Edillon v Manila Bankers Life G.R. No. L-34200 September 30, 1982

J. Vasquez

Facts:

Carmen O, Lapuz applied with Manila Bankers for insurance coverage against accident and injuries. She gave the date of her birth as July 11, 1904. She paid the sum of P20.00 representing the premium for which she was issued the corresponding receipt. The policy was to be effective for 90 days.

During the effectivity, Carmen O. Lapuz died in a vehicular accident in the North Diversion Road.

Petitioner Regina L. Edillon, a sister of the insured and the beneficiary in the policy, filed her claim for the proceeds of the insurance. Her claim having been denied, Regina L. Edillon instituted this action in the trial court.

The insurance corporation relies on a provision contained in the contract excluding its liability to pay claims under the policy in behalf of "persons who are under the age of sixteen (16) years of age or over the age of sixty (60) years" They pointed out that the insured was over sixty (60) years of age when she applied for the insurance coverage, hence the policy became void.

The trial court dismissed the complaint and ordered edillon to pay P1000. The reason was that a policy of insurance being a contract of adhesion, it was the duty of the insured to know the terms of the contract he or she is entering into.

The insured could not have been qualified under the conditions stated in said contract and should have asked for a refund of the premium.

Issue:

Whether or not the acceptance by the insurance corporation of the premium and the issuance of the corresponding certificate of insurance should be deemed a waiver of the exclusionary condition of coverage stated in the policy.

Held: Yes. Petition granted.

Ratio:

The age of Lapuz was not concealed to the insurance company. Her application clearly indicated her age of the time of filing the same to be almost 65 years of age. Despite such information which could hardly be overlooked, the insurance corporation received her payment of premium and issued the corresponding certificate of insurance without question.

There was sufficient time for the private respondent to process the application and to notice that the applicant was over 60 years of age and cancel the policy.

Under the circumstances, the insurance corporation is already deemed in estoppel. It inaction to revoke the policy despite a departure from the exclusionary condition contained in the said policy constituted a waiver of such condition, similar to Que Chee Gan vs. Law Union Insurance.

The insurance company was aware, even before the policies were issued, that in the premises insured there were only two fire hydrants contrary to the requirements of the warranty in question.

It is usually held that where the insurer, at the time of the issuance of a policy of insurance, has knowledge of existing facts which, if insisted on, would invalidate the contract from its very inception, such knowledge constitutes a waiver of conditions in the contract inconsistent with the known facts, and the insurer is stopped thereafter from asserting the breach of such conditions.

To allow a company to accept one's money for a policy of insurance which it then knows to be void and of no effect, though it knows as it must, that the assured believes it to be valid and binding, is so contrary to the dictates of honesty and fair dealing.

Capital Insurance & Surety Co., Inc. vs. - involved a violation of the provision of the policy requiring the payment of premiums before the insurance shall become effective. The company issued the policy upon the execution of a promissory note for the payment of the premium. A check given subsequent by the insured as partial payment of the premium was dishonored for lack of funds. Despite such deviation from the terms of the policy, the insurer was held liable.

“... is that although one of conditions of an insurance policy is that "it shall not be valid or binding until the first premium is paid", if it is silent as to the mode of payment, promissory notes received by the company must be deemed to have been accepted in payment of the premium. In other words, a requirement for the payment of the first or initial premium in advance or actual cash may be waived by acceptance of a promissory note...”

Sunlife v CA G.R. No. 105135 June 22, 1995

J. Quiason

Facts:

Robert John B. Bacani procured a life insurance contract for himself from Sunlife. He was issued a policy for P100,000.00, with double indemnity in case of accidental death. The designated beneficiary was his mother, Bernarda Bacani.

The insured died in a plane crash. Respondent Bernarda Bacani filed a claim with petitioner, seeking the benefits of the insurance policy taken by her son. Petitioner conducted an investigation and its findings prompted it to reject the claim.

Sunlife informed Bacani that the insured did not disclose material facts relevant to the issuance of the policy, thus rendering the contract of insurance voidable. A check representing the total premiums paid in the amount of P10,172.00 was attached to said letter.

Petitioner claimed that the insured gave false statements in his application. The deceased answered claimed that he consulted a Dr. Raymundo of the Chinese General Hospital for cough and flu complications. The other questions were answered in the negative.

Petitioner discovered that two weeks prior to his application for insurance, the insured was examined and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure. During his confinement, the deceased was subjected to urinalysis tests.

Bernarda Bacani and her husband filed an action for specific performance against petitioner with the RTC. The court ruled in favor of the spouses and ordered Sunlife to pay P100,000.00.

In ruling for private respondents, the trial court concluded that the facts concealed by the insured were made in good faith and under a belief that they need not be disclosed. The court also held that the medial history was irrelevant because it wasn’t medical insurance.

The Court of Appeals affirmed the decision of the trial court. The appellate court ruled that petitioner cannot avoid its obligation by claiming concealment because the cause of death was unrelated to the facts concealed by the insured. Petitioner's motion for reconsideration was denied. Hence, this petition.

Issue: WON the insured was guilty of misrepresentation which made the contract void.

Held: Yes. Petition dismissed.

Ratio:

Section 26 of The Insurance Code required a party to a contract of insurance to communicate to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has no means of ascertaining.

“A neglect to communicate that which a party knows and ought to communicate, is called concealment.”

“Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom communication is due, in forming his estimate of the disadvantages of the proposed contract or in making his inquiries.”

The terms of the contract are clear. The insured is specifically required to disclose to the insurer matters relating to his health.

The information which the insured failed to disclose were material and relevant to the approval and issuance of the insurance policy. The matters concealed would have definitely affected petitioner's action on his application, either by approving it with the corresponding adjustment for a higher premium or rejecting the same. Moreover, a disclosure may have warranted a medical examination of the insured by petitioner in order for it to reasonably assess the risk involved in accepting the application.

Vda. de Canilang v. Court of Appeals- materiality of the information withheld does not depend on the state of mind of the insured. Neither does it depend on the actual or physical events which ensue.

“Good faith" is no defense in concealment. The insured's failure to disclose the fact that he was hospitalized raises grave doubts about his eligibility. Such concealment was deliberate on his part.

The argument, that petitioner's waiver of the medical examination of the insured debunks the materiality of the facts concealed, is untenable.

Saturnino v. Philippine American Life Insurance " . . . the waiver of a medical examination [in a non-medical insurance contract] renders even more material the information required of the applicant concerning previous condition of health and diseases suffered, for such information necessarily constitutes an important factor which the insurer takes into consideration in deciding whether to issue the policy or not . . . "

Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is well settled that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in making inquiries as held in Henson.

Yu v CA G.R. No. L-12465 May 29, 1959

J. Bautista

Facts:

Yu Pang Eng submitted application for insurance consisting of the medical declaration made by him to the medical examiner and the report. Yu then paid the premium in the sum of P591.70.

The insured, in his application for insurance, said “no” to ever having stomach disease, cancer, and fainting-spells. He also claimed to not have consulted a physician regarding such diseases.

After submitting the form, he entered the hospital where he complained of dizziness, anemia, abdominal pains and tarry stools. He was found to have peptic ulcer.

The insured entered another hospital for medical treatment but he died of "infiltrating medullary carcinoma, Grade 4, advanced cardiac and of lesser curvature, stomach metastases spleen."

Yu Pang Cheng aimed to collect P10,000.00 on  life of one Yu Pang Eng from an insurance company.

The company set up the defense that the insured was guilty of misrepresentation and concealment of material facts. They subsequently refused to give the indemnity.

The trial court rendered judgment ordering defendant to pay plaintiff the sum of P10,000.00, plus P2,000.00 as attorney's fees. The Court of Appeals reversed the decision of the trial court, holding that the insured was guilty of concealment of material facts. Hence the present petition.

Issue: Whether or not the insured is guilty of concealment of some facts material to the risk insured that consequently avoids the policy.

Held: Yes. Petition dismissed.

Ratio:

The first confinement took place from January 29, 1950 to February 11, while his application was submitted on September 5, 1950. When he gave his answers to the policy, he concealed the ailment of which he was treated in the hospital.

The negative answers given by the insured regarding his previous ailment deprived defendant of the opportunity to make the necessary inquiry as to the nature of his past illness so that as it may form its estimate relative to the approval of his application. Had defendant been given such opportunity, the company would probably had never consented to the issuance of the policy in question. In fact, according to the death certificate, the insured’s death may have direct connection with his previous illness.

Under the law, a neglect to communicate that which a party knows and ought to communicate, is called concealment. This entitles the insurer to rescind the contract. The insured is required to communicate to the insurer all facts within his knowledge which are material to the contract and which the other party has not the means of ascertaining. The materiality is to be determined not by the event but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due.

Argente vs. West Coast- “One ground for the rescission of a contract of insurance under the insurance Act is "a concealment", which in section 25 is defined "A neglect to communicate that which a party knows and ought to communicate."

“In an action on a life insurance policy where the evidence conclusively shows that the answers to questions concerning diseases were untrue, the truth or falsity of the answers become the determining factor. If the policy was procured by fraudulent representations, the contract of insurance was never legally existent. It can fairly be assumed that had the true facts been disclosed by the assured, the insurance would never have been granted.”

Ng v Asian Crusader G.R. No. L-30685 May 30, 1983

J. Escolin:

Facts:

Kwong Nam applied for a 20-year endowment insurance on his life for the sum of P20,000.00, with his wife, appellee Ng Gan Zee as beneficiary. On the same date, Asian Crusader, upon receipt of the required premium from the insured, approved the application and issued the corresponding policy. Kwong Nam died of cancer of the liver with metastasis. All premiums had been paid at the time of his death.

Ng Gan Zee presented a claim for payment of the face value of the policy. On the same date, she submitted the required proof of death of the insured. Appellant denied the claim on the ground that the answers given by the insured to the questions in his application for life insurance were untrue.

Appellee brought the matter to the attention of the Insurance Commissioner. The latter, after conducting an investigation, wrote the appellant that he had found no material concealment on the part of the insured and that, therefore, appellee should be paid the full face value of the policy. The company refused to settle its obligation.

Appellant alleged that the insured was guilty of misrepresentation when he answered "No" to the following question appearing in the application for life insurance-

Has any life insurance company ever refused your application for insurance or for reinstatement of a lapsed policy or offered you a policy different from that applied for? If, so, name company and date.

The lower court ruled against the company on lack of evidence.

Appellant further maintains that when the insured was examined in connection with his application for life insurance, he gave the appellant's medical examiner false and misleading information as to his ailment and previous operation. The company contended that he was operated on for peptic ulcer  2 years before the policy was applied for and that he never disclosed such an operation.

Issue: WON Asian Crusader was deceived into entering the contract or in accepting the risk at the rate of premium agreed upon because of insured's representation?

Held: No. Petition dismissed.

Ratio:

Section 27 of the Insurance Law:

Sec. 27. Such party a contract of insurance must communicate to the other, in good faith, all facts within his knowledge which are material to the contract, and which the other has not the means of ascertaining, and as to which he makes no warranty.

 "Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that he should communicate it to the assurer, but he designedly and intentionally withholds the same."

It has also been held "that the concealment must, in the absence of inquiries, be not only material, but fraudulent, or the fact must have been intentionally withheld."

Fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. And as correctly observed by the lower court, "misrepresentation as a defense of the insurer to avoid liability is an 'affirmative' defense. The duty to establish such a defense by satisfactory and convincing evidence rests upon the defendant. The evidence before the Court does not clearly and satisfactorily establish that defense."

It bears emphasis that Kwong Nam had informed the appellant's medical examiner of the tumor. His statement that said tumor was "associated with ulcer of the stomach" should be construed as an expression made in good faith of his belief as to the nature of his ailment and operation.

While the information communicated was imperfect, the same was sufficient to have induced appellant to make further inquiries about the ailment and operation of the insured.

Section 32 of Insurance Law:

Section 32. The right to information of material facts maybe waived either by the terms of insurance or by neglect to make inquiries as to such facts where they are distinctly implied in other facts of which information is communicated.

Where a question appears to be not answered at all or to be imperfectly answered, and the insurers issue a policy without any further inquiry, they waive the imperfection of the answer and render the omission to answer more fully immaterial.

The company or its medical examiner did not make any further inquiries on such matters from the hospital before acting on the application for insurance. The fact of the matter is that the defendant was too eager to accept the application and receive the insured's premium. It would be inequitable now to allow the defendant to avoid liability under the circumstances."

Sun Life v Ingersoll G.R. No. 16475 November 8, 1921

J. Street

Facts:

Sun Life issued a policy on Dy Poco’s life for US$12,500. The contract stipulated that it would be payable to the said assured or his assigns on the 21st day of February, 1938, and if he should die before that date, then it would be given to his legal representatives. The payment of a stipulated annual premium during the period of the policy, or until the premiums had been completely paid for twenty years,

Dy Poco, was adjudged an insolvent by the trial court and Frank B. Ingersoll was appointed assignee of his estate. Poco died, and Tan Sit, was appointed as the administratrix of his intestate estate.

Both Ingersoll, as assignee, and Tan Sit, as administratix of Dy Poco's estate, asserted claims to the proceeds of the policy. The lower court found that Ingersoll had a better right and ordered Sun Life to pay.

The polic stipulated that after the payment of three full premiums, the assured could surrender the policy to the company for a "cash surrender value."  Butno more than two premiums had been paid upon the policy up to the time of the death of the assured. Hence this provision had not become effective. It must therefore be accepted that this policy had no cash surrender value, at the time of the assured's death, either by contract or by convention practice of the company in such cases.

Issue:

WON Ingersoll, as assignee, has a right to the proceeds of the insurance

Held: No. Sunlife must pay to the administratrix.

Ratio:

The property and interests of the insolvent which become vested in the assignee of the insolvent are specified in section 32 of the Insolvency Law.

Sec 32 declares that the assignment to be made by the clerk of the court "shall operate to vest in the assignee all of the estate of the insolvent debtor not exempt by law from execution."

Moreover, by section 24, the court is required, upon making an order adjudicating any person insolvent, to stay any civil proceedings pending against him; and it is declared in section 60 that no creditor whose debt is provable under the Act shall be allowed, after the commencement of proceedings in insolvency, to prosecute to final judgment any action therefor against the debtor. In connection with the foregoing may be mentioned subsections 1 and 2 of section 36, as well as the opening words of section 33, to the effect that the assignee shall have the right and power to recover and to take into his possession, all of the estate, assets, and claims belonging to the insolvent, except such as are exempt by law from execution.

These provisions clearly evince an intention to vest in the assignee, for the benefit of all the creditors of the insolvent, such elements of property and property right as could be reached and subjected by process of law by any single creditor suing alone. "leviable assets" and "assets in insolvency" are practically coextensive terms. Hence, in determining what elements of value constitute assets in insolvency, the court is at liberty to consider what elements of value are subject to be taken upon execution, and vice versa.

Section 48 of the Insolvency Law, didn’t declare items from the ownership of which the assignee is excluded. Moreover, all life insurance policies are declared by law to be assignable, regardless of whether the assignee has an insurable interest in the life of the insured or not.

The assignee in insolvency acquired no beneficial interest in the policy of insurance in question; that its proceeds are not liable for any of the debts provable against the insolvent in the pending proceedings, and that said proceeds should therefore be delivered to his administratrix.

In re McKinney:    no beneficial interest in this policy had ever passed to the assignee over and beyond what constituted the surrender value, and that the legal title to the policy was vested in the assignee merely in order to make the surrender value available to him. The conclusion therefore was that the assignee should surrender the policy upon the payment to him of said value, as he was in fact directed to do.

A surrender value of a policy "arises from the fact that the fixed annual premiums is much in excess of the annual risk during the earlier years of the policy, an excess made necessary in order to balance the deficiency of the same premium to meet the annual risk during the latter years of the policy. This is the practical, though not the legal, relation of the company to this fund. "Upon the surrender of the policy before the death of the assured, the company, to be relieved from all responsibility for the increased risk, which is represented by this accumulating reserve, could well afford to surrender a considerable part of it to the assured, or his representative. A return of a part in some form or other is now Usually made."

The stipulation providing for a cash surrender value is a comparatively recent innovation in life insurance. Furthermore, the practice is common among insurance companies even now to concede nothing in the character of cash surrender value, until three full premiums have been paid, as in this case.

The courts are therefore practically unanimous in refusing to permit the assignee in insolvency to wrest from the insolvent a policy of insurance which contains in it no present realizable assets.

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

J. Quisimbing

Facts:

White Gold procured a protection and indemnity coverage for its vessels from The Steamship Mutual through Pioneer Insurance and Surety Corporation.  White Gold was issued a Certificate of Entry and Acceptance. Pioneer also issued receipts.  When White Gold failed to fully pay its accounts, Steamship Mutual refused to renew the coverage.

Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover the unpaid balance.  White Gold on the other hand, filed a complaint before the Insurance Commission claiming that Steamship Mutual and Pioneer violated provisions of the Insurance Code.

The Insurance Commission dismissed the complaint.  It said that there was no need for Steamship Mutual to secure a license because it was not engaged in the insurance business and that it was a P & I club. Pioneer was not required to obtain another license as insurance agent because Steamship Mutual was not engaged in the insurance business. 

The Court of Appeals affirmed the decision of the Insurance Commissioner.  In its decision, the appellate court distinguished between P & I Clubs vis-à-vis conventional insurance.  The appellate court also held that Pioneer merely acted as a collection agent of Steamship Mutual.

Hence this petition by White Gold.

Issues:

1. Is Steamship Mutual, a P & I Club, engaged in the insurance business in the Philippines?

2. Does Pioneer need a license as an insurance agent/broker for Steamship Mutual?

Held:  Yes. Petition granted.

Ratio:

White Gold insists that Steamship Mutual as a P & I Club is engaged in the insurance business.  To buttress its assertion, it cites the definition as “an association composed of shipowners in general who band together for the specific purpose of providing insurance cover on a mutual basis against liabilities incidental to shipowning that the members incur in favor of third parties.” 

They argued that Steamship Mutual’s primary purpose is to solicit and provide protection and indemnity coverage and for this purpose, it has engaged the services of Pioneer to act as its agent.

Respondents contended that although Steamship Mutual is a P & I Club, it is not engaged in the insurance business in the Philippines.  It is merely an association of vessel owners who have come together to provide mutual protection against liabilities incidental to shipowning.

Is Steamship Mutual engaged in the insurance business?

A P & I Club is “a form of insurance against third party liability, where the third party is anyone other than the P & I Club and the members.” By definition then, Steamship Mutual as a P & I Club is a mutual insurance association engaged in the marine insurance business.

The records reveal Steamship Mutual is doing business in the country albeit without the requisite certificate of authority mandated by Section 187 of the Insurance Code.  It maintains a resident agent in the Philippines to solicit insurance and to collect payments in its behalf.  Steamship Mutual even renewed its P & I Club cover until it was cancelled due to non-payment of the calls.  Thus, to continue doing business here, Steamship Mutual or through its agent Pioneer, must secure a license from the Insurance Commission.

Since a contract of insurance involves public interest, regulation by the State is necessary.  Thus, no insurer or insurance company is allowed to engage in the insurance business without a license or a certificate of authority from the Insurance Commission.

2. Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration issued by the Insurance Commission.  It has been licensed to do or transact insurance business by virtue of the certificate of authority issued by the same agency.  However, a Certification from the Commission states that Pioneer does not have a separate license to be an agent/broker of Steamship Mutual.

Although Pioneer is already licensed as an insurance company, it needs a separate license to act as insurance agent for Steamship Mutual.  Section 299 of the Insurance Code clearly states:

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

Harding v Commerical Union August 10, 1918 G.R. No. L-12707

J. Fisher

Facts:

Smith Bell insured Mrs. Hardings’ Studebaker car for a premium of Php 150. It was insured for Php 3,000, the value of the car. The car was destroyed by fire. Mrs. Harding furnished the defendant the proofs of her loss, but the company didn’t pay. Evidence showed that Hermanos sold the automobile to Canson for P3,200. Canson then sold the car to Harding for Php 1,500. The car was then sold for P2,000. It was then resold to Harding. He gave the car to his wife; Mrs. Henry E. Harding as a present. The automobile was repaired and repainted at the Luneta Garage at P900.

The company averred that they gave false information, particularly that on the price of the vehicle and the ownership of the car. Hence, they aimed to declare the policy void.

The trial court found that there was no fraud.

This was an action by plaintiffs to recover from defendant the sum of P3,000 and interest, alleged to be due under the terms of a policy of insurance. The trial court gave plaintiffs judgment for the amount demanded, with interest and costs, and from that decision the defendant appealed.

Issue: Was the valuation of the car for P3000 done fraudulently, thereby making the policy void?

Held: No.

Ratio:

The policy stated that

 “That during the period above set forth and during any period for which the company may agree to renew this policy the company will subject to the exception and conditions contained herein or endorsed hereon indemnify the insured against loss of or damage to any motor car described in the schedule by whatever cause such loss or damage may be occasioned and will further indemnify the insured up to the value of the car or P3,000 whichever is the greater against any claim at common law made by any person for loss of life or for accidental bodily injury or damage to property caused by the said motor car including law costs payable in connection with such claim when incurred with the consent of the company.”

Defendant contends that the statement regarding the cost of the automobile was a warranty, that the statement was false, and that, therefore, the policy never attached to the risk.

The automobile had in fact cost more than the amount mentioned. The court below found, and the evidence shows, that the automobile was bought by plaintiff’s husband a few weeks before the issuance of the policy in question for the sum of P2,800, and that between that time and the issuance of the policy some P900 was spent upon it in repairs and repainting. The mechanic who testified told that the automobile was practically as good as new at the time the insurance was effected.

The amount stated was less than the actual outlay which the automobile represented to Mr. Harding, including repairs, when the insurance policy was issued. It would be unfair to hold the policy void simply because the outlay represented by the automobile was made by the plaintiff’s husband and not by his wife, to whom he had given the automobile.

The trial court found that Mrs. Harding, in fixing the value of the automobile at P3,000, acted upon information given her by her husband and by Mr. Server, the manager of the Luneta Garage. She merely repeated the information which had been given her by her husband, and at the same time disclosed to defendant’s agent the source of her information. There is no evidence to sustain the contention that this communication was made in bad faith.

Under these circumstances, we do not think that the facts stated in the proposal can be held as a warranty of the insured, even if it should have been shown that they were incorrect in the absence of proof of willful misstatement. Under such circumstance, the proposal is to be regarded as the act of the insurer and not of the insured.

The defendant, upon the information given by plaintiff, and after an inspection of the automobile by its examiner, having agreed that it was worth P3,000, is bound by this valuation in the absence of fraud on the part of the insured. All statements of value are, of necessity, to a large extent matters of opinion, and it would be outrageous to hold that the validity of all valued policies must depend upon the absolute correctness of such estimated value.

Supreme Court v First National- The ordinary test of the value of property is the price it will commend in the market if offered for sale. But that test cannot, in the very nature of the case, be applied at the time application is made for insurance. Men may honestly differ about the value of property, or as to what it will bring in the market; and such differences are often very marked among those whose special business it is to buy and sell property of all kinds.

The assured could do no more than estimate such value; and that, it seems, was all that he was required to do in this case. His duty was to deal fairly with the Company in making such estimate.

Section 163 of the Insurance Law (Act No. 2427) provides that “the effect of a valuation in a policy of fire insurance is the same as in a policy of marine insurance.”

By the terms of section 149 of the Act cited, the valuation in a policy of marine insurance is conclusive if the insured had an insurable interest and was not guilty of fraud.

The valuation of the automobile, for the purposes of the insurance, is binding upon the defendant corporation. 

Development Insurance v IAC G.R. No. 71360 July 16, 1986

J. Cruz

Facts:

A fire occurred in the building of Philippine Union. It sued for recovery of damages from the petitioner on the basis of an insurance contract between them. The petitioner failed to answer on time despite the numerous extensions it asked for. It was declared in default by the trial court. A judgment of default was subsequently rendered on the strength of the evidence given by the private respondent, which was allowed damages. The petitioner moved to lift the order of default. Its motion was denied. It went to the appellate court, which affirmed the decision of the trial court. Hence this appeal.

Issue: Was Philippine Union required to jointly indemnify the building?

Held: No. Petition dismissed.

Ratio:

The policy insured the private respondent's building against fire for P2,500,000.00.

The petitioner argued that the respondent must share the difference between that amount and the face value of the policy and the loss sustained for 5.8 million under Condition 17 of the policy.

The building was insured at P2,500,000.00 by agreement of the insurer and the insured.

The agreement is known as an open policy and is subject to the express condition that:

“In the event of loss, whether total or partial, it is understood that the amount of the loss shall be subject to appraisal and the liability of the company, if established, shall be limited to the actual loss, subject to the applicable terms, conditions, warranties and clauses of this Policy, and in no case shall exceed the amount of the policy.”

Section 60 of the Insurance Code defines an open policy is one in which the value of the thing insured is not agreed upon but is left to be ascertained in case of loss." This means that the actual loss, as determined, will represent the total indemnity due the insured from the insurer except only that the total indemnity shall not exceed the face value of the policy.

The actual loss has been ascertained in this case. Hence, applying the open policy clause as expressly agreed upon, the private respondent is entitled to indemnity in the total amount of P508,867.00.

The refusal of its vice-president to receive the private respondent's complaint was the first indication of the petitioner's intention to prolong this case and postpone the discharge of its obligation to the private respondent under this agreement. They still evaded payment for 5 years.

Pandiman v Marine Manning G.R. No. 143313. June 21, 2005

J. Garcia

Facts:

Respondent Rosita Singhid’s deceased husband Benito Benito was hired by Fullwin, through its local agent, respondent Marine Manning, as chief cook on board the vessel MV Sun Richie Five for a term of twelve (12) months.

The vessel and its crew were insured with Ocean Marine. Ocean Marine  transacted business in the Philippines through its local correspondent, petitioner Pandiman Philippines, Inc.

While the vessel was on its way to Shanghai from Ho Chih Minh City, Vietnam Benito suffered a heart attack.  His remains were flown back to the Philippines.

Rosita filed a claim for death benefits with Marine Manning, which, however, referred her to petitioner Pandiman.  Petitioner approved the claim and recommended payment in the amount of US$79,000.00.  But Rosita’s death claims remained unpaid.

Hence, Rosita filed with the Labor Arbiter a complaint against Pandiman, Marine Manning, and Ocean Marine for recovery of death benefits, moral and exemplary damages and attorney’s fees. The NLRC ruled in her favor but dismissed the claim against Pandiman.

On Marine Manning’s appeal to the NLRC, the latter set aside that of the Labor Arbiter, absolved the petitioner from any liability and instead held Pandiman and Ocean Marine liable for Rosita’s claim.

Pandiman went to the Court of Appeals on a petition. It dismissed the petition and affirmed the NLRC ruling.

Issue:

1. Whether or not petitioner Pandiman may be held liable for Rosita’s claim for death benefits as Benito’s widow

2. Whether or not respondent MMMC and its foreign principal Fullwin with whom unquestionably the late Benito had an employment contract, should be absolved from death claim liabilities in this case.

Held: No. Yes. Petition granted.

Ratio:

The shipowners provided insurance for the ships and crew through an association. In this protection and indemnity agreement, which is actually an insurance contract, the provisions of the Insurance Code is the governing law.  In the subject insurance contract, Ocean Marine is the insurer, the shipowner (Sun Richie Five Bulkers S.A.) is the insured, and Rosita Singhid as widow and heir of a crew on board the insured vessel like Benito, is a beneficiary.

The Court of Appeals held Panidman liable for Rosita’s death claims under the contract of insurance, on the postulate that petitioner is an insurance agent under Section 300 of the Code.

Petitioner PPI, however, claims that it is not an insurance agent but a mere local correspondent of the P&I Club.  Thus, petitioner maintains that even if OMMIAL (the P&I Club), as insurer of Sun Richie Five, is held principally liable to Rosita for her husband’s death benefits, petitioner cannot be held solidarily liable together with said insurer.

There is nothing therein to show that an insurance contract in this case was in fact negotiated between the insured Sun Richie Five and the insurer Ocean Marine, through petitioner as insurance agent which will make petitioner an insurance agent under Section 300 of the Insurance Code. 

The NLRC, in its decision, merely relied on petitioner’s reference to Ocean Marine as its “principal” instead of its “client”.  Such “reference”, however, will not and cannot vary the definition of what an insurance agent actually is under the law, nor can it automatically turn petitioner into one.

Payment for claims arising from the peril is definitely not one of the liabilities of an insurance agent. Thus, there is no legal basis whatsoever for holding Pandiman solidarily liable with insurer Ocean Marine for Rosita’s claim for death benefits.

The insurance contract between the insurer and the insured, under Article 1311 of the Civil Code, is binding only upon the parties who execute the same. Petitioner PPI is not a party to the insurance contract in question.

2. Anent the second issue, the Court agrees with petitioner’s contention that the appellate court erred in affirming the NLRC’s decision which absolved Fullwin and its manning agent, respondent MMMC, of their joint and solidary liability arising from Benito’s employment contract with Fullwin.

It is undisputed that Benito was employed by Fullwin through its manning agency, Marine Manning. Fullwin, Benito’s principal employer is, therefore, liable under the same employment contract.  For its part, MMMC is bound by its undertaking pursuant to the Rules and Regulations Governing Overseas Employment (1991) that the manning applicants:

(3)     Shall assume joint and solidary liability with the employer for all claims and liabilities which may arise in connection with the implementation of the contract, including but not limited to payment of wages, health and disability compensation and repatriation;

By reason of the foregoing undertaking, respondent MMMC is jointly and solidarily liable with its foreign principal Fullwin, for whatever death benefits Benito’s widow is entitled to under Benito’s employment contract.

Consuegra v GSIS G.R. No. L-28093 January 30, 1971

J. Zaldivar

Facts:

Appeal on purely questions of law from the decision of the Court of First Instance of Surigao del Norte, dated March 7, 1967, in its Special Proceeding No. 1720.

The late Jose Consuegra was employed as a shop foreman in the province of Surigao del Norte. He contracted two marriages, the first with Rosario Diaz and the second, which was contracted in good faith while the first marriage was subsisting, with Basilia Berdin.

Consuegra died, while the proceeds of his GSIS life insurance were paid to petitioner Basilia Berdin and her children who were the beneficiaries named in the policy. They received Php 6,000.

Consuegra did not designate any beneficiary who would receive the retirement insurance benefits due to him. Respondent Rosario Diaz, the widow by the first marriage, filed a claim with the GSIS asking that the retirement insurance benefits be paid to her as the only legal heir of Consuegra, considering that the deceased did not designate any beneficiary with respect to his retirement insurance benefits.

Petitioner Berdin and her children, likewise, filed a similar claim with the GSIS, asserting that being the beneficiaries named in the life insurance policy of Consuegra, they are the only ones entitled to receive the retirement insurance benefits due the deceased Consuegra.

The GSIS ruled that the legal heirs of the late Jose Consuegra were Rosario Diaz, his widow by his first marriage who is entitled to one-half, or 8/16, of the retirement insurance benefits, on the one hand; and Basilia Berdin, his widow by the second marriage and their seven children, on the other hand, who are entitled to the remaining one-half, or 8/16.

Basilia Berdin didn’t agree. She filed a petition declaring her and her children to be the legal heirs and exclusive beneficiaries of the retirement insurance.

The trial court affirmed stating that: "when two women innocently and in good faith are legally united in holy matrimony to the same man, they and their children, born of said wedlock, will be regarded as legitimate children and each family be entitled to one half of the estate.”

Hence the present appeal by Basilia Berdin and her children.

Issue: To whom should this retirement insurance benefits of Jose Consuegra be paid, because he did not designate the beneficiary of his retirement insurance?

Held: No. Petition denied.

Ratio:

Berdin averred that because the deceased Jose Consuegra failed to designate the beneficiaries in his retirement insurance, the appellants who were the beneficiaries named in the life insurance should automatically be considered the beneficiaries to receive the retirement insurance benefits.

The GSIS offers two separate and distinct systems of benefits to its members — one is the life insurance and the other is the retirement insurance. These two distinct systems of benefits are paid out from two distinct and separate funds that are maintained by the GSIS.

In the case of the proceeds of a life insurance, the same are paid to whoever is named the beneficiary in the life insurance policy. As in the case of a life insurance provided for in the Insurance Act, the beneficiary in a life insurance under the GSIS may not necessarily be a heir of the insured. The insured in a life insurance may designate any person as beneficiary unless disqualified to be so under the provisions of the Civil Code. And in the absence of any beneficiary named in the life insurance policy, the proceeds of the insurance will go to the estate of the insured.

Retirement insurance is primarily intended for the benefit of the employee, to provide for his old age, or incapacity, after rendering service in the government for a required number of years. If the employee reaches the age of retirement, he gets the retirement benefits even to the exclusion of the beneficiary or beneficiaries named in his application for retirement insurance. The beneficiary of the retirement insurance can only claim the proceeds of the retirement insurance if the employee dies before retirement. If the employee failed or overlooked to state the beneficiary of his retirement insurance, the retirement benefits will accrue to his estate and will be given to his legal heirs in accordance with law, as in the case of a life insurance if no beneficiary is named in the insurance policy.

GSIS had correctly acted when it ruled that the proceeds should be divided equally between his first living wife and his second. The lower court has correctly applied the ruling of this Court in the case of Lao v Dee.

Gomez vs. Lipana- in construing the rights of two women who were married to the same man, held "that since the defendant's first marriage has not been dissolved or declared void the conjugal partnership established by that marriage has not ceased. Nor has the first wife lost or relinquished her status as putative heir of her husband under the new Civil Code, entitled to share in his estate upon his death should she survive him. Consequently, whether as conjugal partner in a still subsisting marriage or as such putative heir she has an interest in the husband's share in the property here in dispute....

With respect to the right of the second wife, although the second marriage can be presumed to be void ab initio as it was celebrated while the first marriage was still subsisting, still there is need for judicial declaration of such nullity. And inasmuch as the conjugal partnership formed by the second marriage was dissolved before judicial declaration of its nullity, "the only lust and equitable solution in this case would be to recognize the right of the second wife to her share of one-half in the property acquired by her and her husband and consider the other half as pertaining to the conjugal partnership of the first marriage."

Del Val v Del Val G.R. No. L-9374 February 16, 1915

J. Moreland

Fatcs:

This is an appeal from a judgment of the Court of First Instance of the city of Manila dismissing the complaint with costs.

The parties are siblings who were the only heirs at law and next of kin of Gregorio del Val, who passed away intestate. An administrator was appointed for the estate of the deceased, and, after a partial administration, it was closed. During the lifetime of the deceased he took out insurance on his life for the sum of P40,000 and made it payable to Andres del Val as sole beneficiary. After his death, the defendant Andres collected the face of the policy. He paid the sum of P18,365.20 to redeem certain real estate which the decedent had sold to third persons with a right to repurchase. The redemption of said premises was made by the attorney of the defendant in the name of the plaintiff and the defendant as heirs of the deceased vendor. Andres, on death of the deceased, took possession of most of his personal property and that he has also the balance on the insurance policy amounting to P21,634.80.

Plaintiffs contend that the amount of the insurance policy belonged to the estate of the deceased and not to the defendant personally, hence they are entitled to a partition not only of the real and personal property, but also of the P40,000 life insurance. The complaint prays a partition of all the property, both real and personal, left by the deceased, and that the defendant account for P21,634.80. They also wanted to divide this equally among the plaintiffs and defendant along with the other property of deceased.

The defendant’s claim was that redemption of the real estate sold by his father was made in the name of the plaintiffs and himself instead of in his name alone without his knowledge or consent. He also averred that it was not his intention to use the proceeds of the insurance policy for the benefit of any person but himself, he alleging that he was and is the sole owner thereof and that it is his individual property

The trial court refused to give relief to either party and dismissed the action due to the argument that the action for partition failed to comply with the Civil Procedure Code sec. 183, in that it does not 'contain an adequate description of the real property of which partition is demanded.'

Issue: Can the proceeds of the policy be divided among the heirs?

Held: No. Petition dismissed.

Ratio:

The proceeds of the life-insurance policy belong exclusively to the defendant as his individual and separate property. That the proceeds of an insurance policy belong exclusively to the beneficiary and not to the estate of the person whose life was insured, and that such proceeds are the separate and individual property of the beneficiary, and not of the heirs of the person whose life was insured, is the doctrine in America. The doctrine is embedded in the Code of Commerce where:

“The amount which the underwriter must deliver to the person insured, in fulfillment of the contract, shall be the property of the latter, even against the claims of the legitimate heirs or creditors of any kind whatsoever of the person who effected the insurance in favor of the former.”

The plaintiffs invoked Article 1035 of the Civil Code, where it reads:

“An heir by force of law surviving with others of the same character to a succession must bring into the hereditary estate the property or securities he may have received from the deceased during the life of the same, by way of dowry, gift, or for any good consideration, in order to compute it in fixing the legal portions and in the account of the division.”

They also invoked Article 819. This article provides that "gifts made to children which are not betterments shall be considered as part of their legal portion."

The court didn’t agree because the contract of life insurance is a special contract and the destination of the proceeds is determined by special laws which deal exclusively with that subject. The Civil Code has no provisions which relate directly and specifically to life- insurance contracts or to the destination of life insurance proceeds. That was under the Code of Commerce.

The plaintiffs claim that the property repurchased with the insurance proceeds belongs to the heirs in common and not to the defendant alone. This wasn’t agreed upon by the court  unless the facts appeared that Andres acted as he did with the intention that the other heirs should enjoy with him the ownership of the estate.

Insular v Ebrado G.R. No. L-44059 October 28, 1977

Facts:

J. Martin:

Cristor Ebrado was issued by The Life Assurance Co., Ltd., a policy for P5,882.00 with a rider for Accidental Death. He designated Carponia T. Ebrado as the revocable beneficiary in his policy. He referred to her as his wife.

Cristor was killed when he was hit by a failing branch of a tree. Insular Life was made liable to pay the coverage in the total amount of P11,745.73, representing the face value of the policy in the amount of P5,882.00 plus the additional benefits for accidental death.

Carponia T. Ebrado filed with the insurer a claim for the proceeds as the designated beneficiary therein, although she admited that she and the insured were merely living as husband and wife without the benefit of marriage.

Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she is the one entitled to the insurance proceeds.

Insular commenced an action for Interpleader before the trial court as to who should be given the proceeds. The court declared Carponia as disqualified.

Issue: WON a common-law wife named as beneficiary in the life insurance policy of a legally married man can claim the proceeds in case of death of the latter?

Held: No. Petition

Ratio:

Section 50 of the Insurance Act which provides that "the insurance shall be applied exclusively to the proper interest of the person in whose name it is made"

The word "interest" highly suggests that the provision refers only to the "insured" and not to the beneficiary, since a contract of insurance is personal in character. Otherwise, the prohibitory laws against illicit relationships especially on property and descent will be rendered nugatory, as the same could easily be circumvented by modes of insurance.

When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is governed by the general rules of the civil law regulating contracts. And under Article 2012 of the same Code, any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a fife insurance policy by the person who cannot make a donation to him. Common-law spouses are barred from receiving donations from each other.

Article 739 provides that void donations are those made between persons who were guilty of adultery or concubinage at the time of donation.

There is every reason to hold that the bar in donations between legitimate spouses and those between illegitimate ones should be enforced in life insurance policies since the same are based on similar consideration. So long as marriage remains the threshold of family laws, reason and morality dictate that the impediments imposed upon married couple should likewise be imposed upon extra-marital relationship.

A conviction for adultery or concubinage isn’t required exacted before the disabilities mentioned in Article 739 may effectuate. The article says that in the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilty of the donee may be proved by preponderance of evidence in the same action.

The underscored clause neatly conveys that no criminal conviction for the offense is a condition precedent. The law plainly states that the guilt of the party may be proved “in the same acting for declaration of nullity of donation.” And, it would be sufficient if evidence preponderates.

The insured was married to Pascuala Ebrado with whom she has six legitimate children. He was also living in with his common-law wife with whom he has two children. 

Filipinas v Christern G.R. No. L-2294 May 25, 1951

J. Paras

Facts:

Christern obtained from Filipinas a fire insurance policy of P1000,000, covering merchandise contained in a building located at Binondo. During the Japanese military occupation, the building and insured merchandise were burned. The respondent its claim under the policy. The total loss suffered by the respondent was fixed at P92,650.

The petitioner refused to pay the claim on the ground that the policy in favor of the respondent had ceased to be in force on the date the U.S. declared war on Germany with the respondent Corporation being controlled by German subjects and the petitioner being a company under American jurisdiction (though organized by Philippine laws) when the policy was issued on October 1, 1941. The petitioner, however, paid to the respondent the sum of P92,650 on April 19, 1943 under orders from the military government.

The insurer filed for a suit to recover the sum. The contention was that the policy ceased to be effective because of the outbreak of the war and that the payment made by the petitioner to the respondent corporation during the Japanese military occupation was under pressure.

The tiral and the appellate courts dismissed the action. The Court of Appeals claimed that a corporation is a citizen of the country or state by and under the laws of which it was created or organized.

 Hence this appeal.

Issue: Whether the policy in question became null and void upon the declaration of war

Held: Yes. Petition granted.

Ratio:

The majority of the stockholders of the respondent corporation were German subjects. The respondent became an enemy corporation upon the outbreak of the war. The English and American cases relied upon by the Court of Appeals have lost their force in view of the latest decision of the Supreme Court of the United States in Clark vs. Uebersee Finanz Korporation where the controls test has been adopted.

Measures of blocking foreign funds, the so called freezing regulations, and other administrative practice in the treatment of foreign-owned property in the United States allowed to large degree the determination of enemy interest in domestic corporations and thus the application of the control test. In Clark vs. Uebersee, the court held that “The property of all foreign interest was placed within the reach of the vesting power (of the Alien Property Custodian) not to appropriate friendly or neutral assets but to reach enemy interest which masqueraded under those innocent fronts. . . . The power of seizure and vesting was extended to all property of any foreign country or national so that no innocent appearing device could become a Trojan horse.”

The Philippine Insurance Law states that “anyone except a public enemy may be insured.” It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy.

“All individuals therefore, who compose the belligerent powers, exist, as to each other, in a state of utter exclusion, and are public enemies.”

Vance- “In the case of an ordinary fire policy, which grants insurance only from year, or for some other specified term it is plain that when the parties become alien enemies, the contractual tie is broken and the contractual rights of the parties, so far as not vested, are lost.”

The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in its favor on October 1, 1941, by the petitioner had ceased to be valid and enforceable, and since the insured goods were burned after December 10, 1941, and during the war, the respondent was not entitled to any indemnity under said policy from the petitioner. The premium must be returned for the sake of justice.

It results that the petitioner is entitled to recover the indemnity paid. However, the petitioner will be entitled to recover only the equivalent of P92,650 paid on April 19, 1943.

Pacific Timber v CA G.R. No. L-38613 February 25, 1982

J. De Castro

Facts:

The plaintiff secured temporary insurance from the defendant for its exportation of 1,250,000 board feet of Philippine Lauan and Apitong logs to be shipped from Quezon Province to Okinawa and Tokyo, Japan.

Workmen’s Insurance issued a cover note insuring the cargo of the plaintiff subject to its terms and conditions.

The two marine policies bore the numbers 53 HO 1032 and 53 HO 1033. Policy No. 53 H0 1033 was for 542 pieces of logs equivalent to 499,950 board feet. Policy No. 53 H0 1033 was for 853 pieces of logs equivalent to 695,548 board feet. The total cargo insured under the two marine policies consisted of 1,395 logs, or the equivalent of 1,195.498 bd. ft.

After the issuance of the cover note, but before the issuance of the two marine policies Nos. 53 HO 1032 and 53 HO 1033, some of the logs intended to be exported were lost during loading operations in the Diapitan Bay.

While the logs were alongside the vessel, bad weather developed resulting in 75 pieces of logs which were rafted together co break loose from each other. 45 pieces of logs were salvaged, but 30 pieces were verified to have been lost or washed away as a result of the accident.

Pacific Timber informed Workmen’s about the loss of 32 pieces of logs during loading of SS woodlock.

Although dated April 4, 1963, the letter was received in the office of the defendant only on April 15, 1963. The plaintiff claimed for insurance to the value of P19,286.79.

Woodmen’s requested an adjustment company to assess the damage. It submitted its report, where it found that the loss of 30 pieces of logs is not covered by Policies Nos. 53 HO 1032 and 1033 but within the 1,250,000 bd. ft. covered by Cover Note 1010 insured for $70,000.00.

The adjustment company submitted a computation of the defendant's probable liability on the loss sustained by the shipment, in the total amount of P11,042.04.

Woodmen’s wrote the plaintiff denying the latter's claim on the ground they defendant's investigation revealed that the entire shipment of logs covered by the two marine policies were received in good order at their point of destination. It was further stated that the said loss may be considered as covered under Cover Note No. 1010 because the said Note had become null and void by virtue of the issuance of Marine Policy Nos. 53 HO 1032 and 1033.

The denial of the claim by the defendant was brought by the plaintiff to the attention of the Insurance Commissioner. The Insurance Commissioner ruled in favor of indemnifying Pacific Timber. The company added that the cover note is null and void for lack of valuable consideration. The trial court ruled in petitioner’s favor while the CA dismissed the case. Hence this appeal.

Issues:

WON the cover note was null and void for lack of valuable consideration

WON the Insurance company was absolved from responsibility due to unreasonable delay in giving notice of loss.

Held: No. No. Judgment reversed.

Ratio:

1. The fact that no separate premium was paid on the Cover Note before the loss occurred does not militate against the validity of the contention even if no such premium was paid. All Cover Notes do not contain particulars of the shipment that would serve as basis for the computation of the premiums. Also, no separate premiums are required to be paid on a Cover Note.

The petitioner paid in full all the premiums, hence there was no account unpaid on the insurance coverage and the cover note. If the note is to be treated as a separate policy instead of integrating it to the regular policies, the purpose of the note would be meaningless. It is a contract, not a mere application for insurance.

It may be true that the marine insurance policies issued were for logs no longer including those which had been lost during loading operations. This had to be so because the risk insured against is for loss during transit, because the logs were safely placed aboard.

The non-payment of premium on the Cover Note is, therefore, no cause for the petitioner to lose what is due it as if there had been payment of premium, for non-payment by it was not chargeable against its fault. Had all the logs been lost during the loading operations, but after the issuance of the Cover Note, liability on the note would have already arisen even before payment of premium. Otherwise, the note would serve no practical purpose in the realm of commerce, and is supported by the doctrine that where a policy is delivered without requiring payment of the premium, the presumption is that a credit was intended and policy is valid.

2. The defense of delay can’t be sustained. The facts show that instead of invoking the ground of delay in objecting to petitioner's claim of recovery on the cover note, the insurer never had this in its mind. It has a duty to inquire when the loss took place, so that it could determine whether delay would be a valid ground of objection.

There was enough time for insurer to determine if petitioner was guilty of delay in communicating the loss to respondent company. It never did in the Insurance Commission. Waiver can be raised against it under Section 84 of the Insurance Act.

Lim v Sunlife G.R. No. L-15774 November 29, 1920

J. Malcolm

Facts:

Luis Lim of Zamboanga applied for a Sun Life policy for Php 5,000. He designated his wife, Pilar, as beneficiary. The first premium of P433 was paid by Lim, then the company issued a "provisional policy." Lim died after the issuance of the provisional policy but before approval of the application.

Pilar brought an action to recover from Sun Life the sum of P5,000, the amount named in the provisional policy. She lost in the trial court hence this appeal.

The "provisional policy" reads as follows:

The above-mentioned life is to be assured in accordance with the terms and conditions contained or inserted by the Company in the policy which may be granted by it in this particular case for four months only from the date of the application, provided that the Company shall confirm this agreement by issuing a policy on said application when the same shall be submitted to the Head Office in Montreal. Should the Company not issue such a policy, then this agreement shall be null and void ab initio, and the Company shall be held not to have been on the risk at all, but in such case the amount herein acknowledged shall be returned.

Issue: WON there was a perfected contract of insurance

Held: No. Petition dismissed.

Ratio:

The policy for four months is expressly made subjected to the affirmative condition that "the company shall confirm this agreement by issuing a policy on said application when the same shall be submitted to the head office in Montreal."

  Should the company not issue such a policy, then this agreement shall be null and void ab initio, and the company shall be held not to have been on the risk." This means that the agreement should not go into effect until the home office of the company should confirm it by issuing a policy. The provisional policy amounts to nothing but an acknowledgment on behalf of the company, that it has received from the person named therein the sum of money agreed upon as the first year's premium upon a policy to be issued upon the application, if the application is accepted by the company.

There can be no contract of insurance unless the minds of the parties have met in agreement. In this case, the contract of insurance was not consummated by the parties.

The general rule concerning the agent's receipt pending approval or issuance of policy is in several points, according to Joyce:

2. Where an agreement is made between the applicant and the agent whether by signing an application containing such condition, or otherwise, that no liability shall attach until the principal approves the risk and a receipt is given buy the agent, such acceptance is merely conditional, and it subordinated to the act of the company in approving or rejecting; so in life insurance a "binding slip" or "binding receipt" does not insure of itself.

The court held that this second point applied to the case.

American jurisprudence tells us of such examples.

Steinle vs. New York Life Insurance Co.-  the amount of the first premium had been paid to an insurance agent and a receipt was given. The paper declared that if the application was accepted by the company, the insurance shall take effect from the date of the application but that if the application was not accepted, the money shall be returned. The court held that there was no perfection of the contract.

Cooksey vs. Mutual Life Insurance Co.- the person applying for the life insurance paid and amount equal to the first premium, but the application and the receipt for the money paid, stipulated that the insurance was to become effective only when the application was approved and the policy issued. There was also no perfection.

A binding receipt is a custom where temporary insurance pending the consideration of the application was given until the policy be issued or the application rejected, and such contracts are upheld and enforced when the applicant dies before the issuance of a policy or final rejection of the application.

However, there was no perfected contract because of the clause in the application and the receipt stipulate expressly that the insurance shall become effective only when the "application shall be approved and the policy duly signed by the secretary at the head office of the company and issued." The premium of 433 must be returned.

Philippine Health Care v CIR G.R. No. 167330 September 18, 2009

J. Corona

Facts:

Philippine Health Care’s 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, employer’s 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, employer’s 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 insurance business.

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 Insurance Commissioner 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 an insurance contract, as stated in Sec 2., Par 1 of the Insurance Code, the primary purpose of the company is to render service. 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 petitioner’s 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 insurance contracts.

However, assuming that petitioner’s commitment to provide medical services to its members can be construed as an acceptance of the risk that it will shell out more than the prepaid fees, it still will not qualify as an insurance contract because petitioner’s objective is to provide medical services at reduced cost, not to distribute risk like an insurer.

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 petitioner’s availment of the benefits of [RA 9840], and without conceding the merits of this case as discussed above, respondent concedes that such tax amnesty extinguishes the tax liabilities of petitioner.

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.

Enriquez v Sunlife November 29, 1920 G.R. No. L-15895

Malcolm, J.:

Facts:

This is an action brought by the plaintiff ad administrator of the estate of the late Joaquin Ma. Herrer to recover from the defendant life insurance company the sum of pesos 6,000 paid by the deceased for a life annuity. The trial court gave judgment for the defendant. Plaintiff appeals.

Joaquin Herrer made application to the Sun Life Assurance Company of Canada through its office in Manila for a life annuity. Two days later he paid the sum of P6,000 to the manager of the company’s Manila office and was given a receipt. The application was given to the head office in Canada. The oofice gave acceptance by cable on November 26, 1917. The policy was issued on December 4.

The attorney, Mr. Torres then wrote to the Manila office of the company stating that Herrer desired to withdraw his application. The following day the local office replied to Mr. Torres, stating that the policy had been issued, and called attention to the notification. This letter was received by Mr. Torres on the morning of December 21, 1917 and Mr. Herrer died on December 20, 1917.

(Whether on the same day the cable was received notice was sent by the Manila office of Herrer that the application had been accepted, is a disputed point, which will be discussed later.)

Issue: WON Herrer received notice of acceptance of his application.

Held: No. Judgment reversed.

Ratio:

Sunlife averred that that they prepared the letter on November 26, 1917, and handed it to the local manager for signature. The manager said that he received the application November 26, 1917. He said that on the same day he signed a letter notifying Mr. Herrer of this acceptance. They said that these letters, after being signed, were sent to the chief clerk and placed on the mailing desk for transmission. The witness could not tell if the letter had every actually been placed in the mails.

The plaintiff’s attorney testified to having prepared Herrer’s will, and his client mentioned his application for a life annuity. He said that the only document relating to the transaction in his possession was the provisional receipt. Rafael Enriquez, the administrator of the estate, testified that he had gone through the effects of the deceased and had found no letter of notification from the insurance company to Mr. Herrer.

Our deduction from the evidence on this issue must be that the letter of November 26, 1917, notifying Mr. Herrer that his application had been accepted, prepared, and signed in the local office of the insurance company and was placed in the ordinary channels for transmission. But this was never actually mailed and thus was never received by the applicant.

The law that applies here is the Civil Code Art 1802, because the Insurance Act is silent as to the methods followed to create a contract of insurance. Article 1802, not only describes a contact of life annuity, but but in two other articles, also gives strong clues as to the proper disposition of the case.

For instance, article 16 of the Civil Code provides that “In matters which are governed by special laws, any deficiency of the latter shall be supplied by the provisions of this Code.” The special law on the subject of insurance is deficient in enunciating the principles governing acceptance, the subject-matter of the Civil code, if there be any, would be controlling. In the Civil Code is found article 1262 providing that “Consent is shown by the concurrence of offer and acceptance with respect to the thing and the consideration which are to constitute the contract. An acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge. The contract, in such case, is presumed to have been entered into at the place where the offer was made.”

The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only from the date it came to his knowledge avoids uncertainty and tends to security.

Also, U.S. jurisprudence states that the courts who take this view have expressly held that an acceptance of an offer of insurance not actually or constructively communicated to the proposer does not make a contract. Only the mailing of acceptance, it has been said, completes the contract of insurance.

The law applicable to the case is found to be the second paragraph of article 1262 of the Civil Code providing that an acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge. Also, that according to the provisional receipt, three things had to be accomplished by the insurance company before there was a contract: (1) There had to be a medical examination of the applicant; (2) there had to be approval of the application by the head office of the company; and (3) this approval had in some way to be communicated by the company to the applicant. The further admitted facts are that the head office in Montreal did accept the application, did cable the Manila office to that effect, did actually issue the policy and did actually write the letter of notification and place it in the usual channels for transmission to the addressee.

The fact as to the letter of notification thus fails to concur with the essential elements of the general rule pertaining to the mailing and delivery of mail matter as announced by the American courts, namely, when a letter or other mail matter is addressed and mailed with postage prepaid there is a rebuttable presumption of fact that it was received by the addressee as soon as it could have been transmitted to him in the ordinary course of the mails. But if any one of these elemental facts fails to appear, it is fatal to the presumption. For instance, a letter will not be presumed to have been received by the addressee unless it is shown that it was deposited in the post-office, properly addressed and stamped.

The contract for a life annuity was not perfected because it has not been proved satisfactorily that the acceptance of the application ever came to the knowledge of the applicant.