Insurance Midterm Digests (Gapuz)

PINEDA v. CA (1993)
Lessons Applicable: Who Exercises Rights of Minor Insured or Beneficiaries (Insurance)
Laws Applicable: Art. 225 Family Code

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FACTS:
Prime Marine Services, Inc. (PMSI), a crewing/manning outfit, procured Group PoIicy
from Insular Life Assurance Co., Ltd. to provide life insurance coverage to its sea-based
employees enrolled under the plan.
February 17 1986: 6 employees of the PMSI perished at sea when M/V Nemos, a Greek cargo
vessel, sunk somewhere in El Jadida, Morocco.
The beneficiaries asked President and General Manager of PMSI, Capt. Roberto Nuval to
process their respective claims and issued him special powers of attorney authorizing him to
"follow up, ask, demand, collect and receive" for their benefit indemnities. It only
verbally pertained to the sinking of the fatal vessel.
Unknown to them, however, the PMSI, in its capacity as employer and policyholder of the life
insurance of its deceased workers, filed with formal claims with their special power of attorney.
Capt. Nuval, upon receipt of these checks from the treasurer, who happened to be his son-inlaw, endorsed and deposited them in his account with the Commercial Bank of Manila, now
Boston Bank.
Upon learning that they are entitled to the claim, the heirs of the ill-fated seafarers sought to
recover from Insular Life but it was denied on the ground that Insular Life already delivered the
checks to PMSI.
The fact that there was a verbal agreement between complainants-appellees and Capt. Nuval
limiting the authority of the latter to claiming specified death benefits cannot prejudice the
insurance company which relied on the terms of the powers of attorney which on their face do
not disclose such limitation.
Section 180 of the Insurance Code has been amended by the Family Code 17 which grants the
father and mother joint legal guardianship over the property of their unemancipated common
child without the necessity of a court appointment; however, when the market value of the
property or the annual income of the child exceeds P50,000.00, the parent concerned shall be
required to put up a bond in such amount as the court may determine.
Insurance Commission: Favored Petitioners.
The Insular Life Assurance Company appealed stating that:
(a) had no jurisdiction over the case considering that the claims exceeded P100,000
(b) erred in holding that the powers of attorney relied upon by Insular Life were insufficient to
convey absolute authority to Capt. Nuval to demand, receive and take delivery of the insurance
proceeds pertaining to the petitioners
(c) erred in not giving credit to the version of Insular Life that the power of attorney supposed
to have been executed in favor of the Alarcons was missing, and
(d) erred in holding that Insular Life was liable for violating Section 180 of the Insurance Code
for having released to the surviving mothers the insurance proceeds pertaining to the

beneficiaries who were still minors despite the failure of the former to obtain a court
authorization or to post a bond.
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CA: eliminated the award to minor beneficiaries Dina Ayo and Lucia Lontok
ISSUE: W/N the minor beneficiaries award should be eliminated

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HELD: YES. Petition is GRANTED. CA Reversed. Insurance Commission Reinstated.
Being special powers of attorney, they must be strictly construed. Insular Life knew that a
power of attorney in favor of Capt. Nuval for the collection and receipt of such proceeds was a
deviation from its practice with respect to group policies.
Group Insurance:
Coverage terms for group insurance are usually stated in a master agreement or policy that is
issued by the insurer to a representative of the group or to an administrator of the insurance
program.
Employers act as a functionary in the collection and payment of premiums and in performing
related duties.
Falling within the ambit of administration of a group policy is the disbursement of insurance
payments by the employer to the employees.
The employee is in the position of a real party to the master policy
Even granting for the sake of argument that the special powers of attorney were in due form,
Insular Life was grossly negligent in delivering the checks, drawn in favor of the petitioners, to a
party who is not the agent mentioned in the special power of attorney
Nor can we agree with the opinion of the public respondent that since the shares of the minors
in the insurance proceeds are less than P50,000.00, then under Article 225 of the Family Code
their mothers could receive such shares without need of either court appointments as guardian
or the posting of a bond
Art. 225. The father and the mother shall jointly exercise legal guardianship over the property
of their unemancipated common child without the necessity of a court appointment. In case of
disagreement, the father's decision shall prevail, unless there is judicial order to the contrary.
Where the market value of the property or the annual income of the child exceeds P50,000, the
parent concerned shall be required to furnish a bond in such amount as the court may
determine, but not less than ten per centum (10%) of the value of the property or annual
income, to guarantee the performance of the obligations prescribed for general guardians.
It is clear from the said Article that regardless of the value of the unemancipated common
child's property, the father and mother ipso jure become the legal guardian of the child's
property. However, if the market value of the property or the annual income of the child
exceeds P50,000.00, a bond has to be posted by the parents concerned to guarantee the
performance of the obligations of a general guardian.

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It must, however, be noted that the second paragraph of Article 225 of the Family Code speaks
of the "market value of the property or the annual income of the child," which means,

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therefore, the aggregate of the child's property or annual income; if this exceeds P50,000.00, a
bond is required.
There is no evidence that the share of each of the minors in the proceeds of the group policy in
question is the minor's only property. Without such evidence, it would not be safe to conclude
that, indeed, that is his only property.

CIR v. Lincoln Philippine Life Insurance (2002)
Lessons Applicable: Measure of Indemnity (Insurance Code)
Laws Applicable: Section 173,Section 183 of the National Internal Revenue Code, Section
49,Section 50 Title VI of the Insurance Code

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FACTS:
Lincoln Philippine Life Insurance Co., Inc., (now Jardine-CMA Life Insurance Company,
Inc.) issued a special kind of life insurance policy known as the "Junior Estate Builder Policy"
with a distinguishing feature: it had a "automatic increase clause" upon attainment of a certain
age by the insured.
Commissioner of Internal Revenue issued a deficiency in documentary stamps tax assessment
for the year 1984 pertaining to the amount in the automatic increase clause.
Lincoln questioned the deficiency assessments.
CIR claims that "automatic increase clause" in the subject insurance policy merits a seperate
documentary stamps tax assessment.
Court of Tax Appeals: Found no valid basis and cancelled the increase in the documentary
stamps tax assessment.
CA: affirmed CTA
ISSUE: W/N the "automatic increase clause" should not be taxed with the main policy.

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HELD: NO. CA set aside
Section 49, Title VI of the Insurance Code defines an insurance policy as the written instrument
in which a contract of insurance is set forth.
Section 50 of the same Code provides that the policy, which is required to be in printed form,
may contain any word, phrase, clause, mark, sign, symbol, signature, number, or word
necessary to complete the contract of insurance.
Any rider, clause, warranty or endorsement pasted or attached to the policy is considered part
of such policy or contract of insurance.
Section 173 says that the payment of documentary stamp taxes is done at the time when the
transaction is done and the tax base for the computation of documentary stamp taxes on life
insurance policies under Section 183 is the amount fixed in policy, unless the interest of a
person insured is susceptible to an exact pecuniary measurement.

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The amount fixed in the policy is the figure written on its face and whatever increase will take
effect in the future by reason of the "automatic increase clause" embodied in the policy
without the need of another contract.
The amount insured by the policy at the time of its issuance necessarily included the additional
sum covered by the automatic increase clause because it was already determinable at the time
the transaction was entered into and formed part of the policy.
To claim that the increase in the amount insured (by virtue of the automatic increase clause
incorporated into the policy at the time of issuance) should not be included in the computation
of the documentary stamp taxes due from the policy would be a clear evasion of the law
requiring that the tax be computed on the basis of the amount insured by the policy.

Filipino Merchants Insurance Co. v. CA (1989)
G.R. No. 85141 November 28, 1989
Lessons Applicable: Existing Interest (Insurance)
Laws Applicable: Article 1523 of the Civil Code,Section 13 of the Insurance Code

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FACTS:
Choa Tiek Seng, a consignee of the shipment of fishmeal loaded, insured in "all risks policy" 600
metric tons of fishmeal in new gunny bags of 90 kilos each from Bangkok, Thailand to Manila
against all risks under warehouse to warehouse terms but only 59.940 metric tons arrived in
Manila.
When it was unloaded onto the arrastre, contractor E. Razon, Inc. and Filipino Merchants's
surveyor ascertained and certified 105 bags were in bad order condition which was reflected in
the survey report of Bad Order Cargoes
Before delivery to Choa, E. Razon's Bad Order Certificate showed that a total of 227 bags in bad
order condition
Choa brought an action against Filipino Merchants Insurance Co. who brought a third party
complaint against Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc.
Filipino Merchants contended that Chao has no insurable interest and therefore the policy
should be void and that it was fraudulent that it did not disclose of such fact.
RTC: Ordered Filipino Merchants to pay Choa and reimburse from Compagnie Maritime Des
Chargeurs Reunis and third party defendant E. Razon, Inc.
CA: Affirmed but modified by adjudicating the third party complaint

ISSUE: W/N Choa Tiek Seng as consignee of the shipment has insurable interest?
HELD: YES. CA affirmed.

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GR: The burden of proof is upon the insured to show that a loss arose from a covered peril.
However, under an "all risks" policy, the burden is not on the insured to prove the precise cause
of loss or damage for which it seeks compensation. The insured under an "all risks insurance
policy" has the initial burden of proving that the cargo was in good condition when the policy
attached and that the cargo was damaged when unloaded from the vessel; thereafter, the
burden then shifts to the insurer to show the exception to the coverage. - None was shown =
liable
Section 13 of the Insurance Code defines insurable interest in property as every interest in
property, whether real or personal, or any relation thereto, or liability in respect thereof, of
such nature that a contemplated peril might directly damnify the insured.
As vendee/consignee of the goods in transit has such existing interest. His interest over the
goods is based on the perfected contract of sale. The perfected contract of sale between him
and the shipper of the goods operates to vest in him an equitable title even before delivery or
before be performed the conditions of the sale. The contract of shipment, whether under
F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of whether the vendee
has an insurable interest or not in the goods in transit.
Article 1523 of the Civil Code provides that where, in pursuance to a contract of sale, when the
seller is authorized or required to send the goods to the buyer, delivery of the goods to a
carrier, whether named by the buyer or not, for, the purpose of transmission to the buyer is
deemed to be a delivery of the goods to the buyer, the exceptions to said rule not obtaining in
the present case. The Court ruled that the delivery of the goods on board the carrying vessels
partake of the nature of actual delivery since, from that time, the foreign buyers assumed the
risks of loss of the goods and paid the insurance premium covering them.
C & F contracts are shipment contracts. The term means that the price fixed includes in a lump
sum the cost of the goods and freight to the named destination. It simply means that the seller
must pay the costs and freight necessary to bring the goods to the named destination but the
risk of loss or damage to the goods is transferred from the seller to the buyer when the goods
pass the ship's rail in the port of shipment.

Violeta R. Lalican v. Insular Life Assurance Co. Ltd. (2009)
Facts: Eulogio Lalican applied for an insurance policy with the Insular Life amounting to Php
1,500,000. Under the terms of the policy, Eulogio was to pay the premiums on a quarterly basis,
having a grace period of 31 days, for the payment of each premium subsequent to the first.
If any premium was not paid on or before the due date, the policy would be in default and if the
premium remained unpaid until the end of the grace period, the policy would automatically
lapse and become void. Eulogio paid the premiums due on the first two succeeding payment
dates but failed to pay subsequent premiums even after the lapse of the grace period thereby
rendering the policy void. He submitted an application for reinstatement of policy through
Josephine Malaluan, an agent of Insular Life, together with the payment of the unpaid
premiums. However, the Insular Life notified him that his application could not be processed
because he failed to pay the overdue interest of the unpaid premiums. On Sept. 17, 1998, Eulogio

submitted to Malaluan’s house a second application for reinstatement including the payment
for the overdue interest as well as for the premiums due for April and July of that year, which
was received by Malaluan’s husband on her behalf and was thereby issued a receipt for the
amount Eulogio deposited. However, on that same day, Eulogio died of cardio-respiratory
arrest secondary to electrocution. Violeta, Eulogio’s widow filed with the Insular Life a claim for
payment of the full proceeds of the policy but the latter informed her that the claim could not
be granted since at the time of Eulogio’s death, his policy has already lapsed and he failed to
reinstate the same. Violeta requested a reconsideration of her claim but the same was also
rejected. Therefore, she filed a complaint for death claim benefits with the RTC alleging the
unfair claim settlement practice of Insular Life and its deliberate failure to act with reasonable
promptness on her insurance claim. The trial court rendered a decision in favor of Insular Life
and after the former denied her motion for reconsideration, she elevated her case to the
Supreme Court via the petition for review on Certiorari.
Issue: Whether or not the policy of Eulogio was reinstated before his death.
Ruling: To reinstate a policy means to restore the same to premium-paying status after it has
been permitted to lapse. Both the policy contract and application for reinstatement provide
for specific conditions for the reinstatement of a lapsed policy. According to the Application for
Reinstatement, the policy would only be considered reinstated upon the approval of the
application by Insular Life during the applicant’s “lifetime and good health” and whatever
amount the application paid in connection was considered to be a deposit only until approval of
said application. Eulogio’s death rendered impossible full compliance with the conditions for
reinstatement of policy even though, before his death, he managed to file his application for
reinstatement and deposit the amount for payment of his overdue premiums and interest
thereon with Malaluan. As expressly provided on the policy contract, agents of Insular Life have
no authority to approve any application for reinstatement. They still had to turn over to Insular
Life the application for reinstatement and accompanying deposit, for processing and approval
of the latter.

Heirs Of Loreto C. Maramag v. Maramag (2009)
Lessons Applicable: To whom insurance proceeds payable (Insurance)

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FACTS:
Loreto Maramag designated as beneficiary his concubine Eva de Guzman Maramag.
Vicenta Maramag and Odessa, Karl Brian, and Trisha Angelie (heirs of Loreto Maramag) and his
concubine Eva de Guzman Maramag were also suspects in the killing of Loreto.
His illegitimate children are also claiming for his insurance.
Vicenta alleges that Eva is disqualified from claiming
RTC: Granted - Civil code does NOT apply
CA: Dismissed the case for lack of jurisdiction for filing beyond reglementary period

ISSUE: W/N Eva can claim even though prohibited under the civil code against donation?

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HELD: YES. Petition is DENIED.
Any person who is forbidden from receiving any donation under Article 739 cannot be named
beneficiary of a life insurance policy of the person who cannot make any donation to him.
If a concubine is made the beneficiary, it is believed that the insurance contract will still remain
valid, but the indemnity must go to the legal heirs and not to the concubine, for evidently, what
is prohibited under Art. 2012 is the naming of the improper beneficiary.
SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the
person in whose name or for whose benefit it is made unless otherwise specified in the policy.
GR: Only persons entitled to claim the insurance proceeds are either the insured, if still alive; or
the beneficiary, if the insured is already deceased, upon the maturation of the policy.
Exception: When the insurance contract was intended to benefit third persons who are not
parties to the same in the form of favorable stipulations or indemnity. In such a case, third
parties may directly sue and claim from the insurer.
It is only in cases where the insured has not designated any beneficiary, or when the designated
beneficiary is disqualified by law to receive the proceeds, that the insurance policy proceeds
shall redound to the benefit of the estate of the insured.
Moreover, the issue of lack of insurable interest was not among the defenses averred in
petitioners answer.

Great Pacific Life Assurance Co. v. CA (1979)
Facts: Respondent Ngo Hing filed an application with petitioner Great Pacific Life Assurance
Company (Pacific Life) for a twenty-year endowment policy in the life of Helen Go, his one year
old daughter. Petitioner Lapulapu D. Mondragon, the branch manager, prepared application
form using the essential data supplied by respondent. The latter paid the annual premium and
Mondragon retained a portion of it as his commission. The binding deposit receipt was issued
to respondent. Mondragon wrote his strong recommendation for the approval of the insurance
application. However, Pacific Life disapproved the application since the plan was not available
for minors below 7 years old but it can consider the same under another plan. The nonacceptance of the insurance plan was allegedly not communicated by Mondragon to
respondent. Mondragon again asserted his strong recommendation. Helen Go died of
influenza. Thereupon, respondent sought the payment of the proceeds of the insurance, but
having failed in his effort, he filed an action for the recovery of the same.
Issue: Whether the binding deposit receipt constituted a temporary contract of the life
insurance in question, and thus negates the claim that the insurance contract was perfected.
Held: YES. The provisions printed on the binding deposit receipt show that the binding deposit
receipt is intended to be merely a provisional or temporary insurance contract and only upon

compliance of the following conditions: (1) that the company shall be satisfied that the
applicant was insurable on standard rates; (2) that if the company does not accept the
application and offers to issue a policy for a different plan, the insurance contract shall not be
binding until the applicant accepts the policy offered; otherwise, the deposit shall be refunded;
and (3) that if the applicant is not insurable according to the standard rates, and the company
disapproves the application, the insurance applied for shall not be in force at any time, and the
premium
paid
shall
be
returned
to
the
applicant.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is
merely an acknowledgment, on behalf of the company, that the latter's branch office had
received from the applicant the insurance premium and had accepted the application subject
for processing by the insurance company; and that the latter will either approve or reject the
same on the basis of whether or not the applicant is "insurable on standard rates." Since Pacific
Life disapproved the insurance application of Ngo Hing, the binding deposit receipt in question
had never become in force at any time. Upon this premise, the binding deposit receipt is,
manifestly, merely conditional and does not insure outright. Where an agreement is made
between the applicant and the agent, no liability shall attach until the principal approves the
risk and a receipt is given by the agent. The acceptance is merely conditional, and is
subordinated to the act of the company in approving or rejecting the application.
Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself. It bears
repeating that through the intra-company communication of 30 April 1957, Pacific Life
disapproved the insurance application in question on the ground that it is not offering the 20year endowment insurance policy to children less than 7 years of age. What it offered instead is
another plan known as the Juvenile Triple Action, which Ngo Hing failed to accept. In the
absence of a meeting of the minds between Pacific Life and Ngo Hing over the 20-year
endowment life insurance in the amount of P50,000.00 in favor of the latter's one-year old
daughter, and with the non-compliance of the above quoted conditions stated in the disputed
binding deposit receipt, there could have been no insurance contract duly perfected between
them. Accordingly, the deposit paid by Ngo Hing shall have to be refunded by Pacific Life.

Rizal Surety v. CA (2000)
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INSURANCE LAW: Interpretation of Insurance Contracts
FACTS:
Rizal Surety & Insurance Company issued a fire insurance policy in favor of Transworld Knitting
Mills, Inc. The subject policy stated that Rizal Surety is “responsible in case of loss whilst
contained and/or stored during the currency of this Policy in the premises occupied by them
forming part of the buildings situated within own Compound xxx.” The policy also described
therein
the
four-span
building
covered
by
the
same.

On Jan. 12, 1981, fire broke out in the compound, razing the middle portion of its four-span
building and partly gutting the left and right sections thereof. A two-storey building (behind
said
four-span
building)
was
also
destroyed
by
the
fire.
ISSUE:

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Whether or not Rizal Surety is liable for loss of the two-storey building considering that the fire
insurance policy sued upon covered only the contents of the four-span building
HELD:
Both the trial court and the CA found that the so-called “annex” as not an annex building but an
integral and inseparable part of the four-span building described in the policy and
consequently, the machines and spare parts stored therein were covered by the fire insurance
in
dispute.
So also, considering that the two-storey building aforementioned was already existing when
subject fire insurance policy contract was entered into on Jan. 12, 1981, having been
constructed some time in 1978, petitioner should have specifically excluded the said two-storey
building from the coverage of the fire insurance if minded to exclude the same but if did not,
and instead, went on to provide that such fire insurance policy covers the products, raw
materials and supplies stored within the premises of Transworld which was an integral part of
the four-span building occupied by Transworld, knowing fully well the existence of such building
adjoining and intercommunicating with the right section of the four-span building.
Also, in case of doubt in the stipulation as to the coverage of the fire insurance policy, under
Art. 1377 of the New Civil Code, the doubt should be resolved against the Rizal Surety, whose
layer or managers drafted the fire insurance policy contract under scrutiny.
In Landicho vs. Government Service Insurance System, the Court ruled that “the terms in an
insurance policy, which are ambiguous, equivocal or uncertain x x x are to be construed strictly
and most strongly against the insurer, and liberally in favor of the insured so as to effect the
dominant purpose of indemnity or payment to the insured, especially where forfeiture is
involved, and the reason for this is that the insured usually has no voice in the selection or
arrangement of the words employed and that the language of the contract is selected with
great care and deliberation by experts and legal advisers employed by, and acting exclusively in
the interest of, the insurance company.”

Philippine Health Care Providers, Inc. v. CIR (2009)
Lessons Applicable: Elements (Insurance)

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FACTS:
Philippine Health Care Providers, Inc. is a domestic corporation whose primary purpose is "to
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.
January 27, 2000: 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
Petitioner protested the assessment in a letter dated February 23, 2000.
CIR did not act on the protest, Petitioner filed a petition for review in the CTA seeking the
cancellation of the deficiency VAT and DST assessments.
CIR: Health care agreement was a contract of insurance subject to DST under Section 185 of the
1997 Tax Code
CTA: PARTIALLY GRANTED to pay VAT, DST assessment CANCELLED AND SET ASIDE.
CA: Health care agreement was in the nature of a non-life insurance contract subject to DST
Court Affirmed CA

ISSUE:
1. W/N the Philippine Health Care Providers, Inc (HMO) was engaged in the business of insurance
during the pertinent taxable years - NO
2. W/N the Philippine Health Care Providers, Inc enters into an insurance contract - NO
HELD: motion for reconsideration is GRANTED
1. NO
P.D. 612 Insurance Code
Sec. 2 (2)
(2) The term "doing an insurance business" or "transacting an insurance business", within the
meaning of this Code, shall include:
(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.

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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 therefor, shall not be deemed conclusive to show that the making
thereof does not constitute the doing or transacting of an insurance business.
No profit was derived by the Petitioner 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
2. NO
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.
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
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.
As an HMO, it is its obligation to maintain the good health of its members.
Its undertaking under its agreements is not to indemnify its members against any loss or
damage arising from a medical condition but, on the contrary, to provide the health and
medical services needed to prevent such loss or damage.
Overall, Petitioner appears to provide insurance-type benefits to its members (with respect to
its curative medical services), but these are incidental to the principal activity of providing them
medical care. The "insurance-like" aspect of petitioner’s business is miniscule compared to its
non-insurance activities. Therefore, since it substantially provides health care services rather
than insurance services, it cannot be considered as being in the insurance business.
Principal Purpose Test
 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
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.

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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: - NOT present
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.
No Indemnity
Member can take advantage of the bulk of the benefits anytime even in the absence of any
peril, loss or damage on his or her part.
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
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
HMO, undertakes a business risk when it offers to provide health services. 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.
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. The primary purpose of the parties in making the
contract may negate the existence of an insurance contract.
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

Pacific Timber v. CA (1982)
Lessons Applicable: Rules on cover notes (if premium CANNOT yet be computed) (Insurance)
Laws Applicable: Section 84 of the Insurance Code

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FACTS:
March 19, l963: Pacific Timber secured temporary insurance from Workmen's Insurance
Company, Inc. for its exportation of 1,250,000 board feet of Philippine Lauan and Apitong logs
to be shipped from the Diapitan Bay, Quezon Province to Tokyo, Japan.
Workmen's Insurance Company, Inc. issued a Cover Note insuring the cargo "Subject to the
Terms and Conditions of the Workmen's Insurance Company, Inc."
April 2, 1963: Regular marine cargo policies were issued for a total of 1,195.498 bd. ft. Due to
the bad weather some of the logs were lost during loading operations. 45 pieces of logs were
salvaged, but 30 pieces were lost. Pacific informed Workmen's who refused to indemnify

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stating that the logs covered in the 2 marine policies were received in good order at the point
of destination and that the cover note was null and void upon the issuance of the Marine
Policies.
CFI: Cover note is valid.
CA: Cover note is not valid.
ISSUE: W/N the cover note is valid despite the absence of premium payment upon it?

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HELD: YES. CA set aside. CFI reinstated
It was not necessary to ask for payment of the premium on the Cover Note, for the loss insured
against having already occurred, the more practical procedure is simply to deduct the premium
from the amount due on the Cover Note
Had all the logs been lost during the loading operations, but after the issuance of the Cover
Note, liability on the note would have already arisen even before payment of premium.
Cover note as a "binder"
 Supported by the doctrine that where a policy is delivered without
requiring payment of the premium, the presumption is that a credit was
intended and policy is valid.
It sent its adjuster to investigate and assess the loss to determine if petitioner was guilty of
delay in communicating the loss but there was none.
Section 84
 Delay in the presentation to an insurer of notice or proof of loss is waived
if caused by any act of his or if he omits to take objection promptly and
specifically upon that ground.

Philamcare Health Systems, Inc. v. CA (2002)
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Lessons Applicable:
Elements (Insurance)
Blood Relationship (Insurance)
FACTS:
Ernani Trinos, deceased husband of Julita Trinos, applied for a health care coverage with
Philamcare Health Systems, Inc.
He answered the standard application form: 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). - NO
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.
During the period of his coverage, Ernani suffered a heart attack and was confined at the
Manila Medical Center (MMC) for 1 month beginning March 9, 1990.
While her husband was in the hospital, Julina Trinos tried to claim the benefits under the health
care agreement.
Philamcare denied her claim saying that the Health Care Agreement was void
for concealing Ernani’s medical history so she paid the hospitalization expenses of P76,000.00
herself.
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.
After being 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, he was brought home again.
April 13, 1990 morning: Ernani had fever and was feeling very weak
He was brought to Chinese General Hospital where he died
July 24, 1990: She brought action for damages against Philamcare Health Systems Inc. and its
president, Dr. Benito Reverente.
RTC: Philamcare and Dr. Benito Reverent to pay and reimburse P76k plus interest, moral
damages, exemplary damages, attorney's fees and cost of suit
CA: affirmed the decision of RTC but deleted all awards for damages and absolved Philamcare.
Philamcare brought an instant petition for review arguing that:
 Health care agreement is not an insurance contract; hence the
"incontestability clause" under the Insurance Code does not apply.
 It 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.
 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.
 Since Health Care Agreements are only for a period of one year, as
compared to insurance contracts which last longer; incontestability
clause does not apply, as the same requires an effectivity period of at
least two years
 Insurance company is governed by the Insurance Commission, but a
Health Maintenance Organization under the authority of the Department
of Health.

ISSUE:
1. W/N the Health Care Agreement is a Contract of Insurance. - YES
2. W/N the spouse being "not" the legal wife can claim - YES

HELD: Petition is DENIED. CA AFFIRMED.
1. YES.

P.D. 612 Insurance Code
Sec. 2 (1)
(1) A "contract of insurance" is an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent
event.
Sec. 3
Sec. 3. Any contingent or unknown event, whether past or future, which may damnify a person
having an insurable interest, or create a liability against him, may be insured against, subject to
the provisions of this chapter.
The consent of the husband is not necessary for the validity of an insurance policy taken out by
a married woman on her life or that of her children.
Any minor of the age of eighteen years or more, may, notwithstanding such minority, contract
for life, health and accident insurance, with any insurance company duly authorized to do
business in the Philippines, provided the insurance is taken on his own life and the beneficiary
appointed is the minor's estate or the minor's father, mother, husband, wife, child, brother or
sister.
The married woman or the minor herein allowed to take out an insurance policy may exercise
all the rights and privileges of an owner under a policy.
All rights, title and interest in the policy of insurance taken out by an original owner on the life
or health of a minor shall automatically vest in the minor upon the death of the original owner,
unless otherwise provided for in the policy.
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In the case at bar, the insurable interest of respondent's husband in obtaining the health care
agreement was his own health.
In the nature of non-life insurance, which is primarily a contract of indemnit, 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.
The answer in response to the question relating to the medical history of the applicant 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.

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The fraudulent intent on the part of the insured must be established to warrant rescission of
the insurance contract.
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.
P.D. 612 Insurance Code
Sec. 27
Sec. 27. A concealment whether intentional or unintentional entitles the injured party to
rescind a contract of insurance.
cancellation of health care agreements as in insurance policies require the concurrence of the
following conditions: - none of these was made
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.
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.
(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.
2. YES.
P.D. 612 Insurance Code
Sec. 10
Sec. 10. 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.

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The claimant was not the legal wife (deceased was previously married to another woman who
was still alive).
Health care agreement is in the nature of a contract of indemnity.
Payment should be made to the party who incurred the expenses.

Development Bank of the Philippines v CA (1994)
Facts:
Juan B. Dans, together with his family applied for a loan of P500,000 with DBP. As principal
mortgagor, Dans, then 76 years of age was advised by DBP to obtain a mortgage redemption
insurance (MRI) with DBP MRI pool. A loan in the reduced amount was approved and released
by DBP. From the proceeds of the loan, DBP deducted the payment for the MRI premium. The
MRI premium of Dans, less the DBP service fee of 10%, was credited by DBP to the savings
account of DBP MRI-Pool. Accordingly, the DBP MRI Pool was advised of the credit.
Dans died of cardiac arrest. DBP MRI Pool notified DBP that Dans was not eligible for MRI
coverage, being over the acceptance age limit of 60 years at the time of application. DBP
apprised Candida Dans of the disapproval of her late husband’s MRI application. DBP offered to
refund the premium which the deceased had paid, but Candida Dans refused to accept the
same demanding payment of the face value of the MRI or an amount equivalent of the loan.
She, likewise, refused to accept an ex gratia settlement which DBP later offered.
Issue:
Whether or not the DBP MRI Pool should be held liable on the ground that the contract was
already perfected?
Held:
No, it is not liable. The power to approve MRI application is lodged with the DBP MRI Pool. The
pool, however, did not approve the application. There is also no showing that it accepted the
sum which DBP credited to its account with full knowledge that it was payment for the
premium. There was as a result no perfected contract of insurance’ hence the DBP MRI Pool
cannot be held liable on a contract that does not exist
In dealing with Dans, DBP was wearing 2 legal hats: the first as a lender and the second as an
insurance agent. As an insurance agent, DBP made Dans go through the motion of applying for
said insurance, thereby leading him and his family to believe that they had already fulfilled all
the requirements for the MRI and that the issuance of their policy was forthcoming. DBP had
full knowledge that the application was never going to be approved. The DBP is not authorized
to accept applications for MRI when its clients are more than 60 years of age. Knowing all the
while that Dans was ineligible; DBP exceeded the scope of its authority when it accepted the
application for MRI by collecting the insurance premium and deducting its agent’s commission
and service fee. Since the third person dealing with an agent is unaware of the limits of the
authority conferred by the principal on the agent and he has been deceived by the nondisclosure thereof by the agent, then the latter is liable for damages to him.