INSURANCE DOCTRINES
The insurer assumes the risk;
Nature of contract
White Gold vs. Pioneer Insurance (GR 154514, 7/28/05)
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes doing an insurance business or
transacting an insurance business. These are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as
merely incidental to any other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a
manner designed to evade the provisions of this Code.
...
The same provision also provides, the fact that no profit is derived from the making of insurance
contracts, agreements or transactions, or that no separate or direct consideration is received therefor,
shall not preclude the existence of an insurance business.[12]
The test to determine if a contract is an insurance contract or not, depends on the nature of the
promise, the act required to be performed, and the exact nature of the agreement in the light of the
occurrence, contingency, or circumstances under which the performance becomes requisite. It is not
by what it is called.
Philippine Healthcare Providers vs. Commissioner of Internal Revenue (GR 167330, 9/18/09)
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where the following elements concur: -
NOT present
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designed peril;
3.
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 insurers promise, the insured pays a premium.
In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a contract
contains all the elements of an insurance contract, if its primary purpose is the rendering of service, it
is not a contract of insurance. The primary purpose of the parties in making the contract may negate
the existence of an insurance contract.
Calanoc vs. Court of Appeals (GR L-8151, 12/16/55)
While as a general rule "the parties may limit the coverage of the policy to certain particular accidents
and risks or causes of loss, and may expressly except other risks or causes of loss therefrom" (45 C. J.
S. 781-782), however, it is to be desired that the terms and phraseology of the exception clause be
clearly expressed so as to be within the easy grasp and understanding of the insured, for if the terms
are doubtful or obscure the same must of necessity be interpreted or resolved aganst the one who has
caused the obscurity.
And so it has bene generally held that the "terms in an insurance policy, which are ambiguous,
equivacal, 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, especially where a forfeiture is involved" (29 Am. Jur., 181), and the reason for this rule is that
he "insured usually has no voice in the selection or arrangement of the words employed and that the
language of the contract is selected with great care and deliberation by experts and legal advisers
employed by, and acting exclusively in the interest of, the insurance company."
Biagtan vs. Insular Life (GR L-25579, 3/29/72)
It should be noted that the exception in the accidental benefit clause invoked by the appellant does
not speak of the purpose whether homicidal or not of a third party in causing the injuries, but
only of the fact that such injuries have been "intentionally" inflicted this obviously to distinguish
them from injuries which, although received at the hands of a third party, are purely accidental. This
construction is the basic idea expressed in the coverage of the clause itself, namely, that "the death of
the insured resulted directly from bodily injury effected solely through external and violent means
sustained in an accident ... and independently of all other causes."
Sun Insurance vs. Court of Appeals (GR 92383, 7/17/92)
It should be noted at the outset that suicide and willful exposure to needless peril are in pari (1).......Consent of the contracting parties;
materia because they both signify a disregard for one's life. The only difference is in degree, as suicide
imports a positive act of ending such life whereas the second act indicates a reckless risking of it that (2).......Object certain which is the subject matter of the contract;
is almost suicidal in intent.

(3).......Cause of the obligation which is established.

Lim was unquestionably negligent and that negligence cost him his own life. But it should not prevent
his widow from recovering from the insurance policy he obtained precisely against accident. There is
Consent must be manifested by the meeting of the offer and the acceptance upon the thing and the
nothing in the policy that relieves the insurer of the responsibility to pay the indemnity agreed upon if
cause which are to constitute the contract. The offer must be certain and the acceptance absolute.
the insured is shown to have contributed to his own accident. Indeed, most accidents are caused by
negligence.
As stated above, a contract of insurance, like other contracts, must be assented to by both parties
either in person or by their agents. So long as an application for insurance has not been either
accepted or rejected, it is merely an offer or proposal to make a contract. The contract, to be binding
Finman General Insurance vs. Court of Appeals (GR 100970, 9/2/72)
from the date of application, must have been a completed contract, one that leaves nothing to be
done, nothing to be completed, nothing to be passed upon, or determined, before it shall take effect.
The terms "accident" and "accidental" as used in insurance contracts have not acquired any technical There can be no contract of insurance unless the minds of the parties have met in agreement. [11]
meaning, and are construed by the courts in their ordinary and common acceptation. Thus, the terms
have been taken to mean that which happen by chance or fortuitously, without intention and design,
and which is unexpected, unusual, and unforeseen. An accident is an event that takes place without
one's foresight or expectation an event that proceeds from an unknown cause, or is an unusual
effect of a known cause and, therefore, not expected.
Stokes vs. Malayan Insurance (GR L-34768, 2/24/84)
ACCEPTANCE OF PREMIUM WITHIN THE STIPULATED PERIOD FOR PAYMENT DOES NOT ESTOP INSURER
. . . The generally accepted rule is that, death or injury does not result from accident or accidental
FROM INTERPOSING ANY VALID DEFENSE. Acceptance of premium within the stipulated period for
means within the terms of an accident-policy if it is the natural result of the insured's voluntary act,
payment thereof, including the agreed period of grace, merely assures continued effectivity of the
unaccompanied by anything unforeseen except the death or injury. There is no accident when a
insurance policy in accordance with its terms. Such acceptance does not estop the insurer from
deliberate act is performed unless some additional, unexpected, independent, and unforeseen
interposing any valid defense under the terms of the insurance policy.
happening occurs which produces or brings about the result of injury or death. In other words, where
the death or injury is not the natural or probable result of the insured's voluntary act, or if something
unforeseen occurs in the doing of the act which produces the injury, the resulting death is within the
protection of the policies insuring against death or injury from accident. 5

In any event, while the act may not exempt the unknown perpetrator from criminal liability, the fact
remains that the happening was a pure accident on the part of the victim. The insured died from an Eternal Gardens vs. Philam Insurance (GR 166245, 4/9/08)
event that took place without his foresight or expectation, an event that proceeded from an unusual
effect of a known cause and, therefore, not expected. Neither can it be said that where was a
EFFECTIVE DATE OF BENEFIT.
capricious desire on the part of the accused to expose his life to danger considering that he was just
going home after attending a festival
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
Virginia Perez vs. Court of Appeals (GR 112329, 1/28/00)
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
Insurance is a contract whereby, for a stipulated consideration, one party undertakes to compensate to approve the insurance contract before the same can become effective.
the other for loss on a specified subject by specified perils.[7] A contract, on the other hand, is a
meeting of the minds between two persons whereby one binds himself, with respect to the other to
It must be remembered that an insurance contract is a contract of adhesion which must be construed
give something or to render some service.[8] Under Article 1318 of the Civil Code, there is no contract
liberally in favor of the insured and strictly against the insurer in order to safeguard the latters
unless the following requisites concur:
interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that:
 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. 19 (Emphasis
supplied.)
Mitsubishi Motors Union vs. Mitsubishi Motors Phils. (GR 175773, 6/7/13)
To constitute unjust enrichment, it must be shown that a party was unjustly enriched in the sense that
the term unjustly could mean illegally or unlawfully. 50 A claim for unjust enrichment fails when the
person who will benefit has a valid claim to such benefit.51chanroblesvirtuallawlibrary
The CBA has provided for MMPCs limited liability which extends only up to the amount to be paid to
the hospital and doctor by the employees dependents, excluding those paid by other insurers.
Consequently, the covered employees will not receive more than what is due them; neither is MMPC
under any obligation to give more than what is due under the CBA.
Moreover, since the subject CBA provision is an insurance contract, the rights and obligations of the
parties must be determined in accordance with the general principles of insurance law. 52 Being in the
nature of a non-life insurance contract and essentially a contract of indemnity, the CBA provision
obligates MMPC to indemnify the covered employees medical expenses incurred by their dependents
but only up to the extent of the expenses actually incurred.53 This is consistent with the principle of
indemnity which proscribes the insured from recovering greater than the loss. 54 Indeed, to profit from
a loss will lead to unjust enrichment and therefore should not be countenanced. As aptly ruled by the
CA, to grant the claims of MMPSEU will permit possible abuse by employees.
Gulf Resorts vs. Phil. Charter Insurance (GR 156167, 5/16/05)
It is basic that all the provisions of the insurance policy should be examined and interpreted in
consonance with each other. [25] 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. Thus, 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.
[26]
(Emphasis ours)
An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured
against a specified peril
Parties
Bonifacio Bros. vs. Mora (GR L-20853, 5/29/67)
It is fundamental that contracts take effect only between the parties thereto, except in some specific
instances provided by law where the contract contains some stipulation in favor of a third
person.1 Such stipulation is known as stipulation pour autrui or a provision in favor of a third person
not a pay to the contract. Under this doctrine, a third person is allowed to avail himself of a benefit
granted to him by the terms of the contract, provided that the contracting parties have clearly and
deliberately conferred a favor upon such person. 2 Consequently, a third person not a party to the
contract has no action against the parties thereto, and cannot generally demand the enforcement of
the same.3 The question of whether a third person has an enforcible interest in a contract, must be
settled by determining whether the contracting parties intended to tender him such an interest by
deliberately inserting terms in their agreement with the avowed purpose of conferring a favor upon
such third person. In this connection, this Court has laid down the rule that the fairest test to
determine whether the interest of a third person in a contract is a stipulation pour autrui or merely an
incidental interest, is to rely upon the intention of the parties as disclosed by their contract.
Artex Development vs. Wellington Insurance (GR L-29508, 6/27/73)
The Court has a since the early case of Uy Tam vs. Leonard 8 that the "intent of the contracting parties
to benefit third party by means of such stipulations pour autrui must clearly expressed, and hence, a
clause in a contractor's executed solely in favor of the City of Manila and condition pay for all labor
and materials cannot be construed stipulation pour autrui available to materialmen who supplied
certain materials to the contractor for use in the performance of the latter's contract with the city.
Plaintiff-insured, not being a party or privy to defendant insurer's reinsurance contracts, therefore,
could not directly demand enforcement of such insurance contracts. Defendant-appellant's contention
that the insured should be deemed have agreed to look solely to the reinsurers for indemnity case of
loss, since it was evident that with its mere P500,000. paid-up capital stock, it had to secure
reinsurance coverage the over P24-million fire insurance coverage of the policy issued by it to plaintiff-
insured, is manifestly untenable.
Assuming that plaintiff-insured could avail of the reinsurance contracts and directly sue the reinsurers
for payment of the loss, still such assumption would not in any way affect or cancel out defendant-
insurer's direct contractual liability to plaintiff-insured under the insurance policy to indemnify plaintiff
for the property losses. Plaintiff's right as insured to sue defendant as insurer directly and solely would
thereby not be affected or curtailed in any way, without prejudice to defendant in turn filing a third
party complaint or separate suit against its reinsurers
Shafer vs. Hon. RTC Judge (GR 78848, 11/14/88)
Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily intended to
provide compensation for the death or bodily injuries suffered by innocent third parties or passengers
as a result of a negligent operation and use of motor vehicles. 9 The victims and/or their dependents
are assured of immediate financial assistance, regardless of the financial capacity of motor vehicle
owners.
The liability of the insurance company under the Compulsory Motor Vehicle Liability Insurance is for
loss or damage. Where an insurance policy insures directly against liability, the insurer's liability
accrues immediately upon the occurrence of the injury or event upon which the liability depends, and
does not depend on the recovery of judgment by the injured party against the insured. 10
The injured for whom the contract of insurance is intended can sue directly the insurer. The general
purpose of statutes enabling an injured person to proceed directly against the insurer is to protect
injured persons against the insolvency of the insured who causes such injury, and to give such injured
person a certain beneficial interest in the proceeds of the policy, and statutes are to be liberally
construed so that their intended purpose may be accomplished. It has even been held that such a
provision creates a contractual relation which inures to the benefit of any and every person who may
be negligently injured by the named insured as if such injured person were specifically named in the
policy. 11
Heirs of George Poe vs. Malayan Insurance (GR 156302, 4/7/09)
It is settled that where the insurance contract provides for indemnity against liability to third persons,
the liability of the insurer is direct and such third persons can directly sue the insurer. The direct
liability of the insurer under indemnity contracts against third party liability does not mean, however,
that the insurer can be held solidarily liable with the insured and/or the other parties found at fault,
since they are being held liable under different obligations. The liability of the insured carrier or
vehicle owner is based on tort, in accordance with the provisions of the Civil Code; [55] while that of the
insurer arises from contract, particularly, the insurance policy. The third-party liability of the insurer is
only up to the extent of the insurance policy and that required by law; and it cannot be held solidarily
liable for anything beyond that amount.[56] Any award beyond the insurance coverage would already
be the sole liability of the insured and/or the other parties at fault. [57]
It should be remembered that respondent MICI readily admits that it is the insurer of the truck that hit
and killed George, except that it insists that its liability under the insurance policy is limited. As the
party asserting its limited liability, respondent MICI then has the burden of evidence to establish its
claim. In civil cases, the party that alleges a fact has the burden of proving it. Burden of proof is the
duty of a party to present evidence on the facts in issue necessary to prove its claim or defense by the
amount of evidence required by law.[59] Regrettably, respondent MICI failed to discharge this burden.
[60]
The Court cannot rely on mere allegations of limited liability sans proof.
Insurable interest
Harvardian Colleges vs. Country Bankers Insurance (CA decision, CV 03771, 1/6/86)
Gaisano Cagayan vs. Insurance Co. of North America (GR 147839, 6/8/06)
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to
the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of a life or an industrial life policy whenever the grace period
provision applies.
In Tibay v. Court of Appeals,49 we emphasized the importance of this rule. We explained that in an
insurance contract, both the insured and insurer undertake risks. On one hand, there is the insured, a
member of a group exposed to a particular peril, who contributes premiums under the risk of receiving
nothing in return in case the contingency does not happen; on the other, there is the insurer, who
undertakes to pay the entire sum agreed upon in case the contingency happens. This risk-distributing
mechanism operates under a system where, by prompt payment of the premiums, the insurer is able
to meet its legal obligation to maintain a legal reserve fund needed to meet its contingent obligations
to the public. The premium, therefore, is the elixir vitae or source of life of the insurance
SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of premium is
conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any
stipulation therein that it shall not be binding until premium is actually paid.
A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals,
wherein we ruled that Section 77 may not apply if the parties have agreed to the payment in
installments of the premium and partial payment has been made at the time of loss. We said therein,
thus:ChanRoblesVirtualawlibrary
We hold that the subject policies are valid even if the premiums were paid on installments. The
records clearly show that the petitioners and private respondent intended subject insurance policies to
be binding and effective notwithstanding the staggered payment of the premiums. The initial
insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three years, the
insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the
insurer's intention to honor the policies it issued to petitioner. Certainly, basic principles of equity and
fairness would not allow the insurer to continue collecting and accepting the premiums, although paid
on installments, and later deny liability on the lame excuse that the premiums were not prepaid in full.
it would be unjust and inequitable if recovery on the policy would not be permitted against Petitioner,
which had consistently granted a 60- to 90-day credit term for the payment of premiums despite its
full awareness of Section 77. Estoppel bars it from taking refuge under said Section, since Respondent
relied in good faith on such practice. Estoppel then is the fifth exception to Section 77. 52 (Citations
omitted.)
In UCPB General Insurance Co., Inc., we summarized the exceptions as follows: (1) in case of life or
industrial life policy, whenever the grace period provision applies, as expressly provided by Section 77
itself; (2) where the insurer acknowledged in the policy or contract of insurance itself the receipt of
premium, even if premium has not been actually paid, as expressly provided by Section 78 itself; (3)
where the parties agreed that premium payment shall be in installments and partial payment has
been made at the time of loss, as held in Makati Tuscany Condominium Corp. v. Court of Appeals;53(4)
where the insurer granted the insured a credit term for the payment of the premium, and loss occurs
before the expiration of the term, as held in Makati Tuscany Condominium Corp.; and (5) where the
insurer is in estoppel as when it has consistently granted a 60 to 90-day credit term for the payment
of premiums.
The insurance policy in question does not fall under the first to third exceptions laid out in UCPB
General Insurance Co., Inc.: (1) the policy is not a life or industrial life policy; (2) the policy does not
contain an acknowledgment of the receipt of premium but merely a statement of account on its
face;54 and (3) no payment of an installment was made at the time of loss on September 27.
Under the principle of relativity of contracts, contracts bind the parties who entered into it. It cannot
favor or prejudice a third person, even if he is aware of the contract and has acted with knowledge.
We cannot sustain petitioner's claim that the parties agreed that the insurance contract is
immediately effective upon issuance despite non payment of the premiums. Even if there is a waiver
of pre-payment of premiums, that in itself does not become an exception to Section 77, unless the
insured clearly gave a credit term or extension.
Geagonia vs. Court of Appeals (GR 114427, 2/6/95)
1. The court agreed with the CA that the petitioner knewof the prior policies issued by the PFIC. His
letter of 18 January1991 to the private respondent conclusively proves this knowledge. His testimony
to the contrary before theInsurance Commissioner and which the latter relied upon cannot prevail over
a written admission made ante litem motam.It was, indeed, incredible that he did not know about the
prior policies since these policies were not new or original.2. Stated differently, provisions, conditions
or exceptions in policies which tend to work a forfeiture of insurancepolicies should be construed most
strictly against those for whose benefits they are inserted, and most favorably towardthose against
whom they are intended to operate.With these principles in mind, Condition 3 of the subject policy is
not totally free from ambiguity and must be meticulouslyanalyzed. Such analysis leads us to conclude
that (a) the prohibition applies only to double insurance, and (b) the nullityof the policy shall only be to
the extent exceeding P200,000.00 of the total policies obtained.Furthermore, by stating within
Condition 3 itself that such condition shall not apply if the total insurance in force at the timeof loss
does not exceed P200,000.00, the private respondent was amenable to assume a co-insurer's liability
up to a lossnot exceeding P200,000.00. What it had in mind was to discourage over-insurance. Indeed,
the rationale behind theincorporation of "other insurance" clause in fire policies is to prevent over-
insurance and thus avert the perpetration offraud. When a property ownerobtains insurance policies
from two or more insurers in a total amount that exceeds the
property's value, the insured may have an inducement to destroy the property for the purpose of
collecting the insurance.The public as well as the insurer is interested in preventing a situation in
which a fire would be profitable to the insured
Spouses Cha vs. Court of Appeals (GR 124520, 8/18/97)
It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot
be contrary to law, morals, good customs, public order or public policy. [3]
Sec. 18 of the Insurance Code provides:
Sec. 18. No contract or policy of insurance on property shall be enforceable except for the
benefit of some person having an insurable interest in the property insured.
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over
their merchandise is primarily a contract of indemnity. Insurable interest in the property insured must
exist at the time the insurance takes effect and at the time the loss occurs. [4] The basis of such
requirement of insurable interest in property insured is based on sound public policy: to prevent a
person from taking out an insurance policy on property upon which he has no insurable interest and
collecting the proceeds of said policy in case of loss of the property.In such a case, the contract of
insurance is a mere wager which is void under Section 25 of the Insurance Code, which provides:
SECTION 25. Every stipulation in a policy of Insurance for the payment of loss, whether the
person insured has or has not any interest in the property insured, or that the policy shall
be received as proof of such interest, and every policy executed by way of gaming or
wagering, is void.
In the present case, it cannot be denied that CKS has no insurable interest in the goods and
merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code
which provide.
Section 17. The measure of an insurable interest in property is the extent to which the
insured might be damnified by loss of injury thereof."
Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a beneficiary of
the fire insurance policy taken by the petitioner-spouses over their merchandise.This insurable interest
over said merchandise remains with the insured, the Cha spouses.
Premium payment
Spouses Tibay vs. Court of Appeals (GR 119655, 5/24/96)
These two (2) cases, Phoenix and Tuscany, adequately demonstrate the waiver, either express or
implied, of prepayment in full by the insurer: impliedly, by suing for the balance of the premium
as inPhoenix, and expressly, by agreeing to make premiums payable in installments as in Tuscany. But
contrary to the stance taken by petitioners, there is no waiver express or implied in the case at bench.
Precisely, the insurer and the insured expressly stipulated that (t)his policy including any renewal
thereof and/or any indorsement thereon is not in force until the premium has been fully paid to and
duly receipted by the Company x x x and that this policy shall be deemed effective, valid and binding
upon the Company only when the premiums therefor have actually been paid in full and duly
acknowledged.
Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec.
77 of the Insurance Code the payment of partial premium by the assured in this particular instance
should not be considered the payment required by the law and the stipulation of the parties. Rather, it
must be taken in the concept of a deposit to be held in trust by the insurer until such time that the full
amount has been tendered and duly receipted for. In other words, as expressly agreed upon in the
contract, full payment must be made before the risk occurs for the policy to be considered effective
and in force.
UCPB General Insurance vs. Masagana Telamart (GR 137172, 4/7/01)
The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life
policy whenever the grace period provision applies.
The second is that covered by Section 78 of the Insurance Code, which provides:
SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of premium is
conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any
stipulation therein that it shall not be binding until premium is actually paid.
A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of
Appeals,[5] wherein we ruled that Section 77 may not apply if the parties have agreed to the payment
in installments of the premium and partial payment has been made at the time of loss. We said
therein, thus:
We hold that the subject policies are valid even if the premiums were paid on installments. The
records clearly show that the petitioners and private respondent intended subject insurance policies to
be binding and effective notwithstanding the staggered payment of the premiums.
Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment
by making an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of
payment so far as to make the policy binding despite the fact that premium is actually unpaid. Section
77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid,
but does not expressly prohibit an agreement granting credit extension, and such an agreement is not
contrary to morals, good customs, public order or public policy (De Leon, The Insurance Code, p.
175). So is an understanding to allow insured to pay premiums in installments not so prescribed. At
the very least, both parties should be deemed in estoppel to question the arrangement they have
voluntarily accepted.
Gaisano vs. Development Insurance (GR 190702, 2/27/17) Lalican vs. Insular Life (GR 183526, 8/25/09)

It is well-settled that when the words of a contract are plain and readily understood, there is no room The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon written
for construction.22 In this case, the questioned insurance policies provide coverage for "book debts in application does not give the insured absolute right to such reinstatement by the mere filing of
connection with ready-made clothing materials which have been sold or delivered to various an application. The insurer has the right to deny the reinstatement if it is not satisfied as to the
customers and dealers of the Insured anywhere in the Philippines." 23 ; and defined book debts as the
insurability of the insured and if the latter does not pay all overdue premium and all other
"unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss
covered under this Policy."24 Nowhere is it provided in the questioned insurance policies that the indebtedness to the insurer. After the death of the insured the insurance Company cannot be
subject of the insurance is the goods sold and delivered to the customers and dealers of the insured. compelled to entertain an application for reinstatement of the policy because the conditions
Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to precedent to reinstatement can no longer be determined and satisfied.
read into it any alleged intention of the parties, the terms are to be understood literally just as they
appear on the face of the contract.25 Thus, what were insured against were the accounts of IMC and
It does not matter that when he died, Eulogios Application for Reinstatement and deposits for the
LSPI with petitioner which remained unpaid 45 days after the loss through fire, and not the loss or
overdue premiums and interests were already with Malaluan. Insular Life, through the Policy Contract,
destruction of the goods delivered.
expressly limits the power or authority of its insurance agents, thus:
Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the goods
Our agents have no authority to make or modify this contract, to extend the time
by stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of securing the
limit for payment of premiums, to waive any lapsation, forfeiture or any of our rights
payment of the purchase price the above described merchandise remains the property of the vendor
or requirements, such powers being limited to our president, vice-president or
until the purchase price thereof is fully paid."26
persons authorized by the Board of Trustees and only in writing. [44] (Emphasis ours.)
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is
Malaluan did not have the authority to approve Eulogios Application for Reinstatement. Malaluan still
transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at
had to turn over to Insular Life Eulogios Application for Reinstatement and accompanying deposits, for
the buyer's risk whether actual delivery has been made or not, except that:
processing and approval by the latter.
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance
of the contract and the ownership in the goods has been retained by the seller merely to secure
performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from
the time of such delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss
is borne by the buyer.27 Accordingly, petitioner bears the risk of loss of the goods delivered.
Utmost Good Faith/Measures to control risk (disclosures, representations, warranties,
exceptions)/Inconstestability

Sun Life vs. Court of Appeals (GR 105135, 6/22/95)

Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to

Victoria Hidalgo vda. de Carrero vs. Manufacturers Life Insurance (GR L-3032, 10/10/50)
Like the instant case, the policies involved in the Statham decision specify that non-payment on time
shall cause the policy to cease and determine. Reasoning out that punctual payments were essential,
the Court said:
. . . it must be conceded that promptness of payment is essential in the business of life insurance. All
the calculations of the insurance company are based on the hypothesis of prompt payments. They not
only calculate on the receipt of the premium when due, but on compounding interest upon them
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. Said Section
provides:
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 Insurance Code, Sec. 31).

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.
Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact that he was
hospitalized for two weeks prior to filing his application for insurance, raises grave doubts about
his bonafides. It appears that such concealment was deliberate on his part.
United Merchants Corp. vs. Country Bankers Insurance (G.R. No. 198588, 7/11/12)
Segundina Musngi vs. West Coast Life Insurance (G.R. No. L-41794, 8/30/35)
Ng Gan Zee vs. Asian Crusader Life Assurance (G.R. No. L-30685, 5/30/83)
New Life Enterprises vs. Court of Appeals (G.R. No. 94071, March 31, 1992)
Ma. Lourdes Florendo vs. Philam Plans (G.R. No. 186983, 2/22/12)
Emilio Tan vs. Court of Appeals (G.R. No. 48049, 6/29/89)
Yu Pang Cheng vs. Court of Appeals (G.R. No. L-12465, 5/29/59)
Our Insurance law provides that " A neglect to communicate that which a party knows and ought to
communicate, is called concealment" (Section 25, Act No. 2427). Whether intentional or unintentional, the
concealment entitles the insurer to rescind the contract of insurance (Section 26). Our law even requires
the insured 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 (Section 27), and 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 (Section 30).
In the case of Argente vs. West Coast Life Insurance Co., 51 Phil., 725 this Court said:
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." Appellant argues that the concealment was immaterial and insufficient to avoid the
policy.
Incontestability Clause
Insular Life vs. Paz Khu (G.R. No. 195176, 4/18/16)
Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of
this chapter, such right must be exercised previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have been in force during
the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement,
the insurer cannot prove that the policy is void ab initio or is rescindible by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.
Thus, it is settled that the reinstatement of an insurance policy should be reckoned from the date
when the same was approved by the insurer
Manila Bankers vs. Cresencia Aban, (GR 175666, 7/29/13)
Section 48 prevents a situation where the insurer knowingly continues to accept annual premium
payments on life insurance, only to later on deny a claim on the policy on specious claims of fraudulent
concealment and misrepresentation, such as what obtains in the instant case. Thus, instead of conducting
at the first instance an investigation into the circumstances surrounding the issuance of insurance Policy
No. 747411 which would have timely exposed the supposed flaws and irregularities attending it as it now
professes, petitioner appears to have turned a blind eye and opted instead to continue collecting the
premiums on the policy. For nearly three years, petitioner collected the premiums and devoted the same
to its own profit. It cannot now deny the claim when it is called to account. Section 48 must be applied to
it with full force and effect.
The Court therefore agrees fully with the appellate court's pronouncement that -
[t]he "incontestability clause" is a provision in law that after a policy of life insurance made payable on
the death of the insured shall have been in force during the lifetime of the insured for a period of two
(2) years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy
is void ab initio or is rescindible by reason of fraudulent concealment or misrepresentation of the
insured or his agent.
The purpose of the law is to give protection to the insured or his beneficiary by limiting the rescinding
of the contract of insurance on the ground of fraudulent concealment or misrepresentation to a period
of only two (2) years from the issuance of the policy or its last reinstatement.
The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or
misrepresentation within a period of two (2) years. It is not fair for the insurer to collect the premiums
as long as the insured is still alive, only to raise the issue of fraudulent concealment or
misrepresentation when the insured dies in order to defeat the right of the beneficiary to recover
under the policy.
At least two (2) years from the issuance of the policy or its last reinstatement, the beneficiary is given
the stability to recover under the policy when the insured dies. The provision also makes clear when
the two-year period should commence in case the policy should lapse and is reinstated, that is, from
the date of the last reinstatement
Utmost good faith (cont.)
Malayan Insurance vs. PAP (GR 200784, 8/7/13)
It can also be said that with the transfer of the location of the subject properties, without notice
and without Malayans consent, after the renewal of the policy, PAP clearly committed
concealment, misrepresentation and a breach of a material warranty. Section 26 of the Insurance Code
provides:
Section 26. A neglect to communicate that which a party knows and ought to communicate, is called a
concealment.
Under Section 27 of the Insurance Code, a concealment entitles the injured party to rescind a
contract of insurance.
Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the insurance
contract in case of an alteration in the use or condition of the thing insured. Section 168 of the
Insurance Code provides, as follows:
Section 68. An alteration in the use or condition of a thing insured from that to which it is limited by
the policy made without the consent of the insurer, by means within the control of the insured, and
increasing the risks, entitles an insurer to rescind a contract of fire insurance.
Accordingly, an insurer can exercise its right to rescind an insurance contract when the following
conditions are present, to wit:
1) the policy limits the use or condition of the thing insured;chanr0blesvirtualawlibrary
2) there is an alteration in said use or condition;chanr0blesvirtualawlibrary
3) the alteration is without the consent of the insurer;chanr0blesvirtualawlibrary
4) the alteration is made by means within the insureds control; and
5) the alteration increases the risk of loss. 20cralaw virtualaw library
In the case at bench, all these circumstances are present. It was clearly established that the renewal
policy stipulated that the insured properties were located at the Sanyo factory; that PAP removed the
properties without the consent of Malayan; and that the alteration of the location increased the risk of
loss.
Double insurance/over-insurance
Malayan Insurance vs. Phil. First Insurance (GR 184300, 7/11/12)
By the express provision of Section 93 of the Insurance Code, double insurance exists where the same
person is insured by several insurers separately in respect to the same subject and interest. The
requisites in order for double insurance to arise are as follows: 38rbl r l l
lbrr
1. The person insured is the same;
2. Two or more insurers insuring separately;
3. There is identity of subject matter;
4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against.
The interest of Wyeth over the property subject matter of both insurance contracts is also different
and distinct from that of Reputable s. The policy issued by Philippines First was in consideration of the
legal and/or equitable interest of Wyeth over its own goods. On the other hand, what was issued by
Malayan to Reputable was over the latter s insurable interest over the safety of the goods, which may
become the basis of the latter s liability in case of loss or damage to the property and falls within the
contemplation of Section 15 of the Insurance Code.39rll
Therefore, even though the two concerned insurance policies were issued over the same goods and
cover the same risk, there arises no double insurance since they were issued to two different
persons/entities having distinct insurable interests. Necessarily, over insurance by double insurance
cannot likewise exist. Hence, as correctly ruled by the RTC and CA, neither Section 5 nor Section 12 of
the SR Policy can be applied.
Marine Insurance
Aboitiz Shipping vs. CA (GR 121833, 10/17/08)
The 1993 GAFLAC case was an offshoot of an earlier final and executory judgment in the
1990 GAFLAC case, where the General Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC), as
judgment obligee therein, sought the execution of the monetary award against Aboitiz. The trial court
granted GAFLACs prayer for execution of the full judgment award. The appellate court
dismissed Aboitizs petition to nullify the order of execution, prompting Aboitiz to file a petition with
this Court.
In the 1993 GAFLAC case, Aboitiz argued that the real and hypothecary doctrine warranted
the immediate stay of execution of judgment to prevent the impairment of the other creditors shares.
Invoking the rule on the law of the case, private respondent therein countered that the 1990 GAFLAC
case had already settled the extent of Aboitizs liability.
In the 1993 GAFLAC case, the Court applied the limited liability rule in favor of Aboitiz based
on the trial courts finding therein that Aboitiz was not negligent. The Court explained, thus:
x x x In the few instances when the matter was considered by this Court, we have
been consistent in this jurisdiction in holding that the only time the Limited Liability
Rule does not apply is when there is an actual finding of negligence on the part of
the vessel owner or agent x x x. The pivotal question, thus, is whether there is
finding of such negligence on the part of the owner in the instant case.
The ruling in the 1993 GAFLAC case cited the real and hypothecary doctrine in maritime law
that the shipowner or agents liability is merely co-extensive with his interest in the vessel such that a
total loss thereof results in its extinction. No vessel, no liability expresses in a nutshell the limited
liability rule.[34]
In this jurisdiction, the limited liability rule is embodied in Articles 587, 590 and 837 under
Book III of the Code of Commerce, thus:
Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third
persons which may arise from the conduct of the captain in the care of the goods
which he loaded on the vessel; but he may exempt himself therefrom by abandoning
the vessel with all her equipment and the freight it may have earned during the
voyage.
Art. 590. The co-owners of the vessel shall be civilly liable in the proportion of their
interests in the common fund for the results of the acts of the captain referred to in
Art. 587.
Each co-owner may exempt himself from this liability by the abandonment, before a
notary, of the part of the vessel belonging to him.

Art. 837. The civil liability incurred by shipowners in the case prescribed in this
section, shall be understood as limited to the value of the vessel with all its
appurtenances and freightage served during the voyage.
These articles precisely intend to limit the liability of the shipowner or agent to the value of
the vessel, its appurtenances and freightage earned in the voyage, provided that the owner or agent
abandons the vessel.[35] When the vessel is totally lost in which case there is no vessel to abandon,
abandonment is not required. Because of such total loss the liability of the shipowner or agent for
damages is extinguished.[36] However, despite the total loss of the vessel, its insurance answers for the
damages for which a shipowner or agent may be held liable.[37]
Nonetheless, there are exceptional circumstances wherein the ship agent could still be held
answerable despite the abandonment of the vessel, as where the loss or injury was due to the fault of
the shipowner and the captain. The international rule is to the effect that the right of abandonment of
vessels, as a legal limitation of a shipowners liability, does not apply to cases where the injury or
average was occasioned by the shipowners own fault.[38] Likewise, the shipowner may be held liable
for injuries to passengers notwithstanding the exclusively real and hypothecary nature of maritime law
if fault can be attributed to the shipowner.[39]
As can be gleaned from the foregoing disquisition in the 1993 GAFLAC case, the Court applied
the doctrine of limited liability in view of the absence of an express finding that Aboitizs negligence
was the direct cause of the sinking of the vessel. The circumstances in the 1993 GAFLAC case,
however, are not obtaining in the instant petitions.
A perusal of the decisions of the courts below in all three petitions reveals that there is a
categorical finding of negligence on the part of Aboitiz. For instance, in G.R. No. 121833, the RTC
therein expressly stated that the captain of M/V P. Aboitiz was negligent in failing to take a course of
action that would prevent the vessel from sailing into the typhoon. In G.R. No. 130752, the RTC
concluded that Aboitiz failed to show that it had exercised the required extraordinary diligence in
steering the vessel before, during and after the storm. In G.R. No. 137801, the RTC categorically stated
that the sinking of M/V P. Aboitiz was attributable to the negligence or fault of Aboitiz. In all instances,
the Court of Appeals affirmed the factual findings of the trial courts.
Agustin Dela Torre vs. CA (GR 160088, 7/13/11)
With respect to petitioners position that the Limited Liability Rule under the Code of
Commerce should be applied to them, the argument is misplaced. The said rule has been explained to
be that of the real and hypothecary doctrine in maritime law where the shipowner or ship agents
liability is held as merely co-extensive with his interest in the vessel such that a total loss thereof
results in its extinction.[24] In this jurisdiction, this rule is provided in three articles of the Code of
Commerce. These are:
Art. 587. The ship agent shall also be civilly liable for the indemnities in
favor of third persons which may arise from the conduct of the captain in the care of
the goods which he loaded on the vessel; but he may exempt himself therefrom by
abandoning the vessel with all her equipment and the freight it may have earned
during the voyage.
---
Art. 590. The co-owners of the vessel shall be civilly liable in the
proportion of their interests in the common fund for the results of the acts of the
captain referred to in Art. 587.
Each co-owner may exempt himself from this liability by the abandonment,
before a notary, of the part of the vessel belonging to him.
---
Art. 837. The civil liability incurred by shipowners in the case prescribed in
this section, shall be understood as limited to the value of the vessel with all its
appurtenances and freightage served during the voyage.
Article 837 specifically applies to cases involving collision which is a necessary consequence
of the right to abandon the vessel given to the shipowner or ship agent under the first provision Article
587. Similarly, Article 590 is a reiteration of Article 587, only this time the situation is that the vessel is
co-owned by several persons.[25] Obviously, the forerunner of the Limited Liability Rule under the Code
of Commerce is Article 587. Now, the latter is quite clear on which indemnities may be confined or
restricted to the value of the vessel pursuant to the said Rule, and these are the indemnities in favor
of third persons which may arise from the conduct of the captain in the care of the goods which he
loaded on the vessel. Thus, what is contemplated is the liability to third persons who may have dealt
with the shipowner, the agent or even the charterer in case of demise or bareboat charter.
In view of the foregoing, Concepcion as the real shipowner is the one who is supposed to be
supported and encouraged to pursue maritime commerce. Thus, it would be absurd to apply the
Limited Liability Rule against him who, in the first place, should be the one benefitting from the said
rule. In distinguishing the rights between the charterer and the shipowner, the case of Yueng Sheng
Exchange and Trading Co. v. Urrutia & Co. [30] is most enlightening. In that case, no less than Chief
Justice Arellano wrote:
The whole ground of this assignment of errors rests on the proposition
advanced by the appellant company that the charterer of a vessel, under the
conditions stipulated in the charter party in question, is the owner pro hac vice of
the ship and takes upon himself the responsibilities of the owner.
xxx
If G. Urrutia & Co., by virtue of the above-mentioned contract, became the
agents of the Cebu, then they must respond for the damages claimed, because the
owner and the agent are civilly responsible for the acts of the captain.
But G. Urrutia & Co. could not in any way exercise the powers or rights of
an agent. They could not represent the ownership of the vessel, nor could they, in
their own name and in such capacity, take judicial or extrajudicial steps in all that
relates to commerce; thus if the Cebu were attached, they would have no legal
capacity to proceed to secure its release; speaking generally, not even the fines
could or ought to be paid by them, unless such fines were occasioned by their
orders. x x x.
In Yueng Sheng, it was further stressed that the charterer does not completely and absolutely
step into the shoes of the shipowner or even the ship agent because there remains conflicting rights
between the former and the real shipowner as derived from their charter agreement. The Court again
quotes Chief Justice Arellano:
Their (the charterers) possession was, therefore, the uncertain title of lease,
not a possession of the owner, such as is that of the agent, who is fully subrogated
to the place of the owner in regard to the dominion, possession, free administration,
and navigation of the vessel.[32]
Therefore, even if the contract is for a bareboat or demise charter where possession, free
administration and even navigation are temporarily surrendered to the charterer, dominion over the
vessel remains with the shipowner. Ergo, the charterer or the sub-charterer, whose rights cannot rise
above that of the former, can never set up the Limited Liability Rule against the very owner of the
vessel. Borrowing the words of Chief Justice Artemio V. Panganiban, Indeed, where the reason for the
rule ceases, the rule itself does not apply.[33]

Aboitiz Shipping vs. Insurance Co. of North America (GR 168402, 8/6/08)
Liability Insurance/CMVLI
Travellers Insurance vs. CA (GR 82036, 5/22/97) Upon payment to the consignee of indemnity for damage to the insured goods, ICNA's entitlement to
subrogation equipped it with a cause of action against petitioner in case of a contractual breach or
negligence.30 This right of subrogation, however, has its limitations. First, both the insurer and the
It is significant to point out at this juncture that the right of a third person to sue the insurer
consignee are bound by the contractual stipulations under the bill of lading. 31 Second, the insurer can
depends on whether the contract of insurance is intended to benefit third persons also or only the
be subrogated only to the rights as the insured may have against the wrongdoer. If by its own acts
insured.
after receiving payment from the insurer, the insured releases the wrongdoer who caused the loss
from liability, the insurer loses its claim against the latter
[A] policy x x x whereby the insurer agreed to indemnify the insured against all sums x x x which the
Insured shall become legally liable to pay in respect of: a. death of or bodily injury to any person x x x
Claims & Recovery/Insurance Regulation
is one for indemnity against liability; from the fact then that the insured is liable to the third person,
Finman Insurance vs. CA (GR 138737, 7/12/01)
such third person is entitled to sue the insurer.

Sec. 243. The amount of any loss or damage for which an insurer may be liable, under any policy
The right of the person injured to sue the insurer of the party at fault (insured), depends on whether
other than life insurance policy, shall be paid within thirty days after proof of loss is received by the
the contract of insurance is intended to benefit third persons also or on the insured. And the test
insurer and ascertainment of the loss or damage is made either by agreement between the insured
applied has been this: Where the contract provides for indemnity against liability to third persons,
and the insurer or by arbitration; but if such ascertainment is not had or made within sixty days after
then third persons to whom the insured is liable can sue the insurer. Where the contract is for
such receipt by the insurer of the proof of loss, then the loss or damage shall be paid within ninety
indemnity against actual loss or payment, then third persons cannot proceed against the insurer, the
days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein
contract being solely to reimburse the insured for liability actually discharged by him thru payment to
will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at
third persons, said third persons recourse being thus limited to the insured alone. [10]
the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is
based on the ground that the claim is fraudulent.

Sec. 244. In case of any litigation for the enforcement of any policy or contract of insurance, it shall be
the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the
payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative
case, the insurance company shall be adjudged to pay damages which shall consist of attorneys fees
GSIS vs. CA (GR 101439, 6/21/99) and other expenses incurred by the insured person by reason of such unreasonable denial or
withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the
amount of the claim due the insured, from the date following the time prescribed in section two
Subrogation
hundred forty-two or in section two hundred forty-three, as the case may be, until the claim is fully
Loadstar Shipping vs. Malayan Insurance (GR 185565, 11/26/14)
satisfied: Provided, That the failure to pay any such claim within the time prescribed in said sections
shall be considered prima facie evidence of reasonable delay in payment.
Malayans claim against the petitioners is based on subrogation to the rights possessed by PASAR as
consignee of the allegedly damaged goods. The right of subrogation stems from Article 2207 of the
New Civil Code which states:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
H.H. Holero Construction vs. GSIS (GR 152334, 9/24/14)
insurance company for the injury or loss arising out of the wrong or breach of contract complained of,
the insurance company shall be subrogated to the rights of the insured against the wrong doer or the
person who has violated the contract. If the amount paid by the insurance company does not fully As correctly observed by the CA, "final rejection" simply means denial by the insurer of the claims of
cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person the insured and not the rejection or denial by the insurer of the insureds motion or request for
causing the loss or injury. reconsideration.47
The crucial issue in this case is: When does the cause of action accrue?
In support of private respondents view, two rulings of this Court have been cited, namely, the case of
Eagle Star Insurance Co.vs.Chia Yu ([supra note 41]), where the Court held:
The right of the insured to the payment of his loss accrues from the happening of the loss. However,
the cause of action in an insurance contract does not accrue until the insureds claim is finally rejected
by the insurer. This is because before such final rejection there is no real necessity for bringing suit.
and the case of ACCFA vs. Alpha Insurance & Surety Co., Inc. (24 SCRA 151 [1968], holding that:
Since "cause of action" requires as essential elements not only a legal right of the plaintiff and a
correlated obligation of the defendant in violation of the said legal right, the cause of action does not
accrue until the party obligated (surety) refuses, expressly or impliedly, to comply with its duty (in this
case to pay the amount of the bond)."
Republic of Phils. vs. Del Monte Motors (GR 156956, 10/9/06)
Exemption of Security Deposit from Levy or Garnishment
Section 203 of the Insurance Code provides as follows:
"Sec. 203. Every domestic insurance company shall, to the extent of an amount equal in
value to twenty-five per centum of the minimum paid-up capital required under section one
hundred eighty-eight, invest its funds only in securities, satisfactory to the Commissioner,
consisting of bonds or other evidences of debt of the Government of the Philippines or its
political subdivisions or instrumentalities, or of government-owned or controlled corporations
and entities, including the Central Bank of the Philippines: Provided, That such investments
shall at all times be maintained free from any lien or encumbrance; and Provided, further,
That such securities shall be deposited with and held by the Commissioner for the faithful
performance by the depositing insurer of all its obligations under its insurance
contracts. The provisions of section one hundred ninety-two shall, so far as practicable,
apply to the securities deposited under this section.
"Except as otherwise provided in this Code, no judgment creditor or other claimant shall
have the right to levy upon any of the securities of the insurer held on deposit
pursuant to the requirement of the Commissioner." (Emphasis supplied)
the law expressly and clearly states that the security deposit shall be (1) answerable for all the
obligations of the depositing insurer under its insurance contracts; (2) at all times free from any liens
or encumbrance; and (3) exempt from levy by any claimant.
Powers of the Commissioner
The Insurance Code has vested the Office of the Insurance Commission with
both regulatory and adjudicatory authority over insurance matters.15
The general regulatory authority of the insurance commissioner is described in Section 414 of the
Code as follows:
"Sec. 414. The Insurance Commissioner shall have the duty to see that all laws relating to
insurance, insurance companies and other insurance matters, mutual benefit associations,
and trusts for charitable uses are faithfully executed and to perform the duties imposed upon
him by this Code, and shall, notwithstanding any existing laws to the contrary, have sole and
exclusive authority to regulate the issuance and sale of variable contracts as defined in
section two hundred thirty-two and to provide for the licensing of persons selling such
contracts, and to issue such reasonable rules and regulations governing the same.
"The Commissioner may issue such rulings, instructions, circulars, orders and decisions as he
may deem necessary to secure the enforcement of the provisions of this Code, subject to the
approval of the Secretary of Finance. Except as otherwise specified, decisions made by the
Commissioner shall be appealable to the Secretary of Finance." (Emphasis supplied)
Pursuant to these regulatory powers, the commissioner is authorized to (1) issue (or to refuse to issue)
certificates of authority to persons or entities desiring to engage in insurance business in the
Philippines;16 (2) revoke or suspend these certificates of authority upon finding grounds for the
revocation or suspension;17 (3) impose upon insurance companies, their directors and/or officers
and/or agents appropriate penalties -- fines, suspension or removal from office -- for failing to comply
with the Code or with any of the commissioner's orders, instructions, regulations or rulings, or for
otherwise conducting business in an unsafe or unsound manner.18
Included in the above regulatory responsibilities is the duty to hold the security deposits under
Sections 19119 and 203 of the Code, for the benefit and security of all policy holders. In relation to
these provisions, Section 192 of the Insurance Code states:
"Sec. 192. The Commissioner shall hold the securities, deposited as aforesaid, for the benefit
and security of all the policyholders of the company depositing the same, but shall as long as
the company is solvent, permit the company to collect the interest or dividends on the
securities so deposited, and, from time to time, with his assent, to withdraw any of such
securities, upon depositing with said Commissioner other like securities, the market value of
which shall be equal to the market value of such as may be withdrawn. In the event of any
company ceasing to do business in the Philippines the securities deposited as aforesaid shall
be returned upon the company's making application therefor and proving to the satisfaction
of the Commissioner that it has no further liability under any of its policies in the Philippines."
(Emphasis supplied)