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THE CONTRACT OF INSURANCE

1. Concepts defined
a. Contract of Insurance- Section 2 , Insurance Code
An agreement whereby one undertakes for a consideration to indemnify another against
loss, damage or liability arising from an unknown or contingent event. (Sec. 2, par. 2, IC)
b. Contract of Suretyship- Section 177
A contract of suretyship is an agreement whereby a party called the surety guarantees
the performance by another party called the principal or obligor of an obligation or
undertaking in favor of a third party called the obligee. It includes official recognizances,
stipulations, bonds or undertakings issued by any company by virtue of and under the
provisions of Act No. 536, as amended by Act No. 2206.

2. Elements
1) A subject matter which the insured has an insurable interest.
2) Event or peril insured against which may be any future contingent or unknown event, past
or future and a duration for the risk thereof.
3) A promise to pay or indemnify in a fixed or ascertainable amount.
4) A consideration known as “premium”.
5) Meeting of the minds of the parties.

3. Characteristics/Nature of insurance contracts
1) Consensual – it is perfected by the meeting of the minds of the parties.
2) Voluntary – the parties may incorporate such terms and conditions as they may deem
convenient.
3) Aleatory – it depends upon some contingent event.
4) Unilateral – imposes legal duties only on the insurer who promises to indemnify in case of
loss.
5) Conditional – It is subject to conditions the principal one of which is the happening of the
event insured against.
6) Contract of indemnity – Except life and accident insurance, a contract of insurance is a
contract of indemnity whereby the insurer promises to make good only the loss of the
insured.
7) Personal – each party having in view the character, credit and conduct of the other.

4. Contracts for contingent services –

(CASES)

1

PHILAMCARE vs. CA
FACTS:
1. Ernani Trinos applied for a health care coverage with Philamcare Health Systems, Inc.
Ernani answered ‘No’ to the question ‘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?’.
2. Under the agreement, Ernani is entitled to avail of hospitalization benefits and out-patient
benefits. The coverage was approved for a period of one year from March 1, 1988 to March 1,
1989. The agreement was however extended yearly until June 1, 1990 which increased the
amount of coverage to a maximum sum of P75,000 per disability.
3. During the period of said coverage, Ernani suffered a heart attack and was confined at the
Manila Medical Center (MMC) for one month. While in the hospital, his wife Julita tried to
claim the benefits under the health care agreement. However, the Philamcare denied her
claim alleging that the agreement was void because Ernani concealed his medical history.
4. 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,
Julita paid for all the hospitalization expenses.
5. After Ernani 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.
6. 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.
7. Julita filed an action for damages and reimbursement of her expenses plus moral damages
attorney’s fees against Philamcare and its president, Dr. Benito Reverente.
8. The Regional Trial court or Manila rendered judgment in favor of Julita.
9. On appeal, the decision of the trial court was affirmed but deleted all awards for damages
and absolved petitioner Reverente. Hence, this 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 does not apply.
ISSUE: WON PHILAMCARE was liable.
HELD: YES. Health insurance is a contract of indemnity. When Trinos answered the question it
was out of good faith. Moreover, fraudulent intent on his part was not established.
“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. 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.”
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More importantly, the cancellation of health care agreement require the following conditions: (1)
prior notice; (2) notice of cancellation must be based on the grounds mentioned in Sec. 64 of
the Insurance Code; (3) must be in writing, mailed or delivered to the insured at the address
shown in the policy; and (4) must state the grounds relied upon provided in section 64. None of
which were followed.
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. 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
if they are untrue. Fraudulent intent on the part of the insured must be established to warrant
rescission of the insurance contract.
Philippine Health Care Providers vs. CIR
FACTS:
1. Philippine Health Care Providers is a domestic corporation whose primary purpose is to
establish, maintain and operate a prepaid group practice health care delivery system
maintenance organization to take care of the sick and disabled persons enrolled in the health
care plan.
2. On January 27, 2000, respondent 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.
3. The deficiency 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.
4. Philippine Health Care Prov protested the assessment in a letter dated February 23, 2000.
5. 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 (Documentary
Stamp Tax) assessments. On April 5, 2002, the CTA rendered a decision, ordering the
petitioner to PAY the deficiency VAT amounting to P22M.
6. 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. So, the Respondent is ORDERED to DESIST from collecting the said DST deficiency
tax.
7. Respondent appealed the CTA decision to the (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.
8. On August 16, 2004, the CA rendered its decision which held that petitioner’s health care
agreement was in the nature of a non-life insurance contract subject to DST. Respondent is
ordered to pay the deficiency Documentary Stamp Tax.
9. Petitioner moved for reconsideration but the CA denied it.
ISSUES: Whether or not Philippine Health Care Providers, Inc. engaged in insurance business.
HELD:
1. NO. According to P.D. 162 Insurance Code:
(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;
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(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 case at bar, no profit is derived from the making of insurance contracts, agreements and
no separate or direct consideration is received therefore, it does not constitute the doing or
transacting of an insurance business.
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.

5. General Classification of Insurance under the Code (pay attention only
to the definitions)
a. Life: Life insurance is insurance on human lives and insurance appertaining thereto or
connected therewith.
1) Individual life- Sections 181 and 182
A policy of insurance upon life or health, which he may pass by transfer, will, or succession to
any person, whether he has an insurable interest or not, and such person may recover upon it
whatever the insured might have recovered.
The named beneficiary receives the proceeds and is thereby safeguarded from the financial
impact of the death of the insured.
2) Group life-Section 234
Life insurance offered by an employer or large-scale entity (i.e. association or labor
organization) to its workers or members. Group life insurance is typically offered as a piece of
a larger employer or membership benefit package.
3) Industrial life- Sections 235 to 236
Life insurance which provides insurance coverage to industrial workers or people who are
unable to afford insurance for bigger amounts. Here a fixed amount is given in case of
accident or death. They are also known as burial policies, small death benefits, and street
insurance.

b. Non-life
1) Marine -Section 101
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 debts, 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
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delays, storage, transhipment, 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 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 of 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.

2) Fire -Section 169
Insurance against loss by fire, lightning, windstorm, tornado or earthquake and other allied
risks, when such risks are covered by extension to fire insurance policies or under separate
policies.
3) Casualty -Section 176
Insurance covering loss or liability arising from accident or mishap, excluding certain types of
loss which by law or custom are considered as falling exclusively within the scope of other
types of insurance such as fire or marine. It includes, but is not limited to, employer's liability
insurance, motor vehicle liability insurance, plate glassinsurance, burglary and theft insurance,
personal accident and health insurance as written by non-life insurance companies, and other
substantially similar kinds of insurance.
4) Suretyship -Section 177
A contract of suretyship is an agreement whereby a party called the surety guarantees the
performance by another party called the principal or obligor of an obligation or undertaking in
favor of a third party called the obligee. It includes official recognizances, stipulations, bonds
or undertakings issued by any company by virtue of and under the provisions of Act No. 536,
as amended by Act No. 2206.
6. Construction / Interpretaion of Insurance contracts
The ambiguous terms are to be construed strictly against the insurer, and liberally in favor of
the insured.
However, if the terms are clear, there is no room for interpretation. (Calanoc vs. Court of
Appeals, 98 Phil. 79)
5

A) Liberal Interpretation (CASES)

Malayan Insurance vs. CA
FACTS:
1. Assailed in this petition for review on certiorari is the decision of the Court of Appeals,
which affirmed, with slight modification, the decision of RTC Cebu, Branch 15.
2. TKC Marketing imported 3,000 metric tons of soya from Brazil to Manila. It was insured by
Malayan at the value of almost 20 million pesos.
3. The vessel, however, was stranded on South Africa because of a lawsuit on a question of
ownership and possession of the soya.
4. TKC consulted Malayan on recovery of the amount, but Malayan claimed that it wasn’t
covered by the policy.
5. The soya was eventually sold in Africa for Php 10 million, but TKC wanted Malayan to
shoulder the remaining value of 10 million as well.
6. Petitioner filed suit due to Malayan’s restraint to pay. Malayan claimed that arrest by civil
authorities wasn’t covered by the policy.
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7. The trial court ruled in TKC’s favor with damages.
8. The appellate court affirmed the decision under the reason that clause 12 of the policy
regarding an excepted risk due to arrest by civil authorities was deleted by Section 1.1 of
the Institute War Clauses which covered ordinary arrests by civil authorities.
9. Failure of the cargo to arrive was also covered by the Theft, Pilferage, and Non-delivery
Clause of the contract. Hence this petition.
ISSUE: WON the insurance policies must strictly construed against the insurer.
HELD: YES. 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, means
that any ambiguity should be resolved against the insurer. Petition dismissed.

Eternal Gardens vs. Philamlife Insurance, VELASCO, JR., J
FACTS:
1. Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the
November 26, 2004 Decision of CA.
2. December 10, 1980: Philippine American Life Insurance Company (Philamlife) entered into
an agreement with Eternal Gardens Memorial Park Corporation (Eternal)
3. 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.
4. 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.
5. In August 1984, Chuang died with a balance of Php 100,000. Eternal sent a letter dated
August 20, 1984 to Philamlife, which served as an insurance claim for Chuang's death.
6. In April 1986: Philamlife had not furnished Eternal with any reply on its insurance claim so it
demanded its claim.
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7. In response to Eternal's demand, Philamlife denied Eternal's insurance claim in a letter dated
May 20, 1986.
8. Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC).
9. DECISION OF LOWER COURTS:
(1) RTC: in favor of Eternal 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.
(2) CA: in favor of Philamlife. There being no application form, Chuang was not covered by
Philamlife's insurance.
ISSUE: W/N Philam's inaction on the insurance application be considered as approval of the
application?
HELD: YES. The insurance policy must be 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. CA decision reversed.

Western Guaranty vs. CA, G.R. No. 91666 FELICIANO, J.:
Facts:
1. Priscilla Rodriguez was struck by a bus owned by De Dios Transportation Co. She was
hospitalized and her face was permanently disfigured.
2. Respondent Priscilla Rodriguez filed a complaint for damages before the RTC of Makati against
De Dios and the driver
3. Respondent De Dios Transportation Co., in turn, filed a third-party complaint against its
insurance carrier, petitioner Western Guaranty.
4. On 6 August 1985, the trial court rendered a decision in favor of respondent Priscilla E.
Rodriguez
5. Rodriguez was able to earn a money judgment from the court : 3,000 for actual damages,
1,500 for loss of earning capacity, and 20,000 for moral damages and attorney’s fees
6. De Dios filed a complaint against Western to indemnify the amount.
7. On appeal, the CA affirmed in toto the decision of the trial court.
8. Petitioner moved for the reconsideration of the CA’s decision. The CA denied the motion for
reconsideration for lack of merit.
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9. Hence this Petition for Review alleging that CA erred in holding petitioner liable to pay beyond
the limits set forth in the Schedule of Indemnities and in finding Western liable for loss of
earnings, moral damages and attorney's fees.
Issue: Is Western liable for paying loss of earnings, moral damages and attorney's fees even if
these items are not among those included in the Schedule of Indemnities set forth in the
insurance policy?
Held: Yes. Petition dismissed.
The policy states:
Section 1. Liability to the Public — Company will, subject to the Limits of Liability, pay all sums
necessary to discharge liability of the insured in respect of — (a) death of or bodily injury to or
damage to property of any passenger as defined herein.
There was also a schedule of indemnities that specified a certain amount for a certain type of
injury as well as hospital service payments.
The court noted that the limits of the liability was at 50,000 per person per accident.
Construing this with section 1 means that all kinds of damages allowable by law were also to be
covered by the policy once it was shown that liability has arisen.
The schedule of indemnities was not a closed enumeration of the kinds of damages Western
can award. Western should have used far more specific language, not the “pay all sums
necessary to discharge liability” clause.
Insurance contracts must be read by the courts with a jaundiced eye to prevent the insurer
from escaping from its obligation. Also, contracts of adhesion such as policies must be
construed against the party who made them, in this case western.

Qua vs. Law Union, G.R. No. L-4611 REYES, J. B. L., J.:
FACTS:
1. Qua Chee Gan owns four warehouses in Albay. He was using these warehouses to house
crops like copra and hemp. All warehouses were insured by Law Union and Rock Insurance
for the amount of P370,000.00.
2. The insurance states that Qua should install 11 hydrants in the warehouses’ premises.
3. Qua installed only two, but Law Union nevertheless went on with the insurance policy and
collected premiums from Qua.
4. The insurance contract also provides that “oil” should not be stored within the premises of the
warehouses.
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5. In 1940, three of the warehouses were destroyed by fire. The damage caused amounted to
P398k.
6. Qua demanded insurance pay from Law Union but the latter refused as it alleged that after
investigation from their part, they found out that Qua caused the fire. Law Union in fact sued
Qua for Arson.
7. Qua was acquitted in the arson case. He then demanded that Law Union pay up. This time,
Law Union averred that the insurance contract is void because Qua failed to install 11
hydrants; and that gasoline was found in one of the warehouses.
ISSUE: Whether or not the insurance contract is void.
HELD: No. Law Union cannot exempt itself from paying Qua because it is estopped from
invoking the same. It is a well settled rule of law that an insurer which with knowledge of facts
entitling it to treat a policy as no longer in force, receives and accepts a premium on the policy,
estopped to take advantage of the forfeiture.
Also, gasoline is not one of those items specifically prohibited from the premises of the
warehouses. What was mentioned was the word “oil” which could mean anything (from palm oil
to lubricant and not gasoline or kerosene). This ambiguity is to be interpreted against Law Union
because a contract of insurance is a contract of adhesion. Further, oil is incidental to Qua’s
business, it being used for motor fuel.

(B) Strict interpretation
Cebu shipyard vs. William Lines
FACTS:
1. Cebu Shipyard and Engineering Works, Inc. (CSEW) repaired marine vessels while the
Prudential is in the non-life insurance business.
2. 2. William Lines, Inc., the owner of M/V Manila City, a luxury passenger-cargo vessel, which
caught fire and sank. At the time of the incident, subject vessel was insured with Prudential
for P45M for hull and machinery.
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3. CSEW was insured for only Php 10 million for the ship repairer’s liability policy. They entered
into a contract where negligence was the only factor that could make CSEW liable for
damages.
4. Moreover, liability of CSEW was limited to only Php 1million for damages. The Hull Policy
included an “Additional Perils (INCHMAREE)” Clause covering loss of or damage to the vessel
through the negligence of, among others, ship repairmen.
5. William brought Manila City to the dry dock of CSEW for repairs. The officers and cabin crew
stayed at the ship while it was being repaired. After the vessel was transferred to the docking
quay, it caught fire and sank, resulting to its total loss.
6. William brought suit against CSEW alleging that it was through the latter’s negligence that
the ship caught fire and sank. Prudential was impleaded as co-plaintiff after it had paid the
value of insured items. It was subrogated to 45 million, or the value it claimed to indemnify.
7. The trial court brought judgment against CSEW 45 million for the ship indemnity, 65 million
for loss of income, and more than 13 million in other damages. The CA affirmed the Trial
Court decision.
8. CSEW contended that the cause of the fire was due to William’s hotworks on the said portion
of the ship which they didn’t ask CSEW permission for.
9. Prudential, on the other hand, blamed the negligence of the CSEW workers in the instance
when they didn’t mind rubber insulation wire coming out of the air-conditioning unit that was
already burning.

ISSUE: WON, Prudential is entitled to be subrogated to the rights of William Lines.
HELD: YES. Art. 2207 Provides that “If the plaintiff’s property has been insured, and he has
received indemnity from the insurance company for the injury or loss arising out of the wrong or
breach of contract complained of, the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the contract. If the amount
paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall
be entitled to recover the deficiency from the person causing the loss or injury”
In the case at bar, when Prudential, after due verification of the merit of the insurance claim of
William Lines, paid the latter the amount covered by its policy, it was subrogated to the rights of
the latter to recover the insured loss from the liable party, CSEW.

Fortune Insurance and Surety Co., Inc. v. CA and Producers Bank of the
Philippines
FACTS:
1. Producers Bank was insured by Fortune Insurance.
2. Producers Bank filed against Fortune Insurance a complaint for recovery of the sum of P725K
under the policy issued by Fortune. The sum was allegedly lost during a robbery of
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Producer’s armored vehicle while it was in transit to transfer the money from its Pasay City
Branch to its head office in Makati.
3. The said armored vehicle was robbed by its driver Benjamin Magalong and security guard
Saturnino Atiga tasked to man the same. Both of them are not Producers Bank’s “employees”
but were merely assigned by and affiliated with PRC Management Systems and
Unicorn Security Services.
4. Fortune Insurance refused to pay the amount as the loss, according to it, is excluded from
the coverage of the insurance policy.
“General Exceptions” provides: The company shall not be liable under this
policy in report of x x x (b) any loss caused by any dishonest, fraudulent or
criminal act of the insured or any officer, employee, partner, director, trustee or
authorized representative of the Insured whether acting alone or in conjunction
with others…”
5. Producers Bank opposed the contention of Fortune Insurance and contends that Atiga and
Magalong are not its officer, employee, trustee, or authorized representative at the
time of the robbery.
6. According to Fortune Insurance, when Producers commissioned a guard and a driver to
transfer its funds from one branch to another, they effectively and necessarily became its
authorized representatives in the care and custody of the money. Assuming that they could
not be considered authorized representatives, they were, nevertheless, employees of
Producers.
ISSUE: WON Magalong and Atiga qualify as employees or authorized representatives of
Producers under paragraph (b) of the general exceptions clause of the insurance policy.
HELD: YES. According to SC, Employer-employee relationship depends upon four standards:
(1)
(2)
(3)
(4)

the
the
the
the

manner of selection and engagement of the putative employee;
mode of payment of wages;
presence or absence of a power to dismiss; and
presence and absence of a power to control the putative employee’s conduct.

The power of control over Magalong and Atiga was vested in and exercised by Producers Bank;
hence, an “employer-employee” relationship exists between Magalong and Atiga and Producers
Bank.
PRC Management System and Unicorn Security Services are but “labor-only” contractors (not
employers) under Article 106 of the Labor Code which provides: “There is “labor-only”
contracting where the person supplying workers to an employer does not have substantial
capital or investment in the form of tools, equipment, x x x and the workers recruited and
placed by such persons are performing activities which are directly related to the principal
business of such employer. In such cases, the person or intermediary shall be considered
merely as an agent of the employer who shall be responsible to the workers in the same
manner and extent as if the latter were directly employed by him.”
In the instant case, Producers Bank entrusted Magalong, Atiga and there other companions to
transfer Producers Bank’s money to its head office in Makati. In short, for these particular tasks,
they acted as agents of Producers.

New Life Enterprises vs Court of Appeals
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FACTS:
1. Julian Sy and Jose Sy formed a partnership under the business name of New Life Enterprise.
They were holding their business in a two-storey building in Lucena City.
2. Julian Sy insured the stocks in trade of NewLife Enterprises under three insurance companies.
INSURANCE COMPANY

TYPE OFINSURANCE
Fire Insurance Policy - This policy
was renewed

AMOUNT
350, 000. 00

2. Reliance Surety and
Insurance Co. Inc.

Fire Insurance Policy - This policy
was also renewed.

300, 000. 00 - There
was an additional
insurance issued in the
amount of 700

3. Equitable Insurance
Corporation

Fire Insurance Policy

200, 000.

1. Western Guaranty
Corporation

1, 550,000. 00 = Total
3. The building occupied by New Life Enterprises was gutted by fire caused by a faulty electrical
wiring. According to the plaintiffs, the stocks in trade were inside said building and were thus
burned.
4. Julian Sy, together with an agent of Reliance Insurance, filed his claim. To support his claim,
he submitted a fire clearance, the insurance policies and the inventory of stocks. He further
testified that the three insurance companies are sister companies, and as a matter of fact
when he was following-up his claim with Equitable Insurance, the Claims Manager told him to
go first to Reliance Insurance and if said company agrees to pay, they would also pay.
5. Ultimately, the three insurance companies denied plaintiffs' claim for payment due to
BREACH OF POLICY CONDITIONS.
6. Reliance Surety and Insurance Company claimed that plaintiff violated Policy Condition No.
"3" which requires the insured to give notice of any insurance or insurances
already effected covering the stocks in trade.
7. The Trial Court ruled in favor of the plaintiff that was reversed by the Court of Appeals.
ISSUE: Whether or not the plaintiff incurred a breach in the policy conditions?
RULING: YES. According to SC, the terms of the contract are clear and unambiguous. The
insured is specifically required to disclose to the insurer any other insurance and its particulars
that he may have effected on the same subject matter.
Thus, it points out that while petitioner Julian Sy claimed that he had informed insurance agent
Alvarez regarding the co-insurance on the property, he contradicted himself by inexplicably
claiming that he had not read the terms of the policies.
While it is a cardinal principle of insurance law that a policy or contract of insurance is to be
construed liberally in favor of the insured and strictly against the insurer company, yet contracts
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of insurance, like other contracts, are to be construed according to the sense and meaning of
the terms which the parties themselves have used. If such terms are clear and unambiguous,
they must be taken and understood in their plain, ordinary and popular sense.

TY vs First National Surety et al
FACTS:
1. Diosdado Ty was employed as operator mechanic foreman in the Broadway Cotton Factory.
2. He insured himself in 18 local insurance companies which issued to him personal accident
policies and his beneficiary was his employer Broadway Cotton Factory, which paid
the insurance premiums.
3. A fire broke out which totally destroyed the Factory
4. Because of the incident, Diosdado Ty was injured on the left hand by a heavy object.
5. He then underwent medical treatment.
6. The physical injuries that Diosdado suffered have caused temporary total disability of
plaintiff’s left hand.
7. So Diosdado filed a notice of accident and notice of claim to recover indemnity under their
insurance policy
8. However, the defendants rejected the plaintiff’s claim, allegingg that it was not covered in his
policy because there was no severance of amputation of the left hand.
9. Diosdado contended that he may recover on the insurance policies for the loss of his
lefthand, it is not necessary that there should be an amputation thereof, but that it is
sufficient if the injuries prevent him from performing his work or labor necessary in the
pursuance of his occupation or business
ISSUE: Whether or not Plaintiff Ty may recover on the insurance policies issued to him for the
loss of his left hand.
HELD: No. SC said that we cannot go beyond the clear and express conditions of the insurance
policies, all of which define partial disability as loss of either hand by amputation.
There was no such amputation in the case at bar. The terms of the policies are clear, express
and specific that only amputation of the left hands hould be considered as a loss, therefore
Diosdado may not recover on the insurance policies issued to him.

14

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