CASE INSURANCE LAW || JUDGE CHRISTINE ABAD || 3RD YEAR USJR LAW S.Y.

2021-
DIGEST 2022

1. Contract of Insurance (Sec.2) 

– Case: Mayer Steel Pipe vs Court of Appeals G.R. No. 124050 | 1997-06-19 ;

Mayer Steel Pipe vs Court of Appeals

G.R. No. 124050 | 1997-06-19

o INSURANCE LAW: Contract of Insurance

FACTS:

Hong Kong Government Supplies Department contracted Mayer Steel Pipe Corporation
to manufacture and supply various steel pipes and fittings. Prior to the shipping, Mayer
insured these pipes and fittings against all risks with South Sea Surety and Insurance
Co., Inc. and Charter Insurance Corp., with Industrial Inspection Inc. appointed as third-
party inspector.

After examining the pipes and fittings, Industrial Inspection certified that they are in
good order condition. However, when the goods reached Hong Kong, it was discovered
that a substantial portion thereof was damaged.

The trial court found in favor of the insured. However, when the case was elevated to
the CA, it set aside the decision of the trial court and dismissed the complaint on the
ground of prescription. It held that the action was barred under Sec. 3(6) of the Carriage
of Goods by Sea Act (COGSA) since it was filed only on April 17, 1986, more than two
years from the time the goods were unloaded from the vessel.

ISSUE:
Whether or not the action is barred by prescription

HELD:

Sec. 3(6) of the COGSA states that the carrier and the ship shall be discharged from all
liability for loss or damage to the goods if no suit is filed within one year after delivery of
the goods or the date when they should have been delivered. Under this provision, only
the carrier’s liability is extinguished if no suit is brought within one year. But the liability
of the insurer is not extinguished because the insurer’s liability is based not on the
contract of carriage but on the contract of insurance.

An insurance contract is a contract whereby one party, for a consideration known as the
premium, agrees to indemnify another for loss or damage which he may suffer from a
specified peril. An “all risks” insurance policy covers all kinds of loss other than those
due to willful and fraudulent act of the insured. Thus, when private respondents issued
the “all risks” policies to Mayer, they bound themselves to indemnify the latter in case of
loss or damage to the goods insured. Such obligation prescribes in ten years, in
accordance with Article 1144 of the New Civil Code.
CASE INSURANCE LAW || JUDGE CHRISTINE ABAD || 3RD YEAR USJR LAW S.Y. 2021-
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2. Doing or Transacting an Insurance Business (Sec.2, no.2) 

– Phil Health Care Providers vs Commissioner of Internal Revenue, GR. No.

167330 (9/18/09)

Phil Health Care Providers vs Commissioner of Internal Revenue

GR. No. 167330 (9/18/09)

FACTS: Petitioner is a domestic corporation whose primary purpose is “[t]o establish,

maintain, conduct and operate a prepaid group practice health care delivery system or a
health maintenance organization to take care of the sick and disabled persons enrolled
in the health care plan and to provide for the administrative, legal, and financial
responsibilities of the organization”. Individuals enrolled in its health care programs pay
an annual membership fee and are entitled to various preventive, diagnostic and
curative medical services provided by its duly licensed physicians, specialists and other
professional technical staff participating in the group practice health delivery system at a
hospital or clinic owned, operated or accredited by it.

On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent

petitioner a formal demand letter and the corresponding assessment notices demanding
the payment of deficiency taxes, including surcharges and interest, for the taxable years
1996 and 1997 in the total amount of P224,702,641.18. . . .

The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s
health care agreement with the members of its health care program pursuant to Section
185 of the 1997 Tax Code . . .

Petitioner protested the assessment in a letter dated February 23, 2000. As respondent
did not act on the protest, petitioner filed a petition for review in the Court of Tax
Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments.

ISSUE: WON THE PETITIONER IS ENGAGED IN INSURANCE BUSINESS.

HELD: NO. The mere presence of risk would be insufficient to override the primary
purpose of the business to provide medical services as needed, with payment made
directly to the provider of these services. In short, even if petitioner assumes the risk of
paying the cost of these services even if significantly more than what the member has
prepaid, it nevertheless cannot be considered as being engaged in the insurance
business.
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By the same token, any indemnification resulting from the payment for services
rendered in case of emergency by non-participating health providers would still be
incidental to petitioner’s purpose of providing and arranging for health care services and
does not transform it into an insurer. To fulfill its obligations to its members under the
agreements, petitioner is required to set up a system and the facilities for the delivery of
such medical services. This indubitably shows that indemnification is not its sole object.

In fact, a substantial portion of petitioner’s services covers preventive and diagnostic

medical services intended to keep members from developing medical conditions or
diseases. As an HMO, it is its obligation to maintain the good health of its members.
Accordingly, its health care programs are designed to prevent or to minimize the
possibility of any assumption of risk on its part. Thus, 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 petitioner’s business is
miniscule compared to its non-insurance activities. Therefore, since it substantially
provides health care services rather than insurance services, it cannot be considered as
being in the insurance business.

It is important to emphasize that, in adopting the “principal purpose test” used in the
above-quoted U.S. cases, we are not saying that petitioner’s operations are identical in
every respect to those of the HMOs or health providers which were parties to those
cases. What we are stating is that, for the 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. This is of course only prudent and appropriate,
taking into account the burdensome and strict laws, rules and regulations applicable to
insurers and other entities engaged in the insurance business. Moreover, we are also
not unmindful that there are other American authorities who have found particular
HMOs to be actually engaged in insurance activities.

Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry.
This is evident from the fact that it is not supervised by the Insurance Commission but
by the Department of Health. In fact, in a letter dated September 3, 2000, the Insurance
Commissioner confirmed that petitioner is not engaged in the insurance business. This
determination of the commissioner must be accorded great weight. It is well-settled that
the interpretation of an administrative agency which is tasked to implement a statute is
accorded great respect and ordinarily controls the interpretation of laws by the courts.
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3. Contract of Adhesion or Fine Print Rule 

– Eternal Garden Memorial vs. Phil American Life Insurance GR No. 166245
(4/9/08)

Eternal Garden Memorial vs. Phil American Life Insurance

GR No. 166245 (4/9/08)

FACTS: On December 10, 1980, respondent Philippine American Life Insurance

Company (Philamlife) entered into an agreement denominated as Creditor Group Life
Policy No. P-1920 with petitioner Eternal Gardens Memorial Park Corporation (Eternal).
Under the policy, the clients of Eternal who purchased burial lots from it on installment
basis would be insured by Philamlife. The amount of insurance coverage depended
upon the existing balance of the purchased burial lots. The policy was to be effective for
a period of one year, renewable on a yearly basis.

The relevant provisions of the policy are:

ELIGIBILITY.

Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age,
is indebted to the Assured for the unpaid balance of his loan with the Assured, and is
accepted for Life Insurance coverage by the Company on its effective date is eligible for
insurance under the Policy.

EVIDENCE OF INSURABILITY.

No medical examination shall be required for amounts of insurance up to P50,000.00.

However, a declaration of good health shall be required for all Lot Purchasers as part of
the application. The Company reserves the right to require further evidence of
insurability satisfactory to the Company in respect of the following:

1. Any amount of insurance in excess of P50,000.00.

2. Any lot purchaser who is more than 55 years of age.

LIFE INSURANCE BENEFIT.

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The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of
the unpaid balance of his loan (including arrears up to but not exceeding 2 months) as
reported by the Assured to the Company or the sum of P100,000.00, whichever is
smaller. Such benefit shall be paid to the Assured if the Lot Purchaser dies while
insured under the Policy.

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a
loan with the Assured. However, there shall be no insurance if the application of the Lot
Purchaser is not approved by the Company.

Eternal was required under the policy to submit to Philamlife a list of all new lot
purchasers, together with a copy of the application of each purchaser, and the amounts
of the respective unpaid balances of all insured lot purchasers. In relation to the instant
petition, Eternal complied by submitting a letter dated December 29, 1982, containing a
list of insurable balances of its lot buyers for October 1982. One of those included in the
list as “new business” was a certain John Chuang. His balance of payments was
PhP100,000. On August 2, 1984, Chuang died. Eternal sent a letter dated August 20,
1984 to Philamlife, which served as an insurance claim for Chuang’s death. Attached to
the claim were the following documents: (1) Chuang’s Certificate of Death; (2)
Identification Certificate stating that Chuang is a naturalized Filipino Citizen; (3)
Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assured’s
Certificate.

In reply, Philamlife wrote Eternal a letter on November 12, 1984, requiring Eternal to
submit the following documents relative to its insurance claim for Chuang’s death: (1)
Certificate of Claimant (with form attached); (2) Assured’s Certificate (with form
attached); (3) Application for Insurance accomplished and signed by the insured,
Chuang, while still living; and (4) Statement of Account showing the unpaid balance of
Chuang before his death. Eternal transmitted the required documents through a letter
dated November 14, 1984, which was received by Philamlife on November 15, 1984.
After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s
insurance claim. This prompted Eternal to demand from Philamlife the payment of the
claim for PhP100,000 on April 25, 1986.

ISSUE: WON THE INSURER IS LIABLE. 

HELD: YES. As earlier stated, Philamlife and Eternal entered into an agreement
denominated as Creditor Group Life Policy No. P-1920 dated December 10, 1980. In
the policy, it is provided that:
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EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a
loan with the Assured. However, there shall be no insurance if the application of the Lot
Purchaser is not approved by the Company. IcDESA

An examination of the above provision would show ambiguity between its two
sentences. The first sentence appears to state that the insurance coverage of the
clients of Eternal already became effective upon contracting a loan with Eternal while
the second sentence appears to require Philamlife to approve the insurance contract
before the same can become effective.

It must be remembered that an insurance contract is a contract of adhesion which must

be construed liberally in favor of the insured and strictly against the insurer in order to
safeguard the latter’s interest. Thus, in Malayan Insurance Corporation v. Court of
Appeals, this Court held that:

Indemnity and liability insurance policies are construed in accordance with the general
rule of resolving any ambiguity therein in favor of the insured, where the contract or
policy is prepared by the insurer. A contract of insurance, being a contract of
adhesion, par excellence, any ambiguity therein should be resolved against the insurer;
in other words, it should be construed liberally in favor of the insured and strictly against
the insurer. Limitations of liability should be regarded with extreme jealousy and must
be construed in such a way as to preclude the insurer from noncompliance with its
obligations. (Emphasis supplied.) TECcHA

In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we
reiterated the above ruling, stating that:

When the terms of insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from non-compliance with his
obligation. Being a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract, the insurer. By reason
of the exclusive control of the insurance company over the terms and phraseology of
the insurance contract, ambiguity must be strictly interpreted against the insurer and
liberally in favor of the insured, especially to avoid forfeiture.

Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated
December 10, 1980, must be construed in favor of the insured and in favor of the
effectivity of the insurance contract.
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On the other hand, the seemingly conflicting provisions must be harmonized to mean
that upon a party’s purchase of a memorial lot on installment from Eternal, an insurance
contract covering the lot purchaser is created and the same is effective, valid, and
binding until terminated by Philamlife by disapproving the insurance application. The
second sentence of Creditor Group Life Policy No. P-1920 on the Effective Date of
Benefit is in the nature of a resolutory condition which would lead to the cessation of the
insurance contract. Moreover, the mere inaction of the insurer on the insurance
application must not work to prejudice the insured; it cannot be interpreted as a
termination of the insurance contract. The termination of the insurance contract by the
insurer must be explicit and unambiguous.

As a final note, to characterize the insurer and the insured as contracting parties on
equal footing is inaccurate at best. Insurance contracts are wholly prepared by the
insurer with vast amounts of experience in the industry purposefully used to its
advantage. More often than not, insurance contracts are contracts of adhesion
containing technical terms and conditions of the industry, confusing if at all
understandable to laypersons, that are imposed on those who wish to avail of
insurance. As such, insurance contracts are imbued with public interest that must be
considered whenever the rights and obligations of the insurer and the insured are to be
delineated. Hence, in order to protect the interest of insurance applicants, insurance
companies must be obligated to act with haste upon insurance applications, to either
deny or approve the same, or otherwise be bound to honor the application as a valid,
binding, and effective insurance contract.

4. Parties in Insurance Contract - Insurer and Insured (Sec.6), beneficiary (Arts. 739 &
2012 of the NCC).

- Case: Great Pacific Life vs CA, 316 SCRA 677

Great Pacific Life vs CA

316 SCRA 677

FACTS:

There was an existing group life insurance executed between Great Pacific Life
Assurance (Grepalife) and the Development Bank of the Philippines (DBP). Grepalife
agreed to insure the lives of eligible housing loan mortgagors of DBP. In November
1983, Wilfredo Leuterio, mortgagor of DBP applied to be a member of the group life
insurance. He filled out a form where he indicated he never consulted any physician
regarding any illness (heart condition etc) and that he is in good health. He was
eventually included in the group life insurance and he was covered for the amount of his
indebtedness (P86,200.00).
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In August 1984, Wilfredo died. DBP submitted a death claim but it was denied by
Grepalife as it insisted that Wilfredo actually concealed that he was suffering from
hypertension at the time of his insurance application. Grepalife relied on the statement
made by the doctor who issued Wilfredo’s death certificate wherein it was stated that
Wilfredo’s immediate cause of death was massive cerebral hemorrhage secondary to
hypertension or hypertension as a “possible cause of death”.

Since Grepalife refused to pay the insurance claim filed by DBP, Medarda Leuterio
(widow) sued Grepalife. Grepalife assailed the suit and insisted that Medarda is not a
proper party in interest. The lower court ruled in favor of Medarda and the court ordered
Grepalife to pay the amount of the insurance to DBP. The Court of Appeals affirmed this
decision in 1993. Grepalife appealed to the Supreme Court. In 1995, pending resolution
of the case in the SC, DBP foreclosed the property of Medarda.

ISSUE:

Whether or not DBP has insurable interest as creditor.

HELD:

YES. In this type of policy insurance, the mortgagee is simply an appointee of the
insurance fund, such loss-payable clause does not make the mortgagee a party to the
contract.

Section 8 of the Insurance Code provides: “Unless the policy provides, where a
mortgagor of property effects insurance in his own name providing that the loss shall be
payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the
insurance is deemed to be upon the interest of the mortgagor, who does not cease to
be a party to the original contract, and any act of his, prior to the loss, which would
otherwise avoid the insurance, will have the same effect, although the property is in the
hands of the mortgagee, but any act which, under the contract of insurance, is to be
performed by the mortgagor, may be performed by the mortgagee therein named, with
the same effect as if it had been performed by the mortgagor.”

The insured Dr. Wilfredo Leuterio did not cede to the mortgagee all his rights or
interests in the insurance. When Grepalife denied payment, DBP collected the debt
from the mortgagor and took the necessary action of foreclosure on the residential lot of
Dr. Wilfredo Leuterio.

Insured may be regarded as the real party in interest, although he has assigned the
policy for the purpose of collection, or has assigned as collateral security any judgment
he may obtain.

5. Interpretation of Insurance Contracts 

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– Case: Rizal Surety vs CA, G.R. No. 112360, July18, 2000;

– American Home Assurance vs Tantuco GR. NO. 138941, 8 October 2001;

Rizal Surety vs CA
G.R. No. 112360, July18, 2000
J. Purisima

Facts:
Rizal Surety issued a 1 million peso fire insurance policy with Transworld. This was
increased to 1.5 million. A four span building was part of the policy. A fire broke out and
gutted the building, together with a two storey building behind it were gaming machines
were stored. The company filed its claims but to no avail. Hence, it brought a suit in
court. It aimed to make Rizal pay for almost 3 million including legal interest and
damages. Rizal claimed that the policy only covered damage on the four span building
and not the two storey building. The trial court ruled in Transworld’s favor and ordered
Rizal to pay actual damages only. The court of appeals increased the damages. The
insurance company filed a MFR. The CA answered by modifying the imposition of
interest. Not satisfied, the insurance company petitioned to the Supreme Court.

Issue:
WON Rizal Surety is liable for loss of the two-storey building considering that the fire
insurance policy sued upon covered only the contents of the four-span building.

Held: Yes. Petition dismissed.

Ratio:
The policy had clauses on the building coverage that read:
"contained and/or stored during the currency of this Policy in the premises occupied by
them forming part of the buildings situated within own Compound"
"First, said properties must be contained and/or stored in the areas occupied by
Transworld and second, said areas must form part of the building described in the policy
xxx"
This generally means that the policy didn’t limit its coverage to what was stored in the
four-span building.
As to questions of fact, both the trial court and the Court of Appeals found that the so
called "annex " was not an annex building but an integral part of the four-span building
described in the policy and consequently, the machines and spare parts stored were
covered by the fire insurance.
A report said: "Two-storey building constructed of partly timber and partly concrete
hollow blocks under g.i. roof which is adjoining and intercommunicating with the
repair of the first right span of the lofty storey building and thence by property fence
wall."
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"Art.1377. The interpretation of obscure words or stipulations in a contract shall not

favor the party who caused the obscurity"
Landicho v GSIS- the 'terms in an insurance policy, which are ambiguous, equivocal, or
uncertain are to be construed strictly and most strongly against the insurer, and liberally
in favor of the insured so as to effect the dominant purpose of indemnity or payment to
the insured’
The issue of whether or not Transworld has an insurable interest in the fun and
amusement machines and spare parts, which entitles it to be indemnified for the loss
thereof, had been settled in another SC case.

American Home Assurance vs Tantuco

GR. NO. 138941, 8 October 2001
o INSURANCE LAW: Liberality is the rule of construction in insurance contracts.

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:

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

HELD:

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

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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.

B. Characteristics of Insurance Contract

1. Aleatory Insurance

- Malayan Insurance vs Arnaldo & Pinca, GR. No. L-67835 (10/12/87)

Malayan Insurance vs Arnaldo & Pinca,

GR. No. L-67835 (10/12/87)
FACTS:
On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the private respondent,
Coronacion Pinca, Fire Insurance Policy No. F-001-17212 on her property for the amount of
P14,000.00 effective July 22, 1981, until July 22, 1982.
On October 15,1981, MICO allegedly cancelled the policy for non-payment, of the premium
and sent the corresponding notice to Pinca.
On December 24, 1981, payment of the premium for Pinca was received by Domingo Adora,
agent of MICO. On January 15, 1982, Adora remitted this payment to MICO, together with
other payments. On January 18, 1982, Pinca's property was completely burned.

DECISION OF LOWER COURTS:

(1) Insurance Commission: granted claim for compensation for burned property. 

ISSUE:
Whether there was a valid insurance contract at the time of the loss.

RULING:
Yes.
A valid cancellation must, therefore, require concurrence of the following conditions:
(1) There must be prior notice of cancellation to the insured;
(2) The notice must be based on the occurrence, after the effective date of the policy, of one
or more of the grounds mentioned;
(3) The notice must be
(a) in writing,
(b) mailed, or delivered to the named insured,
(c) at the address shown in the policy;
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(4) It must state

(a) which of the grounds mentioned in Section 64 is relied upon and
(b) that upon written request of the insured, the insurer will furnish the facts on which the
cancellation is based.
MICO's claims it cancelled the policy in question on October 15, 1981, for non-payment of
premium. To support this assertion, it presented one of its employees, who testified that
"the original of the endorsement and credit memo" —presumably meaning the alleged
cancellation — "were sent the assured by mail through our mailing section" However, there
is no proof that the notice, assuming it complied with the other requisites mentioned
above, was actually mailed to and received by Pinca.
We also look askance at the alleged cancellation, of which the insured and MICO's agent
himself had no knowledge, and the curious fact that although Pinca's payment was
remitted to MICO's by its agent on January 15, 1982, MICO sought to return it to Adora only
on February 5, 1982, after it presumably had learned of the occurrence of the loss insured
against on January 18, 1982. These circumstances make the motives of the petitioner highly
suspect, to say the least, and cast serious doubts upon its candor and bona fides. 

2. Contract is considered a risk-distributing device 

– Sps AntonioTibayvs CA GR No. 119655 (5/24/96)

Sps AntonioTibay vs CA
GR No. 119655 (5/24/96)

J. Bellosillo:

Facts:
Fortune Life issued a fire insurance Policy to Tibay on her two-storey residential building
at Zobel Street, Makati City. The insurance was for P600,000.00 covering the period
from January 23, 1987 to January 23, 1988.  On January 23 1987, Tibay only paid
P600.00 of 3,000 peso premium and left a balance.
The insured building was completely destroyed by fire. Tibay then paid the balance. On
the same day, she filed a claim on the policy.  Her claim was accordingly referred to the
adjuster, Goodwill, which immediately wrote Violeta requesting her to furnish it with the
necessary documents for the investigation and processing of her claim.  Petitioner
complied, and she signed a non-waiver agreement.
Fortune denied the claim for violation of the Insurance Code. Tibay sued for damages in
the amount of P600,000.00 representing the total coverage of the policy.
The trial court ruled for petitioners and made fortune liable for the total value of the
insured building and personal properties. The Court of Appeals reversed the court by
removing liability from Fortune after returning the premium.
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Hence this petition for review.

The petitioner contended that Fortune remained liable under the subject fire insurance
policy in spite of the failure of petitioners to pay their premium in full.

Issue: May a fire insurance policy be valid, binding and enforceable upon mere partial
payment of premium?

Held: No. Petition dismissed.

Ratio:
The pertinent provisions read:
2. This policy including any renewal thereof and/or any endorsement thereon is not in
force until the premium has been fully paid to and duly receipted by the Company in the
manner provided herein.
This policy shall be deemed effective, valid and binding upon the Company only when
the premiums therefor have actually been paid in full and duly acknowledged in a
receipt signed by any authorized official of the company
Where the premium has only been partially paid and the balance paid only after the peril
insured against has occurred, the insurance contract did not take effect and the insured
cannot collect at all on the policy.  The Insurance Code which says that no policy or
contract of insurance issued by an insurance company is valid and binding unless and
until the premium has been paid.
What does “unless and until the premium thereof has been paid” mean?
Escosura v. San Miguel- the legislative practice was to interpret “with pay” in
accordance to the intention of distinguish between full and partial payment, where the
modifying term is used.
Petitioners used Philippine Phoenix v. Woodworks, where partial payment of the
premium made the policy effective during the whole period of the policy.
The SC didn’t consider the 1967 Phoenix case as persuasive due to the different factual
scenario.
In Makati Tuscany v CA, the parties mutually agreed that the premiums could be paid in
installments, hence, this Court refused to invalidate the insurance policy.
Nothing in Article 77 of the Code suggested that the parties may not agree to allow
payment of the premiums in installment, or to consider the contract as valid and binding
upon payment of the first premium.
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Phoenix and Tuscany demonstrated the waiver of prepayment in full by the insurer. In
this case however, there was no waiver. There was a stipulation that the policy wasn’t in
force until the premium has been fully paid and receipted.
There was no juridical tie of indemnification from the fractional payment of premium.  
The insurance contract itself expressly provided that the policy would be effective only
when the premium was paid in full. 
Verily, it is elemental law that the payment of premium is requisite to keep the policy of
insurance in force.  If the premium is not paid in the manner prescribed in the policy as
intended by the parties the policy is ineffective.  Partial payment even when accepted as
a partial payment will not keep the policy alive.
South Sea v CA stipulated 2 exceptions to the requirement of payment of the entire
premium as a prerequisite to the validity of the insurance contract.  These are when in
case the insurance coverage relates to life or insurance when a grace period applies,
and when the insurer makes a written acknowledgment of the receipt of premium to be
conclusive evidence of payment.
Hence, in the absence of clear waiver of prepayment in full by the insurer, the insured
cannot collect on the proceeds of the policy.
“The terms of the insurance policy constitute the measure of the insurer’s liability. In the
absence of statutory prohibition to the contrary, insurance companies have the same
rights as individuals to limit their liability and to impose whatever conditions they deem
best upon their obligations not inconsistent with public policy.”
Dissent:
J. Vitug
“All the calculations of the company are based on the hypothesis of prompt payments.
They not only calculate on the receipt of the premiums when due, but on the
compounding interest upon them. It is on this basis that they are enabled to offer
assurance at the favorable rates they do.”
The failure of appellants to fully pay their premium prevented the contract of insurance
from becoming binding an Fortune. This series of acts is tainted with misrepresentation
and violates the uberrimae fidae principle of insurance contracts.
Tibay had entered into a "Non-Waiver Agreement" with the adjuster which permitted
Fortune to claim non-payment of premium as a defense.
The law neither requires, nor measures the strength of the vinculum juris by any specific
amount of premium payment. Payment on the premium, partly or in full, is made by the
insured which the insurer accepts. In fine, it is either that a juridical tie exists (by such
payment) or that it is not extant at all (by an absence thereof). Once the juridical relation
comes into being, the full efficacy follows. This is a partially performed contract.
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The non-payment of the balance shouldn’t result in an automatic cancellation of the

contract; otherwise, the right to decide the effectivity of the contract would become
potestative.
Instead, the parties should be able to demand from each other the performance of
whatever obligations they had assumed or, if desired, sue timely for the rescission of
the contract.
In the meanwhile, the contract endures, and an occurrence of the risk insured riggers
the insurer's liability. Also, legal compensation arises where insurer's liability to the
insured would simply be reduced by the balance of the premium.
It must here be noted that the insured had made, and the insurer had accepted partial
premium payment on the policy weeks before the risk insured against took place. An
insurance is an aleatory contract effective upon its perfection although the occurrence of
a condition or event may later dictate the demandability of certain obligations. Fortune’s
stipulation that insurance shall not "be . . . in force until the premium has been fully
paid," and that it "shall be deemed effective, valid and binding upon the company only
when the premiums therefor have actually been paid in full and duly acknowledged,"
override the efficaciousness of the insurance contract despite the payment and
acceptance.
Article 78 of the Insurance Code “An acknowledgment in a policy or contract of
insurance of the receipt of premium is conclusive evidence of its payment, so far as to
make the policy binding, notwithstanding any stipulation therein that it shall not be
binding until the premium is actually paid“
Even if a portion was paid in the premium, the insurance coverage becomes effective
and binding, any stipulation in the policy to the contrary notwithstanding.

3. Uberrima Fides (perfect good faith) 

– Great Pacific Life vs CA GR No. L-31878, April 30, 1979)

Great Pacific Life vs CA

GR No. L-31878, April 30, 1979
FACTS: It appears that on March 14, 1957, private respondent Ngo Hing filed an application
with the Great Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a
twenty-year endowment policy in the amount of P50,000.00 on the life of his one-year old
daughter Helen Go. Said respondent supplied the essential data which petitioner Lapulapu D.
Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the corresponding form in
his own handwriting (Exhibit I-M). Mondragon finally type-wrote the data on the application
form which was signed by private respondent Ngo Hing. The latter paid the annual premium,
the sum of P1,077.75 going over to the Company, but he retained the amount of P1,317.00 as
his commission for being a duly authorized agent of Pacific Life. Upon the payment of the
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insurance premium, the binding deposit receipt (Exhibit E) was issued to private respondent
Ngo Hing. Likewise, petitioner Mondragon handwrote at the bottom of the back page of the
application form his strong recommendation for the approval of the insurance application. Then
on April 30, 1957, Mondragon received a letter from Pacific Life disapproving the insurance
application (Exhibit 3-M). The letter stated that the said life insurance application for 20-year
endowment plan is not available for minors below seven years old, but Pacific Life can consider
the same under the Juvenile Triple Action Plan, and advised that if the offer is acceptable, the
Juvenile Non-Medical Declaration be sent to the Company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by
petitioner Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon
wrote back Pacific Life again strongly recommending the approval of the 20-year endowment
life insurance on the ground that Pacific Life is the only insurance company not selling the 20-
year endowment insurance plan to children, pointing out that since 1954 the customers,
especially the Chinese, were asking for such coverage (Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen Go died of influenza with
complication of broncho-pneumonia. Thereupon, private respondent sought the payment of
the proceeds of the insurance, but having failed in his effort, he filed the action for the recovery
of the same before the Court of First Instance of Cebu, which rendered the adverse decision as
earlier referred to against both petitioners.
ISSUES: 
(1) whether the binding deposit receipt (Exhibit E) constituted a temporary contract of the life
insurance in question; NO
(2) whether private respondent Ngo Hing concealed the state of health and physical condition
of Helen Go, which rendered void the aforesaid Exhibit E. YES.
HELD:  INSURANCE CONTRACT; “BINDING DEPOSIT RECEIPT.” — Where the binding deposit
receipt is intended to be merely a provisional or temporary insurance contract, and that the
receipt merely acknowledged, on behalf of the insurance company, that the latter’s branch
office had received from the applicant the insurance premium and had accepted the application
subject for processing by the insurance company, such binding deposit receipt does not
become in force until the application is approved.
PERFECTION OF CONTRACT. — A binding deposit receipt which is merely conditional does not
insure outright. Thus, where an agreement is made between the applicant and the agent, no
liability will attack until the principal approves the risk and a receipt is given by the agent. The
acceptance is merely conditional, and is subordinated to the act of the company in approving or
rejecting the application.
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MEETING OF THE MIND. — A contract of insurance, like other contracts, must be assented to by
both parties either in person or by their agents. The contract, to be binding from the date of the
application, must have been a completed contract, one that leaves nothing to be done, nothing
to be completed, nothing to be passed upon, or determined, before it shall take effect. There
can be no contract of insurance unless the minds of the parties have met in agreement.
FAILURE OF AGENT TO COMMUNICATE THE REJECTION TO APPLICANT. — The failure of the
insurance company’s agent to communicate to the applicant the rejection of the insurance
application would not have any adverse effect on the allegedly perfected temporary contract.
In the first place, there was no contract perfected between the parties who had no meeting of
their minds. Private respondent, being an authorized agent is indubitably aware that said
company does not offer the life insurance applied for. When he filed the insurance application
in dispute he was therefore only taking a chance that the company will approve the
recommendation of the agent for the acceptance and approval of the application in question.
Secondly, having an insurable interest on the life of his daughter, aside from being an insurance
agent and office associate of the branch, the applicant must have known and followed the
progress on the processing of such application and could not pretend ignorance of the
Company’s rejection of the 20-year endowment life insurance application.
CONCEALMENT OF MATERIAL FACT. — The contract of insurance is one of perfect good faith
(uberrima fides meaning good faith; absolute and perfect candor or openness and honestly; the
absence of any concealment or deception, however slight [Black’s Law Dictionary, 2nd Edition],
not for the insured alone but equally so for the insurer. Concealment is a neglect to
communicate that which a party knows and ought to communicate (Section 25, Act 2427).
Whether intentional or unintentional, the concealment entities the insurer to rescind the
contract of insurance.
CASE AT BAR. — The failure of the father who applied for a life insurance policy on the life of his
daughter to divulge the fact that his daughter is a mongoloid, a congenital physical defect that
could never be disguised, constitutes such concealment as to render the policy void. And where
the applicant himself is an insurance agent, he ought to know, as he surely must have known,
his duty and responsibility to supply such a material fact, and his failure to divulge such
significant fact is deemed to have been done in bad faith.

4. Contract of Indemnity

– White Gold Marine vs Pioneer Insurance, G.R. No. 154514. July 28, 2005

White Gold Marine vs Pioneer Insurance

G.R. No. 154514. July 28, 2005

FACTS:
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White Gold procured a protection and indemnity coverage for its vessels from Bermuda through
Pioneer. When White Gold failed to fully pay its accounts, Bermuda refused to renew its coverage and
later filed an action for sum of money against the former to recover the latter’s unpaid balance.
Meanwhile, White Gold filed a complaint against Pioneer and Bermuda for their alleged lack if sufficient
license.

The Insurance Commission and the Court of Appeals decided that Bermuda need not procure a license
for it was not an insurance business, rather a Protection and Indemnity Club. Furthermore, Pioneer is
merely a collection agent, thus it does not need a separate insurance license for that purpose.

ISSUES:

Is the respondent Bermuda, a P & I Club, engaged in the insurance business in the Philippines?

Does Pioneer need a license as an insurance agent/broker for Bermuda?

RULING:

A P & I Club is a form of insurance against third party liability, where the third party is anyone other than
the P & I Club and the members.[19] By definition then, Steamship Mutual as a P & I Club is a mutual
insurance association engaged in the marine insurance business. The test to determine if a contract is an
insurance contract or not, depends on the nature of the promise, the act required to be performed, and
the exact nature of the agreement in the light of the occurrence, contingency, or circumstances under
which the performance becomes requisite. It is not by what it is called. Basically, an insurance contract
is a contract of indemnity. In it, one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event

Yes. Although Pioneer is already licensed as an insurance company, it needs a separate license to act as
insurance agent for Bermuda in accordance to Section 299 of the Insurance Code, which states that, No
person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of
applications for insurance, or receive for services in obtaining insurance, any commission or other
compensation from any insurance company doing business in the Philippines or any agent thereof,
without first procuring a license so to act from the Commissioner.

5. Personal Contract 

– Insular Life vs Ebrado G.R. No. L-44059 (10/28/77)

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Insular Life vs Ebrado

G.R. No. L-44059 (10/28/77)

Facts:
J. Martin:
Cristor Ebrado was issued by The Life Assurance Co., Ltd., a policy for P5,882.00 with a rider for
Accidental Death. He designated Carponia T. Ebrado as the revocable beneficiary in his policy. He
referred to her as his wife.
Cristor was killed when he was hit by a failing branch of a tree. Insular Life was made liable to pay
the coverage in the total amount of P11,745.73, representing the face value of the policy in the
amount of P5,882.00 plus the additional benefits for accidental death.
Carponia T. Ebrado filed with the insurer a claim for the proceeds as the designated beneficiary
therein, although she admited that she and the insured were merely living as husband and wife
without the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts
that she is the one entitled to the insurance proceeds.
Insular commenced an action for Interpleader before the trial court as to who should be given the
proceeds. The court declared Carponia as disqualified.

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

Held: No. Petition

Ratio:
Section 50 of the Insurance Act which provides that "the insurance shall be applied exclusively to the
proper interest of the person in whose name it is made"
The word "interest" highly suggests that the provision refers only to the "insured" and not to the
beneficiary, since a contract of insurance is personal in character. Otherwise, the prohibitory laws
against illicit relationships especially on property and descent will be rendered nugatory, as the same
could easily be circumvented by modes of insurance.
When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is
governed by the general rules of the civil law regulating contracts. And under Article 2012 of the
same Code, any person who is forbidden from receiving any donation under Article 739 cannot be
named beneficiary of a fife insurance policy by the person who cannot make a donation to him.
Common-law spouses are barred from receiving donations from each other.
Article 739 provides that void donations are those made between persons who were guilty of
adultery or concubinage at the time of donation.
There is every reason to hold that the bar in donations between legitimate spouses and those
between illegitimate ones should be enforced in life insurance policies since the same are based on
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similar consideration. So long as marriage remains the threshold of family laws, reason and morality
dictate that the impediments imposed upon married couple should likewise be imposed upon extra-
marital relationship.
A conviction for adultery or concubinage isn’t required exacted before the disabilities mentioned in
Article 739 may effectuate. The article says that in the case referred to in No. 1, the action for
declaration of nullity may be brought by the spouse of the donor or donee; and the guilty of the
donee may be proved by preponderance of evidence in the same action.
The underscored clause neatly conveys that no criminal conviction for the offense is a condition
precedent. The law plainly states that the guilt of the party may be proved “in the same acting for
declaration of nullity of donation.” And, it would be sufficient if evidence preponderates.
The insured was married to Pascuala Ebrado with whom she has six legitimate children. He was
also living in with his common-law wife with whom he has two children.