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Define contract of insurance.

A contract of insurance is an agreement whereby one undertakes for a consideration to


indemnify another against loss, damage or liability arising from an unknown or contingent event
which is otherwise known as peril.

What are the elements of a contract of insurance?

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. (Philamcare Health
Systems, Inc. vs. Court of Appeals, G.R. No. 125678 [March 18, 2002])

May a member of the MILF or its breakaway group, the Abu Sayyaf, be insured with a company
licensed to do business under the Insurance Code of the Phils (PD 1460)? Explain. (2000 Bar Exams)

Yes, a member of the MILF or the Abu Sayyaf may be insured. What is prohibited to be insured is
a public enemy. A public enemy is a citizen or national of a country with which the Philippines is
at war.

Jason is the proud owner of a newly-built house worth PS million. As a protection against any
possible loss or damage to his house, Jason applied for a fire insurance policy thereon with Shure
Insurance Corporation (Shure) on October 11, 2016 and paid the premium in cash. It took the
company a week to approve Jason's application. On October 18, 2016, Shure mailed the approved
policy to Jason which the latter received five (5) days later. However, Jason's house had been razed
by fire which transpired a day before his receipt of the approved policy. Jason filed a written claim
with Shure under the insurance policy. Shure prays for the denial of the claim on the ground that the
theory of cognition applies to contracts of insurance.
Decide Jason's claim with reasons. (2016 Bar Exams)

Shure is correct. In insurance contracts, we apply what is known as the “cognition theory”.

In the Civil Code, "Consent is shown by the concurrence of offer and acceptance with respect to
the thing and the consideration which are to constitute the contract. An acceptance made by
letter shall not bind the person making the offer except from the time it came to his knowledge.
The contract, in such case, is presumed to have been entered into at the place where the offer
was made. (Enriquez vs. Sun Life Assurance Co. of Canada, 41 Phil. 269). Since the Jason was
made aware of the approval of the policy a day after the fire, then the contract of insurance is
not yet perfected at the time of the fire.

The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only
from the date it came to his knowledge, may not be the best expression of modern commercial
usage. Still it must be admitted that its enforcement avoids uncertainty and tends to security.
Not only this, but in order that the principle may not be taken too lightly, let it be noticed that it
is identical with the principles announced by a considerable number of respectable courts in the
United States. The courts who take this view have expressly held that an acceptance of an offer
of insurance not actually or constructively communicated to the proposer does not make a
contract. Only the mailing of acceptance, it has been said, completes the contract of insurance, as
the locus poenitentiae is ended when the acceptance has passed beyond the control of the party.
(I Joyce, The Law of Insurance, pp. 235, 244.)

On June 1, 2011, X mailed to Y Insurance, Co. his application for life insurance, with payment for 5
years of premium enclosed in it. On July 21, 2011, the insurance company accepted the application
and mailed, on the same day, its acceptance plus the cover note. It reached X's residence on August
11, 2011. But, as it happened, on August 4, 2011, X figured in a car accident. He died a day later.
May X's heirs recover on the insurance policy? (2011 Bar Exams)

(A) Yes, since under the Cognition Theory, the insurance contract was perfected upon acceptance
by the insurer of X's application.
(B) No, since there is no privity of contract between the insurer and X’s heirs.
(C) No, since X had no knowledge of the insurer's acceptance of his application before he died.
(D) Yes, since under the Manifestation Theory, the insurance contract was perfected upon
acceptance of the insurer of X's application.

Define fortuitous event.

Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is


therefore, not enough that the event should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to
foresee the happening is not impossibility to foresee the same. (Republic v. Luzon Stevedoring
Corporation, 128 Phil. 313, 318 [1967])

Define accident and accidental.

The words "accident" and "accidental" have never acquired any technical signification in law, and
when used in an insurance contract are to be construed and considered according to the ordinary
understanding and common usage and speech of people generally. In-substance, the courts are
practically agreed that the words "accident" and "accidental" mean that which happens by
chance or fortuitously, without intention or design, and which is unexpected, unusual, and
unforeseen. The definition that has usually been adopted by the courts is that 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 case, and therefore not expected. (43 Am. Jur.
2d 627)

An accident is an event which happens without any human agency or, if happening through
human agency, an event which, under the circumstances, is unusual to and not expected by the
person to whom it happens. It has also been defined as an injury which happens by reason of
some violence or casualty to the injured without his design, consent, or voluntary co-operation.
(43 Am. Jur. 2d 628)

S Insurance Co issued a personal accident policy to Bob Tan with a face value of P500th. In the
evening of Sep 5, 1992, after his birthday party, Tan was in a happy mood but not drunk. He was
playing with his hand gun, from which he previously removed the magazine. As his secretary was
watching television, he stood in front of her and pointed the gun at her. She pushed it aside and said
that it may be loaded. He assured her that it was not and then pointed it at his temple. The next
moment, there was an explosion and Tan slumped to the floor lifeless. The wife of the deceased
sought payment on the policy but her claim was rejected. The insurance company agreed that there
was no suicide. However, it was the submission of the insurance company that there was no
accident. In support thereof, it contended a) that there was no accident when a deliberate act was
performed unless some additional, unexpected, independent and unforeseen happening occur
which produces or brings about the injury or death; and b) that the insured willfully exposed himself
to needless peril and thus removed himself from the coverage of the insurance policy. Are the two
contentions of the insurance company tenable? Explain. (1993 Bar Exams)

No. The two contentions of the insurer are not tenable. Tan had removed the magazine from the
gun and believed it was no longer dangerous. He expressly assured her that the gun was not
loaded. It is submitted that Tan did not willfully expose himself to needless peril when he
pointed the gun to his temple because the fact is that he thought it was not unsafe to do so. At
most, the insured is only guilty of negligence. (See Sun Insurance Office, Ltd vs Court of Appeals,
211 SCRA 554 [July 17, 1992])

Sun-Moon Insurance issued a Personal Accident Policy to Henry Dy with a face value of P500th. A
provision in the policy states that “the company shall not be liable in respect of “bodily injury’
consequent upon the insured person attempting to commit suicide or willfully exposing himself to
needless peril except in an attempt to save human life.” Six months later Henry Dy died of a bullet
wound in his head. Investigation showed that one evening Henry was in a happy mood although he
was not drunk. He was playing with his handgun from which he had previously removed its
magazine. He pointed the gun at his sister who got scared. He assured her it was not loaded. He
then pointed the gun at his temple and pulled the trigger. The gun fired and Henry slumped on the
floor. Henry’s wife Beverly, as the designated beneficiary, sought to collect under the policy. Sun-
Moon Insurance rejected her claim on the ground that the death of Henry was not accidental.
Beverly sued the insurer. Decide and Discuss fully.

Beverly can recover the proceeds of the policy from the insurer. The death of the insured was not
due to suicide or willful exposure to needless peril which are excepted risks. The insured’s act
was purely an act of negligence which is covered by the policy and for which the insured got the
insurance for his protection. In fact, he removed the magazine from the gun and when he
pointed the gun to his temple he did so because he thought that it was safe for him to do so. He
did so to assure his sister that the gun was harmless. There is none in the policy that would
relieve the insurer of liability for the death of the insured since the death was an accident.

Luis was the holder of an accident insurance policy effective Nov 1, 1988 to Oct 31, 1989. At a
boxing contest held on Jan 1, 1989 and sponsored by his employer, he slipped and was hit on the
fact by his opponent so he fell and his head hit one of the posts of the boxing ring. He was rendered
unconscious and was dead on arrival at the hospital due to “intra-cranial hemorrhage.” Can his
father who is a beneficiary under said insurance policy successfully claim indemnity from the
insurance company? Explain (1990 Bar Exams)

Yes. While the participation of the insured in the boxing contest is voluntary, the injury was
sustained when he slid, giving occasion to the infliction by his opponent of the blow that threw
him to the ropes of the ring. Without this unfortunate incident, that is, the unintentional slipping
of the deceased, perhaps he could not have received that blow in the head and would not have
died. The fact that boxing is attended with some risks of external injuries does not make any
injuries received in the course of the game not accidental. In boxing as in other equally physically
rigorous sports, such as basketball or baseball, death is not ordinarily anticipated to result. If,
therefore, it ever does, the injury or death can only be accidental or produced by some
unforeseen happening or event as what occurred in this case. (Simon De La Cruz vs The Capital
Insurance and Surety Co., Inc., GR No. L-21574 June 30, 1966])

What is meant by “cash and carry” in the business of insurance? (2003 Bar Exams)

It means, as a general rule, an insurer is entitled to payment of the premium as soon as the thing
insured is exposed to the peril insured against.

Unless and until the premium is paid, there is no insurance. (Arce vs. Capital Insurance & Surety
Co., Inc., 117 SCRA 63 [1982].

What are the exceptions to the cash and carry rule?


1 In the case of a life or an industrial life policy whenever the grace period provision
applies. (Insurance Code of the Philippines, Section
2 An acknowledgment in a policy or contract of insurance or the receipt of premium is conclusive
evidence of its payment . (Insurance Code of the Philippines, Section 79)
3 If the parties have agreed to the payment in installments of the premium and partial payment
has been made at the time of loss. (Makati Tuscany Condominium vs. Court of Appeals,
215 SCRA 463 )
4 If the insurer has granted the insured a credit term for the payment of the premium and loss
occurs before the expiration of the term, recovery on the policy should be allowed even
though the premium is paid after the loss but within the credit term. (Makati Tuscany
Condominium vs. Court of Appeals, 215 SCRA 463. )
5 Estoppel. It would be unjust and inequitable if recovery on the policy would not be permitted
against Insurer, 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 Insured relied in good faith on such practice. (UCPB
General Insurance Co., Inc vs Masagana Telamart, G.R. No. 137172 [April 4, 2001])
6 Whenever under the broker and agency agreements with duly licensed intermediaries, a
ninety (90)-day credit extension is given. No credit extension to a duly licensed
intermediary should exceed ninety (90) days from date of issuance of the policy.
(Insurance Code of the Philippines, Section 77). This is a new provision under the amended
Insurance Code.
The Peninsula Insurance Company offered to insure Francis' brand new car against all risks in the
sum of PI Million for 1 year. The policy was issued with the premium fixed at 160,000.00 payable in
6 months. Francis only paid the first two months installments. Despite demands, he failed to pay the
subsequent installments. Five months after the issuance of the policy, the vehicle was carnapped.
Francis filed with the insurance company a claim for its value. However, the company denied his
claim on the ground that he failed to pay the premium resulting in the cancellation of the policy.
Can Francis recover from the Peninsula Insurance Company? (2006 Bar Exams)

Yes, when insured and insurer have agreed to the payment of premium by installments and
partial payment has been made at the time of loss, then the insurer becomes liable. When the
car loss happened on the 5th month, the six months agreed period of payment had not yet
elapsed. (Makati Tuscany Condominium vs. Court of Appeals, 215 SCRA 463 )

Alfredo took out a policy to insure this commercial building fire. The broker for the insurance
company agreed to give a 15-day credit within which pay the insurance premium. Upon delivery of
the policy on May 15, 2006, Alfredo issued a postdated check payable on May 30, 2006. On May 28,
2006, a fire broke out and destroyed the building owned by Alfredo. (2007 Bar Exams)

Yes, Alfredo may recover on the policy. It is valid to stipulate that the insured will be granted
credit term for payment of premium. (See Makati Tuscany Condominium vs. Court of Appeals,
215 SCRA 463. )

Enrique obtained from Seguro Insurance Company a comprehensive motor vehicle insurance to
cover his top of the line Aston martin. The policy was issued on March 31, 2010 and, on even date,
Enrique paid the premium with a personal check postdated April 6, 2010.

On April 5, 2010, the car was involved in an accident that resulted in its total loss. On April 10, 2010,
the drawee bank returned Enrique’s check with the notation ― "Insufficient Funds."

Upon notification, Enrique immediately deposited additional funds with the bank and asked the
insurer to redeposit the check. Enrique thereupon claimed indemnity from the insurer. Is the insurer
liable under the insurance coverage? Why or why not? (2010 Bar Exams)

The insurer is not liable under the insurance policy. Under Article 1249 of the Civil Code, the
delivery of a check produces the effect of payment only when it is encashed.

Stable Insurance Co. (SIC) and St. Peter Manufacturing Co. (SPMC) have had a long-standing
insurance relationship with each other; SPMC secures the comprehensive fire insurance on its plant
and facilities from SIC. The standing business practice between them has been to allow SPMC a
credit period of 90 days from the renewal of the policy with which to pay the premium. Soon after
the new policy was issued and before premium payments could be made, a fire gutted the covered
plant and facilities to the ground. The day after the fire, SPMC issued a manager’s check to SIC for
the fire insurance premium, for which it was issued a receipt; a week later SPMC issued its notice of
loss. SIC responded by issuing its own manager’s check for the amount of the premiums SPMC had
paid, and denied SPMC’s claim on the ground that under the ―cash and carry principle governing
fire insurance, no coverage existed at the time the fire occurred because the insurance premium had
not been paid. Is SPMC entitled to recover for the loss form SIC? (2013 Bar Exams)

SPMC is entitled to recover against SIC. Granting of credit term is not against the law. Because of
the long standing business practice of allowing insured to pay the premiums after 60 or 90 days
was relied upon in good faith by insured, SIC is estopped from questioning such practice. (See
UCPB General Insurance Company, Inc. v. Masagana Telemart, Inc. 356 SCRA 307, 2001).

Additional Notes:

If there was no clear and definite agreement between petitioner and respondent on the grant of
a credit extension and if neither was there partial payment of premiums for petitioner, the
exceptional doctrine in Makati Tuscany case will not apply. What would govern is the case of
Tibay v. Court of Appeals.

The issue raised therein was: "May a fire insurance policy be valid, binding and enforceable upon
mere partial payment of premium?"

In the said case, Fortune Life and General Insurance Co., Inc. issued Fire Insurance Policy No.
136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo, on a two-storey residential building
located at 5855 Zobel Street, Makati City, together with all the personal effects therein, The
insurance was for P600,000.00, covering the period from 23 January 1987 to 23 January 1988. On
23 January 1987, of the total premium of P2,983.50, Violeta Tibay only paid P600.00, thus leaving
a substantial balance unpaid. On March 8, 1987, the insured building was completely destroyed
by fire. Two days later, or on 10 March 1987, Violeta Tibay paid the balance of the premium.

On the same day, she filed with Fortune a claim for the proceeds of the fire insurance policy. In
denying the claim of insurance, the Court ruled that "by express agreement of the parties, no
vinculum juris or bond of law was to be established until full payment was effected prior to the
occurrence of the risk insured against.

As expressly stipulated in the contract, full payment must be made before the risk occurs for the
policy to be considered effective and in force. "No vinculum juris whereby the insurer bound
itself to indemnify the assured according to law ever resulted from the fractional payment of
premium." (Dissenting opinion of Justice Pardo in UCPB General Insurance Co., Inc vs Masagana
Telamart, G.R. No. 137172 [April 4, 2001])

What are the functions of insurance?

The following are the some of the important functions of insurance, to wit:
1 Risk-bearing – it is the principal function of insurance. It provides for the distribution of losses
of the few over the many out of fund contributed by all.
2 Stimulates business enterprise – it enables the businessmen to use their capital in the
development of their business by paying a fixed contribution by way of premium and
obtain financial security against insured risks, instead of freezing capital to guard against
various contingencies.
3 Encourages efficiency and enterprise – the elimination of risk is an increase in business
efficiency.
4 Promotes loss prevention – insurance encourages loss-prevention through a system of rating
which allows discounts for good features and impose special conditions where the risk is
unsatisfactory.
5 Encourages savings – by protecting the individual against unforeseen events, insurance
provides for a climate where savings are encouraged.
6 Solves social problems (De Leon, Hector. The Insurance Code of the Philippines Annotated. 2002
Edition, 57-58)

What are the types of insurance companies?

1 Life Insurer
2 Non-Life Insurer
3 Composite Insurer

What is a mutual insurance company or association? (2006 Bar Exams)

A mutual life insurance corporation is a cooperative that promotes the welfare of its own
members, with the money collected from among themselves and solely for their own protection
and not for profit. Members are both the insurer and insured. A mutual life insurance company
has no capital stock and relies solely upon its contributions or premiums to meet unexpected
losses, contingencies and expenses (Republic v. Sunlife, G.R. No 158085, October 14, 2005).

What are the main classes of insurance?

The major classes of insurance are:

a. Life insurance versus Non-life insurance which is sometimes referred to a General Insurance
and Property and Casualty Insurance.
1. While both provides protection on the life and health of a person, life insurance can provide
cover whether death is due to accident or sickness while non-life insurance will only respond if
death is due to an accident.
2. The former is as a rule a valued policy, whereas the latter is generally an open policy. In the
former, the value of indemnity is pre-determined as at the inception of the policy. The total sum
insured and amount of indemnity is one and the same. In the latter, the value of indemnity shall
be determined at the time of the happening the loss. The total sum insured is only the maximum
amount of liability to be assumed by the insurer.
3. The former has an investment feature in the form of dividends, whereas the latter is purely
an indemnity contract. The former earns interests and/or dividends upon reaching the period of
maturity while no such feature is available to the latter.

b. First party versus third-party insurance.


1. In the former, the beneficiary is the named insured himself, whereas, in the latter, the
beneficiary is a person other than the insured.
2. In the former, what is being insured is the loss suffered by the insured himself or the
property he owns, whereas, the latter covers the insured’s liability vis-à-vis a third party.
3. In the former, a third party has no legal personality to file a claim against the insurer,
whereas in the latter, a third party may directly file a claim against the insurer.

c. Mandatory versus Optional Insurance.


1. In the former, the insured buys insurance because it is a required either by law or the
contracting party such a Compulsory Third Liability Insurance, Comprehensive General Liability
Insurance and Surety Bond. The latter, on the other hand, is not.
2. In the former, the beneficiary is generally a person other than the insured, whereas, in the
latter, the beneficiary is the named insured himself.

What are the types of life insurance?

They are as follows:


1 Individual life
2 Group life
3 Industrial life - shall mean that form of life insurance under which the premiums are payable
either monthly or oftener, if the face amount of insurance provided in any policy is not
more than five hundred times that of the current statutory minimum daily wage in the
City of Manila, and if the words "industrial policy" are printed upon the policy as part of
the descriptive matter. (Insurance Code of the Philippines, Section 229)

What are the types of non-life insurance products available in the market?

The following are the major classes of non-life insurance products -


1 Fire Insurance
2 Marine Insurance
3 Suretyship or Surety Bond
4 Casualty Insurance includes all other types of insurance not included in the above category
such as Motor Car; Personal Accident Insurance; Crime Insurance; Liability Insurance
policies such as Errors and Omission Insurance, Directors and Officers Liability Insurance,
Comprehensive General, and Personal Liability Insurance; Workmen’s Compensation
Insurance.

Non-Life Insurance can be further classified into two (2) major categories:
1 Tariff Lines – this refers to a class of insurance products whose rates are subject to tariff and
regulation by the the Insurance Commission (IC). Examples of which are as follows: (1)
Fire Insurance, (2) Motor Car Insurance, and (3) Surety Bonds. In addition, Tariff Lines’
policy terms and conditions are uniform.
2 Non-Tariff Lines - this refers to a class of insurance products insurers are given the discretion to
impose the appropriate rate based on their underwriting procedures. Examples of which
are as follows: Accident and Health, Marine and Liability Insurances such as
Comprehensive General Liability, and Fidelity Guarantee.

What are the characteristics of an insurance contract? Explain each characteristic briefly. (1970 Bar
Examination)
There are a number of characteristic peculiar to insurance, namely:
1 Personal. The insurer takes into account the character, credit, and conduct of the insured. In
case of change of ownership over an insured property, the coverage does not
automatically transfer to the new owner. The insurer has the option not to extend cover
to the said insured property if ever the new owner applies for a continuation of the
existing insurance.
2 Unilateral. The terms and conditions of the insurance did not arise from the meeting of the
minds of the insurer and insured. The wordings are solely prepared by the former. It is the
reason why in case of doubt in the interpretation of the terms and conditions of the
insurance contract, it shall be construed in favor of the latter in case there is ambiguity.
3 Conditional. The obligation of the insurer to pay the insured is dependent upon the compliance
of the insured with the terms and conditions of the insurance contract such as payment of
premium, timely filing of a claim, and submission of proofs of loss, among others.
4 Aleatory. The obligation of the insurer to pay the insured is conditioned upon the happening of
the contingent event such as the perils of fire or flood.
5 Executory. Insofar as the insurer is concerned, the insurance contract is merely executory. It is
not executed until there is a loss on the part of the insured.
6 Consensual. A contract of insurance is a product of the meeting of the minds of the insured and
the insurer. The mere submission of the application without the corresponding approval
of the policy does not result in the perfection of the contract of insurance. (Great Pacific
Life Assurance Corp. vs. Court of Appeals, 89 SCRA 543)

Distinguish insurance contract from a wagering contract?

The differences between an insurance contract and a wagering contract are the following:
1 In the former, the parties seek to distribute possible loss by reason of mischance, whereas, in
the latter, the parties contemplate gain through mere chance;
2 The insured seeks to avoid misfortune, whereas, a gambler seeks fortune. (De Leon, Hector.
The Law on Insurance (with Insolvency Law).1998 Edition, 18. )

How are insurance contracts interpreted?

In case of ambiguity, insurance contracts are to be construed liberally in favor of the insured and
strictly against the insurer. (Sun Insurance Office, Ltd. vs. Court of Appeals, [195 SCRA 193, 1991];
Young vs. Midland Textile Insurance Co., 30 Phil 617). The reason behind this is because
insurance, in its nature, is complex and difficult for the layman to understand. (Algoe vs. Pacific
Meet. L. Ins., Co., 91 Wash. 324 LRA 1917A,1237). Most of the terms of the insurance contract do
not result from the mutual negotiation between the insured and the insurer. The insured merely
adheres to the terms appearing in the final printed form of the insurance contract. (Serrano vs.
Court of Appeals, 130 SCRA 327 [1984] )

However, if the terms and conditions are clear and unequivocal, it shall be interpreted according
to its ordinary meaning.

An insurance contract must be interpreted so as to carry out the purpose for which the parties
entered into the contract, which is to insure against risk of loss, damage, or liability on the part of
the insured.

Are Health Care Agreements considered an insurance contract?

Yes. A health care agreement is in the nature of non-life insurance, which is primarily a contract
of indemnity. Once the member incurs hospital, medical or any other expense arising from
sickness, injury or other stipulated contingent, the health care provider must pay for the same to
the extent agreed upon under the contract. The insurable interest of the insured in obtaining the
health care agreement was his own health. (Philamcare Health Systems, Inc. vs. Court of Appeals,
G.R. No. 125678 [March 18, 2002])

In the case of Blue Cross Healthcare, Inc. v. Olivares (GR No. 169737) 12 February 2008), the
Supreme Court reiterated that a health care agreement is in the nature of a non-life insurance
policy. They stated further that “It is an established rule in insurance contracts that when their
terms contain limitations on liability, they should be construed strictly against the insurer. These
are contracts of adhesion the terms of which must be interpreted and enforced stringently
against the insurer which prepared the contract. This doctrine is equally applicable to health care
agreements.”

In the case of Philippine Health Care Providers, Inc. vs. Commissioner of Internal Revenue, (G.R.
No. 167330 June 12, 2008), the Supreme disagreed with Philippine Health Care Providers, Inc and
stated the following:

“xx its health care agreement is not a contract for the provision of medical services. Petitioner
does not actually provide medical or hospital services but merely arranges for the same and pays
for them up to the stipulated maximum amount of coverage. It is also incorrect to say that the
health care agreement is not based on loss or damage because, under the said agreement,
petitioner assumes the liability and indemnifies its member for hospital, medical and related
expenses (such as professional fees of physicians). The term "loss or damage" is broad enough to
cover the monetary expense or liability a member will incur in case of illness or injury. (Emphasis
supplied)

Under the health care agreement, the rendition of hospital, medical and professional services to
the member in case of sickness, injury or emergency or his availment of so-called "out-patient
services" (including physical examination, x-ray and laboratory tests, medical consultations,
vaccine administration and family planning counseling) is the contingent event which gives rise
to liability on the part of the member. In case of exposure of the member to liability, he would be
entitled to indemnification by petitioner.

Furthermore, the fact that petitioner must relieve its member from liability by paying for
expenses arising from the stipulated contingencies belies its claim that its services are prepaid.
The expenses to be incurred by each member cannot be predicted beforehand, if they can be
predicted at all. Petitioner assumes the risk of paying for the costs of the services even if they are
significantly and substantially more than what the member has "prepaid." Petitioner does not
bear the costs alone but distributes or spreads them out among a large group of persons bearing
a similar risk, that is, among all the other members of the health care program. This is insurance.”
(Emphasis supplied)

Under Executive Order No. 192, Series of 2015, which transferred the jurisdiction of HMOs from
the Department of Health to the IC, all HMOs are required to comply with the regulatory
requirements of procuring a license to operate from the IC.

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