Rizal Surety v CA G.R. No. 112360.

July 18, 2000

J. Purisima
Facts:
Rizal Surety issued a 1 million peso fire insurance policy with Transworld. This was increased
to 1.5 million. A four span building was part of the policy. A fire broke out and gutted the
building, together with a two storey building behind it were gaming machines were stored.
The company filed its claims but to no avail. Hence, it brought a suit in court. It aimed to
make Rizal pay for almost 3 million including legal interest and damages. Rizal claimed that
the policy only covered damage on the four span building and not the two storey building.
The trial court ruled in Transworlds favor and ordered Rizal to pay actual damages only. The
court of appeals increased the damages. The insurance company filed a MFR. The CA
answered by modifying the imposition of interest. Not satisfied, the insurance company
petitioned to the Supreme Court.
Issue:
WON 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: Yes. Petition dismissed.
Ratio:
The policy had clauses on the building coverage that read:
"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"
"First, said properties must be contained and/or stored in the areas occupied by Transworld
and second, said areas must form part of the building described in the policy xxx"
This generally means that the policy didnt limit its coverage to what was stored in the fourspan building.
As to questions of fact, both the trial court and the Court of Appeals found that the so called
"annex " was not an annex building but an integral part of the four-span building described
in the policy and consequently, the machines and spare parts stored were covered by the
fire insurance.
A report said: "Two-storey building constructed of partly timber and partly concrete hollow
blocks under g.i. roof which isadjoining and intercommunicating with the repair of the first
right span of the lofty storey building and thence by property fence wall."
"Art.1377. The interpretation of obscure words or stipulations in a contract shall not favor
the party who caused the obscurity"
Landicho v GSIS- 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
The issue of whether or not Transworld has an insurable interest in the fun and amusement
machines and spare parts, which entitles it to be indemnified for the loss thereof, had been
settled in another SC case.

(9)

Philamcare v. CA
379 SCRA 356 (2002)

Facts:
Ernani Trinos, applied for a health care coverage with Philamcare. In the standard application
form, he answered NO to the following 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? (If Yes, give details)
The application was approved for a period of one year from March 1, 1988 to March 1, 1989.
He was issued Health Care Agreement, and under such, he 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.
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 one month beginning March 9, 1990.
While her husband was in the hospital, Julita tried to claim the benefits under the health care
agreement. However, Philamcare denied her claim saying that the Health Care Agreement
was void.
According to Philamcare, there was 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.
Julita had no choice but to pay 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 (CGH). Due to financial
difficulties, Julita brought her husband home again. In the morning of April 13, 1990, Ernani
had fever and was feeling very weak. Julita was constrained to bring him back to the CGH
where he died on the same day.
Julita instituted, an action for damages against Philamcare. She asked for reimbursement of
her expenses plus moral damages and attorney's fees. RTC decided in favor of Julita. CA
affirmed.
Issues and Resolutions:
Philamcare 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 Title 6, Sec. 48 does not apply.
SC held that 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. 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.
Under the title Claim procedures of expenses, Philamcare. had 12 mos 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.
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.
Philamcare cannot rely on the stipulation regarding "Invalidation of agreement" which
reads:
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.
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. Thus,
(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.
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.
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. 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:
Prior notice of cancellation to insured;
Notice must be based on the occurrence after effective date of the policy of one or more of
the grounds mentioned;
Must be in writing, mailed or delivered to the insured at the address shown in the policy;
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.
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 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. 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.

Gulf Resorts Inc. vs. Philippine Charter Insurance Corporation [G.R. No. 156167
May 16, 2005]

Facts: Gulf Resorts is the owner of the Plaza Resort situated at Agoo, La Union and had its
properties in said resort insured originally with the American Home Assurance Company
(AHAC). In the first 4 policies issued, the risks of loss from earthquake shock was extended
only to petitioners two swimming pools. Gulf Resorts agreed to insure with Phil Charter the
properties covered by the AHAC policy provided that the policy wording and rates in said
policy be copied in the policy to be issued by Phil Charter. Phil Charter issued Policy No.
31944 to Gulf Resorts covering the period of March 14, 1990 to March 14, 1991 for
P10,700,600.00 for a total premium of P45,159.92. the break-down of premiums shows that
Gulf Resorts paid only P393.00 as premium against earthquake shock (ES). In Policy No.
31944 issued by defendant, the shock endorsement provided that In consideration of the
payment by the insured to the company of the sum included additional premium the
Company agrees, notwithstanding what is stated in the printed conditions of this policy due
to the contrary, that this insurancecovers loss or damage to shock to any of the property
insured by this Policy occasioned by or through or in consequence of earthquake (Exhs. "1D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C"). In Exhibit "7-C" the word "included" above
the underlined portion was deleted. On July 16, 1990 an earthquake struck Central Luzon
and Northern Luzon and plaintiffs properties covered by Policy No. 31944 issued by
defendant, including the two swimming pools in its Agoo Playa Resort were damaged.
Petitioner advised respondent that it would be making a claim under its Insurance Policy
31944 for damages on its properties. Respondent denied petitioners claim on the ground
that itsinsurance policy only afforded earthquake shock coverage to the two swimming pools
of the resort. The trial court ruled in favor of respondent. In its ruling, the schedule clearly
shows that petitioner paid only a premium of P393.00 against the peril of earthquake shock,
the same premium it had paid against earthquake shock only on the two swimming pools in
all the policies issued by AHAC.

Issue: Whether or not the policy covers only the two swimming pools owned by Gulf Resorts
and does not extend to all properties damaged therein

Held: YES. All the provisions and riders taken and interpreted together, indubitably show the
intention of the parties to extend earthquake shock coverage to the two swimming pools
only. Aninsurance premium is the consideration paid an insurer for undertaking to indemnify
the insured against a specified peril. In fire, casualty and marine insurance, the premium
becomes a debt as soon as the risk attaches. In the subject policy, no premium payments
were made with regard to earthquake shock coverage except on the two swimming pools.
There is no mention of any premium payable for the other resort properties with regard to
earthquake shock. This is consistent with the history of petitionersinsurance policies with
AHAC.

Philippine Health Care v CIR G.R. No. 167330 September 18, 2009
J. Corona
Facts:
Philippine Health Cares objectives were:
"[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.
It lost the case in 2004 when it was made to pay over 100 million in VAT deficiencies. At the
time the MFR was filed, it was able to avail of tax amnesty under RA 9840 by paying 5
percent of the tax or 5 million pesos.
Petitioner passed an MFR but the CA denied. Hence, this case.
Issue:
Was petitioner, as an HMO, engaged in the business of insurance during the pertinent
taxable years, and was thus liable for DST?
Held: No. Mfr granted. CIR must desist from collecting tax.
Ratio:
Section 185 of the NIRC . 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, employers liability, plate, glass, steam boiler, burglar,
elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and
fire insurance).
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, employers liability, plate, glass, steam boiler,
burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine,
inland, and fire insurance).
Under RA 7875, 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."
Various courts in the United States 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 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 such is incidental and service is the principal purpose, then the
business is not insurance.
Applying the "principal object and purpose test," there is significant American case law
supporting the argument that a corporation, whose main object is to provide the members of
a group with health services, is not engaged in the insurancebusiness.
For the purpose of determining what "doing an insurance business" means, we have to
scrutinize the operations of the business as a whole. This is of course only prudent and
appropriate, taking into account laws applicable to those in the insurance business.
Petitioner, as an HMO, is not part of the insurance industry. This is evident from the fact that
it is not supervised by the Insurance Commission but by the Department of Health. In fact, in
a letter dated September 3, 2000, the InsuranceCommissioner confirmed that petitioner is
not engaged in the insurance business.
As to whether the business is covered by the DST, we can see that while the contract did
contains all the elements of aninsurance contract, as stated in Sec 2., Par 1 of the
Insurance Code, the primary purpose of the company is to renderservice. The primary

purpose of the parties in making the contract may negate the existence of
an insurance contract.
Also, 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 petitioners physician or affiliated physician to him.
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" presume 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.
Also, 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.
Petitioner is obliged to reimburse the member who receives care from a non-participating
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.
Consequently, there is a need to distinguish prepaid service contracts (like those of
petitioner) from the usual insurancecontracts.
However, assuming that petitioners 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 petitioners objective is
to provide medical services at reduced cost, not to distribute risk like an insurer.
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.
In view of petitioners 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.
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.

(15) Grepalife v. CA
316 SCRA 677
Facts:
A contract of group life insurance was executed between Grepalife and DBP. Grepalife
agreed to insure the lives of eligible housing loan mortgagors of DBP.
Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in
the group life insurance plan.
In an application form, Dr. Leuterio answered questions concerning his health stating that
he is in good health and has never consulted a physician for or a heart condition, high
blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any other physical
impairment.
Grepalife issued the insurance coverage of Dr. Leuterio, to the extent of his DBP
mortgage indebtedness amounting to eighty-six thousand, two hundred (P86,200.00)
pesos.
Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP submitted a
death claim to Grepalife.
Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he
applied for an insurance coverage and insisted that Dr. Leuterio did not disclose that he
had been suffering from hypertension, which caused his death. Allegedly, such nondisclosure constituted concealment that justified the denial of the claim.
The widow of the late Dr. Leuterio, filed a complaint against Grepalife for "Specific
Performance with Damages." During the trial, Dr. Hernando Mejia, who issued the death
certificate, was called to testify. Dr. Mejias findings, based partly from the information
given by the widow, stated that Dr. Leuterio complained of headaches presumably due to
high blood pressure. The inference was not conclusive because Dr. Leuterio was not
autopsied, hence, other causes were not ruled out.
RTC ruled in favor of widow and against Grepalife. Grepalife appealed contending that
the wife was not the proper party in interest to file the suit, since it is DBP who insured
the life of Dr. Leuterio.
Issue: WON the widow is the real party in interest, (not DBP) and has legal standing to file
the suit.
Held: YES.
Grepalife alleges that the complaint was instituted by the widow of Dr. Leuterio, not the
real party in interest, hence the trial court acquired no jurisdiction over the case. It argues
that when the Court of Appeals affirmed the trial courts judgment, Grepalife was held liable
to pay the proceeds of insurance contract in favor of DBP, the indispensable party who was
not joined in the suit.
To resolve the issue, we must consider the insurable interest in mortgaged properties
and the parties to this type of contract. The rationale of a group insurance policy of
mortgagors, otherwise known as the "mortgage redemption insurance," is a device for the
protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to
enter into such form of contract so that in the event of the unexpected demise of the
mortgagor during the subsistence of the mortgage contract, the proceeds from such
insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of
the mortgagor from paying the obligation.
In a similar vein, ample protection is given to the mortgagor under such a concept so
that in the event of death; the mortgage obligation will be extinguished by the application of
the insurance proceeds to the mortgage indebtedness. Consequently, where the mortgagor
pays the insurance premium under the group insurance policy, making the loss payable to
the mortgagee, the insurance is on the mortgagors interest, and the mortgagor continues to
be a party to the contract. In this type of policy insurance, the mortgagee is simply an
appointee of the insurance fund, such loss-payable clause does not make the mortgagee a
party to the contract.
The insured private respondent did not cede to the mortgagee all his rights or interests
in the insurance, the policy stating that: "In the event of the debtors death before his
indebtedness with the Creditor [DBP] shall have been fully paid, an amount to pay the
outstanding indebtedness shall first be paid to the creditor and the balance of sum assured,
if there is any, shall then be paid to the beneficiary/ies designated by the debtor." When
DBP submitted the insurance claim against petitioner, the latter denied payment thereof,

interposing the defense of concealment committed by the insured. Thereafter, DBP collected
the debt from the mortgagor and took the necessary action of foreclosure on the residential
lot of private respondent
And since a policy of insurance upon life or health may pass by transfer, will or
succession to any person, whether he has an insurable interest or not, and such person may
recover it whatever the insured might have recovered, 14 the widow of the decedent Dr.
Leuterio may file the suit against the insurer, Grepalife.
As to the question of whether there was concealment, CA held as affirmed by the SC that
contrary to Grepalifes allegations, there was no sufficient proof that the insured had
suffered from hypertension. Aside from the statement of the insureds widow who was not
even sure if the medicines taken by Dr. Leuterio were for hypertension, the appellant had
not proven nor produced any witness who could attest to Dr. Leuterios medical history.
The fraudulent intent on the part of the insured must be established to entitle the insurer
to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the insurer. In the case at bar, the petitioner failed to clearly and
satisfactorily establish its defense, and is therefore liable to pay the proceeds of the
insurance.

(76) Enriquez v. SunLIfe

41 PHIL 269
Facts:
On Sept. 24 1917, Herrer made an application to SunLife through its office in Manila for life
annuity.
2 days later, he paid the sum of 6T to the companys anager in its Manila office and was
given a receipt.
On Nov. 26, 1917, the head office gave notice of acceptance by cable to Manila. On the
same date, the Manila office prepared a letter notifying Herrer that his application has been
accepted and this was placed in the ordinary channels of transmission, but as far as known
was never actually mailed and never received by Herrer.
Herrer died on Dec. 20, 1917. The plaintiff as administrator of Herrers estate brought this
action to recover the 6T paid by the deceased.
Issue: WON the insurance contract was perfected.
Held: NO.
The contract for 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. An acceptance of an offer of insurance NOT actually or constructively
communicated to the proposer does NOT make a contract of insurane, as the locus
poenitentiae is ended when an acceptance has passed beyond the control of the party.
NOTE: Life annuity is the opposite of a life insurance. In life annuity, a big amount is given
to the insurance company, and if after a certain period of time the insured is stil living, he is
entitled to regular smaller amounts for the rest of his life. Examples of Life annuity are
pensions. Life Insurance on the other hand, the insured during the period of the coverage
makes small regular payments and upon his death, the insurer pays a big amount to his
beneficiaries.

(79) CIR v. Lincoln Phil Life

379 SCRA 423 (2002)
Facts:

In the years prior to 1984, Lincoln issued a special kind of life insurance policy known as the
"Junior Estate Builder Policy," the distinguishing feature of which is a clause providing for an
automatic increase in the amount of life insurance coverage upon attainment of a certain
age by the insured without the need of issuing a new policy. The clause was to take effect in
the year 1984.
Documentary stamp taxes due on the policy were paid to the petitioner only on the initial
sum assured.
Subsequently, petitioner issued deficiency documentary stamps tax assessment for the year
1984, corresponding to the amount of automatic increase of the sum assured on the policy
issued by respondent.
Lincoln questioned the deficiency assessments and sought their cancellation in a petition
filed in the Court of Tax Appeals. CTA found no basis for the assessment. CA affirmed.
Issue: WON the automatic increase of the sum assured on the policy is taxable.
Held: YES.
CIR claims that the "automatic increase clause" in the subject insurance policy is
separate and distinct from the main agreement and involves another transaction; and that,
while no new policy was issued, the original policy was essentially re-issued when the
additional obligation was assumed upon the effectivity of this "automatic increase clause" in
1984; hence, a deficiency assessment based on the additional insurance not covered in the
main policy is in order. The SC agreed with this contention.
The subject insurance policy at the time it was issued contained an "automatic
increase clause." Although the clause was to take effect only in 1984, it was written into the
policy at the time of its issuance. The distinctive feature of the "junior estate builder policy"
called the "automatic increase clause" already formed part and parcel of the insurance
contract, hence, there was no need for an execution of a separate agreement for the
increase in the coverage that took effect in 1984 when the assured reached a certain age.
It is clear from Section 173 of the NIRC that the payment of documentary stamp
taxes is done at the time the act is done or transaction had and the tax base for the
computation of documentary stamp taxes on life insurance policies under Section 183 of
NIRC is the amount fixed in policy, unless the interest of a person insured is susceptible of
exact pecuniary measurement.
Logically, we believe that the amount fixed in the policy is the figure written on its
face and whatever increases will take effect in the future by reason of the "automatic
increase clause" embodied in the policy without the need of another contract.
Here, although the automatic increase in the amount of life insurance coverage was
to take effect later on, the date of its effectivity, as well as the amount of the increase, was
already definite at the time of the issuance of the policy. Thus, 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.
The "automatic increase clause" in the policy is in the nature of a conditional
obligation under Article 1181, 8 by which the increase of the insurance coverage shall
depend upon the happening of the event which constitutes the obligation. In the instant
case, the additional insurance that took effect in 1984 was an obligation subject to a
suspensive obligation, 9 but still a part of the insurance sold to which private respondent
was liable for the payment of the documentary stamp tax.

Eternal Gardens Memorial Park Corporation v Philamlife (Insurance)

G.R. No. 166245

April 9, 2008

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner, vs. THE PHILIPPINE

AMERICAN LIFE INSURANCE COMPANY, respondent.
FACTS:

Philamlife) entered into an agreement denominated as Creditor Group Life Policy No. P19202 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.
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, 19845 to Philamlife, which served as an insurance
claim for Chuang's death.
After more than a year, Philamlife had not furnished Eternal with any reply to the latter's
insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim
for PhP 100,000 on April 25, 1986.8
In response to Eternal's demand, Philamlife denied Eternal's insurance claim in a letter dated
May 20, 1986. Consequently, Eternal filed a case before the Makati City Regional Trial Court
(RTC).
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:
May the inaction of the insurer on the insurance application be considered as approval of the
application?
RULING: YES
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.
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.13 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.
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.