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G.R. No. 154514 - White Gold Marine Services, Inc., v. Pioneer Insurance and Surety Corporation, et al. FIRST DIVISION [G.R. NO. 154514. July 28, 2005] WHITE GOLD MARINE SERVICES, INC., Petitioners , v. PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD., Respondents . DECISIO N QUISUMBING, J.: This Petition for Review assails the Decision1 dated July 30, 2002 of the Court of Appeals in CA-G.R. SP No. 60144, affirming the Decision2 dated May 3, 2000 of the Insurance Commission in I.C. Adm. Case No. RD277. Both decisions held that there was no violation of the Insurance Code and the respondents do not need license as insurer and insurance agent/broker. The facts are undisputed. White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage for its vessels from The Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship Mutual) through Pioneer Insurance and Surety Corporation (Pioneer). Subsequently, White Gold was issued a Certificate of Entry and Acceptance.3 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 4 and 187 5 of the Insurance Code, while Pioneer violated Sections 299,6 300 7 and 301 8 in relation to Sections 302 and 303, thereof. The Insurance Commission dismissed the complaint. It said that there was no need for Steamship Mutual to secure a license because it was not engaged in the insurance business. It explained that Steamship Mutual was a Protection and Indemnity Club (P & I Club). Likewise, Pioneer need not obtain another license as insurance agent and/or a broker for Steamship Mutual because Steamship Mutual was not engaged in the insurance business. Moreover, Pioneer was already licensed, hence, a separate license solely as agent/broker of Steamship Mutual was already superfluous. The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the appellate court distinguished between P & I Clubs vis - Ã -vis conventional insurance. The appellate court also held that Pioneer merely acted as a collection agent of Steamship Mutual. In this petition, petitioner assigns the following errors allegedly committed by the appellate court, FIRST ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT DOING BUSINESS IN THE PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS TRANSACTIONS THROUGH ITS AGENT AND/OR BROKER HENCE AS AN INSURER IT NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE PHILIPPINES. SECOND ASSIGNMENT OF ERROR THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY EVIDENCE THAT RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS. THIRD ASSIGNMENT OF ERROR THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED NOT SECURE A LICENSE WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP. FOURTH ASSIGNMENT OF ERROR THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT PIONEER AND [IN NOT REMOVING] THE OFFICERS AND DIRECTORS OF RESPONDENT PIONEER.9 Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the insurance business in the Philippines? (2) Does Pioneer need a license as an insurance agent/broker for Steamship Mutual?
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The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does not have a license to do business in the Philippines although Pioneer is its resident agent. This relationship is reflected in the certifications issued by the Insurance Commission. Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance business. To buttress its assertion, it cites the definition of a P & I Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals 1 0 as "an association composed of shipowners in general who band together for the specific purpose of providing insurance cover on a mutual basis against liabilities incidental to shipowning that the members incur in favor of third parties." It stresses that as a P & I Club, Steamship Mutual's primary purpose is to solicit and provide protection and indemnity coverage and for this purpose, it has engaged the services of Pioneer to act as its agent. Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the insurance business in the Philippines. It is merely an association of vessel owners who have come together to provide mutual protection against liabilities incidental to shipowning.1 1 Respondents aver Hyopsung is inapplicable in this case because the issue in Hyopsung was the jurisdiction of the court over Hyopsung. Is Steamship Mutual engaged in the insurance business?

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Section 2(2) of the Insurance Code enumerates what constitutes "doing an insurance business" or "transacting an insurance business". These are: (a) making or proposing to make, as insurer, any insurance contract; (b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety; (c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; (d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code. ... The same provision also provides, the fact that no profit is derived from the making of insurance contracts, agreements or transactions, or that no separate or direct consideration is received therefor, shall not preclude the existence of an insurance business.1 2 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.1 3 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.1 4 In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the losses incident to a marine adventure.1 5 Section 99 1 6 of the Insurance Code enumerates the coverage of marine insurance. Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the insurer and insured. In it, the members all contribute, by a system of premiums or assessments, to the creation of a fund from which all losses and liabilities are paid, and where the profits are divided among themselves, in proportion to their interest.1 7 Additionally, mutual insurance associations, or clubs, provide three types of coverage, namely, protection and indemnity, war risks, and defense costs.1 8 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." 1 9 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 2 0 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.2 1 Does Pioneer, as agent/broker of Steamship Mutual, need a special license?

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Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration 2 2 issued by the Insurance Commission. It has been licensed to do or transact insurance business by virtue of the certificate of authority2 3 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.2 4 Although Pioneer is already licensed as an insurance company, it needs a separate license to act as insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states: SEC. 299 . . . No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for insurance, or receive for services in obtaining insurance, any commission or other compensation from any insurance company doing business in the Philippines or any agent thereof, without first procuring a license so to act from the Commissioner, which must be renewed annually on the first day of January, or within six months thereafter. . . Finally, White Gold seeks revocation of Pioneer's certificate of authority and removal of its directors and officers. Regrettably, we are not the forum for these issues. WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of the Court of Appeals affirming the Decision dated May 3, 2000 of the Insurance Commission is hereby REVERSED AND SET ASIDE. The Steamship Mutual Underwriting Association (Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are ORDERED to obtain licenses and to secure proper authorizations to do business as insurer and insurance agent, respectively. The petitioner's prayer for the revocation of Pioneer's Certificate of Authority and removal of its directors and officers, is DENIED. Costs against respondents. SO ORDERED. Davide, Jr., C.J., (Chairm an) , Ynares-Santiago, Carpio, and Azcuna, JJ., concur. Endnotes:

1

Rollo, pp. 28-41. Penned by Associate Justice Delilah Vidallon-Magtolis, with Associate Justices Candido V.

Rivera, and Sergio L. Pestaño concurring.

2

CA Rollo, pp. 43-51.

3

Id. at 103.

4

SEC. 186. No person, partnership, or association of persons shall transact any insurance business in the

Philippines except as agent of a person or corporation authorized to do the business of insurance in the Philippines, unless possessed of the capital and assets required of an insurance corporation doing the same kind of business in the Philippines and invested in the same manner; nor unless the Commissioner shall have granted to him or them a certificate to the effect that he or they have complied with all the provisions of law which an insurance corporation doing business in the Philippines is required to observe. Every person, partnership, or association receiving any such certificate of authority shall be subject to the insurance laws of the Philippines and to the jurisdiction and supervision of the Commissioner in the same manner as if an insurance corporation authorized by the laws of the Philippines to engage in the business of insurance specified in the certificate.
5

SEC. 187. No Insurance Company shall transact any insurance business in the Philippines until after it

shall have obtained a certificate of authority for that purpose from the Commissioner upon application therefor and payment by the company concerned of the fees hereinafter prescribed. ...
6

SEC. 299. No insurance company doing business in the Philippines, nor any agent thereof, shall pay any

commission or other compensation to any person for services in obtaining insurance, unless such person shall have first procured from the Commissioner a license to act as an insurance agent of such company or as an insurance broker as hereinafter provided. No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for insurance, or receive for services in obtaining insurance, any commission or other compensation from any insurance company doing business in the Philippines or any agent thereof, without first procuring a license so to act from the Commissioner, . . .
7

SEC. 300. Any person who for compensation solicits or obtains insurance on behalf of any insurance

company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiating of such insurance shall be an insurance agent within the intent of this section and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance agent is subject.

8

SEC. 301. Any person who for any compensation, commission or other thing of value acts or aids in any

manner in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance, on behalf of an insured other than himself, shall be an insurance broker within the intent of this Code, and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance broker is subject.
9

Rollo, pp. 144-145.

10

No. L-77369, 31 August 1988, 165 SCRA 258, 260.

11

Rollo, p. 176.

12

THE INSURANCE CODE OF THE PHILIPPINES, Section 2(2).

13

43 AM JUR. 2d Insurance Sec. 4 (1982).

14

Rufus B. Rodriguez, The Insurance Code of the Philippines Annotated 4 (4th ed., 1999), citing BUIST M.

ANDERSON, Vance on Insurance 83 (3rd ed., 1951).
15

Eduardo F. Hernandez and Antero A. Peñasales, Philippine Admiralty and Maritime Law 612 (1st ed.,

1987).
16

SEC. 99. Marine insurance includes:

(1) Insurance against loss of or damage to: (a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, disbursements, profits, moneys, securities, choses in action, evidences of debt, valuable papers, bottomry, and respondentia interests and all other kinds of property and interests therein, in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit or transportation, or while being assembled, packed, crated, baled, compressed or similarly prepared for shipment or while awaiting shipment, or during any delays, storage, trasshipment, or reshipment incident thereto, including war risks, marine builder's risks, and all personal property floater risks. (b) Person or property in connection with or appertaining to a marine, inland marine, transit or transportation insurance, including liability for loss of or damage arising out of or in connection with the construction, repair, operation, maintenance or use of the subject matter of such insurance (but not including life insurance or surety bonds nor insurance against loss by reason of bodily injury to any person

arising out of the ownership, maintenance, or use of automobiles). (c) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or otherwise. (d) Bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings, their furniture and furnishings, fixed contents and supplies held in storage); piers, wharves, docks and slips, and other aids to navigation and transportation, including dry docks and marine railways, dams and appurtenant facilities for the control of waterways. (2) "Marine protection and indemnity insurance," meaning insurance against, or against legal liability of the insured for loss, damage, or expense incident to ownership, operation, chartering, maintenance, use, repair, or construction of any vessel, craft or instrumentality in use in ocean or inland waterways, including liability of the insured for personal injury, illness or death or for loss of or damage to the property of another person.
17

Supra, note 13 at Sec. 65.

18

Howard Bennett, The Law of Marine Insurance 236 (1996).

19

Supra, note 15 at 733.

20

Supra, note 5.

21

Supra, note 12 at Sec. 187.

22

CA Rollo, p. 154.

23

Id. at 153.

24

Id. at 112. Certification issued by the Insurance Commission which certified that Pioneer is not a

registered broker for any foreign corporation.

White Gold v Pioneer G.R. No. 154514. July 28, 2005
J. Quisimbing

Facts:

White Gold procured a protection and indemnity coverage for its vessels from The Steamship Mutual through Pioneer Insurance and Surety Corporation. White Gold was issued a Certificate of Entry and Acceptance. Pioneer also issued receipts. 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 unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission claiming that Steamship Mutual and Pioneer violated provisions 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 and that it was a P & I club. Pioneer was not required to obtain another license as insurance agent because Steamship Mutual was not engaged in the insurance business. 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. Hence this petition by White Gold.

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: Yes. Petition granted.

Ratio: White Gold insists that Steamship Mutual as a P & I Club is engaged in the insurance business. To buttress its assertion, it cites the definition as “an association composed of shipowners in general who band together for the specific purpose of providing insurance cover on a mutual basis against liabilities incidental to shipowning that the members incur in favor of third parties.” They argued that Steamship Mutual’s primary purpose is to solicit and provide protection and indemnity coverage and for this purpose, it has engaged the services of Pioneer to act as its agent. Respondents contended that although Steamship Mutual is a P & I Club, it is not engaged in the insurance business in the Philippines. It is merely an association of vessel owners who have come together to provide mutual protection against liabilities incidental to shipowning. Is Steamship Mutual engaged in the insurance business?

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. 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. 2. 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. Section 299 of the Insurance Code clearly states: SEC. 299 No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for insurance, or receive for services in obtaining insurance, any commission or other compensation from any insurance company doing business in the Philippines or any agent thereof, without first procuring a license so to act from the Commissioner…

P H I L A MC A R EH E A L T HS Y S T E MS , I N C . , P e t i t i o n e r , v . C O U R TO FA P P E A L Sa n d J U L I T AT R I N O S , R e s p o n d e n t s .

FIRST DIVISION [G.R. No. 125678. March 18, 2002.] PHILAMCARE HEALTH SYSTEMS, INC., Petitioner, v. COURT OF APPEALS and JULITA TRINOS, Respondents. DECISIO N

YNARES-SANTIAGO, J.:

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner Philamcare Health Systems, Inc. In the standard application form, he answered no to the following question:
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Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details). 1 The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement, respondent’s husband was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services.
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Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. 2

During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990. While her husband was in the hospital, respondent tried to claim the benefits under the health care agreement. However, petitioner denied her claim saying that the Health Care Agreement was void. According to petitioner, there was a concealment regarding Ernani’s medical history. Doctors at the MMC 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, respondent paid the hospitalization expenses herself, amounting to about P76,000.00. After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties, however, respondent brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent was constrained to bring him back to the Chinese General Hospital where he died on the same day.
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On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action for damages against petitioner and its president, Dr. Benito Reverente, which was docketed as Civil Case No. 90 53795. She asked for reimbursement of her expenses plus moral damages and attorney’s fees. After trial, the lower court ruled against petitioners, viz:
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WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita Trinos, ordering:
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1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the same; 2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff; 3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff; 4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit. SO ORDERED 3 On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and absolved petitioner Reverente. 4 Petitioner’s motion for reconsideration was denied. 5 Hence, petitioner brought the instant petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code 6 does not apply. Petitioner argues that the agreement grants "living benefits," such as medical check-ups and hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of the agreement until its expiration one-year thereafter. Petitioner also points out that only medical and hospitalization benefits are given under the agreement without any indemnification, unlike in an insurance contract where the insured is indemnified for his loss. Moreover, since Health Care Agreements are only for a period of one year, as compared to insurance contracts which last longer, 7 petitioner argues that the

incontestability clause does not apply, as the same requires an effectivity period of at least two years. Petitioner further argues that it is not an insurance company, which is governed by the Insurance Commission, but a Health Maintenance Organization under the authority of the Department of Health. 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. 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; and 5. In consideration of the insurer’s promise, the insured pays a premium. 8 Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest against him, may be insured against. Every person has an insurable interest in the life and health of himself. Section 10 provides: Every person has an insurable interest in the life and health: (1) of himself, of his spouse and of his children; (2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; (3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or illness might delay or prevent the performance; and (4) of any person upon whose life any estate or interest vested in him depends. In the case at bar, the insurable interest of respondent’s husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. 9 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.
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Petitioner argues that respondent’s husband concealed a material fact in his application. It appears that in the application for health coverage, petitioners required respondent’s husband to sign an express authorization for any person, organization or entity that has any record or knowledge of his health to

furnish any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination. 10 Specifically, the Health Care Agreement signed by respondent’s husband states:
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We hereby declare and agree that all statement and answers contained herein and in any addendum annexed to this application are full, complete and true and bind all parties in interest under the Agreement herein applied for, that there shall be no contract of health care coverage unless and until an Agreement is issued on this application and the full Membership Fee according to the mode of payment applied for is actually paid during the lifetime and good health of proposed Members; that no information acquired by any Representative of PhilamCare shall be binding upon PhilamCare unless set out in writing in the application; that any physician is, by these presents, expressly authorized to disclose or give testimony at anytime relative to any information acquired by him in his professional capacity upon any question affecting the eligibility for health care coverage of the Proposed Members and that the acceptance of any Agreement issued on this application shall be a ratification of any correction in or addition to this application as stated in the space for Home Office Endorsement. 11 (Emphasis ours) In addition to the above condition, petitioner additionally required the applicant for authorization to inquire about the applicant’s medical history, thus:
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I hereby authorize any person, organization, or entity that has any record or knowledge of my health and/or that of ________ to give to the PhilamCare Health Systems, Inc. any and all information relative to any hospitalization. consultation. treatment or any other medical advice or examination. This authorization is in connection with the application for health care coverage only. A photographic copy of this authorization shall be as valid as the original. 12 (Emphasis ours) Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads:

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Failure to disclose or misrepresentation of any material information by the member in the application or medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for. 13 The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondent’s husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. 14 Thus,
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(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of

expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. 15 (Emphasis ours) The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. 16 Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid. Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to rescind should be exercised previous to the commencement of an action on the contract. 17 In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: 1. Prior notice of cancellation to insured; 2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; 3. Must be in writing, mailed or delivered to the insured at the address shown in the policy; 4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based. 18 None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from noncompliance with his obligation. 19 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. 20 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. 21 This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider. 22 Anent the incontestability of the membership of respondent’s husband, we quote with approval the following findings of the trial court:
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(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had twelve months from the date of issuance of the Agreement within which to contest the membership of the patient

if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie. 23 Finally, 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. 24 WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals dated December 14, 1995 is AFFIRMED. SO ORDERED. Davide, Jr., C.J., Puno and Kapunan, JJ., concur. Endnotes:

1. R e cord, p. 28.

2. Ex hibit "4", R e cord, p. 156.

3. Date d Nove m be r 16, 1993; pe nne d by Judge Lolita Gal-lang; R ollo, pp. 134-135.

4. Date d De ce m be r 14, 1995, pe nne d by Associate Justice Fide l P. Purisim a, concurre d in by Associate Justice s Fe rm in A. Martin, Jr. and C onchita C arpio Morale s; R ollo, p. 45.

5. R e solution date d July 23, 1996; R ollo, p. 48.

6. Se ction 48 of P.D. No. 1460 othe rwise k nown as the Insurance C ode .

7. Pe tition, pp. 13-14; R ollo, pp. 22-23.

8. Se e Vance pp. 1-2 cite d in Agbayani, C om m e rcial Laws of the Philippine s, vol. 2, 1986 e d. p. 6.

9. C ha v. C ourt of Appe als, 270 SC R A 690, 694 (1997).

10. R e cord, p. 28.

11. Ibid.

12. ibid.

13. Ibid., p. 13.

14. Bryant v. Mode rn W oodm e n of Am e rica, 86 Ne b 372, 125 NW 621.

15. He rrick v. Union Mut. Fire Ins. C o., 48 Me 558; Bryant v. Mode rn W oodm e n of Am e rica, supra; Boute lle v. W e stche ste r Fire Ins. C o., 51 Vt 4 cite d in 43 Am Jur 2d § 1016.

16. Gre at Pacific Life v. C ourt of Appe als, 316 SC R A 677 [1999], citing Ng Gan Ze e v. Asian C rusade r Life Assurance C orp., 122 SC R A 461 [1983].

17. Se ction 48, Insurance C ode .

18. Malayan Insurance v. C ruz Arnaldo, 154 SC R A 672 [1987].

19. He irs of Ilde fonso C oscullue la, Sr. v. R ico Ge ne ral Insurance C orporation, 179 SC R A 511 [1989].

20. Landicho v. GSIS, 44 SC R A 7 [1972]; W e ste rn Guaranty C om pany v. C ourt of Appe als, 187 SC R A 652 [1990].

21. 44 C .J.S. pp. 1166-1175; 29 Am . Jur. 180. Se e also Ae tna Insurance C o. v. R hode s, 170 F2d 111; Insurance C o. v. Norton, 96 U.S. 234, 24 L e d 689; Pfe iffe r v. Missouri State Life Ins. C o., 174 Ark 783, 297 SW 847.

22. Se e Mye rs v. Kitsap Physicians Se rvice , 78 W ash 2d 286, 474 P2d 109, 66 ALR 3d 1196; Hunt v. Hospital Se rvice Plan, 81 ALR 2d 919 cite d in 43 Am Jur 2d § 289.

23. R e cord, p. 257.

24. Ex hibit "B", Ex hibits "D" to "D-7" ; R e cord, pp. 88-97.

Insurance Law – Representation – Concealment – Rescission of an Insurance Contract FACTS: In 1988, Ernani Trinos applied for a health care insurance under the Philamcare Health Systems. He was asked if he was ever treated for high blood, heart trouble, diabetes, cancer, liver disease, asthma, or peptic ulcer; he answered no. His application was approved and it was effective for one year. His coverage was subsequently renewed twice for one year each. While the coverage was still in force in 1990, Ernani suffered a heart attack for which he was hospitalized. The cost of the hospitalization amounted to P76,000.00. Julita Trinos, wife of Ernani, filed a claim before Philamcare for them to pay the hospitalization cost. Philamcare refused to pay as it alleged that Ernani failed to disclose the fact that he was diabetic, hypertensive, and asthmatic. Julita ended up paying the hospital expenses. Ernani eventually died. In July 1990, Julita sued Philamcare for damages. Philamcare alleged that the health coverage is not an insurance contract; that the concealment made by Ernani voided the agreement. ISSUE: Whether or not Philamcare can avoid the health coverage agreement. HELD: No. The health coverage agreement entered upon by Ernani with Philamcare is a non-life insurance contract

and is covered by the Insurance Law. It 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. There is no concealment on the part of Ernani. He answered the question with good faith. He was not a medical doctor hence his statement in answering the question asked of him when he was applying is an opinion rather than a fact. Answers made in good faith will not void the policy. Further, Philamcare, in believing there was concealment, should have taken the necessary steps to void the health coverage agreement prior to the filing of the suit by Julita. Philamcare never gave notice to Julita of the fact that they are voiding the agreement. Therefore, Philamcare should pay the expenses paid by Julita.

G.R. No. 167330 - Philippine Health Providers, Inc. v. Commissioner of Internal Revenue

SPECIAL FIRST DIVISION [G.R. NO. 167330 : September 18, 2009] PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. RESO LUTIO N CORONA, J.: ARTICLE II Declaration of Principles and State Policies

Section 15. The State shall protect and promote the right to health of the people and instill health consciousness among them. ARTICLE XIII Social Justice and Human Rights Section 11. The State shall adopt an integrated and comprehensive approach to health development which shall endeavor to make essential goods, health and other social services available to all the people at affordable cost. There shall be priority for the needs of the underprivileged sick, elderly, disabled, women, and children. The State shall endeavor to provide free medical care to paupers.1 For resolution are a motion for reconsideration and supplemental motion for reconsideration dated July 10, 2008 and July 14, 2008, respectively, filed by petitioner Philippine Health Care Providers, Inc.2 We recall the facts of this case, as follows: Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and operate a prepaid group practice health care delivery system or a health maintenance organization to take care of the sick and disabled persons enrolled in the health care plan and to provide for the administrative, legal, and financial responsibilities of the organization." Individuals enrolled in its health care programs pay an annual membership fee and are entitled to various preventive, diagnostic and curative medical services provided by its duly licensed physicians, specialists and other professional technical staff participating in the group practice health delivery system at a hospital or clinic owned, operated or accredited by it. xxx xxx xxx

On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal demand letter and the corresponding assessment notices demanding the payment of deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the total amount of P224,702,641.18. xxxx The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner's health care agreement with the members of its health care program pursuant to Section 185 of the 1997 Tax Code xxxx xxx xxx xxx

Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest, petitioner filed a Petition for Review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments. On April 5, 2002, the CTA rendered a decision, the dispositive portion of which read: WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Petitioner is hereby ORDERED to PAY the deficiency VAT amounting toP22,054,831.75 inclusive of 25% surcharge plus

20% interest from January 20, 1997 until fully paid for the 1996 VAT deficiency and P31,094,163.87 inclusive of 25% surcharge plus 20% interest from January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly, VAT Ruling No. [231]-88 is declared void and without force and effect. The 1996 and 1997 deficiency DST assessment against petitioner is hereby CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from collecting the said DST deficiency tax. SO ORDERED. Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled the DST assessment. He claimed that petitioner's health care agreement was a contract of insurance subject to DST under Section 185 of the 1997 Tax Code. On August 16, 2004, the CA rendered its decision. It held that petitioner's health care agreement was in the nature of a non-life insurance contract subject to DST. WHEREFORE, the Petition for Review is GRANTED. The Decision of the Court of Tax Appeals, insofar as it cancelled and set aside the 1996 and 1997 deficiency documentary stamp tax assessment and ordered petitioner to desist from collecting the same is REVERSED and SET ASIDE. Respondent is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as deficiency Documentary Stamp Tax for 1996 and 1997, respectively, plus 25% surcharge for late payment and 20% interest per annum from January 27, 2000, pursuant to Sections 248 and 249 of the Tax Code, until the same shall have been fully paid. SO ORDERED. Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this case. xxx xxx xxx

In a decision dated June 12, 2008, the Court denied the petition and affirmed the CA's decision. We held that petitioner's health care agreement during the pertinent period was in the nature of non-life insurance which is a contract of indemnity, citing Blue Cross Healthcare, Inc. v. Olivares and Philamcare Health Systems, Inc. v. CA.4 We also ruled that petitioner's contention that it is a health maintenance organization (HMO) and not an insurance company is irrelevant because contracts between companies like petitioner and the beneficiaries under their plans are treated as insurance contracts. Moreover, DST is not a tax on the business transacted but an excise on the privilege, opportunity or facility offered at exchanges for the transaction of the business. Unable to accept our verdict, petitioner filed the present motion for reconsideration and supplemental motion for reconsideration, asserting the following arguments: (a) The DST under Section 185 of the National Internal Revenue of 1997 is imposed only on a company engaged in the business of fidelity bonds and other insurance policies. Petitioner, as an HMO, is a service provider, not an insurance company.
3

(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank, affirmed in effect the CA's disposition that health care services are not in the nature of an insurance business. (c) Section 185 should be strictly construed. (d) Legislative intent to exclude health care agreements from items subject to DST is clear, especially in the light of the amendments made in the DST law in 2002. (e) Assuming arguendo that petitioner's agreements are contracts of indemnity, they are not those contemplated under Section 185. (f) Assuming arguendo that petitioner's agreements are akin to health insurance, health insurance is not covered by Section 185. (g) The agreements do not fall under the phrase "other branch of insurance" mentioned in Section 185. (h) The June 12, 2008 decision should only apply prospectively. (i) Petitioner availed of the tax amnesty benefits under RA5 9480 for the taxable year 2005 and all prior years. Therefore, the questioned assessments on the DST are now rendered moot and academic.6 Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their memoranda on June 8, 2009. In its motion for reconsideration, petitioner reveals for the first time that it availed of a tax amnesty under RA 9480 7 (also known as the "Tax Amnesty Act of 2007") by fully paying the amount of P5,127,149.08 representing 5% of its net worth as of the year ending December 31, 2005.8 We find merit in petitioner's motion for reconsideration. Petitioner was formally registered and incorporated with the Securities and Exchange Commission on June 30, 1987. It is engaged in the dispensation of the following medical services to individuals who enter into health care agreements with it: Preventive medical services such as periodic monitoring of health problems, family planning counseling, consultation and advices on diet, exercise and other healthy habits, and immunization; Diagnostic medical services such as routine physical examinations, x-rays, urinalysis, fecalysis, complete blood count, and the like and Curative medical services which pertain to the performing of other remedial and therapeutic processes in the event of an injury or sickness on the part of the enrolled member.1 0
9

Individuals enrolled in its health care program pay an annual membership fee. Membership is on a year-toyear basis. The medical services are dispensed to enrolled members in a hospital or clinic owned, operated or accredited by petitioner, through physicians, medical and dental practitioners under contract with it. It negotiates with such health care practitioners regarding payment schemes, financing and other procedures for the delivery of health services. Except in cases of emergency, the professional services are to be provided only by petitioner's physicians, i.e. those directly employed by it
11

or whose services are

contracted by it.1 2 Petitioner also provides hospital services such as room and board accommodation, laboratory services, operating rooms, x-ray facilities and general nursing care. care providers for the services rendered, at pre-agreed rates.1 4 To avail of petitioner's health care programs, the individual members are required to sign and execute a standard health care agreement embodying the terms and conditions for the provision of the health care services. The same agreement contains the various health care services that can be engaged by the enrolled member, i.e., preventive, diagnostic and curative medical services. Except for the curative aspect of the medical service offered, the enrolled member may actually make use of the health care services being offered by petitioner at any time. Health Maintenance Organizations Are Not Engaged In The Insurance Business We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an insurer because its agreements are treated as insurance contracts and the DST is not a tax on the business but an excise on the privilege, opportunity or facility used in the transaction of the business.
15 13

If and when a member

avails of the benefits under the agreement, petitioner pays the participating physicians and other health

Petitioner, however, submits that it is of critical importance to characterize the business it is engaged in, that is, to determine whether it is an HMO or an insurance company, as this distinction is indispensable in turn to the issue of whether or not it is liable for DST on its health care agreements.
16

A second hard look at the relevant law and jurisprudence convinces the Court that the arguments of petitioner are meritorious. Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides: Section 185. Stamp tax on fidelity bonds and other insurance policies . - On all policies of insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability made or renewed by any person, association or company or corporation transacting the business of accident, fidelity, employer's liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance) , and all bonds, undertakings, or recognizances, conditioned for the performance of the duties of any office or position, for the doing or not doing of anything therein specified, and on all obligations guaranteeing the validity or legality of any bond or other obligations issued by any province, city, municipality, or other public body or organization, and on all obligations guaranteeing the title to any real estate, or guaranteeing any mercantile credits, which may be made or renewed by any such person, company or corporation, there shall be collected a documentary stamp tax of fifty centavos (P0.50) on each four pesos (P4.00), or fractional part thereof, of the premium charged. (Emphasis supplied)
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It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a statute shall be considered surplusage or superfluous, meaningless, void and insignificant. To this end, a construction which renders every word operative is preferred over that which makes some words idle and nugatory.1 7 This principle is expressed in the maxim Ut magis valeat quam pereat, that is, we choose the interpretation which gives effect to the whole of the statute - its every word.1 8 From the language of Section 185, it is evident that two requisites must concur before the DST can apply, namely: (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 accident, fidelity, employer's liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance). Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance Act of 1995"), an HMO is "an entity that provides, offers or arranges for coverage of designated health services needed by plan members for a fixed prepaid premium." 1 9 The payments do not vary with the extent, frequency or type of services provided. The question is: was petitioner, as an HMO, engaged in the business of insurance during the pertinent taxable years? We rule that it was not. Section 2 (2) of PD2 0 1460 (otherwise known as the Insurance Code) enumerates what constitutes "doing an insurance business" or "transacting an insurance business:" a) making or proposing to make, as insurer, any insurance contract; b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety; c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code. In the application of the provisions of this Code, the fact that no profit is derived from the making of insurance contracts, agreements or transactions or that no separate or direct consideration is received therefore, shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business. Various courts in the United States, whose jurisprudence has a persuasive effect on our decisions,2 1 have determined that HMOs are not in the insurance business. One test that they have applied is whether the assumption of risk and indemnification of loss (which are elements of an insurance business) are the principal object and purpose of the organization or whether they are merely incidental to its business. If these are the principal objectives, the business is that of insurance. But if they are merely incidental and

service is the principal purpose, then the business is not insurance. Applying the "principal object and purpose test," 2 2 there is significant American case law supporting the argument that a corporation (such as an HMO, whether or not organized for profit), whose main object is to provide the members of a group with health services, is not engaged in the insurance business. The rule was enunciated in Jordan v. Group Health Association 2 3 wherein the Court of Appeals of the District of Columbia Circuit held that Group Health Association should not be considered as engaged in insurance activities since it was created primarily for the distribution of health care services rather than the assumption of insurance risk. xxx Although Group Health's activities may be considered in one aspect as creating security against loss from illness or accident more truly they constitute the quantity purchase of well-rounded, continuous medical service by its members. xxx The functions of such an organization are not identical with those of insurance or indemnity companies. The latter are concerned primarily, if not exclusively, with risk and the consequences of its descent, not with service, or its extension in kind, quantity or distribution; with the unusual occurrence, not the daily routine of living. Hazard is predominant. On the other hand, the cooperative is concerned principally with getting service rendered to its members and doing so at lower prices made possible by quantity purchasing and economies in operation. Its primary purpose is to reduce the cost rather than the risk of medical care; to broaden the service to the individual in kind and quantity; to enlarge the number receiving it; to regularize it as an everyday incident of living, like purchasing food and clothing or oil and gas, rather than merely protecting against the financial loss caused by extraordinary and unusual occurrences, such as death, disaster at sea, fire and tornado. It is, in this instance, to take care of colds, ordinary aches and pains, minor ills and all the temporary bodily discomforts as well as the more serious and unusual illness. To summarize, the distinctive features of the cooperative are the rendering of service, its extension, the bringing of physician and patient together, the preventive features, the regularization of service as well as payment, the substantial reduction in cost by quantity purchasing in short, getting the medical job done and paid for; not, except incidentally to these features, the indemnification for cost after the services is rendered. Except the last, these are not distinctive or generally characteristic of the insurance arrangement. There is, therefore, a substantial difference between contracting in this way for the rendering of service, even on the contingency that it be needed, and contracting merely to stand its cost when or after it is rendered. That an incidental element of risk distribution or assumption may be present should not outweigh all other factors. If attention is focused only on that feature, the line between insurance or indemnity and other types of legal arrangement and economic function becomes faint, if not extinct. This is especially true when the contract is for the sale of goods or services on contingency. But obviously it was not the purpose of the insurance statutes to regulate all arrangements for assumption or distribution of risk. That view would cause them to engulf practically all contracts, particularly conditional sales and contingent service agreements. The fallacy is in looking only at the risk element, to the exclusion of all others present or their subordination to it. The question turns, not on whether risk is involved or assumed, but on whether that or something else to which it is related in the particular plan is its principal object purpose.
24

(Emphasis supplied)

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In California Physicians' Service v. Garrison ,2 5 the California court felt that, after scrutinizing the plan of

operation as a whole of the corporation, it was service rather than indemnity which stood as its principal purpose. There is another and more compelling reason for holding that the service is not engaged in the insurance business. Absence or presence of assumption of risk or peril is not the sole test to be applied in determining its status. The question, more broadly, is whether, looking at the plan of operation as a whole, 'service' rather than 'indemnity' is its principal object and purpose. Certainly the objects and purposes of the corporation organized and maintained by the California physicians have a wide scope in the field of social service. Probably there is no more impelling need than that of adequate medical care on a voluntary, low-cost basis for persons of small income. The medical profession unitedly is endeavoring to meet that need. Unquestionably this is 'service' of a high order and not 'indemnity.'
26

(Emphasis supplied)

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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.Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue Shield of New Jersey
27

is clear on this point:

The basic distinction between medical service corporations and ordinary health and accident insurers is that the former undertake to provide prepaid medical services through participating physicians, thus relieving subscribers of any further financial burden, while the latter only undertake to indemnify an insured for medical expenses up to, but not beyond, the schedule of rates contained in the policy. xxx xxx xxx

The primary purpose of a medical service corporation, however, is an undertaking to provide physicians who will render services to subscribers on a prepaid basis. Hence, if there are no physicians participating in the medical service corporation's plan, not only will the subscribers be deprived of the protection which they might reasonably have expected would be provided, but the corporation will, in effect, be doing business solely as a health and accident indemnity insurer without having qualified as such and rendering itself subject to the more stringent financial requirements of the General Insurance Laws'. A participating provider of health care services is one who agrees in writing to render health care services to or for persons covered by a contract issued by health service corporation in return for which the health service corporation agrees to make payment directly to the participating provider.2 8 (Emphasis supplied)
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Consequently, the mere presence of risk would be insufficient to override the primary purpose of the business to provide medical services as needed, with payment made directly to the provider of these services.2 9 In short, even if petitioner assumes the risk of paying the cost of these services even if significantly more than what the member has prepaid, it nevertheless cannot be considered as being engaged in the insurance business. By the same token, any indemnification resulting from the payment for services rendered in case of emergency by non-participating health providers would still be incidental to petitioner's purpose of

providing and arranging for health care services and does not transform it into an insurer. To fulfill its obligations to its members under the agreements, petitioner is required to set up a system and the facilities for the delivery of such medical services. This indubitably shows that indemnification is not its sole object. In fact, a substantial portion of petitioner's services covers preventive and diagnostic medical services intended to keep members from developing medical conditions or diseases.3 0 As an HMO, it is its obligation to maintain the good health of its members. Accordingly, its health care programs are designed to prevent or to minimize thepossibility of any assumption of risk on its part. Thus, its undertaking under its agreements is not to indemnify its members against any loss or damage arising from a medical condition but, on the contrary, to provide the health and medical services needed to prevent such loss or damage.3 1 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. It is important to emphasize that, in adopting the "principal purpose test" used in the above-quoted U.S. cases, we are not saying that petitioner's operations are identical in every respect to those of the HMOs or health providers which were parties to those cases. What we are stating is that, for the purpose of determining what "doing an insurance business" means, we have to scrutinize the operations of the business as a whole and not its mere components. This is of course only prudent and appropriate, taking into account the burdensome and strict laws, rules and regulations applicable to insurers and other entities engaged in the insurance business. Moreover, we are also not unmindful that there are other American authorities who have found particular HMOs to be actually engaged in insurance activities.3 2 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.3 3 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. The reason behind this rule was explained in Nestle Philippines, Inc. v. Court of Appeals :3 4 The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or modernizing society and the establishment of diverse administrative agencies for addressing and satisfying those needs; it also relates to the accumulation of experience and growth of specialized capabilities by the administrative agency charged with implementing a particular statute. In Asturias Sugar Central, Inc. v. Commissioner of Customs ,3 5 the Court stressed that executive officials are presumed to have familiarized themselves with all the considerations pertinent to the meaning and purpose of the law, and to have formed an independent, conscientious and competent expert opinion thereon. The courts give much weight to the government agency officials charged with the implementation of the law, their competence, expertness, experience and informed judgment, and the fact that they frequently are the drafters of the law they interpret.3 6

A Health Care Agreement Is Not An Insurance Contract Contemplated Under Section 185 Of The NIRC of 1997 Section 185 states that DST is imposed on "all policies of insurance' or obligations of the nature of indemnity for loss, damage, or liability'. " In our decision dated June 12, 2008, we ruled that petitioner's health care agreements are contracts of indemnity and are therefore insurance contracts: It is - incorrect to say that the health care agreement is not based on loss or damage because, under the said agreement, petitioner assumes the liability and indemnifies its member for hospital, medical and related expenses (such as professional fees of physicians). The term "loss or damage" is broad enough to cover the monetary expense or liability a member will incur in case of illness or injury. Under the health care agreement, the rendition of hospital, medical and professional services to the member in case of sickness, injury or emergency or his availment of so-called "out-patient services" (including physical examination, x-ray and laboratory tests, medical consultations, vaccine administration and family planning counseling) is the contingent event which gives rise to liability on the part of the member. In case of exposure of the member to liability, he would be entitled to indemnification by petitioner. Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses arising from the stipulated contingencies belies its claim that its services are prepaid. The expenses to be incurred by each member cannot be predicted beforehand, if they can be predicted at all. Petitioner assumes the risk of paying for the costs of the services even if they are significantly and substantially more than what the member has "prepaid." Petitioner does not bear the costs alone but distributes or spreads them out among a large group of persons bearing a similar risk, that is, among all the other members of the health care program. This is insurance.3 7 We reconsider. We shall quote once again the pertinent portion of Section 185: Section 185. Stamp tax on fidelity bonds and other insurance policies . - On all policies of insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability made or renewed by any person, association or company or corporation transacting the business of accident, fidelity, employer's liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance), xxxx (Emphasis supplied)
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In construing this provision, we should be guided by the principle that tax statutes are strictly construed against the taxing authority.3 8 This is because taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government.3 9 Hence, tax laws may not be extended by implication beyond the clear import of their language, nor their operation enlarged so as to embrace matters not specifically provided.4 0 We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care agreement is in the nature of non-life insurance, which is primarily a contract of indemnity. However, those cases did not involve the interpretation of a tax provision. Instead, they dealt with the liability of a health service provider to a member under the terms of their health care agreement. Such contracts, as contracts of adhesion, are liberally interpreted in favor of the member and strictly against the HMO. For this reason, we

reconsider our ruling that Blue Cross and Philamcare are applicable here. 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. 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 designed 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 and 5. In consideration of the insurer's promise, the insured pays a premium.4 1 Do the agreements between petitioner and its members possess all these elements? They do not. First. In our jurisdiction, a commentator of our insurance laws has pointed out that, 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: It does not necessarily follow however, that a contract containing all the four elements mentioned above would be an insurance contract. The primary purpose of the parties in making the contract may negate the existence of an insurance contract. For example, a law firm which enters into contracts with clients whereby in consideration of periodical payments, it promises to represent such clients in all suits for or against them, is not engaged in the insurance business. Its contracts are simply for the purpose of rendering personal services. On the other hand, a contract by which a corporation, in consideration of a stipulated amount, agrees at its own expense to defend a physician against all suits for damages for malpractice is one of insurance, and the corporation will be deemed as engaged in the business of insurance. Unlike the lawyer's retainer contract, the essential purpose of such a contract is not to render personal services, but to indemnify against loss and damage resulting from the defense of actions for malpractice.4 2 (Emphasis supplied)
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Second. Not all the necessary elements of a contract of insurance are present in petitioner's agreements. To begin with, there is no loss, damage or liability on the part of the member that should be indemnified by petitioner as an HMO. Under the agreement, the member pays petitioner a predetermined consideration in exchange for the hospital, medical and professional services rendered by the petitioner's physician or affiliated physician to him. In case of availment by a member of the benefits under the agreement, petitioner does not reimburse or indemnify the member as the latter does not pay any third party. Instead, it is the petitioner who pays the participating physicians and other health care providers for the services rendered at pre-agreed rates. The member does not make any such payment. In other words, there is nothing in petitioner's agreements that gives rise to a monetary liability on the

part of the member to any third party-provider of medical services which might in turn necessitate indemnification from petitioner. The terms "indemnify" or "indemnity" presuppose that a liability or claim has already been incurred. There is no indemnity precisely because the member merely avails of medical services to be paid or already paid in advance at a pre-agreed price under the agreements. Third. According to the agreement, a member can take advantage of the bulk of the benefits anytime, e.g. laboratory services, x-ray, routine annual physical examination and consultations, vaccine administration as well as family planning counseling, even in the absence of any peril, loss or damage on his or her part. Fourth . In case of emergency, petitioner is obliged to reimburse the member who receives care from a nonparticipating physician or hospital. However, this is only a very minor part of the list of services available. The assumption of the expense by petitioner is not confined to the happening of a contingency but includes incidents even in the absence of illness or injury. In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,4 3 although the health care contracts called for the defendant to partially reimburse a subscriber for treatment received from a nondesignated doctor, this did not make defendant an insurer. Citing Jordan , the Court determined that "the primary activity of the defendant (was) the provision of podiatric services to subscribers in consideration of prepayment for such services." 4 4 Since indemnity of the insured was not the focal point of the agreement but the extension of medical services to the member at an affordable cost, it did not partake of the nature of a contract of insurance. Fifth . 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. Consequently, there is a need to distinguish prepaid service contracts (like those of petitioner) from the usual insurance contracts. Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health services: the risk that it might fail to earn a reasonable return on its investment. But it is not the risk of the type peculiar only to insurance companies. Insurance risk, also known as actuarial risk, is the risk that the cost of insurance claims might be higher than the premiums paid. The amount of premium is calculated on the basis of assumptions made relative to the insured.4 5 However, assuming that petitioner's commitment to provide medical services to its members can be construed as an acceptance of the risk that it will shell out more than the prepaid fees, it still will not qualify as an insurance contract because petitioner's objective is to provide medical services at reduced cost, not to distribute risk like an insurer. In sum, an examination of petitioner's agreements with its members leads us to conclude that it is not an insurance contract within the context of our Insurance Code. There Was No Legislative Intent To Impose DST On Health Care Agreements Of HMOs Furthermore, militating in convincing fashion against the imposition of DST on petitioner's health care agreements under Section 185 of the NIRC of 1997 is the provision's legislative history. The text of Section 185 came into U.S. law as early as 1904 when HMOs and health care agreements were not even in

existence in this jurisdiction. It was imposed under Section 116, Article XI of Act No. 1189 (otherwise known as the "Internal Revenue Law of 1904")4 6 enacted on July 2, 1904 and became effective on August 1, 1904. Except for the rate of tax, Section 185 of the NIRC of 1997 is a verbatim reproduction of the pertinent portion of Section 116, to wit: ARTICLE XI Stamp Taxes on Specified Objects Section 116. There shall be levied, collected, and paid for and in respect to the several bonds, debentures, or certificates of stock and indebtedness, and other documents, instruments, matters, and things mentioned and described in this section, or for or in respect to the vellum, parchment, or paper upon which such instrument, matters, or things or any of them shall be written or printed by any person or persons who shall make, sign, or issue the same, on and after January first, nineteen hundred and five, the several taxes following: xxx xxx xxx

Third xxx (c) on all policies of insurance or bond or obligation of the nature of indemnity for loss, damage, or liability made or renewed by any person, association, company, or corporation transacting the business of accident, fidelity, employer's liability, plate glass, steam boiler, burglar, elevator, automatic sprinkle, or other branch of insurance (except life, marine, inland, and fire insurance) xxxx(Emphasis supplied)
c r al aw l i br ar y

On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted revising and consolidating the laws relating to internal revenue. The aforecited pertinent portion of Section 116, Article XI of Act No. 1189 was completely reproduced as Section 30 (l), Article III of Act No. 2339.The very detailed and exclusive enumeration of items subject to DST was thus retained. On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again reproduced as Section 1604 (l), Article IV of Act No. 2657 (Administrative Code). Upon its amendment on March 10, 1917, the pertinent DST provision became Section 1449 (l) of Act No. 2711, otherwise known as the Administrative Code of 1917. Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of 1939), which codified all the internal revenue laws of the Philippines. In an amendment introduced by RA 40 on October 1, 1946, the DST rate was increased but the provision remained substantially the same. Thereafter, on June 3, 1977, the same provision with the same DST rate was reproduced in PD 1158 (NIRC of 1977) as Section 234. Under PDs 1457 and 1959, enacted on June 11, 1978 and October 10, 1984 respectively, the DST rate was again increased.
Ï ‚ Î · Î ± ñ r Î ¿ bl Î µÅ¡ Î ½ Î ¹ r â€ Ï … Î ± l l Î ± Ï ‰ l Î ¹ br Î ± r ÿ

Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the NIRC of 1977 was renumbered as Section 198. And under Section 23 of EO 4 7 273 dated July 25, 1987, it was again renumbered and became Section 185.

On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with respect to the rate of tax. Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or the NIRC of 1997), the subject legal provision was retained as the present Section 185. In 2004, amendments to the DST provisions were introduced by RA 9243 4 8 but Section 185 was untouched. On the other hand, the concept of an HMO was introduced in the Philippines with the formation of Bancom Health Care Corporation in 1974. The same pioneer HMO was later reorganized and renamed Integrated Health Care Services, Inc. (or Intercare). However, there are those who claim that Health Maintenance, Inc. is the HMO industry pioneer, having set foot in the Philippines as early as 1965 and having been formally incorporated in 1991. Afterwards, HMOs proliferated quickly and currently, there are 36 registered HMOs with a total enrollment of more than 2 million.4 9 We can clearly see from these two histories (of the DST on the one hand and HMOs on the other) that when the law imposing the DST was first passed, HMOs were yet unknown in the Philippines. However, when the various amendments to the DST law were enacted, they were already in existence in the Philippines and the term had in fact already been defined by RA 7875. 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. The fact that the NIRC contained no specific provision on the DST liability of health care agreements of HMOs at a time they were already known as such, belies any legislative intent to impose it on them. As a matter of fact, petitioner was assessed its DST liability only on January 27, 2000, after more than a decade in the business as an HMO.
50

Considering that Section 185 did not change since 1904 (except for the rate of tax), it would be safe to say that health care agreements were never, at any time, recognized as insurance contracts or deemed engaged in the business of insurance within the context of the provision. The Power To Tax Is Not The Power To Destroy As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who is to pay it.5 1 So potent indeed is the power that it was once opined that "the power to tax involves the power to destroy." 5 2 Petitioner claims that the assessed DST to date which amounts to P376 million 5 3 is way beyond its net worth of P259 million.5 4 Respondent never disputed these assertions. Given the realities on the ground, imposing the DST on petitioner would be highly oppressive. It is not the purpose of the government to throttle private business. On the contrary, the government ought to encourage private enterprise.5 5 Petitioner, just like any concern organized for a lawful economic activity, has a right to maintain a legitimate business.5 6 As aptly held in Roxas, et al. v. CTA, et al.:5 7 The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg." 5 8

Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence. Incurring losses because of a tax imposition may be an acceptable consequence but killing the business of an entity is another matter and should not be allowed. It is counter-productive and ultimately subversive of the nation's thrust towards a better economy which will ultimately benefit the majority of our people.5 9 Petitioner's Tax Liability Was Extinguished Under The Provisions Of RA 9840 Petitioner asserts that, regardless of the arguments, the DST assessment for taxable years 1996 and 1997 became moot and academic6 0 when it availed of the tax amnesty under RA 9480 on December 10, 2007. It paid P5,127,149.08 representing 5% of its net worth as of the year ended December 31, 2005 and complied with all requirements of the tax amnesty. Under Section 6(a) of RA 9480, it is entitled to immunity from payment of taxes as well as additions thereto, and the appurtenant civil, criminal or administrative penalties under the 1997 NIRC, as amended, arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and prior years.6 1 Far from disagreeing with petitioner, respondent manifested in its memorandum: Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to immunity from payment of the tax involved, including the civil, criminal, or administrative penalties provided under the 1997 [NIRC], for tax liabilities arising in 2005 and the preceding years. In view of petitioner's availment of the benefits of [RA 9840], and without conceding the merits of this case as discussed above, respondent concedes that such tax amnesty extinguishes the tax liabilities of petitioner. This admission, however, is not meant to preclude a revocation of the amnesty granted in case it is found to have been granted under circumstances amounting to tax fraud under Section 10 of said amnesty law.6 2 (Emphasis supplied)
c r al aw l i br ar y

Furthermore, we held in a recent case that DST is one of the taxes covered by the tax amnesty program under RA 9480.6 3 There is no other conclusion to draw than that petitioner's liability for DST for the taxable years 1996 and 1997 was totally extinguished by its availment of the tax amnesty under RA 9480. Is The Court Bound By A Minute Resolution In Another Case? Petitioner raises another interesting issue in its motion for reconsideration: whether this Court is bound by the ruling of the CA6 4 in CIR v. Philippine National Bank
65

that a health care agreement of Philamcare Health

Systems is not an insurance contract for purposes of the DST. In support of its argument, petitioner cites the August 29, 2001 minute resolution of this Court dismissing the appeal in Philippine National Bank (G.R. No. 148680).6 6 Petitioner argues that the dismissal of G.R. No. 148680 by minute resolution was a judgment on the merits; hence, the Court should apply the CA ruling there that a health care agreement is not an insurance contract. It is true that, although contained in a minute resolution, our dismissal of the petition was a disposition of the merits of the case. When we dismissed the petition, we effectively affirmed the CA ruling being questioned. As a result, our ruling in that case has already become final.6 7 When a minute resolution denies or dismisses a petition for failure to comply with formal and substantive requirements, the

challenged decision, together with its findings of fact and legal conclusions, are deemed sustained.6 8 But what is its effect on other cases?
c r al aw r e d

With respect to the same subject matter and the same issues concerning the same parties, it constitutes res judicata.6 9 However, if other parties or another subject matter (even with the same parties and issues) is involved, the minute resolution is not binding precedent. Thus, in CIR v. Baier-Nickel,7 0 the Court noted that a previous case, CIR v. Baier-Nickel
71

involving the same parties and the same issues,

was previously disposed of by the Court thru a minute resolution dated February 17, 2003 sustaining the ruling of the CA. Nonetheless, the Court ruled that the previous case "ha(d) no bearing" on the latter casebecausethe two cases involved different subject matters as they were concerned with the taxable income of different taxable years.7 2 Besides, there are substantial, not simply formal, distinctions between a minute resolution and a decision. The constitutional requirement under the first paragraph of Section 14, Article VIII of the Constitution that the facts and the law on which the judgment is based must be expressed clearly and distinctly applies only to decisions, not to minute resolutions. A minute resolution is signed only by the clerk of court by authority of the justices, unlike a decision. It does not require the certification of the Chief Justice. Moreover, unlike decisions, minute resolutions are not published in the Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a decision.7 3 Indeed, as a rule, this Court lays down doctrines or principles of law which constitute binding precedent in a decision duly signed by the members of the Court and certified by the Chief Justice. Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioner's liability for DST on its health care agreement was not the subject matter of G.R. No. 148680, petitioner cannot successfully invoke the minute resolution in that case (which is not even binding precedent) in its favor. Nonetheless, in view of the reasons already discussed, this does not detract in any way from the fact that petitioner's health care agreements are not subject to DST. A Final Note Taking into account that health care agreements are clearly not within the ambit of Section 185 of the NIRC and there was never any legislative intent to impose the same on HMOs like petitioner, the same should not be arbitrarily and unjustly included in its coverage. It is a matter of common knowledge that there is a great social need for adequate medical services at a cost which the average wage earner can afford. HMOs arrange, organize and manage health care treatment in the furtherance of the goal of providing a more efficient and inexpensive health care system made possible by quantity purchasing of services and economies of scale. They offer advantages over the pay-for-service system (wherein individuals are charged a fee each time they receive medical services), including the ability to control costs. They protect their members from exposure to the high cost of hospitalization and other medical expenses brought about by a fluctuating economy. Accordingly, they play an important role in society as partners of the State in achieving its constitutional mandate of providing its citizens with affordable health services. The rate of DST under Section 185 is equivalent to 12.5% of the premium charged.7 4 Its imposition will

elevate the cost of health care services. This will in turn necessitate an increase in the membership fees, resulting in either placing health services beyond the reach of the ordinary wage earner or driving the industry to the ground. At the end of the day, neither side wins, considering the indispensability of the services offered by HMOs. WHEREFORE, the motion for reconsideration is GRANTED.The August 16, 2004 decision of the Court of Appeals in CA-G.R. SP No.70479is REVERSED and SET ASIDE. The 1996 and 1997 deficiency DST assessment against petitioner is hereby CANCELLED and SET ASIDE. Respondent is ordered to desist from collecting the said tax. No costs. SO ORDERED. Endnotes:

*

Per Special Order No. 698 dated September 4, 2009.

**

Additional member per raffle list of 13 April 2009.

1

1987 Constitution.

2

Now known as Maxicare Healthcare Corp. Rollo, p. 293.

3

G.R. No. 169737, 12 February 2008, 544 SCRA 580.

4

429 Phil. 82 (2002).

5

Republic Act.

6

Rollo, pp. 257-258.

7

Entitled "An Act Enhancing Revenue Administration and Collection by Granting an Amnesty on All Unpaid

Internal Revenue Taxes Imposed by the National Government for Taxable Year 2005 and Prior Years."
8

Rollo, p. 288.

9

Id., p. 591.

10

Id., pp. 592, 613.

11

This is called the Staff Model, i.e., the HMO employs salaried health care professionals to provide health

care services. (Id., pp. 268, 271.)
12

This is referred to as the Group Practice Model wherein the HMO contracts with a private practice group

to provide health services to its members. (Id., pp. 268, 271, 592.) Thus, it is both a service provider and a service contractor. It is a service provider when it directly provides the health care services through its salaried employees. It is a service contractor when it contracts with third parties for the delivery of health services to its members.
13

Id., p. 102.

14

Id., p. 280.

15

Decision, p. 422.

16

Rollo, p. 265.

17

Allied Banking Corporation v. Court of Appeals , G.R. No. 124290, 16 January 1998, 284 SCRA 327, 367,

citing Shimonek v. Tillanan , 1 P. 2d., 154.
18

Inding v. Sandiganbayan , G.R. No. 143047, 14 July 2004, 434 SCRA 388, 403.

19

Section 4 (o) (3) thereof. Under this law, it is one of the classes of a "health care provider."

20

Presidential Decree.

21

Our Insurance Code was based on California and New York laws. When a statute has been adopted

from some other state or country and said statute has previously been construed by the courts of such state or country, the statute is deemed to have been adopted with the construction given. (Prudential Guarantee and Assurance Inc. v. Trans-Asia Shipping Lines, Inc., G.R. No. 151890, 20 June 2006, 491 SCRA 411, 439; Constantino v. Asia Life Inc. Co., 87 Phil. 248, 251 [1950]; Gercio v. Sun Life Assurance Co. of Canada, 48 Phil. 53, 59 [1925]; Cerezo v. Atlantic, Gulf & Pacific Co., 33 Phil. 425, 428-429 [1916]).
22

H. S. de Leon, The Insurance Code of the Philippines Annotated, p. 56 (2002 ed.).

23

107 F.2d 239 (D.C. App. 1939). This is a seminal case which had been reiterated in succeeding

cases, e.g. Smith v. Reserve Nat'l Ins. Co., 370 So. 2d 186 ( La. Ct. App. 3d Cir. 1979); Transportation Guarantee Co. v. Jellins , 29 Cal.2d 242, 174 P.2d 625 (1946); State v. Anderson , 195 Kan. 649, 408 P.2d 864

(1966); Commissioner of Banking and Insurance v. Community Health Service, 129 N.J.L. 427, 30 A.2d 44 (1943).
24

Id., pp. 247-248.

25

28 Cal. 2d 790 (1946).

26

Id., p. 809.

27

345 N.J. Super. 410, 785 A.2d 457 (2001);< http://lawlibrary.rutgers.edu/courts/appellate/a1562-

00.opn.html> (visited July 14, 2009).
28

Id., citing Group Health Ins. of N.J. v. Howell, 40 N.J. 436, 451 (1963).

29

L.R. Russ and S.F. Segalla, 1 Couch on Ins. - 1:46 (3rd ed., December 2008).

30

This involves the determination of a medical condition (such as a disease) by physical examination or by

study of its symptoms (Rollo, p. 613, citing Black's Law Dictionary, p. 484 [8th ed.]).
31

Rollo, pp. 612-613.

32

One such decision of the United States Supreme Court is Rush Prudential HMO, Inc. v. Moran (536 U.S.

355 [2002]). In that case, the Court recognized that HMOs provide both insurance and health care services and that Congress has understood the insurance aspects of HMOs since the passage of the HMO Act of 1973. This case is not applicable here. Firstly, this was not a tax case. Secondly, the Court stated that Congress expressly understood and viewed HMOs as insurers. It is not the same here in the Philippines. As will be discussed below, there is no showing that the Philippine Congress had demonstrated an awareness of HMOs as insurers.
33

See Executive Order No. 119 (1987) and Administrative Order (AO) No. 34 (1994), as amended by AO

No. 36 (1996).
34

G.R. No. 86738, 13 November 1991, 203 SCRA 504.

35

140 Phil. 20 (1969).

36

Supra note 34, pp. 510-511.

37

Decision, pp. 420-421.

38

Commissioner of Internal Revenue v. Solidbank Corporation , G.R. No. 148191, 25 November 2003, 416

SCRA 436, citing Miller v. Illinois Cent. R Co., Ill. So. 559, 28 February 1927.
39

Paseo Realty & Development Corporation v. Court of Appeals , G.R. No. 119286, 13 October 2004, 440 SCRA

235, 251.
40

Collector of Int. Rev. v. La Tondeña, Inc. and CTA, 115 Phil. 841, 846 (1963).

41

Gulf Resorts, Inc. v. Philippine Charter Insurance Corporation , G.R. No. 156167, 16 May 2005, 458 SCRA

550, 566, citations omitted.
42

M. C. L. Campos, Insurance, pp. 17-18 (1983), citing Physicians' Defense Co. v. O Brien , 100 Minn. 490,

111 N.W. 397 (1907).
43

438 N.W.2d 350. (Mich. Ct. App. 1989).

44

Id., p. 354.

45

Rollo, p. 702, citing Phillip, Booth et al., Modern Actuarial Theory and Practice (2005).

46

Entitled "An Act to Provide for the Support of the Insular, Provincial and Municipal Governments, by

Internal Taxation."
47

Executive Order No.

48

An Act Rationalizing the Provisions of the DST of the NIRC of 1997, as amended, and for other purposes.

49

Rollo, pp. 589, 591, citing <http://www.rmaf.org.ph/Awardees/Biography/ Biography BengzonAlf.htm >;

<http://doktorko.com/_blog/index.php?mod=blog_article&a=80&md=897 >; <http://www.hmi.com.ph/prof.html > (visited July 15, 2009).
50

Id., p. 592.

51

MCIAA v. Marcos , 330 Phil. 392, 404 (1996).

52

United States Chief Justice Marshall in McCulloch v. Maryland, 17 U.S. 316, 4 Wheat, 316, 4 L ed. 579,

607 (1819).
53

Inclusive of penalties.

54

Rollo, p. 589.

55

Manila Railroad Company v. A. L. Ammen Transportation Co., Inc., 48 Phil. 900, 907 (1926).

56

Constitution, Section 3, Article XIII on Social Justice and Human Rights reads as follows:

Section 3. xxx The State shall regulate the relations between workers and employers, recognizing the right of labor to its just share in the fruits of production and the right of enterprises to reasonable return on investments, and to expansion and growth. (Emphasis supplied)
c r al aw l i br ar y

57

131 Phil. 773 (1968).

58

Id., pp. 780-781.

59

Manatad v. Philippine Telegraph and Telephone Corporation , G.R. No. 172363, 7 March 2008, 548 SCRA 64,

80.
60

Rollo, p. 661.

61

Id., pp. 260-261.

62

Id., p. 742.

63

Philippine Banking Corporation v. CIR, G.R. No. 170574, 30 January 2009.

64

CA-G.R. SP No. 53301, 18 June 2001.

65

G.R. No. 148680.

66

The dismissal was due to the failure of petitioner therein to attach a certified true copy of the assailed

decision.
67

Del Rosario v. Sandiganbayan , G.R. No. 143419, 22 June 2006, 492 SCRA 170, 177.

68

Complaint of Mr. Aurelio Indencia Arrienda Against SC Justices Puno, Kapunan, Pardo, Ynares-Santiago, et al.,

A.M. No. 03-11-30-SC, 9 June 2005, 460 SCRA 1, 14, citing Tan v. Nitafan , G.R. No. 76965, 11 March 1994, 231 SCRA 129; Republic v. CA, 381 Phil. 558, 565 (2000), citing Bernarte, et al. v. Court of Appeals, et al., 331 Phil. 643, 659 (1996).
69

See Bernarte, et al. v. Court of Appeals, et al., id., p. 567.

70

G.R. No. 153793, 29 August 2006, 500 SCRA 87.

71

Extended Resolution, G.R. No. 156305, 17 February 2003.

72

Supra note 70, p. 102. G.R. No. 156305 referred to the income of Baier-Nickel for taxable year 1994

while G.R. No. 153793 pertained to Baier-Nickel's income in 1995.
73

Section 4. xxx

(3) Cases or matters heard by a Division shall be decided or resolved with the concurrence of a majority of the members who actually took part in the deliberation on the issues in the case and voted thereon, and in no case, without the concurrence of at least three of such members. When the required number is not obtained, the case shall be decided En Banc: Provided, that no doctrine or principle of law laid down by the Court in a decision rendered En Banc or in Division may be modified or reversed except by the Court sitting En Banc. (Emphasis supplied)
c r al aw l i br ar y

74

That is, fifty centavos (P0.50) on each four pesos (P4.00), or a fractional part thereof, of the premium

charged.

P H I L I P P I N EH E A L T HC A R EP R O V I D E R S , I N C . v s . C O MMI S S I O N E RO FI N T E R N A L R E V E N U E G . R . N o . 1 6 7 3 3 0 , J u n e 1 2 , 2 0 0 8 F A C T S : P e t i t i o n e r i s a d o m e s t i c c o r p o r a t i o n w h o s e p r i m a r y p u r p o s e i s t o e s t a b l i s h , m a i n t a i n , c o n d u c t a n d o p e r a t e a p r e p a i d g r o u p p r a c t i c e h e a l t h c a r e d e l i v e r y s y s t e mo r a h e a l t h m a i n t e n a n c e o r g a n i z a t i o n t o t a k e c a r e o f t h e s i c k a n d d i s a b l e d p e r s o n s e n r o l l e d i n t h e h e a l t h c a r e p l a n a n d t o p r o v i d e f o r t h e a d m i n i s t r a t i v e , l e g a l , a n d f i n a n c i a l r e s p o n s i b i l i t i e s o f t h e o r g a n i z a t i o n .

I n d i v i d u a l s e n r o l l e d i n i t s h e a l t h c a r e p r o g r a m s p a y a n a n n u a l m e m b e r s h i p f e e a n d a r e e n t i t l e d t o v a r i o u s p r e v e n t i v e , d i a g n o s t i c a n d c u r a t i v e m e d i c a l s e r v i c e s p r o v i d e d b y i t s d u l y l i c e n s e d p h y s i c i a n s , s p e c i a l i s t s a n d o t h e r p r o f e s s i o n a l t e c h n i c a l s t a f f p a r t i c i p a t i n g i n t h e g r o u p p r a c t i c e h e a l t h d e l i v e r y s y s t e ma t a h o s p i t a l o r c l i n i c o w n e d , o p e r a t e d o r a c c r e d i t e d b y i t . O n J a n u a r y 2 7 , 2 0 0 0 , r e s p o n d e n t C I Rs e n t p e t i t i o n e r a f o r m a l d e m a n d l e t t e r a n d t h e c o r r e s p o n d i n g a s s e s s m e n t n o t i c e s d e m a n d i n g t h e p a y m e n t o f d e f i c i e n c y t a x e s , i n c l u d i n g s u r c h a r g e s a n d i n t e r e s t , f o r t h e t a x a b l e y e a r s 1 9 9 6 a n d 1 9 9 7 i n t h e t o t a l a m o u n t o f P 2 2 4 , 7 0 2 , 6 4 1 . 1 8 . T h e d e f i c i e n c y D S T a s s e s s m e n t w a s i m p o s e d o n p e t i t i o n e r ' s h e a l t h c a r e a g r e e m e n t w i t h t h e m e m b e r s o f i t s h e a l t h c a r e p r o g r a m p u r s u a n t t o S e c t i o n 1 8 5 o f t h e 1 9 9 7 T a x C o d e . P e t i t i o n e r p r o t e s t e d t h e a s s e s s m e n t i n a l e t t e r d a t e d F e b r u a r y 2 3 , 2 0 0 0 a n d f i l e d a p e t i t i o n f o r r e v i e wi n t h e C T As e e k i n g t h e c a n c e l l a t i o n o f t h e d e f i c i e n c y V A Ta n d D S T a s s e s s m e n t s . O n A p r i l 5 , 2 0 0 2 , t h e C T Ar e n d e r e d a d e c i s i o n , p a r t i a l l y g r a n t e d p e t i t i o n e r ’ s p e t i t i o n . R e s p o n d e n t : R e s p o n d e n t a p p e a l e d t h e C T Ad e c i s i o n t o t h e C Ai n s o f a r a s i t c a n c e l l e d t h e D S Ta s s e s s m e n t . H e c l a i m e d t h a t p e t i t i o n e r ' s h e a l t h c a r e a g r e e m e n t w a s a c o n t r a c t o f i n s u r a n c e s u b j e c t t o D S Tu n d e r S e c t i o n 1 8 5 o f t h e 1 9 9 7 T a x C o d e . T h e s a m e w a s g r a n t e d b y C As i n c e p e t i t i o n e r ' s h e a l t h c a r e a g r e e m e n t w a s i n t h e n a t u r e o f a n o n l i f e i n s u r a n c e c o n t r a c t s u b j e c t t o D S T . P e t i t i o n e r e s s e n t i a l l y a r g u e s t h a t i t s h e a l t h c a r e a g r e e m e n t i s n o t a c o n t r a c t o f i n s u r a n c e b u t a c o n t r a c t f o r t h e p r o v i s i o n o n a p r e p a i d b a s i s o f m e d i c a l s e r v i c e s , i n c l u d i n g m e d i c a l c h e c k u p , t h a t a r e n o t b a s e d o n l o s s o r d a m a g e . P e t i t i o n e r a l s o i n s i s t s t h a t i t i s n o t e n g a g e d i n t h e i n s u r a n c e b u s i n e s s . I t i s a h e a l t h m a i n t e n a n c e o r g a n i z a t i o n r e g u l a t e d b y t h e D e p a r t m e n t o f H e a l t h , n o t a n i n s u r a n c e c o m p a n y u n d e r t h e j u r i s d i c t i o n o f t h e I n s u r a n c e C o m m i s s i o n . F o r t h e s e r e a s o n s , p e t i t i o n e r a s s e r t s t h a t t h e h e a l t h c a r e a g r e e m e n t i s n o t s u b j e c t t o D S T . I S S U E : Wh e t h e r o r n o t a h e a l t h c a r e a g r e e m e n t i s i n t h e n a t u r e o f a n i n s u r a n c e c o n t r a c t a n d t h e r e f o r e s u b j e c t t o t h e d o c u m e n t a r y s t a m p t a x ( D S T ) i m p o s e d u n d e r S e c . 1 8 5 o f R . A . 8 4 2 4 . R U L I N G : Y e s . U n d e r t h e l a w , a c o n t r a c t o f i n s u r a n c e i s a n a g r e e m e n t w h e r e b y o n e u n d e r t a k e s f o r a c o n s i d e r a t i o n t o i n d e m n i f y a n o t h e r a g a i n s t l o s s , d a m a g e o r l i a b i l i t y a r i s i n g f r o ma n u n k n o w n o r c o n t i n g e n t e v e n t . T h e e v e n t i n s u r e d a g a i n s t m u s t b e d e s i g n a t e d i n t h e c o n t r a c t a n d m u s t e i t h e r b e u n k n o w n o r c o n t i n g e n t P e t i t i o n e r ' s h e a l t h c a r e a g r e e m e n t i s p r i m a r i l y a c o n t r a c t o f i n d e m n i t y . A n d i n t h e r e c e n t c a s e o f B l u e C r o s s H e a l t h c a r e , I n c . v . O l i v a r e s , t h i s C o u r t r u l e d t h a t a h e a l t h c a r e a g r e e m e n t i s i n t h e n a t u r e o f a n o n l i f e i n s u r a n c e p o l i c y . U n d e r t h e h e a l t h c a r e a g r e e m e n t , t h e r e n d i t i o n o f h o s p i t a l , m e d i c a l a n d p r o f e s s i o n a l s e r v i c e s t o t h e m e m b e r i n c a s e o f s i c k n e s s , i n j u r y o r e m e r g e n c y o r h i s a v a i l m e n t o f s o c a l l e d " o u t p a t i e n t s e r v i c e s i s t h e c o n t i n g e n t e v e n t w h i c h g i v e s r i s e t o l i a b i l i t y o n t h e p a r t o f t h e m e m b e r . I n c a s e o f e x p o s u r e o f t h e m e m b e r t o l i a b i l i t y , h e w o u l d b e e n t i t l e d t o i n d e m n i f i c a t i o n b y p e t i t i o n e r . T h e i n s u r a b l e i n t e r e s t o f e v e r y m e m b e r o f p e t i t i o n e r ' s h e a l t h c a r e p r o g r a mi n o b t a i n i n g t h e h e a l t h c a r e a g r e e m e n t i s h i s o w n h e a l t h . C o n t r a c t s b e t w e e n c o m p a n i e s l i k e p e t i t i o n e r a n d t h e b e n e f i c i a r i e s u n d e r t h e i r p l a n s a r e t r e a t e d a s i n s u r a n c e c o n t r a c t s . T h i s i s b e c a u s e p e t i t i o n e r d o e s n o t b e a r t h e c o s t s a l o n e b u t d i s t r i b u t e s o r s p r e a d s t h e mo u t a m o n g a l a r g e g r o u p o f p e r s o n s b e a r i n g a s i m i l a r r i s k , t h a t i s , a m o n g a l l t h e o t h e r m e m b e r s o f t h e h e a l t h c a r e p r o g r a ma n d t h a t i s i n s u r a n c e . F u r t h e r , D S Ti s n o t a t a x o n t h e b u s i n e s s t r a n s a c t e d b u t a n e x c i s e o n t h e p r i v i l e g e , o p p o r t u n i t y , o r f a c i l i t y o f f e r e d a t e x c h a n g e s f o r t h e t r a n s a c t i o n o f t h e b u s i n e s s . I t i s a n e x c i s e o n t h e f a c i l i t i e s u s e d i n t h e t r a n s a c t i o n o f t h e b u s i n e s s , s e p a r a t e a n d a p a r t f r o mt h e b u s i n e s s i t s e l f .

G.R. No. 166245 - ETERNAL GARDENS MEMORIAL PARK CORPORATION v. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY

SECOND DIVISION [G.R. NO. 166245 : April 9, 2008] ETERNAL GARDENS MEMORIAL PARK CORPORATION, Petitioner, v. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, Respondent. DECISIO N VELASCO, JR., J.:

The Case Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the November 26, 2004 Decision of the Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the insurer on the insurance application be considered as approval of the application? The Facts On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife) entered into an agreement denominated as Creditor Group Life Policy No. P-1920 with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal who purchased burial lots from it on installment basis would be insured by Philamlife. The amount of 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.
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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.
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Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy of the application of each purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal complied by submitting a letter dated December 29, 1982,4 containing a list of insurable balances of its lot buyers for October 1982. One of those included in the list as "new business" was a certain John Chuang. His balance of payments was PhP 100,000. On August 2, 1984, Chuang died. Eternal sent a letter dated August 20, 1984 to Philamlife, which served as an insurance claim for Chuang's death. Attached to the claim were the following documents: (1) Chuang's Certificate of Death; (2) Identification Certificate stating that Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assured's Certificate. In reply, Philamlife wrote Eternal a letter on November 12, 1984, requiring Eternal to submit the following documents relative to its insurance claim for Chuang's death: (1) Certificate of Claimant (with form attached); (2) Assured's Certificate (with form attached); (3) Application for Insurance accomplished and signed by the insured, Chuang, while still living; and (4) Statement of Account showing the unpaid balance of Chuang before his death. Eternal transmitted the required documents through a letter dated November 14, 1984,7 which was received by Philamlife on November 15, 1984. After more than a year, Philamlife had not furnished Eternal with any reply to the latter's insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000 on April 25, 1986.
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In response to Eternal's demand, Philamlife denied Eternal's insurance claim in a letter dated May 20, 1986,9 a portion of which reads: The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens Memorial Park in October 1982 for the total maximum insurable amount of P100,000.00 each. No application for Group Insurance was submitted in our office prior to his death on August 2, 1984. In accordance with our Creditor's Group Life Policy No. P-1920, under Evidence of Insurability provision, "a declaration of good health shall be required for all Lot Purchasers as party of the application." We cite further the provision on Effective Date of Coverage under the policy which states that "there shall be no insurance if the application is not approved by the Company." Since no application had been submitted by the Insured/Assured, prior to his death, for our approval but was submitted instead on November 15, 1984, after his death, Mr. John Uy Chuang was not covered under the Policy. We wish to point out that

Eternal Gardens being the Assured was a party to the Contract and was therefore aware of these pertinent provisions. With regard to our acceptance of premiums, these do not connote our approval per se of the insurance coverage but are held by us in trust for the payor until the prerequisites for insurance coverage shall have been met. We will however, return all the premiums which have been paid in behalf of John Uy Chuang. Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of money against Philamlife, docketed as Civil Case No. 14736. The trial court decided in favor of Eternal, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff ETERNAL, against Defendant PHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay the sum of P100,000.00, representing the proceeds of the Policy of John Uy Chuang, plus legal rate of interest, until fully paid; and, to pay the sum of P10,000.00 as attorney's fees. SO ORDERED. The RTC found that Eternal submitted Chuang's application for insurance which he accomplished before his death, as testified to by Eternal's witness and evidenced by the letter dated December 29, 1982, stating, among others: "Encl: Phil-Am Life Insurance Application Forms & Cert."
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It further ruled that due to

Philamlife's inaction from the submission of the requirements of the group insurance on December 29, 1982 to Chuang's death on August 2, 1984, as well as Philamlife's acceptance of the premiums during the same period, Philamlife was deemed to have approved Chuang's application. The RTC said that since the contract is a group life insurance, once proof of death is submitted, payment must follow. Philamlife appealed to the CA, which ruled, thus: WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No. 57810 is REVERSED and SET ASIDE, and the complaint is DISMISSED. No costs. SO ORDERED.1 1 The CA based its Decision on the factual finding that Chuang's application was not enclosed in Eternal's letter dated December 29, 1982. It further ruled that the non-accomplishment of the submitted application form violated Section 26 of the Insurance Code. Thus, the CA concluded, there being no application form, Chuang was not covered by Philamlife's insurance. Hence, we have this petition with the following grounds: The Honorable Court of Appeals has decided a question of substance, not therefore determined by this Honorable Court, or has decided it in a way not in accord with law or with the applicable jurisprudence, in holding that:

I. The application for insurance was not duly submitted to respondent PhilamLife before the death of John Chuang; II. There was no valid insurance coverage; and

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III. Reversing and setting aside the Decision of the Regional Trial Court dated May 29, 1996. The Court's Ruling As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised before the CA and first level courts, considering their findings of facts are conclusive and binding on this Court. However, such rule is subject to exceptions, as enunciated in Sampayan v. Court of Appeals : (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the [CA] went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings [of the CA] are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.
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(Emphasis supplied.)

In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may review them. Eternal claims that the evidence that it presented before the trial court supports its contention that it submitted a copy of the insurance application of Chuang before his death. In Eternal's letter dated December 29, 1982, a list of insurable interests of buyers for October 1982 was attached, including Chuang in the list of new businesses. Eternal added it was noted at the bottom of said letter that the corresponding "Phil-Am Life Insurance Application Forms & Cert." were enclosed in the letter that was apparently received by Philamlife on January 15, 1983. Finally, Eternal alleged that it provided a copy of the insurance application which was signed by Chuang himself and executed before his death. On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, arguing that Eternal must present evidence showing that Philamlife received a copy of Chuang's insurance application. The evidence on record supports Eternal's position. The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received, states that the insurance forms for the attached list of burial lot buyers were attached to the letter. Such stamp

of receipt has the effect of acknowledging receipt of the letter together with the attachments. Such receipt is an admission by Philamlife against its own interest.
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The burden of evidence has shifted to Philamlife,

which must prove that the letter did not contain Chuang's insurance application. However, Philamlife failed to do so; thus, Philamlife is deemed to have received Chuang's insurance application. To reiterate, it was Philamlife's bounden duty to make sure that before a transmittal letter is stamped as received, the contents of the letter are correct and accounted for. Philamlife's allegation that Eternal's witnesses ran out of credibility and reliability due to inconsistencies is groundless. The trial court is in the best position to determine the reliability and credibility of the witnesses, because it has the opportunity to observe firsthand the witnesses' demeanor, conduct, and attitude. Findings of the trial court on such matters are binding and conclusive on the appellate court, unless some facts or circumstances of weight and substance have been overlooked, misapprehended, or misinterpreted,
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that, if considered, might affect the result of the case.

An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no overlooked facts of substance and value. Philamlife primarily claims that Eternal did not even know where the original insurance application of Chuang was, as shown by the testimony of Edilberto Mendoza: Atty. Arevalo: Q Where is the original of the application form which is required in case of new coverage?

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[Mendoza:] A It is [a] standard operating procedure for the new client to fill up two copies of this form and the original of this is submitted to Philamlife together with the monthly remittances and the second copy is remained or retained with the marketing department of Eternal Gardens. Atty. Miranda: We move to strike out the answer as it is not responsive as counsel is merely asking for the location and does not [ask] for the number of copy. Atty. Arevalo: Q Where is the original?

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[Mendoza:] A As far as I remember I do not know where the original but when I submitted with that payment together with the new clients all the originals I see to it before I sign the transmittal letter the originals are

attached therein.1 6 In other words, the witness admitted not knowing where the original insurance application was, but believed that the application was transmitted to Philamlife as an attachment to a transmittal letter. As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two insurance application forms were accomplished and the testimony of Mendoza on who actually filled out the application form, these are minor inconsistencies that do not affect the credibility of the witnesses. Thus, we ruled in People v. Paredes that minor inconsistencies are too trivial to affect the credibility of witnesses, and these may even serve to strengthen their credibility as these negate any suspicion that the testimonies have been rehearsed.1 7 We reiterated the above ruling in Merencillo v. People: Minor discrepancies or inconsistencies do not impair the essential integrity of the prosecution's evidence as a whole or reflect on the witnesses' honesty. The test is whether the testimonies agree on essential facts and whether the respective versions corroborate and substantially coincide with each other so as to make a consistent and coherent whole.
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In the present case, the number of copies of the insurance application that Chuang executed is not at issue, neither is whether the insurance application presented by Eternal has been falsified. Thus, the inconsistencies pointed out by Philamlife are minor and do not affect the credibility of Eternal's witnesses. However, the question arises as to whether Philamlife assumed the risk of loss without approving the application. This question must be answered in the affirmative. As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that: EFFECTIVE DATE OF BENEFIT. The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved by the Company. An examination of the above provision would show ambiguity between its two sentences. The first sentence appears to state that the insurance coverage of the clients of Eternal already became effective upon contracting a loan with Eternal while the second sentence appears to require Philamlife to approve the insurance contract before the same can become effective. It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly against the insurer in order to safeguard the latter's interest. Thus, in Malayan Insurance Corporation v. Court of Appeals , this Court held that:

Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its obligations.1 9 (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.2 0 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.
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WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No. 57810 is REVERSED and SET ASIDE. The May 29, 1996 Decision of the Makati City RTC, Branch 138 is MODIFIED.

Philamlife is hereby ORDERED: (1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance Policy of Chuang; (2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000 from the time of extra-judicial demand by Eternal until Philamlife's receipt of the May 29, 1996 RTC Decision on June 17, 1996; (3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP 100,000 from June 17, 1996 until full payment of this award; and
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(4) To pay Eternal attorney's fees in the amount of PhP 10,000. No costs. SO ORDERED. Carpio-Morales, Acting Chairperson, Tinga, Brion, Chico-Nazario , JJ., concur.
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Endnotes:

*

Additional member as per February 6, 2008 raffle.

1

Rollo, pp. 45-54. Penned by Associate Justice Santiago Javier Ranada and concurred in by Associate

Justices Marina L. Buzon (Chairperson) and Mario L. Guariña III.
2

Records, pp. 57-62.

3

Id. at 58.

4

Id. at 139.

5

Id. at 160.

6

Id. at 162.

7

Id. at 163.

8

Id. at 164.

9

Id. at 165.

10

Rollo, p. 44.

11

Id. at 54.

12

G.R. No. 156360, January 14, 2005, 448 SCRA 220, 228-229.

13

Rules of Court, Rule 130, Sec. 26.

14

People v. Jaberto, G.R. No. 128147, May 12, 1999, 307 SCRA 93, 102.

15

People v. Oliquino, G.R. No. 171314, March 6, 2007, 517 SCRA 579, 588.

16

TSN, September 13, 1990, p. 8.

17

G.R. No. 136105, October 23, 2001, 368 SCRA 102, 108.

18

G.R. NOS. 142369-70, April 13, 2007, 521 SCRA 31, 43.

19

G.R. No. 119599, March 20, 1997, 270 SCRA 242, 254.

20

G.R. No. 125678, March 18, 2002, 379 SCRA 356, 366.

21

R. E. Keeton & A. I. Widiss, Insurance Law - A Guide to Fundamental Principles, Legal Doctrines and

Commercial Practices 77-78.

Insurance Case Digest: Eternal Gardens Memorial Park Corp. V. Philippine American Life Insurance Corp. (2008)
FACTS:
§

December 10, 1980: Philippine American Life Insurance Company (Philamlife)

entered into an agreement denominated as Creditor Group Life Policy No. P19202 with Eternal Gardens Memorial Park Corporation (Eternal) § Under the policy (renewable annually), the clients of Eternal who purchased burial lots from it on installment basis would be insured by Philamlife § amount of insurance coverage depended upon the existing balance Eternal complied by submitting a letter dated December 29, 1982, a list of insurable balances of its lot buyers for October 1982 which includes John Chuang which was stamped as received by Philam Life § August 2, 1984, Chuang died with a balance of 100,000 php § April 25, 1986: Philamlife had not furnished Eternal with any reply on
§

itsinsurance claim so its demanded its claim § According to Philam Life, since the application was submitted only on November 15, 1984, after his death, Mr. John Uy Chuang was not covered under the Policy since his application was not approved. Moreover, the acceptance of the premiums are only in trust for and not a sign of approval. § RTC: favored Eternal § CA: Reversed RTC

ISSUE: W/N Philam's inaction or non-approval meant the perfection of the insurance contract.

HELD: YES. CA reversed
§

construed in favor of the insured and in favor of the effectivity of the insurance

contract § 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 § Moreover, the mere inaction of the insurer on the insurance application must not work to prejudice the insured § The termination of the insurance contract by the insurer must be explicit and unambiguous

E T E R N A LV S . P H I L A ML I F E

G . R . N o . 1 6 6 2 4 5 A p r i l 0 9 , 2 0 0 8

F A C T S : R e s p o n d e n t P h i l a m l i f e e n t e r e d i n t o a n a g r e e m e n t d e n o m i n a t e d a s C r e d i t o r G r o u p L i f e P o l i c y w i t h p e t i t i o n e r E t e r n a l G a r d e n s Me m o r i a l P a r k C o r p o r a t i o n ( E t e r n a l ) . U n d e r t h e p o l i c y , t h e c l i e n t s o f E t e r n a l w h o p u r c h a s e d b u r i a l l o t s f r o mi t o n i n s t a l l m e n t b a s i s w o u l d b e i n s u r e d b y P h i l a m l i f e . T h e a m o u n t o f i n s u r a n c e c o v e r a g e d e p e n d e d u p o n t h e e x i s t i n g b a l a n c e o f t h e p u r c h a s e d b u r i a l l o t s . T h e r e l e v a n t p r o v i s i o n s o f t h e p o l i c y a r e : E L I G I B I L I T Y . x x E V I D E N C EO FI N S U R A B I L I T Y . x x L I F EI N S U R A N C EB E N E F I T . x x E F F E C T I V ED A T EO FB E N E F I T . T h e i n s u r a n c e o f a n y e l i g i b l e L o t P u r c h a s e r s h a l l b e e f f e c t i v e o n t h e d a t e h e c o n t r a c t s a l o a n w i t h t h e A s s u r e d . H o w e v e r , t h e r e s h a l l b e n o i n s u r a n c e i f t h e a p p l i c a t i o n o f t h e L o t P u r c h a s e r i s n o t a p p r o v e d b y t h e C o m p a n y . x x E t e r n a l w a s r e q u i r e d u n d e r t h e p o l i c y t o s u b m i t t o P h i l a m l i f e a l i s t o f a l l n e wl o t p u r c h a s e r s , t o g e t h e r w i t h a c o p y o f t h e a p p l i c a t i o n o f e a c h p u r c h a s e r , a n d t h e a m o u n t s o f t h e r e s p e c t i v e u n p a i d b a l a n c e s o f a l l i n s u r e d l o t p u r c h a s e r s . E t e r n a l c o m p l i e d b y s u b m i t t i n g a l e t t e r d a t e d D e c e m b e r 2 9 , 1 9 8 2 , c o n t a i n i n g a l i s t o f i n s u r a b l e b a l a n c e s o f i t s l o t b u y e r s f o r O c t o b e r 1 9 8 2 . O n e o f t h o s e i n c l u d e d i n t h e l i s t a s “ n e wb u s i n e s s ” w a s a c e r t a i n J o h n C h u a n g . H i s b a l a n c e o f p a y m e n t s w a s 1 0 0 K . o n A u g u s t 2 , 1 9 8 4 , C h u a n g d i e d . E t e r n a l s e n t a l e t t e r d a t e d t o P h i l a m l i f e , w h i c h s e r v e d a s a n i n s u r a n c e c l a i mf o r C h u a n g ’ s d e a t h . A t t a c h e d t o t h e c l a i mw e r e c e r t a i n d o c u m e n t s . I n r e p l y , P h i l a m l i f e w r o t e E t e r n a l a l e t t e r r e q u i r i n g E t e r n a l t o s u b m i t t h e a d d i t i o n a l d o c u m e n t s r e l a t i v e t o i t s i n s u r a n c e c l a i mf o r C h u a n g ’ s d e a t h . E t e r n a l t r a n s m i t t e d t h e r e q u i r e d d o c u m e n t s t h r o u g h a l e t t e r w h i c h w a s r e c e i v e d b y P h i l a m l i f e . A f t e r m o r e t h a n a y e a r , P h i l a m l i f e h a d n o t f u r n i s h e d E t e r n a l w i t h a n y r e p l y t o t h e l a t t e r ’ s i n s u r a n c e c l a i m . T h i s p r o m p t e d E t e r n a l t o d e m a n d f r o mP h i l a m l i f e t h e p a y m e n t o f t h e c l a i mf o r P h P1 0 0 , 0 0 0 . I n r e s p o n s e t o E t e r n a l ’ s d e m a n d , P h i l a m l i f e d e n i e d E t e r n a l ’ s i n s u r a n c e c l a i mi n a l e t t e r a p o r t i o n o f w h i c h r e a d s : T h e d e c e a s e d w a s 5 9 y e a r s o l d w h e n h e e n t e r e d i n t o C o n t r a c t # 9 5 5 8 a n d 9 5 2 9 w i t h E t e r n a l G a r d e n s

Me m o r i a l P a r k i n O c t o b e r 1 9 8 2 f o r t h e t o t a l m a x i m u mi n s u r a b l e a m o u n t o f P 1 0 0 , 0 0 0 . 0 0 e a c h . N o a p p l i c a t i o n f o r G r o u p I n s u r a n c e w a s s u b m i t t e d i n o u r o f f i c e p r i o r t o h i s d e a t h o n A u g u s t 2 , 1 9 8 4 E t e r n a l f i l e d a c a s e w i t h t h e R T Cf o r a s u mo f m o n e y a g a i n s t P h i l a m l i f e , w h i c h d e c i d e d i n f a v o r o f E t e r n a l , o r d e r i n g P h i l a m l i f e t o p a y t h e f o r m e r 1 0 0 Kr e p r e s e n t i n g t h e p r o c e e d s o f t h e p o l i c y . C Ar e v e r s e d . H e n c e t h i s p e t i t i o n .

I S S U E : WO NP h i l a m l i f e s h o u l d p a y t h e 1 0 0 Ki n s u r a n c e p r o c e e d s

H E L D : p e t i t i o n g r a n t e d . Y E S A n e x a m i n a t i o n o f t h e p r o v i s i o n o f t h e P O L I C Yu n d e r e f f e c t i v e d a t e o f b e n e f i t , w o u l d s h o wa m b i g u i t y b e t w e e n i t s t w o s e n t e n c e s . T h e f i r s t s e n t e n c e a p p e a r s t o s t a t e t h a t t h e i n s u r a n c e c o v e r a g e o f t h e c l i e n t s o f E t e r n a l a l r e a d y b e c a m e e f f e c t i v e u p o n c o n t r a c t i n g a l o a n w i t h E t e r n a l w h i l e t h e s e c o n d s e n t e n c e a p p e a r s t o r e q u i r e P h i l a m l i f e t o a p p r o v e t h e i n s u r a n c e c o n t r a c t b e f o r e t h e s a m e c a n b e c o m e e f f e c t i v e . I t m u s t b e r e m e m b e r e d t h a t a n i n s u r a n c e c o n t r a c t i s a c o n t r a c t o f a d h e s i o n w h i c h m u s t 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 n s u r e d a n d s t r i c t l y a g a i n s t t h e i n s u r e r i n o r d e r t o s a f e g u a r d t h e l a t t e r ’ s i n t e r e s t O n t h e o t h e r h a n d , t h e s e e m i n g l y c o n f l i c t i n g p r o v i s i o n s m u s t b e h a r m o n i z e d t o m e a n t h a t u p o n a p a r t y ’ s p u r c h a s e o f a m e m o r i a l l o t o n i n s t a l l m e n t f r o mE t e r n a l , a n i n s u r a n c e c o n t r a c t c o v e r i n g t h e l o t p u r c h a s e r i s c r e a t e d a n d t h e s a m e i s e f f e c t i v e , v a l i d , a n d b i n d i n g u n t i l t e r m i n a t e d b y P h i l a m l i f e b y d i s a p p r o v i n g t h e i n s u r a n c e a p p l i c a t i o n . T h e s e c o n d s e n t e n c e o f t h e C r e d i t o r G r o u p L i f e P o l i c y o n t h e E f f e c t i v e D a t e o f B e n e f i t i s i n t h e n a t u r e o f a r e s o l u t o r y c o n d i t i o n w h i c h w o u l d l e a d t o t h e c e s s a t i o n o f t h e i n s u r a n c e c o n t r a c t . Mo r e o v e r , t h e m e r e i n a c t i o n o f t h e i n s u r e r o n t h e i n s u r a n c e a p p l i c a t i o n m u s t n o t w o r k t o p r e j u d i c e t h e i n s u r e d ; i t c a n n o t b e i n t e r p r e t e d a s a t e r m i n a t i o n o f t h e i n s u r a n c e c o n t r a c t . T h e t e r m i n a t i o n o f t h e i n s u r a n c e c o n t r a c t b y t h e i n s u r e r m u s t b e e x p l i c i t a n d u n a m b i g u o u s .

G . R . N o . L 8 1 5 1 D e c e m b e r 1 6 , 1 9 5 5 V I R G I N I AC A L A N O Cv . C O U R TO FA P P E A L S0 9 8 P h i l 7 9

FIRST DIVISION [G.R. No. L-8151. December 16, 1955. ] VIRGINIA CALANOC, Petitioner, v. COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE CO., Respondents. Lucio Javillonar for Petitioner. J.A. Wolfson, Manuel Y. Mecias, Emilio Abello and Anselmo A. Reyes, for Respondents.

SYLLABUS

1. INSURANCE LAW; ACCIDENTAL DEATH; AMBIGUOUS TERMS IN INSURANCE POLICY; HOW CONSTRUED. — While as a general rule "the parties may limit the coverage of the policy to certain particular accidents and risks or causes of less, and may expressly except other risks or causes of loss therefrom" (45 C. J. S, 781782), however, it is to be desired that the terms and phraseology of the exception clause be clearly

expressed so as to be within the easy grasp and understanding of the insured, for if the terms are doubtful or obscure the same must of necessity be interpreted or resolved against the one who has caused the obscurity. (Article 1377, new Civil Code.) And so it has been generally held that the "terms in an insurance policy, which are ambiguous, equivocal, or uncertain . . . are to be construed strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where a forfeited is involved" (29 Am. Jur., 181), and the reason for this rule is that the "insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by experts and legal advisers employed by, and acting exclusively in the interest of, the insurance company." (44 C. J. S., p. 1174.)

DECISIO N

BAUTISTA ANGELO, J.:

This suit involves the collection of P2,000 representing the value of a supplemental policy covering accidental death which was secured by one Melencio Basilio from the Philippine American Life Insurance Company. The case originated in the Municipal Court of Manila and judgment being favorable to the plaintiff it was appealed to the court of first instance. The latter court affirmed the judgment but on appeal to the Court of Appeals the judgment was reversed and the case is now before us on a petition for review. Melencio Basilio was a watchman of the Manila Auto Supply located at the corner of Avenida Rizal and Zurbaran. He secured a life insurance policy from the Philippine American Life Insurance Company in the amount of P2,000 to which was attached a supplementary contract covering death by accident. On January 25, 1951, he died of a gunshot wound on the occasion of a robbery committed in the house of Atty. Ojeda at the corner of Oroquieta and Zurbaran streets. Virginia Calanoc, the widow, was paid the sum of P2,000, face value of the policy, but when she demanded the payment of the additional sum of P2,000 representing the value of the supplemental policy, the company refused alleging, as main defense, that the deceased died because he was murdered by a person who took part in the commission of the robbery and while making an arrest as an officer of the law which contingencies were expressly excluded in the contract and have the effect of exempting the company from liability. The pertinent facts which need to be considered for the determination of the questions raised are those reproduced in the decision of the Court of Appeals as follows:
j gc : c hanr obl e s . c om . ph

"The circumstances surrounding the death of Melencio Basilio show that when he was killed at about seven o’clock in the night of January 25, 1951, he was on duty as watchman of the Manila Auto Supply at the corner of Avenida Rizal and Zurbaran; that it turned out that Atty. Antonio Ojeda who had his residence at the corner of Zurbaran and Oroquieta, a block away from Basilio’s station, had come home

that night and found that his house was well-lighted, but with the windows closed; that getting suspicious that there were culprits in his house, Atty. Ojeda retreated to look for a policeman and finding Basilio in khaki uniform, asked him to accompany him to the house, with the latter refusing on the ground that he was not a policeman, but suggesting that Atty. Ojeda should ask the traffic policeman on duty at the corner of Rizal Avenue and Zurbaran; that Atty. Ojeda went to the traffic policeman at said corner and reported the matter, asking the policeman to come along with him, to which the policeman agreed; that on the way to the Ojeda residence, the policeman and Atty. Ojeda passed by Basilio and somehow or other invited the latter to come along; that as the three approached the Ojeda residence and stood in front of the main gate which was covered with galvanized iron, the fence itself being partly concrete and partly adobe stone, a shot was fired; that immediately after the shot, Atty. Ojeda and the policeman sought cover; that the policeman, at the request of Atty. Ojeda, left the premises to look for reinforcement; that it turned out afterwards that the special watchman Melencio Basilio was hit in the abdomen, the wound causing his instantaneous death; that the shot must have come from inside the yard of Atty. Ojeda, the bullet passing through a hole waist-high in the galvanized iron gate; that upon inquiry Atty. Ojeda found out that the savings of his children in the amount of P30 in coins kept in his aparador contained in stockings were taken away, the aparador having been ransacked; that a month thereafter the corresponding investigation conducted by the police authorities led to the arrest and prosecution of four persons in Criminal Case No. 15104 of the Court of First Instance of Manila for ’Robbery in an Inhabited House and in Band with Murder’."
c r al aw v i r t ua1aw l i br ar y

It is contended in behalf of the company that Basilio was killed which "making an arrest as an officer of the law" or as a result of an "assault or murder" committed in the place and therefore his death was caused by one of the risks excluded by the supplementary contract which exempts the company from liability. This contention was upheld by the Court of Appeals and, in reaching this conclusion, made the following comment:
j gc : c hanr obl e s . c om . ph

"From the foregoing testimonies, we find that the deceased was a watchman of the Manila Auto Supply, and, as such, he was not bound to leave his place and go with Atty. Ojeda and Policeman Magsanoc to see the trouble, or robbery, that occurred in the house of Atty. Ojeda. In fact, according to the finding of the lower court, Atty. Ojeda finding Basilio in uniform asked him to accompany him to his house, but the latter refused on the ground that he was not a policeman and suggested to Atty. Ojeda to ask help from the traffic policeman on duty at the corner of Rizal Avenue and Zurbaran, but after Atty. Ojeda secured the help of the traffic policeman, the deceased went with Ojeda and said traffic policeman to the residence of Ojeda; and while the deceased was standing in front of the main gate of said residence, he was shot and thus died. The death, therefore, of Basilio, although unexpected, was not caused by an accident, being a voluntary and intentional act on the part of the one who robbed, or one of those who robbed, the house of Atty. Ojeda. Hence, it is our considered opinion that the death of Basilio, though unexpected, cannot be considered accidental, for his death occurred because he left his post and joined policeman Magsanoc and Atty. Ojeda to repair to the latter’s residence to see what happened thereat. Certainly, when Basilio joined Patrolman Magsanoc and Atty. Ojeda, he should have realized the danger to which he was exposing himself, yet, instead of remaining in his place, he went with Atty. Ojeda and Patrolman Magsanoc to see what was the trouble in Atty. Ojeda’s house and thus he was fatally shot."
c r al aw v i r t ua1aw l i br ar y

We dissent from the above findings of the Court of Appeals. For one thing, Basilio was a watchman of the Manila Auto Supply which was a block away from the house of Atty. Ojeda where something suspicious

was happening which caused the latter to ask for help. While at first he declined the invitation of Atty. Ojeda to go with him to his residence to inquire into what was going on because he was not a regular policeman, he later agreed to come along when prompted by the traffic policeman, and upon approaching the gate of the residence he was shot and died. The circumstance that he was a mere watchman and had no duty to heed the call of Atty. Ojeda should not be taken as a capricious desire on his part to expose his life to danger considering the fact that the place he was in duty-bound to guard was only a block away. In volunteering to extend help under the situation, he might have thought, rightly or wrongly, that to know the truth was in the interest of his employer it being a matter that affects the security of the neighborhood. No doubt there was some risk coming to him in pursuing that errand, but that risk always existed it being inherent in the position he was holding. He cannot therefore be blamed solely for doing what he believed was in keeping with his duty as a watchman and as a citizen. And he cannot be considered as making an arrest as an officer of the law, as contended, simply because he went with the traffic policeman, for certainly he did not go there for that purpose nor was he asked to do so by the policeman. Much less can it be pretended that Basilio died in the course of an assault or murder considering the very nature of these crimes. In the first place, there is no proof that the death of Basilio is the result of either crime for the record is barren of any circumstance showing how the fatal shot was fired. Perhaps this may be clarified in the criminal case now pending in court as regards the incident but before that is done anything that might be said on the point would be a mere conjecture. Nor can it be said that the killing was intentional for there is the possibility that the malefactor had fired the shot merely to scare away the people around for his own protection and not necessarily to kill or hit the victim. In any event, while the act may not exempt the triggerman from liability for the damage done, the fact remains that the happening was a pure accident on the part of the victim. The victim could have been either the policeman or Atty. Ojeda for it cannot be pretended that the malefactor aimed at the deceased precisely because he wanted to take his life. We take note that these defenses are included among the risks excluded in the supplementary contract which enumerates the cases which may exempt the company from liability. While as a general rule "the parties may limit the coverage of the policy to certain particular accidents and risks or causes of loss, and may expressly except other risks or causes of loss therefrom" (45 C. J. S. 781-782), however, it is to be desired that the terms and phraseology of the exception clause be clearly expressed so as to be within the easy grasp and understanding of the insured, for if the terms are doubtful or obscure the same must of necessity be interpreted or resolved against the one who has caused the obscurity. (Article 1377, new Civil Code) And so it has been generally held that the "terms in an insurance policy, which are ambiguous, equivocal, or uncertain . . . are to be construed strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved" (29 Am. Jur., 181), and the reason for this rule is that the "insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by experts and legal advisers employed by, and acting exclusively in the interest of, the insurance company." (44 C. J. S., p. 1174.) "Insurance is, in its nature, complex and difficult for the layman to understand. Policies are prepared by experts who know and can anticipate the bearing and possible complications of every contingency. So long as insurance companies insist upon the use of ambiguous, intricate and technical provisions, which conceal

rather than frankly disclose, their own intentions, the courts must, in fairness to those who purchase insurance, construe every ambiguity in favor of the insured." (Algoe v. Pacific Mut. L. Ins. Co., 91 Wash. 324, LRA 1917A, 1237.) "An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat the very purpose for which the policy was procured." (Moore v. Aetna Life Insurance Co., LRA 1915D, 264.) We are therefore persuaded to conclude that the circumstances unfolded in the present case do not warrant the finding that the death of the unfortunate victim comes within the purview of the exception clause of the supplementary policy and, hence, do not exempt the company from liability. Wherefore, reversing the decision appealed from, we hereby order the company to pay petitionerappellant the amount of P2,000, with legal interest from January 26, 1951 until fully paid, with costs. Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Labrador, Concepcion and Reyes, J.B.L., JJ., concur.

C a l a n o c v s . C A( 9 8 P H I L7 9 ) F a c t s : B a s i l i o w a s a w a t c h m a n o f t h e Ma n i l a A u t o S u p p l y l o c a t e d a t t h e c o r n e r o f A v e n i d a R i z a l a n d Z u r b a r a n . H e s e c u r e d a l i f e i n s u r a n c e p o l i c y f r o mt h e P h i l i p p i n e A m e r i c a n L i f e I n s u r a n c e C o m p a n y i n t h e a m o u n t o f P 2 , 0 0 0 t o w h i c h w a s a t t a c h e d a s u p p l e m e n t a r y c o n t r a c t c o v e r i n g d e a t h b y a c c i d e n t . O n J a n u a r y 2 5 , 1 9 5 1 , h e d i e d o f a g u n s h o t w o u n d o n t h e o c c a s i o n o f a r o b b e r y c o m m i t t e d i n t h e h o u s e o f A t t y . O j e d a a t t h e c o r n e r o f O r o q u i e t a a n d Z u r b a r a n s t r e e t s . C a l a n o c , t h e w i d o w , w a s p a i d t h e s u mo f P 2 , 0 0 0 , f a c e v a l u e o f t h e p o l i c y , b u t w h e n s h e d e m a n d e d t h e p a y m e n t o f t h e a d d i t i o n a l s u mo f P 2 , 0 0 0 r e p r e s e n t i n g t h e v a l u e o f t h e s u p p l e m e n t a l p o l i c y , t h e c o m p a n y r e f u s e d a l l e g i n g , a s m a i n d e f e n s e , t h a t t h e d e c e a s e d d i e d b e c a u s e h e w a s m u r d e r e d b y a p e r s o n w h o t o o k p a r t i n t h e c o m m i s s i o n o f t h e r o b b e r y a n d w h i l e m a k i n g a n a r r e s t a s a n o f f i c e r o f t h e l a ww h i c h c o n t i n g e n c i e s w e r e e x p r e s s l y e x c l u d e d i n t h e c o n t r a c t a n d h a v e t h e e f f e c t o f e x e m p t i n g t h e c o m p a n y f r o m l i a b i l i t y .

I t i s c o n t e n d e d i n b e h a l f o f t h e c o m p a n y t h a t B a s i l i o w a s k i l l e d w h i c h " m a k i n g a n a r r e s t a s a n o f f i c e r o f t h e l a w " o r a s a r e s u l t o f a n " a s s a u l t o r m u r d e r " c o m m i t t e d i n t h e p l a c e a n d t h e r e f o r e h i s d e a t h w a s c a u s e d b y o n e o f t h e r i s k s e x c l u d e d b y t h e s u p p l e m e n t a r y c o n t r a c t w h i c h e x e m p t s t h e c o m p a n y f r o ml i a b i l i t y . T h i s c o n t e n t i o n w a s u p h e l d b y t h e C o u r t o f A p p e a l s . H e n c e , t h i s p e t i t i o n .

I s s u e : Wh e t h e r o r n o t t h e d e a t h o f t h e v i c t i mc o m e s w i t h i n t h e p u r v i e wo f t h e e x c e p t i o n c l a u s e o f t h e s u p p l e m e n t a r y p o l i c y a n d , h e n c e , e x e m p t s t h e c o m p a n y f r o ml i a b i l i t y .

H e l d : N O . B a s i l i o w a s a w a t c h m a n o f t h e Ma n i l a A u t o S u p p l y w h i c h w a s a b l o c k a w a y f r o mt h e h o u s e o f A t t y .

O j e d a w h e r e s o m e t h i n g s u s p i c i o u s w a s h a p p e n i n g w h i c h c a u s e d t h e l a t t e r t o a s k f o r h e l p . Wh i l e a t f i r s t h e d e c l i n e d t h e i n v i t a t i o n o f A t t y . O j e d a t o g o w i t h h i mt o h i s r e s i d e n c e t o i n q u i r e i n t o w h a t w a s g o i n g o n b e c a u s e h e w a s n o t a r e g u l a r p o l i c e m a n , h e l a t e r a g r e e d t o c o m e a l o n g w h e n p r o m p t e d b y t h e t r a f f i c p o l i c e m a n , a n d u p o n a p p r o a c h i n g t h e g a t e o f t h e r e s i d e n c e h e w a s s h o t a n d d i e d . T h e c i r c u m s t a n c e t h a t h e w a s a m e r e w a t c h m a n a n d h a d n o d u t y t o h e e d t h e c a l l o f A t t y . O j e d a s h o u l d n o t b e t a k e n a s a c a p r i c i o u s d e s i r e o n h i s p a r t t o e x p o s e h i s l i f e t o d a n g e r c o n s i d e r i n g t h e f a c t t h a t t h e p l a c e h e w a s i n d u t y b o u n d t o g u a r d w a s o n l y a b l o c k a w a y . I n v o l u n t e e r i n g t o e x t e n d h e l p u n d e r t h e s i t u a t i o n , h e m i g h t h a v e t h o u g h t , r i g h t l y o r w r o n g l y , t h a t t o k n o w t h e t r u t h w a s i n t h e i n t e r e s t o f h i s e m p l o y e r i t b e i n g a m a t t e r t h a t a f f e c t s t h e s e c u r i t y o f t h e n e i g h b o r h o o d . N o d o u b t t h e r e w a s s o m e r i s k c o m i n g t o h i mi n p u r s u i n g t h a t e r r a n d , b u t t h a t r i s k a l w a y s e x i s t e d i t b e i n g i n h e r e n t i n t h e p o s i t i o n h e w a s h o l d i n g . H e c a n n o t t h e r e f o r e b e b l a m e d s o l e l y f o r d o i n g w h a t h e b e l i e v e d w a s i n k e e p i n g w i t h h i s d u t y a s a w a t c h m a n a n d a s a c i t i z e n . A n d h e c a n n o t b e c o n s i d e r e d a s m a k i n g a n a r r e s t a s a n o f f i c e r o f t h e l a w , a s c o n t e n d e d , s i m p l y b e c a u s e h e w e n t w i t h t h e t r a f f i c p o l i c e m a n , f o r c e r t a i n l y h e d i d n o t g o t h e r e f o r t h a t p u r p o s e n o r w a s h e a s k e d t o d o s o b y t h e p o l i c e m a n .

Mu c h l e s s c a n i t b e p r e t e n d e d t h a t B a s i l i o d i e d i n t h e c o u r s e o f a n a s s a u l t o r m u r d e r c o n s i d e r i n g t h e v e r y n a t u r e o f t h e s e c r i m e s . I n t h e f i r s t p l a c e , t h e r e i s n o p r o o f t h a t t h e d e a t h o f B a s i l i o i s t h e r e s u l t o f e i t h e r c r i m e f o r t h e r e c o r d i s b a r r e n o f a n y c i r c u m s t a n c e s h o w i n g h o wt h e f a t a l s h o t w a s f i r e d . P e r h a p s t h i s m a y b e c l a r i f i e d i n t h e c r i m i n a l c a s e n o wp e n d i n g i n c o u r t a s r e g a r d s t h e i n c i d e n t b u t b e f o r e t h a t i s d o n e a n y t h i n g t h a t m i g h t b e s a i d o n t h e p o i n t w o u l d b e a m e r e c o n j e c t u r e . N o r c a n i t b e s a i d t h a t t h e k i l l i n g w a s i n t e n t i o n a l f o r t h e r e i s t h e p o s s i b i l i t y t h a t t h e m a l e f a c t o r h a d f i r e d t h e s h o t m e r e l y t o s c a r e a w a y t h e p e o p l e a r o u n d f o r h i s o w n p r o t e c t i o n a n d n o t n e c e s s a r i l y t o k i l l o r h i t t h e v i c t i m . I n a n y e v e n t , w h i l e t h e a c t m a y n o t e x e m p t t h e t r i g g e r m a n f r o ml i a b i l i t y f o r t h e d a m a g e d o n e , t h e f a c t r e m a i n s t h a t t h e h a p p e n i n g w a s a p u r e a c c i d e n t o n t h e p a r t o f t h e v i c t i m . T h e v i c t i mc o u l d h a v e b e e n e i t h e r t h e p o l i c e m a n o r A t t y . O j e d a f o r i t c a n n o t b e p r e t e n d e d t h a t t h e m a l e f a c t o r a i m e d a t t h e d e c e a s e d p r e c i s e l y b e c a u s e h e w a n t e d t o t a k e h i s l i f e .

G . R . N o . L 2 5 5 7 9 Ma r c h 2 9 , 1 9 7 2 E MI L I AT . B I A G T A N , E TA L . v . T H EI N S U L A RL I F E A S S U R A N C EC O . , L T D .

SECOND DIVISION [G.R. No. L-25579. March 29, 1972.] EMILIA T. BIAGTAN, JUAN T. BIAGTAN, JR., MIGUEL T. BIAGTAN, GIL T. BIAGTAN and GRACIA T. BIAGTAN, Plaintiffs- Appellees, v. THE INSULAR LIFE ASSURANCE COMPANY, LTD., DefendantAppellant. Tanopo, Millora, Serafica & Sañez for plaintiffs and appellees. Araneta, Mendoza, Papa & Associates for defendant and appellant.

SYLLABUS

1. INSURANCE LAW; INSURANCE CONTRACT; EXCEPTION TO ACCIDENTAL BENEFIT CLAUSE, CONSTRUED. — It should be noted that the exception in the accidental benefit clause invoked by the appellant does not speak of the purpose whether homicidal or not — of a third party in causing the injuries, but only of the fact that such injuries have been "intentionally" inflicted — this obviously to distinguish the from injuries which, although received at the hands of a third party, are purely accidental. 2. ID.; ID.; ID.; CASE AT BAR. — But where a gang of robbers enter a house and coming face to face with the owner, even if unexpectedly, stab him repeatedly, it is contrary to all reason and logic to say that his

injuries are not intentionally inflicted, regardless of whether they prove fatal or not. As it was, in the present case they did prove fatal, and the robbers have been accused and convicted of the crime of robbery with homicide. Under the circumstance, the insurance company was correct in refusing to pay the additional sum of P2,000.00 under the accidental death benefit clause which expressly provided that it would not apply where death resulted from an injury "intentionally" inflicted by a third party. 3. ID.; ID.; ID.; CASE OF CALANOC v. COURT OF APPEALS DISTINGUISHED FROM CASE AT BAR. — Where a shot was fired and it turned out afterwards that the watchman was hit in the abdomen, the wound causing his death, the Court held that it could not be said that the killing was intentional for there was the possibility that the malefactor had fired the shot to scare the people around for his own protection and not necessarily to kill or hit the victim. A similar possibility is clearly ruled out by the facts in the case now before Us. For while a single shot fired from a distance, and by a person who was not even seen aiming at the victim, could indeed have been fired without intent to kill or injure, nine wounds inflicted with bladed weapons at close range cannot conceivably be considered as innocent insofar as such intent is concerned. The manner of execution of the crime permits no other conclusion. 4. ID.; ID.; ID.; INTENTIONAL, CONSTRUED IN AMERICAN JURISDICTION. — It has been held in American jurisdiction that "intentional" as used in an accident policy excepting intentional injuries inflicted by the insured or any other person, etc., implies the exercise of the reasoning faculties, consciousness, and volition. 5. ID.; ID.; ID.; INTENTION OF PARTIES CONTROLLING; AMERICAN JURISPRUDENCE. — Where a provision of the policy excludes intentional injury, it is the intention of the person inflicting the injury that is controlling. 6. ID.; ID.; ID.; INJURIES INTENTIONAL; INSURER RELIEVED FROM LIABILITY. — If the injuries suffered by the insured clearly resulted from the intentional act of a third party the insurer is relieved from liability. 7. ID.; ID.; ID.; ID.; CASE OF HUCTHCRAFT’S EX’R v. TRAVELERS’ INS. CO. — In the case of Hucthcraft’s Ex’r v. Travelers’ Ins. Co. where the insured was waylaid and assassinated for the purpose of robbery, the court rendered judgment for the insurance company and held that while the assassination of the insured was as to him an unforeseen event and therefore accidental, "the clause of the proviso that excludes the (insurer’s) liability, in case death or injury is intentionally inflicted by any other person, applies to this case."

DECISIO N

MAKALINTAL, J.:

This is an appeal from the decision of the Court of First Instance of Pangasinan in its Civil Case No. D-1700.

The facts are stipulated. Juan S. Biagtan was insured with defendant Insular Life Assurance Company under Policy No. 398075 for the sum of P5,000.00 and, under a supplementary contract denominated "Accidental Death Benefit Clause, for an additional sum of P5,000.00 if "the death of the Insured resulted directly from bodily injury effected solely through external and violent means sustained in an accident . . . and independently of all other causes." The clause, however, expressly provided that it would not apply where death resulted from an injury "intentionally inflicted by a third party."
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On the night of May 20, 1964 or during the first hours of the following day a band of robbers entered the house of the insured Juan S. Biagtan. What happened then is related in the decision of the trial court as follows:
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". . .; that on the night of May 20, 1964 or the first hours of May 21, 1964, while the said life policy and supplementary contract were in full force and effect, the house of insured Juan S. Biagtan was robbed by a band of robbers who were charged in and convicted by the Court of First Instance of Pangasinan for robbery with homicide; that in committing the robbery, the robbers, on reaching the staircase landing of the second floor, rushed towards the doors of the second floor room, where they suddenly met a person near the door of one of the rooms who turned out to be the insured Juan S. Biagtan who received thrusts from their sharp-pointed instruments, causing wounds on the body of said Juan S. Biagtan resulting in his death at about 7 a.m. on the same day, May 21, 1964;" Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The insurance company paid the basic amount of P5,000.00 but refused to pay the additional sum of P5,000.00 under the accidental death benefit clause, on the ground that the insured’s death resulted from injuries intentionally inflicted by third parties and therefore was not covered. Plaintiffs filed suit to recover, and after due hearing the court a quo rendered judgment in their favor. Hence the present appeal by the insurer. The only issue here is whether under the facts are stipulated and found by the trial court the wounds received by the insured at the hands of the robbers — nine in all, five of them mortal and four non-mortal — were inflicted intentionally. The court, in ruling negatively on the issue, stated that since the parties presented no evidence and submitted the case upon stipulation, there was no "proof that the act of receiving thrust (sic) from the sharp-pointed instrument of the robbers was intended to inflict injuries upon the person of the insured or any other person or merely to scare away any person so as to ward off any resistance or obstacle that might be offered in the pursuit of their main objective which was robbery."
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The trial court committed a plain error in drawing the conclusion it did from the admitted facts. Nine wounds were inflicted upon the deceased, all by means of thrusts with sharp-pointed instruments wielded by the robbers. This is a physical fact as to which there is no dispute. So is the fact that five of those wounds caused the death of the insured. Whether the robbers had the intent to kill or merely to scare the victim or to ward off any defense he might offer, it cannot be denied that the act itself of inflicting the injuries was intentional. It should he noted that the exception in the accidental benefit clause invoked by the appellant does not speak of the purpose — whether homicidal or not — of a third party in causing the injuries, but only of the fact that such injuries have been "intentionally" inflicted — this obviously to distinguish them from injuries which, although received at the hands of a third party, are purely accidental. This construction is the basic idea expressed in the coverage of the clause itself, namely, that "the death of the insured

resulted directly from bodily injury effected solely through external and violent means sustained in an accident . . . and independently of all other causes." A gun which discharges while being cleaned and kills a bystander; a hunter who shoots at his prey and hits a person instead; an athlete in a competitive game involving physical effort who collides with an opponent and fatally injures him as a result: these are instances where the infliction of the injury is unintentional and therefore would be within the coverage of an accidental death benefit clause such as that in question in this case. But where a gang of robbers enter a house and coming face to face with the owner, even if unexpectedly, stab him repeatedly, it is contrary to all reason and logic to say that his injuries are not intentionally inflicted, regardless of whether they prove fatal or not. As it was, in the present case they did prove fatal, and the robbers have been accused and convicted of the crime of robbery with homicide. The case of Calanoc v. Court of Appeals, 98 Phil 79, is relied upon by the trial court in support of its decision. The facts in that case, however, are different from those obtaining here. The insured there was a watchman in a certain company, who happened to be invited by a policeman to come along as the latter was on his way to investigate a reported robbery going on in a private house. As the two of them, together with the owner of the house, approached and stood in front of the main gate, a shot was fired and it turned out afterwards that the watchman was hit in the abdomen, the wound causing his death. Under those circumstances this Court held that it could not be said that the killing was intentional for there was the possibility that the malefactor had fired the shot to scare the people around for his own protection and not necessarily to kill of hit the victim. A similar possibility is clearly ruled out by the facts in the case now before Us. For while a single shot fired from a distance, and by a person who was not even seen aiming at the victim, could indeed have been fired without intent to kill or injure, nine wounds inflicted with bladed weapons at close range cannot conceivably be considered as innocent insofar as such intent is concerned. The manner of execution of the crime permits no other conclusion. Court decisions in the American jurisdiction, where similar provisions in accidental death benefit clauses in insurance policies have been construed, may shed light on the issue before Us. Thus, it has been held that "intentional" as used in an accident policy excepting intentional injuries inflicted by the insured or any other person, etc., implies the exercise of the reasoning faculties, consciousness, and volition. 1 Where a provision of the policy excludes intentional injury, it is the intention of the person inflicting the injury that is controlling. 2 If the injuries suffered by the insured clearly resulted from the intentional act of a third person the insurer is relieved from liability as stipulated. 3 In the case of Hutchcraft’s Ex’r. v. Travelers’ Ins. Co., 87 Ky. 300, 8 S.W. 570, 12 Am. St. Rep. 484, the insured was waylaid and assassinated for the purpose of robbery. Two (2) defenses were interposed to the action to recover indemnity, namely: (1) that the insured having been killed by intentional means, his death was not accidental, and (2) that the proviso in the policy expressly exempted the insurer from liability in case the insured died from injuries intentionally inflicted by another person. In rendering judgment for the insurance company the Court held that while the assassination of the insured was as to him an unforeseen event and therefore accidental, "the clause of the proviso "that excludes the (insurer’s) liability, in case death or injury is intentionally inflicted by any other person, applies to this case."
c r al aw v i r t ua1aw l i br ar y

In Butero v. Travelers’ Acc. Ins. Co., 96 Wis. 536, 65 Am. St. Rep. 61, 71 S.W. 811, the insured was shot three times by a person unknown late on a dark and stormy night, while working in the coal shed of a railroad company. The policy did not cover death resulting from "intentional injuries inflicted by the insured

or any other person." The inquiry was as to the question whether the shooting that caused the insured’s death was accidental or intentional; and the Court found that under the facts, showing that the murderer knew his victim and that he fired with intent to kill, there could be no recovery under the policy which excepted death from intentional injuries inflicted by any person. WHEREFORE, the decision appealed from is reversed and the complaint dismissed, without pronouncement as to costs. Zaldivar, Castro, Fernando and Villamor, JJ., concur. Concepcion, C.J. and Reyes, J.B.L., J., concur in the dissent of Justice Teehankee. Teehankee, J., dissents in a separate opinion. Barredo, J., concurs in separate opinion. Makasiar, J., reserves his vote. BARREDO, J.: Concurring — During the deliberations in this case, I entertained some doubts as to the correctness and validity of the view upheld in the main opinion penned by Justice Makalintal. Further reflection has convinced me, however, that there are good reasons to support it. At first blush, one would feel that every death not suicidal should be considered accidental, for the purposes of an accident insurance policy or a life insurance policy with a double-indemnity clause in case death results from accident. Indeed, it is quite logical to think that any event whether caused by fault, negligence, intent of a third party or any unavoidable circumstance, normally unforeseen by the insured and free from any possible connivance on his part, is an accident in the generally accepted sense of the term. And if I were convinced that in including in the policy the provision in question, both the insurer and the insured had in mind to exclude thereby from the coverage of the policy only suicide whether unhelped or helped somehow by a third party, I would disregard the American decisions cited and quoted in the main opinion as not even persuasive authorities. But examining the unequivocal language of the provision in controversy and considering that the insured accepted the policy without asking that it be made clear that the phrase "injury intentionally inflicted by a third party" should be understood to refer only to injuries inflicted by a third party without any wilful intervention on his part (of the insured) or, in other words, without any connivance with him (the insured) in order to augment the proceeds of the policy for his beneficiaries, I am inclined to agree that death caused by criminal assault is not covered by the policies of the kind here in question, specially if the assault, as a matter of fact, could have been more or less anticipated, as when the insured happens to have violent enemies or is found in circumstances that would make his life fair game of third parties. As to the rest, I have no doubt that the killing of the insured in this case is as intentional as any intentional act can be, hence this concurrence. Separate Opinions

TEEHANKEE, J., dissenting:

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The sole issue at bar is the correctness in law of the lower court’s appealed decision adjudging defendant insurance company liable, under its supplementary contract denominated "Accidental Death Benefit Clause" with the deceased insured, to plaintiffs-beneficiaries (excluding plaintiff Emilia T. Biagtan) in an additional amount of P5,000.00 (with corresponding legal interest) and ruling that defendant company had failed to present any evidence to substantiate its defense that the insured’s death came within the stipulated exceptions. Defendant’s accidental death benefit clause expressly provides:

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"ACCIDENTAL DEATH BENEFIT (hereinafter called the benefit). Upon receipt and approval of due proof that the death of the Insured resulted directly from bodily injury effected solely through external and violent means sustained in an accident, within ninety days after the date of sustaining such injury, and independently of all other causes, this Company shall pay, in addition to the sum insured specified on the first page of this Policy, a further sum equal to said sum insured payable at the same time and in the same manner as said sum insured, provided, that such death occurred during the continuance of this Clause and of this Policy and before the sixtieth birthday of the Insured." 1 A long list of exceptions and an Automatic Discontinuance clause immediately follow thereafter, thus:

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"EXCEPTIONS. The Benefit shall not apply if the Insured’s death shall result, either directly or indirectly, from any one of the following causes:
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(1) Self-destruction or self-inflicted injuries, whether the Insured be sane or insane; (2) Bodily or mental infirmity or disease of any kind; (3) Poisoning or infection, other than infection occurring simultaneously with and in consequence of a cut or wound sustained in an accident; (4) Injuries of which there is no visible contusions or wound on the exterior of the body, drowning and internal injuries revealed by autopsy excepted:
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(5) Any injuries received (a) while on police duty in any military, naval or police organization; (b) in any riot, civil commotion, insurrection or war or any act incident thereto; (c) while travelling as a passenger or otherwise in any form of submarine transportation, or while engaging in submarine operations; (d) in any violation of the law by the Insured or assault provoked by the Insured; (e) that has been inflicted intentionally by a third party, either with or without provocation on the part of the Insured, and whether or not the attack or the defense by the third party was caused by a violation of the law by the Insured; (6) Operating or riding in or descending from any kind of aircraft if the Insured is a pilot, officer or member

of the crew of the aircraft or is giving or receiving any kind of training or instruction or has any duties aboard the aircraft or requiring descent therefrom; and (7) Atomic energy explosion of any nature whatsoever, "The Company, before making any payment under this Clause, shall have the right and opportunity to examine the body and make an autopsy thereof. "AUTOMATIC DISCONTINUANCE. This Benefit shall automatically terminate and the additional premium therefor shall cease to be payable when and if:
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(1) This Policy is surrendered for cash, paid-up insurance or extended term insurance; or (2) The benefit under the Total and Permanent Disability Waiver of Premium Certificate is granted to the insured; or (3) The Insured engages in military, naval or aeronautic service in time of war; or (4) The policy anniversary immediately preceding the sixtieth birthday of the Insured is reached," 2 It is undisputed that, as recited in the lower court’s decision, the insured met his death, as follows: "that on the night of May 20, 1964 or the first hours of May 21, 1964, while the said life policy and supplementary contract were in full force and effect, the house of insured Juan S. Biagtan was robbed by a band of robbers who were charged in and convicted by the Court of First Instance of Pangasinan for robbery with homicide; that in committing the robbery, the robbers, on reaching the staircase landing of the second floor, rushed towards the doors of the second floor room, where they suddenly met a person near the door of one of the rooms who turned out to be the insured Juan S. Biagtan who received thrusts from their sharp-pointed instruments, causing wounds on the body of said Juan S. Biagtan resulting in his death at about 7 a.m. on the same day, May 21, 1964." 3 Defendant company, while admitting the above-recited circumstances under which the insured met his death, disclaimed liability under its accidental death benefit clause under paragraph 5 of its stipulated "Exceptions" on its theory that the insured’s death resulted from injuries "intentionally inflicted by a third party," i.e the robbers who broke into the insured’s house and inflicted fatal injuries on him. The case was submitted for decision upon the parties’ stipulation of facts that (1) insurance companies such as the Lincoln National Life Insurance Co. and Sun Life Assurance Co. of Canada with which the deceased insured Juan S. Biagtan was also insured for much larger sums under similar contracts with accidental death benefit provisions have promptly paid the benefits thereunder to plaintiffs-beneficiaries; (2) the robbers who caused the insured’s death were charged in and convicted by the Court of First Instance of Pangasinan for the crime of robbery with homicide; and (3) the injuries inflicted on the insured by the robbers consisted of five mortal and four non-mortal wounds. 4 The lower court thereafter rendered judgment against defendant, as follows:

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"There is no doubt that the insured, Juan S. Biagtan, met his death as a result of the wounds inflicted upon him by the malefactors on the early morning of May 21, 1964 by means of thrusts from sharp-pointed instruments delivered upon his person, and there is likewise no question that the thrusts were made on the occasion of the robbery. However, it is defendants’ position that the killing of the insured was intentionally done by the malefactors, who were charged with and convicted of the crime of robbery with homicide by the Court of First Instance of Pangasinan. "It must be noted here that no evidence whatsoever was presented by the parties who submitted the case for resolution upon the stipulation of facts presented by them. Thus, the court does not have before it proof that the act of receiving thrust(s) from the sharp-pointed instrument of the robbers was intended to inflict injuries upon the person of the insured or any other person or merely to scare away any person so as to ward off any resistance or obstacle that might be offered in the pursuit of their main objective which was robbery. It was held that where a provision of the policy excludes intentional injury, it is the intention of the person inflicting the injury that is controlling . . . and to come within the exception, the act which causes the injury must be wholly intentional, not merely partly. "The case at bar has some similarity with the case of Virginia Calanoc v. Court of Appeals, Et Al., L-8151, promulgated December 16, 1965, where the Supreme Court ruled that ’the shot (which killed the insured) was merely to scare away the people around for his own protection and not necessarily to kill or hit the victim.’ "In the Calanoc case, one Melencio Basilio, a watchman of a certain company, took out life insurance from the Philippine American Life Insurance Company in the amount of P2,000.00 to which was attached a supplementary contract covering death by accident. Calanoc died of gunshot wounds on the occasion of a robbery committed in the house of a certain Atty. Ojeda in Manila. The insured’s widow was paid P2,000.00, the face value of the policy, but when she demanded payment of the additional sum of P2,000.00 representing the value of the supplemental policy, the company refused alleging, as main defense, that the deceased died because he was murdered by a person who took part in the commission of the robbery and while making an arrest as an officer of the law which contingencies were (as in this case) expressly excluded in the contract and have the effect of exempting the company from liability. "The facts in the Calanoc case insofar as pertinent to this case are, as found by the Court of Appeals in its decision which findings of fact were adopted by the Supreme Court, as follows:
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‘. . . that on the way to the Ojeda residence (which was then being robbed by armed men), the policeman and Atty. Ojeda passed by Basilio (the insured) and somehow or other invited the latter to come along; that as the three approached the Ojeda residence and stood in front of the main gate which was covered by galvanized iron, the fence itself being partly concrete and partly adobe stone, a shot was fired; . . . that it turned out afterwards that the special watchman Melencio Basilio was hit in the abdomen, the wound causing his instantaneous death . . .’ "The Court of Appeals arrived at the conclusion that the death of Basilio, although unexpected, was not caused by an accident, being a voluntary and intentional act on the part of the one who robbed, or one of those who robbed, the house of Atty. Ojeda.

"In reversing this conclusion of the Court of Appeals, the Supreme Court said in part:

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‘. . . Nor can it be said that the killing was intentional for there is the possibility that the malefactors had fired the shot merely to scare away the people around for his own protection and not necessarily to kill or hit the victim. In any event, while the act may not exempt the triggerman from liability for the damage done, the fact remains that the happening was a pure accident on the part of the victim.’ "With this ruling of the Supreme Court, and the utter absence of evidence in this case as to the real intention of the malefactors in making a thrust with their sharp-pointed instrument on any person, the victim in particular, the case falls squarely within the ruling in the Calanoc v. Court of Appeals case. "It is the considered view of this Court that the insured died because of an accident which happened on the occasion of the robbery being committed in his house. His death was not sought (at least no evidence was presented to show it was), and therefore was fortuitous, ’accident’ was defined as that which happens by chance or fortuitously, without intention or design, and which is unexpected, unusual and unforeseen, or that which takes place without one’s foresight or expectation — an event that proceeds from an unknown cause, or is an unusual effect of a known cause, and therefore not expected (29 Am. Jur. 706)."
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"There is no question that the defense set up by the defendant company is one of those included among the risks excluded in the supplementary contract. However, there is no evidence here that the thrusts with sharp-pointed instrument (which led to the death of the insured) was ’intentional,’ (sic) so as to exempt the company from liability. It could safely be assumed that it was purely accidental considering that the principal motive of the culprits was robbery, the thrusts being merely intended to scare away persons who might offer resistance or might obstruct them from pursuing their main objective which was robbery." 5 It is respectfully submitted that the lower court committed no error in law in holding defendant insurance company liable to plaintiffs-beneficiaries under its accidental death benefit clause, by virtue of the following considerations:
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1. The case of Calanoc cited by the lower court is indeed controlling here. 6 This Court, there construing a similar clause, squarely ruled that fatal injuries inflicted upon an insured by a malefactor(s) during the latter’s commission of a crime are deemed accidental and within the coverage of such accidental death benefit clauses and the burden of proving that the killing was intentional so as to have it fall within the stipulated exception of having resulted from injuries "intentionally inflicted by a third party" must be discharged by the insurance company. This Court there clearly held that in such cases where the killing does not amount to murder, it must be held to be a "pure accident" on the part of the victim, compensable with double-indemnity, even though the malefactor is criminally liable for his act. This Court rejected the insurance — company’s contrary claim, thus:
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"Much less can it be pretended that Basilio died in the course of an assault or murder considering the very nature of these crimes In the first place, there is no proof that the death of Basilio is the result of either crime for the record is barren of any circumstance showing how the fatal shot was fired. Perhaps this may be clarified in the criminal case now pending in court as regards the incident but before that is done anything that might be said on the point would be a mere conjecture. Nor can it be said that the killing was

intentional for there is the possibility that the malefactor had fired the shot merely to scare away the people around for his own protection and not necessarily to kill or hit the victim. In any event, while the act may not exempt the triggerman from liability for the damage done, the fact remains that the happening was a pure accident on the part of the victim. The victim could have been either the policeman or Atty. Ojeda for it cannot be pretended that the malefactor aimed at the deceased precisely because he wanted to take his life." 7 2. Defendant company patently failed to discharge its burden of proving that the fatal injuries were inflicted upon the deceased intentionally, i.e. deliberately. The lower court correctly held that since the case was submitted upon the parties’ stipulation of facts which did not cover the malefactors’ intent at all, there was an "utter absence of evidence in this case as to the real intention of the malefactors in making a thrust with their sharp-pointed instrument(s) on any person, the victim in particular." From the undisputed facts, supra, 8 the robbers had "rushed towards the doors of the second floor room, where they suddenly met a person . . . who turned out to be the insured Juan S. Biagtan who received thrusts from their sharppointed instruments." The thrusts were indeed properly termed "purely accidental" since they seemed to be a reflex action on the robbers’ part upon their being surprised by the deceased. To argue, as defendant does, that the robbers’ intent to kill must necessarily be deduced from the four mortal wounds inflicted upon the deceased is to beg the question. Defendant must suffer the consequence of its failure to discharge its burden of proving by competent evidence, e.g. the robbers’ or eye-witnesses’ testimony, that the fatal injuries were intentionally inflicted upon the insured so as to exempt itself from liability. 3. Furthermore, plaintiffs-appellees properly assert in their brief that the sole error assigned by defendant company, to wit, that the fatal injuries were not accidental as held by the lower court but should be held to have been intentionally inflicted, raises a question of fact — which defendant is now barred from raising, since it expressly limited its appeal to this Court purely "on questions of law", per its notice of appeal. 9 Defendant is therefore confined to "raising only questions of law" and "no other questions" under Rule 42, section 2 of the Rules of Court 10 and is deemed to have conceded the findings of fact of the trial court, since he thereby waived all questions of facts. 11 4. It has long been an established rule of construction of so-called contracts of adhesion such as insurance contracts, where the insured is handed a printed insurance policy whose fine-print language has long been selected with great care and deliberation by specialists and legal advisers employed by and acting exclusively in the interest of the insurance company, that the terms and phraseology of the policy, particularly of any exception clauses, must be clearly expressed so as to be easily understood by the insured and any "ambiguous, equivocal or uncertain terms" are to be "construed strictly and most strongly against the insurer and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved." The Court so expressly held in Calanoc that:
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". . . While as a general rule ’the parties may limit the coverage of the policy to certain particular accidents and risks or causes of loss, and may expressly except other risks or causes of loss therefrom’ (45 C.J.S. 781-782), however, it is to be desired that the terms and phraseology of the exception clause be clearly expressed so as to be within the easy grasp and understanding of the insured, for if the terms are doubtful or obscure the same must of necessity be interpreted or resolved against the one who has

caused the obscurity. (Article 1377, new Civil Code) And so it has been generally held that the ’terms in an insurance policy, which are ambiguous, equivocal, or uncertain . . . are to be construed strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved’ (29 AM. Jur., 181), and the reason for this rule is that the ’insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by experts and legal advisers employed by, and acting exclusively in the interest of, the insurance company.’ (44 C.J.S., p. 1174) "‘Insurance is, in its nature, complex and difficult for the layman to understand. Policies are prepared by experts who know and can anticipate the bearing and possible complications of every contingency. So long as insurance companies insist upon the use of ambiguous, intricate and technical provisions, which conceal rather than frankly disclose, their own intentions, the courts must, in fairness to those who purchase insurance construe every ambiguity in favor of the insured.’ (Algoe v. Pacific Mut. L. Ins. Co., 91 Wash. 324, LRA 1917A, 1237.) "‘An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat the very purpose for which the policy was procured.’ (Moore v. Aetna Life Insurance Co., LRA 1915D, 164)." 12 The Court has but recently reiterated this doctrine in Landicho v. GSIS 13 and again applied the provisions of Article 1377 of our Civil Code that "The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity."
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5. The accidental death benefit clause assuring the insured’s beneficiaries of double indemnity, upon payment of an extra premium, in the event that the insured meets violent accidental death is contractually stipulated as follows in the policy: "that the death of the insured resulted directly from bodily injury effected solely through external and violent means sustained in an accident," supra. The policy then lists numerous exceptions, which may be classified as follows:
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— Injuries effected through non-external means which are excepted: self-destruction, bodily or mental infirmity or disease, poisoning or infection, injuries with no visible contusions or exterior wounds (exceptions 1 to 4 of policy clause); — Injuries caused by some act of the insured which is proscribed by the policy, and are therefore similarly excepted: injuries received while on police duty, while travelling in any form of submarine transportation, or in any violation of law by the insured or assault provoked by the insured, or in any aircraft if the insured is a pilot or crew member; [exceptions 5 (a), (c) and (d), and 6 of the policy clause]; and — Accidents expressly excluded: where death resulted in any riot, civil commotion, insurrection or war or atomic energy explosion. (Exceptions 5[b] and 7 of policy clause). The only exception which is not susceptible of classification is that provided in paragraph 5(e), the very exception herein involved, which would also except injuries "inflicted intentionally by a third party, either with or without provocation on the part of the insured, and whether or not the attack or the defense by the third party was caused by a violation of the law by the insured."
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This ambiguous clause conflicts with all the other four exceptions in the same paragraph 5 particularly that immediately preceding it in item (d) which excepts injuries received where the insured has violated the law or provoked the injury, while this clause, construed as the insurance company now claims, would seemingly except also all other injuries, intentionally inflicted by a third party, regardless of any violation of law or provocation by the insured, and defeat the very purpose of the policy of giving the insured double indemnity in case of accidental death by "external and violent means" — in the very language of the policy.’ It is obvious from the very classification of the exceptions and applying the rule of noscitus a sociis, that the double-indemnity policy covers the insured against accidental death, whether caused by fault, negligence or intent of a third party which is unforeseen and unexpected by the insured. All the associated words and concepts in the policy plainly exclude the accidental death from the coverage of the policy only where the injuries are self-inflicted or attended by some proscribed act of the insured or are incurred in some expressly excluded calamity such as riot, war or atomic explosion. Finally, the untenability of herein defendant insurer’s claim that the insured’s death fell within the exception is further heightened by the stipulated fact that two other insurance companies which likewise covered the insured for much larger sums under similar accidental death benefit clauses promptly paid the benefits thereof to plaintiffs beneficiaries. I vote accordingly for the affirmance in toto of the appealed decision, with costs against defendantappellant. Endnotes:

1. Be rge r v. Pacific Mut. Life Ins. C o., 88 F. 241, 242.

2. Trave le r’s Prote ctive Ass’n. of Am e rica v. Fawce tt, 104 N.E. 991, 50 Ind. App. 111.

3. C ontine ntal C as. C o. v. Klinge , 82 Ind. App. 277, 144 N.E. 246; W ashington v. Union C . & Sur. C o., 115 Mo. App. 627, 91 S.C . 988; National L & Acci. C o. v. De Lope z (Te x . C iv. App.), 207 S.W . 160.

TEEHANKEE, J. , disse nting:

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1. R e c. on Appe al, pp. 7-8, italics furnishe d.

2. Ide m , pp. 8-10, italics furnishe d.

3. Ide m , pp. 46-47.

4. Ide m , pp. 37-38.

5. Ide m , pp. 49-54, italics furnishe d.

6. 98 Phil. 79.

7. Ide m , at page 83, italics furnishe d.

8. At page 3.

9. R e c. on Appe al, p. 56.

10. "SEC 2. Appe al on pure que stion of law. — W he re the appe llant state s in his notice of appe al or re cord on appe al that he will raise only que stions of law, no othe r que stions shall be allowe d, and the e vide nce ne e d not be e le vate d." (R ule 42).

11. Se e 2 Moran’s C om m e nts on R ule s of C ourt, 1970 Ed., pp. 456-457 and case s cite d the re in.

12. Italics furnishe d.

13. L-28866, prom . March 17, 1972, pe r C once pcion, C.J. , and case s cite d the re in.

Biagtan vs. The Insular Life Assurance Company, LTD| Makalintal, J. March 29, 1972|

NATURE

Appeal from CFI’s decision

FACTS

- Juan Biagtan was insured with Insular for P5k and a supplementary contract “Accidental Death Benefit” clause for another P5k if "the death of the Insured resulted directly from bodily injury effected solely through external and violent means sustained in an accident . . . and independently of all other causes." The clause, however, expressly provided that it would not apply where death resulted from an injury "intentionally inflicted by a third party." - One night, a band of robbers entered their house. Juan went out of his room and he was met with 9 knife stabs. He died. The robbers were convicted of robbery with homicide. - The family was claiming the additional P5k from Insular under the Accidental Death Benefit clause. Insular refused on the ground that the death resulted from injuries intentionally inflicted by 3rd parties and was therefore not covered. - Biagtans filed against Insular. CFI ruled in favor of Biagtans.

ISSUES & ARGUMENTS

WON the injuries were intentionally inflicted by a third party? Yes

RATIONALE

- Whether the robbers had the intent to kill or merely to scare the victim or to ward off any defense he might offer, it cannot be denied that the act itself of inflicting the injuries was intentional. - The exception in the accidental benefit clause invoked by the appellant does not speak of the purpose — whether homicidal or not — of a third party in causing the injuries, but only of the fact that such injuries have been "intentionally" inflicted — this obviously to distinguish them from injuries which, although received at the hands of a third party, are purely accidental. - Examples of unintentional: >> A gun which discharges while being cleaned and kills a bystander; >> a hunter who shoots at his prey and hits a person instead; >> an athlete in a competitive game involving physical effort who collides with an opponent and fatally injures him as a result. - In Calanoc vs. CA: Where a shot was fired and it turned out afterwards that the watchman was hit in the abdomen, the wound causing his death, the Court held that it could not be said that the killing was intentional for there was the possibility that the malefactor had fired the shot to scare the people around for his own protection and not necessarily to kill or hit the victim. A similar possibility is clearly ruled out by the facts in this case. For while a single shot fired from a distance, and by a person who was not even seen aiming at the victim, could indeed have been fired without intent to kill or injure, nine wounds inflicted with bladed weapons at close range cannot conceivably be considered as innocent insofar as such intent is concerned. - In Hucthcraft's Ex'r vs. Travelers' Ins. Co. (US case): where the insured was waylaid and assassinated for the purpose of robbery, the court rendered judgment for the insurance company and held that while the assassination of the insured was as to him an unforeseen event and therefore accidental, "the clause of the proviso that excludes the (insurer's) liability, in case death or injury is intentionally inflicted by any other person, applies to this case."

TEEHANKEE [dissent] - Calanoc v. CA is controlling in this case because the insurance company wasn’t able to prove that the killing was intentional. (Burden of proof is with the insurance company) - Insurance, being contracts of adhesion, must be construed strictly against insurance company in cases of ambiguity. - The supplementary contract enumerated exceptions. The only exception which is not susceptible of classification is that provided in par 5(e), the very exception herein involved, which would also except injuries "inflicted intentionally by a third party, either with or without provocation on the part of the insured, and whether or not the attack or the defense by the third party was caused by a violation of the law by the insured." - This ambiguous clause conflicts with all the other 4 exceptions in the same par 5 particularly that immediately preceding it in item (d) which excepts injuries received where the insured has violated the law or provoked the injury, while this clause, construed as the insurance company now claims, would seemingly except also all other injuries, intentionally inflicted by a third party, regardless of any violation of law or provocation by the insured, and defeat the very purpose of the policy of giving the insured double indemnity in case of accidental death by "external and violent means" — in the very language of the policy.' - It is obvious from the very classification of the exceptions and applying the rule of noscitus a sociis , that the double-indemnity policy covers the insured against accidental death, whether caused by fault, negligence

or intent of a third party which is unforeseen and unexpected by the insured. All the associated words and concepts in the policy plainly exclude the accidental death from the coverage of the policy only where the injuries are self-inflicted or attended by some proscribed act of the insured or are incurred in some expressly excluded calamity such as riot, war or atomic explosion.

G . R . N o . 9 2 3 8 3 J u l y 1 7 , 1 9 9 2 S U NI N S U R A N C EO F F I C E , L T D . v . C O U R TO FA P P E A L S

FIRST DIVISION [G.R. No. 92383. July 17, 1992.] SUN INSURANCE OFFICE, LTD., Petitioner, v. THE HON. COURT OF APPEALS and NERISSA LIM, Respondents. Alfonso Felix, Jr. for Petitioner. Armando T. Puno for Priv ate Respondent.

SYLLABUS

1. LAW ON INSURANCE; DEFINITION OF TERM "ACCIDENT" ; INSURED PERSON’S DEATH CONSIDERED AN ACCIDENT. — The term "accident" has been defined as follows: The words "accident" and "accidental" have never acquired any technical signification in law, and when used in an insurance contract are to be construed and considered according to the ordinary understanding and common usage and speech of people generally. In substance, the courts are practically agreed that the words "accident" and "accidental" mean that which happens by chance or fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen. The definition that has usually been adopted by the courts is that an accident is an event that takes place without one’s foresight or expectation - an event that proceeds from an unknown cause, or is an unusual effect of a known case, and therefore not expected. An accident is an event which happens without any human agency or, if happening through human agency, an event which, under the circumstances, is unusual to and not expected by the person to whom it happens. It has also been defined as an injury which happens by reason of some violence or casualty to the insured without his design, consent, or voluntary co-operation. In light of these definitions, the Court is convinced that the incident that resulted in Lim’s death was indeed an accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, (17 SCRA 559) says that "there is no accident when a deliberate act is performed unless some additional, unexpected, independent and unforeseen happening occurs which produces or brings about their injury or death." There was such a happening. This was the firing of the gun, which was the additional unexpected and independent and unforeseen occurrence that led to the insured person’s death. 2. ID.; ID.; ID.; SUICIDE AND WILLFUL EXPOSURE TO NEEDLESS PERIL, BOTH IN PARI MATERIA BUT DIFFERS ONLY IN DEGREE; CASE AT BAR. — The parties agree that Lim did not commit suicide. Nevertheless, the petitioner contends that the insured willfully exposed himself to needless peril and thus removed himself from the coverage of the insurance policy. It should be noted at the outset that suicide and willful exposure to needless peril are in pari materia because they both signify a disregard for one’s life. The only difference is in degree, as suicide imports a positive act of ending such life whereas the second act indicates a reckless risking of it that is almost suicidal in intent. To illustrate, a person who walks a tightrope one thousand meters above the ground and without any safety device may not actually be intending to commit suicide, but his act is nonetheless suicidal. He would thus be considered as "willfully exposing himself to needless peril" within the meaning of the exception in question. The petitioner maintains that by the mere act of pointing the gun to his temple, Lim had willfully exposed himself to needless peril and so came under the exception. The theory is that a gun is per se dangerous and should therefore be handled cautiously in every case. That posture is arguable. But what is not is that, as the secretary testified, Lim had removed the magazine from the gun and believed it was no longer dangerous. He expressly assured her that the gun was not loaded. It is submitted that Lim did not willfully expose himself to needless peril when he pointed the gun to his temple because the fact is that he thought it was not unsafe to do so. The act was precisely intended to assure Nalagon that the gun was indeed harmless. 3. ID.; POLICY CONTRACTS; AS A RULE, INTERPRETED LIBERALLY IN FAVOR OF THE ASSURED. — Lim was unquestionably negligent and that negligence cost him his own life. But it should not prevent his widow from recovering from the insurance policy he obtained precisely against accident. There is nothing in the policy that relieves the insurer of the responsibility to pay the indemnity agreed upon if the insured is shown to have contributed to his own accident. Indeed, most accidents are caused by negligence. There

are only four exceptions expressly made in the contract to relieve the insurer from liability, and none of these exceptions is applicable in the case at bar. It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of the assured. 4. CIVIL LAW; MORAL AND EXEMPLARY DAMAGES AND ATTORNEY’S FEES; WHEN AWARD THEREOF IS PROPER. — The basic issue raised in this case is, one of first impression, It is evident that the petitioner was acting in good faith when it resisted the private respondent’s claim on the ground that the death of the insured was covered by the exception. The issue was indeed debatable and was clearly not raised only for the purpose of evading a legitimate obligation. We hold therefore that the award of moral and exemplary damages and of attorney’s fees is unjust and so must be disapproved. In order that a person may be made liable to the payment of moral damages, the law requires that his act be wrongful. The adverse result of an action does not per se make the act wrongful and subject the act or to the payment of moral damages. The law could not have meant to impose a penalty on the right to litigate; such right is so precious that moral damages may not be charged on those who may exercise it erroneously. For these the law taxes costs. . . . If a party wins, he cannot, as a rule, recover attorney’s fees and litigation expenses, since it is not the fact of winning alone that entitles him to recover such damages of the exceptional circumstances enumerated in Art. 2208. Otherwise, every time a defendant wins, automatically the plaintiff must pay attorney’s fees thereby putting a premium on the right to litigate which should not be so. For those expenses, the law deems the award of costs as sufficient.

DECISIO N

CRUZ, J.:

The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of P200,000.00. Two months later, he was dead with a bullet wound in his head. As beneficiary, his wife Nerissa Lim sought payment on the policy but her claim was rejected. The petitioner agreed that there was no suicide. It argued, however, that there was no accident either. Pilar Nalagon, Lim’s secretary, was the only eyewitness to his death. It happened on October 6, 1982, at about 10 o’clock in the evening, after his mother’s birthday party. According to Nalagon, Lim was in a happy mood (but not drunk) and was playing with his handgun, from which he had previously removed the magazine. As she watched the television, he stood in front of her and pointed the gun at her. She pushed it aside and said it might be loaded. He assured her it was not and then pointed it to his temple. The next moment there was an explosion and Lim slumped to the floor. He was dead before he fell. 1 The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was sustained. 2 The petitioner was sentenced to pay her P200,000.00, representing the face value of the policy, with interest at the legal rate; P10,000.00 as moral damages; P5,000.00 as exemplary damages; P50,000.00 as actual

and compensatory damages; and P5,000.00 as attorney’s fees, plus the cost of the suit. This decision was affirmed on appeal, and the motion for reconsideration was denied. 3 The petitioner then came to this Court of Appeals for approving the payment of the claim and the award of damages. The term "accident" has been defined as follows:

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The words "accident" and "accidental" have never acquired any technical signification in law, and when used in an insurance contract are to be construed and considered according to the ordinary understanding and common usage and speech of people generally. In substance, the courts are practically agreed that the words "accident" and "accidental" mean that which happens by change or fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen. The definition that has usually been adopted by the courts is that an accident is an event that takes place without one’s foresight or expectation — an event that proceeds from an unknown cause, or is an unusual effect of a known case, and therefore not expected. 4 An accident is an event which happens without any human agency or, if happening through human agency, an event which, under the circumstances, is unusual to and not expected by the person to whom it happens. It has also been defined as an injury which happens by reason of some violence or casualty to the insured without his design, consent, or voluntary co-operation. 5 In light of these definitions, the Court is convinced that the incident that resulted in Lim’s death was indeed an accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, 6 says that "there is no accident when a deliberate act is performed unless some additional, unexpected, independent and unforeseen happening occurs which produces or brings about their injury or death." There was such a happening. This was the firing of the gun, which was the additional unexpected and independent and unforeseen occurrence that led to the insured person’s death.
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The petitioner also cites one of the four exceptions provided for in the insurance contract and contends that the private petitioner’s claim is barred by such provision. It is there stated: Exceptions — The company shall not be liable in respect of. 1. Bodily injury. x x x
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b. consequent upon. i) The insured persons attempting to commit suicide or wilfully exposing himself to needless peril except in an attempt to save human life.

To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner contends that the insured willfully exposed himself to needless peril and thus removed himself from the coverage of the insurance policy. It should be noted at the outset that suicide and willful exposure to needless peril are in pari materia because they both signify a disregard for one’s life. The only difference is in degree, as suicide imports a positive act of ending such life whereas the second act indicates a reckless risking of it that is almost suicidal in intent. To illustrate, a person who walks a tightrope one thousand meters above the ground and without any safety device may not actually be intending to commit suicide, but his act is nonetheless suicidal. He would thus be considered as "willfully exposing himself to needless peril" within the meaning of the exception in question. The petitioner maintains that by the mere act of pointing the gun to his temple, Lim had willfully exposed himself to needless peril and so came under the exception. The theory is that a gun is per se dangerous and should therefore be handled cautiously in every case. That posture is arguable. But what is not is that, as the secretary testified, Lim had removed the magazine from the gun and believed it was no longer dangerous. He expressed assured her that the gun was not loaded. It is submitted that Lim did not willfully expose himself to needless peril when he pointed the gun to his temple because the fact is that he thought it was not unsafe to do so. The act was precisely intended to assure Nalagon that the gun was indeed harmless. The contrary view is expressed by the petitioner thus:
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Accident insurance polices were never intended to reward the insured for his tendency to show off or for his miscalculations. They were intended to provide for contingencies. Hence, when I miscalculate and jump from the Quezon Bridge into the Pasig River in the belief that I can overcome the current, I have wilfully exposed myself to peril and must accept the consequences of my act. If I drown I cannot go to the insurance company to ask them to compensate me for my failure to swim as well as I thought I could. The insured in the case at bar deliberately put the gun to his head and pulled the trigger. He wilfully exposed himself to peril. The Court certainly agrees that a drowned man cannot go to the insurance company to ask for compensation. That might frighten the insurance people to death. We also agree that under the circumstances narrated, his beneficiary would not be able to collect on the insurance policy for it is clear that when he braved the currents below, he deliberately exposed himself to a known peril. The private respondent maintains that Lim did not. That is where she says the analogy fails. The petitioner’s hypothetical swimmer knew when he dived off the Quezon Bridge that the currents below were dangerous. By contrast, Lim did not know that the gun he put to his head was loaded. Lim was unquestionably negligent and that negligence cost him his own life. But it should not prevent his widow from recovering from the insurance policy he obtained precisely against accident. There is nothing in the policy that relieves the insurer of the responsibility to pay the indemnity agreed upon if the insured is shown to have contributed to his own accident. Indeed, most accidents are caused by negligence. There

are only four exceptions expressly made in the contract to relieve the insurer from liability, and none of these exceptions is applicable in the case at bar. * It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of the assured. There is no reason to deviate from this rule, especially in view of the circumstances of this case as above analyzed. On the second assigned error, however, the Court must rule in favor of the petitioner. The basic issue raised in this case is, as the petitioner correctly observed, one of first impression. It is evident that the petitioner was acting in good faith when it resisted the private respondent’s claim on the ground that the death of the insured was covered by the exception. The issue was indeed debatable and was clearly not raised only for the purpose of evading a legitimate obligation. We hold therefore that the award of moral and exemplary damages and of attorney’s fees is unjust and so must be disapproved. In order that a person may be made liable to the payment of moral damages, the law requires that his act be wrongful. The adverse result of an action does not per se make the act wrongful and subject the act or to the payment of moral damages. The law could not have meant to impose a penalty on the right to litigate; such right is so precious that moral damages may not be charged on those who may exercise it erroneously. For these the law taxes costs. 7 The fact that the results of the trial were adverse to Barreto did not alone make his act in bringing the action wrongful because in most cases one party will lose; we would be imposing an unjust condition or limitation on the right to litigate. We hold that the award of moral damages in the case at bar is not justified by the facts and circumstances, as well as the law.
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If a party wins, he cannot, as a rule, recover attorney’s fees and litigation expenses, since it is not the fact of winning alone that entitles him to recover such damages of the exceptional circumstances enumerated in Art. 2208. Otherwise, every time a defendant wins, automatically the plaintiff must pay attorney’s fees thereby putting premium on the right to litigate which should not be so. For those expenses, the law deems the award of costs as sufficient. 8 WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED insofar as it holds the petitioner liable to the private respondent in the sum of P200,000.00 representing the face value of the insurance contract, with interest at the legal rate from the date of the filing of the complaint until the full amount is paid, but MODIFIED with the deletion of all awards for damages, including attorney’s fees, except the costs of the suit. SO ORDERED. Griño-Aquino, Medialdea and Bellosillo, JJ., concur. Endnotes:

1. TSN, O ctobe r 1, 1985, pp. 25-30.

2. De cide d by Judge O m ar J. Am e n.

3. Pe nne d by Justice Nicolas P. Lape ña, Jr., with C am pos, Jr. and C ui, JJ. , concurring.

4. 43 Am . Jur. 2d 627.

5. Ibid., p. 628.

6. 17 SC R A 559.

* Ex ce ptions.

The com pany shall not be liable in re spe ct of.

1. bodily injury.

a) sustaine d.

i) while the Insure d Pe rson is e ngaging in (or practicing for or tak ing part in training pe culiar to) any of the Ex clude d Activitie s.

ii) by any pe rson be fore such pe rson attains the Lowe r Age Lim it or afte r the e x piry of the Pe riod of Insurance during which such pe rson attains the Uppe r Age Lim it.

b) conse que nt upon.

i) the Insure d Pe rson com m itting or atte m pting to com m it suicide or wilfully e x posing him se lf to ne e dle ss pe ril e x ce pt in an atte m pt to save hum an life .

ii) war, invasion, act of fore ign e ne m y, hostilitie s (whe the r war be de clare d or not) civil war, re be llion, re volution, insurre ction, or m ilitary or usurpe d powe r.

2. bodily injury or De ath Disable m e nt or Me dical Ex pe nse s conse que nt upon or contribute d to by the Insure d Pe rson.

a) having tak e n a drug unle ss the Insure d prove s that the drug was tak e n in accordance with prope r m e dical pre scription and dire ctions and not for tre atm e nt of drug addiction.

b) suffe ring from pre -e x isting physical or m e ntal de fe ct or infirm ity which had not be e n de clare d to and acce pte d in writing by the C om pany.

3. De ath Disable m e nt or Me dical Ex pe nse s conse que nt upon or contribute d to by the Insure d Pe rson be ing pre gnant or suffe ring from sick ne ss or dise ase not re sulting from bodily injury or suffe ring from bodily injury due to a gradually ope rating cause .

4. R isk s of Murde r and Assault.

7. Barre to v. Are valo, 99 Phil. 771.

8. R izal Sure ty v. C ourt of Appe als, 20 SC R A 61.

G . R . N o . 9 2 3 8 3 J u l y 1 7 , 1 9 9 2 S U NI N S U R A N C EO F F I C E , L T D . , p e t i t i o n e r , v s . T H EH O N . C O U R TO FA P P E A L Sa n d N E R I S S AL I M, r e s p o n d e n t s .

D O C T R I N E : I t b e a r s n o t i n g t h a t i n s u r a n c e c o n t r a c t s a r e a s a r u l e s u p p o s e d t o b e i n t e r p r e t e d l i b e r a l l y i n f a v o r o f t h e a s s u r e d . F A C T S : 1 . T h e p e t i t i o n e r i s s u e d P e r s o n a l A c c i d e n t P o l i c y N o . 0 5 6 8 7 t o F e l i x L i m , J r . w i t h a f a c e v a l u e o f P 2 0 0 , 0 0 0 . 0 0 . 2 . T w o m o n t h s l a t e r , h e w a s d e a d w i t h a b u l l e t w o u n d i n h i s h e a d . 3 . A s b e n e f i c i a r y , h i s w i f e N e r i s s a L i ms o u g h t p a y m e n t o n t h e p o l i c y b u t h e r c l a i mw a s r e j e c t e d . T h e p e t i t i o n e r a g r e e d t h a t t h e r e w a s n o s u i c i d e . I t a r g u e d , h o w e v e r t h a t t h e r e w a s n o a c c i d e n t e i t h e r . 4 . P i l a r N a l a g o n , L i m ' s s e c r e t a r y , w a s t h e o n l y e y e w i t n e s s t o h i s d e a t h . 5 . I t h a p p e n e d o n O c t o b e r 6 , 1 9 8 2 , a t a b o u t 1 0 o ' c l o c k i n t h e e v e n i n g , a f t e r h i s m o t h e r ' s b i r t h d a y p a r t y . 6 . A c c o r d i n g t o N a l a g o n , L i mw a s i n a h a p p y m o o d ( b u t n o t d r u n k ) a n d w a s p l a y i n g w i t h h i s h a n d g u n , f r o m w h i c h h e h a d p r e v i o u s l y r e m o v e d t h e m a g a z i n e . 7 . A s s h e w a t c h e d t e l e v i s i o n , h e s t o o d i n f r o n t o f h e r a n d p o i n t e d t h e g u n a t h e r . 8 . S h e p u s h e d i t a s i d e a n d s a i d i t m i g h t h e l o a d e d . 9 . H e a s s u r e d h e r i t w a s n o t a n d t h e n p o i n t e d i t t o h i s t e m p l e . 1 0 . T h e n e x t m o m e n t t h e r e w a s a n e x p l o s i o n a n d L i ms l u m p e d t o t h e f l o o r . H e w a s d e a d b e f o r e h e f e l l . 1 1 . T h e w i d o ws u e d t h e p e t i t i o n e r i n t h e R e g i o n a l T r i a l C o u r t o f Z a m b o a n g a C i t y a n d w a s s u s t a i n e d .

1 2 . T h e p e t i t i o n e r w a s s e n t e n c e d t o p a y h e r P 2 0 0 , 0 0 0 . 0 0 , r e p r e s e n t i n g t h e f a c e v a l u e o f t h e p o l i c y , w i t h i n t e r e s t a t t h e l e g a l r a t e ; P 1 0 , 0 0 0 . 0 0 a s m o r a l d a m a g e s ; P 5 , 0 0 0 . 0 0 a s e x e m p l a r y d a m a g e s ; P 5 , 0 0 0 . 0 0 a s a c t u a l a n d c o m p e n s a t o r y d a m a g e s ; a n d P 5 , 0 0 0 . 0 0 a s a t t o r n e y ' s f e e s , p l u s t h e c o s t s o f t h e s u i t . 1 3 . T h i s d e c i s i o n w a s a f f i r m e d o n a p p e a l , a n d t h e m o t i o n f o r r e c o n s i d e r a t i o n w a s d e n i e d . 1 4 . T h e p e t i t i o n e r t h e n c a m e t o t h i s C o u r t t o f a u l t t h e C o u r t o f A p p e a l s f o r a p p r o v i n g t h e p a y m e n t o f t h e c l a i m a n d t h e a w a r d o f d a m a g e s .

I S S U E : 1 . Wa s t h e e v e n t a n “ a c c i d e n t ” i n w h i c h t h e w i d o wc o u l d v a l i d l y c l a i mf r o mp e t i t i o n e r t h e i n s u r a n c e p o l i c y ? 2 . I s t h e p e t i t i o n e r l i a b l e f o r d a m a g e s w h e n i t r e f u s e d t o h o n o r t h e p o l i c y ?

H E L D : 1 . Y e s ! 2 . T h e t e r m" a c c i d e n t " h a s b e e n d e f i n e d a s f o l l o w s : a . T h e w o r d s " a c c i d e n t " a n d " a c c i d e n t a l " h a v e n e v e r a c q u i r e d a n y t e c h n i c a l s i g n i f i c a t i o n i n l a w , a n d w h e n u s e d i n a n i n s u r a n c e c o n t r a c t i s t o b e c o n s t r u e d a n d c o n s i d e r e d a c c o r d i n g t o t h e o r d i n a r y u n d e r s t a n d i n g a n d c o m m o n u s a g e a n d s p e e c h o f p e o p l e g e n e r a l l y . I n s u b s t a n c e , t h e c o u r t s a r e p r a c t i c a l l y a g r e e d t h a t t h e w o r d s " a c c i d e n t " a n d " a c c i d e n t a l " m e a n t h a t w h i c h h a p p e n s b y c h a n c e o r f o r t u i t o u s l y , w i t h o u t i n t e n t i o n o r d e s i g n , a n d w h i c h i s u n e x p e c t e d , u n u s u a l , a n d u n f o r e s e e n . T h e d e f i n i t i o n t h a t h a s u s u a l l y b e e n a d o p t e d b y t h e c o u r t s i s t h a t a n a c c i d e n t i s a n e v e n t t h a t t a k e s p l a c e w i t h o u t o n e ' s f o r e s i g h t o r e x p e c t a t i o n —a n e v e n t t h a t p r o c e e d s f r o ma n u n k n o w n c a u s e , o r i s a n u n u s u a l e f f e c t o f a k n o w n c a s e , a n d t h e r e f o r e n o t e x p e c t e d . 3 . A n a c c i d e n t i s a n e v e n t w h i c h h a p p e n s w i t h o u t a n y h u m a n a g e n c y o r , i f h a p p e n i n g t h r o u g h h u m a n a g e n c y , a n e v e n t w h i c h , u n d e r t h e c i r c u m s t a n c e s , i s u n u s u a l t o a n d n o t e x p e c t e d b y t h e p e r s o n t o w h o mi t h a p p e n s . 4 . I t h a s a l s o b e e n d e f i n e d a s a n i n j u r y w h i c h h a p p e n s b y r e a s o n o f s o m e v i o l e n c e o r c a s u a l t y t o t h e i n j u r e d w i t h o u t h i s d e s i g n , c o n s e n t , o r v o l u n t a r y c o o p e r a t i o n . 5 . I n l i g h t o f t h e s e d e f i n i t i o n s , t h e C o u r t i s c o n v i n c e d t h a t t h e i n c i d e n t t h a t r e s u l t e d i n L i m ' s d e a t h w a s i n d e e d a n a c c i d e n t . 6 . T h e p e t i t i o n e r , i n v o k i n g t h e c a s e o f D e l a C r u z v . C a p i t a l I n s u r a n c e , s a y s t h a t " t h e r e i s n o a c c i d e n t w h e n a d e l i b e r a t e a c t i s p e r f o r m e d u n l e s s s o m e a d d i t i o n a l , u n e x p e c t e d , i n d e p e n d e n t a n d u n f o r e s e e n h a p p e n i n g o c c u r s w h i c h p r o d u c e s o r b r i n g s a b o u t t h e i r i n j u r y o r d e a t h . "

7 . T h e r e w a s s u c h a h a p p e n i n g . T h i s w a s t h e f i r i n g o f t h e g u n , w h i c h w a s t h e a d d i t i o n a l u n e x p e c t e d a n d i n d e p e n d e n t a n d u n f o r e s e e n o c c u r r e n c e t h a t l e d t o t h e i n s u r e d p e r s o n ' s d e a t h . 8 . T h e p e t i t i o n e r a l s o c i t e s o n e o f t h e f o u r e x c e p t i o n s p r o v i d e d f o r i n t h e i n s u r a n c e c o n t r a c t a n d c o n t e n d s t h a t t h e p r i v a t e p e t i t i o n e r ' s c l a i mi s b a r r e d b y s u c h p r o v i s i o n . I t i s t h e r e s t a t e d : E x c e p t i o n s — T h e c o m p a n y s h a l l n o t b e l i a b l e i n r e s p e c t o f 1 . B o d i l y i n j u r y x x x x x x x x x b . c o n s e q u e n t u p o n i ) T h e i n s u r e d p e r s o n a t t e m p t i n g t o c o m m i t s u i c i d e o r w i l l f u l l y e x p o s i n g h i m s e l f t o n e e d l e s s p e r i l e x c e p t i n a n a t t e m p t t o s a v e h u m a n l i f e . 9 . T o r e p e a t , t h e p a r t i e s a g r e e t h a t L i md i d n o t c o m m i t s u i c i d e . 1 0 . N e v e r t h e l e s s , t h e p e t i t i o n e r c o n t e n d s t h a t t h e i n s u r e d w i l l f u l l y e x p o s e d h i m s e l f t o n e e d l e s s p e r i l a n d t h u s r e m o v e d h i m s e l f f r o mt h e c o v e r a g e o f t h e i n s u r a n c e p o l i c y . 1 1 . I t s h o u l d b e n o t e d a t t h e o u t s e t t h a t s u i c i d e a n d w i l l f u l e x p o s u r e t o n e e d l e s s p e r i l a r e i n p a r i m a t e r i a b e c a u s e t h e y b o t h s i g n i f y a d i s r e g a r d f o r o n e ' s l i f e . 1 2 . T h e o n l y d i f f e r e n c e i s i n d e g r e e , a s s u i c i d e i m p o r t s a p o s i t i v e a c t o f e n d i n g s u c h l i f e w h e r e a s t h e s e c o n d a c t i n d i c a t e s a r e c k l e s s r i s k i n g o f i t t h a t i s a l m o s t s u i c i d a l i n i n t e n t . 1 3 . T h e p e t i t i o n e r m a i n t a i n s t h a t b y t h e m e r e a c t o f p o i n t i n g t h e g u n t o h i p t e m p l e , L i mh a d w i l l f u l l y e x p o s e d h i m s e l f t o n e e d l e s s p e r i l a n d s o c a m e u n d e r t h e e x c e p t i o n , t h e t h e o r y b e i n g t h a t t h e g u n i s p e r s e d a n g e r o u s . 1 4 . T h a t p o s t u r e i s a r g u a b l e . B u t w h a t i s n o t i s t h a t , a s t h e s e c r e t a r y t e s t i f i e d , L i mh a d r e m o v e d t h e m a g a z i n e f r o mt h e g u n a n d b e l i e v e d i t w a s n o l o n g e r d a n g e r o u s . 1 5 . I t i s s u b m i t t e d t h a t L i md i d n o t w i l l f u l l y e x p o s e h i m s e l f t o n e e d l e s s p e r i l w h e n h e p o i n t e d t h e g u n t o h i s t e m p l e b e c a u s e t h e f a c t i s t h a t h e t h o u g h t i t w a s n o t u n s a f e t o d o s o . 1 6 . T h e a c t w a s p r e c i s e l y i n t e n d e d t o a s s u r e N a l a g o n t h a t t h e g u n w a s i n d e e d h a r m l e s s . 1 7 . T h e c o n t r a r y v i e wi s e x p r e s s e d b y t h e p e t i t i o n e r t h u s : A c c i d e n t i n s u r a n c e p o l i c i e s w e r e n e v e r i n t e n d e d t o r e w a r d t h e i n s u r e d f o r h i s t e n d e n c y t o s h o wo f f o r f o r h i s m i s c a l c u l a t i o n s . T h e y w e r e i n t e n d e d t o p r o v i d e f o r c o n t i n g e n c i e s . H e n c e , w h e n I m i s c a l c u l a t e a n d j u m p f r o mt h e Q u e z o n B r i d g e i n t o t h e P a s i g R i v e r i n t h e b e l i e f t h a t I c a n o v e r c o m e t h e c u r r e n t , I h a v e w i l l f u l l y e x p o s e d m y s e l f t o p e r i l a n d m u s t a c c e p t t h e c o n s e q u e n c e s o f m y a c t . I f I d r o w n I c a n n o t g o t o t h e i n s u r a n c e c o m p a n y t o a s k t h e mt o c o m p e n s a t e m e f o r m y f a i l u r e t o s w i ma s w e l l a s I t h o u g h t I c o u l d . T h e i n s u r e d i n t h e c a s e a t b a r d e l i b e r a t e l y p u t t h e g u n t o h i s h e a d a n d p u l l e d t h e t r i g g e r . H e w i l l f u l l y e x p o s e d h i m s e l f t o p e r i l . ( E m p h a s i s

s u p p l i e d b y m e ) 1 8 . T h e C o u r t c e r t a i n l y a g r e e s t h a t a d r o w n e d m a n c a n n o t g o t o t h e i n s u r a n c e c o m p a n y t o a s k f o r c o m p e n s a t i o n . We a l s o a g r e e t h a t u n d e r t h e c i r c u m s t a n c e s n a r r a t e d , h i s b e n e f i c i a r y w o u l d n o t b e a b l e t o c o l l e c t o n t h e i n s u r a n c e p o l i c y f o r i t i s c l e a r t h a t w h e n h e b r a v e d t h e c u r r e n t s b e l o w , h e d e l i b e r a t e l y e x p o s e d h i m s e l f t o a k n o w n p e r i l . 1 9 . T h e p r i v a t e r e s p o n d e n t m a i n t a i n s t h a t L i md i d n o t . T h a t i s w h e r e s h e s a y s t h e a n a l o g y f a i l s . T h e p e t i t i o n e r ' s h y p o t h e t i c a l s w i m m e r k n e ww h e n h e d i v e d o f f t h e Q u e z o n B r i d g e t h a t t h e c u r r e n t s b e l o ww e r e d a n g e r o u s . 2 0 . B y c o n t r a s t , L i md i d n o t k n o wt h a t t h e g u n h e p u t t o h i s h e a d w a s l o a d e d . 2 1 . L i mw a s u n q u e s t i o n a b l y n e g l i g e n t a n d t h a t n e g l i g e n c e c o s t h i mh i s o w n l i f e . B u t i t s h o u l d n o t p r e v e n t h i s w i d o wf r o mr e c o v e r i n g f r o mt h e i n s u r a n c e p o l i c y h e o b t a i n e d p r e c i s e l y a g a i n s t a c c i d e n t . 2 2 . T h e r e i s n o t h i n g i n t h e p o l i c y t h a t r e l i e v e s t h e i n s u r e r o f t h e r e s p o n s i b i l i t y t o p a y t h e i n d e m n i t y a g r e e d u p o n i f t h e i n s u r e d i s s h o w n t o h a v e c o n t r i b u t e d t o h i s o w n a c c i d e n t . 2 3 . I n d e e d , m o s t a c c i d e n t s a r e c a u s e d b y n e g l i g e n c e . T h e r e a r e o n l y f o u r e x c e p t i o n s e x p r e s s l y m a d e i n t h e c o n t r a c t t o r e l i e v e t h e i n s u r e r f r o ml i a b i l i t y , a n d n o n e o f t h e s e e x c e p t i o n s i s a p p l i c a b l e i n t h e c a s e a t b a r . * * 2 4 . I t b e a r s n o t i n g t h a t i n s u r a n c e c o n t r a c t s a r e a s a r u l e s u p p o s e d t o b e i n t e r p r e t e d l i b e r a l l y i n f a v o r o f t h e a s s u r e d . 2 5 . T h e r e i s n o r e a s o n t o d e v i a t e f r o mt h i s r u l e , e s p e c i a l l y i n v i e wo f t h e c i r c u m s t a n c e s o f t h i s c a s e a s a b o v e a n a l y z e d . I S S U E : ( T o r t s R e l a t e d n a b u t b a k a i t a n o n g ) 1 . I s t h e p e t i t i o n e r l i a b l e f o r d a m a g e s w h e n i t r e f u s e d t o h o n o r t h e p o l i c y ? H E L D : 1 . N o ! 2 . I t i s e v i d e n t t h a t t h e p e t i t i o n e r w a s a c t i n g i n g o o d f a i t h t h e n i t r e s i s t e d t h e p r i v a t e r e s p o n d e n t ' s c l a i mo n t h e g r o u n d t h a t t h e d e a t h o f t h e i n s u r e d w a s c o v e r e d b y t h e e x c e p t i o n . 3 . T h e i s s u e w a s i n d e e d d e b a t a b l e a n d w a s c l e a r l y n o t r a i s e d o n l y f o r t h e p u r p o s e o f e v a d i n g a l e g i t i m a t e o b l i g a t i o n . We h o l d t h e r e f o r e t h a t t h e a w a r d o f m o r a l a n d e x e m p l a r y d a m a g e s a n d o f a t t o r n e y ' s f e e s i s u n j u s t a n d s o m u s t b e d i s a p p r o v e d . 4 . I n o r d e r t h a t a p e r s o n m a y b e m a d e l i a b l e t o t h e p a y m e n t o f m o r a l d a m a g e s , t h e l a wr e q u i r e s t h a t h i s a c t b e w r o n g f u l . 5 . T h e a d v e r s e r e s u l t o f a n a c t i o n d o e s n o t p e r s e m a k e t h e a c t w r o n g f u l a n d s u b j e c t t h e a c t o r t o t h e p a y m e n t o f m o r a l d a m a g e s .

6 . T h e l a wc o u l d n o t h a v e m e a n t t o i m p o s e a p e n a l t y o n t h e r i g h t t o l i t i g a t e ; s u c h r i g h t i s s o p r e c i o u s t h a t m o r a l d a m a g e s m a y n o t b e c h a r g e d o n t h o s e w h o m a y e x e r c i s e i t e r r o n e o u s l y . F o r t h e s e t h e l a wt a x e s c o s t s . 7 . We h o l d t h a t t h e a w a r d o f m o r a l d a m a g e s i n t h e c a s e a t b a r i s n o t j u s t i f i e d b y t h e f a c t s h a d c i r c u m s t a n c e s a s w e l l a s t h e l a w . 8 . I f a p a r t y w i n s , h e c a n n o t , a s a r u l e , r e c o v e r a t t o r n e y ' s f e e s a n d l i t i g a t i o n e x p e n s e s , s i n c e i t i s n o t t h e f a c t o f w i n n i n g a l o n e t h a t e n t i t l e s h i mt o r e c o v e r s u c h d a m a g e s o f t h e e x c e p t i o n a l c i r c u m s t a n c e s e n u m e r a t e d i n A r t . 2 2 0 8 . 9 . O t h e r w i s e , e v e r y t i m e a d e f e n d a n t w i n s , a u t o m a t i c a l l y t h e p l a i n t i f f m u s t p a y a t t o r n e y ' s f e e s t h e r e b y p u t t i n g a p r e m i u mo n t h e r i g h t t o l i t i g a t e w h i c h s h o u l d n o t b e s o . 1 0 . F o r t h o s e e x p e n s e s , t h e l a wd e e m s t h e a w a r d o f c o s t s a s s u f f i c i e n t . WH E R E F O R E , t h e c h a l l e n g e d d e c i s i o n o f t h e C o u r t o f A p p e a l s i s A F F I R ME Di n s o f a r a s i t h o l d s t h e p e t i t i o n e r l i a b l e t o t h e p r i v a t e r e s p o n d e n t i n t h e s u mo f P 2 0 0 , 0 0 0 . 0 0 r e p r e s e n t i n g t h e f a c e v a l u e o f t h e i n s u r a n c e c o n t r a c t , w i t h i n t e r e s t a t t h e l e g a l r a t e f r o mt h e d a t e o f t h e f i l i n g o f t h e c o m p l a i n t u n t i l t h e f u l l a m o u n t i s p a i d , b u t MO D I F I E Dw i t h t h e d e l e t i o n o f a l l a w a r d s f o r d a m a g e s , i n c l u d i n g a t t o r n e y ' s f e e s , e x c e p t t h e c o s t s o f t h e s u i t . S OO R D E R E D .

G . R . N o . 1 5 8 9 5 N o v e m b e r 2 9 , 1 9 2 0 R A F A E LE N R I Q U E Zv . S U NL I F EA S S U R A N C EC O MP A N YO F

C A N A D A0 4 1 P h i l 2 6 9
EN BANC [G.R. No. 15895. November 29, 1920. ] RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin ’Ma. Herrer, Plaintiff- Appellant, v. SUN LIFE ASSURANCE COMPANY OF CANADA, Defendant- Appellee. Jose A. Espiritu for Appellant. Cohn, Fisher & DeWitt for Appellee. SYLLABUS

1. INSURANCE; PHILIPPINE LAW. — The law of insurance is now found in the Insurance Act and the Civil Code. 2. ID.; OFFER AND ACCEPTANCE. — The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only from the date it came to his knowledge, is controlling. 3. ID.; ID. — On September 24, 1917, H made application to an insurance company through its office in Manila for a life annuity. Two days later he paid the sum of P6,000 to the manager of the company’s Manila office and was given a receipt therefor. On November 26, 1917, the head office gave notice of acceptance by cable to Manila. On the same date the Manila office prepared a letter notifying H that his application had been accepted and this was placed in the ordinary channels for transmission, but as far as known, was never actually mailed and was never received by the applicant. H died on December 20, 1917. Held: That the contract for a life annuity was not perfected because it had not been proved satisfactorily that the acceptance of the application ever came to the knowledge of the applicant. 4. ID.; ID. — An acceptance of an offer of insurance not actually or constructively communicated to the proposer does not make a contract. Only the mailing of acceptance completes the contract of insurance, as the locus poenitentiae is ended when the acceptance has passed beyond the control of the party. 5. ID.; ID.; MAILING AND DELIVERY OF MAIL MATTER, PRESUMPTION. — When a letter or other mail matter is addressed and mailed with postage prepaid there is a rebuttable presumption of fact that it was received by the addressee as soon as it could have been transmitted to him in the ordinary course of the mails But if any one of these elemental facts fails to appear, it is fatal to the presumption.

DECISIO N

MALCOLM, J.:

This is an action brought by the plaintiff as administrator of the estate of the late Joaquin Ma. Herrer to recover from the defendant life insurance company the sum of P6,000 paid by the deceased for a life annuity. The trial court gave judgment for the defendant. Plaintiff appeals. The undisputed facts are these: On September 24, 1917, Joaquin Herrer made application to the Sun Life Assurance Company of Canada through its office in Manila for a life annuity. Two days later he paid the sum of P6,000 to the manager of the company’s Manila office and was given a receipt reading as follows:
j gc : c hanr obl e s . c om . ph

"MANILA, I. F., 26 de septiembre, 1917. "PROVISIONAL RECEIPT "P6,000 "Recibi la suma de seis mil pesos de Don Joaquin-Herrer de Manila como prima de la Renta Vitalicia solicitada por dicho Don Joaquin Herrer hoy, sujeta al examen medico y aprobacion de la Oficina Central de la Compañia."
c r al aw v i r t ua1aw l i br ar y

The application was immediately forwarded to the head office of the company at Montreal, Canada. On November 26, 1917, the head office gave notice of acceptance by cable to Manila. (Whether on the same day the cable was received notice was sent by the Manila office to Herrer that the application had been accepted, is a disputed point, which will be discussed later.) On December 4, 1917, the policy was issued at Montreal. On December 18, 1917, attorney Aurelio A. Torres wrote to the Manila office of the company stating that Herrer desired to withdraw his application. The following day the local office replied to Mr. Torres, stating that the policy had been issued, and called attention to the notification of November 26, 1917. This letter was received by Mr. Torres on the morning of December 21, 1917. Mr. Herrer died on December 20, 1917. As above suggested, the issue of fact raised by the evidence is whether Herrer received notice of acceptance of his application. To resolve this question, we propose to go directly to the evidence of record. The chief clerk of the Manila office of the Sun Life Assurance Company of Canada at the time of the trial testified that he prepared the letter introduced in evidence as Exhibit 3, of date November 26, 1917, and handed it to the local manager, Mr. E. E. White, for signature. The witness admitted on cross-examination that after preparing the letter and giving it to the manager, he knew nothing of what became of it. The local manager, Mr. White, testified to having received the cablegram accepting the application of Mr. Herrer from the home office on November 26, 1917. He said that on the same day he signed a letter notifying Mr. Herrer of this acceptance. The witness further said that letters, after being signed, were sent to the chief clerk and placed on the mailing desk for transmission. The witness could not tell if the letter had ever actually been placed in the mails. Mr. Tuason, who was the chief clerk, on November 26, 1917, was not called as a witness. For the defense, attorney Manuel Torres testified to having prepared the will of Joaquin Ma. Herrer, that on this occasion, Mr. Herrer mentioned his application for a life annuity, and that he said that the only document relating to the transaction in his possession was the provisional receipt.

Rafael Enriquez, the administrator of the estate testified that he had gone through the effects of the deceased and had found no letter of notification from the insurance company to Mr. Herrer. Our deduction from the evidence on this issue must be that the letter of November 26, 1917, notifying Mr. Ferrer that his application had been accepted, was prepared and signed in the local office of the insurance company, was placed in the ordinary channels for transmission, but as far as we know, was never actually mailed and thus was never received by the applicant. Not forgetting our conclusion of fact, it next becomes necessary to determine the law which should be applied to the facts. In order to reach our legal goal, the obvious signposts along the way must be noticed. Until quite recently, all of the provisions concerning life insurance in the Philippines were found in the Code of Commerce and the Civil Code. In the Code of Commerce, there formerly existed Title VIII of Book II and Section III of Title III of Book III, which dealt with insurance contracts. In the Civil Code there formerly existed and presumably still exist, Chapters II and IV, entitled insurance contracts and life annuities, respectively, of Title XII of Book IV. On and after July 1, 1915, there was, however, in force the Insurance Act, No. 2427. Chapter IV of this Act concerns life and health insurance. The Act expressly repealed Title VIII of Book II and Section III of Title III of Book III of the Code of Commerce. The law of insurance is consequently now found in the Insurance Act and the Civil Code. While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the methods to be followed in order that there may be a contract of insurance. On the other hand, the Civil Code, in article 1802, not only describes a contract of life annuity markedly similar to the one we are considering, but in two other articles, gives strong clues as to the proper disposition of the case. For instance, article 16 of the Civil Code provides that "In matters which are governed by special laws, any deficiency of the latter shall be supplied by the provisions of this Code." On the supposition, therefore, which is incontestable, that the special law on the subject of insurance is deficient in enunciating the principles governing acceptance, the subject-matter of the Civil Code, if there be any, would be controlling. In the Civil Code is found article 1262 providing that "Consent is shown by the concurrence of offer and acceptance with respect to the thing and the consideration which are to constitute the contract. An acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge. The contract, in such case, is presumed to have been entered into at the place where the offer was made." This latter article is in opposition to the provisions of article 54 of the Code of Commerce. If no mistake has been made in announcing the successive steps by which we reach a conclusion, then the only duty remaining is for the court to apply the law as it is found. The legislature in its wisdom having enacted a new law on insurance, and expressly repealed the provisions in the Code of Commerce on the same subject, and having thus left a void in the commercial law, it would seem logical to make use of the only pertinent provision of law found in the Civil Code, closely related to the chapter concerning life annuities. The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only from the date it came to his knowledge, may not be the best expression of modern commercial usage. Still it must be admitted that its enforcement avoids uncertainty and tends to security. Not only this, but in order that

the principle may not be taken too lightly, let it be noticed that it is identical with the principles announced by a considerable number of respectable, courts in the United States. The courts who take this view have expressly held that an acceptance of an offer of insurance not actually or constructively communicated to the proposer does not make a contract. Only the mailing of acceptance, it has been said, completes the contract of insurance, as the locus poienitentise is ended when the acceptance has passed beyond the control of the party. (I Joyce, The Law of Insurance, pp. 235, 244.) In resume, therefore, the law applicable to the case is found to be the second paragraph of! article 1262 of the Civil Code providing that an acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge. The pertinent fact is, that according to the provisional receipt, three things had to be accomplished by the insurance company before there was a contract: (1) There had to be a medical examination of the applicant; (2) there had to be approval of the application by the head office of the company; and (3) this approval had in some way to be communicated by the company to the applicant. The further admitted facts are that the head office in Montreal did accept the application, did cable the Manila office to that effect, did actually issue the policy and did, through its agent in Manila, actually write the letter of notification and place it in the usual channels for transmission to the addressee. The fact as to the letter of notification thus fails to concur with the essential elements of the general rule pertaining to the mailing and delivery of mail matter as announced by the American courts, namely, when a letter or other mail matter is addressed and mailed with postage prepaid there is a rebuttable presumption of fact that it was received by the addressee as soon as it could have been transmitted to him in the ordinary course of the mails. But if any one of these elemental facts fails to appear, it is fatal to the presumption. For instance, a letter will not be presumed to have been received by the addressee unless it is shown that it was deposited in the post-office, properly addressed and stamped. (See 22 C. J., 96, and 49 L. R. A. [N. S. ], pp. 458, et seq., notes.) We hold that the contract for a life annuity in the case at bar was not perfected because it has not been proved satisfactorily that the acceptance of the application ever came to the knowledge of the applicant. Judgment is reversed, and the plaintiff shall have and recover from the defendant the sum of P6,000 with legal interest from November 20, 1918, until paid, without special finding as to costs in either instance. So ordered. Mapa, C.J. Araullo, Avanceña and Villamor, JJ., concur. Johnson, J., dissents.

Summary: Enriquez vs. Sun Life Assurance Company of Canada (GR 15895, 29 November 1920)
Enriquez vs. Sun Life Assurance Company of Canada [GR 15895, 29 November 1920] En Banc, Malcolm (J): 4 concur, 1 dissents Facts: On 24 September 1917, Joaquin Herrer made application to the Sun Life Assurance Company of Canada through its office in Manila for a life annuity. Two days later he paid the sum of P6,000 to the manager of the

company's Manila office and was given a receipt. The application was immediately forwarded to the head office of the company at Montreal, Canada. On 26 November 1917, the head office gave notice of acceptance by cable to Manila. (Whether on the same day the cable was received notice was sent by the Manila office to Herrer that the application had been accepted, is a disputed point.) On 4 December 1917, the policy was issued at Montreal. On 18 December 1917, attorney Aurelio A. Torres wrote to the Manila office of the company stating that Herrer desired to withdraw his application. The following day the local office replied to Mr. Torres, stating that the policy had been issued, and called attention to the notification of 26 November 1917. This letter was received by Mr. Torres on the morning of 21 December 1917. Mr. Herrer died on 20 December 1917. An action was brought by Rafaek Enriquez as administrator of the estate of the late Joaquin Ma. Herrer to recover from Sun Life Assurance Company of Canada the sum of P6,000 paid by the deceased for a life annuity. The trial court gave judgment for Sun Life. Enriquez appealed. Issue: Whether Herrer received notice of acceptance of his application, to hold that the contract for a life annuity was perfected. Held: NO. The letter of 26 November 1917, notifying Mr. Ferrer that his application had been accepted, was prepared and signed in the local office of the insurance company, was placed in the ordinary channels for transmission, but was never actually mailed and thus was never received by the applicant. The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only from the date it came to his knowledge, may not be the best expression of modern commercial usage. Still it must be admitted that its enforcement avoids uncertainty and tends to security. Not only this, but in order that the principle may not be taken too lightly, it is identical with the principles announced by a considerable number of respectable, courts in the United States. The courts who take this view have expressly held that an acceptance of an offer of insurance not actually or constructively communicated to the proposer does not make a contract. Only the mailing of acceptance, it has been said, completes the contract of insurance, as the locus poienitentise is ended when the acceptance has passed beyond the control of the party. In resume, therefore, the law applicable to the case is found to be the second paragraph of article 1262 of the Civil Code providing that an acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge. The pertinent fact is, that according to the provisional receipt, three things had to be accomplished by the insurance company before there was a contract: (1) There had to be a medical examination of the applicant; (2) there had to be approval of the application by the head office of the company; and (3) this approval had in some way to be communicated by the company to the applicant. The further admitted facts are that the head office in Montreal did accept the application, did cable the Manila office to that effect, did actually issue the policy and did, through its agent in Manila, actually write the letter of notification and place it in the usual channels for transmission to the addressee. The fact as to the letter of notification thus fails to concur with the essential elements of the general rule pertaining to the mailing and delivery of mail matter as announced by the American courts, namely, when a letter or other mail matter is addressed and mailed with postage prepaid there is a rebuttable presumption of fact that it was received by the addressee as soon as it could have been transmitted to him in the ordinary course of the mails. But if any one of these elemental facts fails to appear, it is fatal to the presumption. For instance, a letter will not be presumed to have been received by the addressee unless it is shown that it was deposited in the post-office, properly addressed and stamped. The contract for a life annuity in the case at bar was not perfected because it has not been proved satisfactorily that the acceptance of the application ever came to the knowledge of the applicant.

G . R . N o . L 3 1 8 4 5 A p r i l 3 0 , 1 9 7 9 G R E A TP A C I F I CL I F EA S S U R A N C EC O MP A N Yv . C O U R TO F A P P E A L S

FIRST DIVISION [G.R. No. L-31845. April 30, 1979.] GREAT PACIFIC LIFE ASSURANCE COMPANY, Petitioner, v. HONORABLE COURT OF APPEALS, Respondents. [G.R. No. L-31878. April 30, 1979.] LAPULAPU D. MONDRAGON, Petitioner, v. COURT OF APPEALS and NGO HING, Respondents. Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner Company. Voltaire Garcia for petitioner Mondragon. Pelaez, Pelaez & Pelaez for respondent Ngo Hing. SYNOPSIS

Private respondent, a duly authorized agent of Pacific Life, applied for a 20-year endowment policy on the life of his one-year old daughter, a mongoloid. He did not divulge each physical defect of his daughter. He paid the premium and was issued a binding deposit receipt. However, despite the branch manager’s favorable recommendation, the Company disapproved the application, because a 20-year endowment plan is not available for minors. Instead, it offered the Juvenile Triple Action Plan. The manager wrote back and again strongly recommended the approval of the application. At this point, the child died of influenza with complication of broncho-pneumonia. In a suit filed by private respondent to recover the proceeds of the insurance, the trial court rendered judgment adverse to both petitioners. The Court of Appeals in its amended decision affirmed the trial court’s decision in toto. The decisive issues in these cases are: (1) whether the binding deposit receipt constituted a temporary contract of the life insurance in question; and (2) whether private respondent concealed the state of health and physical condition of his child. The Supreme Court held that a "binding receipt" does not insure by itself; that no insurance contract was perfected between the parties with the non-compliance of the conditions provided in the binding receipt and concealment having been committed by private Respondent.

SYLLABUS

1. INSURANCE CONTRACT; "BINDING DEPOSIT RECEIPT." — Where the binding deposit receipt is intended to be merely a provisional or temporary insurance contract, and that the receipt merely acknowledged, on behalf of the insurance 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, such binding deposit receipt does not become in force until the application is approved. 2. ID.; PERFECTION OF CONTRACT. — A binding deposit receipt which is merely conditional does not insure outright. Thus, where an agreement is made between the applicant and the agent, no liability will attack 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. 3. ID.; ID.; MEETING OF THE MIND. — A contract of insurance, like other contracts, must be assented to by both parties either in person or by their agents. The contract, to be binding from the date of the 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. 4. ID.; ID.; FAILURE OF AGENT TO COMMUNICATE THE REJECTION TO APPLICANT. — The failure of the insurance company’s agent to communicate to the applicant the rejection of the insurance application

would not have any adverse effect on the allegedly perfected temporary contract. In the first place, there was no contract perfected between the parties who had no meeting of their minds. Private respondent, being an authorized agent is indubitably aware that said company does not offer the life insurance applied for. When he filed the insurance application in dispute he was therefore only taking a chance that the company will approve the recommendation of the agent for the acceptance and approval of the application in question. Secondly, having an insurable interest on the life of his daughter, aside from being an insurance agent and office associate of the branch, the applicant must have known and followed the progress on the processing of such application and could not pretend ignorance of the Company’s rejection of the 20-year endowment life insurance application. 5. ID.; CONCEALMENT OF MATERIAL FACT. — The contract of insurance is one of perfect good faith (uberrima fides meaning good faith; absolute and perfect candor or openness and honestly; the absence of any concealment or deception, however slight [Black’s Law Dictionary, 2nd Edition], not for the insured alone but equally so for the insurer. Concealment is a neglect to communicate that which a party knows and ought to communicate (Section 25, Act 2427). Whether intentional or unintentional, the concealment entities the insurer to rescind the contract of insurance. 6. ID.; ID.; CASE AT BAR. — The failure of the father who applied for a life insurance policy on the life of his daughter to divulge the fact that his daughter is a mongoloid, a congenital physical defect that could never be disguised, constitutes such concealment as to render the policy void. And where the applicant himself is an insurance agent, he ought to know, as he surely must have known, his duty and responsibility to supply such a material fact, and his failure to divulge such significant fact is deemed to have been done in bad faith.

DECISIO N

DE CASTRO, J.:

The two above-entitled cases were ordered consolidated by the Resolution of this Court dated April 29, 1970, (Rollo, No. L-31878, p. 58), because the petitioners in both cases seek similar relief, through these petitions for certiorari by way of appeal, from the amended decision of respondent Court of Appeals which affirmed in toto the decision of the Court of First Instance of Cebu, ordering "the defendants (herein petitioners Great Pacific Life Assurance Company and Mondragon) jointly and severally to pay plaintiff (herein private respondent Ngo Hing) the amount of P50,000.00 with interest at 6% from the date of the filing of the complaint, and the sum of P10,000.00 as attorney’s fees plus costs of suits."
c r al aw v i r t ua1aw l i br ar y

In its original decision, the respondent Court of Appeals set aside the appealed decision of the Court of First Instance of Cebu, and absolved the petitioners from liability on the insurance policy, but ordered the reimbursement to appellee (herein private respondent) the amount of P1,077.75, without interest.

It appears that on March 14, 1957, private respondent Ngo Hing filed an application with the Great Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a twenty-year endowment policy in the amount of P50,000.00 on the life of his one-year old daughter Helen Go. Said respondent supplied the essential data which petitioner Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the corresponding form in his own handwriting (Exhibit I-M). Mondragon finally type-wrote the data on the application form which was signed by private respondent 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 (Exhibit E) was issued to private respondent Ngo Hing. Likewise, petitioner Mondragon handwrote at the bottom of the back page of the application form his strong recommendation for the approval of the insurance application. Then on April 30, 1957, Mondragon received a letter from Pacific Life disapproving the insurance application (Exhibit 3-M). The letter stated that the said life insurance application for 20-year endowment plan is not available for minors below seven 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 petitioner Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, 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 (Exhibit 4-M). It was when things were in such state that on May 28, 1957 Helen Go died of influenza with complication of broncho-pneumonia. Thereupon, private respondent 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 Court of First Instance of Cebu, which rendered the adverse decision as earlier referred to against both petitioners. The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E) constituted a temporary contract of the life insurance in question; and (2) whether private respondent Ngo Hing concealed the state of health and physical condition of Helen Go, which rendered void the aforesaid Exhibit E. 1. At the back of Exhibit E are condition precedents required before a deposit is considered a BINDING RECEIPT. These conditions state that:
j gc : c hanr obl e s . c om . ph

"A. If the Company or its agent, shall have received the premium deposit . . . and the insurance application, ON or PRIOR to the date of medical examination . . . said insurance shall be in force and in effect from the date of such medical examination, for such period as is covered by the deposit . . ., PROVIDED the company shall be satisfied that on said date the applicant was insurable on standard rates under its rule for the amount of insurance and the kind of policy requested in the application. D. If the Company does not accept the application on standard rate for the amount of insurance and/or the

kind of policy requested in the application but issue, or offers to issue a policy for a different plan and/or amount . . ., the insurance shall not be in force and in effect until the applicant shall have accepted the policy as issued or offered by the Company and shall have paid the full premium thereof. If the applicant does not accept the policy, the deposit shall be refunded. E. If the applicant shall not have been insurable under Condition A above, and the Company declines to approve the application, the insurance applied for shall not have been in force at any time and the sum paid be returned to the applicant upon the surrender of this receipt." (Emphasis ours ). The aforequoted provisions printed on Exhibit E 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 petitioner Pacific Life disapproved the insurance application of respondent Ngo Hing, the binding deposit receipt in question had never become in force at any time. Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does not insure outright. As held by this Court, 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 (De Lim v. Sun Life Assurance Company of Canada, 41 Phil. 264). It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M), Pacific Life disapproved the insurance application in question on the ground that it is not offering the twenty-year endowment insurance policy to children less than seven years of age. What it offered instead is another plan known as the Juvenile Triple Action, which private respondent failed to accept. In the absence of a meeting of the minds between petitioner Pacific Life and private respondent 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 private respondent shall have to be refunded by Pacific Life.
c hanr obl e s l aw l i br ar y

As held in De Lim v. Sun Life Assurance Company of Canada, supra, "a contract of insurance, like other contracts, must be assented to by both parties either in person or by their agents. . . . The contract, to be binding from the date of the 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."
c r al aw v i r t ua1aw l i br ar y

We are not impressed with private respondent’s contention that failure of petitioner Mondragon to communicate to him the rejection of the insurance application would not have any adverse effect on the allegedly perfected temporary contract (Respondent’s Brief, pp. 13-14). In the first place, there was no contract perfected between the parties who had no meeting of their minds. Private respondent, being an authorized insurance agent of Pacific Life at Cebu branch office, is indubitably aware that said company does not offer the life insurance applied for. When he filed the insurance application in dispute, private respondent was, therefore, only taking the chance that Pacific Life will approve the recommendation of Mondragon for the acceptance and approval of the application in question along with his proposal that the insurance company starts to offer the 20-year endowment insurance plan for children less than seven years. Nonetheless, the record discloses that Pacific Life bad rejected the proposal and recommendation. Secondly, having an insurable interest on the life of his one-year old daughter, aside from being an insurance agent and an office associate of petitioner Mondragon, private respondent Ngo Hing must have known and followed the progress on the processing of such application and could not pretend ignorance of the Company’s rejection of the 20-year endowment life insurance application. At this juncture, We find it fit to quote with approval, the very apt observation of then Appellate Associate Justice Ruperto G. Martin who later came up to this Court, from his dissenting opinion to the amended decision of the respondent court which completely reversed the original decision, the following:
c hanr ob1e s v i r t ual 1aw l i br ar y

Of course, there is the insinuation that neither the memorandum of rejection (Exhibit 3-M) nor the reply thereto of appellant Mondragon reiterating the desire for applicant’s father to have the application considered as one for a 20-year endowment plan was ever duly communicated to Ngo Hing, father of the minor applicant. I am not quite convinced that this was so. Ngo Hing, as father of the applicant herself, was precisely the "underwriter who wrote this case" (Exhibit H-1). The unchallenged statement of appellant Mondragon in his letter of May 6, 1957) (Exhibit 4-M), specifically admits that said Ngo Hing was "our associate" and that it was the latter who "insisted that the plan be placed on the 20-year endowment plan." Under these circumstances, it is inconceivable that the progress in the processing of the application was not brought home to his knowledge. He must have been duly apprised of the rejection of the application for a 20-year endowment plan otherwise Mondragon would not have asserted that it was Ngo Hing himself who insisted on the application as originally filed thereby implicitly declining the offer to consider the application under the Juvenile Triple Action Plan. Besides, the associate of Mondragon that he was, Ngo Hing should only be presumed to know what kind of policies are available in the company for minors below 7 years old. What he and Mondragon were apparently trying to do in the premises was merely to prod the company into going into the business of issuing endowment policies for minors just as other insurance companies allegedly do. Until such a definite policy is, however, adopted by the company, it can hardly be said that it could have been bound at all under the binding slip for a plan of insurance that it could not have, by then, issued at all." (Amended Decision, Rollo, pp. 52-53). 2. Relative to the second issue of alleged concealment, this Court is of the firm belief that private respondent had deliberately concealed the state of health and physical condition of his daughter Helen Go. When private respondent supplied the required essential data for the insurance application form, he was fully aware that his one-year old daughter is typically a mongoloid child. Such a congenital physical defect

could never be ensconced nor disguised. Nonetheless, private respondent, in apparent bad faith, withheld the fact material to the risk to be assumed by the insurance company. As an insurance agent of Pacific Life, he ought to know, as he surely must have known, his duty and responsibility to supply such a material fact. Had he divulged said significant fact in the insurance application form, Pacific Life would have verified the same and would have had no choice but to disapprove the application outright. The contract of insurance is one of perfect good faith (uberrima fides meaning good faith; absolute and perfect candor or openness and honesty; the absence of any concealment or deception, however slight [Black’s Law Dictionary, 2nd Edition], not for the insured alone but equally so for the insurer (Field man’s Insurance Co., Inc. v. Vda de Songco, 25 SCRA 70). Concealment is a neglect to communicate that which a party knows and ought to communicate (Section 25, Act No. 2427). Whether intentional or unintentional the concealment entitles the insurer to rescind the contract of insurance (Section 26, id.: Yu Pang Cheng v. Court of Appeals, Et Al., 105 Phil. 930; Saturnino v. Philippine American Life Insurance Company, 7 SCRA 316). Private respondent appears guilty thereof.
c hanr obl e s . c om : v i r t ual l aw l i br ar y

We are thus constrained to hold that no insurance contract was perfected between the parties with the noncompliance of the conditions provided in the binding receipt, and concealment, as legally defined, having been committed by herein private Respondent. WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is hereby entered absolving petitioners Lapulapu D. Mondragon and Great Pacific Life Assurance Company from their civil liabilities as found by respondent Court and ordering the aforesaid insurance company to reimburse the amount of P1,077.75, without interest, to private respondent, Ngo Hing. Costs against private Respondent. SO ORDERED. Teehankee (Chairman ), Makasiar, Guerrero and Melencio-Herrera, JJ., concur. Fernandez, J., took no part.

GREPALIFE V. CA

89 SCRA 543
Facts:
> On March 14, 1957, respondent Ngo Hing filed an application with Grepalife for a 20-yr endowment policy for 50T on the life of his one year old daughter Helen Go. > All the essential data regarding Helen was supplied by Ngo to Lapu-Lapu Mondragon, the branch manager of Grepalife-Cebu. Mondragon then typed the data on the application form which was later signed

by Ngo. > Ngo then paid the insurance premium and a binding deposit receipt was issued to him. The binding receipt contained the following provision: “If the applicant shall not have been insurable xxx and the Company declines to approve the application, the insurance applied for shall not have been in force at any time and the sum paid shall be returned to the applicant upon the surrender of this receipt.” > Mondragon wrote on the bottom of the application form his strong recommendation for the approval of the insurance application. > On Apr 30, 1957, Mondragon received a letter from Grepalife Main office disapproving the insurance application of Ngo for the simple reason that the 20yr endowment plan is not available for minors below 7 yrs old. > Mondragon wrote back the main office again strongly recommending the approval of the endowment plan on the life of Helen, adding that Grepalife was the only insurance company NOT selling endowment plans to children. > On may 1957, Helen died of influenza with complication of broncho pneumonia. Ngo filed a claim with Gepalife, but the latter denied liability on the ground that there was no contract between the insurer and the insured and a binding receipt is NOT evidence of such contract.

Issue:
Whether or not the binding deposit receipt, constituted a temporary contract of life insurance.

Held:
NO. The binding receipt in question was merely an acknowledgement 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 Grepalife disapproved the insurance application of Ngo, the binding deposit receipt had never became on force at any time, pursuant to par. E of the said receipt. A binding 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.

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