical terms. It had many opportunities to do so. But it did not. Petitioner’s tax liability was extinguished under RA 9840, by their availing of the tax amnesty thru payment of 5% of their net worth as of the year 2005.

Insular Life Assurance Co v EbradoG.R. No. L-44059 October 28, 1977

Facts: Ebrado took out a life insurance policy and named his common-law partner, Carponia, his beneficiary. Upon his death, his lawful wife also filed a claim w/ Insular Life as the widow. RTC disqualified Carponia from claiming benefits under the policy.

Issue: Whether or not Carponia is disqualified from claiming insurance proceeds because of her illicit relation with the insured.

Held: Yes. Since the Insurance Code does not contain any specific provision on rules respecting who may be named beneficiary, the CC will apply. Art 2012 states that “any person forbidden from receiving donations under Art 739 cannot be named beneficiary of a life insurance policy” Art. 739 declares void donations made between persons who are guilty of adultery or concubinage at the time of the donation. Hence, Carponia is disqualified from being named a beneficiary.

Vda. de Consuegra v GSISG.R. No. L-28093 January 30, 1971

Facts: Jose Consuegra contracted two marriages, to Diaz and Berdin. After his death, the proceeds of his life insurance w/ the GSIS went to Berdin. However, he was also entitled to retirement benefits to which he did not designate any beneficiary.

Issue: Whether or not Berdin should be considered the sole beneficiary of the retirement benefits being the beneficiary of the life insurance policy

Held: No. Life Insurance and retirement insurance are separate and distinct funds. Life Insurance is paid to whoever is named the beneficiary and may not necessarily be the heir of the insured. Retirement benefits on the other hand, are primarily intended for the benefit of the ee – to provide for his old age, incapacity, etc. If the ee reaches the age retirement, he gets the benefits even to the exclusion of the beneficiary named in the policy. The beneficiary of the retirement insurance can only claim the proceeds of the retirement insurance if the ee dies before retirement. IF there is no beneficiary designated in the policy, benefits will accrue to the estate, hence Diaz is also entitled to the retirement benefits.

Lalican vs. Insular LifeG.R. No. 183526 August 25, 2009

Facts: Eulogio, the husband of herein petitioner, applied for an insurance policy the value of which is P1,500,000.00. Under the policy terms, Eulogio is obliged to pay the premiums on 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 failed to pay a premium even after the lapse of the 31-day grace period. Hence, the policy lapsed and became void. He filed an Application for Reinstatement of said policy and paying the amount of the premium due. However, Insular Life notified him that they could not fully process his application because the amount he paid is inadequate to cover the accrued interests. Hence, he again applied for the reinstatement of said policy this time, together with the required amount. The husband of the insurance agent was the one who received his application 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 entitled to the insurance proceeds because they claimed that the policy was not reinstated during her husband’s lifetime and good health.

Issue: Whether or not Eulogio was able to reinstate the lapsed insurance policy before his death.

Held: No. The Court agrees with the RTC that the conditions for reinstatement under the Policy Contract and Application for Reinstatement were written in clear and simple language, which could not admit of any meaning or interpretation other than those that they so obviously embody. Violeta did not adduce any evidence that Eulogio might have failed to fully understand the import and meaning of the provisions of his Policy Contract and/or Application for Reinstatement both of which he voluntarily signed. While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in favor of the insured and strictly as against the insurer company, yet, contracts of

insurance, like other contracts are to be construed according to the sense and meaning of the terms, which the parties themselves have used, if such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense.

Spouses Cha vs. CAG.R. No. 124520 August 18, 1997

Facts: Petitioner spouses Nilo Cha and Stella Uy-Cha, as lessees entered into a lease contract with private respondent CKS Development Corporation as lessor. A stipulation of the lease contract provides that the Lessee is not allowed to insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store or space in the leased premises without first obtaining the written consent and approval of the Lessor. If the Lessee violates this the policy is deemed assigned and transferred to the Lessor for his own benefit. 

Petitioner took out a policy of fire insurance over the merchandise inside the leased premises with United Insurance without consent of CKS. On the day the lease contract was to expire a fire broke out inside the leased premises. CKS, wrote a letter to United asking that the proceeds of the fire insurance be paid directly to CKS. United refused. Hence, the latter filed a complaint against the Cha spouses and United.  The RTC ruled in favor of CKS and this was later affirmed by the CA.

Issue: Whether or not CKS can recover from the insurance policy. 

Held: No. Section 18 of the Insurance Code provides that: “No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured.” 

In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code: “The measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof.” Therefore, CKS cannot be validly a beneficiary of the fire insurance policy taken by petitioner-spouses. The insurable interest remains with the Cha spouses. 

The stipulation in the lease contract is void for being contrary to law and public policy. This is in keeping with the provision under Sec. 25 of the Insurance Code that: Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has or has not any interest in the property insured or that the policy shall be received as proof of such interest and every policy executed by way of gaming or wagering is void.” 

UCPB Gen. Ins. v Masagana TelemartG.R. No. 137172 June 15, 1999

Facts: Masagan Telemart obtained insurance policies on its properties from UCPB. The policies had the effectivity term of May 1991 – May 1992. On June 1992, Masagan’s properties were razed by a fire. On the same day, Masagana tenedered, and UCPB accepted renewal premium payments. The next day, Masagana filed a claim for the burned insured bldgs. UCPB rejected the claims on the ground that the polices exprired on May1992 and were not renewed for another term and that the fire took place before the tender of premium payment under the renewed policy.

This is a motion for reconsideration from previous SC decision declaring that there was no renewal of the policy and that UCPB not liable.

Issue: Whether or not Sec 77 of the Insurance Code must be strictly applied despite its practice of granting a 60-90 day credit term for payment of premium.

Held: No. There are exceptions to Sec 77: (a) The first is provided by Sec. 77 itself and that is, in case of a life or industrial life policy whenever the grace

period applies.(b) Sec 78: An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive

evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until premium is actually paid.

(c) Sec. 77may not apply if the parties have agreed to the payment in installments of the premium and partial payment has been made at the time of the loss.

(d) The insurer may grant credit extension for the payment of the premium

(e) It would be unjust and inequitable if recovery on the policy would not be permitted against UCPB, w/c consistently granted the 60-90 day credit term for the payment of the premiums despite its full awareness of Sec. 77. Estoppel bars it from taking refuge under the action, since Masagana relied on good faith on such a practice.

Makati Tuscany v CAG.R. No. 95546 November 6, 1992

Facts: American Home Assurance (AHAC) issued in favor or Makati Tuscany an insurance policy on the latter’s bldg for 1 year. It was renewed over the course of 3 years. In 1982, the total premiums were paid in four installments but in 1983, Tuscany paid only 2 installments and refused to pay the remaining balance. Reason for discontinuation: policy contained a reservation wherein “Acceptance of payment by AHAC will not waive any of the company rights to deny liability on any claim under the policy arising before such payments or after the expiration of the credit clause of the policy, and Subject to no loss prior to premium payment. If there be any loss, such is not covered.” AHAC filed a suit to recover the remaining balance. Makati Tuscany filed counterclaim for the total amount of premiums it had paid during the previous years.

Issue: Whether or not payment by installment of premiums due on an insurance policy invalidates the contract of insurance.

Held: No. The policies are valid even if the premiums paid in installments because the records clearly show that the two parties intended the policies to be binding and effective notwithstanding the staggered payment of the premiums. Te acceptance of the instalment payments over the period of 3 years speak loudly of intention of insurer to honor the policies it issued to Makati Tuscany.

Sec 77 merely prohibits the parties from stipulating that the policy is valid even if premiums were not paid, but it does not expressly prohibit an agreement granting credit extensions. Sec. 78 also allows the insurer to waive the condition of full payment by acknowledging in the policy that there has been receipt of premium despite the fact that premium is actually unpaid. If the Code allows a waiver when no actual payment has been made, then a waiver should also be allowed in this case where the insurer has already acknowledged receipt of partial payment.

American Home Assurance vs. ChuaG.R. No. 130421 June 28, 1999

Facts: American Home Assurance Company (AHAC) is a domestic corporation engaged in the insurance business. Antonio Chua obtained from AHAC a fire insurance covering the stock-in-trade of his business, Moonlight Enterprises, located at Valencia, Bukidnon. The insurance was due to expire on 25 March 1990. On 5 April 1990, Chua issued a PCI Bank checkin the amount of P2,983.50 to AHAC’s agent, James Uy, as payment for the renewal of the policy. In turn, the latter delivered Renewal Certificate to Chua. The check was drawn against a Manila bank and deposited in AHAC’s bank account in Cagayan de Oro City. The corresponding official receipt was issued. Subsequently, a new insurance policy was issued, whereby AHAC undertook to indemnify Chua for any damage or loss arising from fire up to P200,000 for the period 25 March 1990 to 25 March 1991. On 6 April 1990 Moonlight Enterprises was completely razed by fire resulting to a total loss estimated between P4,000,000 and P5,000,000. Chua filed an insurance claim with AHAC and four other co-insurers, namely, Pioneer Insurance and Surety Corporation, Prudential Guarantee and Assurance, Inc., Filipino Merchants Insurance Co. and Domestic Insurance Company of the Philippines. AHAC refused to honor the claim notwithstanding several demands by Chua, thus, the latter filed an action against AHAC before the trial court.

In its defense, AHAC claimed there was no existing insurance contract when the fire occurred since Chua did not pay the premium. It also alleged that even assuming there was a contract, Chua violated several conditions of the policy, particularly: (1) his submission of fraudulent income tax return and financial statements; (2) his failure to establish the actual loss, which AHAC assessed at P70,000; and (3) his failure to notify to AHAC of any insurance already effected to cover the insured goods. These violations, AHAC insisted, justified the denial of the claim. The trial court ruled in favor of Chua. It found that Chua paid by way of check a day before the fire occurred. The check, which was deposited in AHAC’s bank account, was even acknowledged in the renewal certificate issued by AHAC’s agent. It declared that the alleged fraudulent documents were limited to the disparity between the official receipts issued by the Bureau of Internal Revenue (BIR) and the income tax returns for the years 1987 to 1989. All the other documents were found to be genuine. Nonetheless, it gave credence to the BIR certification that Chua paid the corresponding taxes due for the questioned years. As to Chua’s failure to notify AHAC of the other insurance contracts covering the same goods, the trial court held that AHAC failed to show that such omission was intentional and fraudulent. Finally, it noted that AHAC’s investigation of Chua's claim was done in collaboration with the representatives of other insurance companies who found no irregularity therein. In fact, Pioneer

Insurance and Surety Corporation and Prudential Guarantee and Assurance, Inc. promptly paid the claims filed by Chua. The trial court ordered AHAC to pay Chua. On appeal, the assailed decision was affirmed in toto by the Court of Appeals.

Issue: Whether there was a valid payment of premium, considering that Chua’s check was cashed after theoccurrence of the fire.

Held: Yes. The general rule in insurance laws is that unless the premium is paid the insurance policy is not valid and binding. The only exceptions are life and industrial life insurance. Whether payment was indeed made is a question of fact which is best determined by the trial court. The trial court found, as affirmed by the Court of Appeals, that there was a valid check payment by Chua to AHAC. Well-settled is the rule that the factual findings and conclusions of the trial court and the Court of Appeals are entitled to great weight and respect, and will not be disturbed on appeal in the absence of any clear showing that the trial court overlooked certain facts or circumstances which would substantially affect the disposition of the case. The SC sees no reason to depart from this ruling. According to the trial court the renewal certificate issued to Chua contained the acknowledgment that premium had been paid. It is not disputed that the check drawn by Chua in favor of AHAC and delivered to its agent was honored when presented and AHAC forthwith issued its official receipt to Chua on 10 April 1990. Section 306 of the Insurance Code provides that any insurance company which delivers a policy or contract of insurance to an insurance agent or insurance broker shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon. Herein, the best evidence of such authority is the fact that AHAC accepted the check and issued the official receipt for the payment. It is, as well, bound by its agent’s acknowledgment of receipt of payment. Section 78 of the Insurance Code explicitly provides that "An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid." This Section establishes a legal fiction of payment and should be interpreted as an exception to Section 77.

Philippine Phoenix Surety & Insurance Co. vs. Woodworks Inc.G.R. No. L-25317 August 6, 1979

Facts: On 21 July 1960, upon Woodworks Inc.'s application, Philippine Phoenix Surety & Insurance Company (Phoenix) issued in its favor Fire Insurance Policy 9749 for P500,000.00 whereby Phoenix insured Woodworks Inc.'s building, machinery and equipment for a term of one year from 21 July 1960 to 21 July 1961 against loss by fire. The premium and other charges including the margin fee surcharge of P590.76 and the documentary stamps in the amount of P156.60 affixed on the Policy, amounted to P10,593.36. Woodworks Inc. did not pay the premium stipulated in the Policy when it was issued nor at any time thereafter. On 19 April 1961, or before the expiration of the one-year term, Phoenix notified Woodworks Inc., through its Indorsement F-6963/61, of the cancellation of the Policy allegedly upon request of Woodworks Inc. The latter has denied having made such a request. In said Indorsement, Phoenix credited Woodworks Inc. with the amount of P3,110.25 for the unexpired period of 94 days, and claimed the balance of P7,483.11 representing "earned premium from 21 July 1960 to 18 April 1961 or, say 271 days. On 6 July 1961, Phoenix demanded in writing for the payment of said amount. Woodworks Inc., through counsel, disclaimed any liability in its reply-letter of 15 August 1961, contending, in essence, that it need not pay premium "because the Insurer did not stand liable for any indemnity during the period the premiums were not paid."

Phoenix commenced action in the CFI of Manila to recover the amount of P7,483.11 as "earned premium." Woodworks Inc. controverted basically on the theory that its failure "to pay the premium after the issuance of the policy put an end to the insurance contract and rendered the policy unenforceable." On 13 September 1962, judgment was rendered in Phoenix's favor "ordering Woodworks Inc. to pay Phoenix the sum of P7,483.11, with interest thereon at the rate of 6% per annum from 30 January 1962, until the principal shall have been fully paid, plus the sum of P700.00 as attorney's fees of the Phoenix, and the costs of the suit." From this adverse Decision, Woodworks Inc. appealed to the Court of Appeals which certified the case to the Supreme Court on a question of law.

Issue: Whether the Fire Insurance Policy was a binding contract even if the premium stated in the policy has not been paid.

Held: Insurance is "a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event." The consideration is the "premium". "The premium must be paid at the time and in the way and manner specified in the policy and, if not so paid, the policy will lapse and be forfeited by its own terms." The Policy provides for pre-payment of premium. Accordingly, "when the policy is tendered the insured must pay the premium unless credit is given or there is a waiver, or some agreement obviating the necessity for prepayment." To constitute an extension of credit there must be a clear and express agreement therefor. From the Policy provisions, there was

no clear agreement that a credit extension was accorded Woodworks Inc. And even if it were to be presumed that Phoenix had extended credit from the circumstances of the unconditional delivery of the Policy without prepayment of the premium, yet it is obvious that Woodworks Inc. had not accepted the insurer's offer to extend credit, which is essential for the validity of such agreement.

An acceptance of an offer to allow credit, if one was made, is as essential to make a valid agreement for credit, to change a conditional delivery of an insurance policy to an unconditional delivery, as it is to make any other contract. Such an acceptance could not be merely a mental act or state of mind, but would require a promise to pay made known in some manner to Woodworks Inc. In this respect, the present case differs from that involving the same parties where recovery of the balance of the unpaid premium was allowed inasmuch as in that case "there was not only a perfected contract of insurance but a partially performed one as far as the payment of the agreed premium was concerned."

This is not the situation obtaining here where no partial payment of premiums has been made whatsoever. Since the premium had not been paid, the policy must be deemed to have lapsed. The nonpayment of premiums does not merely suspend but puts an end to an insurance contract, since the time of the payment is peculiarly of the essence of the contract. The rule is that under policy provisions that upon the failure to make a payment of a premium or assessment at the time provided for, the policy shall become void or forfeited, or the obligation of the insurer shall cease, or words to like effect, because the contract so prescribes and because such a stipulation is a material and essential part of the contract. This is true, for instance, in the case of life, health and accident, fire and hail insurance policies. In fact, if the peril insured against had occurred, Phoenix, as insurer, would have had a valid defense against recovery under the Policy it had issued. Explicit in the Policy itself is Phoenix's agreement to indemnify Woodworks Inc. for loss by fire only "after payment of premium.

Compliance by the insured with the terms of the contract is a condition precedent to the right of recovery. The burden is on an insured to keep a policy in force by the payment of premiums, rather than on the insurer to exert every effort to prevent the insured from allowing a policy to elapse through a failure to make premium payments. The continuance of the insurer's obligation is conditional upon the payment of premiums, so that no recovery can be had upon a lapsed policy, the contractual relation between the parties having ceased. Moreover, an insurer cannot treat a contract as valid for the purpose of collecting premiums and invalid for the purpose of indemnity. The foregoing findings are buttressed by section 77 of the Insurance Code (Presidential Decree No. 612, promulgated on December 18, 1974), which now provides that no contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, notwithstanding any agreement to the contrary.

Aboitiz Shipping vs. Insurance Co. of North AmericaAugust 6, 2008

Facts: MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies (MSAS) procured an “open-‐policy” marine insurance from ICNA UK Limited of London, a foreign insurance corporation. The insurance was for a transshipment of certain wooden work tools and workbenches purchased for consignee Science Teaching Improvement Project (STIP). The cargo, packed inside one container van was shipped from Hamburg, Germany en route to Manila, Philippines. The ship arrived and docked where cargo was received by Aboitiz Shipping Corporation, thereafter it issued a bill of lading containing a notation ‘grounded outside warehouse’. It was then shipped to Cebu City and was released to consignee. Two days after its release, Aboitiz received a call from the consignee informing it that the cargo sustained water damage. The consignee then informed the Philippine office of ICNA UK for insurance claims. ICNA UK got an official weather report from PAGASA, it would appear that heavy rains caused water damage to the shipment, noticeably the shipment was placed outside the warehouse of Aboitiz based on the bill of lading containing an notation “grounded outside the warehouse”. Aboitiz refused to settle the claim, ICNA UK paid the amount of Php 280, 176.92 to consignee, and a subrogation receipt was thereafter signed.

A case for collection of actual damages with interest and attorney’s fees was filed with RTC. Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases, and that complaint had no cause of action, plaintiff ICNA UK had no personality to sue, cause of action was barred, suit was premature there being no claim made upon Aboitiz. RTC rendered decision against ICNA UK and case was elevated to CA, which reversed RTC decision.

Issue: Is ICNA UK the real party-in-interest that possesses the right of subrogation to claim reimbursement from Aboitiz?

Held: Yes. A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from filing a suit in local courts. Only when that foreign corporation is “transacting” or “doing business” in the country will a license be necessary before it can institute suits. It may, however, bring suits on isolated business transactions, which is not prohibited under Philippine law. Thus, this Court has held that a foreign insurance company may sue in the Philippine courts upon the

marine insurance policies issues by it abroad to cover international-‐bound cargoes shipped by a Philippine carrier, even if it

has no license to do business in this country. It is the act of engaging in business without the prescribed license, and not the lack of license per se, which bars a foreign corporation from access to our courts. Thus, the payment by the insurer to the assured operates as an equitable assignment of all remedies the assured may have against the third party who caused the damage. 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 by the insurer.

Rizal Surety vs. CAG.R. No. 112360 June 18, 2000

Facts: Rizal Surety issued a fire insurance policy for Transworld Knitting Mills. A fire broke out in the compound of Transworld, razing the middle portion of the four-span building and partly gutting the left and right sections. It also destroyed the two-storey annex building where fun and amusement machines and spare parts were stored. Transworld filed insurance claim with Rizal but to no avail. Rizal’s contention is that the policy covered only the contents of the four-span building which was only partly burned and not the damage caused to the two-storey annex building.

Issue: Whether or not the insurance policy covers the contents of the building and hence Transworld may recover insurance claims.

Held: Yes. The annex building and the contents are covered under the policy. The so called “annex” formed an integral and inseparable part of the four-span building. It was a [permanent structure which adjoined the 4-storey building described in the policy and consequently, the things stored therein were covered by the insurer. Considering that the annex was already existing when the insurance policy was contracted, Rizal should have specifically excluded it from the coverage of the fire insurance if it wanted to but it did not. Doubt should be resolved against Rizal who drafted the insurance policy contract. This is because 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 companies.

Great Pacific Life Assurance vs. CAG.R. No. L-31845 April 30, 1979

Facts: Ngo Hing filed an application with the Great Pacific Life Assurance Company for a 20-year endowment policy in the amount of P50,000.00 on the life of his one-year old daughter Helen Go. Ngo Hing supplied the essential data which Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the corresponding form in his own handwriting . Mondragon finally type-wrote the data on the application form which was signed by Ngo Hing. The latter paid the annual premium, the sum of P1,077.75 going over to the Company, but he retained the amount of P1,317.00 as his commission for being a duly authorized agent of Pacific Life. Upon the payment of the insurance premium, the binding deposit receipt was issued to Ngo Hing. Likewise, Mondragon handwrote at the bottom of the back page of the application form his strong recommendation for the approval of the insurance application. Later, however, Mondragon received a letter from Pacific Life disapproving the insurance application for 20-year endowment plan is not available for minors below 7 years old, but Pacific Life can consider the same under the Juvenile Triple Action Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be sent to the Company. The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by Mondragon to Ngo Hing.

Mondragon wrote back Pacific Life again strongly recommending the approval of the 20-year endowment life insurance on the ground that Pacific Life is the only insurance company not selling the 20- year endowment insurance plan to children, pointing out that since 1954 the customers, especially the Chinese, were asking for such coverage. It was when things were in such state that Helen Go died of influenza with complication of broncho-pneumonia. Thereupon, Ngo Hing sought the payment of the proceeds of the insurance, but having failed in his effort, he filed the action for the recovery of the same before the CFI of Cebu, which rendered a decision against Pacific Life and Mondragon, orderig them to solidarily pay Ngo Hing the amount of P50,000.00 with interest at 6% from the date of the filing of the complaint. On appeal, the CA set aside the appealed decision of the Court of First Instance of Cebu, and absolved Pacific Life and Mondragon from liability on the insurance policy, but ordered the reimbursement to Ngo Hing the amount of P1,077.75, without interest. On reconsideration, however, the appellate court affirmed in toto the decision of the lower court.

Issue: Whether the binding deposit receipt constituted a temporary contract of the life insurance in question,and thus negate the claim that the insurance contract was perfected.

Held: Yes. The provisions printed on the binding deposit receipt show that the binding deposit receipt is intended to be merely a provisional or temporary insurance contract and only upon compliance of the following conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates; (2) that if the company does not accept the application and offers to issue a policy for a different plan, the insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the deposit shall be refunded; and (3) that if the applicant is not insurable according to the standard rates, and the company disapproves the application, the insurance applied for shall not be in force at any time, and the premium paid shall be returned to the applicant. Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an acknowledgment, on behalf of the company, that the latter's branch office had received from the applicant the insurance premium and had accepted the application subject for processing by the insurance company; and that the latter will either approve or reject the same on the basis of whether or not the applicant is "insurable on standard rates."

Since Pacific Life disapproved the insurance application of Ngo Hing, the binding deposit receipt in question had never become in force at any time. Upon this premise, the binding deposit receipt is, manifestly, merely conditional and does not insure outright. Where an agreement is made between the applicant and the agent, no liability shall attach until the principal approves the risk and a receipt is given by the agent. The acceptance is merely conditional, and is subordinated to the act of the company in approving or rejecting the application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself. It bears repeating that through the intra-company communication of 30 April 1957, Pacific Life disapproved the insurance application in question on the ground that it is not offering the 20-year endowment insurance policy to children less than 7 years of age. What it offered instead is another plan known as the Juvenile Triple Action, which Ngo Hing failed to accept. In the absence of a meeting of the minds between Pacific Life and Ngo Hing over the 20-year endowment life insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter, and with the non-compliance of the abovequoted conditions stated in the disputed binding deposit receipt, there could have been no insurance contract duly perfected between them. Accordingly, the deposit paid by Ngo Hing shall have to be refunded by Pacific Life.

Philamcare Health Systems vs. CAG.R. No. 125678 March 18, 2002

Facts: Ernani Trinos obtained a health care coverage with petitioner Philamcare. Under the agreement, Trinos was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was entitled to avail of “out-patient benefits” such as annual physical examinations, preventive health care and other out-patient services.

During the period of coverage, Trinos suffered a heart attack and was hospitalized for one month. During this time, his wife, Julita Trinos, tried to claim the benefits under the health care agreement but petitioner company denied her claim on the ground that the Health Care Agreement was void because there was concealment regarding Ernani’s medical history. Doctors allegedly discovered at the time of Ernani’s confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus Julita paid the hospitalization expenses herself.When Ernani died, Julita instituted with the RTC of Manila an action for damages against petitioner and its president. She asked for reimbursement of her expenses plus moral damages and attorney’s fees.

Issue: Whether or not the petitioner is liable.

Held: Yes. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract. Petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time of their marriage, the deceased was previously married to another woman who was still alive. The health care agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred the expenses. It is not controverted that respondent paid all the hospital and medical expenses. She is therefore entitled to reimbursement. The records adequately prove the expenses incurred by respondent for the deceased’s hospitalization, medication and the professional fees of the attending physicians.

Great Pacific Life v CAG.R. No. 113899 October 13, 1999

Facts: A group life insurance was executed between GrePaLife and DBP for mortgagors of DBP to the amount of debt to DBP. The insured in this case was one such mortgagor to DBP. GrePaLife granted insurance and a couple of months later, insured died of “massive cerebral hemorrhage”. Upon DBP’s claim GrePaLife denied claiming non-disclosure of insured

that he was suffering from hypertension at the time of application for the insurance based on the testimony of a doctor who declared that the cause of death was “possible hypertension several years ago.”

Issue: Whether or not the insured concealed a material fact.

Held: No. GrePaLife failed to establish that the insured concealed a material fact as the medical findings were not conclusive since the doctor who gave the testimony did not conduct an autopsy on the insured nor had he any knowledge of insured’s previous hospital confinements. The death certificate only stated that hypertension as “possible cause of death”. Concealment exist where the assured had knowledge of a fact material to the risk, and honesty, good faith and fair dealing requires that he should communicate it to the assurer, but he intentionally withholds the same. Fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense rests upon the insurer.

Sunlife Assurance Company of Canada vs. CAG.R. No. 105135 June 22, 1995

Facts: Robert John Bacani procured a life insurance contract for himself from petitioner-company, designating his mother Bernarda Bacani, herein private respondent, as the beneficiary. He was issued a policy valued at P100,000.00 with double indemnity in case of accidental death. Sometime after, the insured died in a plane crash. Bernarda filed a claim with petitioner, seeking the benefits of the insurance policy taken by her son. However, said insurance company rejected the claim on the ground that the insured did not disclose material facts relevant to the issuance of the policy, thus rendering the contract of insurance voidable. Petitioner discovered that two weeks prior to his application for insurance, the insured was examined and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure. The RTC, as affirmed by the CA, this fact was concealed, as alleged by the petitioner. But the fact that was concealed was not the cause of death of the insured and that matters relating to the medical history of the insured is deemed to be irrelevant since petitioner waived the medical examination prior to the approval and issuance of the insurance policy.

Issue: Whether or not the concealment of such material fact, despite it not being the cause of death of the insured, is sufficient to render the insurance contract voidable.

Held: Yes. Section 26 of the Insurance Code is explicit in requiring a party to a contract of insurance to communicate to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has no means of ascertaining.Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is well settled that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in making inquiries.The SC, therefore, ruled that petitioner properly exercised its right to rescind the contract of insurance by reason of the concealment employed by the insured. It must be emphasized that rescission was exercised within the two-year contestability period as recognized in Section 48 of The Insurance Code.

Tan vs. CAG.R. No. 48049 June 29, 1989

Facts: Tan Lee Siong, father of herein petitioners, applied for life insurance in the amount of P80,000.00 with respondent company Philippine American Life Insurance Company. Said application was approved and a corresponding policy was issued effective November 5, 1973, with petitioners as the beneficiaries. On April 26, 1975, Tan Lee Siong died of hepatoma. Hence, petitioners filed with respondent company their claim for the proceeds of the life insurance policy. However, the insurance company denied the said claim and rescinded the policy by reason of the alleged misrepresentation and concealment of material facts made by the deceased Tan Lee Siong in his application for insurance. The premiums paid on the policy were thereupon refunded.

The petitioners contend that the respondent company no longer had the right to rescind the contract of insurance as rescission must allegedly be done during the lifetime of the insured within two years and prior to the commencement of action.

Issue: Whether or not the insurance company has the right to rescind the contract of insurance despite the presence of an incontestability clause

Held: Yes. The so-called “incontestability clause” precludes the insurer from raising the defenses of false representations or concealment of material facts insofar as health and previous diseases are concerned if the insurance has been in force for at least two years during the insured’s lifetime. The phrase “during the lifetime” found in Section 48 of the Insurance Law simply means that the policy is no longer considered in force after the insured has died. The key phrase in the second paragraph of Section 48 is “for a period of two years”.The policy was issued on November 6, 1973 and the insured died on April 26, 1975. The policy was thus in force for a period of only one year and five months. Considering that the insured died before the two-year period has lapsed, respondent company is not, therefore, barred from proving that the policy is void ab initio by reason of the insured’s fraudulent concealment or misrepresentation. Moreover, respondent company rescinded the contract of insurance and refunded the premiums paid on November 11, 1975, previous to the commencement of this action on November 27, 1975.