CONTRACT OF INSURANCE

a. RULES ON CONSTRUING THE INSURANCE CODE

b. RULES ON CONSTRUING AN INSURANCE POLICY

1. Travellers Insurance & Surety Corp v CA (GR 82036, May 22, 1997)

ELEMENTS OF AN INSURANCE CONTRACT

2. Gulf Resorts Inc v Philippine Charter Insurance Corp (GR 156167, May 16, 2009)

FACTS:

Gulf Resorts, Inc at Agoo, La Union was insured with American Home Assurance Company which
includes loss or damage to shock to any of the property insured by this Policy occasioned by or through
or in consequence of earthquake

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

August 23, 1990: Gulf's claim was denied on the ground that its insurance policy only afforded earthquake
shock coverage to the two swimming pools of the resort

Petitione contends that no qualifications were placed on the scope of the earthquake shock
coverage. Thus, the policy extended earthquake shock coverage to all of the insured properties.

ISSUE: W/N Gulf can claim for its properties aside from the 2 swimming pools

HELD: No.

there is no ambiguity in the terms of the contract.

In Insurance Policy No. 31944, four key items are important in the resolution
of the case at bar.
First, in the designation of location of risk, only the two swimming pools
were specified as included, viz:

ITEM 3 393,000.00 On the two (2) swimming pools only (against the peril of
earthquake shock only) [20]

Petitioner cannot rely on the general rule that insurance contracts are contracts of adhesion which
should be liberally construed in favor of the insured and strictly against the insurer company which
usually prepares it.

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. (Emphasis ours)
[26]

An insurance premium is the consideration paid an insurer for undertaking

to indemnify the insured against a specified peril. In fire, casualty, and marine
[27]

insurance, the premium payable becomes a debt as soon as the risk

attaches. In the subject policy, no premium payments were made with regard
[28]

to earthquake shock coverage, except on the two swimming pools. There is no

mention of any premium payable for the other resort properties with regard to
earthquake shock.
CHARACTERISTICS OF INSURANCE POLICIES

3. New World International Dev (Phils) Inc v NYK FilJapan Shipping Corp (GR 171468, August 24,2011)

DOING AN INSURANCE BUSINESS

4. White Gold Marine Services Inc v Pioneer Insurance & Surety Corp (GR 154514, July 28, 2005)

Facts:

In order to save on premium payments, Steamship Mutual organized a company which will answer for all
the damages or losses to their vessels. Each of the vessels were covered by individual policies issued by
Pioneer Insurance. The source of the indemnity were exclusively from the annual contributions of the
members. No profit is derived from the operation of the company. No other person or entity other than
a member can obtain a policy from Steamship Mutual. No spate premium were paid by the members.
ISSUE: Is SteamShip doing an insurance business?

YES.

A Protection and Indemnity Club (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.

It is immaterial that no profit is derived from making insurane contracts and no spate or dorect
consideration is received therefor. These facts do not preclude the existence of an insurance business.

a. PRINCIPLE OF SUBROGATION

PUBLIC INTEREST IN THE INSURANCE BUSINESS

5. Republic v Del Monte Motors Inc (GR 156956, October 9, 2006)

Petitioner Eduardo T. Malinis was cited for contempt of court by the Regional Trial Court (RTC) of Quezon
City (Branch 221) for his refusal to refusal to obey resolution of the trial court. The RTC resolution required
petitioner, then Insurance Commissioner, to allow the withdrawal of the security deposit of Capital
Insurance and Surety Co. (CISCO) in the amount of P11,835,375.50 for the satisfaction of a judgment debt
of in a civil case before the RTC. The security deposits were being held by the Insurance Commissioner
pursuant to Section 203 of the Insurance Code.

ISSUE: Whether or not the security deposit held by the Insurance Commissioner pursuant to Section 203
of the Insurance Code may be levied or garnished in favor of only one insured.

The securities required by the Insurance Code to be deposited with the Insurance Commissioner were
intended to answer for the claims of all policy holders in the event that the depositing insurance company
becomes insolvent or otherwise unable to satisfy their claims. The Court ruled that the security deposit
must be ratably distributed among all the insured who were entitled to their respective shares; it could
not be garnished or levied upon by a single claimant, to the detriment of the others.

ISSUE: WON the erred in interfering by not allowing the levy or garnishment?

RULING: NO.

Moreover, the business of insurance is imbued with public interest. It is subject to regulation by the State,
with respect not only to the relations between the insurer and the insured, but also to the internal affairs
of insurance companies.[2] As this case was undeniably endowed with public interest and involved a
matter of public policy, this Court deemed it proper not to shirk from its duty to educate the bench and
the bar by formulating guiding and controlling principles, precepts, doctrines and rules.

INSURANCE V HEALTH MAINTENANCE ORGANIZATIONS and PARTIES TO THE CONTRACT OF INSURANCE

6. Philippine Health Care Providers Inc. v Commissioner of Internal Revenue (GR 167330, September 18,
2009)
Facts:

Petitioner is a domestic corporation whose primary purpose is to 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.

Issue: Was petitioner, as an HMO, engaged in the business of insurance

No.

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. 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 insurers promise, the insured pays a premium.

no indemnity member can take advantage of the bulk of the benefits anytime even in the absence of any
peril, loss or damage on his or her part.

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

Since indemnity of the insured was not the focal point of the agreement but the extension of medical
services to the member at an affordable cost, it did not partake of the nature of a contract of insurance

HMO, undertakes a business risk when it offers to provide health services. But it is not the risk of the type
peculiar only to insurance companies. Insurance risk, also known as actuarial risk, is the risk that the cost
of insurance claims might be higher than the premiums paid. The amount of premium is calculated on the
basis of assumptions made relative to the insured.

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.

-----Basic distinction between medical service corporations and ordinary health and accident insurers is
that the former undertake to provide prepaid medical services through participating physicians, thus
relieving subscribers of any further financial burden, while the latter only undertake to indemnify an
insured for medical expenses up to, but not beyond, the schedule of rates contained in the policy
A participating provider of health care services is one who agrees in writing to render health care services
to or for persons covered by a contract issued by health service corporation in return for which the health
service corporation agrees to make payment directly to the participating provider

any indemnification resulting from the payment for services rendered in case of emergency by non-
participating health providers would still be incidental to petitioners purpose of providing and arranging
for health care services and does not transform it into an insurer.

As an HMO, it is its obligation to maintain the good health of its members

its undertaking under its agreements is not to indemnify its members against any loss or damage arising
from a medical condition but, on the contrary, to provide the health and medical services needed to
prevent such loss or damage

Overall, petitioner appears to provide insurance-type benefits to its members (with respect to its curative
medical services), but these are incidental to the principal activity of providing them medical care. The
"insurance-like" aspect of petitioners business is miniscule compared to its noninsurance activities.
Therefore, since it substantially provides health care services rather than insurance services, it cannot be
considered as being in the insurance business.

principal purpose test - purpose of determining what "doing an insurance business" means, we have to
scrutinize the operations of the business as a whole and not its mere components

ADDTL CASES

7. Del Rosario v Equitable Insurance & Casualty Co. (8 SCRA 343)

FACTS:

April 13, 1957: Simeon del Rosario, father of the insured who died from drowning filed a claim for payment
with Equitable Ins. and Casualty Co., Inc. but it refused to pay more than P1,000 php so a case was filed
with the RTC for the P2,000 balance stating that under the policy they are entitled to P1,000 to P3,000 as
indemnity

RTC: entitled to recover P3,000 - policy does not positively state any definite amount, there is an
ambiguity in this respect in the policy, which ambiguity must be interpreted in favor of the insured and
strictly against the insurer so as to allow greater indemnity

ISSUE: W/N Simeon is entitled to recover P3,000

HELD: YES.

Where there ambiguity with respect to the terms and conditions of the policy, the same will be resolved
against the one responsible thereof. Generally, the insured, has little, if any, participation in the
preparation of the policy. The interpretation of obscure stipulation should not favor the party who caused
the obscurity, (art1377 NCC) which in the case at bar is the Insurance Company.

8. Taurus Taxi Co. Inc v The Capital Insurance & Surety Co. Inc (24 SCRA 454)

FACTS:
1. Alfredo Monje, was employed as taxi driver by the Taurus Taxi Co., Inc.

2. The taxi he was driving collided with a Transport Taxicab resulting in his death.

3. At the time of the accident, there was subsisting and in force Commercial Vehicle Comprehensive Policy
No. 101, 737 issued by CAPITAL INSURANCE & SURETY CORP. to herein Taurus Taxi Co., Inc. The amount
for which each passenger, including the driver, is insured is P5,000.00.

4. The policy was issued to Taurus Taxi Co., Inc.

5. After which Taurus made representations "for the payment of the insurance benefit corresponding to
her and her children since it was issued in its name, benefit corresponding to her and her children, but
despite demands, Capital Insurance company refused and still refuses to pay them.

6. Capital Insurance & Surety Co. Inc. alleged "that in view of the fact that the deceased Alfredo Monje
was entitled to indemnity under another insurance policy issued by Ed. A. Keller Co., Ltd., the heirs of the
said deceased are not entitled to indemnity under the insurance policy issued by it for the reason that the
latter policy contains a stipulation that "the company will indemnify any authorized driver provided that
such authorized driver is not entitled to indemnity under any other policy.

ISSUE: Whether the heirs of ALFREDO MONJE be entitled to the proceeds of the insurance policy issued
by Capital Insurance Company even if there is an existing indemnity contract with another insurance
company at the time of his death.

Held: Yes.

What is prohibited by the insurance policy in question is that any "authorized driver of plaintiff Taurus
Taxi Co., Inc." should not be "entitled to any indemnity under any policy", it would appear indisputable
that the obligation of defendant-appellant under the policy had not in any wise been extinguished.

8. It is too well-settled to need the citation of authorities that what the law requires enters into and forms
part of every contract. The Workmen's Compensation Act, explicitly requires that an employee suffering
any injury or death arising out of or in the course of employment be compensated. The fulfillment of such
statutory obligation cannot be the basis for evading the clear, explicit and mandatory terms of a policy.

9. Same way with sickness benefits under the Social Security Act.

10. Assuming however that there is a doubt concerning the liability of defendant-appellant insurance firm,
nonetheless, it should be resolved against its pretense and in favor of the insured. It was the holding in
Eagle Star Insurance, Ltd. v. Chia Yu 6 that courts are to regard "with extreme jealousy" limitations of
liability found in insurance policies and to construe them in such a way as to preclude the insurer from
non-compliance with his obligation. In other words, to quote a noted authority on the subject, "a contract
of insurance couched in language chosen by the insurer is, if open to the construction contended for by
the insured, to be construed most strongly, or strictly, against the insurer and liberally in favor of the
contention of the insured, which means in accordance with the rule contra proferentem."
Courts are to regard with extreme jealousy limitations of liability in insurance policies and to constue them
in such a way as to preclude the insurer from non-compliance with his obligation.

A contract of insurance couched in language chosen by the insurer is, if open to the construction
contented for by the insured, to be construed most strongly or strictly against the insurer and liberally in
favor of the contention of the insured, which mean sin accordance with the rule contra proferentem.

9. CCC Insurance Corp v CA (31 SCRA 264)

Carlos F. Robes insured with the CCC Insurance Corporation his Dodge Kingsway car against loss or damage
through accident for an amount not exceeding P8,000 June 25 1961: Carlos' driver Domingo Reyes met
a vehicular collision along Rizal Avenue Extension, Potrero, Malabon, Rizal Ccc Insurance Corporation
denied his claim reasoning that the driver was not an "authorized driver" Reyes, who cannot read and
write, who has never passed any examination for drivers, and has not applied for a license from the duly
constituted government agency entrusted with the duty of licensing drivers, cannot be considered an
authorized driver AUTHORIZED DRIVER: Any of the following:

(a) The insured; (b) Any person driving on the Insured's order or with his permission, provided that the
person driving is permitted in accordance with licensing laws or regulations to drive the motor vehicle
covered by this Policy, or has been so permitted and is not disqualified by order of a court of law or by
reason of any enactment or regulation from driving such Motor Vehicle. RTC: favored Robes and CCC
was order to pay

ISSUE: W/N Domingo Reyes was an authorized driver

HELD: YES. CA affirmed Court of Appeals found that the driver's license No. 271703 DP was genuine
Domingo Reyes is in possession of a driver's license issued by the Motor Vehicles Office which on its face
appears to have been regularly issued Neither Gloria Presa nor the officer-in-charge Marciano A.
Monzon was placed on the witness stand to be examined in order to determine whether said license is
indeed void Section 24 of the Revised Motor Vehicles Law, Act 3992 of the Philippine Legislature, as
amended by Republic Acts Nos. 587, 1204 and 2863,1 An examination or demonstration to show any
applicant's ability to operate motor vehicles may also be required in the discretion of the Chief, Motor
Vehicles Office or his deputies. Section 26 of the Act prescribes further: SEC. 26. Issuance of chauffeur's
license; professional badge: If, after examination, or without the same, the Chief, Motor Vehicles Office
or his deputies, believe the applicant to possess the necessary qualifications and knowledge, they shall
issue to such applicant a license to operate as chauffeur ...

There is no proof that the owner of the automobile knew that the circumstance surrounding such
issuance showed that it was irregular the weight of authority is in favor of a liberal interpretation of the
insurance policy for the benefit of the party insured, and strictly against the insurer

The weight of authority is in favor of a liberal interpretation of the insurance policy for the benefit of the
party insured and strictly against the insurer.

10. Association of Baptists for World Evangelism Inc v Fieldmens Insurance (46 SCRA 7)
11. American Home Assurance Company v Tantuco Enterprise Inc (366 SCRA 740)

FACTS:

Tantuco Enterprises, Inc. is a coconut oil milling and refining company. It owned two mills (the first oil mill
and a new one), both located at its factory compound at Iyam, Lucena City. The two oil mills are separately
covered by fire insurance policies issued by American Home Assurance Co.

On Sept. 30, 1991, a fire broke out and gutted and consumed the new oil mill. American Home rejected
the claim for the insurance proceeds on the ground that no policy was issued by it covering the burned oil
mill. It stated that the new oil mill was under Building No. 15 while the insurance coverage extended only
to the oil mill under Building No. 5.

ISSUE: Whether or not the new oil mill is covered by the fire insurance policy

In construing the words used descriptive of a building insured, the greatest liberality is shown by the courts
in giving effect to the insurance. In view of the custom of insurance agents to examine buildings before
writing policies upon them, and since a mistake as to the identity and character of the building is extremely
unlikely, the courts are inclined to consider the policy of insurance covers any building which the parties
manifestly intended to insure, however inaccurate the description may be.

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

If the parties really intended to protect the first oil mill, then there is no need to specify it as new. Indeed,
it would be absurd to assume that the respondent would protect its first oil mill for different amounts and
leave uncovered its second one.

--The object of the court in construing a contract is to ascertain the intent of the parties and to enforce
the agreement which the parties have entered into. In determining what the parties intended, the courts
will read and construe the policy as a whole and if possible give effect to all the parts of the contract,
keeping in mind always however the prime rule that in the event of doubt, this doubt is to be resolved
against the insurer. In determining the intent of the arties, the courts will consider the purpose and object
of the contract.

12. Misamis Lumber Corporation v Capital Dev & Surety Co. (17 SCRA 228)

Lessons Applicable: Judicial Construction Cannot Alter Terms (Insurance)

FACTS:
Misamis Lumber Corporation (Misamis), formerly Lanao Timber Mills, Inc., insured its Ford Falcon motor
car with Capital Insurance & Surety Company (Capital)

November 25, 1961 11 pm: The car broke when it hit a hollow block lying alongside the water hole which
the driver did not see because the on-coming car did not dim its light

The car was towed and repaired by Morosi Motors costing P302.27

November 29, 1961: After the repairs were made, Misamis made a report to Capital who only admits
liability of P150

CFI: paragraph 4 of the policy is clear and specific and leaves no room for interpretation that the repair
liability is limited to P150

ISSUE: W/N Misamis is entitled to an amount exceeding P150

HELD: NO.

insurance contract may be rather onerous (one-sided) but that in itself does not justify the abrogation of
its express terms, terms which the insured accepted or adhered to and which is the law between the
contracting parties

13. Union Manufacturing Co Inc v Phil Guaranty Co (47 SCRA 271)

While it is true, as a general rule that contracts of insurance are construed most favorably to the insured,
yet contract of insurance like other contracts, are to be construed accodrin to the sense and meaning of
the terms which the parties themselves have used. If sch terms are cear and unambiguious they must be
rajen and understood in their plain, ordirnary and popular sense.

14. Ty v First National Surety & Assurance Co. Inc (1 SCRA 1324)

The insurance contract is the law between the parties, as the ters of the parties are clear, express and
specific, that only amputation of the left hand should be considered as a loss thereof, an ntrreptation that
would include the mere fracture or other termproary disability, not covered by the policies, would be
unwarranted.

15. Perla Compania de Seguros Inc v CA (185 SCRA 741)

FACTS: Cayas was the registered owner of a Mazda bus which was insured with petitioner PERLA
COMPANIA DE SEGUROS, INC (PCSI). The bus figured in an accident in Cavite, injuring several of its
passengers. One of them, Perea, sued Cayas for damages in the CFI, while three others agreed to a
settlement of P4,000.00 each with Cayas.

After trial, the court rendered a decision in favor of Perea, Cayas ordered to compensate the latter with
damages. Cayas filed a complaint with the CFI, seeking reimbursement from PCSI for the amounts she
paid to ALL victims, alleging that the latter refused to make such reimbursement notwithstanding the fact
that her claim was within its contractual liability under the insurance policy.

The decision of the CA affirmed in toto the decision of the RTC of Cavite, the dispositive portion of which
states:

IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering defendant PCSI to pay plaintiff Cayas
the sum of P50,000.00 under its maximum liability as provided for in the insurance policy;

In this petition for review on certiorari, petitioner seeks to limit its liability only to the payment made by
private respondent to Perea and only up to the amount of P12,000.00. It altogether denies liability for the
payments made by private respondents to the other 3 injured passengers totaling P12,000.00.

ISSUE: how much should PCSI pay?

The insurance policy provides:

5. No admission, offer, promise or payment shall be made by or on behalf of the insured without
the written consent of the Company

It being specifically required that petitioners written consent be first secured before any payment in
settlement of any claim could be made, private respondent is precluded from seeking reimbursement of
the payments made to the other 3 victims in view of her failure to comply with the condition contained
in the insurance policy.

Also, the insurance policy involved explicitly limits petitioners liability to P12,000.00 per person and to
P50,000.00 per accident

Clearly, the fundamental principle that contracts are respected as the law between the contracting parties
finds application in the present case. Thus, it was error on the part of the trial and appellate courts to have
disregarded the stipulations of the parties and to have substituted their own interpretation of the
insurance policy.

The first duty of the courts is the application of the law according ti its express terms, interpretation being
called for only when such literal application is impossible.