Philmacare vs CA

Facts: Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care
coverage with petitioner Philamcare Health Systems, Inc. 

In the standard application form, he answered no to the question of “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?”

The application was approved.

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.

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, respondent tried to claim the benefits under the health care
agreement.

However, petitioner denied her claim saying that the Health Care Agreement was void.

According to petitioner, there was a concealment regarding Ernani’s medical history. 

Doctors at the MMC allegedly discovered at the time of Ernani’s confinement that he was
hypertensive, diabetic and asthmatic, contrary to his answer in the application form.

Thus, respondent paid the hospitalization expenses herself.

Later on, he was admitted at the Chinese General Hospital. 

Due to financial difficulties, however, respondent brought her husband home again.

In the morning of April 13, 1990, Ernani had fever and was feeling very weak.

Respondent was constrained to bring him back to the Chinese General Hospital where he died on
the same day.

On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action
for damages against petitioner and its president, Dr. Benito Reverente.

She asked for reimbursement of her expenses plus moral damages and attorney’s fees.

Trial Court - ruled against petitioners

 - Defendants to pay and reimburse the medical and hospital coverage of the late Ernani
Trinos
CA - affirmed the decision of the trial court but deleted all awards for damages and absolved
petitioner Reverente.

Issue: WON a health care agreement is not an insurance contract

Petitioner points out that only medical and hospitalization benefits are given under the agreement
without any indemnification, unlike in an insurance contract where the insured is indemnified for his
loss. 

Petitioner further argues that it is not an insurance company, which is governed by the Insurance
Commission, but a Health Maintenance Organization under the authority of the Department of
Health.

Ruling:

Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event.

An insurance contract exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses among a large
group of persons bearing a similar risk; and

5. In consideration of the insurer’s promise, the insured pays a premium.

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or
future, which may damnify a person having an insurable interest against him, may be insured
against. Every person has an insurable interest in the life and health of himself.

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.

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.
Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads that 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. 

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.

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:

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.

None of the above pre-conditions was fulfilled in this case. 

Malayan insurance vs CA

Facts: Private respondent TKC Marketing Corp. was the owner/consignee of some 3,189.171 metric
tons of soya bean meal which was loaded on board the ship MV Al Kaziemah on or about
September 8, 1989 for carriage from the port of Rio del Grande, Brazil, to the port of Manila.

Said cargo was insured against the risk of loss by petitioner Malayan Insurance Corporation for
which it issued two (2) Marine Cargo policy amounting to P18,986,902.45 and P1,195,005.45.

While the vessel was docked in Durban, South Africa on September 11, 1989 enroute to Manila, the
civil authorities arrested and detained it because of a lawsuit on a question of ownership and
possession.

As a result, private respondent notified petitioner on October 4, 1989 of the arrest of the vessel and
made a formal claim for the amount of US$916,886.66, representing the dollar equivalent on the
policies, for non-delivery of the cargo.

Private respondent likewise sought the assistance of petitioner on what to do with the cargo.

Petitioner replied that the arrest of the vessel by civil authority was not a peril covered by the
policies. 

December 11, 1989, the cargo was sold in Durban, South Africa, for US$154.40 per metric ton or a
total of P10,304,231.75 due to its perishable nature which could no longer stand a voyage of twenty
days to Manila and another twenty days for the discharge thereof.

January 5, 1990, private respondent forthwith reduced its claim to US$448,806.09 (or its peso
equivalent of P9,879,928.89 at the exchange rate of P22.0138 per $1.00) representing private
respondent's loss after the proceeds of the sale were deducted from the original claim of
$916,886.66 or P20,184,159.55.

Petitioner maintained its position that the arrest of the vessel by civil authorities on a question of
ownership was an excepted risk under the marine insurance policies. 

This prompted private respondent to file a complaint for damages.

Lower Court - decided in favor of private respondent and required petitioner to pay

CA - affirmed the decision of the lower court stating that with the deletion of Clause 12 of the policies
issued to private respondent, the same became automatically covered under subsection 1.1 of
Section 1 of the Institute War Clauses. 
- The arrests, restraints or detainments contemplated in the former clause were those effected
by political or executive acts.
- Losses occasioned by riot or ordinary judicial processes were not covered therein.
- In other words, arrest, restraint or detainment within the meaning of Clause 12 (or F.C. & S.
Clause) rules out detention by ordinary legal processes. 
- Hence, arrests by civil authorities, such as what happened in the instant case, is an excepted
risk under Clause 12 of the Institute Cargo Clause or the F.C. & S. Clause. 
- The appellate court added that the failure to deliver the consigned goods in the port of
destination is a loss compensable, not only under the Institute War Clause but also under the
Theft, Pilferage, and Non-delivery Clause (TNPD) of the insurance policies, as read in
relation to Section 130 of the Insurance Code
Issue: WON the CA erred in giving undue reliance to the doctrine that insurance policies are strictly
construed against the insurer.

Ruling : NO

It has been held that a strained interpretation which is unnatural and forced, as to lead to an absurd
conclusion or to render the policy nonsensical, should, by all means, be avoided.

Likewise, it must be borne in mind that such contracts are invariably prepared by the companies and
must be accepted by the insured in the form in which they are written.

Any construction of a marine policy rendering it void should be avoided.

Such policies will, therefore, be construed strictly against the company in order to avoid a forfeiture,
unless no other result is possible from the language used.

If a marine insurance company desires to limit or restrict the operation of the general provisions of its
contract by special proviso, exception, or exemption, it should express such limitation in clear and
unmistakable language.

Be that as it may, exceptions to the general coverage are construed most strongly against the
company.

Even an express exception in a policy is to be construed against the underwriters by whom the
policy is framed, and for whose benefit the exception is introduced. 

An insurance contract should be so interpreted as to carry out the purpose for which the parties
entered into the contract which is, to insure against risks of loss or damage to the goods. Such
interpretation should result from the natural and reasonable meaning of language in the policy.

Where restrictive provisions are open to two interpretations, that which is most favorable to the
insured is adopted.

Indemnity and liability insurance policies are construed in accordance with the general rule of
resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by
the insurer.

A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should
be resolved against the insurer; in other words, it should be construed liberally in favor of the insured
and strictly against the insurer.

Limitations of liability should be regarded with extreme jealousy and must be construed in such a
way as to preclude the insurer from noncompliance with its obligations. 
Rizal surety vs CA

Facts: On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance) issued Fire
Insurance Policy No. 45727 in favor of Transworld Knitting Mills, Inc. (Transworld), initially for One
Million (₱1,000,000.00) Pesos and eventually increased to One Million Five Hundred Thousand
(₱1,500,000.00) Pesos, covering the period from August 14, 1980 to March 13, 1981.

On January 12, 1981, fire broke out in the compound of Transworld, 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) where fun and amusement machines and
spare parts were stored, was also destroyed by the fire.

Transworld filed its insurance claims with Rizal Surety & Insurance Company and New India
Assurance Company but to no avail.

May 26, 1982, private respondent brought against the said insurance companies an action for
collection of sum of money and damages, docketed as Civil Case No. 46106 before Branch 161 of
the then Court of First Instance of Rizal

Petitioner Rizal Insurance countered that its fire insurance policy sued upon covered only the
contents of the four-span building, which was partly burned, and not the damage caused by the fire
on the two-storey annex building.

Trial Court - Ordering defendant Rizal Surety And Insurance Company to pay Transwrold (sic)
Knitting Mills, Inc.

CA – affirmed but modified the amount

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

Ruling: Yes

The Petition is not impressed with merit.

Based on the insurance policy, the fire insurance policy in question did not limit its coverage to what
were stored in the four-span building. 

As opined by the trial court of origin, two requirements must concur in order that the said fun and
amusement machines and spare parts would be deemed protected by the fire insurance policy
under scrutiny, to wit:

"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"

Said building of four-span lofty one storey in height with mezzanine portions is constructed of
reinforced concrete and hollow blocks and/or concrete under galvanized iron roof and occupied as
hosiery mills, garment and lingerie factory, transistor-stereo assembly plant, offices, ware house and
caretaker's quarter.
In the case under consideration, both the trial court and the Court of Appeals found that the so called
"annex " was 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. 

Verily, the two-storey building involved, a permanent structure which adjoins and intercommunicates
with the "first right span of the lofty storey building", formed part thereof, and meets the requisites for
compensability under the fire insurance policy sued upon.

Indeed, the stipulation as to the coverage of the fire insurance policy under controversy has created
a doubt regarding the portions of the building insured thereby. Article 1377 of the New Civil Code
provides:

"Art.1377. The interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity"

Furthermore, in 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’
American Home Assurance vs Tantuco

Facts: Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refining
industry.

It owns two oil mills. Both are located at factory compound at Iyam, Lucena City.

It appears that respondent commenced its business operations with only one oil mill.

In 1988, it started operating its second oil mill. The latter came to be commonly referred to as the
new oil mill.

The two oil mills were separately covered by fire insurance policies issued by petitioner American
Home Assurance Co., Philippine Branch.

A fire that broke out in the early morning of September 30,1991 gutted and consumed the new oil
mill.

Respondent immediately notified the petitioner of the incident. 

The latter then sent its appraisers who inspected the burned premises and the properties destroyed. 

Thereafter, in a letter dated October 15, 1991, petitioner rejected respondent's claim for the insurance
proceeds on the ground that no policy was issued by it covering the burned oil mill.

It stated that the description of the insured establishment referred to another building thus: "Our
policy nos. 306-7432321-9 (Ps 6M) and 306-7432324-4 (Ps 3M) extend insurance coverage to your oil
mill under Building No. 5, whilst the affected oil mill was under Building No. 14. "

RTC - rendered in favor of the plaintiff ordering defendant to pay plaintiff

CA – upheld the same

Issue: WON the Court of Appeals erred in its legal interpretation of 'Fire Extinguishing Appliances
Warranty' of the policy.

Ruling: NO

In construing the words used descriptive of a building insured, the greatest liberality is shown by the
courts in giving effect to the insurance.

In view of the custom of insurance agents to examine buildings before writing policies upon them, and
since a mistake as to the identity and character of the building is extremely unlikely, the courts are
inclined to consider that the policy of insurance covers any building which the parties manifestly
intended to insure, however inaccurate the description may be.

Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind, that
what the parties manifestly intended to insure was the new oil mill.

If the parties really intended to protect the first oil mill, then there is no need to specify it as new.
As mentioned earlier, the first oil mill is already covered under Policy No. 306-7432324-4 issued by
the petitioner. It is unthinkable for respondent to obtain the other policy from the very same
company.

The object of the court in construing a contract is to ascertain the intent of the parties to the contract
and to enforce the agreement which the parties have entered into.

In determining what the parties intended, the courts will read and construe the policy as a whole and
if possible, give effect to all the parts of the contract, keeping in mind always, however, the prime rule
that in the event of doubt, this doubt is to be resolved against the insurer. 

In determining the intent of the parties to the contract, the courts will consider the purpose and object
of the contract.
Philmacare vs CA

Facts: Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care
coverage with petitioner Philamcare Health Systems, Inc. 

In the standard application form, he answered no to the question of “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?”

The application was approved.

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.

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, respondent tried to claim the benefits under the health care
agreement.

However, petitioner denied her claim saying that the Health Care Agreement was void.

According to petitioner, there was a concealment regarding Ernani’s medical history. 

Doctors at the MMC allegedly discovered at the time of Ernani’s confinement that he was
hypertensive, diabetic and asthmatic, contrary to his answer in the application form.

Thus, respondent paid the hospitalization expenses herself.

Later on, he was admitted at the Chinese General Hospital. 

Due to financial difficulties, however, respondent brought her husband home again.

In the morning of April 13, 1990, Ernani had fever and was feeling very weak.

Respondent was constrained to bring him back to the Chinese General Hospital where he died on
the same day.

On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action
for damages against petitioner and its president, Dr. Benito Reverente.

She asked for reimbursement of her expenses plus moral damages and attorney’s fees.

Trial Court - ruled against petitioners

 - Defendants to pay and reimburse the medical and hospital coverage of the late Ernani
Trinos
CA - affirmed the decision of the trial court but deleted all awards for damages and absolved
petitioner Reverente.

Issue: WON Healthcare agreements are construed the same as insurance policies

Ruling: YES

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.
DBP POOL OF ACCREDITED INSURANCE COMPANIES vs Radio Mindanao

Facts: The assailed decision originated from Civil Case No. 90-602 filed by Radio Mindanao
Network, Inc. (respondent) against DBP Pool of Accredited Insurance Companies (petitioner) and
Provident Insurance Corporation (Provident) for recovery of insurance benefits.

In the evening of July 27, 1988, respondent’s radio station located in SSS Building, Bacolod City,
was razed by fire causing damage in the amount of P1,044,040.00. 

Respondent sought recovery under the two insurance policies but the claims were denied on the
ground that the cause of loss was an excepted risk excluded under condition no. 6 (c) and (d)

6. This insurance does not cover any loss or damage occasioned by or through or in consequence,
directly or indirectly, of any of the following consequences, namely:

(c) War, invasion, act of foreign enemy, hostilities, or warlike operations (whether war be declared or
not), civil war.

(d) Mutiny, riot, military or popular rising, insurrection, rebellion, revolution, military or usurped
power.

The insurance companies maintained that the evidence showed that the fire was caused by
members of the Communist Party of the Philippines/New People’s Army (CPP/NPA)

Hence, respondent was constrained to file Civil Case No. 90-602 against petitioner and Provident.

RTC - rendered a decision in favor of respondent.

CA – affirmed

Issue: WON THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THERE
WERE NO SUFFICIENT EVIDENCE SHOWING THAT THE APPROXIMATELY TENTY (20)
ARMED MEN WHO CUSED THE FIRE AT RESPONDENT’S RMN PROPERTY AT BACOLOD
CITY WERE MEMBERS OF THE CPP-NPA.

Ruling: Both the trial court and the CA were correct in ruling that petitioner failed to prove that the
loss was caused by an excepted risk.

Petitioner argues that private respondent is responsible for proving that the cause of the
damage/loss is covered by the insurance policy, as stipulated in the insurance policy.

An insurance contract, being a contract of adhesion, should be so interpreted as to carry out the
purpose for which the parties entered into the contract which is to insure against risks of loss or
damage to the goods. Limitations of liability should be regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer from noncompliance with its obligations.

The "burden of proof" contemplated by the aforesaid provision actually refers to the "burden of
evidence" (burden of going forward).
As applied in this case, it refers to the duty of the insured to show that the loss or damage is covered
by the policy. 

The foregoing clause notwithstanding, the burden of proof still rests upon petitioner to prove that the
damage or loss was caused by an excepted risk in order to escape any liability under the contract.

Burden of proof is the duty of any party to present evidence to establish his claim or defense by the
amount of evidence required by law, which is preponderance of evidence in civil cases. 

The party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of
proof to obtain a favorable judgment.

For the plaintiff, the burden of proof never parts.

For the defendant, an affirmative defense is one which is not a denial of an essential ingredient in
the plaintiff’s cause of action, but one which, if established, will be a good defense – i.e. an
"avoidance" of the claim.

Particularly, in insurance cases, where a risk is excepted by the terms of a policy which insures
against other perils or hazards, loss from such a risk constitutes a defense which the insurer may
urge, since it has not assumed that risk, and from this it follows that an insurer seeking to defeat a
claim because of an exception or limitation in the policy has the burden of proving that the
loss comes within the purview of the exception or limitation set up.

Consequently, it is sufficient for private respondent to prove the fact of damage or loss. Once
respondent makes out a prima facie case in its favor, the duty or the burden of evidence shifts to
petitioner to controvert respondent’s prima facie case.

In this case, since petitioner alleged an excepted risk, then the burden of evidence shifted to
petitioner to prove such exception. It is only when petitioner has sufficiently proven that the damage
or loss was caused by an excepted risk does the burden of evidence shift back to respondent who is
then under a duty of producing evidence to show why such excepted risk does not release petitioner
from any liability.

Unfortunately for petitioner, it failed to discharge its primordial burden of proving that the damage or
loss was caused by an excepted risk.
Gulf Resorts vs Philippine Charter Insurance

Facts: Plaintiff 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-AIU).

 On July 16, 1990, an earthquake struck Central Luzon and Northern Luzon so the properties and 2
swimming pools in its Agoo Playa Resort were damaged.

After the earthquake, petitioner advised respondent that it would be making a claim
under its Insurance Policy No. 31944 for damages on its properties.

On July 30, 1990, respondent, through its adjuster, requested petitioner to submit
various documents in support of its claim.

On August 7, 1990, Bayne Adjusters and Surveyors, Inc., through its Vice-President
A.R. de Leon, rendered a preliminary report, finding extensive damage caused by
the earthquake to the clubhouse and to the two swimming pools.

Mr. de Leon stated that "except for the swimming pools, all affected items have no
coverage for earthquake shocks."

On August 11, 1990, petitioner filed its formal demand for settlement of the
damage to all its properties in the Agoo Playa Resort.

On August 23, 1990, respondent denied petitioner's claim on the ground that its
insurance policy only afforded earthquake shock coverage to the two swimming
pools of the resort.

Thus, on January 24, 1991, petitioner filed a complaint with the regional trial court
of Pasig praying for the payment.

RTC - ruled in favor of the respondent

- The above schedule clearly shows that plaintiff paid only a premium
of P393.00 against the peril of earthquake shock, the same premium it paid
against earthquake shock only on the two swimming pools in all the policies
issued by AHAC(AIU)
- From this fact the Court must consequently agree with the position of
defendant that the endorsement rider means that only the two swimming
pools were insured against earthquake shock.

CA – affirmed

Issue: WON THAT UNDER RESPONDENT'S INSURANCE POLICY NO. 31944, ONLY
THE TWO (2) SWIMMING POOLS, RATHER THAN ALL THE PROPERTIES COVERED
THEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE SHOCK.
Petitioner contends that
First, that the policy's earthquake shock endorsement clearly covers all of the
properties insured and not only the swimming pools.

It used the words "any property insured by this policy," and it should be interpreted
as all inclusive.

Ruling: YES

In Insurance Policy No. 31944, four key items are important in the resolution of the
case at bar.

First, in the designation of location of risk, only the two swimming pools were
specified as included, viz:

ITEM 3 - 393,000.00 - On the two (2) swimming pools only (against the peril of
earthquake shock only)

Third, Policy Condition No. 6 stated:

6. This insurance does not cover any loss or damage occasioned by or through or in
consequence, directly or indirectly of any of the following occurrences, namely: - -

(a) Earthquake, volcanic eruption or other convulsion of nature.

Fourth, the rider attached to the policy, titled "Extended Coverage Endorsement
(To Include the Perils of Explosion, Aircraft, Vehicle and Smoke)," stated, viz

“THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS

INSURED IN EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OF A
DISCOUNT OF 5% OR 7 - % OF THE NET PREMIUM x x x POLICY HEREBY
UNDERTAKES TO CONTINUE THE INSURANCE UNDER THE ABOVE NAMED x x x
AND TO PAY THE PREMIUM.

Earthquake Endorsement

In consideration of the payment by the Insured to the Company of the sum

of P. . . . . . . . . . . . . . . . . additional premium the Company agrees,
notwithstanding what is stated in the printed conditions of this Policy to the
contrary, that this insurance covers loss or damage (including loss or damage by
fire) to any of the property insured by this Policy occasioned by or through or in
consequence of Earthquake.

Provided always that all the conditions of this Policy shall apply (except in so far as
they may be hereby expressly varied) and that any reference therein to loss or
damage by fire should be deemed to apply also to loss or damage occasioned by or
through or in consequence of Earthquake.”

Petitioner contends that pursuant to this rider, no qualifications were placed on the
scope of the earthquake shock coverage. 

Thus, the policy extended earthquake shock coverage to all of the insured
properties.

It is basic that all the provisions of the insurance policy should be examined and
interpreted in consonance with each other.

All its parts are reflective of the true intent of the parties.

The policy cannot be construed piecemeal.

Certain stipulations cannot be segregated and then made to control; neither do

particular words or phrases necessarily determine its character.

Petitioner cannot focus on the earthquake shock endorsement to the exclusion of

the other provisions.

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

A careful examination of the premium recapitulation will show that it is the clear
intent of the parties to extend earthquake shock coverage only to the two
swimming pools.

Section 2(1) of the Insurance Code defines a contract of insurance as an agreement

whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event.

An insurance contract exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses

among a large group of persons bearing a similar risk; and cralawlibrary

5. In consideration of the insurer's promise, the insured pays a premium.

An insurance 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 payable 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. PETITION DENIED
Eternal Gardens vs Philamlife

Facts: December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife)
entered into an agreement denominated as Creditor Group Life Policy with petitioner Eternal
Gardens Memorial Park Corporation (Eternal).

Under the policy, the clients of Eternal who purchased burial lots from it on installment basis would
be insured by Philamlife.

The amount of insurance coverage depended upon the existing balance of the purchased burial lots.
The policy was to be effective for a period of one year, renewable on a yearly basis.

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
containing a list of insurable balances of its lot buyers for October 1982. One of those included in the
list as "new business" was a certain John Chuang. 

His balance of payments was PhP 100,000. On August 2, 1984, Chuang died.

Eternal sent a letter dated August 20, 1984 to Philamlife, which served as an insurance claim for
Chuang’s death.

In reply, Philamlife wrote Eternal a letter on November 12, 1984, requiring Eternal to submit the
following documents relative to its insurance claim for Chuang’s death.

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.

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) for a sum of
money against Philamlife, docketed as Civil Case No. 14736.

Trial Court - decided in favor of Eternal

CA – Reversed. Complaint was dismissed

- The CA based its Decision on the factual finding that Chuang’s application was not enclosed
in Eternal’s letter dated December 29, 1982.

- It further ruled that the non-accomplishment of the submitted application form violated
Section 26 of the Insurance Code.
 -  there being no application form, Chuang was not covered by Philamlife’s insurance.

Issue: WON There was no valid insurance coverage

Philamlife claims that the evidence presented by Eternal is insufficient, arguing that Eternal must
present evidence showing that Philamlife received a copy of Chuang’s insurance application.

Ruling: The evidence on record supports Eternal’s position.

The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received,
states that the insurance forms for the attached list of burial lot buyers were attached to the letter.

Such stamp of receipt has the effect of acknowledging receipt of the letter together with the
attachments.

Such receipt is an admission by Philamlife against its own interest.

The burden of evidence has shifted to Philamlife, which must prove that the letter did not contain
Chuang’s insurance application.

However, Philamlife failed to do so; thus, Philamlife is deemed to have received Chuang’s insurance
application.

To reiterate, it was Philamlife’s bounden duty to make sure that before a transmittal letter is stamped
as received, the contents of the letter are correct and accounted for.

An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no

overlooked facts of substance and value.

Philamlife primarily claims that Eternal did not even know where the original insurance application of
Chuang was, as shown by the testimony of Edilberto Mendoza.

The witness admitted not knowing where the original insurance application was, but believed that the
application was transmitted to Philamlife as an attachment to a transmittal letter.

Thus, the inconsistencies pointed out by Philamlife are minor and do not affect the credibility of
Eternal’s witnesses.

However, the question arises as to whether Philamlife assumed the risk of loss without
approving the application.

This question must be answered in the affirmative.

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 vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10,
1980, must be construed in favor of the insured and in favor of the effectivity of the insurance
contract.

On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a
party’s purchase of a memorial lot on installment from Eternal, an insurance contract covering the lot
purchaser is created and the same is effective, valid, and binding until terminated by Philamlife by
disapproving the insurance application.

The second sentence of Creditor Group Life Policy No. P-1920 on the Effective Date of Benefit is in
the nature of a resolutory condition which would lead to the cessation of the insurance contract. 

Moreover, the mere inaction of the insurer on the insurance application must not work to prejudice
the insured; it cannot be interpreted as a termination of the insurance contract.

The termination of the insurance contract by the insurer must be explicit and unambiguous.

CA DECISION REVERSED
Keppel Cebu vs Pioneer

Facts: On January 26, 2000, KCSI and WG&A Jebsens Shipmanagement, Inc. (WG&A) executed a
Shiprepair Agreement wherein KCSI (Keppel) would renovate and reconstruct WG&A’s M/V
"Superferry 3" using its dry docking facilities pursuant to its restrictive safety and security rules and
regulations.

Prior to the execution of the Shiprepair Agreement, "Superferry 3" was already insured by WG&A
with Pioneer for US$8,472,581.78.

On February 8, 2000, in the course of its repair, M/V "Superferry 3" was gutted by fire. 

Claiming that the extent of the damage was pervasive, WG&A declared the vessel’s damage as a
"total constructive loss" and, hence, filed an insurance claim with Pioneer.

On June 16, 2000, Pioneer paid the insurance claim of WG&A in the amount of US$8,472,581.78.

WG&A, in turn, executed a Loss and Subrogation Receipt in favor of Pioneer.

Armed with the subrogation receipt, Pioneer tried to collect from KCSI, but the latter denied any
responsibility for the loss of the subject vessel. 

As KCSI continuously refused to pay despite repeated demands, Pioneer, on August 7, 2000, filed a
Request for Arbitration before the Construction Industry Arbitration Commission (CIAC) 

KCSI and WG&A reached an amicable settlement, leading the latter to file a Notice of Withdrawal of
Claim on April 17, 2001 with the CIAC. The CIAC granted the withdrawal on October 22, 2001,
thereby dismissing the claim of WG&A against KCSI. Hence, the arbitration proceeded with Pioneer
as the remaining claimant.

CIAC - rendered its Decision declaring both WG&A and KCSI guilty of negligence.

- Holding that the liability for damages was limited to ₱50,000,000.00, the CIAC ordered KCSI
to pay Pioneer the amount of ₱25,000,000.00, with interest at 6% per annum from the time
of the filing of the case up to the time the decision is promulgated, and 12% interest per
annum added to the award, or any balance thereof, after it becomes final and executory.

- The CIAC further ordered that the arbitration costs be imposed on both parties on a pro rata
basis.

Pioneer - Pioneer appealed to the CA and its petition was docketed as CA-G.R. SP No. 74018.

KCSI - likewise filed its own appeal and the same was docketed as CA-G.R. SP No. 73934.
CA - Petition of Pioneer (CA-G.R. SP No. 74018) is DISMISSED

- Petition of the Yard (CA-G.R. SP No. 73934) is GRANTED, dismissing petitioner’s claims in
its entirety.

Aggrieved, Pioneer sought reconsideration of the December 17, 2004 Decision, insisting that it
suffered from serious errors in the appreciation of the evidence and from gross misapplication of the
law and jurisprudence on negligence.

KCSI, for its part, filed a motion for partial reconsideration of the same Decision.

CA - Pioneer’s Motion for Reconsideration is PARTIALLY GRANTED, ordering The Yard to pay
Pioneer ₱25 Million, without legal interest, within 15 days from the finality of this Amended Decision

- The Yard is hereby declared as equally negligent, thus, the total GRANTING of its Petition
(CA-G.R. SP No. 73934) is now reduced to PARTIALLY GRANTED, in so far as it is ordered
to pay Pioneer ₱25 Million, without legal interest, within 15 days from the finality of this
Amended Decision

Issue:  Is subrogation proper? If proper, to what extent can subrogation be made?

Pioneer asseverates that there existed a total constructive loss so that it had to pay WG&A the full
amount of the insurance coverage and, by operation of law, it was entitled to be subrogated to the
rights of WG&A to claim the amount of the loss.

It further argues that the limitation of liability clause found in the Shiprepair Agreement is null and
void for being iniquitous and against public policy.

KCSI counters that a total constructive loss was not adequately proven by Pioneer, and that there is
no proof of payment of the insurance proceeds.

KCSI insists on the validity of the limited-liability clause up to ₱50,000,000.00, because WG&A
acceded to the provision when it executed the Shiprepair Agreement. 

KCSI also claims that the salvage value of the vessel should be deducted from whatever amount it
will be made to pay to Pioneer.

Ruling: We find in favor of Pioneer, subject to the claim of KCSI as to the salvage value of M/V
"Superferry 3."

In marine insurance, a constructive total loss occurs under any of the conditions set forth in Section
139 of the Insurance Code

Sec. 139. A person insured by a contract of marine insurance may abandon the thing insured, or any
particular portion hereof separately valued by the policy, or otherwise separately insured, and
recover for a total loss thereof, when the cause of the loss is a peril insured against:

(a) If more than three-fourths thereof in value is actually lost, or would have to be expended
to recover it from the peril;

(b) If it is injured to such an extent as to reduce its value more than three-fourths; x x x.
It appears, however, that in the execution of the insurance policies over M/V "Superferry 3," WG&A
and Pioneer incorporated by reference the American Institute Hull Clauses 2/6/77

Alpha Insurance vs Castor

Facts: On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No.
MAND/CV-00186, with petitioner, involving her motor vehicle, a Toyota Revo DLX DSL.

The contract of insurance obligates the petitioner to pay the respondent the amount of Six Hundred
Thirty Thousand Pesos (₱630,000.00) in case of loss or damage to said vehicle during the period
covered, which is from February 26, 2007 to February 26, 2008.

April 16, 2007, respondent instructed her driver, Jose Joel Salazar Lanuza (Lanuza), to bring the
above-described vehicle to a nearby auto-shop for a tune-up.

However, Lanuza no longer returned the motor vehicle to respondent and despite diligent efforts to
locate the same, said efforts proved futile.

Resultantly, respondent promptly reported the incident to the police and concomitantly notified
petitioner of the said loss and demanded payment of the insurance proceeds in the total sum of
₱630,000.00.

Petitioner denied the insurance claim of respondent

According to petitioner, the company shall not be liable for any malicious damage caused by the
Insured, any member of his family or by "A PERSON IN THE INSURED’S SERVICE."

Respondent reiterated her claim and argued that the exception refers to damage of the motor
vehicle and not to its loss.

Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner before
the Regional Trial Court (RTC) of Quezon City on September 10, 2007.

RTC -  ruled in favor of respondent 

CA -  affirming in toto the RTC 

Issue: WON the loss of respondent’s vehicle is excluded under the insurance policy.

Ruling: NO

In denying respondent’s claim, petitioner takes exception by arguing that the word "damage," under
paragraph 4 of "Exceptions to Section III," means loss due to injury or harm to person, property or
reputation, and should be construed to cover malicious "loss" as in "theft." 
Thus, it asserts that the loss of respondent’s vehicle as a result of it being stolen by the latter’s driver
is excluded from the policy.

We do not agree.

Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft perpetrated
by the driver of the insured is not an exception to the coverage from the insurance policy, since
Section III thereof did not qualify as to who would commit the theft.
Moreover, contracts of insurance, like other contracts, are to be construed according to the sense
and meaning of the terms which the parties themselves have used. 

If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary
and popular sense.

Accordingly, in interpreting the exclusions in an insurance contract, the terms used to specify the
excluded classes therein are to be given their meaning as understood in common speech.

Adverse to petitioner’s claim, the words "loss" and "damage" mean different things in common
ordinary usage.

The word "loss" refers to the act or fact of losing, or failure to keep possession, while the word
"damage" means deterioration or injury to property. 1âwphi1

Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy
under paragraph 4 of "Exceptions to Section III," since the same refers only to "malicious damage,"
or more specifically, "injury" to the motor vehicle caused by a person under the insured’s service. 

Paragraph 4 clearly does not contemplate "loss of property," as what happened in the instant case.

A contract of insurance is a contract of adhesion.

So, when the terms of the 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.

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.

Indemnity and liability insurance policies are construed in accordance with the general rule of
resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by
the insurer. 

A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should
be resolved against the insurer; in other words, it should be construed liberally in favor of the insured
and strictly against the insurer.

Limitations of liability should be regarded with extreme jealousy and must be construed in such a
way as to preclude the insurer from non-compliance with its obligations.