conclusive to show that the making thereof does not constitute

INSURANCE NOTES: the doing or transacting of an insurance business.

1. Concept: (c) As used in this Code, the term Commissioner means the
Insurance Commissioner. (Sec.1 of Insurance Code)
(a) an agreement whereby one undertakes, for a
consideration, to indemnify another against loss, damage, 2. Elements:
or liability arising from an unknown or contingent event.
a. The insured has an insurable interest capable of pecuniary
A contract of suretyship shall be deemed to be an insurance estimation.
contract, within the meaning of this Code, only if made by a
surety who or which, as such, is doing an insurance business b. The insured is subject to a risk of loss by happening of the
as hereinafter provided. designated peril;

(b) The term doing an insurance business or transacting an c. The insurer assumes the risk of loss;
insurance business, within the meaning of this Code, shall
include: d. Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons
1. Making or proposing to make, as insurer, any bearing similar risk and;
insurance contract;
2. Making or proposing to make, as surety, any contract of e. In consideration of the insurer’s promise, the insured pays
suretyship as a vocation and not as merely incidental premium.
to any other legitimate business or activity of the
surety; 3. What may be insured against?
3. Doing any kind of business, including a reinsurance
business, specifically recognized as constituting the ● Any contingent or unknown event, whether past or
doing of an insurance business within the meaning of future, which may damnify a person having an
this Code; insurable interest, or create a liability against him, may
4. Doing or proposing to do any business in substance be insured against subject to the provisions of this
equivalent to any of the foregoing in a manner chapter.
designed to evade the provisions of this Code. ● The consent of the spouse is not necessary for the
validity of an insurance policy taken out by a married
In the application of the provisions of this Code, the fact that person on his or her life or that of his or her children.
no profit is derived from the making of insurance contracts, ● All rights, title and interest in the policy of insurance
agreements or transactions or that no separate or direct taken out by an original owner on the life or health of
consideration is received therefor, shall not be deemed the person insured shall automatically vest in the latter
 upon the death of the original owner, unless otherwise ● Also called as ● Not the kind of risk
provided for in the policy. (Sec. 3 of Insurance Code) Insurance Risk associated with
insurance.
Examples of risk of loss:
Insurance Premium
● Fire, including the risk allied to it, like lightning,
windstorm, tornado, earthquake and other similar risks. - The amount of money a person pays for an insurance
(Sec. 169 of Insurance Code) policy, inconsideration for the assumption by the
● Loss or damage in marine insurance (Sec. 101 of insurance of the risk of loss as result of the happening
Insurance Code) of the designated peril.
● Death or injury
● Casualty or liability in case of accident or mishap (Sec. 4. Parties to an insurance contract:
176 of Insurance Code)
● Non-performance by the principal debtor of his a. Insurer:
obligation to the creditor. (Sec.177 of Insurance Code)
● it assumes the risk of loss and undertakes for a
Actual Risk consideration to indemnify the insured upon the
happening of the designated peril.
Refers to the possibility that the assumptions made by the ● Every corporation, partnership, or association duly
actuaries, in pricing specific insurance policies, may prove to authorized to transact insurance business by the
be inaccurate or wrong. Insurance Commission may be an insurer.
● A natural person is not allowed to be an insurer.
● Possible Assumptions includes:
● Frequency of losses b. Insured:
● Severity of losses
● The correlation of losses between contracts. ● He is the person whose loss is the occasion for the
payment of the insurance proceeds by the insurer.
Actuarial Risk vs Investment Risk ● Anyone except a public enemy may be insured.

c. Assured:
ACTUARIAL RISK INVESTMENT RISK
● The insured is also the assured when the proceeds are
● The risk that the cost ● A risk the company payable to him.
of insurance claims might fail to earn a ● In property insurance – the assured must have
might be higher than reasonable return on insurable interest over the property and such insurable
the premiums paid. its investment. interest is covered by the insurance policy.
 ● In life insurance – the insured may insure someone (c) Of any person under a legal obligation to him for the
else’s life, and designate himself as the beneficiary payment of money, or respecting property or services, of
provided that he has insurable interest over the life of which death or illness might delay or prevent the
the person whom he insures. performance; and

d. Beneficiary: (d) Of any person upon whose life any estate or interest
vested in him (Sec. 10 of Insurance Code)
● The third person designated by the insured to receive
the proceeds. Note: Persons excluded under paragraph (a):
● In case of failure to designate a beneficiary in a life
insurance or the beneficiary designated is disqualified, ● Persons in illicit relations - adultery or concubinage (no
the proceeds should accrue to the state. need for conviction)
● Persons found guilty of adultery or concubinage;
5. Insurable Interest ● Public officer or his wife, descendants, or ascendants

That interest which a person deemed to have in the subject Does a person have an insurable interest on the life of his
matter of the insurance where he has a relation or connection parents?
to it such that the person will derive pecuniary benefit or
advantage from the preservation of the subject matter or will A person has no insurable interest on the life of his parents
suffer pecuniary loss or damage from its destruction, and other ascendants unless he depends upon them for
termination or injury by the happening of the event insured education and/or support.
against it.
Rationale: the parents are expected to predecease their
If person procuring interest has no insurable interest in the children.
subject matter of the insurance, the insurance is void.
Do parents have an insurable interest on the life and
a. In life/health: health of their illegitimate children?

- Every person has an insurable interest in the life and Yes, as such, as they can take insurance on the life of their
health: children, whether legitimate or illegitimate.

(a) Of himself, of his spouse and of his children; Rationale: the law makes no distinction as to the kind of
children and there being no statutory prohibition against it.
(b) Of any person on whom he depends or in part for
education or support, or in whom he has pecuniary
interest;
Can a person take insurance on the life of another person ● Beneficiary cannot be changed; no additional
and designate himself as the beneficiary? beneficiary can be designated.
● Insured cannot take case surrender value on the policy
A person can take an insurance on the life of another person unless the beneficiary consents to any of the foregoing
and designate himself as the beneficiary provided that he has acts.
pecuniary interest in the person he is insuring. (This refers to
persons under paragraph b to d of Sec. 10 of Insurance Code) Effects of the revocable designation of the beneficiary:

Examples for paragraph (c): ● Insured may change the beneficiary during his lifetime,
● Add beneficiary or exclude beneficiary in case of joint
● A mortgagee may insure the life of the mortgagor up to designation of beneficiaries.
the extent of the mortgage debt to the mortgagee.
● Seller may insure the life of the buyer if the latter has To whom will the proceeds of the life insurance policy be
the obligation to deliver a specified property under a payable?
contract to sell. The seller’s insurable interest is the
contracted value of the property for delivery. The proceeds of the life insurance policy are payable as
● A law firm may procure a keyman insurance policy on follows:
its Managing Partner
● An employer corporation has an insurable interest on A. In a case a beneficiary is unlawfully designated, the
its manager where the death of the manager will be proceeds shall payable to the estate of the insured (not
detrimental to the corporation’s operation. only to the lawful spouse of the insured although she
has a share in the estate of the insured). It is because
Can the insured change his beneficiary? the policy remains valid. Only the designation is void.

The insured shall have the right to change the beneficiary he B. In case of joint designation of beneficiaries, the share
designated in the policy , unless he has expressly waived this of the unlawfully designated beneficiary shall form
right in said policy. additional part of the share of the lawfully designated
beneficiary. Thus, the share of the common law spouse
Effects of the irrevocable designation of the beneficiary in shall be forfeited in favor of the designated illegitimate
a life insurance policy: children.

● The beneficiary has acquired a vested right on the life C. In case of joint designation of lawfully designated
insurance policy including its incident such as the beneficiaries, proceeds shall be divided based on
policy loan and cash surrender value. terms of policy. If the policy is silent, the proceeds shall
● Any act of the insured which may impair the interest of be divided equally between or among the beneficiaries.
the irrevocably designated beneficiary is null and void.
 D. In case a beneficiary is lawfully designated and the i. An insurable interest in property may consist in:
insured dies ahead of the beneficiary, the proceeds are
payable to the beneficiary unless he is the principal, a. An existing interest
accessory or accomplice in willfully bringing about the b. An inchoate interest founded on an existing interest; or
death of the insured. c. An expectancy, coupled with an existing interest in that
out of which the expectancy arises. (Sec. 14 of
E. In such a case, interest of the beneficiary shall be Insurance Code)
forfeited and the share forfeited shall pass on to the
other beneficiaries, unless otherwise disqualified. In the Examples of Existing interest:
absence of other beneficiaries, the proceeds shall be
paid in accordance with the policy contract. If the policy ● A carrier of depository of any kind insurable interest in
contract is silent, the proceeds shall be paid to the a thing held by him as such, to the extent of his liability
estate of the insured. Note that the insurer is still liable. but not to exceed the value thereof.
● Both mortgagor and mortgagee may insure the
F. In case the beneficiary predeceases the insured, make mortgaged property against fire. The mortgagor may
a distinction between irrevocable and revocable insure it up to the extent of the value while the
beneficiary. If irrevocable, the proceeds shall inure to mortgagee up to the extent of the mortgage debt.
the benefit of the legal representatives of the ● A depositor may insure his deposits in excess of the
beneficiary. If revocable, the proceeds shall inure to the PDIC.
estate of the insured. If the policy is silent as to
whether designation is irrevocable or revocable, the Examples of Inchoate interest founded on existing
proceeds shall inure to the estate of the insured interest:
because the designation is revocable unless otherwise
specified in the policy. ● A stockholder may insure corporate property to the
extent of and in proportion to the value of his shares in
G. The beneficiary's interest in a life insurance the corporation. A stockholder has inchoate right to the
endowment policy will only accrue if the insured dies corporate assets which will ripen into full ownership
before the end of the endowment period. If the insured upon dissolution and liquidation of the corporation.
survives, the proceeds are payable to him. ● A property under contract to sell. The buyer may insure
the property to the extent of the amount of payment he
b. In property: has made or the entire value of the property depending
on how the stipulation in the agreement will damnify
Every interest in property, whether real or personal, or any him in case of loss of such property. The seller may
relation thereto, or liability in respect thereof, of such nature also insure the property to the extent of the unpaid
that a contemplated peril might directly damnify the insured, is purchase price or even the full value if there is
an insurable interest. (Sec. 13 of the Insurance Code stipulation that he is liable to return the payment in
case of non-delivery."
 ● The judgment creditor, after levy of the judgment
debtor's property, may insure it because the debtor
may not exercise his right of redemption. He has iii. Measure of an insurable interest in property:
inchoate interest because he may acquire ownership of
the levied property in case of failure of the debtor to The measure of an insurable interest in property is the extent
redeem. The judgment creditor and the judgment to which the insured might be damnified by loss or injury
debtor both have insurable interest on the property thereof. (Sec. 17 of Insurance Code)
which can be separately covered by fire insurance. In
case of loss before expiration of the redemption period, iv. When should insurable interest exist in property and in
the owner and the judgment creditor may recover on life:
their separate insurance. If the loss occurs after
expiration of the redemption period, only the judgment An interest in property insured must exist when the insurance
creditor may claim on the insurance. takes effect, and when the loss occurs, but need not exist in
● A general creditor, however, has no insurable interest the meantime; and interest in the life or health of a person
on the debtor's property. This is because prior to the insured must exist when the insurance takes effect, but need
levy, the general creditor's interest on the debtor's not exist thereafter or when the loss occurs. (Sec. 19 of
property is a mere contingent or expectant interest not Insurance Code)
founded on an actual right to the thing, nor upon any
valid contract for it. c. Distinguish property v. life insurance

ii. Mere Contingent or Expectant Contingent: INSURABLE INTEREST IN INSURABLE INTEREST IN

PROPERTY INSURANCE LIFE INSURANCE
A mere contingent or expectant interest in any thing, not
founded on an actual right to the thing, nor upon any valid ● The actual value of ● There is no limit to
contract for it, is not insurable. (Sec. 16 of Insurance Code) the interest therein is the amount of
the limit of the insurance that may
Examples: insurance that can be be taken upon life
place thereon. except in case of a
● Growing crops ● An interest insured creditor securing the
● Expected freightage of the common carrier must exist when the life of the debtor in
● Profits of a partnership for a partner insurance takes which case the
effect and when the insurance should be
Does a son have insurable interest on the property of his loss occurs but need limited to the amount
father? not exist in the of the debt.
meantime. ● It is enough that
No, as his interest in such property is a mere expectancy not a ● The beneficiary must insurable interest
founded actual right.
 To what extent may the insured recover in a policy, other
have insurable exists at the time
than life, if the insured is over insured by double
interest over the when the contract is
insurance?
property insured and made but it need not
such insurable exist at the time of
The insured shall be governed by the following rules if
interest must be loss.
he is over insured by double insurance.
covered by the ● If the insured
insurance policy. procured insurance "(a) The insured, unless the policy otherwise provides,
on his own life, he may claim payment from the insurers in such order as
can designate he may select, up to the amount for which the insurers
anyone as are severally liable under their respective contracts;
beneficiary (except
those disqualified to "(b) Where the policy under which the insured claims is
receive donation) a valued policy, any sum received by him under any
even though the latter other policy shall be deducted from the value of the
has no insurable policy without regard to the actual value of the subject
interest in the life of matter insured;
the insured.
"(c) Where the policy under which the insured claims is
d. Double Insurance: an unvalued policy, any sum received by him under any
policy shall be deducted against the full insurable
- Exists where the same person is insured by several value, for any sum received by him under any policy;
insurers separately in respect to the same subject and "(d) Where the insured receives any sum in excess of
interest. the valuation in the case of valued policies, or of the
- Requisites: insurable value in the case of unvalued policies, he
- The person insured is the same; must hold such sum in trust for the insurers, according
- Two or more insurers insuring separately; to their right of contribution among themselves;
- There is identity of subject matter;
- There is identity of interest insured; and "(e) Each insurer is bound, as between himself and the
- There is identity of the risk or peril insured other insurers, to contribute ratably to the loss in
against. proportion to the amount for which he is liable under
his contract

i. Over-insurance:

- insurance (as from two or more policies) that exceeds

the value of the thing covered
 v. Exception: a creditor may insure the life of a
debtor but only up to the amount of the debt
ii. Other insurance clause: which is the extent of the creditor’s insurable
interest.
- Is a condition which is not proscribed by law.
Such condition is a provision which invariably d. Contract of Adhesion
appears in fire insurance policies and is i. It is a ready made contract, the other party
intended to prevent an increase in the moral generally adheres to the terms and conditions
hazard. thereof;

e. Multiple or several interest on the same property: e. It is a voluntary contract

i. The parties may incorporate such terms and
- Nature of liability of the several insurers in double conditions which they may deem convenient.
insurance:
- The insurers are considered as co-insurers. f. It is personal
Each one is bound to contribute ratably to the i. Agreeing to be bound by the contract of
loss in proportion to the amount for which he is insurance, each party has in mind the
liable under his contract. character, qualifications, and conduct of the
other.
6. Characteristics and Nature of an Insurance Contract: ii. Insurer is only liable to pay the person for
whose benefit the insurance policy was
a. It is a risk-distributing device obtained.
i. The risk of economic loss is distributed among
a large group or substantial number of persons 7. Rules on Interpretation:
bearing the same or similar risk;
a. An insurance contract is a contract of adhesion, which
b. Uberrimae Fides Contract: means that in resolving ambiguities in the provision of
i. On of perfect good faith; the insurance contract, the same are to be construed
liberally in favor of the insured and strictly against the
c. Contract of Indemnity: insurer who drafted the insurance policy. The ambiguity
i. The insured is entitled to recover the amount of does not, however, invalidate the contract.
total loss actually sustained.
ii. This rule only applies to property insurance. b. While it is a cardinal principle of insurance law that a
iii. In life insurance, one cannot assign a price tag policy or contract of insurance is to be construed
on the value of human life. liberally in favor of the insured and strictly as against
iv. The measure of liability of the insurer is the face the insurer company, yet, contracts of insurance, like
value of the insurance policy.
 other contracts, are to be construed according to the i. An insurer is entitled to payment of the premium as
sense and meaning of the terms, which the parties soon as the thing insured is exposed to the peril insured
themselves have used. If such terms are clear and against. Notwithstanding any agreement to the contrary,
unambiguous, they must be taken and understood in no policy or contract of insurance issued by an insurance
their plain, ordinary, and popular sense. Thus, it was company is valid and binding unless and until the
held that the life insurance policy was not considered premium thereof has been paid, except in the case of a life
reinstated despite issuance of the receipt for payment or an industrial life policy whenever the grace period
by the spouse of the insurance agent if the application provision applies, or whenever under the broker and
for reinstatement provided that the policy would only be agency agreements with duly licensed intermediaries, a
considered reinstated upon approval of the application ninety (90)-day credit extension is given. No credit
by the insurer during the applicant's "lifetime and good extension to a duly licensed intermediary should exceed
health" and the insured died before the insurer could ninety (90) days from date of issuance of the policy.
process the application. The amount the applicant paid (Sec.77 of the Insurance Code)
in connection thereto was only to be considered as a
deposit. ii. Can an insurance policy be binding even if the premium
is unpaid?
8. Perfection of the Contract of Insurance:
General rule: The insurance policy is not valid and binding
1. Offer and acceptance/consensuality unless the premium thereof has been paid.
a. Theory of Cognition - the acceptance is
considered to effectively bind the offeror only Exceptions:
the time it came to his knowledge.
a. Whenever the grace period applies in the case of life or
When is a contract to insurance perfected? industrial life policy.
b. Whenever under the broker and agency agreements
- An insurance contract is perfected when the with duly licensed intermediaries, a 90-day credit
applicant-insured has knowledge of the acceptance extension is given. No credit extension to a duly
and approval by the insurer of his application. licensed intermediary should exceed 90 days from date
- Exception: there is no valid and perfected contract of issuance of the policy.
without payment of premium. c. An acknowledgment in a policy or contract of insurance
or the receipt of premium is conclusive evidence of its
2. Premium payment; Cash and Carry rule: payment, so far as to make the policy binding,
- Under the cash and carry rule, an insurance policy is notwithstanding any stipulation therein that it shall not
generally not binding unless the premium thereof has be binding until the premium is actually paid.
not been paid. d. In a contract of suretyship, the suretyship or bond shall
- Based on Section 77 of the Insurance Code: not be valid and binding unless and until the premium
 therefor has been paid, except where the obligee has ii. Test of Materiality
accepted the bond, in which case the bond becomes
valid and enforceable irrespective of whether or not the - materiality is to be determined not by event, but solely by the
premium has been paid by the obligor to the surety. probable and reasonable influence of the facts upon the party
e. When there is an agreement allowing the insured to to whom the communication is due, in forming his estimate of
pay the premium in instalments and partial payment the disadvantages of the proposed contract, or in making his
has been made at the time of the loss. inquiries.
f. In case of estoppel as when there is a long-standing
business practice of allowing the insured to pay the iii. Should the facts concealed be the proximate cause of
premiums after issuance of the policy and was relied the loss in order to constitute concealment?
upon in good faith by the insured.
g. If a cover note issued is issued to temporarily bind the - No, the facts concealed need not be the proximate
insurance pending issuance of the policy." cause of the loss in order to constitute concealment.
i. Grace period in life or industrial life policy Materiality is to be determined not by the event, but
ii. Credit extension solely by the probable and reasonable influence of the
facts upon the party to whom the communication is
9. Rescission of Insurance Contracts due, in forming his estimate of the disadvantages of the
proposed contract, or in making his inquiries. The test
a. Concealment, Section 26 of Insurance Code is whether the matters concealed would have definitely
affected the insurer's action on the application of the
Concealment - the neglect to communicate that which insured, either by approving it with the corresponding
a party knows and ought to communicate. adjustment for a higher premium or rejecting the same.

1. Effect of Concealment - Entitles the b. Misrepresentations, Omissions

injured party to rescind a contract of
insurance whether intentional or What is representation in the context of insurance laws?
unintentional.
- Is a statement of fact or condition relating to the risk
i. Section 28 of the Insurance Code: which induced the insurer to enter into a contract.

Each party to a contract of insurance must communicate to the - Representation is the statement made in compliance
other, in good faith, all facts within his knowledge which are with the duty.
material to the contract and as to which he makes no warranty,
and which the other has not the means of ascertaining.
i. Section 44 of the Insurance Code: fraud would be timely uncovered thus deterring them
from venturing into such nefarious enterprise. At the
- A representation is to be deemed false when the facts same time, legitimate policy holders are absolutely
fail to correspond with its assertions or stipulations. protected from unwarranted denial of their claims or
delay in the collection of insurance proceeds
ii. Section 45 of the Insurance Code: occasioned by allegations of fraud, concealment, or
misrepresentation by insurers, claims which may no
- If a representation is false in a material point, whether longer be set up after the two-year period expires as
affirmative or promissory, the injured party is entitled to ordained under the law.
rescind the contract from the time when the
representation becomes false. Defenses not barred by the incontestability clause:

c. Incontestability Clause: Sec.48 of the Insurance ● Lack of Insurable interest;

Code ● Premium was not paid;
● The death was due to excepted risk, (like suicide);
- Whenever a right to rescind a contract of insurance is ● The insured employed vicious fraud (as in another
given to the insurer by any provision of this chapter, person took the physical exams for the insured);
such right must be exercised previous to the ● Failure to comply with conditions imposed by the
commencement of an action on the contract. insurer; and
● Time specified in the contract to make claims is not
- After a policy of life insurance made payable on the complied with.
death of the insured shall have been in force during the
lifetime of the insured for a period of two (2) years from d. Breach of Warranties:
the date of its issue or of its last reinstatement, the
insurer cannot prove that the policy is void ab initio or - What is warranty under Insurance laws?
is rescindable by reason of the fraudulent concealment - Warranty is a statement or promise made by
or misrepresentation of the insured or his agent. the insured set forth in the policy itself or
incorporated in it by proper reference, the
Rationale behind the Incontestability Clause: untruth or non-fulfillment of which in any
respect, and without reference to whether the
- The incontestability clause regulates both the actions insurer was in fact prejudiced by such untruth or
of the insurers and prospective takers of life insurance. non-fulfillment renders the policy voidable by
It gives insurers enough time to inquire whether the the insurer.
policy was obtained by fraud, concealment, or
misrepresentation; on the other hand, it forewarns
scheming individuals that their attempts at insurance
- Kinds of warranties: Note:

- A warranty may be expressed or implied. The principles enunciated in the foregoing cases may be
● A statement in a policy, of a matter relating to the summarized as follows:
person or thing insured, or to the risk, as fact, is an
express warranty thereof. The insurer may rescind the policy in case of:
● Every express warranty, made at or before the
execution of a policy, must be contained in the policy ● Breach of warranty whether or not it is the cause of the
itself, or in another instrument signed by the insured loss; Violation of a material provision of the policy;
and referred to in the policy as making a part of it. ● Violation of a non-material provision of the policy, if so
● Implied warranty is one that is deemed incorporated in stipulated.
the contract although not expressly mentioned therein. ● Breach of warranty, however, may be waived expressly,
An example of implied warranty is the warranty of or impliedly.
seaworthiness in marine insurance policy.
○ Affirmative - it affirms the existence of a fact or Cases:
condition at the time it is made. -
○ Promissory the insured warrants that certain
facts or conditions exist.
Philippine Health Care Providers, Inc. vs. Commissioner
of Internal Revenue
- When may the insurer rescind for violation of
GR No. 167330, Sept. 18, 2009
warranty?
FACTS:
● The insurer may rescind the policy in case of violation
of a material warranty, or other material provision of a
Philippine Health Care Providers, Inc. (PHCPI) A domestic
policy, on the art of either party thereto, entitles the
corporation offeringprepaid health care services through a
other to rescind.
health maintenance organization (HMO) model.
Services Provided : Preventive, diagnostic, and curative
● A policy may declare that a violation of specified
medical services to members who pay an annual
provisions thereof shall avoid it, otherwise the breach
membership fee.
of an immaterial provision does not avoid the policy.
Tax Assessment : On January 27, 2000, the Commissioner
of Internal Revenue (CIR)issued a demand letter and
● A breach of warranty without fraud merely exonerates
assessment notices to PHCPI for deficiency taxes, including
an insurer from the time that it occurs, or where it is
documentary stamp tax (DST) for the taxable years 1996
broken in its inception, prevents the policy from
and 1997, totalingP224,702,641.18.
attaching to the risk.
CIR's Argument: PHCPI's health care agreements were Service Providers vs. Insurers : The Court emphasized that
similar to insurance contracts and thus subject to DST under HMOs are primarily service providers, not insurers.
Section 185 of the 1997 Tax Code.
Principal Purpose : The principal purpose of an HMO is to
PHCPI's Response: Protested the assessment and, after no provide health care services rather than to indemnify against
action from the CIR, filed a petition for review with the Court loss or damage, which is the hallmark of insurance
of Tax Appeals (CTA). contracts.

CTA Decision: Partially granted the petition, canceling the Principal Objects and Purpose Test : The Court applied the
DST assessment but upholding the VAT deficiency. "principal objects and purpose test" from U.S. jurisprudence,
distinguishing between entities primarily providing services
CIR's Appeal : The CIR appealed to the Court of Appeals and those primarily assuming risk.
(CA), which reversed the CTA's decision, ruling that PHCPI's
health care agreements were non-life insurance contracts Medical Services : PHCPI's health care agreements involve
subject to DST. providing medical services through participating physicians
and facilities, with the risk of financial loss being incidental to
Motion for Reconsideration: PHCPI's motion for the service provided.
reconsideration was denied, leading to the present case
before the Supreme Court. Regulation : The Court noted that PHCPI is regulated by the
Department of Health, not the Insurance Commission,
ISSUE/S: further supporting the argument that it is not engaged in the
insurance business.
Insurance Contracts : Are health care agreements of HMOs
like PHCPI considered insurance contracts subject to DST Legislative History: The legislative history of Section 185,
under Section 185 of the 1997 Tax Code? unchanged since 1904,indicated no intent to tax health care
agreements as insurance contracts.
RULING:
The Supreme Court ruled that health care agreements of Oppressive Nature of DST Assessment: The Court
HMOs are not insurance contracts and thus not subject to acknowledged the oppressive nature of the DST
DST under Section 185 of the1997 Tax Code. assessment, which would significantly burden PHCPI and
potentially drive it out of business, contrary to the
Review of Laws and Jurisprudence :The Supreme Court government's objective of encouraging private enterprise.
reviewed relevant laws and jurisprudence and found merit in
PHCPI's arguments.
 to a party not privy to the policy,in contravention of the
Spouses Cha vs. Court of Appeals Insurance Law?
GR No. 124520, Aug 18, 1997 4. Is the stipulation transferring the insurance proceeds
void for lack of consideration and for being dependent
FACTS: on the will of the respondent corporation?

Spouses Nilo Cha and Stella Uy-Cha leased property from RULING:
CKS DevelopmentCorporation (CKS) on October 5, 1988. The
lease contract prohibited the lessees from insuring their The Supreme Court set aside the decision of the Court of
merchandise against fire without the lessor's written consent. Appeals.
The contract stipulated that any insurance obtained without
consent would be deemed assigned to CKS. The Cha A new decision was entered, awarding the proceeds of the fire
spouses insured their merchandise for PHP 500,000 with insurance policy to the petitioners, Nilo Cha and Stella
United InsuranceCo., Inc. (United) without CKS's consent. A Uy-Cha.
fire occurred on the leased premises on the day the lease was
to expire. CKS demanded the insurance proceeds from The Supreme Court ruled that the stipulation in the lease
United, which refused. CKS filed a complaint against the Cha contract transferring the proceeds of the insurance to CKS is
spouses and United. void as it is contrary to law and public policy.Under Section 18
of the Insurance Code, no insurance policy on property is
The Regional Trial Court (RTC) ruled in favor of CKS, ordering enforceable except for the benefit of a person having an
United to pay PHP 335,063.11 to CKS and the Cha spouses insurable interest in the property insured. A non-life insurance
to pay PHP 50,000 in exemplary damages andPHP 20,000 in policy, such as the fire insurance policy taken by the Cha
attorney's fees. The Court of Appeals (CA) affirmed the RTC's spouses,is a contract of indemnity and requires an insurable
decision but deleted the awards for exemplary damages and interest at the time the insurance takes effect and at the time
attorney's fees. of loss. The purpose of this requirement is to prevent wagering
The Cha spouses and United petitioned for review on on property without an insurable interest, which is void under
certiorari to the Supreme Court. Section 25 of the Insurance Code. CKS had no insurable
interest in the merchandise inside the leased premises
ISSUE/S: underSection 17 of the Insurance Code, which measures
insurable interest by the extent of potential damnification.
1. Is the stipulation in the lease contract transferring the Therefore, CKS could not be a valid beneficiary of the fire
proceeds of the insurance to CKS valid? insurance policy. The automatic assignment of the policy to
2. Is the lease contract a contract of adhesion, and CKS was void, and the proceeds rightfully belonged to the
should the provision transferring the insurance Cha spouses. The issue of the Cha spouses' liability to CKS
proceeds be ruled out in favor of the petitioners? for violating the lease contract by obtaining insurance without
3. Can the proceeds of an insurance policy be awarded consent was not resolved in this case.
 Alpha Insurance and Surety Co. vs. Castor leading to a Petition for Review on Certiorari with the Supreme
GR No. 198174, Sept. 2,2013 Court.

FACTS: ISSUE/S:

Parties Involved : Arsenia Sonia Castor (Respondent) and Whether the loss of Castor's vehicle is excluded under the
Alpha Insurance and SuretyCo. (Petitioner). insurance policy due to the exception for malicious damage
caused by a person in the insured's service.
Insurance Contract : Entered on February 21, 2007.
Policy Details : Motor Car Policy No. MAND/CV-00186 for a RULING:
Toyota Revo DLX DSL, validfrom February 26, 2007, to
February 26, 2008. Supreme Court Decision: Ruled in favor of Arsenia Sonia
Castor, affirming the RTC andCA's decisions.
Coverage Amount : ₱630,000.00 for loss or damage. Coverage : The loss of the vehicle was covered under the
insurance policy.
Incident : On April 16, 2007, Castor's driver, Jose Joel Salazar Exception Clause : The exception for malicious damage did
Lanuza, did not return the vehicle after taking it for a tune-up. not apply to the loss caused by theft.

Actions Taken : Castor reported the incident to the police and Insurance Policy Interpretation : The policy's Section III
notified Alpha Insurance,demanding insurance proceeds. covered loss or damage due to theft without specifying the
perpetrator.
Insurance Denial : On July 5, 2007, Alpha Insurance denied Exception Clause Analysis : The exception for "malicious
the claim, citing an exception for malicious damage by a damage" referred to injury or harm to the vehicle, not its loss.
person in the insured's service.
Contract Interpretation Principle : Insurance contracts should
Counter Argument : Castor argued the exception referred to be interpreted liberally in favor of the insured and strictly
damage, not loss. against the insurer, especially when ambiguous.

Legal Proceedings : Castor filed a Complaint for Sum of Distinct Terms : "Loss" and "damage" had distinct meanings;
Money with Damages onSeptember 10, 2007. the policy's exception for"malicious damage" did not include
theft.
RTC Ruling : In favor of Castor, awarding ₱466,000.00 plus
legal interest, attorney's fees, and costs. Contracts of Adhesion : Ambiguities in insurance contracts
should be resolved in favor of the insured to avoid forfeiture of
Appeals: Alpha Insurance appealed to the CA, which affirmed coverage.
the RTC's decision. AMotion for Reconsideration was denied,
Conclusion : The loss of Castor's vehicle was covered under Bankers Life then filed a Petition for Review on Certiorari
the insurance policy,obligating Alpha Insurance to pay the with the Supreme Court.
insurance proceeds.
ISSUE/S:
1. Did the Court of Appeals err in sustaining the trial
court's dismissal of the complaint onthe ground of
Manila Bankers Life Insurance Corp. vs Aban prescription under Section 48 of the Insurance
GR No. 175666, July 29, 2013 Code?
2. Did the Court of Appeals err in applying the
FACTS: incontestability provision of the Insurance Code?
3. Did the Court of Appeals err in denying Bankers
On July 3, 1993, Delia Sotero took out a life insurance policy Life's motion for reconsideration?
from Manila Bankers LifeInsurance Corporation, designating
her niece, Cresencia P. Aban, as the beneficiary. The policy, RULING:
numbered 747411, with a face value of P100,000.00, was
issued on August 30, 1993, after Sotero underwent a The Supreme Court denied the Petition and affirmed the
medical examination and paid the premium. Sotero passed September 28, 2005 Decisionand the November 9, 2006
away on April 10, 1996, more than two years and seven Resolution of the Court of Appeals in CA-G.R. CV No.
months after the policy was issued. Aban filed a claim for the 62286.
insurance proceeds on July 9, 1996. Bankers Life conducted
an investigation and concluded that Sotero did not The Supreme Court upheld the findings of the trial and
personally apply for the insurance, was illiterate, had been appellate courts that Soteroobtained the insurance for
sickly since 1990, lacked financial capability to pay the herself, designating Aban as the beneficiary. This finding of
premiums, and did not sign the application. Bankers Life fact binds the Court and weakens Bankers Life's case, which
found that Aban had filed the application and designated was based on allegations of fraud by Aban. The Court
herself as the beneficiary. Bankers Life denied the claim on emphasized that fraudulent intent on the part of the insured
April 16, 1997, and refunded the premiums paid. On April must be established to entitle the insurer to rescind the
24, 1997, Bankers Life filed a civil case for rescission and/or contract, and no such proof was presented. Section 48 of
annulment of the policy, alleging fraud, concealment, and the Insurance Code gives insurers two years from the
misrepresentation. effectivity of a life insurance contract to discover or prove
that the policy is void ab initio or rescindable due to
The Makati RTC dismissed the case on December 9, 1997, fraudulent concealment or misrepresentation. After this
citing Section 48 of theInsurance Code, which bars period, the insurer must honor the policy, even if it was
contesting the policy after two years. The CA upheld the obtained by fraud. This provision ensures insurers diligently
RTC's decision on September 28, 2005, and denied Bankers investigate policies within the two-year period and protects
Life's Motion for reconsideration on November 9, 2006. legitimate policyholders from unwarranted denial of claims.
The Court criticized Bankers Life for not investigating the GOYU, ordering MICO and RCBC to pay various amounts in
policy within the statutory period and for continuing to collect damages and attorney's fees. The Court of Appeals modified
premiums, only to deny the claim later. The incontestability the RTC's decision, increasing the damages and interest
clause precludes insurers from raising defenses of false rates. RCBC and MICO appealed to the Supreme Court,
representations or concealment of material facts after the which consolidated the petitions due to common facts and
policy has been in force for two years. issues.
The Court highlighted the public interest in the insurance
industry and the need to construe insurance contracts ISSUE/S:
liberally in favor of the insured and strictly against the 1. Does RCBC, as a mortgagee, have the right to the
insurer. insurance proceeds from the policies taken by
GOYU, the mortgagor, in case of loss?
2. Is MICO liable for damages for denying or
withholding the insurance proceeds fromGOYU?
Rizal Commercial Banking Corporation vs. Court of 3. Can RCBC avail itself of two simultaneous remedies
Appeals in enforcing its claim as an unpaid creditor?
GR No. 128833, Apr. 20,1998 4. Does RCBC have the right to intervene in the action
between Alfredo C. Sebastian andGOYU, where the
FACTS: insurance policies were attached in favor of
Sebastian?
The case involves Rizal Commercial Banking Corporation
(RCBC) and Goyu & Sons,Inc. (GOYU) concerning fire loss RULING:
claims under insurance policies issued by MalayanInsurance
Company, Inc. (MICO). GOYU applied for credit facilities 1. Yes, RCBC, as a mortgagee, has the right to the
with RCBC, which were approved and increased overtime, insurance proceeds from the policies taken by
reaching P117 million. As security, GOYU executed real GOYU.
estate and chattel mortgages in favor of RCBC,committing
to insure the mortgaged properties and endorse the The Supreme Court ruled that RCBC has the right to
insurance policies to RCBC. GOYU obtained ten insurance the insurance proceeds based on the equitable
policies from MICO, and nine endorsements were issued in principle of estoppel. The endorsements, although
favor of RCBC. On April 27, 1992, a fire destroyed one of unsigned by GOYU,were prepared upon GOYU's
GOYU's factory buildings, leading to a claim for indemnity, instructions and delivered to RCBC, MICO, and
which MICO denied due to attachments and claims by other GOYU. GOYU's failure to repudiate the
creditors. GOYU filed a complaint for specific performance endorsements and its continued enjoyment of RCBC
and damages. credit facilities estopped it from challenging the
endorsements' validity. The Court Emphasized that
The Regional TrialCourt (RTC) of Manila ruled in favor of the intention of the parties to designate RCBC as the
 beneficiary of the insurance policies must be given Malayan Insurance Co., vs. Philippine 1st Insurance Co.,
full force and effect. Inc.
GR No. 184300, Jul 11,2012
2. No, MICO is not liable for damages for denying or
withholding the insurance proceeds from GOYU. FACTS:

The Court found that MICO's denial of the insurance The case involves three parties: Malayan Insurance Co., Inc.
claim was justified due to the complex situation (Malayan), PhilippinesFirst Insurance Co., Inc. (Philippines
involving multiple claims and attachments by other First), and Reputable Forwarder Services, Inc.(Reputable).
creditors.MICO's actions were not wanton, Since 1989, Wyeth Philippines, Inc. (Wyeth) and Reputable
oppressive, or malevolent, and it acted in good faith had an annual contract for transporting Wyeth's products.
in withholding the proceeds until the rightful On November 18, 1993, Wyeth procured a Marine Policy
beneficiary was determined. from Philippines First to insure its products during transit,
with a coverage limit of P6,000,000.00 per vehicle. On
3. Yes, RCBC can avail itself of two simultaneous December 1, 1993, Wyeth and Reputable executed their
remedies in enforcing its claim as an unpaid creditor. annual contract of carriage,although it was unsigned by
Wyeth's representatives. Reputable also secured a Special
The Court held that RCBC's foreclosure suit was still Risk Insurance Policy (SR Policy) from Malayan
pending appeal, and the Court ofAppeals erred in forP1,000,000.00. On October 6, 1994, a truck carrying
pre-empting its resolution. The foreclosure suit and Wyeth's products was hijacked, resulting in the loss of goods
the claim for specific performance were not mutually worth P2,357,582.70. Philippines First indemnified Wyeth for
exclusive remedies, and RCBC was entitled to P2,133,257.00 and sought reimbursement fromReputable,
pursue both. which was ignored. Consequently, Philippines First filed a
suit against Reputable, which then impleadedMalayan.
4. The petition of RCBC against the respondent Court
in CA-CYR CV 48376 is dismissed for being moot The Regional Trial Court (RTC) found Reputable liable to
and academic. Given the Supreme Court's ruling that Philippines First and Malayanliable to Reputable for the
RCBC has the right to the insurance proceeds,the policy coverage. Both Reputable and Malayan appealed, but
issue of RCBC's intervention in the action between the Court of Appeals (CA) affirmed the RTC's decision with
Sebastian and GOYU was rendered moot and modifications. Malayan then filed a petition for review on
academic. The Court reiterated that the first certiorari before the Supreme Court.
mortgagee has superior rights over junior
mortgagees or attaching creditors. ISSUE/S:

1. Whether Reputable is a private carrier.

 2. Whether Reputable is strictly bound by the
stipulations in its contract of carriage withWyeth,
making it liable for any risk of loss or damage,
including theft or robbery and other force majeure.
3. Whether the RTC and CA erred in rendering
"nugatory" Section 5 and Section 12 of theSR Policy.
4. Whether Reputable should be held solidarily liable
with Malayan for the amount of P998,000.00 due to
Philippines First.

RULING:

● Reputable is a private carrier.

● Reputable is bound by the terms of the contract of
carriage.
● Sections 5 and 12 of the SR Policy are not applicable
as there is no double insurance.
● Reputable is not solidarily liable with Malayan.
The Supreme Court affirmed the findings of the RTC and CA
that Reputable is a private carrier, as it serves only one
customer, Wyeth, and does not offer its services to the
public. This classification is supported by the testimony of
Reputable's Vice President andGeneral Manager. As a
private carrier, Reputable is bound by the stipulations in its
contract with Wyeth,which includes liability for loss due to
theft, robbery, and other force majeure. The Court also ruled
that Sections 5 and 12 of the SR Policy presuppose the
existence of double insurance, which is not present in this
case since the policies were issued to different entities with
distinct insurable interests. Therefore, neither section
applies. Lastly, the Court held that Reputable and Malayan's
liabilities arise from different obligations—contractual for
Malayan and tort for Reputable—thus, they cannot be held
solidarily liable. The petition was denied, and the CA's
decision was affirmed.